Document of The World Bank

- This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

Report No: 32255-NG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 12.0 MILLION (US$ 18.10 MILLION EQUIVALENT)

TO THE

FEDERAL GOVERNMENT OF NIGERIA

FOR A

STATE GOVERNANCE AND CAPACITY BUILDING PROJECT

May 31,2005

Public Sector Reform and Capacity Building Unit Country Department 12 Africa Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective April 30,2005)

AEA AGS BATMIS CAS CF C F A A C o A CPAR CPS CRP CRS DflD E C ERGP FAD FCT FGN FM FMF FMR FPM GAAP HFD HR H R M I S I C R I C T IDA IFMIS IGR IPSAS JISU LAN LGA LGAD

Currency Unit = Nigerian Naira NGNl .O. = US$0.00752 US$ 1.0 = NGN 132.95043

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS Activities Executing Agency Accountant General o f the State Budget and Treasury Management Information System Country Assistance Strategy Community Foundation Country Financial Accountability Assessment Chart o f Accounts Country Procurement Assessment Report Country Partnership Strategy Core Reform Program Cross River State The Department for International Development o f the UK Government European Commission Economic Reform and Governance Project Finance and Accounts Department Federal Capital Territory Federal Government o f Nigeria Financial Management Federal Ministry o f Finance Financial Monitoring Report Financial Procedures Manual Generally Accepted Accounting Principles Home Finance Department o f the Federal Ministry of Finance Human Resource Human Resource Management Information System Implementation Completion Report Information and Communication Technology International Development Association Integrated Financial Management Information System Internally Generated Revenue International Public Sector Accounting Standard Joint Bank Group Interim Strategy Update Local Area Network Local Government Authority Local Government Affairs Department o f the Ministry o f Inter-governmental Affairs, Youth Development, and Special Duties

MDA MDG MF MTEF MYBF N D D C NEEDS N P C U OAGF OAGS O & M OSAG PEM PETS PFM PFMU PHRD Grant PIM PPC SA S A D SAG SBD ssc SCoA SEEDS SGCB SHoA SOE SPCU TFIGC TOR UNDP VAT WAN WBI

FOR OFFICIAL USE ONLY Ministries, Departments and Agencies Mil lennium Development Goals Ministry o f Finance (at the state level) Medium Term Expenditure Framework Multi-Year Budget Framework Niger Delta Development Commission National Economic Empowerment and Development Strategy National Project Coordination Unit Office o f the Accountant General o f the Federation Office o f the Accountant General o f the State Operation and Maintenance Office o f the State Auditor General Public Expenditure Management Public Expenditure Tracking Survey Public Finance Management Project Financial Management Unit Japan Policy and Human Resources Development Fund. Project Implementation Manual Public Procurement Commission Special Account State Affairs Department in M o I G A State Auditor General Standard Bidding Documents State Project Steering Committee Standard Chart o f Accounts State Economic Empowerment and Development Strategy State Govemance and Capacity Building Project State House o f Assembly Statement o f Expenses State sub-proj ect Coordination Unit Task Force on Inter-governmental Collaboration Terms o f Reference United Nations Development Programme Value Added Tax Wide Area Network World Bank Institute

Vice President: Gobind T. Nankani Country Director: Hafez Ghanem

Sector Manager: Helga Mul ler Task Team Leader: Manga K u o h

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.

NIGERIA STATE GOVERNANCE AND CAPACITY BUILDING PROJECT

TABLE OF CONTENT

A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 COUNTRY AND SECTOR ISSUES ............................................................................................. 1 RATIONALE FOR BANK INVOLVEMENT ................................................................................. 2 HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES ..................................... 3

PROJECT DESCRIPTION .................................................................................................. 3 LENDING INSTRUMENT ......................................................................................................... 3 PROJECT DEVELOPMENT OBJECTIVES AND KEY INDICATORS ................................................ 3

1 . 2 . 3 .

1 . 2 .

B .

3 . 4 .

PROJECT COMPONENTS AND CAPACITY BUILDING STRATEGY ............................................. 4 LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN ............................................... 7

5 . ALTERNATIVE CONSIDERED AND REASONS FOR REJECTION .................................................. 8 C . IMPLEMENTATION ........................................................................................................... 9

1 . PARTNERSHIP ARRANGEMENTS ............................................................................................ 9 2 . INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS ..................................................... 9 3 . MONITORING AND EVALUATION OF OUTCOMES/RESULTS .................................................. 10 4 . SUSTAINABILITY ................................................................................................................ 11 5 . CRITICAL RISKS .................................................................................................................. 12 6 . LOANS/C.REDIT CONDITIONS AND COVENANTS ................................................................... 12

APPRAISAL SUMMARY .................................................................................................. 12 1 . ECONOMIC AND FINANCIAL ANALYSIS ............................................................................... 12 2 . TECHNICAL ........................................................................................................................ 13 3 . FIDUCIARY ......................................................................................................................... 13 4 . SOCIAL ............................................................................................................................... 14 5 . ENVIRONMENT ................................................................................................................... 14 6 . SAFEGUARD POLICIES ........................................................................................................ 15 7 . READINESS FOR IMPLEMENTATION .................................................................................... 15 8 . COMPLIANCE WITH BANK POLICIES ................................................................................... 15

D .

ANNEXES Annex 1: Country and Sector Background ........................................................................... 16 Annex 2: Major Related Projects Financed by the Bank and /or other Agencies ................ 23 Annex 3: Result Framework and Monitoring ...................................................................... 24 Annex 4: Detailed Project Description ................................................................................ 28 Annex 5: Estimated Project Costs ........................................................................................ 41 Annex 6: Institutional and implementation arrangements ................................................... 42 Annex 7: Financial Management and Disbursement Arrangements ................................... 45 Annex 8: Procurement Arrangements .................................................................................. 53

Annex 10: Safeguard Policy Issues ...................................................................................... 59 Annex 9: Economic and Financial Analysis ........................................................................ 58

Annex 11: Project Preparation and Supervision ................................................................. 60 Annex 12: Documents in Project File .................................................................................. 61

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Annex 13: Statement of Loans and Credits .......................................................................... 62 Annex 14: Country at a Glance ........................................................................................... 64

TECHNICAL APPENDIX: ACTIVITIES UNDER THE CORE REFORM PROGRAM .............................. 66

MAP IBRD NO . 33458

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Borrower Beneficiary States IDA Other Donors Financing Gap

NIGERIA

State Governance and Capacity Building Project

Project Appraisal Document

Afr ica Regional Office AFTPR

Local Foreign Total 0.00 0.00 0.00 0.00 0.00 0.00 6.30 11.80 18.10 0.00 0.00 0.00 0.00 0.00 0.00 06.30 11.80 18.10

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Telephone 09-2346291-4, 2346951-4 09-2346928,2346930

Addresses and ( Fax Director, MULT - 09-2343609

The Federal Minister o f Finance

Annual Cumulative

The Governor o f Bauchi State

5.6 5.8 4.3 2.0 0.4 5.6 11.4 15.7 17.7 18.1

The Governor o f Cross River State

The Governor o f Kaduna states

Intact Persons: Address: Federal Ministry o f Finance Ahmadu Bello Way, Central Business District, Abuja Office o f the Executive Governor, Government House, Yakubun Bauchi Road, Bauchi Office o f the Executive Governor, Governor’s Office, Hope Waddell Avenue, Calabar Office o f the Executive Governor, Sir Kashim Ibrahim House, Government House, Kaduna

Estimated Disbursements ( Bank FY/U$

077-543821,542611,542238 077-542611, 543843

087-232786,235050,236400 I 087-232786,

062-417232,417229,417817 1 062-410790

E-mail

dduke@crossriverstate.com

Project implementation period: October 2005 - September 2009 Expected effectiveness date: October 2005 Expected closing date: March 201 0

Significant, non-standard conditions, if any, for: None. Board presentation: None. Grant effectiveness: None.

Covenants applicable to project implementation:

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues 1.1 Economic Situation and Poverty. Nigeria i s the largest country in West Africa with a GDP o f about US$50 bi l l ion (2003) and a per capita income o f about US$320. It i s highly dependent o n o i l which provides about seventy five percent o f government revenues and ninety five percent o f export earnings. Growth has been highly volatile and averaged just over 3 percent annually over the last decades-barely enough to keep up with population growth. Sixty percent o f Nigerians l ive on less than $1 per day. Nigeria services only about hal f o f its annual external debt obligations o f over $3 bi l l ion (20 percent o f o i l revenues). For several states, full debt service would leave l i t t le resources for other expenditures.

1.2 Political Developments and the New Emphasis on Reforms since 2003. The successful completion o f the 2003 presidential, gubernatorial, and legislative elections (at the national and state levels) was a landmark because, for the first time since the 1960’s, Nigeria achieved a transition from one civilian government to another civilian government through contested elections. Right after the 2003 elections, President Obasanjo announced ambitious reforms aimed at laying the foundations for economic growth, employment creation, poverty reduction and more transparency and accountability in the management o f public resources. In July 2003, he appointed a strongly reform minded economic team at the Federal level which quickly developed a comprehensive program: the National Economic Empowerment and Development Strategy (NEEDS). The NEEDS main elements include: (i) promoting macroeconomic stability; (ii) accelerating privatization and liberalization o f the economy; (iii) reforming the public service, including reforming public expenditure, budget and c iv i l service; (iv) fighting corruption, improving government transparency and accountability; and (v) strengthening basic service delivery. Important early measures have included deregulating the downstream petroleum sector and committing Nigeria to the Extractive Industries Transparency Initiative (EITI), reinvigorating the anti-corruption efforts through the establishment o f the Economic and Financial Crimes Commission (EFCC) to complement the work o f the Independent Corrupt Practices and other Related Offenses Commission (ICPC), and strengthening macroeconomic policies (adopting a fiscal pol icy rule, reducing the fiscal deficit, limiting recourse to monetary financing o f the government deficit, and preparing a Fiscal Responsibility Bill). The new Federal administration also intensified the dialogue with the states on economic development and poverty reduction issues encouraging each state to develop its own State Economic Empowerment and Development Strategy (SEEDS).

1.3 Federalism and Intergovernmental collaboration. Today, there are thirty six states in Nigeria, in addition to the Federal Capital Territory. The 1999 Constitution increased the responsibility to the states in the delivery o f social services and the provision o f infrastructure. However, most powers accorded to the states are exercised concurrently with the FGN. This Concurrent Legislative List continues to cause debates over which tier o f government, federal or state, is best placed to deal with various areas o f pol icy (e.g. education, police).

1.4 States Finance. In spite o f initiatives taken by a number o f states in recent years to increase revenue mobilization, the states remain dependent o n allocations o f o i l revenue through the Federation Account, the pool into which o i l and al l VAT revenues are paid prior to

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distribution to the three tiers o f government. They rely on Federation Account transfers for at least three quarters o f their total budget revenues. Since the late 1990’s, boosted by the o i l boom and the depreciation o f the Naira, states have enjoyed strong revenue growth. At the same time, expenditures have risen sharply as states have been obliged to fol low the FGN’s pay increases in 1998 and 2000 (totaling a two and hal f times increase o f c iv i l service pay and allowances), leading to a wage bil l increase exacerbated by overstaffing and payroll fraud.

1.5 W h i l e as a group, states do not appear to be in a fiscal crisis yet thanks to strong o i l revenues, their public finances are overextended, and highly vulnerable to a weakening o f o i l prices. A number o f states, in launching ambitious capital spending programs, have become committed to levels o f spending at times exceeding available resources, and have filled the gap through short term domestic borrowing, at high nominal interest rates. In their efforts to service their obligations, some states have built up fresh arrears to contractors and run late in meeting their monthly payrolls. What has been missing for effective fiscal pol icy has been clear and coherent development strategies for the states, which meets both poverty reduction and growth expectations o f the populations and addresses weaknesses in the machinery and capacity o f the state. However, this i s now changing with the development o f the SEEDS in particular.

1.6 The Need for a Sustained Capacity Building Effort. All states saw their governance capacity weakened over the years through failure to modernize public management systems, lack o f training, proliferation o f public agencies and enterprises, patronage based hiring policies, and systemic corruption. With excellence unrecognized, many performing c iv i l servants le f t the service and young graduates with solid education and professional ambitions looked for employment in the private sector and abroad. Even in a state l ike Cross River which appears to have resisted the erosion o f skills better thanks to a longer administrative tradition, the maintenance o f a sufficiently skilled c iv i l service has not been possible. One o f the reason is that state c iv i l service training institutions are in decay and have not kept up with the evolution o f business processes and techniques in modern public institutions. Also, in most states, the responsibility for setting training priorities and selecting people for training has been overly centralized in the Off ice o f the Head o f Service while it should rest more with the M D A s to facilitate a strong link between staff training and the skills required to meet the operational objectives o f the service.

1.7 The Need for a Comprehensive and Realistic Public Sector Reform Strategy. In face o f serious institutional capacity constraints, states seeking to implement coherent economic development strategies need to develop a comprehensive and yet realistic public sector strategy. This entails addressing: (a) ineffective planning and budgeting, and the lack o f transparency and accountability in the use o f public resources including inadequate procurement practices; (b) the weak human resource management system which l imits a state’s ability to keep the staff strength o f the c iv i l service in l ine with resources constraints and efficiency requirement; and (c) the need for a continuous effort to develop staff skills to enable good performance in the c iv i l service There is also a need for improvements in the broad area o f inter-governmental relations.

2. Rationale for Bank involvement 2.1 There are two principal reasons for the IDA to support public management reforms in the states. First, the state (and the local government which fal l under its purview) i s the tier o f

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government principally responsible for the delivery o f basic services to the population. Therefore, the attainment o f Nigeria poverty reduction objectives and more generally the MDGs, which the intemational community including the Bank are firmly committed to achieve, largely depends o n state governments’ capacity to discharge their basic service delivery mandates in an efficient and accountable manner.

2.2 Second, the Bank’s involvement wil l bring in wide-ranging intemational experiences and needed technical assistance to the reform efforts o f participating state governments. The Bank has accumulated substantial knowledge and experience on public sector reforms including public financial management and human resource management. State governments wil l benefit from IDA support to correct shortcomings o f existing approaches to public sector reforms.

2.3 Finally, the Bank’s involvement wil l bring needed financial resources to help fund the costs o f reforms. W h i l e state governments have put sizeable resources to improve their governance system in the past years, there st i l l exists considerable financing gap to meet the existing enormous governance challenges given the damages done through many years o f mil i tary rules and mismanagement o f resources. Therefore, the Bank financing is much needed to complement the own reform efforts o f the state governments.

3. Higher level objectives to which the project contributes 3.1 The Project falls squarely under the objective o f the NEEDS and has been developed in response to requests from some fifteen state governments. I t i s also fully consistent with the objectives and approach o f the CPS which (i) includes enhanced transparency and accountability for better governance as one o f the areas o f focus for partnership; (ii) emphasizes selectivity in Bank support to states; and (iii) recognizes the need for sequencing and phasing reforms.

B. PROJECT DESCRIPTION 1. Lending instrument 1.1 The lending instrument is a technical assistance/investment loan. The essence o f the Project i s on institution-building and capacity strengthening with the assistance o f various types o f expertise from outside the public service and the necessary accompanying information and communication technology. Hence the use o f a TA which i s best suited to help build capacity in organizations directly concerned with formulating and implementing economic and institutional reforms. A Leaming and Innovation Loan was discarded because i t would not have allowed the necessary broad coverage o f governance issues nor the total amount o f financing requested.

2. Project development objectives and key indicators 2.1 DeveZopment objectives. The Project development objective i s to enhance efficiency and accountability in the management o f financial and human resources in participating states in l ine with state poverty reduction strategies.

2.2 following:

Key indicators. The key performance indicators at the end o f the Project are the

The target share o f budget allocations to priori ty poverty reducing sectors/programs as defined in SEEDS i s met.

0

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0

0

0

The deviation o f actual spending from approved budget in participating states does not exceed thirty percent. The time taken to prepare audited annual reports in participating states i s reduced to less than six months There i s no significant discrepancy between payroll and a clean nominal r o l l

3. Project Components and Capacity Building Strategy 3.1 The three participating states (Bauchi, Cross river and Kaduna) have been chosen among six states which where identified during Project preparation through a transparent competitive process based on init ial diagnostic/proposal documents presented by thirteen states out o f twenty four invited. The four criteria utilized in evaluating the init ial proposals were (i) the quality o f diagnosis o f existing constraints, (ii) the overall reform program for the state’s public sector, (iii) the relevance o f the activities proposed for IDA consideration, and (iv) track record between 1999 and 2002. The selection was further refined in light o f the states performance in 2003 and 2004 and the NEEDS and CPS which both required an even greater focus o n a small number o f performing states.

3.2 The Project i s designed around two components: a Core Reform Program (CRP) to be implemented in al l participating states; and State Specific Programs (SSP) selected by the states. Annex 4 provides a more detailed description o f the Project with costs summarized in Annex 5. In addition, a Technical Appendix presents the sets o f activities to be carried out under each subcomponent o f the CRP.

Project Component #1: The Core Reform Program (CRP)- US$ 13.8 million (average of US$4.6 per state)

3.3 This largest component o f the Project aims to increase the ability o f Bauchi, Cross River, and Kaduna states to improve the development and implementation o f public policies and programs. To that end, i t wil l (i) help rebuild basic systems o f public financial and human resource management that meet a minimum standard in terms o f efficiency, accountability and transparency; (ii) promote the standardization o f PFM procedures and o f financial data production among the states o f the Federation to allow appropriate data aggregation and analysis; and (iii) thereby, facilitate the formulation and implementation o f national fiscal policies.

3.4 In each participating state, the Project will finance an integrated package o f technical assistance, equipment and training to support the following set o f reforms:

0 Adopting a new public financial management legislation that meets the standards o f modem financial management in terms o f relevance, comprehensiveness, transparency, and accountability. The new legislation already drafted for the FGN will serve as a guide for the new state legislations;

0 Reforming the budget preparation. The Project wil l finance the development and institutionalization o f a simplified multi-year budgeting framework (MYBF) for annual budget preparation, leading to more sustainable budget implementation, less “feast or famine”, and no run up o f short term debt. The objective wil l be to present to the State

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House o f Assembly annual budgets which are part o f the MYBF starting from the budget for FY 2008 at the latest. The MYBF should state policies and priorities, and fiscal objectives clearly in a 3-year perspective for both revenue and expenditure (recurrent and capital). The first year o f the MYBF, which wil l include more detailed infomation, wi l l be the annual budget to be enacted for the corresponding year. In addition, budget monitoring wil l be enhanced by publishing monthly statements o n budget execution by ministries;

Strengthening the accounting, expenditure control, and financial reporting functions by (i) implementing the Standard Chart o f Account (SCoA) being developed by the states' Accountants General and the Accountant General o f the Federation; (ii) overhauling existing processes such as commitment controls and payment authorizatiodapproval; and ,(iii) improving financial reporting by the ministries and the State government as a whole.

Strengthening the external audit function. The Project will help modernize and strengthen external audit procedures and performance. This wil l include, adjusting the current legislations if necessary, clearing the backlog, and developing the capacity o f audit personnel with the assistance o f experienced auditors from the private sector;

0 Implementing a small to medium size financial management information system focusing o n the budget and treasury functions. The objective wil l be to improve efficiency, transparency and comprehensiveness using modern ICT. The Budget and Treasury M I S (BATMIS) wil l be implemented in a phased manner and, when hl ly in place, support planning and budgeting, transaction processing, and reporting o n the use o f financial resources. The system wil l be integrated in the sense that i t wil l offer a reliable and unified database to and from which al l financial data wil l f low and which wil l be shared by al l users. The B A T M I S will be a small to medium-range system using technologies that are simple and user friendly, utilizing o f f the shelf application software packages with appropriate customization.

0 Modernizing human resource management by focusing o n the basic functions o f personnel registry management and establishment control and in coordination with the Ministry o f Finance. The activities supported wil l include (i) staff audits and pay parades when necessary, (ii) cleaning and reorganization o f personnel records, and (iii) implementing an automated and unified human resource management information system (HRMIS) for the civil servants. The H R M I S will have a proper interface with the B A T M I S (if not one integrated module o f BATMIS) for consistency between nominal ro l l and payroll.

0 Implementing an extensive training program including (i) the adoption o f a training pol icy statement by the State Government; (ii) professional training for officers and middle managers f rom the central economic ministries and selected sector ministries, covering key areas o f economic and financial management in which the Project seeks substantial improvements (budgeting, accounting and reporting, payment management, and human resource and payroll), and (iii) a computer skills enhancement program for different categories o f c i v i l servants in the eight to ten M D A s associated in the Project.

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The training wil l be provided locally by Nigerian training institutions with the assistance o f consultants and Project staff.

Component #2: States Specific Reform Programs - US$1.9 million

3.5 During Project preparation, the states expressed a strong desire for support in areas o f reform not included in the CRP but which are important to improve govemance and service delivery in their particular context. This wil l consolidate the ownership o f the Project by the state governments. I t was agreed that the Project wil l support additional selected institutional reform and capacity building initiatives identified by the states (i) either before the beginning o f the Project (as indicated in the next paragraphs 3.6 and 3.7; or (ii) during Project execution as the needs emerge in the context o f the implementation o f their respective SEEDS. For the later, the Project includes a provision o f US$ 170 equivalent per participating state.

3.6. Bauchi and Kaduna states are committed to modemizing their tax payers identification and data management systems in order to strengthen internally generated revenues (IGR) which remain very l o w (8 percent and 17 percent o f total revenue in 2003 for Bauchi and Kaduna respectively). The Project wil l help the two states (i) verify and expand the existing tax payer database including through in-house verification and market surveys and assessments; and (ii) implement a basic I C T infrastructure and staff training necessary for maintaining a sound and reliable tax administration database.

3.7 Cross River State has selected: (a) strengthening o f the Management Development Institute as a key element o f CRS’s public service skills development program; and (b) improvement o f judicial service delivery through: (i) revision o f the rules o f c iv i l procedure applicable in Magistrate courts and High Courts in CRS; (ii) a comprehensive skills development program for judicial and administrative officers o f the High Courts and Magistrate Courts; and (iii) implementation o f a model court administration system in two pi lot courts (one Magistrate Court and one High Court).

Activities to be identified (national level)

3.8 In addition to financing the activities relating to the two Project components above, the Project includes a provision o f US$ 1 mi l l ion equivalent to meet two types o f needs. First, there wil l be a need to pave the way for reforms that other states will have to embark o n in line with their respective SEEDS. Indeed, in the growing number o f reformist states, meeting the challenges o f effective use o f public resources wil l require developing and implementing institutional and pol icy reforms similar to those included in the CRP. Second, there will be a need to finance selected studies and consensus building activities in the areas o f inter- governmental collaboration and fiscal federalism. The provision wil l be managed by the NPCU under the supervision o f the Federal Minister o f Finance and in consultation with IDA.

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Project Capacity Building Strategy

3.9 The Project has been designed with the belief that (a) capacity building requires a multi- faceted and integrated effort sustained over the medium to long term; and (b) solid first steps can be achieved in a reasonable period o f time provided the design o f operations includes (i) the creation o f an enabling environment through strengthening demand for change and good performance; and (ii) the strengthening o f the link between the development o f knowledge and sk i l ls and the operational deliveries o f organizations. The role o f the SHoA in the implementation o f key components such as budget reform and strengthening o f external audit in each participating state, the participation o f representatives o f the c iv i l society and the SHoA in state steering committees, and the participatory and decentralized nature o f the Project implementation arrangements (including within the States) are meant to consolidate the demand for change and good performance and to broaden the ownership o f the reforms.

3.10 O n the supply side, the Project acknowledges the erosion o f the training capacity within the state c iv i l services over the years. Building on recent efforts, the Project (i) stresses the need for a wel l thought through training pol icy as a condition for effective skills development; (ii) includes training o f trainers in areas where training capacity i s limited; (iii) focuses on training locally which i s more cost effective than training abroad; and (iv) seeks to support the rehabilitation o f one training institution (the Management Development Institute in Calabar, CRS) which has a vocation to serve several states in the Eastern parts o f Nigeria. The main Project training activities are indicated in the Technical Appendix.

3.11 Finally, the Project establishes a strong link between training, institutional changes and operational objectives. Whi le the states have developed large staff training proposals for the c iv i l service, the Project has chosen to focus on M D A s and functions that are directly concerned by the reforms targeted in the various components. This i s in l ine with the findings o f training need assessments conducted during Project preparation in Cross River and Kaduna States. The knowledge and sk i l ls development activities under the Project (combining on-the-job traininghoaching, specific technical skills development workshop and seminars, knowledge sharing and dissemination activities etc.) are not packaged as isolated and discrete “training components” but rather integrated in each component as one element necessary to bring about lasting changes in the aspects o f public management addressed by the Project. As a consequence, the ten percent o f project costs grouped under the “training column” o f the costing tables is only partly representative o f the sk i l ls enhancement effort planned under the Project.

4. Lessons learned and reflected in the project design 4.1 The Project i s the first o f i t s kind for the Bank in Nigeria and, at the federal level, the ERGP, approved o n December 14, 2004, is only in i t s first year o f implementation’. However, the Bank has been involved in state level sector projects in Nigeria over a long time (especially rural development, education, infrastructure, health). I t has also capitalized from experience sharing with other donors who have been supporting state level governance reforms, most notably DFID and the EC. A number o f lessons learned have been incorporated in the Project.

’ The ERGP supports financial management and procurement reforms, the restructuring and rightsizing o f selected k e y federal agencies, the reform o f the pension management system, and the strengthening o f statistics.

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4.2 Selecting committed partners. The Bank’s global experience is that governance reforms are unlikely to b e sustained without strong political commitment. In Nigeria, while some states remain captive to patrimonial politics and are s t i l l trapped in the systemic corruption paradigm, this picture i s by no means uniform, and there i s an increasing number o f states which are attempting to modernize and improve service delivery. This lesson has been built directly into the Project through the selection process o f the participating states which included the review o f reforms engaged by the states and political commitment to further reforms.

4.3 Focusing on the basics first and phasing institutional changes. Experience elsewhere in Afkica points to the importance o f getting the basics o f public management and governance right before embarking on ambitious reforms such as performance management in the civil service or program budgeting. In addition, the preparation o f the Project and the preparation and launching o f the ERGP have confirmed the strong need for technical expertise from outside the civil service (federal and state levels alike) in order to achieve significant institutional changes while steps are being taken to build the staff capacity within the public service. An underlying bel ief i s that a second generation o f reforms wil l be needed in the participating states upon effective implementation o f the basic reform package included in the CRP.

4.4 Capitalizing on similarities and implementing common reform packages. The Project economizes o n resources by supporting the development o f common systems across states, in key areas o f PFM. The development o f common systems will also facilitate the subsequent rol l ing out o f the reforms into a large number o f states. Finally, the experience o f the SLGP supported by DfID has shown that state officials who are presented with a coherent set or menu o f reforms are more focused and effective in their reform efforts than those who have to develop and sell reform packages in their political environment totally by themselves.

4.5 Managing the in formation and communication technology (IClJ properly. The global experience also points to the shortcomings o f technology driven institutional development efforts characterized by oversized and too complex I C T solutions; and insufficient involvement o f key operational units and staff training. Thus, the Project (i) stresses the pol icy reforms and institutional changes that the new I C T will support; (ii) emphasizes the need to design the I C T solutions realistically in l ine with the actual needs o f the states and the roles o f the concerned operational units; and (iii) considers sk i l ls development and technical support from a central I C T team as key elements of success o f change management.

5. 5.1 Given the widespread pol icy and institutional weaknesses in public service in Nigerian states, a key strategic choice has been to focus o n some o f the more amenable problems where there i s a higher probability o f achieving lasting results. Hence the Project focuses on basic public finance management sub-systems together with establishment control and payroll. An alternative project concept considered included a wider core reform package tackling procurement, debt management, and revenue mobilization as we l l as full fledged state c iv i l service reform including the streamlining o f mandates and organizational structures o f MDAs and the overstaffing o f state administrations. In principle, this would have given more coherence to the design o f a state public management reform as a whole. However, such an

Alternative considered and reasons for rejection A wider CRP.

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approach would have been over ambitious from an operational point o f view and politically unfeasible in many cases.

5.2 A project with a larger number of participating states. I t has been rightly observed that there should be a “critical mass” o f states embarking on common key governance reforms in order to achieve substantive and lasting changes in the way state governments function and deliver public services, and in the way fiscal federalism i s practiced in Nigeria. During Project preparation, i t was envisaged to include six to eight participating states, knowing that the reforms included in the C W need to be implemented in many more State governments. However because Bank and other donors’ experience with projects involving a large number o f states point to implementation and supervision difficulties resulting largely f rom low institutional capacity, i t was felt that this f i rst project o f its kind should be limited to three states and that a similar lending operation should be considered a year or two after the launching o f this project.

C. IMPLEMENTATION

1. Partnership arrangements 1.1. Nigeria and Bank dialogue on state level public policies and governance intensified in 2004 with the launching o f the preparation o f SEEDS. This dialogue i s conducted jo int ly with other donors and the Bank has the opportunity to continue to share experience especially with the DFID, which i s already working on improving governance in four states (Benue, Jigawa, Ekiti and Enugu) and the E C which i s seeking to support governance capacity in further five (Abia, Cross River, Gombe, Kebbi, and Osun).

1.2 The Project wil l complement the efforts being deployed in several sectors with the support o f the intemational community including other Bank assisted projects (education, health, infrastructure - see Annex2). Indeed, the institutional reforms (including increased transparency, predictability, and accountability), and capacity enhancement activities that the Project will support at the center in state c iv i l service are designed to provide a more coherent and effective pol icy framework and more efficient operational processes that service delivery oriented sector program wil l benefit from. For instance, the reforms in budget preparation and execution will be instrumental in improving resource allocation among (and within) sectors and monitoring the effectiveness o f public spending in the social and infrastructure sectors.

2. Institutional and implementation arrangements 2.1 Arrangements for the Individual State Public Sector Management Reforms component. The states wil l have the primary responsibility for the implementation o f the public management reforms included in their respective subprojects. Activities wil l be carried out by existing agencies according to their respective areas o f responsibility. To guide, support and coordinate the Activities Executing Agencies (AEAs) in each participating state, there wil l be (i) a State Steering Committee (SSC) on governance reforms chaired by the Govemor and including representatives o f the legislature and the c iv i l society; and (ii) a State Project Coordination Unit (SPCU) located in one o f the lead AEAs. The SPCU wil l be responsible for the day-to-day monitoring o f Project implementation in the state. It wil l be headed by a Coordinator with the rank o f a Director or above and will be supported by a team with expertise in project

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management, procurement, ICT, and office management. implemented over a period o f four years.

State Project components wi l l be

2.2 A generic presentation o f the implementation responsibilities for each component o f the CRP is indicated in Annex 4. Because skilled staff are in limited number in the states civil service, the Project makes resource available to finance non c iv i l service staff and consultants who wil l support the SPCUs in the implementation o f their respective subprojects. This wil l be in addition to the Project resources allocated for the equipment, travel and the functioning o f the SPCU during the four years o f Project implementation. The average allocation under the Credit for the equipment, staffing, consultants support, travel and functioning o f a SPCU during a period o f four years i s estimated at U S $ 360,000 equivalent per state.

2.3 With respect to financial management, the Project Financial Management Unit (PFMU) which has been established in the Office o f the Accountant General o f each state wil l be responsible for managing the financial affairs o f the Project at the state level, including ensuring compliance with the financial management requirements o f the Bank and the state government. The PFMUs are also staffed with Intemal Auditors who wil l be responsible for the Project internal audit.

2.4 Arrangements for Coordiizatioiz and Support at the National Level. The overall Project coordination and the support to participating states in the implementation of their respective subprojects wil l be the responsibility o f a National Project Coordination Unit (NPCU) located in the Multilateral Institutions Department o f the Federal Ministry o f Finance (FMF/MULT). The Project includes a provision o f US$ 263,000 equivalent for the hnct ioning o f the NPCU. The N P C U wil l (i) provide technical support as requested by the states; (ii) conduct implementation monitoring missions and mid-term reviews; and (iii) coordinate, consolidate, and disseminate the information fi-om various components implementing agencies. The N P C U will include public finance management/ICT specialists to assist the states specify, procure and implement the BATMIS and HRMIS and, together with the contractors, provide training and technical support to the state subproject implementation teams. Staff dedicated from the Finance and Accounts Department o f the FMF wil l be responsible for managing the financial affairs o f the Project at the NPCU level, including ensuring compliance with the financial management requirements o f the Bank and the FGN. FAD/FMF will be staffed by relevant qualified accountants. They wil l maintain adequate FM arrangements to support the deployment o f Project resources in an economic, efficient and effective manner to achieve the stated development objectives. The Project Intemal Auditors at the FMF will perform modem internal audit functions for the N P C U activities.

3. Monitoring and evaluation of outcomes/results 3.1 Monitoring and evaluation is a specific area o f focus o f the Project, due to i t s importance in strengthening public administration, and the nature o f the Project that involves multiple AEAs. Performance monitoring will be based o n performance indicators as included in Annex3, as wel l as work programs to be transmitted to the N P C U annually. Special attention wil l be given to monitoring progress on staff sk i l ls development. In each participating state, the Office o f the Head o f C iv i l Service will have primary responsibility for monitoring the training activities and to report annually on achievements. Moreover, annual reports o n sub-project implementation

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will be transmitted to the SHoA. Finally, another feature o f the monitoring arrangements wil l be a peer review mechanism through which progress Project implementation in a participating state will be assessed by a team including officers from the NPCU and representatives o f other participating states to facilitate experience sharing.

3.2 The Project wil l be subject to a Mid-Term Review and Implementation Completion Report (ICR), which wil l both be joint ly prepared by IDA, the NPCU, and the SPCUs. Results o f these reviews will be discussed in each state before being presented to the State govemors and the FGN.

4. Sustainability 4.1 The reforms supported by the Project are expected to have a lasting impact on public management in the participating states and to showcase the benefit o f increased accountability and transparency. The Project design provides reasonable assurances regarding the sustainability o f the activities supported in three ways: (i) the proposed new public management systems and policies are relevant to the needs o f the states in the medium to long term as they face increasing development challenges and a more vocal citizenry that expects results and quality public service; (ii) the modular nature o f the changes to be supported enable a phased approach and a pace adjustable to local circumstances without backtracking; and (iii) the emphasis on staff training and internalization o f new processes and systems in each component and sub-component o f the Project will consolidate the ownership o f the reforms by the state administrations.

4.2 In spite o f the above, two sustainability issues remain. First, whether the States will maintain a strong political commitment for reforms through the Project implementation period, given that nationwide elections are to be held in 2007. A mitigating factor is that while the govemors o f the participating States wi l l not be eligible because o f the constitutional two-terms limit provision, their respective successors are likely to be members o f their teadparty because o f the general good perception o f the current administrations in these states. Also, the involvement o f the SHoAs in the Project will l ikely provide for a steady demand for reforms from the legislature after the elections.

4.3 The second issue relates to the financing o f recurrent costs. For the gains from the investments in modem public management systems to be sustainable, governments wil l have to devote more resources than in the past to the running o f government, particularly to regular maintenance and renewal o f equipment, and the allocation o f funds for regular staff training. This i s especially true in the area o f I C T where there are license fees to be paid, periodic updating o f applications to be financed, and the capacity o f system operating staff maintained in an environment where I C T specialist trained by the state administration wil l find it difficult to ignore more attractive compensation in the private sector. However, the Project’s support for improved budgeting should increase state governments’ capacity to make provision for Operation and Maintenance (O&M) which are traditionally under funded. I t was also agreed that the implementation o f the MYBF and the B A T M I S will require the recruitment o f young university graduates in a number and under arrangements that facilitate their retention.

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Elections scheduled for 2007 brings less re fo rm minded teams to power in the states

Commitment to re fo rm within a State i s uneven, and bureaucratic stakeholders favoring the status quo s low implementation Highly variable o i l revenues derail re form because o f l o w state revenues or by leading to excessive increases in spending

5. Critical risks

Med ium Careful selection o f the three participating states which have a longer track record o f re form initiatives. Participation o f representatives o f the legislature and the c i v i l society in the SSC. Broad participation and empowerment o f state officials including through intensive training to new business processes and change management.

Enactment o f the Fiscal Responsibility L a w at the national level et applicability o f the l a w in the states. Development o f a MYBF that encourages states to smooth o i l price cycle by saving excess revenues.

Substantial

Substantial

6. Loandcredit conditions and covenants 6.1 Conditions of disbursement to support public sector reforms in a participating state under the Credit include (i) the signing o f a subsidiary agreement between the government o f a participating state and the FGN; and (ii) the adoption o f the PIM by the participating state.

D. APPRAISAL SUMMARY

1. Economic and financial analysis 1.1 Expected benefits o f operations o f this kind in terms o f fiscal savings, effectiveness and efficiency will only fully materialize in the medium term and cannot be attributed to a single action, but a combination o f reforms. However, the positive contribution the Project will have o n state finances and economic conditions can be summarized as follows.

0 The Project provides a means to better budgeting, and thus potentially better use o f public resources. The advantage o f a MYBF is that i t provides a fi-amework within which overall budget magnitudes and sector allocations can be planned, enabling govemments

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to escape from the incremental budgeting followed by actual cash budget at the execution stage with substantial discrepancies with initially stated priorities. The MYBF will become an essential tool for governments once i t becomes normal practice in al l tiers o f government to save excess o i l revenues. The MYBF is also a tool to enable SEEDS priorities to be better reflected in annual budgets, and also to rebalance as between current and capital spending and between the wage bil l and non-wage O&M. There i s a significant pay-off implementing modem I C T based HR management systems when the transfer o f data to the new system i s accompanied by an independent staff audit and followed by appropriate control mechanisms. For example, in one o f the DFID supported states, HR system reform revealed payroll fraud o f the order o f 25 percent o f the total wage bill, in the form o f ghost workers, improper hires and allowance abuse.

2. Technical 2.1 The Project concept and the design o f the main project components are based on analytical work included in the State and Local Governance Study and the State Finance Stud?. Bo th reports provided the analytical framework o f reforms to be supported by the Project. Regarding the Project management, the discussions with officials from the state governments and the FGN, and the input from national consultants have been critical in developing institutional and implementation arrangements that facilitate the necessary technical leadership and support f rom the center and yet respect the principles o f federalism and the provisions o f the Nigerian Constitution.

3. Fiduciary 3.1 Financial Management. Staff dedicated from the Finance and Accounts Department (FAD) o f the FMF and the PFMUs will be responsible for managing the financial affairs o f the Project at the N P C U and the state level respectively. FAD/FMF and PFMU will be staffed by relevantly qualified accountants. They will maintain adequate FM arrangements to support the deployment o f Project resources in an economic, efficient and effective manner to achieve the stated development objectives. Specifically, they wil l be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly Financial Monitoring Reports and audited annual financial statements to IDA. The Internal Auditors at the FMF and PFMUs will perform modem internal audit functions for the Project. A generic Financial Procedures Manual (FPM) has been developed for Bank financed projects in Nigeria. This wil l be reviewed and made specific to the Project with an addendum to set out the Chart o f Accounts for the Project. A specific F P M has been developed for the PFMUs. Regarding f low o f funds and banking arrangements, the Project will follow disbursement procedures described in the World Bank Handbook. IDA will disburse the credit through four Special Accounts (SAs) i.e. one maintained by the N P C U for the Project coordination, and one each by the PFMUs in the three participating states. The Project wil l prepare and submit quarterly Financial Monitoring Report (FMR) and annual project financial statements to the Bank and relevant oversight government agencies. The arrangements wil l also provide relevant information to the N P C U and the SPCUs to facilitate the performance o f their oversight functions. Experienced and well-qualified external auditors will be appointed (on TOR

The World Bank - State and Local Governance in Nigeria. Report N o 2447-UNI, July 2002 The World Bank - Nigeria State Finance Study. Report No 29147-NG April 2003

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acceptable to IDA) to audit the Project accounts, financial statements and transactions irrespective o f the source o f financing.

3.2 The C F A A for Nigeria assessed the risk o f waste, diversion and misuse o f funds in the country as high. Overall, the Project risk i s considered as substantial and i s mitigated by ensuring that adequate financial management arrangements wil l be in place. The banking and funds f low arrangements include measures to safeguard Project funds. Also, adequate arrangements for Bank supervision will be made (see Annex 7).

3.3 Procurement. The Budget Monitoring and Price Intelligence Unit (BMPIU), established at the Presidency, has submitted approval and payment o f contracts at the federal level to a strict due process review, which i s in accordance with Bank financed procurement procedures. This has strengthened procurement discipline. Moreover, the procurement environment o f the Federal Government o f Nigeria (FGN) has improved when FGN was accorded an IDF Grant to help launch the procurement reform at the federal level. BMPIU has prepared and submitted to Parliament a procurement law, and the Government has issued circulars to establish procurement units in government agencies and create a procurement cadre. Similar effort are yet to take place in the state governments.

3.4 The SPCU in each State wil l have overall responsibility for coordination o f procurement activities at the state level. The SPCU wil l be staffed with appropriate technical Staff which wil l include a person with expertise in procurement. Procurement capacity assessments o f the SPCUs has been conducted in l ine with the OPCS guidelines, and were found to be weak. To build the needed procurement capacity in each agency, a variety o f measures are envisaged and planned under the Project as enumerated in Annex 8. Each State SPCUs which does not have an experienced Procurement Officer in its team, wil l engage Procurement Consultants to assist and mentor the SPCU designated Procurement Officer for a period o f 1 year from project effectiveness. The consultants’ contracts will make adequate provision for capacity building and transfer o f knowledge to relevant agency staff. There are no existing procurement manuals at any o f the implementing agencies. Therefore, the Borrower will adopt the Generic Procurement Manual already developed for Bank assisted projects in Nigeria as part o f the Project Implementation Manual (PIM).

4. Social N o t applicable

5. Environment 5.1 The environmental Category o f this project i s C. The activities planned under the Project do not include major construction or utilization o f materials that present substantial environmental risks.

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6. Safeguard policies N o safeguard policies are triggered by this project.

Safeguard Policies Triggered by the Project Yes N o Envirdnmental Assessment (OP/BP/GP 4.01) [-I [ X I Natural Habitats (OPIBP 4.04) [ - I [ X I Pest Management (OP 4.09) [-I [ X I Cultural Property (OPN 1 1.03, being revised as OP 4.11) [-I [ X I Involuntary Resettlement (OPBP 4.12) [-I [ X I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ - I [ X I Forests (OP/BP 4.36) [ - I [ X I Safety o f Dams (OP/BP 4.37) [ - I [ X I Projects in Disputed Areas (OP/BP/GP 7.60) [ - I [ X I Projects on International Waterways (OPIBP/GP 7.50) [-I [ X I

7. Readiness for Implementation 7.1 The terms o f reference o f the major positions at the state and national levels were finalized at Appraisal and recruitmenthelection o f candidates wil l be initiated upon Board approval. The procurement plans for the f i rs t eighteen months o f the Projects components were also agreed upon at Appraisal.

8. Compliance with Bank Policies The Project complies with al l World Bank policies and no exceptions are necessary.

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Annex 1 : Country and Sector Background

NIGERIA: State Governance and Capacity Building Project

Geography and population. Nigeria has a land area o f 924,000 sq. km and i s the most populous country in Sub Saharan Afr ica with an estimated population o f about 132 million, growing at about 2.6 percent annually. Nigeria’s population comprises many different ethnic and language groups, the most populous being the Yoruba in the South West, Igbo in the South East, and HausaRulani in the North. The practice o f Islam is predominant in the North while Christianity i s predominant in the South3. The climate varies greatly, from tropical rain forest in the South to dry savannah in the North which is flat and sparsely vegetated with river flows that are generally seasonal. The land i s hilly and mountainous in the South East, along the border with Cameroon, and also in the center where the Jos Plateau rises to one thousand meters. The Niger River, one of Africa’s largest, bisects the country Nor th to South. I t converges with the other main river, the Benue, in the central region, and thereafter flows south as the Niger to discharge into the Atlantic Ocean through an extensive delta area. The average rainfall ranges from about 500 m d y e a r in the north to over 2,000 “/year in the south.

Economic conditions and Poverty. Nigeria is the largest country in West Afr ica and the second largest economy in Sub-Saharan Afr ica with a GDP o f about US$58.4 bi l l ion (2003). I t i s highly dependent o n oil--the 6th biggest exporter o f o i l in the world--which provides about 75 percent o f government revenues, 95 percent o f export earnings and represents about 30 percent o f GDP. Growth has been highly volatile and averaged just over 3 percent annually over the last three decades-barely enough to keep up with population growth. Per capita income was estimated at about US$300 at the end o f 2003. Nigeria’s total external debt (which represented about 60 percent o f GDP in 2003) i s estimated at about US$32.8 billion, 83.5 percent o f this owed to the Paris Club, and there are large external arrears.

In spite o f Nigeria’s considerable economic potential, the country has suffered the effects o f poor macroeconomic management for decades (including over-valued exchange rates, high levels o f inflation, large aggregate public spending associated with ill-judged investment o f o i l revenues and bloated c iv i l service), and outright theft o f public monies. Nigeria i s in many ways two economies. Part o f i t i s a middle-income oil-producing economy covering a small percentage o f the population, with a per capita income o f about US$2,200. The rest o f the population i s part o f a very poor non-oil producing economy, o f whom as many as two-thirds l ive below the income poverty line. The fundamental cause o f poverty in Nigeria i s the economic stagnation that the country has experienced for almost two decades. Substantial poverty reduction would require annual growth o f around five percent in agriculture and eight to ten percent in the non- agricultural economy (excluding government and the o i l and gas sectors).

Political developments and the new emphasis on reforms. At Independence in October 1960, Nigeria was a multi-party democracy with a federal constitution. I ts parliamentary system and

There i s nevertheless a sizeable Christian population in the North and there i s a large population o f Muslims in the South West.

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the independence that the judiciary enjoyed gave promise o f evolution toward a stable pluralistic political system in a law abiding society. This system was soon undermined by political forces driven by ethno-regionalism and growing corruption fuelled by the o i l economy. Nigeria experienced two long periods o f military rule from 1966 to 1979 and from 1984 to 1999, and a costly c i v i l war in the late 1960s over the attempted secession o f Biafra. The return to democratic governance in 1999 with the new constitution o f the Third Republic gave rise to three political parties which s t i l l dominate Nigeria politics today: the People’s Democratic Party (PDP), the All People’s Party (APP) and the Alliance for Democracy (AD).

Elected for the f i rs t time in 1999, President Olusegun Obansanjo was reelected in 2003 for a second term. The successful completion o f the 2003 round o f presidential, gubernatorial, and legislative elections (at the national and state levels) was an historic landmark because, for the first time since the 1 9 6 0 ’ ~ ~ Nigeria achieved a transition from one civi l ian government to another civilian. government through contested elections. The party in power, the PDP, increased its controls over the two houses o f the National Assembly as well as over State Assemblies and State governments. The determination shown by the Nigerians in the political front since 1999 to make democracy work has been a key appeasing factor in the face o f continuous social unrest that includes ethnic violence (especially conflicts between farmers and herders on land issues), labor disputes, and riots in the oil-rich Niger Delta region.

Right after the 2003 elections, President Obasanjo announced ambitious reforms aimed at laying the foundations for economic growth, employment creation, poverty reduction and more transparency and accountability in the management o f public resources. In July 2003, h e appointed a strongly reform minded economic team at the Federal level which quickly developed a comprehensive program: the National Economic Empowerment and Development Strategy (NEEDS). The NEEDS main elements include: (i) promoting macroeconomic stability; (ii) accelerating privatization and liberalization o f the economy; (iii) reforming the public service, including reforming public expenditure, budget and c iv i l service; (iv) fighting corruption, improving government transparency and accountability; and (v) strengthening basic service delivery. Important early measures have included deregulating the downstream petroleum sector and committing Nigeria to the Extractive Industries Transparency Initiative (EITI), reinvigorating the anti-corruption efforts through the establishment o f the Economic and Financial Crimes Commission (EFCC) to complement the work o f the Independent Corrupt Practices and other Related Offenses Commission (ICPC), and strengthening macroeconomic policies (adopting a fiscal pol icy rule, reducing the fiscal deficit, limiting recourse to monetary financing o f the government deficit, and preparing a Fiscal Responsibility Bill). The new Federal administration also intensified the dialogue with the states o n economic development and poverty reduction issues encouraging each state to develop i t s own State Economic Empowerment and Development Strategy (SEEDS).

Many o f the challenges highlighted in the NEEDS were signaled by President Obasanjo during his f i rst term but political pressures, the need to minimize tension that could threaten the then nascent democratic institutions, and, perhaps, insufficient realization by the leadership o f the depth o f public institutional erosion, prevented the development o f a strong reform effort and delayed the implementation o f important measures. The second term administration o f President Obasanjo Government has embraced the reform agenda with more vigor, focusing on the

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NEEDS priorities. Political pressures though st i l l present are mitigated by a larger number o f members o f the National Assembly and governors who share the view that major economic and institutional reforms should not be further delayed. There i s a greater recognition o f the importance o f the quality o f spending in terms o f developmental impact as opposed to the mere size o f current and capital expenditures.

Nigerian Federalism. Since Independence, i t has been commonly accepted that federalism is the most suitable framework for keeping Nigeria as a single political entity. Today there are thirty six states in the Federation o f Nigeria, in addition to the Federal Capital Territory. Some are recent creations, carved out o f existing states by the military regimes. Others trace their origins back to the Regional Governments that existed at the time o f Independence.

The 1999 Constitution gave increased responsibility to the states in the delivery o f economic and social services and for the provision o f infrastructure, both directly and jointly with local governments, while the Federal Government remains responsible for setting standards, coordinating policy, and discharging national functions such as security, foreign affairs, macroeconomic management. However, most powers accorded to the states in the Second Schedule o f the constitution are exercised concurrently with the Federal Government. This situation o f “concurrent list” continues to cause confusion and sometimes intense debates over which t ier o f government, federal or state, i s best placed to deal with various areas o f pol icy (e.g. education, police). Also, while the functions o f local government are specified in the Fourth Schedule, local government authorities (LGAs) can exercise their responsibilities only in accordance with enabling legislation passed by the states. LGAs are therefore subject to state oversight and control to a large extent.

The Constitution provides for the proceeds o f mineral revenues and major taxes to be paid into the Federation Account, and for the net proceeds, after certain deductions, to be distributed directly to al l three tiers o f government based o n a formula determined by the National Revenue Mobil izat ion and Fiscal Allocation Commission every five years. Under the current formula, the Federal Government receives 54.68 percent, states governments 24.70 percent, and local governments 20.62 percent o f distributable proceeds. In addition, o i l producing states receive an additional “derivation” allocation. Due to the automatic pass through o f revenues to states, fluctuations in international o i l prices have resulted in large swings in state finances. At the time o f transition from mil i tary to democratic rule (1999-2000), o i l prices were low, but then proceeded to rise strongly. States generally increased budgets in l ine with revenues, and in some cases faster, through recourse to domestic borrowing.

The federal authorities have sought to limit the automatic pass through o f o i l revenues to state spending, for reasons o f macro economic management. At first, this was done by withholding allocations, and then, when this practice was successfully challenged by states in the Supreme Court, the Federal Government has sought to stabilize spending by mutual agreement. Most recently, the Federal Government has tabled a Fiscal Responsibility Law which seeks to sterilize revenues in excess o f the estimated long run sustainable price o f oil, and save the proceeds in a special account in the Central Bank for distribution when o i l prices weaken. Many states, however, have resisted federal efforts to limit their access to Federation Account resources, partly because they view the present share o f states in Federation Account transfers as too low (it

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was increased slightly in 2002 ), partly because they believe the return to democracy requires an immediate dividend in terms o f rehabilitation and new development spending, and partly because o f lack o f trust - that funds sterilized in a central bank account might somehow be pre-empted and unavailable for distribution later when o i l prices have weakened. In tum, it could be said that states have also demonstrated that the success o f any efforts to achieve overall macro stability in Nigeria must recognize states as key players and wil l depend, to a good degree, on ensuring that states are fiscally disciplined and set fiscal targets for themselves consistent with macroeconomic stability objectives.

The pressure f rom the states for large spending has been exacerbated by the example o f the FGN’s own capital budget spending during the f i rst three years after the retum to democratic governance in 1999, when large executive capital budgets were proposed to the National Assembly and further increased. Underlying these large capital budgets, mirrored in states, has been a belief by federal and state officials that sizeable capital budgets are necessary to repair existing and build new infrastructure and enhance public service delivery, regardless o f either the macroeconomic implications o f large spending, the absorptive capacity o f governments, and the efficiency o f spending and the capacity to meeting operating and maintenance costs o f the programs launched and assets created. Large public spending has also been seen as a way to sustain support from the National Assembly and the State Assemblies.

Intergovernmental Collaboration. Ineffective arrangements for intergovernmental collaboration including in development matters has been a major shortcoming o f Nigeria’s federal system since independence especially with the mil i tary leaders’ practice o f top-down commands and unilateral decisions which was a disincentive for the states in terms o f proper planning o f development activities and fiscal responsibility. Also, i t i s widely acknowledged that states could learn much more from each other and should j o i n forces more systematically in tackling common developmental problems in such areas as capacity building in the public sector, maintenance o f infrastructure, and the provision o f social services.

Today, the attitude o f the leadership has changed at the federal and state level even if the “concurrent legislative l is t ” remains a major issue and governors continue to argue that the share o f revenue given to the states and the local governments i s not in l ine with the responsibilities o f the sub-national tiers o f government for delivering public services. One o f the result o f the 2003 elections has been a more cohesive National Executive Council that allows more effective collaboration between the State Governors and senior Ministries o f the FGN. W h i l e the federal c iv i l service i s s t i l l often perceived by the states as imposing constraints o n their ability to fulfill their responsibilities, recent federal government initiatives (e.g. increased timeliness and transparency in revenue distribution to the states and LGs, greater involvement o f state representatives in the development o f major draft bills) have confirmed that the current federal executive authorities are clearly supportive o f intergovernmental relations in which states increase their capacity to fulfill their responsibilities, and committed to facilitating experience sharing and development o f synergies among the states. In sum, the ability o f both federal and state governments to deliver the services expected from them and contribute effectively to the national development effort will depend to a large extent on the extend to which their roles and mandates are clearly delineated, and they can collaborate effectively to achieve common goals.

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Public Management and Institutional Capacity. One o f the findings o f Bank analytical work in recent years4 i s that while there is a great deal o f variation across states in the performance o f their public service, al l states saw their governance capacity weakened during the years o f military rule, through lack o f training, failure to modernize public management systems, loss o f key staff, proliferation o f organizational structures and patronage based hiring policies, failure to maintain equipment and buildings, systemic corruption, and generally, the substitution o f informality for established rules and procedures. In addition, steps were taken at the Federal level to deliberately reduce the independence o f the c iv i l service, in particular the job security o f career professionals. Inevitably this had an impact o n state c iv i l services, which became vulnerable to arbitrary actions by military governors. The retum to democracy offered an opportunity to reverse the deterioration in state services, and begin rebuilding capacity. In some states there has been a meaningful effort to control wasteful spending, improve procurement and limit patronage hiring etc. A new and younger generation o f governors, typically with a private sector background, came to power in 1999 and their number increased after the 2003 elections. Albeit s t i l l a minority, they have initiated (or are initiating) a genuine effort to restore dilapidated structures and improve services.

Almost al l states are heavily dependent on allocations from the Federation Account, the pool into which o i l and al l VAT revenues are paid prior to distribution. Allocations among the states are determined by the National Revenue Mobilization and Fiscal Allocation Commission, based on five criteria: equality, population, social development, land mass and terrain, and internal revenue generating effort. States have enjoyed strong revenue growth - about three fold in real terms for states as a whole - between 1997 and 2001 boosted by the o i l boom, by depreciation o f the naira and by stricter adherence to constitutional provisions for sharing revenues between the different tiers o f government. In some states - Akwa Ibom and Delta -revenue increases have been as high as about f ive fo ld in real terms. The accompanying ratcheting up o f spending has increased states’ exposure and hence vulnerability to o i l price shocks. The share o f statutory allocations from o i l revenues in states’ receipts has increased to about 82 percent in 2001 from about 66 percent in 1997.

On the other hand, as o f FY 2003, internally generated revenues (IGR) constituted only a margin o f the states’ annual revenue (e.g., 8% for Bauchi and 17% for Kaduna) making i t impossible for the states to fund basic expenditure obligations f rom their own resources. The share o f personnel costs covered by internally generated revenues was as l o w as 13 percent in Bauchi state in 2000, before recovering substantially to reach 23 percent in 2003. This reflects rapid growth in personnel obligations driven by large size o f states’ c iv i l service, and by two wage increases enacted by the federal government in late 1998 and 2000. Although states are free to set their own government pay scales, there is a long established practice o f harmonized c iv i l service pay and pensions across a l l tiers o f government, strongly reinforced by union expectations. This has been a further factor behind state spending. The Federal Government has made decisions on i t s

The Bank produced two reports in FY03, the State and Local Governance in Nigeria report, which assessed the existing capacity o f the states in fulfilling their constitutional responsibilities, and the Nigeria State Finance Study, that provided a better understanding o f the public finance picture in Niger ian states. B o t h studies pointed to institutional and pol icy reforms that could help states better deliver o n their mandate and manage their publ ic finances in a more efficient and fiscally responsible manner.

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scales o f pay and allowances, and most recently pensions, without consultation with states, and this has become an issue in the discussion between state governments and civi l service unions.

Exceptionally strong o i l prices during 2004 and the beginning o f 2005 have again buoyed state finances, and states as a group are not in crisis. But in many states, the underlying position i s highly vulnerable to a down turn in international o i l markets. Before this happens, states need to rein in spending, and develop tools that wil l enable them to better manage budgets throughout the o i l price cycle.

Fearing a severe fiscal crisis caused by a weakening o f o i l revenues and a high wage bill, progressive governors are keenly aware o f the need to control the wage bill and strengthen financial management while striving to restore the capacity o f c iv i l service. There has been some progress but, on the whole, few have been able to tackle effectively the more difficult challenge o f removing the institutional constraints to sustainable service delivery. The ability to define and carry out a coherent strategy for economic growth and poverty reduction i s limited, and those governors who genuinely desire to make a difference, are confronted by machinery o f government which i s dysfunctional and, for a large part, unresponsive to calls for improved service delivery. Indeed, a key constraint remains the performance o f the public service. At the federal and state levels alike, the public service has become bloated, de-skilled and unable to perform wel l either the key regulatory functions o f government, supply classic public goods such as law and order, and deliver key social services. Building on diagnostics started during the f i rst term, the Federal Government has launched a Public Service Reform Program (PSFW), the f i rst phase o f which, comprising the restructuring o f p i lot ministries and the strengthening o f payroll and personnel systems, is being supported by the Bank through the Economic Reform and Governance Project, approved on December 14,2004. The federal level governance project has provided stimulus to reformist governors.

The issues to be addressed under the Project. Given widespread pol icy and institutional weaknesses in public service in Nigeria, the key strategic choice for the Bank i s to support the rebuilding o f basic systems o f public management and governance at both state and federal level; such as financial management, the c iv i l service, procurement, and mechanisms to ensure transparency and accountability. The issues to be addressed under the Project fa l l in the fol lowing broad categories;

The low institutional capacity and the lack of transparency and accountability in the use of public financial resources. In spite o f initiatives taken by some state governors since 1999, there i s an urgent agenda o f system modemization and capacity building in public sector management, especially the way public resources are managed and spent. Many problems with public management in Nigerian States stem from institutional weaknesses including out o f date or incomplete statutes and regulations, poor prioritization associated with incremental budgeting, unrealistic budgets that result in poor budget performance, ineffective expenditure controls resulting from organizational and behavioral deficiencies, poor maintenance o f accounting records, and delays in producing financial reports, which are often o f poor quality. Moreover, internal and extemal audit arrangements are weak, and audited financial statements in many States are in arrears o f several years. In essence, the systems do not function in a manner that provides assurance o f proper financial accountability for public funds, and significant risks o f

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misuse o f funds and waste remain. Also, the current information and operating systems tend to be hagmented technologically with overlapping responsibilities, affecting the quality o f economic and financial information and the accountability o f government departments and agencies. These deficiencies are combined with an insufficiently skilled personnel at the lower, middle, and senior levels alike.

The ineffective management of human resource (including training policies and practices) which limits the state ability to develop and apply polices that keep the staff strength o f the c iv i l service in line with resources constraints and efficiency requirement while maintaining appropriate ski l l levels in various fields in the public service. In most States, there is a need to formulate a coherent c iv i l service training pol icy whose principles and identified funding sources would enable the necessary sustained effort in staff s k i l l development.

The still maturing nature of Nigerian federalism under a democratic system o f government explains the existing room for improvements in the broad area o f inter-governmental relations both between the Federal Government and the States and between the States and the Local Governments. The ability o f public organizations to deliver the services expected from them and contribute to the national development effort effectively will depend to a large extend on the extent to which their roles and mandates are clearly delineated and understood and they are put in a position where they can collaborate effectively. This would be facilitated by enhanced fiscal responsibility in the states and increased experience sharing among the states and between the states and the FGN.

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World Bank

World Bank

Other development agencies

Annex 2: Major Related Projects Financed by the Bank and /or other Agencies

NIGERIA: State Governance and Capacity Building Project

Economic Reform and Governance Not Yet Rated No t Yet Rated (approved: 12/14/2004)

[Lagos Metropolitan Development In the Pipeline In the Pipeline Project (approved 513 1/2005) ]

EU

DFID

DFID

Economic Management and n.a. n.a. Technical Assistance Project Economic Reform, Debt n.a. n.a. Management, Poverty Monitoring State and Local Government n.a. n.a. Programme

n.a. = not applicable

3

E v1

2s E - 2'

0 0

5 3

E

e 2s E - 0 0

* z

E .- C x Z.

.C - - $ 5

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Component

Component # I : Core Reform Program (CRP)

Component #2: State Specific Programs

State Subproject Coordination and Monitoring

Total Individual States Public Sector Reforms of which

Project Coordination, Implementation Support and Monitoring (national level)

Annex 4: Detailed Project Description

Bauchi Cross Kaduna Total

4.6 4.5 4.7 13.8

0.4 1.1 0.4 1.9

0.4 0.4 0.3 1.1

5.4 6.0 5.4 16.8

River

0.3

NIGERIA: State Governance and Capacity Building Project

Total

Overall Component Design. The Project i s designed to finance a set o f public management reforms aimed at modemizing basic systems o f public financial management, and human resource management. Because states are similar in the ways their public sectors are run, are accustomed to adopting approaches similar to the Federal Government, and common or similar solutions can be developed and deployed across al l states, the Project will support a core reform program (CRP) in the three participating states (Bauchi, Cross river, and Kaduna). In each state, the CRP will be supplemented by a state specific program (SSP) that addresses a limited number o f challenges specific to the state. The CRP and the SSP wil l be implemented by the state government under arrangements spelled out in a subsidiary agreement with the Federal Government o f Nigeria (FGN). The overall architecture o f the Project is as follows.

-1 Activities to be identcj?ed (national level)

States selection. The participating states have been chosen among six states which were identified during Project preparation through a transparent competitive process based on init ial diagnostic/proposal documents presented by thirteen states out o f twenty four invited. The four criteria utilized in evaluating the init ial proposals were (i) the quality o f diagnosis o f existing constraints, (ii) the overall reform program for the state's public sector, (iii) the relevance o f the activities proposed for IDA consideration, and (iv) track record between 1999 and 2002. The selection process was further refined in light o f the states performance in'2003 and 2004 and the demonstrated commitment to reforms o f their respective executive and legislative leadership bodies. Another factor has been the new approach o f the NEEDS and Bank assistance strategy which both require to pi lot the reforms in a small number o f states before supporting their implementation in multiple states. The three selected states have conducted at least one staff audits in recent years and intensified staff training efforts. They have also begun modemizing accounts, clearing the backlog o n audit reports preparation, improving procurement procedures, strengthening revenue collection, and/or computerizing specific functions or set o f functions relating to public finance management.

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By component:

Project Component #1 US$13.8 million equivalent

The Core Reform Program for Individual States

Overall component objective. The objective o f this component i s to help three states selected as pilots (Bauchi, Cross River and Kaduna) to rebuild basic public service management systems that meet a minimum standard in terms o f efficiency, effectiveness, accountability and transparency. In addition, the component seeks to promote the standardization o f procedures o f financial management, and o f financial data production among the states o f the Federation to allow appropriate data aggregation and analysis, and thereby, facilitate the formulation and implementation o f national fiscal policies.

IDA will finance an integrated package o f technical assistance, equipment and training for the upgrading o f key sub-systems o f public finance, and human resource management in each participating state.

A: Public Finance Legislation (Average cost: US$70,000 equivalent per state)

Status. Public finance legislation and financial regulations in Nigerian States are not up to date, resulting in imprecision regarding the applicable rules. States continue to refer to the Federal Finance (Control and Management) Ac t o f 1958 and are operating with the FGN’s Financial Regulations o f 1976. Moreover, copies o f these regulations are generally not available, and staff have become increasingly ignorant o f their provisions.

Reform objectives. (i) Ensure that public finance reforms are built on solid regulatory foundations by supporting the States in updating their organic public finance laws and financial regulations; (ii) enable the states to commit themselves to a more predictable budget preparation and execution process, and to higher standards o f transparency and fiscal reporting; and (iii) provide an opportunity for the states to re-examine the roles and responsibilities o f both l ine and central management agencies, the accountability o f vote holders, rules on debt and the creation o f special funds, the treasury functions o f the Accountant-General, and the overall stewardship fbnction o f the finance ministry.

Activities. This subcomponent wil l include: 0 Reviewing existing finance management legislations and regulations in light o f the

principles o f modern public financial management, and the expected roles, responsibilities, powers, functions and penalties o f organizations and individuals. Preparing the modern finance management legislations and regulations, including financial management and control law, and financial instructions. Currently, the Federal Government i s overhauling i t s organic finance law. For consistency and cost effectiveness reasons, the development o f modem financial legislation in the participating states wil l be done in a coordinated way, the states using the new legislation already drafted for the Federal Government as a guide.

e

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0

0

0

Printing and wide dissemination o f the new finance laws and regulations. Sensitization seminars for members o f the State House o f Assembly (SHoA). Preparing handbooks and training manager and staff o n the new laws and regulations.

Implementation. The development o f the new legislation wil l be a jo int effort o f the participating states with the support o f the FMF and the NPCU. In each state, the Ministry in charge o f Finance wil l have the lead for this subcomponent working closely with other economic ministries and the Ministry o f Justice. The Auditor-General wil l also participate in this process with advice and guidance, and there wil l be close collaboration among the states and with the FGN.

Expected results. N o later than two years after the effectiveness o f the state subproject, the state government and legislature will have enacted a new organic finance law covering budgeting, financial management and control, thereby creating a modem statutory framework providing for accuracy, comprehensiveness, transparency, and accountability in the management o f public finances. A major effort to disseminate the new laws and regulations will have been made within the c iv i l service and the legislative branch o f government, and staff trained.

B: Budget Preparation (Average cost: US$310,000 equivalent per state)

Status. The need for a strong central budget function has been increasingly felt in most Nigerian states over the last years as i t became more and more evident that public spending was not effective enough in delivering services and enabling the political priorities o f democratically elected governors to be met. At the same time, significant risks o f misallocation and misuse o f funds have continued to exist. Some states have responded by investing in office technology to help with budget preparation. However, computer technology will do l i t t le to improve budgets if the process o f budget preparation in Nigerian states is not underpinned by a sustainable fiscal strategy, and allocation imbalances, such as large capital programs without provision for operating costs or maintenance, are not addressed. Most state budgets remain unrealistic with large discrepancies between budgeted amounts and performance o n both the revenue and the expenditure sides.

Reform objectives. (i) Greater state government capacity to make and implement budgets which are fiscally sustainable, adequately fund priori ty programs and eliminate wasteful spending, and (ii) enable the states to contribute to Nigeria’s fiscal and monetary pol icy objectives in a positive way. In this connection, when enacted, the fiscal responsibility law being prepared by the FGN will require higher standards o f fiscal management and transparency at the federal level. This, in turn, will mandate a corresponding improvement in budget capacity by the states.

Activities. The Project will finance the development and institutionalization o f a simplified multi-year budgeting framework (MYBF) for annual budget preparation, leading to more sustainable budget implementation. The Project wil l help:

(a) Institute a multi-year budget framework (MYBF) as the basis for annual budget preparation and execution, providing a three year perspective for aggregate revenue and

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expenditure (recurrent and capital). State fiscal objectives could include (i) targets for the current account and overall fiscal balance; (ii) debt to revenue ratio and sustainable debt service to revenue ratio; and (iii) consistency o f the budget and financial management practices with the requirements o f any fiscal responsibility law passed by the national and state levels. The f i rst year o f the MYBF will present the elements o f the annual budget to be adopted by the State House o f Assembly, and the MYBF wil l be published as part o f each year’s budget documentation. It wil l provide indicative sectoral ceilings for the outer years to facilitate strategic planning in the ministries. Efforts wil l be made to better integrate the preparation o f the two parts o f the budget (recurrent and capital budget) and improve the capacity o f MDAs to prepare sound development projects.

(b) Build the necessary capacity for MYBF via the training o f an adequate group o f budget and finance staff from the central ministries and the l ine MDAs, and acquisition o f necessary tools and techniques to enable improved policies and priorities formulation, fiscal objectives setting, and revenues and costs estimates.

(c) Develop adequate call circulars for the MYBF and annual budget which indicate state priorities and annual expenditure ceilings for each ministry over the duration o f the MYBF, and thereby encourage a process o f budget restructuring as between the wage bil l and non-wage O&M, and between current and capital spending.

(d) Adopt an appropriate budget preparation calendar which allows more time for consultation o n budget priorities and preparation and scrutiny o f spending proposals.

(e) Present budgets based o n Multi-year budgeting framework (MYBF) to the State House o f Assembly starting from the budget for 2008 at the latest.

(f) Rebuild processes and staff capacity for the analysis and screening o f capital expenditure proposals.

(8) Organize training for central ministries and M D A s managers and staff in budget preparation and execution and sensitization seminar for members o f the SHoA.

Implementation. The implementation o f this component will be a jo int effort o f several agencies coordinated by the Ministry responsible for the preparation and monitoring o f the budget.

Expected Results: (i) improved fiscal pol icy formulation and implementation by instituting a medium term budget framework as part o f the normal economic management process; (ii) states budgets that reflect the stated priorities; (iii) better budget execution through more predictable cash releases, leading to more effective service delivery; and (iv) improved States’ performance in meeting their fiscal management and reporting obligations under any fiscal responsibility law passed at the national level and binding on al l tiers o f government. In each participating states, the MYBF will have been used for the preparation and execution o f the state budget for 2007 and become fully effective by the 2008 budget.

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C: Accounting, Expenditure control and Financial Reporting (Average cost: US$280,000 equivalent per state)

Status. The main common problems regarding treasury management, accounting and financial reporting systems include (a) the lack o f a unified and modem chart o f accounts that provides the appropriate level o f desegregation to allow effective pol icy analysis and reporting; (b) the lack o f organized cash management with a cash plan that identifies and matches the flows o f revenues with those o f disbursements, and provides forward estimates, (c) the existence o f a large number o f agency bank accounts not always monitored effectively; (d) inadequate record keeping and often years o f delay in transmitting the annual State government accounts to the Auditor General and (e) the lack of qualified, and properly supervised accounting staff, especially in the line ministries. In most cases, the cash budget supplants the statutorily approved appropriated budget, resulting in an unpredictability that undermines project and program execution, insufficient transparency and accountability, and sub-optimal borrowing practices that increases the financial risks and vulnerability o f the states when o i l revenues diminish.

Reform objectives: (i) provide a system o f accounting that reflects accurately and in accordance with recognized accounting standards the f low o f transactions and the year end stock o f financial resources o f the State government in a timely manner and serves as a key instrument in the formulation and implementation o f State Government policies; and (ii) reinstate effective expenditure control by overhauling existing processes such as commitment controls and payment authorizatiodapproval.

Activities. This subcomponent wil l help the States:

a) Implant a modem accounting and financial reporting system based o n the Standard Chart o f Accounts (SCoA) being developed for al l the States by the OAGS and the O A G o f the Federation. The SCoA wil l be properly coded, and conceived with the capacity to reflect functions, agencies, programs, and items o f expenditure.

b) Review current arrangements (in theory and in practice) and establish appropriate mechanisms and procedures for effective expenditure control, including the preparation o f new operating manuals as needed. This will involve key aspects o f expenditure control: checking for budget appropriations, prior commitments, verification for receipt o f goods and services, improvement o f reporting formats.

c) Increase fiscal transparency including (i) reporting by M D A s to the Ministry o f Finance o n budget execution; (ii) publication by the MF o f aggregate budget implementation reports on a quarterly basis; and (iii) improved financial reporting on the transactions o f the State government as a whole based o n formats for quarterly progress reporting and annual performance reporting in l ine with the requirements o f the Federation Account Allocation Committee. The computerized system described below should have the capability for producing these reports and the report format should be included in the reporting module o f the system.

d) Organize appropriate training for central ministries and MDAs managers and staff o n accounting standards, budget execution, and reporting.

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Implementation. The O A G within the Ministry o f Finance wil l have a lead role for the implementation of this subcomponent. The implementation o f the computerized financial management information system described below wil l assist with financial reporting and be based o n the Standard Chart o f Accounts.

Expected results. Timely and reliable financial information to assist the state government in policy formulation and implementation, the MDAs in the management o f their portfolios, and the State Assembly in exercising i ts oversight responsibility.

D: External Audit (Average cost: US$250,000 equivalent per state)

Status. While the law and regulations provide for the independence o f the State Auditor General’, the office holder’s ability to perform effectively i s undermined in most cases by a number o f factors starting with the slowness o f the Public Accounts Committee (PAC) o f the SHoA to deliberate on the findings o f the Auditor General, and the state ministry o f finance to fol low up on audit findings vigorously. In addition, insufficient funding for the Office o f the State Auditor General (OSAG), weak technical skills, unattractive recruitment and remuneration policies, and the lack of modern office equipment and information technology contribute to a culture o f financial irregularity, l o w demand for effective financial control systems, and weak audit function (internal and external audit).

Reform objectives and activities. This subcomponent i s designed to help the participating states to address the weaknesses indicated above, focusing on external audit. I t will assist the States to:

a) Review and restructure the OSAG in l ine with current best practice in legislating greater independence in staffing and setting o f the state audit institution’s budget.

b) Review and modernize audit methods, techniques and reporting, including the planning o f audit work to improve its materiality, and the development o f audit manuals and programs.

c) Building staff capacity in the OSAG to carry out audit in accordance with internationally recognized standards and modern audit practices. This wil l be achieved through (i) on- the-job training by seasoned auditors contracted from the private sector to OSAG staff and (ii) the completion o f an advance training course by ten promising officers o f the OSAG in modem auditing practices, internal control assessment, and preparation o f an auditor’s report. The training wil l be provided by a Nigerian training institution with the collaboration o f the seasoned auditors contracted fi-om the private sector.

d) Consolidating demand o f an effective external audit function by (i) organizing an annual forum where the PAC/SHoA, the State Governor’s Office, OSAG, the OAGS, and key MDAs, and representative o f the c iv i l society come together to discuss the issues related to external audit function; and (ii) putting in place a State Committee on Audit to be chaired by a representative o f the SHoA, with the mandate o f monitoring action taken on the findings o f the SAG’S reports, including incentives and disciplinary sanctions which

State Auditors-General operate within the legal framework provided by Section 125 o f the 1999 Constitution o f Nigeria, for the most part states have not passed specific audit laws. The State Auditor General i s appointed by the Governor on the recommendation of the C iv i l Service Commission and is confirmed by the State House o f Assembly (PAC). Termination o f office i s regulated by the Constitution.

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are backed up by legal provision. The committee wil l meet each quarter to discuss and agenda prepared by the SAG.

Implementation. In each State, the OSAG will have primary responsibility for the implementation of the subcomponent, working with the state Ministry o f Finance.

Expected results: (i) effective external auditing and more regular and rigorous review and follow up by the SHoA and the state executive leadership; leading to (ii) increased transparency and accountability in management o f state public resources.

E: Budget and Treasury Management Information System - BATMIS (Average cost: US$2.9 million equivalent per state)

Status. States currently operate their budget, financial management, payroll and accounting systems o n manual or semi-automated systems6. Moreover, the effort to computerize business processes has often led to systems developed separately utilizing software applications which are not compatible. The budget area has typically lagged behind. Where some computerization has been attempted this has usually only been partially successful with l imited fhct ional i ty (payroll and accounts preparation) As a result, information systems supporting the various economic and financial management functions are fragmented, data from various sources inconsistent and not always reliable. This affects pol icy analysis, formulation, and monitoring. I t also results in weak expenditure control and delays in the production o f annual accounts, in turn retarding external audit.

Reform objective. (i) Implement a basic integrated Budget and Treasury Management Information System (BATMIS), which wil l support planning and budgeting, transaction processing, accounting, and reporting o n the use o f financial resources; and (ii) make available a reliable and unified database, which will be shared by al l users, and feed both state and FGN with the information that they need respectively. The system should however provide a basis for future expansion and adoption o f key elements o f the budget and financial management reform agenda (Budget Reclassification, MYBF, improved financial reporting according to GAAP)

Activities. In each state, the Project will: a) Implement a medium range system using technologies that are simple and user friendly.

States will be encouraged to (i) use o f f the shelf application software packages with appropriate configuration; (ii) group the departments responsible for the central hnctions o f budgeting, budget monitoring, treasury and accounting in the same area in order to make i t possible to build a Local Area Network (LAN); and (iii) establish effective application, technical and PFM skills necessary to operate, and maintain the system.

b) The B A T M I S will be designed to handle transactions and other activities relating to budget preparation and execution (including payroll), accounting, and treasury management. To that end, the software packages to be used will have to include the following modules, as a minimum: General Ledger, Accounts Payable, Cash Management, Public Sector Budgeting, and Payroll. Operating init ial ly on a cash basis,

with the notable exception o f the State o f Lagos wh ich has implemented an large automated system.

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the B A T M I S will typically be anchored at the OAGS Head office or other department where i t will be properly managed. I t i s anticipated that progressive business process review and change will be undertaken as the system develops and extends i ts coverage.

c) Close interface between the B A T M I S and a computerized human resource (HR) database wil l be sought. In the event a given State chooses to maintain a separate HR database, appropriate steps wil l be taken to provide an effective interface between the HR database and the payrol l sub-system o f the B A T M I S , including monthly reconciliation and budget control before the preparation o f public service payroll.

Implementation. Under the coordination and leadership o f the OAGS , the development and implementation of the BATMIS will be a jo int effort o f a number o f agencies (budget department, accounting department, treasury, state planning commission, financial control units, computer center, l ine ministries, OHOS) because o f the very nature o f the information system that wil l integrate data relating to several functions. W h i l e each state wil l seek to benefit from the experience o f the others, the migration plans (transition from the current to the future information system) are l ikely to differ from one state to the other substantially as a result o f differences in information technology and in house expertise. A central BATMIS implementation support team attached to the NPCU in Abuja will assist the states to specify, procure and implement the information system and, together with the contractors provide training and technical support for the State Implementation Teams.

In each state, an implementation team will be established to implement and support the system and to ensure that sufficient staff are trained to operate and maintain the system. The B A T M I S wil l be deployed in a phased manner (development, piloting, ro l l ing out) according to clearly spelled out implementation plans designed by the implementation team with the assistance o f consultants. For each state, i t is expected that the B A T M I S wil l be effective by the end o f the third year o f Project implementation.

The Project support to developing and implementing the B A T M I S wil l also include assistance to finance (i) maintenance costs; (ii) the salaries o f young graduates to be recruited by the states to become the main users o f the B A T M I S in various M D A s (on a declining basis); and (iii) an intensive training program designed for different categories o f users (in supervising role, intensive users) and specialists (data base administrators, systems administrators, programmerdanalysts). A detailed presentation o f the B A T M I S implementation plan i s included in the Technical Appendix to the PAD in Project Files.

Expected results. A main outcome o f this subcomponent wil l be to provide each participating State with an information system and technology infrastructure that support the achievement o f i t s economic and financial pol icy objectives effectively while meeting the requirement o f modern and transparent business processes in the management o f public financial resources. Monitorable results wil l include the automation o f government financial systems, adoption o f best practice standards, efficient processing o f transactions, improved control, and timely production o f accurate state annual accounts and financial reporting.

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F: Human Resource Management and Staff Training Enhancement (Average cost: US$760,000 equivalent per state)

Status. The large majority o f state have organizational duplication and MDAs composed o f non motivated underpaid, under trained, loosely managed c iv i l servants in excessive number (especially in the lower grades). At the same time, personnel records have not been wel l maintained, and there i s believed to be widespread allowance and payroll fraud in some states. Recognizing the need to address these problems and to reflect the change o f the paradigm toward a greater role o f the private sector and the c iv i l society organization in development, several states have taken steps to reduce State involvement in the economy and attempted to stabilize (if not reduce) the size o f the civil service. So far the results have been limited. Payroll audits and c iv i l service censuses conducted have been one-off exercises, and have not led to improved payroll and personnel data management systems. In many cases, serious uncertainty remains regarding basic data such as the staff strength and its breakdown, the pensioners, the personnel retiring by the end o f the year.

Reform objectives: (i) provide each state with a modem human resource management information system (HRMIS) and the technology infrastructure that provides a sound and reliable data base on the personnel employed by or retired from the State government; (ii) enable effective establishment controls; and (iii) enhance staff training in economic and social development ministries.

Activities. This subcomponent will finance the fol lowing activities:

Review o f the existing human resources management policies, processes and information system; Staff audit, payroll parades and c iv i l service census as necessary, to ensure that information to be inputted in the new H R M I S is clean, if necessary by contracting out the conducting o f censuses and the inputting o f data; Implementation o f an automated modem and unified establishment register and database o f public employees personnel records to consolidate and regularly update c iv i l service files. The new HRMIS will have an effective interface with the B A T M I S or preferably be one integrated module o f B A T M I S enabling consistency check between the payrol l and the nominal r o l l on a continuous basis as indicated under subcomponent l(a) section E above; Strengthening controls over personnel recruitment, and building the capacity o f Establishment Agency/Ministry to manage personnel registries and payroll functions in coordination with the Ministry o f Finance and the l ine ministriedagencies, and in a manner consistent with available resources, as determined by the MYBF; Implementation o f a comprehensive training program including (i) professional training in key areas o f economic and financial management in which the Project seeks substantial improvements (budgeting, accounting and reporting, payment management, and human resource and payroll), and (ii) a computer skills enhancement program for different categories o f c iv i l servants in the eight to ten MDAs associated in the Project. The elements o f this program to be delivered locally by Nigerian training institutions with the assistance o f consultants and Project staff are presented in the Technical Appendix.

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Implementation. The subcomponent will be implemented by the departments responsible for establishment and training respectively, under the oversight o f the State Head o f Service and in consultation with the Ministry o f Finance. For each participating state, i t is expected that the new H R M I S wil l be effective by the end o f the third year o f implementation o f i t s subproject. The BATMIS central support teams wil l also support implementation o f H R M I S in conjunction with the appropriate stakeholders. The states wil l also benefit from the assistance o f a Training Advisor located in the NFCU who will help in the planning, execution, and monitoring and evaluation o f training activities under the Project.

Expected results: (i) elimination o f the ghost workers phenomenon and reduction o f other forms o f HR management related fraud; (ii) accurate and reliable personnel data for al l state government employees; (iii) enhanced controls o f establishment and salary bill; and (iv) substantial staff sk i l ls development in eight to ten MDAs.

Project Component #2 US$1.9 million equivalent

State Specific Programs (US$1.9 million equivalent)

During Project preparation, the states expressed a strong desire for support in areas o f reform not included in the CRP but which are important to improve governance and service delivery in their particular context. I t was agreed that the Project will support additional selected institutional reform and capacity building initiatives identified by the states before the beginning o f the Project or as the needs emerge in the context o f the implementation o f their respective SEEDS. This wil l consolidate the ownership o f the Project by the state governments. Bauchi and Kaduna States have identified the modemization o f their respective tax payers identification and registry systems. CRS has identified the rehabilitation o f the Management Development Institute (MDI) located in Calabar and the enhancement o f judicial services. Together with the other subcomponents o f CRP, the specific programs have been prepared by the state governments with the assistance o f consultants. In addition, a provision o f U S dollars 170,000 equivalent has been made for each participating state to support additional public reform and capacity building initiatives that the state wil l decide to launch in consultation with IDA during Project implementation.

A: Modernizing the Tax Payer Identification System in Bauchi and Kaduna States (Average cost: US$214,000 equivalent per state)

Status. As o f FY 2003, intemally generated revenues (IGR) constituted only a margin o f the states’ annual revenue (e.g., 8% for Bauchi and 17% for Kaduna). This l o w share o f IGR and heavy reliance on Federation Account allocation has exposed states to unstable and irregular revenue inflows. In response, states have initiated several measures to increase the intemally generated revenues, including the provision o f incentives to tax collecting department to retain certain share o f the collected revenue, and engagement o f consultants to strengthen tax collection efforts. Two o f the challenges to these efforts, however, are the narrow tax base and poor record management in tax administration. The current manual tax payer registry allows many loopholes for tax evasion and fraud. For example, Kaduna state estimates that current tax registry captures only 30% o f the potential tax base.

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Objectives: To increase IGR, the Project seeks to help (i) broaden the tax base for state taxes and fees; and (ii) improve efficiency and accountability in tax collection and data management processes.

Activities: (i) verify and expand the existing tax payer database including through in-house verification and market surveys and assessments; (ii) provide the two states with the basic I C T infrastructure and staff training necessary for maintaining a sound and reliable tax administration database; and (iii) adjust organizational structureshusiness processes and train staff as required by the objectives indicated in (i) and (ii).

Implementation. The subcomponent wil l be implemented under the leadership o f the Board o f Internal Revenue (BIR) in coordination with the ministries in charge o f finance and planning.

Expected results: (i) Increased accuracy o f the existing tax payer database, leading to improved state revenue performance; (ii) staff in BIR are sufficiently trained to maintain and make an effective use o f the new system

B: Rehabilitation of the Management Development Institute in Calabar (Cost: US$400,000 equivalent)

Status. The Cross River State (CRS) Government has developed a comprehensive public service reform including pol icy management process improvement, public sector restructuring (with privatization, voluntary departure scheme, service redeployment program), establishment control and human resource management (with modernization o f HR data base and records management), public finance management reform, and staff skills development. Several donors are contributing to different components o f this comprehensive reform under the coordination o f the CRS. In addition to the elements included in the CRP, the Project will support CRS by facilitating the rehabilitation o f the Management Development Institute (MDI) in Calabar which i s a central element o f the CRS effort to rebuild the capacity o f the public service.

Objective. The objective o f this subcomponent i s to enhance the capacity o f the MDI to deliver effective training programs especially for the public service.

Activities. This sub-component wil l finance the fol lowing activities. a) The CRS Government has contracted the Administrative Staff College o f Nigeria

(ASCON) to assist in developing a strategic business plan for the MDI. The Project wi l l support the completion o f the preparation o f the business plan that wil l cover such areas as the services to be delivered (training and development programs), the organization and management o f the institute, staffing and ski l l gaps in the faculty, financial management, and facility improvement and equipment. This activity wil l be carried out with the contribution o f an experienced foreign training institution and completed within the f i rs t six months o f Project implementation.

b) The Project includes resources to facilitate the immediate fol low up on the actions indicated in the business plan. Preliminary analysis indicate that IDA contribution will be required to help introduce modem training aids, strengthen the library, increase the

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capacity o f faculty members especially in modern ICT, carrying out building renovation works and facility upgrading, and equipping a l imited number o f class/discussion rooms.

Expected results. (i) an operational business plan for the MDI; (b) a more effective MDI with a stronger faculty and a set o f courses and seminars more relevant to the needs o f the public service.

C: Enhancement of Judicial Services in Cross River State (Cost: US$600,000 equivalent)

Status. In l ine with national policies, especially the reform agenda put forward by the Attorney General and the Honorable Chief Justice o f Nigeria, the CRS Government has identified access to justice and quality o f judicial service delivery as important govemance issues, and is determined to support the state judiciary’s efforts to improve i t s performance. As i s the case with other branches o f government, many years o f mil i tary rule and lack o f accountability and transparency in govemance have led to decay in the judicial process. The absence o f trained judicial and non-judicial officers, patronage-based appointments, the lack o f research materials, equipment and modem information technology, poor records management, and inadequate facilities, have severely affected the capacity o f the judicial system in CRS to deliver on i t s mandate. As o f 2004, it was estimated that the CRS judiciary had a total o f over 7,000 pending criminal and c i v i l cases, with an average o f more than 400 cases each pending before several judges in the Calabar High Court. The slow process o f adjudication means that a case usually drags o n in court for two to five years. A major contributing factor i s that the rules o f procedure are outdated, making i t possible for private lawyers and prosecutors to capitalize o n the gaps to f i le frivolous applications and repeatedly request adjournments favoring their clients. Such weaknesses allow for corrupt practices.

Objectives. The objective o f the subcomponent i s to enhance the capacity o f the CRS Judiciary to improve service delivery.

Activities. To set the stage for more substantial efforts in the years to come, the Project wil l support three sets o f activities:

a) Revision and adoption o f the rules o f c iv i l procedure applicable in High Courts and Magistrate Courts in CRS to enable the efficient and prompt tr ial and disposal o f cases filed;

b) Preparation and init ial implementation o f a comprehensive skills development program for judicial and administrative officers in the High Courts and Magistrate Courts. This wil l involve conducting a training needs assessment, including an in-depth review o f the existing training program, with a view to: (i) determining the gaps in the existing training program; (ii) formulating a training pol icy that supports the training needs assessment; (iii) recommending appropriate training programs; and (iv) determining the teaching and research materials as wel l as the equipment required for the recommended training programs. The Project wil l also provide resources for organizing training programs based on the results o f the training needs assessment, including through the training o f three trainers, court administration and case management training, records management training, and other selected professional and ICT training;

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c) Piloting a model court administration system by: (i) developing a model for court administration (including organizational staffing structure, administrative and financial procedures, case management, records management, upgrading o f facilities and office equipment, provision o f books and reference materials); (ii) implementing the model in two pi lot courts (one Magistrate Court and one High Court); and (iii) carrying out an assessment o f the implementation o f the model and developing a plan to rollout the model to a larger number o f courts at a subsequent time following this Project.

Implementation. The Office o f the Chief Judge o f CRS wil l have the primary responsibility for the implementation o f this subcomponent. To facilitate the coordination o f activities a Technical Committee for Judiciary Services Enhancement chaired by the Chief Judge o f CRS wil l be established. The Committee wil l consist o f up to eight members, including the Chief Judge or her representative, at least one other judge from the High Court, and two judges from the Magistrate Court. The CRS judiciary wil l benefit f rom the service o f consultants to support the activities indicated above. Among a set o f Performance monitoring indicators, judges sitting in the two pi lot courts wil l be required to submit monthly returns to the Association showing how many cases they have disposed in order to better trace the performance o f these judges.

Results Monitoring Indicators . (a) Adoption o f revised rules o f c iv i l procedure applicable in High Courts and

(b) Clearing o f backlog o f pending cases cleared in courts selected as pi lot under the

(c) Three persons qualified through the training o f trainers program (in Court

Magistrate Courts.

Project.

Administration and Case Management).

Expected results. (i) preparation o f the staff skills development strategy and action plan; (ii) training o f at least three trainers to provide effective training and coaching in various aspects o f court management; (iii) development o f a tested model for court management; (iv) capacity building for two pi lot courts with proper staffing structures and equipment to deliver judicial services with increased efficiency and accountability; and (v) effective application o f the revised rules o f c iv i l procedure and speeding up o f the process o f adjudication in the High Courts and Magistrate Courts.

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Annex 5: Estimated Project Costs

NIGERIA: State Governance and Capacity Building Project

Project Cost B y Component Individual States Public Sector Reforms Project Coordination, Support and Monitoring Unallocated (activities to be Identified) Total Baseline Cost)

Contingencies(5Y0)

Total Project Costs1 Total Financing Required

IDA

Project Cost B y Category

Goods Works Services Training Operating costs Unallocated

Total Project Costs 1 Total Financing Required

IDA

Local U S $million

5.1 0.3

0.6 6.0

0.3 6.3 6.3 6.3

Local U S $million

0.6 0.5 2.9 1.1 0.6 0.6 6.3 6.3 6.3

Foreign U S $million

10.4 0.0

0.8 11.2

0.6 11.8 11.8 11.8

Foreign U S $million

4.9 0.0 5.4 0.6 0.0 0.9

11.8 11.8 11.8

Total US $million

15.5 0.3

1.4 17.2

0.9 18.1 18.1 18.1

Total U S $million

5.5 0.5 8.3 1.7 0.6 1.5

18.1 18.1 18.1

Percentage

90.1 1.8

8.1 100.0

Percentage

30.4 2.8

45.8 9.4 3.3 8.3

100.0

Identifiable taxes and duties are US$ 0.0 m and the total project cost, net o f taxes, i s US$ 18.1 m. Therefore, the project cost sharing ratio i s 100% percent o f total project cost net o f taxes.

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Annex 6: Institutional and Implementation Arrangements

NIGERIA: State Governance and Capacity Building Project

1. The Project will be implemented over a period o f four years starting on or about October The institutional arrangements have been designed to:

Support the basic principle o f Nigerian federalism that entrusts to the state government and House o f Assembly the responsibility for planning, budgeting and uti l iz ing public resources internally generated or allocated to the state; Offer a f ine balance between effective overall supervision and monitoring o f activities at the national level and the management and implementation responsibilities o f individual project components; Empower the existing MDAs for the execution o f Project activities instead o f creating parallel structures outside o f existing government structures, and establish support structures to provide methodological support, operational assistance, and proper coordination only as necessary; Ensure that the implementing and coordinating units are properly equipped with the technical qualification and the logistical capacity to fully respond to the requirements o f effective implementation, monitoring and evaluation by the states and the concerned federal agencies; Create synergy among states by sharing knowledge and providing opportunity for mutual support; and Facilitate interaction between the Nigerian authorities and agencies and the Bank, especially the monitoring o f progress for achieving Project development objectives, and the conducting o f mid-terms reviews and ex-post evaluation by the Bank Project team.

2. The Project sets up three leveldtypes o f management and implementation arrangements.

Management and Implementation Arrangements for the Individual States Public Sector Reforms Management and institutional arrangements in each state will include a State Steering Committee (SSC) o n Governance and Capacity Building, a State Project Coordination Unit (SPCU), and several Activities Executing Agencies (AEAs)~ as represented bellow:

I

SPCU

P F M U

AEA i s a generic term for departments or agencies already existing in the organizational structure of a given administration with a mandate that relates to a set o f activities to be carried out under the Project.

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3. Chaired by the Governor or hidher representative, SSC wil l comprise the commissioners o f key implementing agencies, the Head o f Service, the Accountant General o f the State, the State Auditor-General, a representative o f the State House o f Assembly, a representative o f the Judiciary, and two representatives o f the c iv i l society. The State Governor wil l designate the representatives o f the c iv i l society. The SSC wil l convene every quarter to: (i) review the implementation o f the State subproject and forward his analysis and conclusions to the NPCU. This includes the review o f quarterly reports prepared by the SPCU; (ii) approve annual work programs, budgets, and procurement plans; (iii) ensure that agreed performance targets and timeline o f both the CRP and SSP are met; and (iv) address critical issues that could hinder the implementation o f the Project.

4. Reporting to the SSC will be the SPCU. Under the leadership o f a full-time and qualified state Project Coordinator selected by the state under procedure acceptable to IDA, the SPCU will be responsible for the day-to-day oversight o f operations, compliance with procedures and relations with the PFMU, the SSC, and the Bank. The main functions o f the SPCUs wil l be to: (i) provide technical support to AEAs o n activities such as procurement, in l ine with the rules and procedures agreed with IDA; (ii) act as the secretariat for the SSC; (iii) prepare work programs, budgets, procurement plans, etc based on inputs from the AEAs, and present this to the SSC; and (iv) monitor Project implementation and prepare regular progress reports and submit them to the SSC. T o enable the SPCU to perform effectively, there will be monthly coordination meetings with the Project Coordinator, representatives f rom al l the AEAs, and the Head o f the PFMU, under the chairmanship o f the Head o f Service, a Commissioner or any other high official designated by the Governor. The purpose o f the coordination meetings wil l be to (i) review the monthly implementation progress reports prepared by the AEAs; (ii) hold the SPCU and AEAs accountable for delivering o n set targets; (iii) address issues affecting project implementation; (iv) ensure appropriate linkage in the activities implemented by the AEAs; (v) submit consolidated annual work programs, budgets, and procurement plans to SSC for approval; (vi) review quarterly implementation progress reports to be presented to the SSC; and (vii) make recommendations to SSC on smooth and effective implementation o f the Project.

5. The State Project Coordinator who wil l be in the rank o f a Director or above will be supported by a small team o n a full-time basis including a Procurement Officer, and an Administrative Assistant and a drivedmessenger. In addition, depending on their respective needs, states wil l have the opportunity to hire the services o f consultant under short or longer term arrangements to assist the SPCU and the AEAs by overseeing specific technical aspects o f the subproject or the management o f the subproject as a whole.

6. Regarding the implementation arrangements within the AEAs, the head o f each AEA wil l deploy appropriate officers to the subproject activities with responsibilities for the following: (i) prepare work programs, procurement plans, budgets, and submit such programs and plans to the SPCU; (ii) prepare and submit monthly progress reports to the SPCU; and (iii) more generally, ensure the effective implementation o f the activities assigned to the AEA, in collaboration with other relevant officers in the AEA. The AEAs will not have to create new structures for the implementation o f the subproject (except for the regulatory body in the Governor’s office regarding the procurement reform) but entrust that responsibility to existing department and divisions according to their role and functions in the organizational structure o f the AEA.

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7. Project management and implementation arrangements are expected to be similar in the three participating states, including the project financial management by the PFMUs as described in Annexes 4 and 7. However, the Project provides f lexibi l i ty to accommodate for specific local operational environment. For instance, a given state may choose to entrust the responsibility for i t s subproject implementation to a unit that is currently implementing other similar operations under national or donor financing. Also the location o f the SPCU may vary. W h i l e in some states it may be felt suitable to locate the SPCU at the office o f the Head o f Service or a Commissioner, in other states the office o f the Govemor may be found more appropriate. The average budget for subproject management and implementation arrangement i s estimated at US $ 360 thousand equivalent.

National Level Coordination and Monitoring Arrangements

8. The coordination and facilitation o f activities under the Project as a whole wi l l be the responsibility o f the National Project Coordination Unit located in the FMFNULT. The main responsibilities o f the N P C U wil l be to:

provide technical support as requested by the states and other components implementing agencies; coordinate and consolidate the information f rom the various implementing agencies and PFMUs and circulate an annual overall project implementation progress report; coordinate the conduct o f subprojects and components mid-term reviews and post- evaluations and preparing overall project mid-term review and post evaluation reports.

0

0

9. The Head o f the NF'CU wil l be a highly experienced Nigerian project management specialist. H e will be selected through a competitive process o n the basis o f j ob description and qualifications acceptable to IDA and supported by one officer detached from the HFD, an administrative assistant; and a drivedmessenger. The N P C U will also benefit from the experience o f seasoned international consultants including a public finance management/ICT specialist. The N P C U staff wil l interact with the SPCUs o n a continuous basis and monitoring the subprojects implementation progress. The N P C U will assist the States implementation teams, especially in the development and implementation o f the BATMIS . The mandates o f the N P C U and the TORS o f the N P C U staff were agreed upon during Appraisal. N P C U annual work programs and budgets acceptable to IDA will be approved by the Federal Minister o f Finance. A budget o f US$ 263,000 equivalent has been set aside within the Project for the staffing, equipment, and functioning o f the N P C U including the cost o f mid-term review and evaluation at completion.

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Annex 7: Financial Management and Disbursement Arrangements

NIGERIA: State Governance and Capacity Building Project

A. GENERAL

Objective of the Financial Management System (FMS)

1. The objective o f the F M S i s to support the implementing units in deploying Project resources to produce the required outputs and with attention to economy, efficiency and effectiveness. Specifically, the FMS will be capable o f producing timely, understandable, relevant and reliable financial information that wil l enable the implementing units to plan, coordinate, monitor and appraise the Project's overall progress towards the achievement o f i t s objectives as well as ensuring that costs are under control and Project funds are used for the purposes intended.

Implementation Arrangement

2. NationaUfederal level: Under the oversight o f the Federal Minister/FMF, the National Project Coordination Unit (NPCU) located in the FMF will be responsible for the overall coordination o f the Project including the day-to-day monitoring o f activities and the support to participating states.

3. Staff dedicated from the Finance and Accounts Department o f FMF (FAD/FMF) wil l be responsible for managing the financial affairs o f the Project at the national level. FAD/FMF will be staffed by relevantly qualified accountants. Modem internal audit functions would be performed by the Intemal Audit Unit (IAU) o f FMF which wil l be staffed with professionally qualified and experienced accountants. The IAU will carry out a systematic review, appraisal and reporting o f the adequacy o f the systems o f managerial, financial, operational and budgetary control and their reliability in practice. FAD/ FMF will be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly Financial Monitoring Reports (FMRs) and audited annual financial statements to government and IDA.

4. State level: The Project is focused o n govemance reforms and capacity building at the State level, and therefore, the States wil l have primary responsibilities for i t s implementation. There will be a separate State Project Coordination Unit (SPCU) for each participating State with responsibility for day-to-day monitoring o f Project implementation. Financial management (FM) in each state wil l be carried out by the State Project Financial Management Unit (PFMU) established in the Office o f the Accountant General o f the State (OAGS) under the proposed funds f low arrangements for Nigeria. Specifically, the PFMU will be responsible for managing the financial affairs o f Bank-assisted projects in the state, including the SGCB Project. L i ke the FAD/FMF at the nationab'federal level, the PFMUs wil l be responsible for preparing budgets, monthly reports, quarterly FMRs, annual financial statements and progress reports. They wil l also be responsible for ensuring compliance with the FM requirements o f the Bank and the government, including forwarding the quarterly FMRs and annual financial statements to IDA.

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B. RISK ANALYSIS

Inherent Risks

5. The Country Financial Accountability Assessment (CFAA), which was conducted in C Y 2000, revealed that the systems for planning, budgeting, monitoring and controlling public resources in Nigeria have deteriorated to a level that they do not provide any reasonable assurance that funds are used for the purpose intended. Risk o f waste, diversion and misuse of funds was highly rated until such a time as the C F A A recommendations have been implemented. Some o f the C F A A recommendations have been implemented and some are being implemented. A review o f the C F A A i s ongoing. The update o f the CFAA, which i s due before C Y 2006 wil l confirm the extent to which the risk has been reduced.

Control Risks

6. The overall Project r isk from a financial management perspective i s considered substantial. Over time, i t will be reduced to moderate as (a) the weakness described in paragraph 7 are satisfactorily addressed; and (b) the financial management action plan described in paragraph 34 is fully implemented.

Strength and Weaknesses

7. Strength: At the state level, the financial management functions o f the Project wil l be handled by a PFMU situated in the OAGS under the funds f l ow arrangement for Nigeria. The arrangements feature relevantly qualified staff, effective internal control - including adequate segregation o f duties, internal check and monitoring, and effective modem internal audit - and computerized FM systems. The Bank i s assisting in the computerization o f the FM systems o f the unit and training o f staff in Bank procedures. Weakness: The main weakness is the shortage of professionally qualified accountants in the public sector. This has been mitigated at the State level with the establishment o f PFMUs.

C. FINANCIAL MANAGEMENT SYSTEMS

Funds Flow and Banking Arrangements

8. The overall project funding wil l be f rom the IDA. IDA will disburse the credit through four (4) Special Accounts (SAs) i.e one maintained by the N P C U for i ts activities; and one each by the PFMUs o f the 3 participating states. The three participating states have established PFMUs.

9. FADEMF and the PFMUs in the participating States will each maintain the following accounts : (i) a SA in U S Dollars to which the in i t ia l deposit and replenishments from IDA will be lodged. (ii) a Current (Draw-down) Account in Naira with a commercial bank to which draw-downs from the Special Account will be credited once or twice per month in respect o f incurred eligible expenditures. Fol lowing the immediate payments in respect o f those eligible expenditures, the balance on this account should be zero.

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Special Accounts ($) for FMF

(iii) a Domici l iary (Interest) Account in US Dollars into which interest on the SA balances will be credited.

Special Account ($) for each State

10 Also, they will each maintain an IDA Ledger Loan Account (Washington) in US Dollars/NairdSDR to keep track o f draw downs from IDA credit. The account will show (a) deposits made by IDA into the commercial bank indicated by the borrower, (b) direct payments by IDA, and (c) opening and closing balances.

10. All bank accounts will be reconciled with bank Statements on a monthly basis by the FAD/ FMF and PFMUs. The bank reconciliation statements will be reviewed by designated officials, and identified differences will be expeditiously investigated.

11. The FAD/ FMF and PFMUs will be responsible for preparing and submitting to IDA consolidated applications for withdrawal, as appropriate. Appropriate procedures and controls, which will be documented in the FPM, will be instituted to ensure disbursements and f low o f funds are carried out in an efficient and effective manner.

13 The FAD/ FMF and PFMUs will maintain a cumulative record o f draw-downs from the Credit that will be reconciled monthly with the Disbursement Summary provided by the Bank.

14 Detailed banking arrangements, including control procedures over al l bank transactions (e.g. check signatories, transfers, etc.), will be documented in the Project Implementation Manual (PIM).

Funds Flow Diagram Sources of Funds

IDA

Drawdown (zero Drawdown (zero balance) Naira N C balance) Naira A/C

I I

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Disbursement Arrangements

15. Use of statements of expenditures (SOEs). All applications for the withdrawal o f proceeds from the credit wil l be fully documented, except for: (i) contracts with an estimated value o f less than US$ 250,000 for goods; (ii) contracts with an estimated value o f less than US$ 300,000 for works packages; (iii) contracts with an estimated value o f less than US$ 150,000 for consulting f i rms, and less than US$ 50,000 for individual consultants; and (iv) training, study tours, and incremental operating costs which may be claimed on the basis o f certified Statements o f Expenditures (SOEs). Documentation supporting al l expenditures claimed against SOEs will be retained by FAD/FMF and the PFMUs, and will be available for review when requested by IDA supervision missions and project auditors. All disbursements are subject to the conditions o f the Development Credit Agreement and the procedures defined in the Disbursement Letter.

16. Special account. To facilitate disbursements for eligible expenditures for goods and services under the W C U , FAD, and IAU activities, FMF will open a special account (SA), which wil l be managed and administered by FMF, in a commercial bank to cover part o f IDA’s share o f eligible expenditures. The Authorized Allocation shall be l imited to an amount equivalent to fifty thousand Dollars ($50,000) until the aggregate amount o f withdrawals from the Credit Account plus the total amount o f a l l outstanding special commitments entered into have exceeded SDR 200,000, then the allocation will be increased to US$lOO,OOO;. A SA will be opened by each participating state:

a for Bauchi and Kaduna States, Authorized Allocation in each State shall be limited to an amount equivalent to two hundred and twenty-five thousand Dollars ($225,000) until the aggregate amount o f withdrawals f rom the Credit Account plus the total amount o f a l l outstanding special commitments entered into have exceeded SDR 700,000, the allocation wil l then be increased to US$450,000;

o for Cross River State Authorized Allocation shall be l imited to an amount equivalent to two hundred and fifty thousand Dollars ($250,000) until the aggregate amount o f withdrawals from the Credit Account plus the total amount o f a l l outstanding special commitments entered into have exceeded SDR 800,000, then the allocation will be increased to US$500,000.

17. To the extent possible, al l o f IDA’s share o f expenditures should be paid through the SAs. The SAs will be replenished through the submission o f Withdrawal Applications with appropriate supporting documents for expenditures on a monthly basis by FAD/FMF and the PFMUs. This wi l l also include reconciled bank statements and other documents as may be required until such time as the borrower may choose to convert to report-based disbursement. All disbursements wil l be channeled through the SAs and in l ieu o f a SA; the borrower may choose to pre-finance Project expenditure and seek reimbursement from IDA.

18. By effectiveness, the Project wil l not be ready for report-based disbursements. Thus, at the init ial stage, the transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursement, and special commitments.

19. When Project implementation begins, the quarterly FMRs produced by the Project will be reviewed. Where the reports are adequate and produced on a t imely basis, and the borrower requests conversion to report-based disbursements, a review will be undertaken by the Task

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Team Leader (TTL) to determine if the project i s eligible. The adoption o f report-based disbursements by the project wil l enable it to move away from time-consuming voucher-by- voucher (transaction - based) disbursement methods to quarterly disbursements to the Project's Special Account, based on FMRs.

20 Detailed disbursement procedures wil l be documented in the PIM.

Planning and Budgeting

21 Cash Budget preparation wil l follow the Federal Government and participating States' procedures. Additionally, financial projections or forecasts for the l i f e o f the project (analyzed by year) wil l be prepared. On an annual basis, the Project Accountants in FAD/ FMF and PFMUs (in consultation with key members o f the implementing unit) will prepare the cash budget for the coming period based on the work program. The cash budget should include the figures for the year, analyzed by quarter. The cash budget for each quarter wil l reflect the detailed specifications for project activities, schedules (including procurement plan), and expenditure o n Project activities scheduled respectively for the quarter. (Guidance o n the preparation o f budgets i s available in the Bank publication entitled "Financial Monitoring Reports: Guidelines to Borrowers".) The annual cash budget wil l be sent to the TTL at least two months before the beginning o f the project fiscal year.

22 Detailed procedures for planning and budgeting wil l be documented in the PIM.

Fixed Assets and Contracts Registers

23 At the FAD/ FMF and PFMUs, a Fixed Assets Register will be prepared, regularly updated and checked. A Contracts Register and a quarterly Contract Status Reports wil l also be maintained in respect o f al l contracts with consultants and suppliers. Control procedures over fixed assets and contracts with consultants and supplierdvendors for states and federal levels wil l be documented in the PIM.

Information Systems

24 Given the reporting requirements in the Financial Monitoring Reports Guideline, staff wil l be trained in the use o f the software in compliance with the FM annex o f the PIM. Under the standard funds f low arrangements for Nigerian states implementing Bank IDA-financed projects, a computerized financial management system i s being developed and installed in the PFMUs and the staff are undergoing relevant training.

Financial Reporting and Monitoring

25 Monthly, quarterly and annual reports will be prepared (as outlined in paragraphs 28, 29, 30 and 3 1) for the purpose o f monitoring project implementation. The reports will be submitted to the project coordinators, project implementing units, government and IDA. In compliance with government reporting requirements, Monthly Returns will be made to the Federal and State Accountants General, for incorporation in the Government's accounts, as described in the PIM.

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26 Monthly: On a monthly basis, the FAD1 FMF and PFMUs wil l prepare and submit the fol lowing reports to the State and National Project coordinators:

A Bank Reconciliation Statement for each bank account; Monthly Statement of cash position for project funds from al l sources, taking into consideration significant reconciling items; A monthly Statement of expenditure classified by Project components, disbursement categories, and comparison with budgets, or a variance analysis; and Statement of Sources and Uses of funds (by Credit Category1 Activi ty showing IDA and Counterpart Funds separately); I

27 Quarterly: The following financial monitoring reports will be prepared by the FAD/ FMF and PFMUs on a quarterly basis and submitted to the Federal Minister, FMF, the States governments, and IDA:

0

0

0

0

0 Financial Reports which include a Statement showing for the period and cumulatively (project l i f e or year to date) inf lows by sources and outflows by main expenditure classifications; beginning and ending cash balances o f the project; and supporting schedules comparing actual and planned expenditures. The reports wil l also include cash forecast for the next two quarters. Physical Progress Reports which include narrative information and output indicators (agreed during project preparation) linking financial information with physical progress, and highlight issues that require attention. Procurement Reports, which provide information o n the procurement o f goods, work, and related services, and the selection o f consultants, and on compliance with agreed procurement methods. The reports wil l compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlight key procurement issues such as staffing and building Borrower capacity.

0

0

28 SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount. Each P F M U wil l submit a copy o f the quarterly project financial monitoring reports to the SPCU. Also, i t wil l forward a copy o f the reports to the N P C U for consolidation.

a) FADEMF and PFMUs wil l include the following:

Annually: The annual project financial Statements, which wil l be prepared by the

a) Statement o f Sources and Uses o f funds (by Credit Categoryhy Activi ty showing IDA and Counterpart Funds separately);

b) Statement o f Cash Position for Project Funds from al l sources; c) Statements reconciling the balances on the various bank accounts (including IDA

Special Accounts) to the bank balances shown o n the Statement o f Sources and Uses o f funds;

d) SOE Withdrawal Schedules listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount; and

e) Notes to the Financial Statements.

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ACTION By Whom Open U S Dollar SA; Current (Draw-down) Account in Naira; NPCU, Interest on S A (US Dollar) Account; and IDA advised o f FAD/ FMF authorized bank signatoriedspecimen signatures. and SPCUs

1

2 Appointment o f extemal auditors for N P C U N P C U

29. consolidation.

Each PFMU wil l submit a copy o f the project financial statements to the FAD/FMF for

By When By Project launch

By Project launch

30. Indicative formats for the reports are outlined in two Bank publications: (a) Financial Monitoring Reports: Guidelines to Borrowers-quarterly FMRs, and (b) Financial Accounting, Reporting and Auditing Handbook (FARAH) - monthly and annual reports.

3

Accounting Policies and Procedures

Ini t ial capacity building in Bank procedures completed. NPCU, During Project SPCU, IDA launching

31. All Project Funds wil l be accounted for by the Project o n a cash basis. This wil l be augmented with appropriate records and procedures to track commitments and to safeguard assets. Also, accounting records wil l be maintained in dual currencies (Le. Naira and US$).

32. annual financial statements, including information on the following:

The Chart o f Accounts will facilitate the preparation o f relevant monthly, quarterly and

o Total project expenditures o Total financial contribution from each financier o Total expenditure on each Project component/activity, and o Analysis of that total expenditure into c iv i l works, various categories o f goods, training,

consultancy services and other procurement and disbursement categories.

33. Annual financial Statements wil l be prepared in accordance with International Accounting Standards (IASs). All accounting and control procedures will be documented in the FM annex o f the PIM. This i s a living document that wi l l be regularly updated by the Project Accountants. A generic FPM that wil l form the FM annex o f the PIM has been developed for the federal level o f Bank financed projects in Nigeria. This wil l be reviewed and made specifically for the project with an addendum to set out the Chart o f Accounts for the Project. A specific FPM has also been developed for the PFMUs.

D. ACTION PLAN

34. The following actions are to be implemented as specified.

I 1 I I workshom I

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Supervision Plan

35. Supervision activities wil l include review o f quarterly FMRs; review o f annual audited financial statements and management letter as wel l as timely follow-up o f issues arising; participation in Project supervision missions as appropriate; annual SOE review; and updating the FM rating in Implementation Status Report (ISR).

Audit Arrangements

36. Internal Audit. The Internal Audit Unit o f FMF will perform internal audit activities for the NPCU activities. Regular internal audit reports wil l be submitted to NPCU, IDA and the Accountant General. At FMF, a professionally qualified internal auditor will be appointed to perform these internal audit activities. Similarly, at the state level, Project activities, records and accounts w i l l be reviewed and subjected to internal audit by appropriately qualified Internal Auditors in the PFMUs. Regular internal audit reports will be submitted to SPCU, the State ministry in charge o f finance, and the Accountant General for the State as appropriate.

37. External Audit. Audited project financial statements for the Project wil l be submitted to IDA within six months after year-end. Relevantly qualified external auditors wil l be appointed based o n Terms o f Reference acceptable to the Bank to perform these audits.

38. Besides expressing an opinion on the Project Financial Statements in accordance with International Standards on Auditing (ISAs), the auditors wil l be required to comment on whether counterpart funds have been provided regularly and used in accordance with the financing agreement.

39. In addition to the audit report, the external auditors will be expected to prepare Management Letters giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the IDA agreement.

Procurement arrangements

The Project wil l observe procurement procedures outlined in the World Bank Procurement Guidelines o f M a y 2004 referred to in Annex 8. The Project accountants, internal auditors and support staff must be conversant with the Bank’s procurement procedures, as internal control issues and the incurring o f liabilities wil l be matters o f concern to the financial management function.

Financial Covenants

40. The Project shall maintain financial management systems including records and accounts and prepare financial statements in a format acceptable to the Bank. This, in addition to the SAs, should be audited each fiscal year and sent to the Bank not later than six months after period end. Quarterly financial monitoring reports wil l be prepared to include the financial reports, procurement reports and progress reports and forwarded to the Bank not later than 45 days after quarter end.

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Annex 8: Procurement Arrangements

NIGERIA : State Governance and Capacity Building Project

A. General

1. Procurement Environment. As result o f the CPAR o f 2000 and a subsequent IDF Grant to help execute the agreed Action Plan, the Federal Government has made substantial progress with procurement Reform. A draft Procurement Law was submitted to Parliament in early 2005, and circulars were issued to Government services to establish procurement units and recruit procurement staff, that would constitute over time the Federal Government's Procurement Cadre. The Budget Monitoring and Price Intelligence Unit (BMPW), established within the Presidency and responsible for the procurement reform agenda, instituted a due process mechanism for al l contracts to ensure that public procurement i s carried out in accordance with the required principles and procedures. BMPIU is also member o f a high level Cash Management Committee chaired by the Minister o f Finance to certify that contracts for which budgetary payments are requested have met the due process requirements. I t i s envisaged that the states in Nigeria will adopt/adapt these procurement codification and transparent process when finally operational at the Federal Government level.

2. Guidelines: Procurement for the Project will be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004: and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated M a y 2004, and the provisions stipulated in the Credit Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame wil l be agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

3. Procurement of Goods: Goods procured under the Project would include: project vehicles, computers and accessories, software, communication and office equipment, Journals and Publications, Copyrights and Intellectual Properties, etc. The procurement wil l be done using the Bank's SBD for al l I C B and National Bidding Documents agreed with or satisfactory to the Bank. However, since there i s no National Standard Bidding Document, the Bank's Standard Bidding Document for Goods and works shall be adopted by the Borrower. For evaluation o f bids, the Bank's Standard Evaluation Forms will be used. Procurement for readily available off-the-shelf goods that cannot be grouped or standard specification commodities for individual contracts o f less than US$50,000 equivalent, may be procured under Shopping procedures as detailed in paragraph 3.5 and 3.6 o f the "Guidelines: Procurement under IBRD Loans and IDA Credits" and June 9, 2000 Memorandum "Guidance on Shopping" issued by the Bank.

4. Selection of Consultants: Consultancy services which includes sofiware development, studies, staff audit and verification, service-wide data collection, development o f service standards for the public service, etc., f rom firms and individuals would be selected using

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Requests for Expressions for Interest, short lists and the Bank’s SRFPs, where required by the Bank’ Guidelines. Short l i s ts o f consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. The appropriate selection method for each consulting contract would be established in the Procurement Plan.

5. Operating Costs: The type o f operating cost that shall be financed by the Project were discussed at appraisal and agreed during negotiations and contained in the Project Credit Agreement.

6. The procurement procedures and SBDs to be used for each procurement method, as wel l as model contracts for works and goods procured, will be presented in the Project Implementation Manual (PIM) that wil l be finalized before Project launch.

B. Assessment of the agency’s capacity to implement procurement

7. The State Project Coordination Unit (SPCU) in each State will have overall responsibility for coordination o f procurement activities at the state level. The SPCU will be staffed with appropriate technical Staff which wil l include a full-time person with expertise in procurement and office management. The SPCU wil l coordinate implementation o f Project activities to be undertaken by Activities Executing Agencies (AEAs) in the given participating state. A National Project Coordinating Secretariat (NPCU) wil l be created and located in the FMF. The National Project Coordination Unit (NPCU) wil l be responsible for the overall coordination o f the Project including the monitoring o f activities. The SPCUs where an experienced Procurement Officer does not exist, will hire a Procurement Consultant for a period o f not more than 1 year to assist with the implementation o f their procurement activities. Part o f the TOR o f the Procurement Consultant wil l include training and development o f the SPCUs and AEAs designated Procurement Officer’s sk i l ls in Bank procurement procedures.

8. The Bank Senior Procurement Specialist has conducted an assessment o f the capacity o f the relevant agencies to implement procurement actions for the Project. The assessment revealed that, some o f the ministries (i.e.AEAs and SPCUs) do not have adequate experience in implementing World Bank financed projects. Therefore there i s a gross lack o f procurement capacity at the implementing agencies.

9. The key issues and risks concerning procurement for implementation o f the Project have been identified and includes: (i) lack o f appropriate structure (staffing) in place to manage the procurement fbnction for implementation; (ii) lack o f appropriate Regulation (bidding documents, Standard Evaluation formats, etc.); (iii) lack o f experience in Bank procurement procedures, (iv) absence o f adequate record keeping; (v) absence o f procurement planning and noticeable split o f contracts leading to high cost o f contract in some cases; (vi) inadequate contract management systems and techniques; and (vii) frequent and undue political interference in procurement decisions.

10. Corrective measures discussed and agreed during appraisal are: (i) creation o f appropriate implementation structure in each participating state i.e., establishment o f SSCs and SPCUs; (ii) recruitment o f relevant and experienced Procurement Officers by each SPCUs; (iii) engagement o f experienced Procurement Consultant by the implementing agencies where procurement

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capacity is lacking; (iv) adoption o f the Generic Procurement Manual for Bank assisted projects in Nigeria by a l l the implementing agencies as part o f PIM; (v) training o f relevant project staff on Bank procurement procedures on a continuous basis during project implementation (vi) conduct o f contract management training for relevant project staffs; (vii) adoption o f Bank’s Standard bidding documents for N C B in l ieu o f National Standard document; and (viii) re- assessment o f procurement capacity o f various executing agencies-one year after Project effectiveness to ensure that appropriate capacity has been built.

11. Substantial.

Based on the init ial assessment, the overall project risk for procurement i s considered

C. Procurement Plan

12. The Borrower, at appraisal had developed a procurement plan for Project implementation which provides the basis for the procurement methods. This plan was agreed between the Borrower and the Bank at negotiations. The agreed plan wil l also be made available in the project’s database and in the Bank’s external website. This plan wil l be included in the Project Implementation Manual (PIM). The plan includes relevant information (including selectiodprocurement methods) on goods and consulting services as we l l as the timing o f each milestone in the procurement process for each implementing agency. The agreed Procurement Plan will be updated by the Project in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

13. Publication o f contract awards would be required for a l l ICB, NCB, Direct Contracting and the Selection o f Consultants for contracts exceeding a value of U S D 200,000. In addition, where pre-qualification has taken place, the l i s t o f pre-qualified bidders will be published. With regard to ICB, and large-value consulting contracts, the Borrowers would be required to assure publication o f contract awards as soon as the Bank has issued its ‘no objection’ notice to the recommended award. With regard to Direct Contracting and NCB, publication of contract awards could be in aggregate form on a quarterly basis and local. All consultants competing for an assignment involving the submission o f separate technical and financial proposals, irrespective o f its estimated contract value, should be informed o f the result o f the technical evaluation (number o f points that each firm received), before the opening o f the financial proposals. The implementing agencies would be required to offer debriefings to unsuccessful bidders and consultants.

Publication of Results and Debriefing.

14. Fraud, Coercion and Corruption. All procuring entities as well as bidders, suppliers and contractors shall observe the highest standard o f ethics during the procurement and execution o f contracts financed under the Project in accordance with paragraphs 1.15 & 1.16 o f the Procurement Guidelines and paragraphs 1.25 & 1.26 o f the Consultants Guidelines.

- 56-

1.

2.

3.

4.

6.

7. 8.

D. Frequency o f Procurement Supervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the implementing agencies calls for 2 supervision missions to visit the participating states, and the N P C U to carry out post review o f procurement actions.

-

Expenditure Category Amount of the Credit

(Million US$ Equivalent)

Percentage of Expenditures to be allocated Financed

Goods 5.4 expenditure

Works 0.5 expenditure

Consultants’ services, including audits 8.3 expenditure Training, workshops, and study tours 1.8 expenditure Incremental operating costs

0.6 expenditure

100% o f Foreign and local

100% o f Foreign and local

100% o f Foreign and local

100% o f Foreign and local

100% o f Foreign and local

Repayment o f PPF 0.0 Unallocated 1.5 Total 18.1

E. Details o f the Procurement Arrangements Involving International Competition

Procurement Method

The Project’s activities for the f i rst 18 months o f implementation are presented in detail in the procurement plan that was agreed between IDA and the Borrowers during negotiations and wil l be incorporated in the PIM.

Prior Review Comments Threshold

Table A: Allocation o f Credit Proceeds

1. (US$ equivalent)

I C B (Goods) 2 250,000 All

1. Goods, Works, and Non Consulting Services

2. 3. 4.

Prior Review Threshold: Procurement decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement.

NCB (Goods) < 250,000 None Shopping <50,000 None Direct Contracting Any Amount All

A Goods

- 57-

1. 2. 3.

B Works

Procurement Method Prior Review Threshold Comments

ICB 2 300,000 All NCB < 300,000 None Shopping <100,000 None

(US% equivalent)

2. Selection o f Consultants Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment o f Consultants:

estimated to cost less than US$ 100,000 equivalent shall be

Short l i s t consisting entirely of national consultants: Short l i s t o f consultants for services, estimated to cost less than $200,000 equivalent per contract, may consist entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

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Annex 9: Economic and Financial Analysis

NIGERIA: State Governance and Capacity Building Project

1. Capacity building operations o f this kind do not lend themselves to meaningfbl quantitative analysis o f the economic return. Expected benefits in terms o f fiscal savings, effectiveness and efficiency will only fully materialize in the medium term and cannot be attributed to a single action, but a combination o f reforms. In addition, since the Project does not provide resources for severance pay financing, there i s no requirement for an explicit economic or financial analysis o f such investment. However the fol lowing paragraphs point to the positive contribution that the Project wil l have on state finances and economic conditions.

2. The advantage o f a MYBF i s that i t provides a framework within which overall budget magnitudes and sector allocations can be planned, enabling governments to escape from the revenue and debt driven incremental budget ratcheting which has been a characteristic o f state level budgeting in past years. This wil l become an essential tool for governments once the Fiscal Responsibility L a w i s passed at the federal level, and i t induces increased pressure on al l tiers o f government to save excess o i l revenues. The MYBF is also a tool to enable SEEDS priorities to be better reflected in annual budgets, and also to rebalance as between current and capital spending and between the wage bi l l and non-wage O&M. The Project thus provides a means to better budgets, and thus potentially better use o f inputs. This cannot be easily quantified, but during supervision, Bank staff wil l look for qualitatively better state budgets. Improvements in fiscal reporting, accounting and auditing should reinforce better budget execution.

3. There is a significant pay-off implementing modern IT enabled HR management systems, assuming the transfer o f data into the new system i s accompanied by an independently verified staff audit. For example, in one o f the DFID supported states, HR system reform revealed payroll fraud o f the order o f 25 percent o f the total wage bill, in the form o f ghost workers, improper hires and allowance abuse.

4. If the savings from system modernization are applied to meeting the severance payments o f excess staff laid o f f in retrenchment programs (several states have attempted to eliminate unwanted staff in egregiously excess categories in GL01-06, but have been unable to complete separations because o f lack o f money to pay gratuities), states wil l be able to progressively tackle the crippling patronage appointment legacy o f mil i tary rule. This could set in train a virtuous circle o f rightsizing, pay reform and adequate O&M funding, which in tum could be benefit from subsequent IDA credit.

- 59-

Annex 10: Safeguard Policy Issues

NIGERIA: State Governance and Capacity Building Project

Not applicable

- 60-

Project Schedule

Identification mission

Annex 11: Project Preparation and Supervision

NIGERIA: State Governance and Capacity Building Project

Processing Schedule: Actual

October 2002

Appraisal (completion) April 29,2005

Negotiations

Board

Effectiveness

I Mid-Term Review I January 2008 (planned) I

May 5,2005

June 16,2005

October 1,2005 (planned)

Key Institutions responsible for the preparation of the project At the Federal level: Federal Ministry o f Finance;

At the State level: Office o f the State Governor; Office o f the Head o f C iv i l Service; Ministries responsible for Planning, Finance, and Budget; Office o f the Accountant General, Office o f the Auditor General. Bureau o f Internal Revenue in Bauchi and Kaduna States. Office o f the Chief Judge and Management Development Institute in Cross River State.

Name Manga K u o h Michael Stevens

Specialty Unit Task Team Leader AFTPR Consultant, Public Management Specialist AFTPR

K. Jairaj Sameena Dost Sheetal Asrani-Dam

I Chau-Ching Shen I Sr. Finance Officer I L O A G 2

Sr. Public Sector Management Specialist AFTPR Counsel LEGAF Counsel LEGAF

1 Edward Olowo-Okere I Lead Financial Management Specialist I AFTFM Adenike Mustapha Chinedum Nwoko Alex Gbovega

Financial Management Specialist AFTFM Economist AFTP3 Consultant. Professor Political Science Univ. o f Ibadan " I Bavo Awosemusi I Sr. Procurement SDecialist I AFTPC

Junghun Cho Piet Van Heesewijk Adrian Fozzard

Young Professional AFTPR Peer Reviewer ECSPE Peer Reviewer EASPR

Vera Songwe Reynaldo P. Castro Nel ia Dinkin Gloria Kwembe Precious Osamede Onuvae

Peer Reviewer EASPR Consultant/Operations Analyst AFTPR Task Team Assistant AFTPR Task Team Assistant A F c 1 2 Consultant. ODerations Assistant AFCNG

- 61-

Annex 12: Documents in Project File

NIGERIA: State Governance and Capacity Building Project

A. Relating to Project Implementation 0 Project Implementation Manual 0 Detailed Project Costs

B. Bank Staff Assessments (including ESW) 0

0

0

0

World Bank 2000. Nigeria country Procurement Assessment Review World Bank 2000. Nigeria country Financial Accountability Assessment World Bank 2004. Lagos State Financial Accountability Assessment World Bank 2004. Lagos State Procurement Assessment Report

C. Relating to Bauchi State 0

0

0

Report on Bauchi State Public Expenditure analysis 1997-2000. ABU, Zaria. 2002 Bauchi State Proposal for World Bank intervention on State Govemance and Capacity Building. Bauchi State Government January 2003. State Capacity Building for Good Govemance. Subproject Document for Bauchi State. Bauchi State Govemment. December 2003

D. Relating to Cross River State 0

0

0

0

Public Expenditure Review 1997-2000. African Institute for Applied Economics, Enugu. May 2002 Cross River State - Staff Leaving Service Benefit as at 30 June 2003. HR Nigeria Limited (Consultants and Actuaries). October 2003 Report on the Workshop on Training Needs Analysis for the Cross River State Public Service. ASCON. October 2003 Proposal for the World Bank Assisted Program: State Govemance and Capacity Building Project - Cross River State Sub-project Document. Cross River State Government. October 2004 Final Report on the Training Needs Analysis for the Cross River State Public Service. ASCON. March 2005

0

E. Relating to Kaduna State 0

0

Kaduna State Proposal for World Bank intervention on State Govemance and Capacity Building. Kaduna State Government, January 2003 Kaduna State Training Needs Assessment (TNA) Study. Institute o f Administration, ABU, Zaria, Aofit 2004

- 62-

Annex 13: Statement of Loans and Credits NIGERIA: State Governance and Capacity Building Project

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

PO88150 2005

PO86716 2005

PO83082 2004

PO71817 2004

PO71075 2004

PO63622 2004

PO69892 2004

PO80295 2003

PO71494 2003

PO74963 2003

PO72018 2002

PO69901 2002

PO70290 2002

PO70291 2002

PO70293 2001

PO69086 2001

PO65301 2000

Economic Reform and Govemance Project

Sustainable Mngt. Mineral Resources

NG-MSME

NG: Local Empowerment & Env.Mgt Proj.

NG-Urb Water Sector Reform 1 S IL (FY04) NG:Fadama I1

NG Local Empowerment & Envir.Mgmt.

Polio Eradication

Universal Basic Ed.

NG Lagos Urban Transport Project

NG Transmission Development Project

Community Based Urban Development

2nd Health Systems Dev.

HN/AIDS Prog. Dev.

PRIVATIZATION SUPPORT PROJECT

Com.-based Poverty Reduction SIL ECON.MGMT.CAP.BLDG.

0.00 139.99 0.00 0.00 0.00 141.93

0.00 120.00 0.00 0.00 0.00 121.72

0.00 32.00 0.00 0.00 0.00 33.47

0.00 0.00 0.00 8.00 0.00 7.33

0.00 120.00 0.00 0.00 0.00 122.28

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

100.00

70.00

28.70

101.00

100.00

100.00

110.00

127.01

90.30

114.29

60.00

20.00

0.00 0.00 0.00 92.64

0.00 0.00 0.00 75.30

0.00 0.00 0.00 50.71

0.00 0.00 0.00 108.51

0.00 0.00 0.00 96.52

0.00 0.00 0.00 87.57

0.00 0.00 0.00 124.60

0.00 0.00 0.00 126.61

0.00 0.00 0.00 81.51

0.00 0.00 0.00 102.54

0.00 0.00 0.00 30.76

0.00 0.00 0.00 4.57

0.00 0.00 0.00 0.00 3.37 0.00

2.35 0.38

10.89 0.00

9.1 1 0.00

5.71 0.25

9.37 0.00

75.93 0.00 27.60 21.39

63.33 49.43

61.08 37.40

55.76 6.55

37.03 -0.60

56.39 21.68

8.95 3.45

-4.02 0.00

Total: 0.00 1,433.29 0.00 8.00 0.00 1,408.57 422.85 139.93

NIGERIA STATEMENT OF IFC’s

Held and Disbursed Portfolio I n Millions of U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00

1999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00

1999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00

1999 AEF Hygeia 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00

2000 AEF Oha Motors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.00

2000 AEF SafetyCenter 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00

1997 AEF Telipoint 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00

1995 AEF Vinfesen 1 .oo 0.00 0.00 0.00 1 .oo 0.00 0.00 0.00

1994 Abuja Intl 1.75 0.00 0.00 0.00 1.75 0.00 0.00 0.00

2005 Accion Nigeria 0.00 1.89 0.00 0.00 0.00 0.41 0.00 0.00

- 63-

2003

2005

2000

2001

2000

2000

1992

2000104

2000

1981188

2002

2001

2004

Adamac

Africa Re

CAPE FUND

Delta Contractor

Diamond Bank

FSB

FSDH

GTB

IBTC

Ikeja Hotel

NTEF

UBA

UPDC Hotels Ltd

25.00 0.00

0.00

15.00

8.00 8.40

0.00

20.00

20.00

0.00

20.00

0.00 11.00

0.00 10.40

7.50

0.00

0.00 0.00 0.86

0.00

0.00 0.25

0.00 0.00 0.00

0.00 15.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

10.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10.00 0.00

0.00 0.00

11.56

0.00 0.00 0.20

8.00

8.40

0.00 20.00

20.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00

7.09 0.00 0.00 0.00

0.00 0.00 0.00 6.00

0.86 0.00

0.00 0.00

0.00 0.00

0.25 0.00 0.00 0.00 0.00 0.00

0.00 0.00

6.94 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00

Total portfolio: 133.29 21.09 20.50 15.00 74.05 8.80 6.00 6.94

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2005 Zenith Bank 0.03 0.01 0.00 0.00

Total pending commitment: 0 03 0.01 0.00 0.00

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Annex 14: Country at a Glance

NIGERIA: State Governance and Capacity Building Project

Nlgcrla

135 7 320

43.7

2 4 2 5

47 47 83

57 32

1893 21 4 23 3 47 1 20 2 13 2

-10 1 4 0

143 8 I 4 8

2092

15 .a 7

-11.1

3.32 14.2 13.7 519.3 s'2 4 0

310 17.2

71 4 62.3 177 17.5 17.5 M 2

1983.93 199353

4 s 4.0 3 6 1.5 4 3 2 7 5 3 3 3

-1 7 -4.4 3 2 13.2 8 5 9 5

- S I $ 0

793 430 347

2 3 2 4

35 46

703

58 35 87 94 $0

2002 46.7 26 1 4u.B 2S.8 1c.1

.10.9 3.3

65 2 15.4

2003

10 7 8 4

32.4

28 " I 1

2003 54.4 12.7 %.a 31.8 2P.2 -2'7 2. B

W 1 104

2003.07

$ 0 2 7 4.5

- 65-

IS83

23 2 28 1

*:7

i 983

10.330 5.951

3 2,m8 1 ,w5

185

188 62

266

1983

r q n e t 3,827 -3,089

-1 327

-5,cc 't

15rr31j 1,045

1,DIS '86

1983

17 562 824 38

2.562 95

f

690 1,015

0

517 $88 3%

2% 58 $1

1993

80.4 52.6

15.5 8 0

1983

9,324 s?js7

40 9,130

77 1 46

59 (39

100

1993

10,062 10,720

A98

-2.346 847

-2,158 9 A 33

725

1&lO 45.3

1993

33.6% 3,188

1 Iff 1,491

583 2

54 a3 9.3 1

0

156 302 310

-8 26 1 .263

2002

$2.9 3.3

3 2 2.1

-5.9

2001

?I 832 15 678

9,058 91

I4 no 1919 4,473

139 89

156

2002

13,632 1s 79.3

-106 .5 10I 1,393

-5.lO.3 2 366 2 742

7 681 123.6

2m2

310,476 '1,275

678 2 930

24.5 16

-126 4 l O

2 481

435 20

189 -le9

15 244

I 4 0 2: 0

36 5 4 3

- 9 3

20161

28,462 23.m 5 229

-8,444 1 657

-1,556 1 ,M§

213

7 466 125 2

3,246

151 63

220 .157

68 -224

~~~ ~

Composition d 2062 d r k (US$ mll j

- 66-

Technical Appendix: Activities under the Core Reform Program

NIGERIA: State Governance and Capacity Building Project

1. This Technical Appendix to the P A D has been prepared to facilitate the implementation o f the Core Reform Program (CW). For each subcomponent, i t presents the sets o f activities to be carried out, the inputs required, and the time periods o f execution.

A. Public Financial Legislation

2. Activities: Three sets o f activities wil l be carried out under this sub-component.

Set 1. The preparation of an organic financial law and Jinancial regulations for the State (Project Months 1 to 12).

Review o f the existing legal framework o n public financial management; Identification o f areas that needs revision in current laws and regulations such as clearer distinction between the responsibilities o f different actors, incorporation o f international accounting standards, implications o f the use o f modem I C T and requirements for greater comprehensiveness and transparency; Drafting o f an organic financial law that reflects the findings o f the review and the provisions o f the Fiscal Responsibility Act to be adopted at the Federal level. Drafting o f revised financial regulations with special attention given to clarity regarding the underlying principles as opposed to detailed procedural issues. Treasury manuals wil l be developed to facilitate operation o f financial systems. This wil l enable the progressive implementation o f the new GFMIS and avoid having to re-issue regulations as the new I C T based systems are developed.

These activities wil l be carried out jo int ly by al l participating states and the FMF with the support o f the OAGF, international public finance management experts located in the NPCU, and local consultants contracted by the State. Three one-day seminars wil l be organized in each state during the preparation o f the new legislation for members o f the State House o f Assembly (SHoA), the State Executive Council and senior state officials.

Set 2. Adoption of the new organic Jinancial law and related financial regulations (before the end of Project Month 18);

e The new organic financial law wil l be presented to and passed by the SHoA not later than by the end o f the second Project Year [September 20071. Thereafter, the State Government wi l l adopt the related financial regulations and implement any organizational or procedural changes required.

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Set 3. Dissemination of and sensitization on the new financial law and regulations (Project Months 16 to 24);

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e

4.

Three thousand copies o f the newly adopted organic finance law wil l be printed and distributed widely (SHoA, State MDAs, the Judiciary, the LGAs, the c iv i l society -private sector organizations, the academia, selected NGOs - and libraries). Two thousand copies o f the financial regulations wil l be printed and distributed to State MDAs and the LGAs. Fifteen one-day seminars wil l be organized to disseminate the new financial legislation and familiarize the various partieshsers concerned including one (1) for the SHoA, one (1) for the Judiciary, three (3) for the c i v i l society, and ten (10) for State government and L G A s officials).

Implementation and Required Inputs. In the State, the Ministry in charge o f Finance wil l be the lead AEA for this component. I t will work closely with the other economic ministries and the Ministry o f Justice, and liaise with the Auditor General. The seminars and workshops wil l be conducted by State officials and local consultants already involved in the preparation o f the new legislation, under the coordination o f the Project Training Advisor located in the NPCU.

B. Budget Preparation

5 . Objectives: The objectives o f the sub-component are to (i) increase the State Government capacity to prepare and implement budget which are fiscally sustainable, closely aligned with priori ty policies and programs; and (ii) enable the State to be in l ine with the requirements o f the Nigerian federation’s fiscal and monetary pol icy objectives.

6. Activities: Building on reform initiatives taken in recent years, the Project wil l help the State Government implement a Multi-Year Budget Framework (MYBF), a simplified version o f a medium term expenditure framework (MTEF), through the sets o f activities described below.

Set 1. Capacity Assessment, Development of MYBF Strategy, and Consensus and Ownership Building (Project Months 1 to 6)

Review o f roles and responsibilities o f MDAs in charge o f budget preparation, economic planning, expenditure control, and sector ministries and agencies; Assessment of the capacity o f the same M D A s to apply new processes and procedures, (including the budget module o f the Budget and Treasury Financial Management Information System - B A T M I S - described below) for the preparation and execution o f the budget and identification o f the skill gaps for budget preparation in a multi-year perspective ; preparation o f the specific MYBF strategy for the State with an action plan; Organization o f three (3) one-day budget reform consensus and ownership building seminars: one for the state political leadership (with participants from the legislative and executive branches); and two for managers and senior staff from central ministries and key spending MDAs. The seminars will enable the implementation team to share i t s findings and refine its action plan.

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Set 2. Strengthening the budgetavy basics (Project Months 5 to 10)

Revision o f budget preparation process, including adjustments to the roles and responsibilities o f the major M D A s involved in the preparation o f the budget as needed. This will be initiated by a seminar with the participation o f the commissioners and permanent secretaries o f the MDAs. Progressive implementation o f the BATMIS budget module. Revision o f budget classification, and BATMIS CoA, including program classifiers Revision o f the Call Circular to reflect the changes being introduced in the budget preparation process, including information on sectoral and ministerial ceiling Development o f Operation Manuals based on new budget preparation process taking into account the B A T M I S budget module implementation Four one-day sensitization seminar on concepts and operating mechanisms o f MYBF: one (1) for the State political leadership (with participants from the legislative and executive branches); and three (3) seminars for managers and senior staff from central ministries and key spending MDAs; Interaction with B A T M I S and HRMIS implementation teams to spell out requirements for the budget preparation function.

Set 3. Development of Fiscal Policy with Sectoral Priorities (Project Months 6 to 11)

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Development o f 3-year fiscal pol icy paper in line with SEEDS objectives; Review o f sectoral spending patterns and development o f sectoral strategy papers and sector expenditure programs for both recurrent and capital spending (three to six sector ministries); Development o f a preliminary expenditure framework that includes sectoral resource envelopes and priority programs; Step 3 wil l require a one-day methodology and work planning workshop in the beginning and, at the end, another one-day stock taking workshop on fiscal pol icy and expenditure framework implementation for MYBF implementation team and selected officials from central economic ministries and spending MDAs.

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Set 4. Trial Merge of MYBF with Annual Budget Process for the budget of the year 2007 (Project Months 11 to 17)

0 Preparation o f a draft expenditure framework discussed by the State Budget Committee and the Executive Council with a total resource envelope and sectoral/ministerial ceilings; Preparation o f a draft budget requests by spending ministries using MYBF-based call circular. This wil l include a methodology workshop for spending M D A s followed by support to the M D A s by MYBF implementation team members as necessary; Preparation o f a draft annual budget based on MYBF and reviewed by Executive council in light o f budget actually submitted to be SHoA for the year 2007.

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Set 5. Actual Merge of MYBF with Annual Budget Process for Budget of 2008 (Project Months 20 to 27)

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Presentation o f expenditure framework to the State Budget Committee, and subsequently, the Executive Council to agree o n the total resource envelope and the sectoral/ministerial ceiling; Preparation and submission o f budget requests by spending ministries using MYBF- based cal l circular; Presentation o f the annual budget based on MYBF to the SHoA for approval

Set 6. Consolidation of MYBF (Project Months 2 7 onward)

Annual stock taking workshop on MYBF implementation process for MYBF implementation team and selected officials f rom central economic ministries and spending MDAs. Review achievements, identification o f areas o f improvement and development o f an action plan; Project year 4: Budget Retreat for State political leadership (legislative and executive) including the review o f the state experience with MYBF in terms o f budget preparation, approval process, and execution.

7. Implementation and required inputs. The ministries in charge o f budget wil l be the lead AEAs for this sub-component. I t wi l l designate a senior officer to act as the coordinator o f the state MYBF implementation team o f about ten (10) persons. The Team will be put in place before the end o f [July 20051. I t wil l include representatives o f the economic central ministries and selected spending MDAs. To facilitate the effective implementation o f the sub-component, the Team wil l benefit from the services o f foreign and local consultants whose activities wil l be coordinated by the Public Financial Management Specialist - Budget Reform, located in the NPCU. The objective wil l be for the State Government to present to the SHoA annual budgets based on the MYBF starting with the budget for 2008 at the latest. However, any participating state ready to proceed with the merge o f MYBF with the annual budget process starting with the budget for the year 2007 i s encouraged to do so.

C. Accounting, Expenditure Control and Financial Reporting

8. Objectives: The objectives o f the sub-component are to (i) provide an accounting system that reflects accurately and completely in accordance with recognized accounting standards the f low o f transactions and the year end stock o f financial resources o f the State Government in a timely manner, and (ii) improve the integrity o f transactions through strengthened financial and internal control. Achievement o f these objectives will involve very close coordination with components B & E involving the implementation o f MYBF and BATMIS.

9. Activities. This sub-component wil l include the fol lowing sets o f activities.

Set 1. Introducing a modern accounting and financial reporting framework (Months 1 to 10) as a basis for implementation of BATMIS and improvedfinancial reporting.

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0 Review the accounting classification to check proper application o f the Standard Chart o f Accounts (SCOA) and reporting requirements which are developed and proposed by the Federation Account Allocation Committee (FAAC); Introduction o f new classifiers such as function, program, virtual poverty fund for introducing MYBF and poverty-related expenditure tracking; Production o f updated Annual Accounts o f 2003 and 2004, if necessary, with reclassification o f transactions based on the SCOA; Dissemination o f the SCOA and reporting formats to al l MDAs .

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Set 2. Improving internal control (Months 2 to 15) 0 Review o f the existing business processes/controls o f Treasury Department, from the

receipt o f monthly transactions from al l spending ministries and local governments to the production o f trial balance, general ledger, special ledger, monthly accounts, and annual accounts; Revision o f business processes and distribution o f responsibilities among the state agencies to reflect the introduction o f MYBF and BATMIS. This will include introducing new commitment and cash control system for budget releases; Development o f the principles for application in B A T M I S and o f operational manuals which wil l be one o f the key material for staff training under the sub-component.

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Set 3. Providing Intensive training in Public Sector Accounting and Expenditure Control (Months 4 to 48)

0 Two (2) one-day seminar for managers (deputy directors, directors and above)

Eight (8) two-day semi residential technical training sessions for accounting and financial management staff f rom the central economic and financial ministries, the spending MDAs, and the LGAs.

Training o f five trainers, out o f a pre-selected list o f at least eight candidates. The individuals confirmed wil l fo l low an appropriate training for trainers program in a reputable national institution. The candidates will have to have advanced skills in the use o f computer software including at least one accounting software. They will be committed to at least three years o f service with the State c iv i l service upon completion o f their training for trainers program.

0

10. Implementation and Required Inputs. The ministry in charge o f finance, acting through the OAGS will be the lead AEA for this sub-component. The activities wil l be supported and coordinated by the Public Financial Management Specialist located in the NPCU. Additional consultancy services will be provided to facilitate the timely achievement o f the sub-component operational objectives and carry out the training activities until the trainers to be trained take over.

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D .External Audit

1 1. Objectives. The objectives o f the sub-component are to (i) improve the effectiveness and timeliness o f external audit function in the State public sector, and (ii) increase the awareness o f the Public Account Committee (PAC) o f the SHoA, the Ministry o f Finance and spending ministries on the importance o f audit and their responsiveness to the findings o f the reports form the Office o f the State Auditor General (OSAG). 12. Activities. The sub-component i s designed to strengthen both the supply and the demand sides o f external audit functions so that the quality o f auditor’s report is enhanced and the findings o f the OSAG are followed up and corrective actions taken. The sets o f activities planned are the following.

Set 1. Increasing OSAG operational Capacity and Deliveries (Months 2 - 28)

0 Contracting two seasoned auditors from the private sector for a budget equivalent to forty eight person-months. During the f i rs t year, they will provide continuous service in the OSAG and wil l be in l ine position, overseeing the work o f several officers. They wil l develop rol l ing two-year work programs that enable the OSAG to discharge its mandate immediately to meet the requirements o f increased transparency and accountability in the use o f public resources in the State. The contracted auditors will have to have strong communication sk i l ls and a confirmed experience in conducting training sessions for accountants and auditors, and in coaching professional level staff. Upgrading IT and office equipment in the OSAG in coordination with activities o f Set 2. 0

Set 2. Conducting Comprehensive Review of Current Audit Practices (Months 3 - 6)

0 Business process review and revision o f external audit processes, including materiality setting techniques, auditing on payroll and major procurement, and auditor’s report format. This reviewh-evision wi l l be camed out by the senior auditors indicated above upon inception o f their assignments and wil l include a detailed action plan for further audit refondcapacity enhancement in the State. Specific attention wil l be given to the audit implications o f the introduction o f B A T M I S and I C T based accounting systems. Dissemination o f the review findings and recommendations. Once approved by the auditor General, the review findings and recommendations, including the action plan, wil l be presented to the SHoA and the State Governor before being made public.

0

Set 3. Building the Capacity of OSAG staff(months 4 - 40)

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Provision o f on-the-job training by the seasoned auditors contracted from the private sector to OSAG staff. Provision o f advance training to ten promising officers o f the O S A G in modem auditing practices, internal control assessment, and preparation o f an auditor’s report. The training will be provided by a Nigerian training institution with the collaboration o f the seasoned auditors contracted from the private sector. Use o f computerized audit techniques. 0

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Set 4. Consolidating Demand of an effective External Audit Function (Months 6 - 48)

Organization o f an annual public forum where the Office o f State Auditor General (OSAG), the OAGS, the central economic ministries, spending ministries, and State House o f Assembly, and representative o f the c i v i l society come together to discuss the issues related to external audit function. The f i rs t such forum wil l discuss the review report and action plan referred to under Step 3.

0 Putting in place a State Committee on Audit to be chaired by a representative o f the SHoA and will include representative o f the State Governor’s office, selected ministries, and the State Auditor General (SAG). The mandate o f the committee wil l be to monitor action taken on the findings in the Auditor’s Report, including incentives and disciplinary sanctions which are backed up by legal provision. The committee wil l meet each quarter to discuss and agenda prepared by the SAG.

13. Implementation and Required Inputs. The OSAG will be the lead agency for the implementation o f the sub-component. I t will work closely with PAC/SHoA and liaise with the State executive branch o f government as necessary.

E. Budget and Treasury Management Information System

14. Objective. The objectives o f this component are (i) to implement a basic integrated Budget and Treasury Management Information System (BATMIS), which wil l support planning and budgeting, transaction processing, accounting, and reporting on the use o f financial resources; and (ii) make available a reliable and unif ied database, which wil l be shared by al l users, and feed both the State Government and the FGN with the information that they need respectively. This system will be consistent with the budget and accounting frameworks developed under components B& C.

15. Approach. The BATMIS will be based on a medium range off-the-shelf package that includes standard modules such as budgeting, commitmentkash management, general ledger, purchase order, accounts receivable, accounts payable, bank reconciliation, financial reporting, with capability to link to human resources/ payrol l systems The system will provide for operation over a small scale Local Area Network (LAN) installation or State Campus based Wide Area Network(WAN). The system design should facilitate the adoption o f the budget and financial management reforms targeted under the Project (MYBF, Budget Reclassification, Improved financial reporting according to GAAP).

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16. T h e system will facil i tate the f o l l o w i n g core functionalit ies:

Module Description

Budgeting (multi-year) 0 Maintains multi-year forecasts 0

0

0 Automates annual budget preparation 0

Maintains rol l ing adjustments to multi-year forecasts Maintains records o f contingent liabilities and fiscal r isks

Multi-year budgeting functionality. This i s desirable for integrating the MYBF and MTEF processes with annual budget preparation.

0 Facilitates recording o f a l l individual transactions f rom other modules

changes 0 General joumal functionality 0 Structured according to the revised chart o f accounts. 0 Facilitates adoption o f accrual accounting principles 0 Supports Financial Reporting

Treasury General Ledger (TGL) 0 Includes Budget ClassificatiodCoA coding structures and provides for

Purchase Order & Accounts 0 Facilitates Requisition and Order Management Payable (AP) 0 Facilitates Commitment Control

0 Records supplier details 0 Records supplier invoices 0 Records payments 0 Produces TGL joumal entries 0 Reports o n aged payables 0 Reports o n commitments 0 Facilitates

Accounts Receivable (AR) 0 Records invoices 0 Records receipts 0 Produces TGL joumal entries 0 Reports o n aged debtors

0 Tracks budget commitments 0 Monitors budget execution

Budget Execution 0 Maintains budget appropriations

Cash and Bank 0 Monitors cash usage Management 0 Produces TGL joumal entries

0 Forecasts cash requirements 0 Supports bank reconciliations

Consolidation 0 Data collection functionality 0 Consolidation functionality for budgets and forecasts

Report Writer 0 Produces standard and ad hoc reports

Interfaces 0 Integration with HRPayro l l 0 Integration with Revenue/Other Systems

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17. The BATMIS will be implemented in a phased manner (development, piloting, rol l ing out, and full-blown) according to clearly spelled out implementation plans designed with the assistance o f consultants. I t i s anticipated that the State functions, undertaken by Central Economic Agencies wil l be the f i rst priority, followed by implementation in finance and accounting units in pi lot sites with a subsequent rollout to other ministriedagencies. The phasing o f implementation will allow time for the development o f necessary I C T and application management skills and full ownership. The Project will promote the adoption o f common I C T standards and skills sets, the use o f a common I C T architecture and improved levels o f integration. The major BATMIS implementation processes would be undertaken in parallel with the reform o f budgeting, accounting, and expenditure control. In addition, the I C T infrastructure and human resource capacity existing in each state will be utilized to the extent possible.

18. The init ial focus wil l be on setting up, within twelve months o f project commencement, the core budgeting and accounting modules. This process wil l provide for both formal and action based learning for the implementation teams. Setting up these two modules first wi l l allow the implementation teams to address the key conceptual issues (CoA, budget classification, MYBF) without disrupting ongoing operations in the ministries. I t wil l also allow the use o f the budget module for the 2007 budget preparation (in parallel) and use o f the GL for consolidation and reporting o f 2005 budget (in parallel).A pi lot exercise will be implemented for Ministries prior to the rollout o f the system to al l Ministries.

19. Activities. The activities planned under the sub-component are as follows.

Set 1. Establishment of State Level Project Governance Structures and Mobilization of the BATMIS implementation Teams

0 Establishment o f State level B A T M I S governance arrangements including: . A Coordination Committee o f Key State Stakeholders (SMF, SGO, SOAG, SBD, SAG, Coordinator etc) wil l be responsible for: providing overall pol icy guidelines for the IFMS project, ensuring commitment at the highest levels, overseeing the IFMS project, setting overall priorities, confirming IFMS project goals and objectives, committing and monitoring resources and budget, reviewing IFMS project progress, endorsing milestone achievements, providing resolution o f escalated issues, endorsing organizational, pol icy and strategic changes decisions. Appointing a B A T M I S Sponsor (the SAG in preferably) who wil l be responsible for providing technical advice and guidance to the I F M S project, establishing project goals, objectives, and priorities, Establishing resources and budget, appointing the IFMS project team, articulating organizational, pol icy and strategic change issues arising f rom the IFMS project which require escalation to the Steering Committee, reviewing and reporting o n IFMS project progress to the Steering Committee. Establishing the B A T M I S Management Team who will assist Sponsor to facilitate Project scheduling, resource management, Risk management, Communication, Change management and training, Procurement and ICT technical liaison and management o f the Contractor.

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The B A T M I S Sponsor and B A T M I S Coordinator will provide the link between the State and the Central Implementation Team.

0 Establishing BATMIS implementation teams in the OAGS and identification o f champions in key user agencies. The B A T M I S implementation team wil l include staff who are capable o f development o f FM, ICT, training, and audit/controls skills. During the implementation stage these teams wil l work closely with the implementing contractor. Once implementation is complete the team will become the core application and I C T management team for the system thereby ensuring sustainability; Provision o f induction training for the project implementation teams;

0 Provision o f basic Office infrastructure and equipment for OAGS project implementation team;

0 Commissioning a training needs analysis (TNA) and training program development for staff involved in the BATMIS operation and resulting in a training strategy. Where necessary this study wil l also consider restructuring implications; Conducting training programs for both senior management and end users to sensitize and mobilize strong support from the leadership. Early sensitization and engagement o f a l l stakeholders (Budget / Macro / Audit etc) i s essential to ensure firm commitment and participation from stakeholders; Developing a B A T M I S conceptual framework to guide the implementation process from a P F M perspective.

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20. In order to successfully sustain the implementation o f the IFMIS it is essential that the States develop the ‘in-house client side capacity’ to facilitate overall supervision and management o f both the project and o f the IFMIS applicatiodICT concerned. The Governance arrangements provide for overall project management and integration with the State organisational arrangements. The IFMIS management involves the following three dimensions.

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Management and staff capacity to use the system. Creation o f application support capacity to manage, support and train the users and to interface with the I C T support function for technical problem resolution and ongoing application development. The long term role o f the Project Implementation Group. I C T support for management o f the Data Centre, LAN, WAN, Hardware and for ongoing technical management and development o f the system. (This can be either developed in house or partially contracted out)

0

2 1. of the tasks to be performed and the skills that need to be developed.

The Table below identifies the units responsible for each o f these dimensions, the nature

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Application Users

SMF(Budget1, OA GS , Min istrv/Anencv Finance and Accounting Units, Budget & Transaction data input (Budgets, Releases, Warrants, Commitments, Expenditure, Revenue, Journals etc) and Processing o f outputs (Reports, Cheques etc).

Production o f pre defined and ad hoc reports using standard tools.

Ski l l Sets: 1. Budget, Accounting

and Financial Management Skills.

2. Specific BPEMS processing functional skills.

Application Management & Support (Project Implementation Teams) Application Support Functions SMF(Budget) & OAGS

Application System set-up and maintenance. Maintenance o f Budget ClassificatiodChart o f Accounts. User administration. User training. User support & application problem resolution. Application help desk Application Quality Control. Rollout o f Application to new users. Change Management Skill Sets: 1. Budget, Accounting and

Financial Management Skills.

2. Broad BPEMS application skills.

3. Specific BPEMS Systems Management Skills.

4. BPEMS Application Problem identification and resolution skills.

5. U s e r Training Skills. 6. Management, interpersonal

and change management sk i l ls

ICT Support Unit

IT Suuport Function or Facilities Management (Computer Unit) Data Centre Management Database Administration Server Operating System Management. Network Administration Security Administration Hardware SupportMaintenance W a d L A N Maintenance Technical Application Support- development, interfaces, upgrades etc. Technical Help Desk

Ski l l Sets: 1. Technical Support-

LANIWANlNetwork 2. Computers operations 3. Systems Support- DBA,

Systems Admin. 4. Quality Assurance

22. The central B A T M I S team will provide support for the induction training, TNA and Conceptual Development Process and for in service training o f the various support groups.. I t i s essential that the B A T M I S implementation i s driven from a PFM perspective with adequate I C T support. The PFM Advisor will provide the technical support for the conceptual development and the I C T Advisor wil l support the development o f the facilitating I C T framework.

Set 2. requ ivem en ts

SpeciJication and Acquisition of the BATMIS Software Package and implementation

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0 Undertake a Financial Management Study (FMS) as a basis for specification development. Existing studies from other countries in Africa (Tanzania, Kenya, Uganda) can be utilized to accelerate the development o f these documents. The study needs to clearly elaborate the key features that an IFMIS would need to satisfy. Although i t i s not necessary to provide a detailed specification for every aspect o f the system, as these are usually standard to al l packages, it i s necessary to ensure the unique context specific state public sector requirements are recognized and provided for. The Study will also elaborate the I C T framework, implementation methodology and procurement approach; An IFMIS I C T policy wil l be prepared to guide staff in the I C T implementation activities related to the IFMIS. Such a pol icy would also address issues l ike the replacement plan for obsolete equipment and technology review and update for improved component performance. I t will also provide standards for common platforms and skill requirements;

0 Preparation o f the terms o f reference (TOR) and contracting o f a software implementation consultant (Contractor) Completion o f the consultant analysis and recommendation including the technical specification relating to the B A T M I S , RFP documents, outline costing, evaluation instrument; Stakeholders review o f agreement with recommendations; Completion o f supplier short-listing, tendering, negotiation and contracting o f the B A T M I S supplier using a turnkey. The tender documents wil l provide for a comprehensive mid-range system, that can be implemented o n a turnkey and modular basis (Hardware, Software, Communications, Project Management etc). The aim i s to provide for a single contractor to take responsibility for a l l aspects o f the implementation irrespective o f what work was subcontracted. The evaluation criteria wil l be pre-specified (Mandatory, Desirable, Discretionary) and weighted and the evaluation wil l involve an extensive analysis o f the proposals. Intensive negotiations encompassing representatives from the Government and the preferred bidder will need to be undertaken. Apart from the technical solution considerable attention will be given during the negotiations to capacity building, contract management, change management and quality assurance.

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23. The scope o f the financial management study will be sufficient to ensure the expected deliverables are we l l defined up front and the specifications, evaluation criteria and tender documentation are sufficient to enable the procurement o f the BATMIS. The States wil l provide significant input to enable the consultants appreciate any unique accounting requirements. All stakeholders wi l l participate in the design activities thereby creating awareness o f the need to change from manual processes. The design review wil l identify any institutional and management o f change processes required to ensure the proper implementation o f the BATMIS.

24. A quality assurance dimension wil l be designed into the project to ensure the proper management o f the project implementation f rom the supplier and purchasers perspective. Process flows associated with the functional specifications will be prepared. Costing for the proposed solution will be prepared in order to ensure that the implementation i s benchmarked for time and cost. A key deliverable for the contractor will be to transfer knowledge to the implementation teams, thus, emphasis wi l l be placed o n the contractors responsibility for supporting change management, long term sustainable operation o f the system, and providing sufficient on-the-job training for the State Government c iv i l servants.

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25. Sound procurement and contract management activities wil l be put in place that ensure:

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The procurement strategy provides for detailed negotiations with the preferred supplier to ensure value for money. The proposed contractor has significant IFMIS implementation experience, curriculum vitae o f the staff provided for implementation o f the application wil l be properly evaluated. Licensing arrangements are comprehensive and transparent. The software will be purchased on the basis o f perpetual concurrent licenses which wil l help to minimize the cost o f license acquisition and maintenance. Suppliers offering only named user licenses will be excluded as part o f the procurement processes. The acquisition o f software wil l be purchased on the bases o f use for any Public Sector Entity subject to payment o f the license fee. I t is. expected that volume discounts wil l be possible as the user base increases to include other Ministries and Agencies. The contractor i s fully aware o f capacity building and knowledge transfer as key requirements. The contractor is operating onshore, creating capacity in Nigeria for sustainability o f the implementation and reducing costs for implementation activities. A single point o f reference for contractor management exists. Contracts are drawn up providing for appropriate maintenance.

4

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. 4

26. The central B A T M I S implementation team will support al l aspects o f the procurement process. A single process wil l be followed for al l participating states with the State Project Sponsors and Coordinators playing a key r o l l in facilitating the decision-making processes on behalf o f the State.

Set 3. Implementation of the Basic Modules (Public Sector Budgeting, Cash Management, General Ledger, Financial Reporting) in the Central Economic Ministries and ICT Infrastructure (Data Center LAN/Campus WAN),

> Review and revision o f the State PFM-related business processes being undertaken by the central agencies;

> Establishment (based o n the Project Implementation Team) o f the Application Management Function in Office o f Accountant General and the Budget Div is ion o f the State; Development o f a detailed implementation plan. The plan will provide for: P

0 Scope o f project implementation 0 Resources required 0

0 Time frame for implementation 0 Specific time bound outputs

Activities planned to be undertaken

27. The plan wil l indicate the different activities planned for contract management, for training, change management, application management and any other issues that the management team requires to be planned for. All planned activities will be developed o n a Gantt

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Chart that wil l be used for monitoring and reporting to the Management Team o n a weekly basis. This chart will be the main tool o f management of the project activities by the project manager. The plan will be agreed and signed o f f before implementation proceeds.

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Acquisition o f P F M software (all modules and users) and detailed mapping o f the software to the requirements; Implementation o f core modules including public sector budgeting, cash management, general ledger. This wil l include configuration, user acceptance testing, data migration and production testing. I t will also require definition o f roles and responsibilities o f the users and review o f existing controls and manual interfaces. The software wil l provide for differential implementations, according to the needs o f the sector (accruaVcash accounting); Creation o f B A T M I S I C T Data Center (in existing agencies such as the Department o f Computer Center o f Ministry o f Finance in the case o f Bauchi State) and setting up o f the LAN/WAN infrastructure ;

0 Build up o f B A T M I S capacity utilization through the implementation o f a comprehensive package o f skills gap bridging courses o f different levels (basic, intermediate, and advance) for application managers, users, managers, and to-be I C T specialists.

0

28. This skills development wil l take place during each part o f the implementation process including business process review, design, review, testing, parallel running, production testing, go l ive and post go l ive sign off. The Central Implementation team will provide technical advice (PDFM and ICT) and support for each o f these processes as wel l as assisting in the management o f the contractor.

Set 4. Pilot Implementation in 4 Spending Ministries and Agencies

0 Implementation o f BATMIS basic modules (Public Sector Budgeting, PO, Ap, AR, GL, FR) at ministry level;

0 Pilot Ministry level I C T and Site Setup; 0 Provision o f intensive on-site user training and capacity building workshops; 0 Regular structured discussions between the B A T M I S implementation teams and the

users group.

29. I t i s proposed that the Accounting Units in the SMF and OAGS should constitute two o f the sites wi th a further two selected from other Ministries. The pi lot exercise will be used to setup and test the transaction processing functionalities o f the systems prior to full rollout to other ministriedagencies. The central Implementation team will again provide technical and problem resolution support.

Set 5. Roll out to Spending Ministvies and Agencies

0

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0

Progressive extension o f tested BATMIS modules to all Ministries. Rollout Ministry Level I C T and Site Setup. Provision o f intensive on-site user training and capacity building workshops;

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0 Regular structured discussions between the BATMIS implementation teams and the users group.

30. The lessons to be learned with pi lot ministries implementation wil l be shared and reflected by the Central Implementation Team into fine-tuning roll-out plans. In addition, the implementation team would support capacity building and sustainability o f the implementation.

31. Implementation and Required Inputs. The OAGS (Project Sponsor) in the ministry in charge o f finance in each participating state, the Project Coordinator (& Implementation Group) and the central B A T M I S implementation support team in the N P C U will have primary responsibility for the subcomponent, ensuring that sufficient staff are trained to operate and maintain the system.

32. At the state level and under the coordination and leadership o f the OAGS, the development and implementation o f the B A T M I S will be a jo int effort o f a number o f agencies (budget department, accounting department, treasury, state planning commission, financial control units, computer center, l ine ministries, Office o f the Head o f C i v i l Service) because o f the very nature o f the information system that wil l integrate data relating to several functions. A Steering Committee o f key stakeholders wil l support integration at a l l levels. W h i l e each state wil l seek to benefit from the experience o f the others, the migration plans (transition from the current to the future information system) are likely to differ from one state to the other substantially as a result o f differences in information technology and in house expertise. The central B A T M I S implementation support team will assist the states to specify, procure and implement the information system and, together with the contractors provide training and technical support for the State Implementation Teams.

33. end o f the second year o f i t s subproject implementation.

For each state, it is expected that key modules o f the B A T M I S wil l be effective by the

34. Project management arrangements based on milestones, scope, cost and time will be elaborated. The agreed and documented project plan for the implementation o f the IFMIS will form the basis for monitoring the implementation. Proper reporting arrangements wil l be put in place to ensure the supplier provides progress reports to monitor performance. Such reports would comprise weekly reports, monthly reports, end o f assignment reports and will be complimented by regular review meetings with the contractor. Proper documentation and record keeping procedures wil l be maintained. A risk management plan, that would assist in the identification o f major risks, analysis o f their potential for occurrence and development o f mitigation strategies should these risks crystallize will be developed. The Central Implementation Team will assist the States to establish these arrangements.

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Probability

Medium

Major Implementation Risks

35. The following are assessed as the major implementation risks and the mitigating measures:

Mitigating Measures

Install effective Project Governance Arrangements. Maintain impetus

No. I Risk

i.

11

111. ...

Lack o f Top Management Commitment to drive the required changes

Insufficient Contractor Skills Resistance amongst staff to change to use the system

Medium High

I implemented resulting into loss in

and momentum to change Ensure thorough evaluation process Undertake change management,

I confidence o f the system I Organisational policies remain static and vii.

H igh

H igh

H igh

training and capacity building activities Recruit support for implementation activities. PC and Implementation Groups Provide a performance based incentive for the MDAs meeting the computerization objectives Ensure supplier resolves al l application issues

I

iv.

V.

vi.

Insufficient ski l ls and staff to support the implementation activities to completion

Input effort not sufficient to drive changes and not compensated for with normal pay Application controls not properly

viii.

ix.

portraying manual processes instead o f moving towards IFMIS implementation activities Implementation o f the I C T poses IFMIS implementation constraints for those ministries not yet covered Contractor not able to support the system onshore

H igh

H igh

Medium

High

IFMIS Ensure that the pi lot phase i s fully tests LAN/WAN

Create capacity o f staff and focus on deliberate knowledge transfer o f the implementation activities Require Contractor to create capacity. - Use project plans and project documentation to ensure non slippage

Change processes, procedures, guidelines and structures in Ministries to institutionalize the

X. Weak project management and monitoring o f outputs and deliverables resulting in implementation slippages

F. Human Resource Management and Staff Training Enhancement

36. Objectives. To support the efforts made by the participating states in recent years to reduce fraud and corruption in the management o f human resources and improve staff perfonnance, the sub-component objectives are to (i) provide each state with a sound and reliable data base o n the personnel employed by or retired from the State government; (ii) enable effective establishment controls; and (iii) enhance staff training in economic and social development ministries.

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37. Activities. The set o f activities planned under this component are the following.

Set 1. Staff audit and nominal role updating (Project months 9- 16)

Comprehensive staff audit including payroll parades, where necessary, to ensure that information to be inputted in the new HRMIS and B A T M I S Payroll module i s clean and up-to-date. This wil l require the contribution o f consultants. Harmonization o f the payroll and the nominal role.

Set 2. Human Resource records modernization (Project months 1 - 24)

a

a

a

Set 3. a

a

a

Set 4,

a

a

a

a

38.

Development o f a strategy and action plan for the modernization o f the state personnel record management with the assistance o f consultants who will be required to prepare a new records procedures manual; Facility upgrading and equipment o f registries in the context o f the strategy implementation; Records training for staff o f the Office o f the Head C iv i l Service o f the State

Installing a modern HMIS (Project months 6 - 30)

Mobilization o f a H R M I S implementation team and review o f current shortcomings Specification and acquisition o f a software package in close coordination with the B A T M I S implementation exercise. Staff training to the HRMIS: HR officers in ministries, managers, and I C T specialists

Enhancing staff training

Monitoring the training activities directly l inked to each sub-component o f the Project to ensure the sustainability o f the institutional reforms and business process change being introduced. Adopting a State staff training pol icy statement. This will include a one-day validation seminar at the technical level before submission o f the draft to the State Executive Council. Managing the Economic and Financial Knowledge Enhancement Program. Designed for middle level/mid-career staff, the program wil l cover such topics as national economic policies and state development strategy; budgeting and expenditure control; accounting and financial reporting; procurement methods and practices; and human resource management and payroll. A budget provision have been made to allow each state to send up to fifty officers to the program Logistical support to the Office o f the Head o f Service.

Implementation and Required Inputs. Office o f the Head o f Service o f the State wil l be the lead agency for the implementation o f the sub-component, in coordination with the ministries in charge o f planning, budget and finance and any existing computer center that currently contributes to the processing o f the payroll.

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39. Special consideration will be given to ensuring that the technology platform for HRMIS will be compatible with the one to be developed under B A T M I S component. In addition, although l imi ted in scope, this subcomponent has been designed to facilitate more comprehensive human resource management including changes in organizational processes, structures, staffing, skill sets, management style and organizational culture. The I C T specialists in the NPCU will also support the development and implementation o f modem HRMIS in the states, encouraging common solutions when feasible.

40. The Economic and Financial Knowledge Enhancement Program will be developed and executed for the three participating states by a reputable Nigerian training institution with the assistance o f the NPCU.

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MAP BRD No. 33458

MAP SECTION