A Document of The World Bank FOROFFICIAL USEONLY Report No: 38277 - MD PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT INTHE AMOUNT OF SDR 11.3 MILLION (US$17 MILLION EQUIVALENT) TO THE REPUBLIC OF MOLDOVA FORA HEALTHSERVICES AND SOCIAL ASSISTANCE PROJECT May 8,2007 HumanDevelopment Sector Unit Ukraine, Belarus and MoldovaCountry Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only inthe performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (Exchange Rate Effective April 12, 2007) Currency Unit = Leu MDL12.46 = US$1 US$1.52 = SDR 1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CEB Council o f Europe Development Bank DfID UnitedKingdom Department for InternationalDevelopment ECA Europe and Central Asia EGPRSP Economic Growth Poverty Reduction Strategy Paper EU European Union GDP Gross Domestic Product HIC Health Insurance Company HN Human ImmunodeficiencyVirus IDA InternationalDevelopment Association IMR InfantMortality Rates MDG MillenniumDevelopment Goals MHI Mandatory Health Insurance M O H Ministryof Health MOSPFC Ministryof Social Protection, Family and Child SCPHSM Scientific Center for Public Health and Sanitary Management NSM National Social Insurance House MCC Millennium Challenge Corporation MTEF Medium Term Expenditure Framework OECD Organization for Economic Cooperation and Development PHC Primary Health Care PRSC Poverty Reduction Strategy Credit QER Quality Enhancement Review SIDA Swedish InternationalDevelopment Agency SIL Specific Investment Loan TB Tuberculosis UNICEF UnitedNations Children's' Fund W B World Bank WHO World Health Organization Vice President: Shigeo Katsu Country Director: Paul G. Bermingham Country Manager Edward K.Brown Sector Manager: ArminFidlerfHermannvon Gersdoff Task Team Leader: Rekha Menon FOROFFICIAL USE ONLY MOLDOVA HealthServices& SocialAssistance Project CONTENTS Page I . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 A. Country and sector issues .................................................................................................... 1 B. Rationale for Bank involvement .......................................................................................... 3 C. Higher level objectives to which the project contributes .................................................... 4 I1 . PROJECT DESCRIPTION .............................................................................................. 5 A. Lendinginstrument.............................................................................................................. 5 B. Program objective and Phases:............................................................................................ 5 C . Project development objective and key indicators .............................................................. 5 D. Project components.............................................................................................................. 5 E. Lessons learned and reflected inthe project design ............................................................ 9 F. Alternatives considered and reasons for rejection............................................................... 9 I11. IMPLEMENTATION ..................................................................................................... 10 A. Partnership arrangements .................................................................................................. 10 B. Institutional and implementation arrangements ................................................................ 10 C . Monitoring and evaluation o f outcomeshesults............................................................... -11 D. Sustainability ..................................................................................................................... 12 E . Critical risks andpossible controversial aspects ............................................................... 12 F. Loadcredit conditions andcovenants ............................................................................... 13 IV . APPRAISAL SUMMARY .............................................................................................. 14 A. Economic andfinancial analyses....................................................................................... 14 B. Technical ........................................................................................................................... 16 C. Fiduciary............................................................................................................................ 16 D. Social ................................................................................................................................. 18 E. Environment ...................................................................................................................... 19 F. Safeguard policies.............................................................................................................. 20 G. Policy Exceptions and Readiness ...................................................................................... 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not be otherwise disclosedwithout World Bank authorization. . Annex 1: Country and Sector or ProgramBackground .......................................................... 22 Annex 2: Major RelatedProjectsFinancedby the Bank and/orotherAgencies ..................30 Annex 3: Results Frameworkand Monitoring ......................................................................... 32 Annex 4: DetailedProjectDescription ...................................................................................... 39 Annex 5: ProjectCosts................................................................................................................ 51 Annex 6: ImplementationArrangements .................................................................................. 53 Annex 7: FinancialManagementand DisbursementArrangements ..................................... 55 Annex 8: ProcurementArrangements ....................................................................................... 68 Annex 9: Economic andFinancialAnalysis .............................................................................. 81 Annex 10: SafeguardPolicyIssues ............................................................................................. 91 Annex 11:Anti-corruptionActionPlan .................................................................................... 95 Annex 11:ProjectPreparationand Supervision ...................................................................... 98 Annex 12: Documentsin the ProjectFile .................................................................................. 99 Annex 13: Statement of Loansand Credits ............................................................................. 101 Annex 14: Countryat a Glance ................................................................................................ 103 MAP: IBRD33448R MOLDOVA HEALTHSERVICES & SOCIALASSISTANCE PROJECTAPPRAISALDOCUMENT EUROPEAND CENTRALASIA ECSHD Date: May 1, 2007 Team Leader: Rekha Menon Country Director: Paul G.Bermingham Sectors: Health (66%);0ther social services (34%) Sector Manager: Armin FidlerkIermann Von Themes: Health system performance (P);Social Gershdoff safety nets (P);Social risk mitigation (S) Project ID: PO95250 Environmental screening category: S2 Lending Instrument: Specific Investment Loan [ 3 Loan [XI Credit [ ] Grant [ ] Guarantee [XI Other: Parallel For Loans/Credits/Others: Total Bank financing SDR m.(US$m.): 11.3 million SDR (US17.00 million) Other Parallel Financiers* 7.71 17.08 24.80 InternationalDevelopment Association (IDA) 9.20 7.80 17.00 Total: 18.24 26.12 44.36 *Includes EU-TACIS.CEB (DFID-SIDAamount not known Borrower: Republic of Moldova Ministryof Finance 7 Cosmonautilor Str. Chisinau, Moldova MD-2005 Tel: (37322) 233575 protocol@minfin.moldova.md ResponsibleAgency: Ministry of Health; Ministry o f Social Protection, Family and Child Chisinau, Moldova Does the project depart from the CAS incontent or other significant respects?Ref: PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Ref: PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Ref: PAD C.S [XIYes [ ]No Does the project meet the Regionalcriteria for readiness for implementation? Ref: PAD D.7 [XIYes [ ]No Project development objective Ref: PAD B.2, TechnicalAnnex 3 The proposed Project will be an integral part o f a larger and longer-term program o f the Government to improve the effectiveness of health and social assistancesystems inMoldova. In addition to the proposed IDA credit, several donors including IDA, EU, SIDA, DfID, CEB and relevant UNagencies, will through coordinated but parallel financed operations, support the Government initiatives inthis area. The overall project objective i s to promote the Government's program to increase access to quality and efficient health services with the aim o f decreasing premature mortality and disability for the local population and improve the targeting of social transfers and services to the poor in line with the MTEF for 2007-09. Project description [one-sentence summary of each component] Ref: PAD B.3.a, TechnicalAnnex 4 Component I: Health System Modernization Component (US$l 1.5 million). In the health sector, the Project will in conjunction with other development partners support priorities identified for implementation in the first four years of the Government's National Health Strategy 2007-2017 including building capacity in policy development, instituting financing and management reforms and upgrading health services. Component 2: Social Assistance and Welfare Component (US$5 million). This component supports a multi-donor program, led by the DFID, and including SIDA, EU and UNICEF, to help the Government develop a targeted social assistance program to improve the effectiveness o f cash benefits and social welfare services in combating poverty, and to improve the efficiency with which social assistance services are delivered. Component 3: Institutional Support Component (US$0.5 million). This component aims at building administrative capacity in the implementing agencies in order to prepare these sectors for SWAP/budget support operations in the future. Technical assistance would be provided to improve monitoring and evaluation and fiduciary management not only to meet Project requirements but also to improve overall capacity within the two ministries. This component will also provide logistical support for the working groups assisting in implementation of social sector reforms. Which safeguardpolicies are triggered, ifany? Ref: PAD D.6, TechnicalAnnex 10 Category B project. Significant, non-standard conditions, if any, for: Ref: PAD C.7 Loadcredit effectiveness: None. Covenants applicable to project implementation: Environmental Safeguards: The Recipient shall ensure that all measures necessary for the carrying out of the Environmental Management Plan shall be taken in a timely manner and that all legal and administrative planning and environmental permits and authorizations necessary to carry out sub-component 1.4 (rehabilitation of the RepublicanClinical Hospital) of the Project are secured in a timely manner and with due diligence. Project management covenant: The Recipient, through the MOH, shall (a) ensure that the appropriate departments inthe MOH, with the assistance o f designated and qualified staff within the MOH, oversee the overall implementation and day-to day management o f the health components o f the Project with due diligence and efficiency, all in accordance with the Operations Manual, and (b) prepare the consolidated reports for the Project. The Recipient, through the MOSPFC, shall ensure that the appropriate departments in the MOSPFC, with the assistanceo f designated and qualified staff withinthe MOSPFC, overseethe overall implementation and day-to day management o f social assistance component o f the Project with due diligence and efficiency, all in accordancewith the Operations Manual. The MOSPFC will be assisted by (i)a steering committee under composition and terms of reference satisfactory to the Association established on April 20, 2007 which will endorse, guide and evaluate and monitor the strategic direction of the social assistanceprogram; and (ii) a working group established on April 25, 2007 within the MOSPFC which will providing guidance on the implementationof the social assistancepolicy framework. At the national level, the Recipient shall maintain throughout the implementationof the Project, a high-level Joint Steering Committee to be established by not later than three months after the date o f effectiveness o f the Financing Agreement, which shall act as a body responsible for the strategic coordination and oversight o f the Project activities implemented, by the authorities participating in the Project, all under terms of reference and a composition satisfactory to the Association. The Recipient shall issue by not later than two months after the date of effectiveness of the Financing Agreement an Operations Manual under terms satisfactory to the Association, including provisions setting forth the respective implementation, management, reporting and procurement responsibilities o f the M O H and MOSPFC under the Project, The Recipient shall take all actions required to ensure that the Operations Manual is applied and followed at all times inthe implementation, monitoring and evaluation of the Project. Except as the Association shall otherwise agree, the Recipient shall not assign, amend, abrogate or waive the Operations Manual or any of its provisions. I. STRATEGICCONTEXTANDRATIONALE A. Countryand sector issues 1. Moldova is demonstrating its commitment to public well-being by increasingfunding of social services, but efficiency of public spending can befurther improved, Between 2003 and 2006, Moldovan public spending on services in the social sectors (defined as education, health, social protection, etc.) in Moldova increased from almost 21 percent to over 24 percent o f GDP. Total spending on social services i s expected to decline as a share of GDP after 2007, but will still grow in real terms. However, the high costs of reform o f the public administration are likely to constrain the Government's fiscal capacity to invest inthe social sectorsover 2007-09. 2. Moldovaplans to improve the eflciency of public spending on the social sectors. According to the Medium Term Expenditure Framework (MTEF): 2007-09 (2006 par. 131), the Government plans to use "available resources as efficiently as possible" to deliver better quality services and to increase social services to poor and vulnerable groups. The objective is to extract these hnds by more cost-efficient delivery of social services and by shifting expenditures from lower to higher priority services. 3. The Government effort to improve ef$ciency builds on recent reforms. The Government established National Social Insurance House (NSM) to improve the administration o f pension and social insurance and to eliminate arrears in payment o f pensions. It consolidated health infrastructure, and especially hospitals, to improve their efficiency o f operation and to free funds -although this was painful. The Government extended the primary care network and decentralized management responsibility for most health facilities to local governments. Hospitals were moved off o f the central government budget and became self-governing entities. The Government's greatest achievement may have been to launch the Health Insurance Company (HIC) and mandatory health insurance, which made health care more affordable. 4. Nevertheless, Moldovafaces serious challenges. In 1999, 73 percent o f Moldovans were poor with over 60 percent being extremely poor (according the to Ministryof Economy measure of poverty). By 2003, the national poverty rate had fallen to 29 percent. However, in 2004, GDP continued to grow, but poverty reduction slowed, reaching less than 27 percent, and then reversed (Poverty Update, 2006). In 2005, the national poverty rose to 29 percent and the increase was concentrated in rural areas and among households headedby farmers. Health sector 5. Despite steady progress in the reforms o f the health sector, several policy, institutional and other issues remainunresolved: 6. Health indicators have improved but remain well below EU averages. Moldovan average life expectancy is 68 years, 12years shorter than the average for EUcountries and 6 years shorter than for the new EU-10 nationals respectively. Life expectancy o f Moldovan women is the lowest in the European region at 71.6 years. There is progress in several areas: for example, infant and maternal mortality has declined. Nevertheless, chronic diseases such as cardiovascular diseases cause double the share of avoidable mortality inthe working age population as in the EU-10. The re-emergence o f tuberculosis and emergence o f HIV/AIDS inthe mid-1990s pose serious risksto the population; this has become a concern not only to the Moldovans but also to the EU, considering its Neighborhood policies and programs. Investments to improve the quality of health services would decrease avoidable mortality and disability and would, over the long-term, improve labor productivity, reduce poverty and enhance economic growth. 1 IMR 2.5 times higher MMR 4 times higher TB incidencerate 11times higher HIV/AIDs incidencerates 1.3 times higher 7. Health insurance coverage is not yet universal. Health insurance now covers nearly 76 percent of the population. The Government contributes nearly 65 per cent o f the resources o f the Health Insurance Company (HIC) to cover benefits for public sector employees and poor and -importantly- poor and vulnerable groups. However the introduction o f health insurance has not broadened the base o f contributors to include the non-public sector working age population. Unfortunately, nearly half, of the population aged 25 to 44 are not covered by insurance. 8. Informal payments are commonplace. The public subsidies to health insurance helped decrease the share of private expenditure in total financing of the health system from 50 percent in 2003 to 42 percent in 2005. However, while formal co-payments for health services decreasedas a share of private expenditure, informal co-payments remained unchanged. These runat around $US 35 million per year, a large amount for a relatively small country.' 9. Improvements in budget management and contracting would enhance the beneflts @om the reforms in healthJinancing. The present budget system funds inputs and does not reward performance. Contracts that pay for meeting specific objectives in terms o f costs per unit o f service and the quality o f service motivate managers o f health facilities. The Health Insurance Company would need to strengthen its capacity to manage such contracts. 10. Access to quality health care services remains skewed in favor of largely better-of urban population. At the primary care level, a network of 2,066 family physicians deliver basic services and 89 percent of the population visits a family physician. However coverage rates vary from around 99 percent in Chisinau to less than 65 percent in Cantemir, Rezina, Cimislia, and Falesti districts. Furthermore, a significant number o f primary care centers, especially inrural areas, lack standardmedical equipment. 11. Lack of nurses and doctors leads to poor quality care. At municipal hospitals, the low ratio of nursesto doctors is a concern. Just as seriously, the number of family doctors inMoldovadecreased by 3 percent over the past several years and almost 30 percent o f rural primary care facilities have no doctors. The average age of family physicians is about 47 and few young physicians are entering family practice. As a result, urban families visit doctors 80 percent more often than rural families. This could be addressed through incentives, such as increased wages, to encourage new medical graduates to enter family practice or to locate in rural areas. 12. Moldova could beneflt@omfurther consolidation of health care infrastructure. Moldova reduced the total number of facilities from 265 hospitals in 1995 to 65 in 2002. In parallel, it reduced beds from around 58,000 in 1990 to around 23,000 in 2004, with the number o f acute care beds declining to around from 48,000 to about 19,000. At present, hospital infrastructure consists principally o f costly tertiary centers. These are concentrated in cities and especially in Chisinau, as the hospital consolidation focused on rayon hospitals. Hospital and PHC infrastructure are in poor condition, except for those refurbished by the Health Investment Fund Project or other international agencies. Most of the hospitals already achieved their maturity, at least from an accounting point o f view. According to international parameters regarding hospital useful life, full depreciation is achieved between 25 and 33 years since construction ' HouseholdBudget Survey, 2005. 2 and depending on the type o f infrastructure and the services delivered in such location. The average age o f a typical Moldovan facility i s around 45 years. Despite the existence o f specific regulations with minimum standards for primary care centers, including equipment availability, there are substantial problems with the quality o f available equipment. This is especially true for rayon-level institutions, but both Republican and municipal facilities also face important limitations. The level of equipment obsolescence ranges from 60 percent in Republican institutions to 80 percent in rayons. In rayonal facilities, 20 percent of medical equipment is not working, while inRepublican hospitals 10 percent o fthe equipment is not working. 13. The role of the Ministry of Health is changing. The role of the M O H is changing with the establishment o f an insurance company to finance health services and decentralization o f management o f health facilities to local governments. The M o H was an administrator of a network of facilities and is now becoming a "steward" o f the health systemand a policy-maker. The new organizational structure for the MoHhas been approved and this focuses on health policy, health service planning, and monitoring of health system performance. Inevitably, this change will require investment incapacity building. 14. Recognizing these challenges, the Ministry o f Health has prepared a draft National Health Strategy 2007-2017 with a five year implementation plan. The strategy builds on the achievements of ongoing reforms in the sector. The medium to long-term vision of the Ministry o f Health can be summarized interms ofthree pillars: first, to focus the Ministryo f Health on health promotion, policy and regulatory functions; second, to improve the level o f financing to the sector and the efficiency with which available resources are used, and third, to improve the quality and effectiveness o f health services. This strategy is currently within government and parliament for approval. SocialAssistance and Werfare 15. Fragmentation of social assistance transfers limits their ability to reach thepoor. There are 15 social assistance benefits with a range o f eligibility criteria and processing procedures. This includes specific benefits for children living in difficult conditions and for individuals with specific conditions, such as war veterans and victims of accidents. These benefits are small on average and only represent between 2 and 3 percent household income. Eligibility for social assistance benefits i s based on categories of people, such as war veterans, orphan children, and people with administratively defined disabilities. These categories are no longer effective in determining the income needs o f households because other household income sources are increasingly heterogeneous. 16. Much of social assistance leaks to middle and upper-incomegroups. Social transfers are spread evenly across expenditure groups, rather than concentrated among the poorest. It is technically difficult to improve targeting, since the Government does not have a comprehensive unified database that would accurately reflect all benefit types received by each client. Existing data sets are fragmented and it is difficult to pull together data, and to monitor and evaluate social assistanceas a whole. 17. The Government o f Moldova is committed to improving this system. In December 2004, the Government approved an Economic Growth Poverty Reduction Strategy Paper (EGPRSP) that includes a long-term strategy for social assistancereforms. B. Rationale for Bankinvolvement 18. The Project forms part of the 2004 Country Assistance Strategy (CAS). The CAS supports the Government policy o f increasing access by the poor to health services. The CAS foresees support to the Government in evaluating the social assistance system and developing a strategy to improve targeting, 3 particularly o f cash social assistance. The CAS plans investment in institutions that will target social assistanceto the truly poor. 19. The Project supports improvement of social services within the Government's medium-term expenditureframework. The Government plans to improve the cost-efficiency o f service delivery to stay within the budget parameters in the MTEF. To achieve this, the Government plans: (i)changes in the service delivery model; and thus (ii)investment in physical and institutional infrastructure and human resources. Having access to the international best practices, the Bank is well-positioned to support the Government to design and implement such investments. 20. Bank involvement rests on extensive research and a long history or discussion with partners. Recently, the Bank has carried out a series o f analytical studies including social sector chapters in Public Expenditure Review as well as sector specific analytical and advisory services (Health Policy Note, Social Assistance Note and Poverty Update) which constitute the conceptual basis for further lending operations in support of the CAS objectives. In the health sector, the Government, with the Bank's support, has recently completed (December 30, 2006) a Health Investment Fund (HIF) project dealing with health MDGs. The Project builds on the success o f this operation especially in relation to capacity development and upgrading o f primary care services. Work conducted under the HIF, such as the development o fthe Chisinau Hospital Master Plan, form the basis ofthis new operation. 21. Moreover, the Project supports policy objectives of the PRSC. The PRSC processhas also placed the Bank ina position to coordinate donors, mobilize resources, from a broad perspective ofthe economy and the society. For the social assistance sector, a set o f triggers have been set for the second and third operations o f the PRSC: (i)adopt time bound social assistance reform action plan for improved poverty targeting and (ii)design a unified database o f the beneficiaries of cash-equivalent social assistance programs. In the health sector, triggers for the PRSC-2 and PRSC-3 operations are: (i)direct contracting with primary health care providers and (ii)at least 5 percent o f PHC providers are directly contracted by Health Insurance Company. C. Higher level objectives to which the project contributes 22. The Project supports sustainable development, and most importantly, poverty reduction. The Project will support the Government's long-term objective o f "Sustainable socially oriented development" and the medium-term objectives o f "poverty and inequality reduction and human resources development" as reflected inthe EGPRS paper. 23. The Project is theproduct of much consultation and cooperation with donors. The DfTD, SIDA, EU, CEB, and UNICEF are engaged (or planning) parallel financing so that the IDA-supported Project is in effect part of a broad multi-donor program rather than a conventional sector investment project. The inter-sectoral approach prepares the way for a SWAP in the future. 24. TheProject contributes to realization of the CAS. The 2004 Country Assistance Strategy aims to (a) promote conditions for economic stability, growth and employment creation; (b) improve access to social services, capital and community infrastructure, and minimizing environmental risks; and (c) improve public sector governance and combating corruption. The Project supports the second objective by contributing to the increase in access to and efficiency o f health and social assistance systems. The Project also supports the third CAS objective o f improving public sector governance and combating corruption as outlined inAnnex 11. 4 11. PROJECT DESCRIPTION A. Lendinginstrument 25. The lending instrument i s a Specific InvestmentLoan (SL), financed by an IDA credit of US$17 million equivalent. O fthis US$12 million is allocated to the health sector. Parallelfinancing from a EU- TACIS Grant o f 6 million (for Primary Health Care Strengthening) and possible further financing from CEB (for the Republican Clinical Hospital rehabilitation), will contribute to financing o f the Ministry of Health National Strategic Plan. Inthe social assistance sector, US$5 million supports a parallel financed multi-donor program led by DFID, with the participation o f SIDA, UNICEF, and EU. B. Programobjective and Phases: C. Projectdevelopmentobjective andkey indicators 26. Project objectives. The overall project objective is to promote the Government's program to increaseaccess to quality and efficient health services with the aim of decreasing premature mortality and disability for the local population and improve the targeting o f social transfers and services to the poor in line with the MTEF for 2007-09. 27. Results Framework and Monitoring Indicators. The Project aims to improve the performance o f the health system, and inthe long-run, to improve the overall health status of the population. Reductions in avoidable mortality and disability would, over the long-term, improve labor productivity, reduce poverty and enhance economic growth. To assess progress in meeting these objectives, the Government will monitor: (a) population satisfaction with the health care system relative to previous years, using periodic surveys, as a proxy-indicator o f responsiveness o f the system; (b) improved management of arterial hypertension at primary care level, as an indicator o f health service quality; (c) frequency o f health services utilization, by socio economic group, at the primary care level, as a proxy-indicator of financial protection, equity and poverty impact, and (c) discharges per doctor by hospital category, as an indicator o f hospital efficiency and productivity. 28. To assess the performance o f the social assistancesystem, the Government will monitor: (a) share of largest social assistance transfer received by the bottom 40 percent o f households in terms o f income (the largest transfer is nominal compensation for heat and utilities), as a measureof increasedcoverage of the poor; and (b) share of the largest social assistance transfer that leaks to the top 40 percent of households interms o f income. D. Projectcomponents 29. The Project consists of three components. The first relates to on-going reforms in the health sector that form part o f the MTEF and the National Health Strategy 2007-2017. The second component supportsthe government decision to improve the effectiveness of cash benefits and social welfare services in combating poverty. The third component relates to provision of institutional support for the implementation o fthe reform strategies inthe two ministries. Component 1:Health SystemModernizationComponent(US$11.5 million) 30. In the health sector, the Project will in conjunction with other development partners, support priorities identified for implementation in the first four years of the Government's National Health Strategy 2007-2017. 5 Sub-component 1.1: CapacityDevelopmentand Sector Regulation 31. This sub-component consists of activities to support: (i)policy development capacity in health service planning, finance and quality enhancement; and (ii)skills development in analysis, monitoring and evaluation o f policies at the Ministry of Health and associated agencies, including institutionalization o f National Health Accounts (NHA). These activities will assist the M o H in assuming its new role as a "steward" o f the health sector. 32. The Project supports technical assistance and training to the Policy Department of the MoH; to conduct a series of policy studies. These studies, determined on an annual basis, could include, among others, the development of: (i)a human resource strategy; (ii)a health legislative framework; (iii) expanded insurance coverage plan (sub-component 2); and (iv) options for private sector participation in the health sector. These analyses will help MoH make policy decisions based on available evidence and to refine health system development strategies. The M o H will hold annual conferences to disseminate information and build evidence-based policy making capacity. To improve capacity for strategic planning, the Project would provide training and study tours for government staff in the M o H and associatedagencies. 33. The Project supports the development of National Health Accounts (PIHA)). NHA enables the understanding o f the sources and uses of all funds (public and private) in the health sector. As private investment grows, NHA will help the MoH understand the dynamics of private investment and improve overall health sector regulation. Specific activities include training and capacity development, and production and dissemination o f NHA reports. Such information, coupled with improvements in the quality and timeliness of epidemiological statistics will form the basis o f health system performance monitoring. Sub-component 1.2: Health Care Financingand Provider Payment 34. The sub-component broadens the coverage of health insurance and improves the incentives facing service providers. The Health Insurance Company (HIC), established in 2004, aims to increase the autonomy of health care providers and to introduce contracting between the Company and providers that links output and quality to payments. Further efforts are needed in developing the HIC as an active purchaser that uses contracts to improve the efficiency and quality o f health services. This sub- component includes development and implementation o f (i)a plan for increasing health insurance coverage; and (ii) improved provider payment systems. 35. An integrated IT system will help the HIC realize these activities. It will be developed with parallel financing from the EU-TACIS-supported Primary Care Strengthening Project. 36. The Project, through technical assistance and training, supports a strategy and actions to increase health insurance coverage and reduce informal payments. Expanding health insurance coverage to more of the population employed in the non-public sector will broaden the base o f contributors to the health insurance scheme, improve system sustainability and increase financial risk protection against health care costs. 37. The Project seeks to improve incentives to deliver quality care through expanded use of contracts. The Project, through technical assistance, training, stakeholder workshops, supports the development and implementation o f new health care provider payment systems. In both in- and out- patient services, a shift is planned from input-oriented, line budget-based reimbursement and resource allocationtowards output-oriented service contracting and reimbursement. 6 38. The Project supports reforms of incentives to hold and attract skilled sta# Inorderto ensurethe sustainability o f PHC clinics in rural areas, the Government, with project support, will review financing arrangements to attract skilled health professionals to work in rural areas. The new financing arrangements will aim at increasing autonomy at the health facility-level, drawing on the Chisinau and Orhei pilots that are supported by the EU-TACIS Health Sector Reform Project. The principals o f the reform are direct contracting with primary care physicians or group practices, HIC global budgets and increased payments. Usinga PHRD grant, the Government will design an incentive package for doctors and nurses to attract these professionals to work inthe upgraded facilities. Sub-component 1.3: Primary Health Care Development 39. This sub-component aims to improve the quality of primaiy care services delivered in rural areas. To this end, it supports adoption o f nationwide structural standards for primary care facilities and the services that they render. 40. The sub-component rehabilitates or builds health centers and invests in equipment to assure quality services. In conjunction with the parallel financed proposed EU-TACIS Primary Care Strengthening Project, this sub-component supports works ranging from repairs to new construction (where deemed necessary) o f approximately 65 health facilities. It supports planning o f the scope of work of primary care providers, basic equipment required to render these services as well as preparation and implementation o f proper working procedures and guidelines. The EU-TACIS Primary Care Strengthening Project will train health professionals working in the renovated clinics, with parallel financing. The training will consist o f continuing medical education (on clinical protocol guidelines and general practice) and o f managementtraining. Sub-component 1.4: HospitalCapacity Assessment and Modernization 41. This sub-component assists the Government of Moldovato (i)modernize the hospital network to optimize hospital capacity and improve operational efficiency in Chisinau and (ii)to assess national hospital capacity needs to guide future investments. 42. The sub-component supports the development of a hospital network in Chisinau. Under the recently closed Health Investment Fund Project, Moldova successfully reduced the number of hospitals by 50 percent (outside Chisinau municipal areas), and reduced the average length of stay o f a patient in a hospital by 24 percent. However, issues related to hospital capacity still exist in the Chisinau area, and while the Government recognizes this, optimization remains a political challenge. There is currently a window o f opportunity to support such reforms. The Project would provide technical assistance and training to set up a hospital network in Chisinau in line with the Chisinau Hospital Master Plan. If successful, this will result in optimization of capacity (hospital beds) and improved efficiency and management o f hospitals. 43. Modernization of Chisinauhospital network will include the reconstruction and renovation of the Republican Clinical Hospital. This is one o f the four Republican hospitals identified to be retained as center of excellence under the Chisinau hospital Master Plan. The hospital was built in 1977 and was downsized from 1,230 to current 740 beds. The reconstruction is planned in 8 phases and the Project finances phases 1 & 2, which partially covers investments in infrastructure and medical equipment. A planning process, including a feasibility study and business plan will provide the framework for these investments. The investment is expected to be fundedjointly through the IDA credit and a concessional loan from the Council o f EuropeDevelopment Bank. 7 44. Thefollowing step is a national Hospital CapacityNeeds Assessment. Followingthe assessment o f Chisinau area hospitals, the Government o f Moldova will contract for a national-level assessment of hospital capacity needs. The sub-component will finance this Assessment. The Master Plan will improve efficiency and appropriateness of future investments planned from state budget help the Government mobilize external financing and will guide the contracting strategy o f the Health Insurance Company. Component2: SocialAssistance andWelfare Component(US$5 million) 45. This component supports a multi-donor program, led by the DfID, and including SIDA, EU and UNICEF, to help the Government develop a targeted social assistance program to improve the effectiveness o f cash benefits and social welfare services in combating poverty, and to improve the efficiency with which social assistanceservices are delivered. 46. Two o f the main outcomes of the component are (a) a better targeted and administered cash benefit system, and (b) an improved social welfare system. At the core o f both systems is the need to better identify the poor, to have information available that would allow for good decision making both in benefit awarding and inthe identification and implementationofthe correct social service provision. 47. cash benefits. The data base will cover all cash benefit claims and all contacts with social workers and This component supports the establishment of a consolidated data basefor all social assistance social services including referrals to residential care and day care facilities. It will be developed as an active benefit calculation and payment system, and a case recording system. Information will be entered in the system by the network of social workers at premeria level. The National Social Insurance House (NSIH) computer equipment system recently financed under the IDA-funded Social Protection Management Project would be upgraded to accommodate the proposed social assistance system. The proposed system's data base, however, would not be combined with the N S M data base, but would be co- located and interfaced as the new social assistance system would be based on the national identification number (IDNP) and not the social insurance number used by the pension system. The Ministry o f Information Development will be a back up site for the server. The Project will finance workstations, upgraded equipment, additional Oracle licenses, applications software development and training. 48. This component will provide equipment h training for social workers who will collect all information necessaryfor targeting and deliver diverse welfare The central data base cannot be used for targeting without a network o f social workers (called social assistants) at the premeria level whose task is to collect information on beneficiaries. The Government is now hiring 600 social workers. The social workers will guide applicants to solutions other than dependence on welfare, whenever possible, and when welfare is necessary, to guide the beneficiaries to services that will help them move out o f welfare -such as an employment agency. The component supports procurement of personal computers for the social workers and the inspectors and quality control staff at the rayon level, a total o f about 1,500 people. The component also supports repeated in-service training of social workers, in collaboration with UNICEF, DfID, and EU-TACIS. Component3: InstitutionalSupport Component (US$0.5 million) 49. This component aims at buildingadministrative capacity inthe implementingagencies inorder to prepare these sectors for SWAP/budget support operations in the future. Technical assistancewould thus be provided to improve monitoring and evaluation and fiduciary management including operational reviews and performance audits not only to meet Project requirements but also to improve overall Welfare services include child protection, preventionof violence against women, preventionof trafficking, and support for people recoveringfiom alcoholismand drugabuse. 8 capacity within the two ministries. This component will also provide logistical support for the working groups assisting in implementation of social sector reforms. E. Lessons learned and reflected in the project design 50. Several lessons learned from projects implemented inthe country and across the region have been incorporated inthe project design: The Project should be implemented by government structures. Experience shows that independent Project Implementation Units (PIU) can successfully implement projects on schedule, but government ownership and accountability of project activities remain weak, putting sustainability of project interventions at risk. Furthermore, the transfer o f knowledge from consultants contracted by the PIU to civil servants is often minimal. This Project has been preparedthrough existing Ministry structures, and this has already resulted inincreasedownership andknowledge sharing. Outcomes can be improved through regular monitoring and wel1;focused impact evaluations. The monitoring and evaluation system for the Project will use and strengthen existing sector monitoring to the extent possible. The PHRD preparation grant supports preparation o f a system for monitoring o f specific policy actions introduced under the Project. A monitoring and evaluation consultant will be hired to assist inthis regard as well as to support strategy implementationinthe MoH. Stakeholder involvement, and in particular, donor coordination, throughout project implementation is crucial. The Project has been prepared with significant stakeholder consultation. The mechanisms for implementation of project activities, especially the primary care investments will build on the success of local partnerships under the recently closed Health Investment Fund Project. A focus on identifying problems and seeking solutions as a coherent, collaborative Bank- client team is important for achieving results. The Bank team's role in creating an atmosphereo f trust and partnership is paramount for achievingthe desired results. F. Alternatives considered and reasons for rejection 5 1. The country team considered separate health and social assistanceprojects as an alternative to a joint project. The Project was originally conceived as two separate projects, one on health and the other on social assistance, but later merged because o f the merger o f Ministry o f Health and Ministryo f (Labor and) Social Protection into a single ministry. Recently, the Government split the Ministries again into a Ministry of Health and a Ministry of Social Protection, Family and Child. The Project will continue however to be a joint project. This should promote a more inter-sectoral approach and reduce costs of project management to the Government. In the long term, mechanisms to identify the poor developed in the social assistance sector could be use to monitor and target all other social services (including health insurance) to the poor. 52. Theproject team considered investment only in primary care versus primary and hospital care. The initial focus of the health part of the Project was on primary care services alone. However, with increased resources for primary care provided under a proposed EU-TACIS project and recognizing the need for improving efficiency in the hospital sector, the Government and team decided to include a hospital modernizationcomponent. 53. The team considered alternative ways of selecting primary care investment sites. Inthe recently closed Health Investment Fund Project, all rayons were eligible to apply for financing; this was administratively costly to manage. Moreover, investments were scattered among several facilities so 9 project impact was less visible. During preparation, the team considered targeting investments inprimary health care to selected areas using health status as a criterion. The MoH, however, preferred to invest across the country, and to empower rayon authorities to decide on investment sites based on pre-defined criteria. Inthe end, it was agreed that each facility identified for support under the Credit will receive a comprehensive investment package o f investments, whether financed by IDA credit or EU-TACIS. A needs assessment review is being conducted under a PHRD grant to identify facilities where investments would be provided. 111. IMPLEMENTATION A. Partnershiparrangements 54. The main healthpartnerships are with the Ministry of Health and the European Union, as well as the Council of Europe Development Bank. In the health sector, the Project forms part of the Government's overall National Health Strategy for the development o f the health care system in the Republic o f Moldova. The IDA credit finances selected activities within the strategy. The Project was designed in coordination with the EU financed Technical Assistance for Primary Care Strengthening Project. A proposed Council o f Europe Development Bank Project will in combination with the IDA credit, support the first two phases o f the redevelopment of the Republican Clinical Hospital. Anticorruption efforts under the Project (Annex 11) will complement activities plannedunder the US$2.9 million health sector interventions supported by the Millennium Challenge Corporation Project. The World Health Organization and International Finance Corporation are planning assistance aimed at increasing private participation in the health sector. Project policy development activities complement these efforts. 55. The main social assistancepartnerships are with the Ministry of Social Protection, with Dj7D leading the donors, and the participation of SIDA and UNICEF. In the social assistance sector, the UnitedKingdom, with the participation of Sweden, is advising the Government on ways to reform social assistance and related social services, such as social work. The role o f the World Bank is to support, through this Project, specific parts (the data base and equipment and training o f social workers) o f the broader reform program. The United Kingdom's Department for International Development (DffD) contracted with a consulting firm who has been working with the Government on policy and technical aspects of the reform since late spring o f 2006. The European Union-supported Food Security Program pioneered piloting of targeting in Moldova and is cooperating is cooperating this Project and with the DfID team. UNICEF is active in helpingthe Government recruit good quality social workers and in preparing their initial training. The DfID-supported firm expects to support training o f social workers under their contract with DfID. The European Union will prepare a 6 million technical assistance project, and may also support training. B. Institutionaland implementationarrangements 56. The project will be executed over a period of four years, 2007-2011. The health component will be implemented through the Ministryo f Health and the social assistancecomponent through the Ministry o f Social Protection, Family and Child. A joint Steering Committee is responsible for the overall guidance, oversight, monitoring o f progress and inter-ministerial coordination. No separate Project ImplementationUnits (PIU) will be established. 57. A strategy management team in the Ministry of Health will be responsiblefor implementation of the health component. This team implements all donor supported programs under the National Health Strategy. The plan i s for the Strategy Management Team (SMT) to meet on a monthly basis in the first 10 year of the project, with a possibility of moving to quarterly meetings in subsequent years. The team i s led by the Minister of Health and consists of a Strategy Management Director (a Deputy Minister or a Head of Department in MoH) responsible for the day to day management and co-ordination. Heads of Department responsible for policy development, health financing, primary care, and secondary and tertiary care are responsible for the implementation of these components in the National Health Strategy and the Project. These component coordinators are also responsible for all parallel financed projects in their area. For each component, working groups established during project preparation will continue to provide guidance during project implementation. A monitoring and evaluation officer supporting the Strategy Management Director will prepare project progress reports. Progressreports will be provided on a quarterly basis. 58. TheMinistry of Social Protection, Family and Child will be responsiblefor implementation of the social assistance component. The Ministry is responsible for implementation o f all projects under the multi-donor supported social assistance reform program. Here a Steering Committee and a Program Working Group have been established. The Social Assistance and Social Welfare Steering Committee will be chaired by the Minister of Social Protection, Family and Child. The membership of the Committee is yet to be finalized, but will be drawn from the senior levels o f central and line ministries, donor community and civil society. A working group has been formed within the Ministry to guide implementation o f social assistance reforms under the multi-donor supported program. The Steering Committee will meet on a quarterly basis in the first year o f the project, with a possibility of moving to half yearly meetings in subsequent years. The first meeting will be held in the first half of June 2007. The working group will prepare project progressreports. Progressreports will be provided on a quarterly basis. 59. Fiduciary Management and Procurement Arrangements. The existing Economic, Financial and Accounting Department, one within the Ministryof Health and the other one within the Ministryo f Social Protection, Family and Child will be responsible for project procurement, financial management and contract management. Ministry staff will be supported by consultants as needed for specific tasks and capacity building. The Treasury will monitor all contracts and all disbursements from the Credit and will make project payments basedon appropriate requestsfrom the two Ministries. 60. Funds Flow. Project funds will flow from the IDA credit account, by direct payments or via the Designated Accounts, one for Ministry o f Health and one for Ministry o f Social Protection, Family and Child, which will be replenished based on transactional methods using Statements o f Expenditure. The Treasury will open the accounts in a commercial bank acceptable to IDA. Foreign currency amounts will be exchangedfor local currency when necessaryto cover eligible expenditures payments in local currency to suppliers. The funds will flow from the designated accounts into local currency transfer accounts, which will also be opened by the Treasury in a commercial bank acceptable to IDA. C. Monitoring and evaluationof outcomedresults 61. The Ministry of Health is improving its monitoring capacity, with supportfiom several sources. For the health sector, the M o H i s establishing a comprehensive framework for monitoring and evaluation o f the National Health Strategy. A PHRD for project preparation has supported elaboration of the framework, o f methodologies, and training. Furthermore, the Project includes activities to improve the quality of management information and project planning. 62. Moreover, Moldova already collects some good quality data. The Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM) is a strong unitthat keeps a collection of key health information. The Government collects routine statistics in demography and epidemiology. Importantly for monitoring, the Project invests in the construction o f National Health Accounts. A consultant will 11 also work with the SPCPHSM and the Ministry o f Health to improve their capacity to design questionnaires for non-routine and qualitative data collection and analysis. 63. For social assistance, datafrom the household budget survey collected on a quarterly basis by the National Statistics Bureau will be used to monitor results. A monitoring and evaluation framework i s being established underthe DFIDledmulti-donor program, which includes project specific indicators. 64. The results framework for monitoring ofthe project is provided inAnnex 3. D. Sustainability 65. Sustainability o f the project is expectedto arise from: (i) ReformstrategiesadoptedbytheMoHandMoSPFCthat continue after thecompletionof the project; (ii) Consistencywiththemedium-termexpenditureframework. Theproject investmentsdonot lead to health spending that exceeds limits agreedunderthe most recent MTEF. (iii)Buildingoflocalcapacitythroughtechnical assistanceandtrainingwithintheMinistryof Healthto develop and monitor policies and interventions; (iv) Development o f mechanisms to improve autonomy and accountability at the local levels in the maintenance and management of health facilities through reforms in health financing and management structures; (v) Providing assistance and training to social workers to establish a system that will, after project completion, maintainthe social assistanceregistration database ;and (vi) Linkingthe social assistance database with the existing pensions database and involvingthe Ministry o f Information Technology in its oversight to reduce maintenance costs and improve cost-efficiency. E. Critical risks and possiblecontroversialaspects Risk Risk I Risk Mitigation Measure ResidualRisk Donor planningcycle may not be IIInherent S (TheProject was plannedjointly with all major M well synchronized. Timely 'donorsand consultationscontinue. Project reformof social assistance, in management coordinatesdonors and can particular,depends on the work cyclical financinggapsby poolingresourcesor schedule of the Oxford Policy building a SWAP. Managementteam, consultants hiredby DflD& SIDA. Staffresistanceto institutional M Training, public information,consultations, L and change management. responsibilities Changes of leadingdecision M 1 Consultationwith partnersand key ministries I L makers inMOH andMOSPFCor at all stages of project design, policy other agencies might disrupt development, and implementationto build policy decisionsand consensus. Alignmentofproject activitiesto implementation. those inEGPRS, MTEF and the National DevelopmentPlan documents to ensure continuity. Possiblelack ofpublic support S Consultationsandpublic informationefforts. M for some aspects ofthe reform. Government commitment to M Regular donor meetingsand consensus L targeting socialassistance building with the MOH, MOSPFC, and 12 Risk InherentRisk RiskMitigationMeasure ResidualRisk Ministry of Finance Government fails to adopt a M Consistentsector dialog with Government L coherent social assistance duringpreparation,presence of consultants targeting scheme with significant internationalexperience, supportedby DFD-SIDA OverallRisk Rating M L F. Loadcredit conditions and covenants Credit covenants: Financial Management Covenants: The Recipient shall maintain a financial managementsystem inaccordancewith the provisions of Section 4.09 o fthe General Conditions. The Recipient, shall prepare and furnish to the Association, as part of the Project Reports to be prepared, not later than 45 days after the end o f each calendar semester interim unaudited financial reports for the Project covering the semester, in form and substance satisfactory to the Association. 0 The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) o f the General Conditions. Each audit o fthe Financial Statementsshall cover the period o f one fiscal year o fthe Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than six months after the end o f such period. EnvironmentalSafeguards: 0 The Recipient shall ensure that all measures necessary for the carrying out of the Environmental Management Plan shall be taken in a timely manner and that all legal and administrative planning and environmental permits and authorizations necessary to carry out sub-component 1.4 (rehabilitation o f the Republican Clinical Hospital) o f the Project are secured in a timely manner and with due diligence. Project management covenant: 0 The Recipient, through the MOH, shall (a) ensure that the appropriate departments inthe MOH, with the assistance of designated and qualified staff within the MOH, oversee the overall implementation and day-to day management o f the health components of the Project with due diligence and efficiency, all in accordance with the Operations Manual, and (b) prepare the consolidated reports for the Project. 0 The Recipient, through the MOSPFC, shall ensure that the appropriate departments in the MOSPFC, with the assistanceo f designated and qualified staff withinthe MOSPFC, oversee the overall implementation and day-to day management o f social assistance component of the Project with due diligence and efficiency, all in accordance with the Operations Manual. 0 The MOSPFC will be assisted by (i)a steering committee under composition and terms of reference satisfactory to the Association established on April 20, 2007 which will endorse, 13 guide and evaluate and monitor the strategic direction o f the social assistance program; and (ii) a working group established on April 25, 2007 within the MOSPFC which will providing guidance on the implementation o f the social assistance policy framework. At the national level, the Recipient shall maintain throughout the implementation o f the Project, a high-level Joint Steering Committee to be established by not later than three months after the date o f effectiveness o f the Financing Agreement, which shall act as a body responsible for the strategic coordination and oversight o f the Project activities implemented, by the authorities participating in the Project, all under terms o f reference and a composition satisfactory to the Association. The Recipient shall issue by not later than two months after the date o f effectiveness o f the Financing Agreement an Operations Manual under terms satisfactory to the Association, including provisions setting forth the respective implementation, management, reporting and procurement responsibilities o f the MOHand MOSPFC under the Project, The Recipient shall take all actions required to ensure that the Operations Manual is applied and followed at all times inthe implementation, monitoring and evaluation o f the Project. Except as the Association shall otherwise agree, the Recipient shall not assign, amend, abrogate or waive the Operations Manual or any o f its provisions. IV. APPRAISAL SUMMARY A. Economicand financialanalyses 66. BeneJts ofprimary health care. International evidence demonstrates the benefits o f investments in primary health care (Starfield, Chi, and Macinko, 2005).3 Primary care is particularly effective in prevention, especially in improving diet and exercise and reducing alcohol and tobacco use. This is relevant for Moldova where life-style related chronic diseases are common. Once chronic diseases have begun, early management by a primary care physician is effective inreducing severity. These benefits are likely to accrue in Moldova, as project investments extend care to poor populations, with financing through national health insurance. 67. Reducing costs through primary health care. In industrial countries, the cost o f delivering medical care, and especially preventive care, through primary health care is low relative to delivery through hospitals or through specialists (Mills and Drummond, 1987).4 Moreover, delivery by primary care physicians is associated with low use o f diagnostic tests, less referrals to secondary services, and less prescriptions, relative to other modes o f service delivery, all with no significant difference in patient satisfaction (Dale 1996).5 Primary health care is particularly cost-effective incountries, such as Moldova, where family physicians manage chronic diseases effectively and this reduces hospital admissions related to such diseases. Starfield B, Shi L. and Macinko J. Contribution of Primary Care to Health Systems and Heath. The Milbank Quarterly, 2005, 83 (2), 457-502. Mills A, Drummond M. Value for money in the health sector: the contribution of primary health care. Health policy and planning, 1987, 2 (2):107-128. Dale J et al. Cost effectiveness of treating primary care patients in accident and emergency: a comparison betweengeneralpractitioners, senior house officers and registrars.BMJ, 1996, 312:1340-1344. 14 68. Reducing costs through investments in hospital works and equipment. While the investments in primary care reduce un-necessary hospital visits, the investments in hospitals reinforce their effectiveness in delivering specialized services. The investments in equipment add value to the services delivered at hospitals. At present, the lack o f functioning equipment for diagnosis means that the value o f specialist physician services can be negligible, and sometimes even negative. So the economic value o f much o f the nearly US$5 million per year spent on the salaries o f the Consultation Department, where specialists work, is lost. 69. Costs of operations and maintenance of investments in health. The project investments impose modest costs on the budget. Project-supported investments are operated by staff already paid by the government, so there is no net hiring or additional costs in wages and salaries. The investments in medical equipment are limited to relatively simple equipment such as electrocardiogram machines that do not entail large operating costs, for example, for electricity, fuel, or frequent repair by specialists. The cost o f rehabilitation and replacement are limited to depreciation, which is expected to average 5 to 7 percent per year o f the value of the equipment. 70. Cost-benefit analysis. The internal rate o f return o f the health component i s 3 1 percent without the benefits o f hospital consolidation and 22 percent with hospital consolidation (Annex 9 Table 1). The benefits attributable to the Project are from reduced hospital stays, eliminating unnecessary discharges, reduced consultations with specialists, and travel time and costs saved; and with hospital optimization, saved utilities, and less maintenance. A sensitivity analysis shows that the internal rate o f return remain high, even with a delay or reduction in benefits (Annex 9, Table 3). The net benefits and the internal rate o f returnjustify investment funded at the subsidized IDA rate. 71. Fiscal sustainability. Governments sometimes fail to budget enough funds to operate and maintain donor-financed investments in health. This is a frequent cause o f failure o f these investments to benefit public health over the long-term. The best evidence o f government commitment in this respect is its record o f past spending on public health. The share o f consolidated government expenditures in GDP fell to 2.9 percent in 1999, when the Moldovan economy was shaken by the Russian financial crisis. Then the Government improved the share o f public health expenditures in GDP to 4.3 percent in 2005. 72. Consistency with the medium-term expenditureJLamework (MTEF). The investments must also be sustainable in the sense that they do not lead to health spending that exceeds limits agreed under the most recent MTEF. The operations and maintenance expenditures associated with the Project are relatively small and leave the Government scope to further increase spending on health while remaining within the MTEF envelope (see computation in Annex 9, Table 6). 73, Health personnel's incentives to implement the Project. Health personnel in Moldova are paid poorly. In data for 2005, physicians earn between US$95 and US$l85 dollars per month. Moreover, emergency care physicians were much better paid than physicians in the Family Doctor Centers, which deliver primary health care. So physicians must supplement their formal income by charging informal fees. These are likely to be particularly high for physicians in hospitals and in the Consultation Department, where the physicians are specialists. Informal co-payments for health services are about 443 million Lei in2005 or about US$35 million. These informal co-payments account for about 13 percent o f total financing o fthe health system, almost double the contribution o f formal co-payments. 74. The low level of salaries suggests that physicians will continue to lack incentives to serve poor patients who they meet at Family Doctors Centers, and who have limited ability to pay informal fees. The solution would be to harness some o f the US$35 million in informal fees that are already being paid. The Government could formalize payment o f fees for specialized services, and use a fraction o f the fees to increase the salaries o f primary care physicians, nurses, and related staff. There would continue to be 15 some income-based inequity in delivery o f specialized and hospital services. But overall, inequity would be reduced since poor households and rural residents would, at least, receive good quality primary health care services without fees. 75. Investments in social assistance and welfare. Investment inthe data base for social transfers will enable the Government to use their own revenues more effectively to reduce poverty by delivering social assistance to the poorest Moldovans. These social workers help applicants to exit from use o f transfers through referrals to social agencies (such as an employment agency) or by directly addressing their issues (alcohol and drug abuse, for example). This will help containthe long-term cost o f social transfers. 76. The fiscal cost to the Government ofthe investments is inannual salary ofthe social workers and the recurrent costs of maintaining the computerized database. The European Union is indirectly financing the salaries by a grant to the 2007 budget o f Euro 450,000 from the Food Security Program. B. Technical 77. Health component. The integrated structure for Project implementation ensures that technical consultants work closely with Ministry staff so that policies are compatible with the needs of the Moldovan health sector. The Project supports primary care investments based on a needs assessment and a primary health care development strategy under preparation by the Ministry with support of a PHRD grant. Hospital investments are based on the Chisinau Master Plan approved by the M o H and on a feasibility study and business plan for the Republican Clinical Hospital that will conducted under the Project. 78. Social assistance component. Launch of a data base for use intargeting o f social transfers allows the poorest Moldovans to actually receive assistance. An information technology consultant confirmed the technical feasibility of construction of the consolidated data base for social assistance. Once the Government decides on a detailed plan for targeting social assistance, the consulting firm under the DfID contract will send a consultant to helpthe Government complete technical design o f the data base. C. Fiduciary Thefinancial managementarrangementsofthe Projectsatisfy WorldBank requirements 79. The Government is reforming public financial management. The World Bank supports the reform through the Public Financial Management Project (PFMP), co-financed with SIDA and the Dutch Government. The PFMP assists (i)budget preparation and execution methodologies; (ii)accounting and reporting; (iii)development o f a financial management information system and cash management; (iv) internal auditing; and, (v) building sustainable domestic capacity for public financial management-related training. In coordination with PFMP, DFID supports the MTEF process. Donors are planning technical assistance for the Court o f Accounts. Several high priority reform measures are included in the IMF Poverty Reduction and Growth Facility (PRGF) and the PRSC. The existing instruments already mobilized through a concerted multi-donor effort appear to be sufficient to support the critical PFM agenda. 80. Thepublicfinance reform has consequencesfor the Project. The recent improvements in public finance management in Moldova were taken into account in the detailed review o f the financial management systems for the two implementingministries. The implementing ministries will set up project-specific accounting ledgers within their systems. A financial management consultant will be hired at preparation to assist in this process. Moreover, project accounting staff will be nominated by the 16 implementingministries. Project budgets will be developed and approved yearly by the implementing ministries. Project financial statements will be audited annually by an independent auditor acceptableto IDA. 81. The Project will rely extensively on the various elementsof Moldova's public financial management systems, including: Budgeting-the projectbudgets approved annually by the two ministers and by the steering committee; 0 Internal controls - the project will use the existing internal control framework within the two ministrieswith some additionalprocedures developedfor the Project; 0 Flow offunds and payments- the projectwill use the Treasury system; Accountingandreporting-the projectwill rely extensively onthe existingsystems; and 0 Auditing - the project might rely on the Court of Accounts in the future for the operational reviews. 82. Risk assessment and mitigation measures. The overall financial management risk for the project i s high before mitigation measures, and with adequate mitigation measures agreed, the financial management residual risk is rated substantial. The table below summarizes the financial management - assessmentandrisk ratings ofthis project: FMRisk Risk Mitigating Measures Residual Risk INHERENTRISKS Country Level: Weak PFMinstitutions, H The two ministrieswill maintainarobust S highlevelofcorruption(additional financial managementsystem, projectfinancial informationis includedincountry issues audit by acceptableauditors, use of fin and inthe next section). procurementconsultantsto strengthenthe existing capacity, operationalreviewby Court of Accounts or independentauditors. Entity Level: Risk o fpolitical H Any changesinthe implementationarrangements S interferenceinthe two ministries' will haveto be agreedwithIDA.All changesto managementandstaff. the structure andstaffingof the Ministries affectingthe projectteams will bemonitoredby IDA. Procurementwill be very closelymonitored by IDA.A projectsteering committeeto be establishedprovidingstrategic guidanceand oversight. Project Level: The increasedrelianceon H A number ofrisk mitigationmeasures(see below) S own financial managementsystems of are designedto minimizethe risk ofmisuseof the 2 ministries. funds. H S OVERALLINffERENT RISK CONTROL RISKS Projectbudgetsdevelopedandapprovedyearly M by the ministriesandby projectsteering committee, inagreementwith IDA 17 Risk MitigatingMeasures Residual Risk Accounting- dependenceon manual s accounting InternalControls-need further M strengtheningto ensure that funds are disbursedfor works, goods or services deliveredinaccordance with agreed criteria controls on investment activitiesto be carried Funds flow -use ofthe Treasury, which- S has limited foreign currency experience FinancialReporting-mostlymanual M Auditing M OVERALLCONTROL RISK H I M OVERALLFMRISK S H I 83. Project procurement will be managed by the departmentsfor Economy, Finance and Accounting in both ministries, which are also managing government-financed procurement for the respective ministries. The departments will be responsible for planning o f the procurement process, including preparation o f bidding documents, terms o f reference and training programmes with relevant working groups and partners, establish relevant evaluation committees and manage the entire procurement process including documentation and safekeeping o f procurement documents. Ministry staff will be supported by consultants for training and specific preparation work as required to upgrade staff skills inthe government system for long-term procurement capacity building D. Social (a) What are the opportunities, constraints, impacts and risks arising out of the socio-cultural and political context? 84. The Project design addresses social issues identified in the Public Expenditure Review (2006), Poverty Update (2006), the Health Policy Note (2006) and the three social assessments carried out under the Health Investment Fund Project. The positive social achievements are equal access by men and women to health care and progress made in covering poor and vulnerable groups since the launch o f the Health Insurance Company. The Project addresses the recent increase in poverty in rural areas by extending access to primary health care there and by targeting social transfers to the poor. Furthermore, the Project supports the Health Insurance Company's efforts to further increase coverage and reduce out- of-pocket expenses and informal co-payments made by the poor as these limit their access to health care. The Project improves the quality of primary health care services by improving working conditions and providing health care centers with basic equipment. Through investments in primary health care centers, 18 equipment, and training, the Project promotes healthy lifestyles and prevention and early management of chronic diseases6which predominantly affect the poor. 85. The Project will also have a positive influence on institutions because is supports systematic training, capacity building, and communication activities for the key stakeholders and beneficiaries. The MOH, MOSPFC, Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM), HIC, rayon health and social assistance authorities, health professionals working in clinics/hospitals and social workers at the premeria level all benefit from investments in capacity building. The availability and quality o f family doctors is expected to increaseas a result o f project-supported improvements in the health financing mechanisms. The introduction o f output-based contracting with health facilities i s also expected to address the current low salaries of the medical personnel, one o f the major reasons for the shortage o f family doctors, nurses and low attractiveness of the family doctor profession among medical students. (3) How have key stakeholders (civil society, business, public sector, social, or other non- governmental groups or individuals whose participation can positively or negatively affect project outcomes) participated in project preparation, and how will they be involved in implementation, monitoring and evaluation? 86. This Project is part of a multi-donor-supported program: it was prepared and is guided through coordination among donors and with beneficiaries. The team participated in round-tables andjoint donor meetings and discussions with representatives of the Ministryof Health, other relevant state agencies, and NGOs active inthe health and social assistance. The team sought feedback and active participation from rayon level health officials and health care providers benefiting from the ongoing pilots in Orhei and Chisinau. With support from a PHRD grant, healthcare providers identified a realistic incentive-structure model for health care personnel. 87. The Project improves the quality and efficiency of primary health care, and this will increase the population's trust in the system. In support o f this effort, the Project supports communication with the public and medical staff to increase awareness o f the systemic changes, health promotion and public health priorities. The Project scales-up the pilot communication activities in Chisinau and Orhei, supported by EU-TACIS, to cover the rest o f the country. (c) How will the main social impacts of theproject be monitored? 88. Health service utilization by socio-economic groups and specific service quality indicators related to management o f chronic illnesses predominant among the poor (Le., hypertension) are key project performance indicators. With project support, surveys will track client satisfaction. The MOH, SCPHSM and rayon health officials will conduct the surveys with the help from the National Statistical Bureau. This reinforces ownership of the process and builds the skills in collecting relevant data for policy making. E. Environment 89. The Project intends to refurbish, remodel, renovate and refit existing primary health care clinics and if necessary, build new clinics. Rehabilitation of part o f the Chisinau Republican Clinical Hospital is also planned. The new clinics will occupy present government property and no resettlement will be necessary. Improved waste and sewerage systems will be installed at these facilities. All buildings will be fitted with energy-saving heating systems and uses environment friendly materials. Prior to starting Cardiovasculardiseases,hypertensionand diabetes. 19 rehabilitation, consultations with the public on the design for primary care clinics will be conducted. Primarycareclinics will have standarddesignswith embeddedfeatures to addressenvironmental issues. 90. Through ensuring that the MoH regulation on safe handling, disposal, transportation and destruction of hazardous waste are implemented in rehabilitated clinics, the Project will help improve health care waste management. Proper trainingwill bedeliveredto the healthcare personneland adequate procedures will be enforced. Public awareness training will be provided and the implementation of procedures will be monitored. The EU-TACIS PrimaryCare StrengtheningProject supports enforcement of procedures and providestechnical assistanceto improvingthe quality ofprimaryhealth care services in the facilities rehabilitatedunder this Project. F. Safeguard policies SafeguardPoliciesTriggered by the Project Yes No EnvironmentalAssessment (OP/BP4.01) [XI [I Natural Habitats(OPIBP4.04) [I [XI PestManagement(OP4.09) 11 [XI PhysicalCulturalResources(OPIBP4.11) [I [XI InvoluntaryResettlement(OP/BP4.12) 11 [XI IndigenousPeoples(OP/BP4.10) [I [XI Forests(OPIBP 4.36) [I [XI Safety of Dams(OP/BP 4.37) [I [XI ProjectsinDisputedAreas (OP/BP 7.60)' [I [XI Projectson InternationalWaterways (OP/BP7.50) [I [XI 91. The safeguard screening category of the project is S2. One or more safeguard policies are triggered, buteffects are limited intheir impact andare technically and institutionallymanageable. 92. The environmental screening category ofthe project is B but requires only a partialassessment as the adverse environmental impacts are minimal and can be handled during the course of project implementation. An environment management plan has been prepared and has been disclosed on March 30, 2007 on the MoH's website and Infoshop. No major environmental impacts are anticipated given the relativelysmall size of most buildingsthat are subject to intervention. (a) The environmental assessment identified the following issues to be monitored during project implementation: 0 Demolition debris may contain asbestos and toxic components from wall paint, plaster and roofs. If airborne and inhaled these may cause asbestosis, silicosis diseases which could impair lung respiratorycapacity. Inhalingasbestos fibers and toxic wall paint dust can cause lung cancer. Proper procedures for working with and disposal of demolition debris will be implemented in order to protect the workers and the environment. This will includethe use of protective equipment, dust containment procedures, transportation and dumping methods. Dump sites will be incompliancewith the environment protectionregulationofthe country. 0 Construction materials will comply with the present regulation eliminating the use of hazardous materials. Particularattention will be paid to the use of environmentallyfriendly materials, insulation,paintandplaster. ' Bysupportingtheproposedproject,theBankdoesnotintendtoprejudicetheJinaldetermination ofthe parties'claimsonthe disputed areas. 20 Waste and sewerage systems which handled improperly or spilled can constitute a danger for the environment. The main concern is contaminationof underground water reservoirs, fountains and wells and the land itself. Improperly managed it could constitute a direct hazardfor humans and animals. The design documents for any civil works will be reviewed to ensure appropriatewater and seweragesystemsare installed. Healthcare waste ifproduced in sizeable quantitiesinmedicalfacilities couldbe hazardous if handled inappropriatelyby healthcare personnel. A healthcare waste management study was carried in partnership by the GoM and WHO. The study resulted in a comprehensive National Action Plan for healthcare waste management which is currently under implementation. The Project will adopt the principles and guidelines on which the plan is basedandwill be in compliance with the existingregulationofMoldova. G. Policy Exceptions and Readiness 93. The project does not require exceptions from Bank policies. The project complies with the regionalrequirementsfor implementationreadiness. 21 Annex 1: Country and Sector or Program Background MOLDOVA: Health Services & Social Assistance Project 94. Between 2003 and 2006, public spending on the social sectors (defined as education, health, social protection, etc.) in Moldova increased from almost 21 percent to over 24 percent o f GDP. The share o f health spending is expected to peak in 2007 and then decline gradually, while social protection spending is expected to peak in 2008 and then remain constant. Although total social spending is expected to decline as a share o f GDP after 2007, it will grow inreal terms, albeit more gradually than the spending on economic infrastructure such as roads, energy and water systems. Government investment capacity in 2007-09 is, however, constrained by increased costs related to the implementation o f the public administration reform. Moldova thus needs to continue its effort to improve the efficiency of spending on the social sectors. 95. The Government's own Medium Term Expenditure Framework (MTEF) 2007-09 reflects this need and aims to improve the quality o f public services, including social sector services by emphasizing "using available resources as efficiently and effectively as possible, and by identifying and re-directing internal financial resources towards financing priority programs" (paragraph 131, MTEF report). Table 1: Share of Social (HD)Sector Expenditures in GDP, 2003-2009 Culture, arts, sports, and youth-targeting actions 0 7 0 8 0 9 0 8 0 8 0 8 0 7 Healthcare 4 0 4 2 4 3 4 7 5 1 5 0 4 9 Social care and support (*) 9 3 10 2 11 5 12 0 12 0 12 2 12 2 Total Social Spending(% of GDP) 20.7 22.0 24.0 24.4 24.4 24.0 23.2 96. Since the end of 199Os, the Government has undertaken a number of reforms. Nevertheless, social sector challenges continue to be serious. Poverty reduction has slowed-down and even reversed, especially in rural areas (Poverty Update, 2006). The Russian boycott o f Moldovan wine and other products, combined with recent sharp rise in energy costs, would tend to worsen the poverty rate. Health Sector 97. Background. At the end o f the 199Os, like most countries in the former Soviet Union, Moldova embarked on a health sector reform. At this time, health sector indicators were deteriorating, public financing o f the health sector formed only 2.9 percent o f GDP. The reforms focused on extending the primary health care (PHC) network and strengthening PHC services. Health infrastructure was consolidated to increase efficiency and mandatory health insurance (MHI) was introduced making health care more affordable for the population. Hospitals became autonomous and were no longer budgetary institutions. By 2005, public health expenditures recovered to 4.3 percent o f GDP and per capita health spending reachedthe highest levels since independence. 98. Moldova thus witnessed an important reversal in unfavorable trends. With the financial protection provided by health insurance, the system was better able to respond to the needs o f the population. The population too was more satisfied with the health services they received. Capital investment and training programs improved quality o f health care. National programs to control TB and HIV/AJDS epidemics were established. MHIalso created conditions for increased efficiency inthe use o f 22 financial, human and material resources in health care by imbedding appropriate incentives into health service payment methods and giving health care providers more managerial autonomy. 99. Health indicators have improved-the decline in life expectancy was reversed inthe secondpart of 90s, reaching 68 years in2003. Between 2000 and 2005, infant mortality rates decreasedby 32 percent (from 18 infant deaths per 1000 live births in 2000 to approximately 12 infant deaths per 1000 live births in 2005). Duringthe same period, maternal mortality ratio decreasedby 60 percent (from 27.1 to 18.6 maternal deaths per 100,000 live births). Assessment o f progress towards MillenniumDevelopment Goal (MDG) targets shows that Moldova has a high probability of lowering the TB incidence rate by 2015, while there are moderate-to-low chances o f reaching the rest of the MDG key targets (infant mortality, maternal mortality and HIV-AIDSincidence). 100. Challenges in the health sector. As described above, the health sector reforms inthe 1990swere driven largely by the introduction o f health insurance with commensurate increases in health financing. Despite steady progress in the reforms o f the sector, several policy, institutional and other issues remain unresolved: 101. Health indicators remain well below European averages. After increasing after 1996, life expectancy stagnated at 68 years during 2001-2003. Life expectancy for Moldovanwomen was lowest in the region at 71.6 in2003. Mortality and morbidity rates are far above the EUregional rates (see Table 2 below). IMR 2.5 times higher MMR 4 times higher TB incidence rate 11times higher HIV/AIDs incidence rates 1.3 times higher 102. In terms of the epidemiological profile, the Moldovan health system shows a dual epidemiological profile which is characterized by both the presence o f diseases common to developing countries, such as infectious and parasitic diseases due to the HIV/AIDS epidemic and TB (see Figure l),' and secondly by chronic diseases common to countries where the epidemiologic transition has reached advanced stages like cancer and diseases o f the circulatory system. The re-emergence o f tuberculosis and emergence o f HIV/AIDS in the mid-1990s are a concern not only to Moldovans but also to the EU regarding its Neighborhood policies and programs. ' Promptedby its relationshipto HIV/AIDS. 23 Figure 1: Morbidity ratesin Moldova and Selected Countries TB Incidence Rates 2004 Clir :ally Diagnosed HIV-AIDS Incidence Rat :s 2004 "T 5 18 103. As shown in Table 3, the mortality rates among the working age population in Moldova are almost 7 times higher than that inother countries inthe EU. Critical situations can be observed inchronic liver diseases, cerebrovascular diseases, diseases of the digestive system, and diseases of the respiratory system. Only lungcancer and female breast cancer rates inMoldova are similar inthe EU. Table 3: Ratio of Standardized Mortality Rates betweenMoldova and EU Cause of Death Ratio of SMR Diseases of circulatorysystem 3.5 Ischaemicheart disease 3.9 Cerebrovasculardiseases 6.7 Malignantneoplasms 1.2 Trachealbronchus/lungcancer 0.9 Cancer ofthe cervix 3.1 Malignantneoplasmfemale breast 1.1 Externalcause injury and poison 3.0 Diseases ofthe respiratorysystem 4.5 Diseases ofthe digestive system 5.8 Chronic liver disease and cirrhosis 6.8 Source: WHO / European Health for All Database. 104. Health insurance coverage is not yet universal. Health insurance now covers nearly 76 percent o f the population. The Government contributes nearly 65 per cent of the resources of the Health Insurance Company to cover benefits for public sector employees and particularly poor and vulnerable groups. Mandatory health insurance has not been successful in broadening the base o f contributors to include the non-public sector working age population. As shown inTable 4, nearly half, o fthe population aged 25 to 44 are not covered by health insurance. 24 Table 4: Health InsuranceCoverage Rates by Group 2004 Source: National Bureau of Statistics and MoH. 105. Informalpayments are commonplace. With the increase in public health spending, the share o f private expenditure in total financing o f the health system has decreased from 50 percent in 2003 to 42 percent in 2005. However, while formal co-payments for health services decreased as a share o f private expenditure, informal co-payments remained unchanged. These run at around $US 35 million per year, a large amount for a relatively small country (Table 5). Table 5: CompositionofHealth Financing2004-2005 (million US$) Source 2005 Yo of THE Ministry of Health 19.3 7.29 NHIC 1,3 19.8 39.57 LocalExpenditures 39.3 1.18 Other Ministries (Ministry of Defense, Ministry of Transport, State Chancellery, Ministry of Internal 3.1 1.15 Affairs, etc.) PublicHealthExpendituressub-total 130.2 49.19 Donors 20.6 7.78 Formalcopayments 17.8 6.72 Informal copayments 35.3 13.32 PharmaceuticalPrivate 56.4 21.32 Private InsuranceandNon-profit 4.5 1.68 Private HealthExpendituressub-total 113.9 43.03 Total HealthExpenditures 264.7 100 106. There is a pressing need to improve budget management and contracting 05health services. Presently resources are allocated based on inputs rather than awarding performance. Use o f management tools, especially contracting can increase cost-efficiency and improve quality. Given its incipient status, there i s a clear need to strengthen the capacity of the health insurance fund to manage the contracting process. This includes increased selective contracting o f hospital providers, improvements in the design and negotiation of contracts, as well as an adequate monitoring and evaluation system. Payments need to be linked to achievement o fperformance indicators. 107. Access to quality health care services remains skewed in favor 05largely better-off urban population. At the primary care level, a network o f 2,066 family physicians deliver basic services and 89 percent o f the populationvisits a family physician. However, coverage rates vary from around 99 percent 25 in Chisinau to less than 65 percent in Cantemir, Rezina, Cimislia, and Falesti districts. Furthermore, a significant number o f primary care centers, especially in rural areas, lack standard medical equipment. Immunization services are mostly provided in rural services, with a statistically significant difference between zones. However, the provision o f HIVIAIDS and pharmacy services are mostly oriented toward urban regions. On average, for each two urban areas with HIVIAIDS and pharmacy services, there is only one rural area with those services. Problems with access and awareness of health conditions between urban and rural areas are also reflected interms o f outcomes. Official data show that most o f the deaths occur in rural areas, both overall and deaths at working ages. Rural areas, that account for 59 percent o f the Moldovan population, share 69 percent of total deaths and 63 percent of fatalities at working ages. Service Urban ("/o) Rural (YO) Urban-Rural Sig. (2-tailed) difference (YO) Immunization 89 100 -1 1 0.009 HIV 100 55 45 0.009 Pharmacy 100 52 48 0.000 109. Moldova could benefitfromfurther consolidation and restructuring of health care infrastructure. In 1995, Moldova reduced the total number of facilities from 265 hospitals in 1995 to 65 in 2002. In parallel, it reduced beds from around 58,000 in 1990 to around 23,000 in 2004, with the number o f acute care beds declining to around from 48,000 to about 19,000. At present, hospital infrastructure consists principally of costly tertiary centers. These are concentrated in cities and especially in Chisinau, as the hospital consolidation focused on rayon hospitals. Hospital and PHC infrastructure are in poor condition, except for those refurbished by the Health Investment Fund Project or with support from other international agencies. Most o f the hospitals already achieved their maturity, at least from an accounting point o f view. According to international parameters regarding hospital useful life, full depreciation is achieved between 25 and 33 years since construction and depending on the type o f infrastructure and the services delivered in such location. The average age o f a typical Moldovan facility is around 45 years. Among Republican facilities, the specialized institutions have the oldest buildings (5 1 years old on average). Additionally, in rayon hospitals, on average the last time a hospital had any repairs done was almost 10 years ago; inRepublicanhospitals, it was 18years ago. 110. Despite the existence o f specific regulations with minimum standards for primary care centers, including equipment availability, there are substantial problems with the quality of available equipment. This is especially true for Rayon-level institutions, but both Republican and municipal facilities also face important limitations. The level o f equipment obsolescence ranges from 60 percent in Republican institutionsto 80 percent in rayons. Inrayon facilities, one out o f five medical equipment is out o f order, while inRepublicanhospitals 10 percent o fthe equipment is out o f order. 26 Table 7: Qualityof MedicalEquipmentby ProviderLevel,2005 Level Not working Obsolete % % RepublicanInstitutions 10 60 Municipal Institutions 15 65 RayonInstitutions 20 80 111. The private sector role in health care delivery and overall sector transformation remains untapped. As previously mentioned, hospital infrastructure i s old and in very bad condition, something that severely limits the capacity o f public facilities to deliver services in a timely way and under high quality standards. In such cases, the private sector may become relevant for the health sector in several realms. Firstly, as a new source of funding, by renting out space in the hospitals to provide amenity services like gift shops, vending machines, and ATM machines. Secondly as a source of equity for hospitals with financial problems. Thirdly, as a cost-containment source by outsourcing services like laundry, food, security, and other similar services. Fourthly, as a health service provider. Currently there are 270 private health service providers in the municipality o f Chisinau. About 50% of them are dental care providers. 112. The role of the Ministry of Health is changing. The role o f the M O H is changing with the establishment of an insurance company to finance health services and decentralization o f management of health facilities to local governments. The M o H was an administrator of a network o f facilities and i s now becoming to a "steward" o f the health system and a policy-maker. The new organizational structure for the M o H has been approved and this focuses on health policy, health service planning, and monitoring of health system performance. Inevitably, this change will require investment in capacity building. 113. Recognizing these challenges, the Ministry o f Health has prepared a draft National Health Strategy 2007-2017 with a five year implementation plan as an input into the next Medium Term Expenditure Framework. The strategy aims at improvement of people's health, upgrading the financial protection and degree o f satisfaction o f the public through adequate improvement o f the health care system performance. The medium to long-term vision of the Ministry of Health can be summarized in terms of three pillars: first, to focus the Ministry o f Health on promoting population level health and policy and regulatory functions; second, to improve the level of financing to the sector and the efficiency with which available resources are used, and third, to improve the quality and effectiveness of health related and health care organizations and (goods and) services. The vision for this strategy is currently within government and parliament for approval. SocialAssistanceand Welfareand the GovernmentStrategy 114. Between 1999 and 2004, Moldova's GDP rose and poverty level fell steeply. In 1999, 73 percent o f Moldovans were poor with over 60 percent being extremely poor. By 2003, the national poverty rate fell to 29 percent. However, in 2004, GDP continued to grow, but poverty reduction slowed-down and there are signs that this trend has reversed in small towns and rural areas where poverty rates increased during last two years. In 2005, the national poverty rate rose to 29 percent and the increase was concentrated in rural areas and among farm households. (Moldova Poverty Update, 2006) The rise in rural poverty was due to a combination o f rising prices o f energy inputs and repression o f commodity prices through export restrictions -such as the requirement for sale o f some commodities through the international commodity exchangeand the requirement to export some commodities via rail. 27 115. Prior to transition, Moldova operated a comprehensive and centralized social welfare system, mainly meant to assist those unable to work and children in need. With transition and the emergence o f poverty and unemployment, the social welfare system was split into social insurance and social assistance. Social insurance was to protect people insured through contributions and for the purpose o f old age, disability and disease. Social assistancewas to assistthe poor and the destitute: 116. Moldova currently has a complex social assistance system which remains non-transparent and fragmented despite the fact that almost all programs are legislated by the Ministry o f Social Protection Family and Child. The systemfaces two major challenges: 117. First, 9agmentation of social assistance transfers limits their ability to reach the poor. In Moldova there are 15 social assistance benefits with a range o f eligibility criteria and processing procedures. This includes specific benefits for children living in difficult conditions and for individuals with specific conditions, such as war veterans and victims o f accidents. These benefits are small on average and only represent between 2 and 3 percent household income. One o f the major benefits is the Nominal Compensation for Energy and other UtilityPayments, created in2000 to offset the impact o f the increased cost o f gas and fuel when the Government couldn't afford the general subsidies to utility companies. Nominal Compensation accounts for almost half o f the social assistance budget, but is distributedina similar way as the other programs. 118. In addition, social assistancebenefits are broadly distributed in the population because they are not targeted using poverty-related instruments. Eligibility for social assistance benefits is based on categories o f people, such as war veterans, orphan children, and people with administratively defined disabilities. These categories are no longer effective in determining the income needs o f households because other household income sources are increasingly heterogeneous. For example, the share o f private transfers, including remittances, in income doubled over 1999-2004. As a result, people in each category are present across the income distribution, and the benefits from public transfers are also broadly distributed. 119. Second, signijkant social assistance resources leak to middle and upper-income groups. Figure 2 shows how share o f households in each quintile that receives social assistance. Resources are spread rather evenly, rather than concentrated in the poorest quintiles. From an equity perspective, however, public resources assigned to individuals and households that are not in need represents a waste o f resources since the poverty reduction impact could be larger if the resources were allocated to poor groups. This is the inefficiency inthe allocation o f resourcesthat needs to be addressed inthe Moldovan system. Figure 2: DistributionofRecipientHouseholds by Income Quintile, 2004 Source: MET based on HBS data Tarpargeted eted compensations 0 Quintile I child benefit Old-age &Benefits for children Quintile I1 retirement pension 0 Quintile 111 Total socialprotection Total social insurance 0 Quintile 1V Total social transfers Quintile V 0% 20% 4c010 60% 80% 100% 28 120. Inaddition, the Government currently does not have a comprehensive unifieddatabasethat would accurately reflect all benefit types received by each client. Existing data sets are fragmented and it is difficult to pulltogetherkollect data, monitor and evaluate social assistanceas a whole. 121. Targeting social assistance to the poor. Many countries successfully address leakages by targeting social assistance to the poorest groups, rather than to categories o f people. The income and expenditure of individual households are usually difficult to measure accurately. Therefore the usual practice is to target social assistanceusing an index of assets and other indicators that are easy to observe and are closely associatedwith household income. For example, the number o f square meters in a house, possession o f a recent model car, and number o f hectares of productive land owned are likely to be associated with household income. The other important indicators are number of dependent children - especially young children, and elderly people in the household. The World Bank's most recent Poverty Update for Moldova shows that the number of children in a household is strongly and positively associatedwith poverty. 122. It would seem a mistake to attempt to target social assistance by estimating household income. That is because, in Moldova, the large rural sector and increased emigration complicate targeting by income. The majority o f the Moldovan population lives in rural areas and their income depends on agriculture and processed agricultural products, although some o f these are consumed by the producers and not marketed. Agriculture poses several challenges for targeting by income. First, it is hard to observe agricultural production and sales for targeting purposes. Second, it i s not possible to measure income net o f input costs, since small family run farms supply much o f their own labor, and hire labor and buy other inputs on informal markets and without keeping records. Several o fthese factors also apply inthe urban context. For example, in small family businesses, such as restaurants, sales or cost of inputs are not distinctively separate from the household consumption activities. Another element that affects both rural and urban households is the high level of emigration and remittances that is hard to observe. The limitations of categories used in the previous system and the difficulty in measuring income suggest the use of other proxies for income for targeting. 123. In December 2004, the Government approved an EGPRSP that includes a long-term strategy for social assistancereforms. The government reform strategy is sound and, if implemented, would be able to address most o f the shortcomings o f social assistance system. 29 Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies MOLDOVA: Health Services & SocialAssistance Project BankFinanced Projects Latest Supervision(ISR) Ratings Sector Issue Project (Bank-financed projects only) Implementation Development Progress(IP) Objective (DO) Primary Care Service, PHC HealthInvestmentFundProject equipment, Infrastructure repairs (IDA -34080) S S Pensionreform and development of an efficient and sustainable SocialProtectionManagement socialprotectionsystem in Project(IDA -32610) M S S Moldova. ~ ~.~.. Support for Moldova'sNational Programfor Preventionand AIDS Control Project (IDA - S S Controlof HIVIAIDSISTIs H0460) Effectiveand transparent management ofpublic finances Public FinancialManagementTA Project (IDA -40820) MS S Developmentand initial implementationofthe government restructuring PublicAdministrationReform program, including Project (MULT 56601) NIA NIA - organizational, personneland decision-makingaspects Budget support to the implementationof the EGPRS Poverty ReductionSupportCredit NIA NIA inMoldova (IDA -42360) 1 1 Donorfunding of healthcare programsin Moldova,US$ thousands Donor 2000-2003 2004I2005 I2006 I Prognosisfor2007-2009 WB-IDA HealthInvestmentFund(Primary Care I I I Service, PHC equipment, Infrastructurerepairs) 1917 ::ll1 440 Closedin2006. DutchGovernment - HIFco-financinggrant No allocationto heath (Primary Care Service, PHC equipment, 3704 3 157 3443 sector foreseen infuture. Infrastructurerepairs) I I I Japan (technicalassistance inTQM, Hospital Evaluation,projectpreparationand implementation PHRD grants) - - - 55 147 292 386 EU(TACIS Proiect) 6 millionEuro TA project (Technicalassistancefor Health Systemreform) inpreparation, estimated 1900 840 implementation2008. In 1225 addition,budgetsupport possible from 2008-2009 onwards. GlobalFund/WB IDA New applicationto GF (TB, HIV/AIDS ProgramFinancing,Hospital approved. Service, Diagnostic Services, Drugprocurement) 387 2493 7237 3367 IDA continues as planned. (Rated Satisfactory) 30 Donor 2000-2003 2004 2005 2006 Prognosisfor 2007-2009 SIDA (Child health protection, TB Program co- financing, HIV Communication projects) 646 400 2.692 1397 SDC (Mental health projects, Chronic diseases, surveillance) 526 117 506 1956 UNICEF (Perinatal care, Nutrition, Immunization, IMCI, Primary Healthcare, Public Health, Better 386 216 220 226 Continues Parenting) SOROS (Noxes reduction, palliative service, public health reform) 1280 200 200 181 Continues DFID(regulation) 376 No allocations Stability Pact-(mental health+tabacco+others) 42 84 108 184 Caritas. Luxemburg (TB and HIV/AIDS programs for penitentiaries) 2180 300 240 240 UNDP (regulation) 87 100 Continues WHO (technical assistance) 1200 300 300 300 Continues UNFPA (Reproductive health) 1080 440 500 500 Continues UNAIDS(Regulation) 240 50 70 Continues USAID/AIHA (Diagnostic services, TB and HIV/AIDS) 250 240 2020 120 US$6 million USAID -MCC - Anticomption US$2.9 million I I 1 I I Total 14670 13454 120589 14066 Donor Roles in SocialAssistance DfID& SIDA Note: FSP is the European Union's Food Security Program; UNICEF is the United Nations Children's Fund; DflD is the United Kingdom's Department for InternationalDevelopment; and SIDA is the Swedish InternationalDevelopmentAgency. 31 Annex 3: Results FrameworkandMonitoring MOLDOVA: HealthServices& SocialAssistanceProject Results Framework PDO Outcomeindicators Useof projectoutcome information Inhealth: (a) population satisfactionwith the Usingperiodic surveys as a proxy- health care systemcomparedwith indicator to the system previous year responsiveness- can be measured by socioeconomic group (b) numberofpatients with confirmed Derived fkom medical statistics as arterial hypertensionunder an indicator of quality of health To increase access to quality and controVsurveillancewith blood services leading inmid-term to efficient health serviceswith the aim pressure target level up to 140/80 decrease inpre-maturemortality of decreasingpremature mortality mmHgachievedand maintained due to cardio-vasculardiseases and disability for the local especiallyamongpoor. ( population prevalenceof chronic diseases predominantamongpoor inrural and areas) To improve the targeting of social transfersand servicesto the poor. (c) number of consultationper person Derivedfrom medical statistics per year by socio-economicgroup and surveys as aproxy-indicator to financial protection, equity and poverty impact (d) Dischargerateper doctor by Hospital efficiency indicator - hospital category measures increaseinproductivity Insocialassistance: a) Share of largestsocial assistance Better targeting of social transfer receivedby the bottom 40 assistanceto poor and vulnerable- percent of householdsinterms of reducing errors of exclusion income. (the largesttransfer is nominal compensationfor heat and utilities). (b) Share ofthe largestsocial Better targeting of social assistance transfer that leaksto the top assistanceto poor and vulnerable- 40 percent of householdsinterms of reducing errors of inclusion income. Intermediate outcomes Intermediate Oufcome indicators Use of intermediateoutput monitoring Component 1: Health System Modernization Subcomponentl.I: Increasedinformation on all sources Health expendituresandtheir Identify sources anduses of funds anduses of funds inthe health sector allocation betweendifferent service inthe health sector including levels (Le. primary, secondary and private sector tertiary) by type of facility ownership 32 Increasedevidence-basedpolicy Implementationof recommendations Increasedevidence-based policy decision-making of at least 3 policy studies decision-making Sub-component 1.2: Increaseinhealthinsurance Percentof 15-49 year olds with health Increasingcontributorybase of coverage insurancecoverage healthinsurance-currently less than 50% of this group (most of who are employed) are covered Increasedfinancial andmanagerial At least 12% ofprimary care providers Decentralizedfinancialautonomy autonomy ofprimary care contracteddirectlyby Health physicians InsuranceCompany Output basedcontracting Decreasedvariance inALOS in Measureofhospitalefficiency strengthenedfor hospitalfinancing selectedprofiles (surgery, internal medicine) by hospitalcategory Sub-component 1.3: Ruralprimary care facilities Number ofprimary care facilities in Increasedquality of primarycare upgradedand staffed with trained linewith set norms andstandards leads to increasedhealthservice personnel utilization at appropriatelevel 65 rural primary care facilities rehabilitatedand equipped # o f GPs trainedinnew curriculum Decrease inGP vacancies inrural Less than 15 percent of rural facilities healthfacilities with no GPs Sub-component 1.4: Hospitalmasterplandevelopedto NationalHospitalMaster Plan Informationbase available for guide future investments completedand approvedby government for effectivedecision- Government making Component2: SocialAssistance and Welfare Better targeted and administered Unified database for all social Betterinformationdatabase on cash benefit system assistance beneficiariesestablished social assistance beneficiaries # o f social workers recruited, trained Trained personnelto administer andprovidedwith equipment the system Arrangementsfor results monitoring 124. For the health sector, a comprehensive framework is currently being established in the M o H for monitoring and evaluation o f the National Health Strategy. Training, framework development and methodologies are being provided through the preparation PHRD grant. The project itself includes activities focused on improving the quality o f management information and project planning and management at each level o f decision making and management. 125. Moldova has a number o f institutions that collect data on a regular basis for the health sector. There is a strong unit, in the form of the Scientific Practical Center of Public Health and Sanitary Management (SPCPHSM), where key health system data are centralized. Each rayon has a statistical office, staffed by a team o f three to four people: often comprising statisticians, economist and IT 33 specialist. One person is responsible for collecting data at PHC level. The rayon director, who directly manages hospital and PHC levels, monitors referrals and admissions (to rayon and Republicanhospitals), discharges, utilization levels, payments from the HIC and expenditures (economic and utilization data related to the contract are monitored weekly). Rayon-level data are sent to the NCPHM. Inturn, once a year, the rayon receives an aggregate report on health service statistics. 126. Data inaddition to existing routine statistics in, for example: demography, epidemiology, national social and economic statistics for sector level monitoring will be developed through National Health Accounts under the project. A consultant will also work with the Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM) and the Ministry o f Health for developing additional capacity for designing questionnaires for non-routine and qualitative data collection and analysis. 127. In terms of public sector services quality and performance improvements, routine data reported by PHC clinics to rayon hospitals and to rayon health authorities will be used. Additional surveys will be carried out in areas of intervention and areas in a control group for assessment o f public satisfaction and to establish baselines and progress against indicators. Ante/post comparisons will be used as well as comparisons with data from a control group o f clinics from the same rayons where interventions are done. Annual public health care systems performance reporting including ratio analysis will be developed in collaboration with the Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM). The annual performance reports will be published. 128. Surveys will be carried out by personnel o f the rayon health authorities, the Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM) and the Ministry o f Health with support of the National Statistics Bureau. Before drafting the survey questionnaires and going into the field specific training inthis respect will be provided for the workforce involved. 129. Interms of direct project performance and fiduciary monitoring, project accounting systemsto be set up are specified in the Project Operational Manual. The operating manual also provides detailed implementation planning and timelines that will be usedas baselinesto track the progress o fthe project. 130. With specific reference to investments in civil works, master plans will be prepared on a facility by facility basis. Primary care facilities for investment would be identified on the basis of a needs assessment study conducted using the PHRD. The facility specific masterplans will form the baseline benchmark for the execution o f works. Investment will be reported on an accrual and facility by facility base against the master plans. The Project Operational Manual describes a summary report to be prepared on the completion of each facility under the master plan. The reporting structure includes the possibility to include investments in human resources and investments by financiers outside the Project. Each facility in which investments are to be made is then defined as a project in itself for monitoring purposes on the basis of being, in project finance terms: `the smallest complete productive entity, physically and technically integrated, that fully utilizes the proposed investment and captures all (financial) benefits that can be attributed to the investment'. 131. For the social assistance, data from the household budget survey collected on a quarterly basis by the National Statistics Bureauwill be usedto monitor results. A monitoring and evaluation framework is being established under the DFID led multi-donor program which includes the relevant project specific indicators. 34 2 I X X I E I---- 2 - m 5 skE Eo! t- I 5 -0 .-c -a2 a2 I g a N id 0 0 N .-) ~ c, 3 e- a 3n 0 0 d 0 0 m Annex 4: Detailed Project Description MOLDOVA: Health Services & SocialAssistance Project 132. The project will be an integral part o f a larger and longer-term program of the Government to improve the efficiency and effectiveness o f social spending in Moldova. The program and the project will bejointly (through parallel financing) be supported by other donors including IDA, EU, SIDA, DfID, CEB and relevant UNagencies. 133. The overall project objective is to promote the Government's program to increase access to quality and efficient health services with the aim o f decreasing premature mortality and disability for the local population and improve the targeting o f social transfers and services to the poor in line with the MTEFfor 2007-09. 134. Results Framework and Monitoring Indicators. The project will improve the performance o f the health system, and in the long-run, the overall health status o f the population. Reductions in avoidable mortality and disability would, over the long-term, improve labor productivity, reduce poverty and enhance economic growth. In the short-run (Le. the duration of the project), the following types o f indicators, among others, will be monitored: (a) population satisfaction with the health care system compared to previous years using periodic surveys as a proxy-indicator to the system responsiveness, (b) improved management of arterial hypertension at primary care level as a measureo f health service quality (c) frequency o f health services utilization by socio economic groups at primary care level derived from medical statistics and surveys as a proxy-indicator to financial protection, equity and poverty impact, and (d) discharges per doctor by hospitalcategory as a measure ofhospital efficiency and productivity. 135. To assess the performance o f the social assistance system, the Government will monitor: (a) share of largest social assistancetransfer received by the bottom 40 percent o f households in terms o f income (the largest transfer is nominal compensation for heat and utilities), as a measureof increasedcoverage of the poor; and (b) share of the largest social assistance transfer that leaks to the top 40 percent of households in terms o f income. Projectcomponents 136. The project will consist of three components. The first component relates to on-going reforms in the health sector in line with the MTEF and the National Health Strategy 2007-2017. The second component supports the government decision to improve the effectiveness of cash benefits and social welfare services in combating poverty. The third component relatesto providing Institutional Support for the implementationofthe reforms inthese ministries. Component 1: Health System ModernizationComponent@JS%11.5million) 137. In the health sector, the project will in conjunction with other development partners support priorities identified for implementation in the first four years of the Government's National Health Strategy 2007-2017. The strategy aims at improvement o f people's health, upgrading the financial protection and degree o f satisfaction o f the public through adequate improvement o f the health care systemperformance. 138. In the health sector, the component reflects a change in roles for key groups of actors under the new National Health Strategy. The Ministry of Health is progressively shifting focus towards regulatory functions and away from the direct management o f health care service providers. The need for multi- sectoral and behavior change responsesto promote public health is evident. Sub-component 1.1 focuses 39 on capacity building within the M o H and associated agencies to meet a changing role. Sub-components 1.2-1.4 address demand and supply side measures to separate financing from delivery functions in the provision o fpublicly provided health care services, to promote efficiency and quality inthese services. Sub-component1.1: CapacityDevelopmentand Sector Regulation 139. Background. Moldova has embarked upon decentralization o f health sector management which has included launching o f social health insurance and granting o f autonomous legal status to health care providers. Consequently, the role o f Ministry o f Health inhealth sector is intransition. The Ministryhas to substitute day-to-day management activities to become a policy formulator, strategic planner and effective regulator of health sector which is guidinghealth sector development towards medium- and long term objectives o f the country. Through policy and regulations, the Ministry needs to ensure (i)delivery of high quality o f services to users; (ii)availability o f human and physical resources needed to deliver these services; (iii)raising and pooling of adequate funds to finance health services; (iv) setting up mechanisms for prioritization to ensure that scarce resources are used efficiently to deliver desired results; and (v) accountability o f actors in the health sector to the population. 140. Following a functional review, a new organizational structure for the Ministry o f Health has been prepared, with strong focus on functions o f health policy, health service planning and monitoring of health system performance. Several previous functions o f M o H have been or are in process of being delegated to other institutions such as the Health Insurance Company and rayon level health administrators. Successful adoption o f the new roles o f key health sector administrators calls for new skills and capacity building in these institutions to undertake effective governance, regulation and evidence-basedpolicy making inthe new decentralized policy environment. 141, The health policy of Government of Moldovahas beenguided by EGPRSP and is more specified in National Health Strategies. The National Health Strategy for 2007-2017 is being finalized under the leadership of the Ministry o f Health with wide participation of different stakeholders. The Strategy together with a 3-year Action Plan for implementation is planned to be submitted to Government for discussion and approval in April 2007. The Strategy under preparation foresees commitment to the objectives and reform-path chosen in end 1990s, addressing remaining challenges and deepening/furthering improving/strengthening quality and efficiency o f and universal access to health services. Building on the actions implemented in 2000-2005, especially in the context o f implementation of health insurance, priorities for further development have been identified by the working groups o f the Strategy. 142. This sub-component will consist of activities to develop the information base, analytical and communication skills within the Ministry of Health and associated quasi-governmental agencies. In particular it will support two activities: (I) Skills development in analysis, monitoring and evaluation of policies in the Ministry of Health and in its associated agencies, including institutionalization of National Health Accounts (NHA) 143. Investments. Traditionally focused on running a public health care network a primary requirement is to increase the information base on the `health sector' in its widest sense, including both public and private provision and activities. In particular, to effectively fulfill its role as steward of the health system, the Ministryo f Health needs to have a comprehensive overview o f both public as well as private health expenditure, as well as ability to regulate and assure the quality o f private health care providers. The Scientific Practical Center o f Public Health and Sanitary Management (SPCPHSM) has initiated compilation o f a comprehensive National Health Accounts (NHA). This process which includes 40 the production of NHA, surveys and reporting procedures providing inputs to the NHAs needs to be institutionalized. The component will therefore finance hardware, training and technical assistance to support the institutionalization of National Health Accounts according to internationally agreed standards for such statistics. Such information, coupled with improvements in the quality and timeliness of epidemiological statistics form the basis of sector level monitoring. (2) Policy development capacity in health serviceplanning, finance and quality enhancement 144. Investments. The formulation of responses to challenges both in health, and the health care and health care insurance markets present uniquely complex challenges for policy makers. Health, welfare, and the technologies, enterprises, programs, and possibilities - even fashions - to address ill-health, disease, and depravation all constantly change. The project will provide training and study tours to staff for strategic planning within the M o H and associated agencies. In addition, technical assistance for policy development in a number of key areas will be supported through the project including: 9 Human resource strategy, providing a comprehensive analysis of current human resource availability in health sector in terms age-and skill mix, and to propose options for assuring sustainability o f health workforce; 9 Development of policy options for private sector participation in health sector to attract external financing to cover health sector investment needs and for building public private partnerships inhealth service delivery 9 Review and development of health sector legislative framework for coherency and internationalharmonization; and 9 Insurancecoverageexpansion(sub-component 1.2). Sub-Component 1.2: Health Care Financingand ProviderPayment 145. Moldova introduced a health insurance system in 2004, establishing Health Insurance Company (HIC), aimed at increasing the level o f autonomy o f health care providers and introducing contracting relations between the company and providers and output-based payment for health services. Further efforts are needed in developing HIC into an active purchaser which uses the contracting and provider payment as a driver for efficiency and quality improvement in health service provision. HIC IT-systems needto enable and support such development. 146. The sub-component will includetwo activities: (I) Developmentof a strategy to increase health insurancecoverage 147. Background. In Moldova, nearly 76 percent of the population is covered by health insurance. Mandatory health insurance however has not been successful in capturing the non-public sector working age population. The Government acts as an insurer for children, students, pensioners and several other non-working population groups. Over 50 percent o f men aged 25-39 years report not having health insurance. Women in the same age-group are only slightly better insured, with coverage rate 53- 55percent. While in younger age groups the main group o f uninsured are the urban population who work or are self-employed, in the age group 45-64 the main group o f uninsured people are the rural self- employed in the agricultural sector. Overall, less than half of the population between 25 to 44 years of age is insured. Occasional employees and self-employed farmers form the majority o f those who are actively employed, but yet not insured. There is thus a need to expand health insurance coverage. The diversity among uninsured groups necessitates further detailed analysis of obstacles to obtaining insurance and working out specific measures for each group, including, for example, information 41 provision on insurance entitlements, review and possible simplification o f registration and contribution payment procedure at the Health Insurance Company, strengthening information exchange and cooperation with taxation authorities etc. 148. Investments. The Project will finance an in-depth study o f currently un-insured persons, followed by cross-sectoral working groups developing group-specific strategies for expansion o f insurance coverage (including information on insurance entitlements, improvement of contribution collection process etc). In addition, mechanisms to reduce informal payments for health services need to be established. This component will support technical assistance and training for the development o f a health insurance coverage strategy and mechanisms to reduce informal payments and actions to implement it. (2) Strengthening purchasing function of Health Insurance Company, including refinement of equitable resource allocation methodology,further development of contracting methods and practice and review and refinement of provider payment methods and health service costing methodology 149. The continuing strategy to reorient medical services in public health care networks away from large inefficient inpatient facilities towards relatively more efficient outpatient and General Practice modes o f practice should include both push (supply side planning and interventions sub-components 1.3 & 1.4) and pull (demand side incentives) elements. This sub-component will focus on the creation o f demand side incentives. Inboth in- and out-patient services a shift is planned from input orientated, line budgeted reimbursement and resource allocation towards, towards output orientated health service contracting and reimbursement. 150. Background. Since its launch in 2004 Moldovan health insurance has experienced a stable increase in its revenues, mostly from the Government which acts as insurer for children and pensioners, contributing almost 2/3 o f national health insurance's revenues. Health care providers earn revenues from provided health services, paid either by Health Insurance Company according to signed contracts or from private patients. Compared with the previous system o f norm-based resource allocation through line-item budgets, the new contracting and payment systems should provide better incentives to health care providers for increasing efficiency. However, this has not been the case. 151. Contracts are signed between HIC and health care providers for financing health care services included in the "Unique Program" (public benefit package). Contracting criteria are a result o f negotiations between Ministry o f Health and HIC, establishing a) basic principles for the contracting o f health care services; b) distribution o f funds for the payment o f different kinds o f health services; c) characteristics for contracting different types o f health services; d) methods o f payment for health care services; and e) negotiation and litigation procedure. The contracts are relatively simple, consisting o f a general part and separate annexes for each kind o f care, and could be classified as cost-and-volume contracts. For the signing o f a contract, the health care institution is obliged to present H I C its business plan for the coming year. However, there is only one parameter in this business plan, which is fixed in a contract, and that is upper limit o f spending share for remuneration o f medical staff, with an aim to secure fundingof other expenditures. For 2006, this limit was 60 percent for primary health care, and 50 percent for inpatient care. 152. Contracting primary care. In primary care, the contracting party is the rayon level health authority, and not the actual service provider at the village level, except in a few independent centers around Chisinau and from 2007 onward pilot centers in Orhei. Primary care is paid on a per capita principle, combined with bonuses for achieving several quality indicators. Home care is paid per case. The incentives for improving efficiency and quality of health services at primary care level are however 42 seriously hampered by limited or non-existent management autonomy below the central rayon level. In addition, evidence suggests that within the rayon health authority, hospital costs are being cross- subsidized from allocations intended for primary care. Legal separation o f primary care from specialist care and adoption of direct contracting o f Family Doctor Offices (after sufficient capacity building) would considerably contribute to achieving the Government's objective o f increasing access to health care services at the primary level. 153. Contracting of secondary and tertiary care. Republican and municipal hospitals are contracted according to profiles of hospital services approved and existing inthe structure o f these hospitals. Rayon hospitals are contracted according to five basic profiles: therapy, communicable diseases, surgery, obstetrics and gynecology, pediatrics; additionally, three rayon hospitals are contracted under the tuberculosis profile. The main payment method usedis payment per case treated - for the total volume of hospital services provided during one hospitalization (within the limits o f the provisions of the Unique Program). All inpatient cases are grouped into 90 case-mix groups, and this large-scale grouping is based on hospital structural departments. This method is combined with a cap on the annual sum fixed in a contract. 154. Adoption of contracting between HIC and health care providers however, has not yet resulted in improved health sector efficiency. Average length o f stay (ALOS) in hospitals increased in rayon and municipal facilities in 2005 compared to 2004. Variance in ALOS and bed occupancy between departments o f the same specialty reveals considerable scope for efficiency improvements in use o f hospitals providing same level o f care and a need for improvement o f clinical practice. For example, ALOS in general surgery in different hospitals vary between 5.1 -8.5 days, in ophthalmology between 6.6-10.8 days, and in departments o f trauma and orthopedics between 6.2 - 16 days. The average bed occupancy in different hospitals and departments varies between 50-85 percent. Harmonizing clinical practice between hospitals would result in decrease o f average length o f stay and reduction in number of hospital beds. Maintaining current volume o f health service provision, but intensifyingthe process of service provision to achieve an average length of stay (ALOS) at the level of top 25 percent performing hospitals and increasing bed occupancy to an average o f 70 percent would allow closing o f 10 percent of hospital beds. This efficiency gain can be achieved through appropriate contracting strategies and target setting by HIC. 155. Price setting in the health sector. Price setting for health services is conducted centrally through a consultation process with health care providers. Tariffs for health care services are first calculated by health care institutions and submitted to the Ministryo f Health. After the approval of these tariffs by the special committee appointed by Government, the Ministry sets the tariffs for health care services and publishes a catalogue. These tariffs are however merely ceilings, i.e. HIC has the right to negotiate for lower tariffs with health care providers during the process of contracting. The pricing methodology i s basedon calculation of actual costs including depreciation, but excluding costs o f capital investments and procurement of medical equipment, which are expected to be covered by founders o f hospitals - MoH, municipalities andrayons respectively. 156. Originally, the pricing o f inpatient services in Moldova was based on costs per bed day. Here, major cost items ("basic costs" such as salaries, administrative overheads and utilities, and "auxiliary costs" such as garage, laundry, etc.) are allocated to the various inpatient sections o f the hospital which deliver direct services to patients (and have beds). Later, with the introduction o f "per case" payment, the methodology based on bed-day was reoriented to calculate costs per "treated case" (rom. caz tratat), i.e. for a case-mix group. This meant that, first, the costs generated by the inpatients section is divided by the number o f bed days provided by this section in order to calculate the costs per bed day, and then this cost i s multiplied by a standard number o f days for each diagnostic category. In a next step, costs of medication, nutrition, and investigations are calculated. Costs for medication and food services are 43 assessed using normative formula for each diagnostic category, whereas the costs o f investigations are broken down to a common measure of "cost per minute of investigations" and then allocated. There are three different levels of case-mix roup tariffs for: 1) rayon, 2) municipal and 3) republican. In2005, the price difference between lst 3and 3level o f one inpatient case was following: --- internal diseases 33 percent; pediatrics 50 percent; and general surgery 2.4 times (rayon hospitals 960 MDL, municipal hospitals 1540 MDL, republicanhospitals 2290 MDL). 157. The currenttariffs however underestimate actual expenditures-the calculations are basedon 2002 price level, and the updating of the calculation formula is yet to be bee approved; costs of para-clinical services (laboratories, physiotherapy, etc.), of surgery, o f anesthesia, of intensive therapy, and, in reality, of depreciation are also included in the calculation of the costs o f a treated case. This has resulted in under-spending on medical supplies, pharmaceuticals and maintenance, creating pressures to extract informal co-payments from patients to meet these needs. 158. Investments. This sub-component will therefore focus on the creation of demand side incentives. In both in- and out-patient services this involves a number of steps. First, the project will provide definitions o f the outputs o f various service providers. While this is relatively straight-forward and agreed for reimbursement purposes in primary care (capitation payments to providers with some bonuses for key interventions), for inpatient and hospital services this is both technically and managerially complex. The project will work with a parallel EUTACIS project inPrimary care and General Practice. The current joint administration of funds for primary and secondary care at the Rayon level implies however that primary care reimbursement cannot be addressed without considering the implications for hospital service reimbursement. In hospital care, the project will support the enhancement of the definition o f hospital case-mix `products' in a Moldovan context. Subsequently, methods for the costing and pricingo f products will be developed. The definition o f `products', and their costing and pricingwill have implications for the services available under public reimbursement and the so-called "Unique Program" (public benefit package). In turn, the scope o f the "Unique Program" will be associated with options to expand insurance coverage either inside or outside the Program. 159. The project will support technical assistance, training and workshops to develop simulation models and stakeholder coordination and participationto establish a transition strategy. 160. Inorder to ensure the sustainability of PHC clinics inrural areas, the financing arrangementswill be reconsidered for ensuring that skilled health professionals will be willing to work in these rural areas. An incentive package for doctors and nurses will be designed in order to attract these professionals to work in the upgraded facilities based on studies of primary health care physicians and final year medical graduates conducted using the PHRD preparation grant. These financing arrangements will aim at increasing autonomy at the health facility level building on the experience of the Chisinau and Orhei pilots and will have as pillars direct contracting with primary care physicians or group practices, HIC global budgetsand increasedpayments. Sub-component 1.3: PrimaryHealthCareDevelopment 161. Background. Although 100 health centers were refurbished from Health Investment Fundproject during 2000-2006, it only constitutes 23 percent of the total number o f primary care facilities inMoldova. Many o f these centers still lack some basic medical equipment common at the primary care level. Length and scope o f re-training courses for family doctors and nurses still fall short o f EU standards for specialized post-graduate education. The challenge inthe coming years is the completion o f the process 44 of refurbishments and equipping o f primary care facilities according to standards and scope o f primary care, which is currently being defined under the Primary Care Development Strategy. In parallel, responsibilities and methods for covering capital expenditure in the medium- and long term needs to be developed, based on Moldovan recurrent expenditure and independent o f external donor financing to assure sustainable maintenance and development o f health infrastructure. 162. Investments. This sub-component aims at improving the quality of the primary care delivered in rural areas by adopting nation wide structural standards for primary care facilities and services that they render and funding construction works for existing and new clinics as well as endowing them with a minimumset of adequateequipment. The interventions will range from repair works to reconstruction to new construction. The construction standards will comprise at least a safe buildingwith running water and a sewage system and adequate heating. The aim is to improve safety for patients and staff and functional efficiency. The new facilities will provide a safe environment and will be easy to clean and maintain. Training for the health professionals working in the new clinics will be provided through a parallel financed EU-TACIS Project. The training will consist o f continuing medical education (on clinical protocol guidelines and general practice) and o fmanagementtraining. 163. The Project will assist inthe elaboration o f the scope o f work o f primary care physicians and the basic set o f equipment required for rendering these services. Proper working procedures / guidelines will be elaborated and implemented. Sub-Component1.4: HospitalCapacity Assessment and Modernization 164. This sub-component will assist the Government of Moldova assess hospital capacity needs inthe coming decades, and to initiate hospital network modernizationprocess to improve quality and efficiency o f health service provision. 165. Background. Between 1995 and 2001, Moldova succeeded in drastically downsizing its hospital infrastructure from 335 hospitals to 110. The number o f hospital beds decreasedby more than half from a total o f 52 986 to 25 044 to the level o f new EU members o f around 640 beds per 100 000 population. Most o f the downsizing happenedoutside the capital area of Chisinau, where only 4 hospitals were closed and 2 were reorganized into outpatient facilities. Currently, more than 30 percent o f Moldovan hospital beds are in the Republican and municipal hospitals o f Chisinau. Hospital sector performance indicators however are not at the level of EUnew member states, with ALOS at 10 days compared to 8.2 in new EU member states 2005, and bed occupancy at 67 percent compared to 73 percent. This suggests that further optimization of capacity is needed for provision o fthe same volume of health services. 166. Most o f the hospital buildings are old, at least from an accounting point o f view. According to internationalparametersregarding a hospital's usefullife, filldepreciation is achieved between 25 and 33 years after construction depending on the type o f infrastructure and the services delivered. The average age o f a typical Moldovan facility is around 45 years, ranging from 37 years among Municipal facilities to 47 years among Republican hospitals. Very little capital investment or even full maintenance has been carried out inthe last 15 years due to severe fiscal constraints. Equipment obsolescence ranges from 60 percent in Republican institutions to 80 percent in rayons. In addition, in rayonal facilities, one out of every five machines is not working, while in Republican hospitals 10 percent o f the equipment is not working. In 2006, the Government of Moldova started a state budget funded investment program for modernizing hospitals, selecting 3 rayon hospitals for renovation and upgrading. Financing is being sought for reconstruction and modernizationo f the four reference centers in Chisinau. 45 167. Taking into consideration the limited resources on one hand and long-term nature o f hospital investments on the other, it is o f utmost importance that current investments in hospitals are guided by needs of the future in terms population residence, disease burden and health technology developments, rather than basedon the current existinginfrastructure. 168. The sub-component will fundtwo activities: (1) Modernization ofthe hospital network in Chisinau 169. Background. Fundedby a PHRD grant, a Chisinau area hospital assessment study was performed January - June 2006. A team comprising o f a health service planner, an architect, a medical technology specialist and a human resource specialist visited Chisinau hospitals assessingtheir capacity, location and physical condition o f buildings, condition of medical equipment, as well as service levels and performance o f individual hospitals. The assessment identified four sites as perspective main health service providers and reference centers in Chisinau area - Republican Clinical Hospital, Emergency Hospital, Maternity and Children's Hospital and Municipal Hospital nr 3. The assessment also concluded that with a moderate increase in efficiency o f hospitals, only 8500 hospitals beds will be needed (with no reduction in hospital personnel) to provide the same level o f health services instead o f the current 9534. This would also enable optimization of hospital infrastructure, resulting in savings in utility and maintenance costs. 170. Based on the assessment, the Government o f Moldova has decided to start modernization of Chisinau hospital network with reconstruction and renovation of the RepublicanClinical Hospital, which is also the teaching base for Moldovan Medical University (State University o f Medicine and Pharmacy Nicolae Testemitanu). Built in 1977, the hospital has undergone downsizing from 1230 to current 740 beds, and provides health services in internal medicine (allergology, gastroenterology, hepatology, endocrinology, nephrology, rheumatology, general therapy) and surgery (general surgery, proctology, septic surgery, thoracic surgery, vascular surgery, ophthalmology, otorinolaryngology, urology), and includes also a hemodialysis and kidney transplantation centre, a rehabilitation and physiotherapy centre, and a blood transfusion department. It has 1298 staff, including 206 medical doctors and 5 15 nurses. The reconstruction is phased in 8 stages. 171, Investments. The Project (with parallel financing from the Council of Europe Development Bank) will provide financing for the phases 1 & 2 o f the modernization o f the Republican Clinical Hospital (RCH), partially covering investments in infrastructure and medical equipment. A planning process, including a feasibility study and the development o f a business plan will provide the framework for these investments. This will further improve the operational efficiency o f the RCH. 172. In addition, the Project would provide technical assistance and training to set up a hospital network in Chisinau in line with the Chisinau Hospital Master Plan. If successful, this will result in optimization o f excess capacity (hospital beds) and improved efficiency and management of hospitals. (2) National level hospital capacity needs assessment 173. Investments. Following the assessment o f Chisinau area hospitals, the Government of Moldova has decided to pursue with a national level assessment o f hospital capacity need, to guide efficiency and appropriateness of investments planned from state budget as well as sought external financing. The project will finance the technical assistance for this assessment. The Masterplan, when completed, will also guide contracting strategy o f the Health Insurance Company. 46 Component2: SocialAssistance and Welfare Component(US% million) 174. Background. This component supports a multi-donor program, led by the United Kingdom, to help the Government develop a targeted social assistance program to improve the effectiveness of cash benefits and social welfare services incombating poverty, andto improvethe efficiencywith which social assistance services are delivered. 175. Two of the main outputs of the component will be (a) the development of a better targeted and administered cash benefit system, and (b) the development of an improvedsocialwelfare system. At the core ofbothsystems is the needto better identify the poor, to have informationavailable that would allow for good decision making both in benefit awarding and in the identification and implementationof the correct social service provision. 176. Investments. This component supports two activities, inthe context ofthe program: . Establishmentof a consolidated data base for all social assistance transfers so that targeting becomestechnicallypossible; and Equipment and training for social workers who will collect information necessary for targeting and deliver diverse welfare services, such as: child protection, prevention of violence against women, prevention of trafficking, and support for people recoveringfrom alcoholismand drugabuse. (a) Establishment of a consolidateddatabasefor all social assistancetransfers 177. Descriptionof the data base: social assistancecash beneJits. The systemwill provide a database covering all cash benefit claims and all contacts with social workers and social services including referralsto residentialcare and day care facilities. The data base will operate on an individual level, but have the capacity to link all individualsas members of a family. It is essential that the system simplifies the working processes at all work levels, and is notjust a record keeping system. It will therefore be developed as an active benefit calculation and payment system, and a case recording system. While, at ministerial level, it will provide one data base the system can be seen (and the user requirements designed) as two different systemsproviding for different inputs andoperations. 178. The computer system will be designedas a central level benefitcalculationand data base system. It will accept information on claims to benefit and operate using a personal identification number (preferably the number issued for social contributionpurposes). It will have the capacity to cross check all claims to benefits with other benefitpayments recordedonthe system and will link with other systems suchas the pensionsystem, the unemployment system, and the landregistrysystem. Ideally linkswill be providedto other systems, yet to be defined, such as the tax system and car registry system to allow for cross checks of informationreceived. It will calculate entitlement to cash benefits basedon income and asset (actual and proxy) information input and will provide for the payment of cash benefits through the banking system. It will have the capacity to automatically initiate changes to benefit levels based on changes due to, for example, age changes of children, without the needto re-inputclaim data. Itwill also automaticallyapply general indexationincrease to all benefit recipients and be able to identify particular characteristicsof recipientsto allow for automatic changes following specific changes in legislation. 179. The central data base will contain a record of all information on (a) the personal details of all members of a family for whom a claim is made (including name, date of birth, sex, address, social security number, and bank details), (b) the income and asset details of all members of the family, (c) additionalinformationprovidedat the time of claim to satisfy any proxymeans test yet to be decided, and (d) the award level and duration of cash benefit payments. Additional information may be added if 47 required to cover the possibility o f benefits being awarded based on the conditional actions by the claimant. 180. The data base will provide for a full range of policy and management information available on a national level to the Ministry and available at rayon level to the relevant authorities. The systemwill also allow for selective interrogation for specific policy development information requirements. In addition the system will provide a full budgeting and accounting package to provide (a ) day to day accounting information (b) payment data based on family size and age o f children (plus other parameters yet to be designed), and (c) the capacity to forecast future expenditurefor budgeting purposes. 181. Claim data may not be input to the system at premeria level by front line social workers but rather at the rayon level (38 centers with access required for 4-5 persons at each centre). Ministry staff in the social cash benefits department will have full access to the managementand policy information system. 182. Access to the system will be controlled by password, and the level of entry will be restricted to that requiredto carry out the individual claim. (i.e. an individual social worker could not make changes to claims outside o f their direct area o f control, rayons could only access information on claims in that rayon, and Ministry staff could not make changes that would affect individual benefit payment levels). All inputs and changes will be recorded on a personal staff basis to allow for a clear audit trail on each individual case. All inputs including those resultinginrefusals will be recorded and savedfor a minimum of five (yet to be decided) years. 183. Description of the data base: the social work case system. The system will provide a tool for social workers to (a) record all contacts with individuals and families seeking social worker assistance, (b) a record o f all social welfare services provided (or recommended), and (c) access to the cash benefit system to confirm the level o f benefit receipt. The purpose is to build up a social care history record of families requiring social welfare support services. Information will be entered in the system by the network of about 1,300 social workers at premeria level. 184. Information inthe data base will include, (a) identity information the same as the benefit system, at individual and family level, and links between families and people in residential care facilities, (b) a narrative case history o f problems within the family, and (c) services considered and provided. The system will have the capacity to apply costs to the services provided to assist the policy development o f future policy decisions. The case work data base on individuals should be retained and available to Rayon level offices, but the basic management information data and policy impact data will be available at Ministry level. It is essential that the impact and effectiveness of services provided can be tracked and developed through policy changes. 185. For the cash benefits system software will be required for benefit claim processing, and payments. For social welfare a secure claimant case history system will be required. In addition a full accounting and budgetingpackage and a managementand policy development information systemwill be required. 186. Management and operation of the data base. Input to both the cash benefit and welfare case system will be in the first instance at the rayon level. The network of social workers operating in 901 premeria (personal computers and supporting equipment) will have access. Checking and management o f the system at rayon level will be through the 37 Rayon/City offices with approximately 4 to 5 personal computers ineach center plus supporting equipment. 48 187. Within the Ministry headquarters there will be a requirement for statistical and management access for all cash benefit and social welfare staff (approx 15 positions plus supporting equipment). There will be the data base and cash benefit processing centre. This will require the capacity to retain data on about 500,000 individuals at any one time and historical data on up to 1.5 million individuals. Cash benefits processing and payment system will be requiredfor up to 500,000 families at any one time, plus historical data. The National Social Insurance House (NSIH) computer equipment system recently financed under the IDA-funded Social Protection Management Project would be upgraded to accommodate the proposed social assistance system. The proposed system's data base, however, would not be combined with NSM data base, but would be co-located and interfaced as the new social assistance system would be based on the national identification number (DNP) and not the social insurance number used by the pension system. The Ministry o f Information Development will be a back up site for the server. The Project will finance workstations, upgraded equipment, additional Oracle licenses, applications software development and training. 188. Linkswill berequiredbetween all levels ofthe system and betweenthis systemand other systems as detailed. (b) Equipment and trainingfor social workers 189. Description of the social werfare activities. The central data base cannot be used for targeting without a network o f people at the premeria level whose task is to collect information on beneficiaries, enter it into the database, and to read down information on applicant. The best practice in social welfare is to guide applicants to solutions other than dependence on welfare, whenever possible, and when welfare is necessary, to guide the beneficiaries to services that will help them move out o f welfare. Some examples would be referral o f an unemployed person to an employment agency or o f an alcoholic to a recovery support group. 190. One way to achieve this inwould be by launching a network o f through social workers (who are called social assistants in Moldova).about 1,300 social workers (called assistants), who will be placed at thepremeria level. The Government reserved funds in this year's budget for hiring 600 social workers and is about to beginhiring. 191. The structural, supervisory, and standards controls and support functions would be at the rayon level, and directorates of social assistance established, once decisions are made on the roles and continuities o f the current departments and institutions o f Government. A gatekeeping, referral and inspection system o f some kind will be necessary at rayon level to operationalize family support, preventive care, foster and alternative family arrangements to residential care, and oversee the process of de-institutionlization. Some o f this has been modeled by TACIS 1, but the strategic and policy development and organizational structure and training capacities to bringit about all have yet to be done. Meanwhile UNICEF, as TACIS 2, has begun curriculum development and consideration o f initial job description and induction training for the new network o f social assistants. 192. Investments in social workers ' equipment & training. The European Union will probably support training o f social workers through technical assistance and DfID will probably support training through its contract with OPM. The World Bank however is the only donor which can support a significant investment in the equipment of social workers. The component supports procurement of personal computers for the social workers and the inspectors and quality control staff at the rayon level, a total o f about 1,500 people. These computers are necessary so that the social workers can input information on their cases and group work to the central data base. 49 193. UNICEF is helpingthe Government deliver an initial training course of 3 months to the newly hired social workers. The cost of a further two weeks of training for the social workers, repeated each year, will be financed by a several donors: the World Bank, DfID, and probably the European Union- TACIS. The social workers would also require on the job supervision and training, provided by supervisor-instructors stationedat the rayon level. Component3: InstitutionalSupport Component(US$0.5 million) 194. This component aims at building administrativecapacity inthe implementingagenciesinorder to preparethese sectors for SWAPhudgetsupport operations inthe future. Technicalassistance would thus be provided to improve monitoring and evaluation and fiduciary management including operational reviews and performance audits not only to meet Project requirements but also to improve overall capacity within the two ministries. This component will also provide logistical support for the working groups assisting in implementationof social sector reforms. 50 Annex 5: Project Costs MOLDOVA: Health Services & Social Assistance Project International Total Cost Development Project Cost Summary Including YOof Association % of Total Contingencies Total Financing Financing A. Health System Modernization Component Capacity Developmentand Sector Regulation 729,357 2 729,357 100 HealthCare FinancingandProviderPayment 808,385 2 808,385 100 PrimaryHealthCare Development 15,981,417 36 6,039,878 38 HospitalCapacityAssessment andModernization 13,333,276 30 3,977,297 30 Subtotal Health System Modernization Component 30,852,435 70 11,554,916 37 B. SocialAssistance and Welfare 12,961,809 29 4,939,769 38 C. Institutional Support 549,489 1 505,315 92 Total Project Costs 44,363,733 100 17,000,000 38 Components by Financiers International Other The Development Parallel Government* Association Financiers** Total A. Health System Modernization Component MOH Capacity Development and Sector Regulation 729,357 729,357 HealthCare FinancingandProviderPayment 808,385 808,385 PrimaryHealthCare Development 1,919,499 6,039,878 8,022,040 15,981,417 HospitalCapacity Assessment andModernization 603,358 3,977,297 8,752,622 13,333,276 Subtotal Health System Modernization Component 2,522,857 11,554,916 16,774,662 30,852,435 B. Social Assistance and Welfare 4,939,769 8,022,040 12,961,809 C. Institutional Support 44,174 505,315 549,489 Total Project Costs 2,567,031 17,000,000 24,796,702 44,363,733 * Recurrentcosts estimated at 2.5% of construction costs and 10% for equipment investment per year and is within the capacity of the MTEF. ** Includesestimated financingfor: Councilof EuropeDevelopmentBank RepublicanClinical HospitalRehabilitation; - EU-TACIS -Primary Care Strengthening 6 million; EU-TACIS - SocialAssistance and Social Services 6 million; and - DFID- SocialAssistance amount not known. All contracts to be financed under the project are expected to be tax-exempted, in line with Moldovan practice of donor-financed projects. The costs include taxes for local training as exemption for small purchases done locally would be difficult and local income taxes for local consultants. 51 Project Components by Year - Base costs* Base Cost 2008 2009 2010 2011 Total A. Health System Modernization Component MOH Capacity Development and Sector Regulation 114,750 226,750 168,500 142,750 652,750 Health Care Financing andProvider Payment 140,000 214,000 253,500 121,000 728,500 Primary Health Care Development 826,000 2,473,500 2,522,000 1,094,000 6,915,500 Hospital Capacity Assessment and Modernization 681,000 3,262,160 3,681,220 3,562,720 11,187,100 Subtotal Health System Modernization Component 1,761,750 6,176,410 6,625,220 4,920,470 19,483,850 B. SocialAssistance and Welfare 1,595,000 1,248,964 1,194,500 454,500 4,492,964 C. Institutional Support 113,300 143,300 113,300 110,300 480,200 Total BASELINE COSTS 3,470,050 7,568,674 7,933,020 5,485,270 24,457,014 Physical Contingencies 148,753 522,654 553,271 419,765 1,644,444 Price Contingencies 63,018 474,339 831,572 849,268 2,2 18,196 Total Project Costs* 3,681,821 8,565,667 9,317,863 6,754,303 28,319,653 Taxes 48,3 10 77,033 99,440 119,829 344,612 Foreign Exchange 2,223,608 3,846,274 4,361,746 2,855,270 13,286,897 * Table does not includeEU-TACIS and DFIDproject costs as by year amounts are not known. International Other The Development Parallel Project Costs by Implementing Agencies Government Association Financiers* Total Amount Amount Amount Amount Ministry of Health A. Health System Modernization Component MOHCapacity Development and SectorRegulation 729,357 729,357 Health Care Financing and Provider Payment 808,385 808,385 Primary Health Care Development 1,919,499 6,039,878 8,022,040 15,981,417 Hospital Capacity Assessment and Modernization 603,358 3,977,297 8,752,622 13,333,276 Subtotal Health System Modernization Component 2,522,857 11,554,916 16,774,662 30,852,435 C. Institutional Support 32,127 411,101 443,22 8 Total Ministry of Health 2,554,984 11,966,018 16,774,662 31,295,663 Ministryof SocialProtection B. SocialAssistance and Welfare 0 4,939,769 8,022,040 12,961,809 C. InstitutionalSupport 12,047 94,214 106,261 Total Ministry o f Social Protection 12,047 5,033,983 8,022,040 13,068,070 * Includes estimatedfinancing for: Council of Europe DevelopmentBank RepublicanClinical HospitalRehabilitation; - EU-TACIS-Primary Care Strengthening 6 million; EU-TACIS- Social Assistanceand Social Services- 6 million ; and DFID- SocialAssistanceamountnot known. 52 Annex 6: ImplementationArrangements MOLDOVA: HealthServices & Social AssistanceProject 195. The Project would be executed over a period of four years, 2007-2011. The Project is expect to become effective in September 2007 and will close in August 2011. The health component will be implementedwithin the integratedstructure ofthe Ministry ofHealthandthe social assistance component within the integrated structure of the Ministry of Social Protection, Family and Child. No separate Project ImplementationUnits (PKJ) will be established. 196. A joint Steering Committee will be responsible for the overallguidance, oversight, monitoringof progressand inter-ministerialcoordinationandmeet at least once a year. 197. For the health component, the Lead Project Counterpart will be the Minister of Health. A StrategyManagementTeam is beingformedunderthe Minister of Healthwith two aims: To guide, co-ordinateandprovide support for the implementationofthe Strategy; and 0 To monitorthe achievements ofthe Strategy. 198. The Strategy ManagementTeam will consist of: A Strategy Management Director, a Deputy Minister or a Head of Department, directly under the Minister, who will be responsible for the days to day management and co- ordination. A policy and monitoring officer (consultant) will be hired to support the Strategy Management Director in monitoring strategic plan implementation(and project) results. Four component coordinators - Policy Development, Health Financing, Primary Care and Secondary and Tertiary Care - current Heads of Departmentsresponsible for these areas in the MoH will be appointed, for each Component under the Strategy. The component coordinators will be common to all parallel financed projects supporting a particular componentunderthe NationalHealth Strategy. Each component has a working group established during project preparation comprisingof members of all relevant agencies or stakeholders to guide policy development and implementation of strategy activities. These groups will continue to provide guidance duringprojectimplementation. Strategic Management Team will meet on a quarterly basis. Progress reports will be providedby each workinggroup prior to each SteeringCommittee meeting, 200. For thesocial assistancecomponent,the LeadProject Counterpart will be the Ministerof Social Protection, Family and Child. The implementationarrangements for this component will be the same as that for the joint DFID-SIDA, EU, UNICEF-supported program. Here, a Steering Committee and a Program Working Group have been established. The role of the Social Assistance and Social Welfare (SASW) SteeringCommittee will be two folds: 0 To endorseand guide the strategic directionofthe Social Assistance Program; and 0 To monitor, evaluate the SocialAssistance Program. 53 201. The Committee will be chaired by the Minister of Social Protection, Family and Child. The membership of the Committee is yet to be finalized, but will be drawn from the senior levels of central and line ministries, donor community and civil society. A working group has been formed within the Ministry to guide implementationof social assistance reforms under the multi-donor supported program. The role of the Working Group is to work closely with technical consultants on a day to day basis inthe development and implementationof the policy framework. The SASW Steering Committee will meeton a quarterly basis in the first year of the project, with a possibility of moving to half yearly meetings in subsequentyears. The first meeting will be held inthe first half of June 2007. The working group will produce reports prior to each SteeringCommitteemeeting. 202. Fiduciary management, reporting and M&E arrangements. Fiduciary tasks, specifically financial management and procurement-related activities, will be managed by the departments for Economy, Finance and Accounting in both ministries in cooperation with the Treasury, Ministry of Finance andother implementationpartnersas required. Ministry staff will be supportedby consultants as neededfor specific tasks and capacity building. Disbursement of funds will be effected by the Treasury through two segregated Designated Accounts and based on the request from the implementingagency. Further details are described in Annex 7 and Annex 8. The implementing agencies will monitor and analyze implementationprogress and will provide the joint Steering Committee as well as the relevant ministerial steering committee and World Bank with regular progress reports on a semester basis. A detailed description ofthe Monitoring & Evaluationframework andarrangements is providedinAnnex 3. 54 Annex 7: FinancialManagement and DisbursementArrangements MOLDOVA: HealthServices & SocialAssistance Project Introduction 203. The financial management arrangements envisaged for this project differ from those typically made under World Bank financed projects in Moldova. This is because the project will not be implemented by a stand alone Project Implementation Unit (PIU) as is common practice under donor- financed projects in Moldova. Instead, the project is conceived to help to improve and strengthen Moldova's own systems for the implementing ministries, with basically the same concepts and procedures to be applied for both internally and externally financed investments. 204. The financial management arrangements described below will simultaneously satisfy the objective o f increased reliance on existing financial management systems in Moldova's relevant Ministriesandthe Treasury as well as the needto comply with the World Bank requirements. 205. To ensure funds are used effectively, efficiently and for the purposes intended, a number of measures have been designed within the financial management system o f this project; these are described further below. Summary of RiskAssessment 206. The financial inherent and control risks for the project are summarized as follows: Residual "MRisk Risk MitigatingMeasures Risk INHERENTRISKS Country Level: Weak PFM H The two ministrieswill maintainarobust s institutions,high levelof corruption financial management system, projectfinancial (additional informationis includedin audit by acceptableauditors, use ofFM and country issues inthe nextsection). procurementconsultants to strengthenthe existingcapacity, operational reviewby Court of Accounts or independentauditors. Entity Level: Risk ofpolitical Any changes inthe implementation interferenceinthe two ministries' arrangements will haveto be agreedwith IDA. management and staff. All changesto the structureand staffing ofthe Ministries affectingthe project teams will be monitoredby IDA. Procurementwill be very closely monitoredby IDA. A joint steering committee will be establishedto provide strategic guidance andoversight. ProjectLevel: The increasedreliance A number ofrisk mitigation measures(see on own financial management systems below) are designedto minimizethe risk of o f the 2 ministries. misuse of funds. OVERALL INHERENT RISK CONTROL RISKS Budget-budgetsstill lack realism Projectbudgetsdevelopedand approvedyearly M by the ministries and by project steering committee, inagreement with IDA 55 Residual FMRisk Risk Mitigating Measures Risk Accounting-dependence on manual H I1 I The ministriesset updistinct project-specific - - . S accounting accountingledgers Intheir accountingsystems InternalControls-need further H 1 Additional procedures developed for the proiect;II M strengtheningto ensure that funds are 1 independent auditors andtechkcal experts to disbursedfor works, goods or services monitorthe project implementationand results deliveredinaccordance with agreed verification; operationalreviewof internal criteria controls on investmentactivities to be carried duringthe implementationphase. Fundsflow use ofthe Treasury, - H Detailedproceduresput inplace, WB S which has limited foreign currency disbursement guidelineswill be used, staffwill experience be trained inprocedures FinancialReporting-mostly manual H Simple reportingformats and agreement on M reports'aggregation Auditing M AnnualProjectaudit will be carriedout by M independentauditors and on terms of reference acceptable to IDA. OVERALLCONTROL RISK H M Risk of Misuse of Funds and Mitigation Measures 207. The following measures are incorporated inthe project design to minimize the risk of misuse of funds: 1 Ex-ante Controls by the Treasury.Expenditures will be incurred by the two Ministries, but . payments would be effected by the Treasury which will perform ex-ante checks before making payments; Independent Ver@cationof the Quantity and Quality of Works by on-site supervisors. All . contractor's bills will be reviewed by on-site supervisors who will verify and certify quantity and quality o f works executed; Oversight of goods delivered and services rendered. Working groups within the two Ministries will verify and certify the quantity, quality and technical specifications o f goods delivered and the quality o f the services rendered as per the relevant Terms o f Reference and will includewhistle-blowing ifneeded; 1 Prior Review of Procurement. A low threshold will initially be set for the WB's prior review o f procurement decisions by the Borrower. . 1 Annual Financial Audit. The financial audit will cover the project financial statements by acceptable auditors; Performance Audit. Operational reviews on internal controls and specific issues related to . governance, efficiency and performance, one at project mid-term and one at the end o f the project; Complaints Mechanisms. A complaint handling mechanism involving an independent local agency will be deployed to handle complaints regarding any type o f corruptive behavior; 56 ... Transparency and Public Information. Information about project activities including procurement will be continuously posted on the websites to inform civil society; Forensic Audit. A forensic audit will be carried out if major allegations o f corruption surface during project implementation; and Intensive Supervision by the World Bank. Overall supervision, including procurement and financial management supervision, will be undertaken by World Bank staff at least three times per year. Country Public Financial Management (PFM) Environment 208. Strengthening of public financial management is an important part o f the public sector reform component of the Government's Economic Growth and Poverty Reduction Strategy (EGPRSP) currently under implementation. The PFM section of EGPRSP largely incorporates recommendations of a series of diagnostic reports (PEMR,* CFAA,' CPAR'') produced in 2003 in close collaboration between the Government and the Bank. The priority areas of activity under the Government PFM reform strategy include: (i)improving public resource allocation by introducing modern budget preparation practices; (ii) strengthening financial discipline by modernizing the treasury system and budget execution procedures; (iii)improving public debt management to minimize debt service costs; (iv) improving fiscal administration and increasing the efficiency of financial controls; (v) increasing the efficiency of budget management through introduction o f an integrated financial management information system; and (vi) harmonizing the budget and fiscal legal framework with European Union standards. 209. The progress achieved in implementation of the strategy by the end of 2005, is captured in the PFM performance report based on the PEFA methodology" finalized in June 2006 through a multi-donor effort (further referred to as PEFA report). The overall conclusion o f the report is that weaknesses inthe current PFM system in Moldova are mainly due to institutional capacity issues typical for a country in transition. The fiduciary risk assessment annex to the report notes that Moldova remains a high risk country but has good chances to improve its rating to medium risk provided ongoing reforms are implemented effectively and efficiently. The progress achieved inthe main areas o f PFM reforms and the remainingweaknesses are summarized below. 210. Budgeting. The Government has been undertaking noticeable efforts to consolidate the budget formulation process to address the PEMR and CFAA findings on its fragmentation. The Law on budgetary system and budgetary process was amended in 2004 to introduce the concept of National Public Budget.'' The MTEF introduced since 2002 has a three year time horizon and i s updated annually on a rolling basis. It integrates the national public budget framework approved by the Government at the inception phase o f the annual budget cycle. Extra-budgetary means and extra-budgetary funds (amounting to less than 10 percent o f Central Government budget) are integrated in the MTEF and the annual budget documentation. The PRSC supports further development o f the strategic focus o f the MTEF through establishment of a central policy unit to support the Cabinet o f Ministers in definingmedium-termpolicy priorities. The remaining weaknesses in the budgeting area noted in the PEFA report include the need to maintain adherence to the existing budget calendar and improve expenditure planning at the line ministry * Moldova.Public Economic ManagementReview.March2003. ReportNo 25423-MD. Moldova.Public Expenditureand FinancialAccountabilityAssessment, September 2003. ReportNo 27425-MD. loRepublicof Moldova, Country ProcurementAssessment Report, June 2003, ReportNo 27548-MD. II ''Publicnationalpublic FinancialManagementPerformanceReport, June 2006. The budget is composed of: (i)State budget; (ii)State Social Insurance budget; (iii) budgets of administrative-territorialunits; and (iv) funds for compulsory insurancefor medicalassistance. 57 level linking it to sectoral policy riorities. Further strengthening o f budget formulation methodologies is a component of the PFM project' under implementation. P 211. Internal controls over the budget execution. Moldova has made important progress in developing the nationaltreasury system. Controls over budgetexecution havebeen significantly strengthenedthrough gradual expansion of the treasury coverage that started in 1997 with the state budget only and expanded by now to include the budgets of territorial administrative units, extra-budgetary funds and means, revenues of the social and health insurance budgets. Expenditures of the latter two budgets, as well as the donor-financed contributions to investment projects, however, remain outside the treasury operations. This is an area requiring further improvement in the treasury coverage. The PEFA report identifies a number of weaknesses related to treasury operations. The proper model of the treasury single account is missing at the moment and is being developed under the PFM project, being also monitored by the IMF under PRGF.I4The PEFA report also points to a need for further improvements in cash management and forecasting. Until 2006, no regular cash forecast updates were prepared, but the practice was improved in 2007 through introduction o f monthly updates. A solution still has to be found regarding the mode of communication on cash availability information to the spending units to prevent the creation of unfunded commitments and generating arrears. Improvements are also required in monitoring o f arrears, as information on the arrears' age profile is unavailable. All o f the above weaknesses are being addressed under the PFM project. The PEFA report also notes the relative weakness o f the treasury controls over payroll expenses, which is relying primarily on the integrity o f accounting staff o f spending units (since the payroll function is performed by each individual spending unit using either manual calculations or separate isolated IT modules; payroll lists are not reconciled with personnel data). The FMIS" being designed under the PFM project envisages a pilot payroll module as a first step in addressing this weakness. 212. Procurement. The 2003 CPAR concluded that the public procurement system was weak and needed substantial strengthening. Single Source Tendering (SST) was happening "far too often, often in contravention o f the procurement law" (p. vii). In 2001, it was reported that 67 percent o f all contracts used SST. CPAR recommendations formed the basis for the improvements undertaken by the Government in the procurement domain in the last years. The Public Procurement Law was amended and Public Procurement Agency was authorized to register contracts before they can be processedby Treasury with particular attention paid to SST cases. As indicated by the PEFA report, basedon the data for 2004- 2005, the SST practice has been significantly reduced (SST cases accounted for 8 percent of the total number of contracts and 10 percent of their overall amount in 2005), while the percentage of contracts awarded using open tender procedures reached 22 percent o f the total number o f contracts and 57 percent o f the overall amount in 2005. With the assistance o f a Bank-financed IDF grant, the new Public Procurement law was drafted (not approved et) to bring Moldova closer to the international standards in this area, and capacity building activities' c? for public procurement agency and spending units were conducted. A concern, however, remains about the sustainability of the progress achieved, related to the lack o f clarity on the status o f the Public Procurement Agency. Its recent merger with the Agency for Material Reserves, Public Procurement and Humanitarian Aid has created a direct conflict of interest l3 PFMP, ProjectID:PO82916 effective since January 2006. l4 The Three-year Poverty Reductionand GrowthFacility (PRGF) from IMF is effective since May 2006. Is FinancialManagementInformationalsystem developedunder the Bank fmancedPFM. l6 The mainactivitiessupportedby IDFGrant were: (a) Creationof Agency's and spendingunits' capacitythrough TA and training: (i)training of Agency staff in English; (ii)development of training curriculum for professional procurement,to be providedinlocalinstitution; (b) Development o f legislativeframework inprocurementaccording to WTO requirements;(c) Computerizingof public procurementfunctions, includingusingof internet for publishing and accessing of information related to public procurement: (i)web-site development; (ii)development of performance measurement methods; and (iii)development of national database related to performance of public procurement. 58 undermining the independence o f the public procurement function." The PRSC program supports measures to improve public procurement through: (i)enactment of the new Public Procurement Law, including provisions for independent Public Procurement Agency; (ii) decrease in the number and value o f contracts under SST, and increase in the number o f contracts and value o f contracts awarded by open tender. 213. Accounting and reporting. The Government is preparing for important changes in public sector accounting and reporting in the context o f the PFM project. The new integrated budget classification and chart o f accounts system is being developed on the basis o f the GFS2001 standards to be launched with the new FMIS. The existingbudgetclassification, which is broadly compliant with GFS 1986, is expected to be in use at least until 2008. Work is going on in parallel to replace within the same timeframe the multiple versions of the chart of accounts currently in use by different levels of budget entities with a unique chart of accounts compliant with cash based IPSAS. The Ministry of Finance is developing a strategy to introduce accounting standards for the public sector and sequence accounting reforms. It is expected that in the medium term the Government will maintain cash based accounting for the treasury and modified cash based accounting for the budget institutions. The new FMIS will enable the Government to produce consolidated financial statements showing the financial position o f the Government, and not only the budget execution reports, as is the practice at the moment. 214. Internal auditing. The internal auditing function of the Government is at an early stage of its development. Small internal audit units have been established in the MOF, State Tax Service, Customs and National Social Insurance House. In addition, there is a Control and Revision Service (CRS) under the Ministry of Finance. In most cases the CRS is performing ex-post verification of budget execution. Development o f a modern internal audit function within the Government is a component o f the PFM project. 215. External auditing. The PEFA report mentions that the Court of Accounts (CoA) at present is largely carrying out transactions level testing. Audit methodologies require further improvements despite introduction o f a number o f internal manuals and guidelines following the 2003 CFAA. Modern audit concepts were introduced into the CoA Law through 2005 amendments. PEFA report observes the need for the Parliament to pay sufficient attention to the audit reports. The current system o f nominating members to the top management body o f the CoA does not guarantee independence and is prone to political influence in the working o f the CoA. The Court o f Accounts has indicated its willingness to develop into a modern external audit institution along the EUcounterparts. Technical assistancehas been offered by the Swedish and British national audit offices to support the implementation o f the CoA Strategic Development Plan. 216. A broad PFM reform and immediate measuresneededto strengthen public financial management framework i s currently underway. Major assistance is already being provided by the Bank through the Public Financial Management Project (PFMP), co-financed by SIDA and the Dutch Government. PFMP is supporting improvements in: (i)budget preparation and budget execution methodologies; (ii) accounting and reporting; (iii)development o f Financial Management information system and cash management; (iv) internal auditing; (v) building sustainable domestic capacity for PFM related training. In coordination with PFMP, DFID is providing support to the strengthening of the MTEF process, and TA for the Court of Accounts is beingplanned by the donors. Several highpriority reform measures are included in the IMF PRGF and the PRCS. The existing instruments already mobilized through a concerted multi-donor effort appearto be sufficient to support the critical PFM agenda. " This merger was part of the inceptionphase of the Governmentprogram of public administrationreform, which startedwith reorganizationof central government agencies and personnelcuts. 59 217. The Bank has considered the recent improvement in the PFM environment in Moldova when reviewingand assessingthe financialmanagementofthis Project. The implicationsofthe PFMissues for the Project have been addressedby the following main actions: (a) a detailedreview of the systems was performed for the two implementingministries; (b) the implementingministries set up distinct project- specific accounting ledgers within their systems; (c) project accounting staff nominated by the implementingministries; (d) project budgets will be developedand approved yearly by the implementing ministries and by the project steering committee; (e) projectfinancial statementswill be audited annually by an independent auditor acceptable to IDA.; and (0 use of a financial management consultant in the earlyprojectstage. 218. The Project will rely extensively on the variouselements of Moldova's existingpublicfinancial managementsystems, including: 0 Implementingentities -the Project will be implementedby the Ministry of Health and the Ministry of Social Protection, Family and Child; 0 Staffing-Project staffwill be employeesofthe two ministries; 0 Budgeting- the Project budgets will be approved annually by the two ministersand by the SteeringCommittee; Internal controls - the Project will use the existing internal control framework within the two ministrieswith some additionalproceduresdevelopedfor the Project; 0 Flow offunds andpayments- the Projectwill use the Treasury system; Accounting andreporting-the Projectwill rely extensively on existingsystems; and 0 Auditing -the Project might rely onthe CoA inthe future for the operationalreviews. Strengths 219. A significant strength of the project financial management system is the flow of Project funds through the Treasury, which will perform ex-ante controls on all contract payments and exert the risk mitigationmeasures inplace for projectfinancialmanagement. Weaknesses andAction Plan 220. The financial management arrangements of the Project are generally sound. All the remaining actions have been fulfilled prior to Board presentation date. There are no significant weaknesses of the projectfinancial managementsystem. Implementation Arrangements 221. The existing economic, financial and accounting departments, one within the Ministry of Health and the other one within the Ministry of Social Protection, Family and Child shall have the overall responsibilityfor Project financial managementand contract management. The Treasury will monitor all contracts and all disbursements from the Credit and will perform all project payments based on appropriate requestsfrom the two Ministries. 222. The risk associatedwith the implementingentities is high before mitigation measures, due to the possible political interventions affecting the structure, management and staff of the implementing organizations. Any changes to the structure, management and staffing of these entities affecting the project will require prior agreement with IDA. A joint steering committee will be establishedproviding strategic guidance andoversight. The risk after the mitigation measures is substantial. 60 Budgeting and Planning 223. Both Ministries' teams will prepare annual budgets for their components of the Project based on procurement plans and in line with the Project Implementation Plan. These budgets form the basis for allocating funds to project activities and for requesting funds for payments via Treasury. The budgets will be prepared in accordance with the MOF reporting formats (categories, components and activities, financiers, account codes, and broken down by quarters and months). Budgets will be initially approved by the Steering Committee and by the two Ministries' management, respectively, before beingsubmitted to the Ministry o f Finance and the Treasury. The annual budgets will also be agreed with IDA prior to execution. The approved annual budgets are then entered into the accounting systems o f the respective ministries and will be used for continuous monitoring and periodic comparison with actual results as part o f the interim reporting. The process o f compiling budget data and approval will continue in the same manner during the financial year, with the detailed budget for the full year of project implementation beingbroken down by quarter 224. The risk associatedwith project planningand budgetingis substantial before mitigation measures, and is assessedas moderate after mitigation measures. Accounting 225. Accounting stuff The existing ministerial economic, financial and accounting departments, one within the Ministry of Health and the other one within the Ministry of Social Protection, Family and Child, are headed by a director and are staffed with several accountants and economists. The Project financial management team in each ministry will be lead by the head o f the above mentioned department, and will comprise required staff from the existing economic, financial, and accounting departments. The project financial management functions have been supplementedwith a financial management consultant appointed in the early stages o f the project until sufficient in-house capacity and knowledge of Bank FM procedures has been created inboth ministries. 226. The riskassociatedwith accounting staffing is assessedas substantial. 227. Information Systems. Both Ministries have in place existing financial management, accounting and reporting systems developed in-house based on MS Excel software. The spreadsheets for accounting and reporting follow the various formats required by the MOF under the Moldovan applicable accounting regulations. Project specific ledgers have been created within these systems to allow the teams to distinctly record the operations o fthe new project using the existing chart of accounts. 228. It would not be cost effective at this time to develop specific systems for the Project, since another World Bank-financed operation, the Public Financial Management (PFM) Project, currently assists the Moldovan Government in reforming the public sector financial management, including informational systems. To this end, the Ministries would cooperate closely with the PFMteam within the MOF and follow up on the developments inthat project. It is anticipated that by 2008 -2009, most line ministries, including the project Ministries, would have in place modern informational systems with the assistanceo fthe PFM. At that time, the project data would have to be moved to the new systems inorder to keep historical information 229. A number of simple procedures to strengthenthe data security and reduce the risk of accidentally or intentionally altering data would be introduced, such as saving the project Excel files with different file names monthly and archiving promptly after each month's end, regular back up of files, stricter password protection and other measures for data protection. All monthly reports generated in Excel will be printed 61 and filed timely after being signed by the head o f the economic departments, so that these reports can be verified by auditors to ensure reliability and accuracy. 230. The risk associatedwith information systems i s assessed as substantial. 23 1. Accounting Policies and Procedures. The Project's accounting books and records will be maintained on a modified cash basis and presented in Moldovan Lei (MDL) with the exception o f the books and records ofthe DAs which will be maintained inthe currency o fthese accounts and inMDL. 232. The existing economic, financial and accounting departments do not have up to date written appropriate accounting procedures and internal controls including authorization and segregation of duties. Accounting policies and procedures o f the Project are reflected in the project Financial Manual developed, which i s part of Project Operational Manual. 233. Accounting policies that to be applied on the project (besides standard accounting policies used for Budget entities) will includethe following major assumptions: --- modifiedcash accounting as the basis for recordingtransactions; reporting should be done in MDL and inthe currency of the DAs; and aggregatedproject IFRs should be prepared covering all components. 234. The risk associated with accounting is high before mitigation measures, and is assessed as substantial after mitigation measures. Internal Controls 235. The project will utilize existinginternal controls within the two Ministriesand the Treasury, and supplementthese with additional controls to ensure that funds are used effectively and efficiently for the purposes intended. The internal controls include (i)procurement controls - World Bank procurement procedures will apply, (ii)budgetary controls the project will form part o f the two Ministriesbudgets, (iii)Treasury controls - paymentswillflow throughthe Treasury, (iv) accountingcontrols-additional - appropriate controls will be implemented, (v) quality controls - on site supervisors and Ministerial working groups will verify all bills before payments are made, (vi) management controls - high level project coordinators for each Ministry and project steering committee will be appointed to coordinate and provide general oversight, (vii) audit controls -an independent acceptable audit firm acceptable to IDA will audit annually the project financial statements, based on audit terms of reference acceptable to IDA, and there will be operational review on internal controls and specific issues related to governance, efficiency and performance, one at project mid-term and one at the end o f the project, and (viii) supervision controls - the World Bank team will regularly carry out supervision o fthe project. 236. The following specific internalcontrols will be requiredto strengthenthe existing framework: (a) procurement would follow World Bank's requirements including tendering procedures, setting up of bid evaluation committee, issuance o f donor's no-objection on contracts; (b) all invoices from contractors will be certified by the on site construction supervisors and by the relevant Ministryworking groups before making any payment; (c) Treasury will perform ex-ante control over all payments; all payment orders will be verified with the contracts and signed by the relevant Minister; (d) project oversight will be provided by the two project coordinators and steering committee; 62 (e) annual project financial statements audits will be carried out by independent auditors acceptable to IDA and based on audit terms of reference acceptable to IDA, and there will be operational review on internal controls and specific issues relatedto governance, efficiency and performance, one at project mid-termand one at the end o fthe project; and (0 accounting departments within the two Ministries will perform monthly reconciliation o f own accounting records with the treasury records and with WE3 disbursement summaries. 237. The Ministries documented in the project financial management manual the internal control mechanisms to be followed in the application and uses of funds and the implementation of the project. The manual covers all financial management and administrative procedures, including accounting and record-keeping, flow o f funds, and reporting procedures. The manual reflects the internal structure relevant to the project, administrative arrangements, internal control procedures, including procedures for authorization of expenditures, maintenance o f records, safeguard o f assets, segregation o f duties to avoid conflict o f interest, regular reconciliation o f bank account statements, bank signing mandate (to include at least two signatories), regular reportingto ensure close monitoring o f project activities. 238. The Ministries will build upon the existing internal control framework to ensure that all project procedures and controls are adequately documented; contract monitoring and invoice payment procedures are consistently adhered to and documented. Before signing the contracts, the project teams will verify and compare unit prices obtained with those available on the local and international market, using the Internet or similar. Then, for each contract, a monitoring sheetwould be opened, filled in, and updated by contractor; (d) contract start date; (e) contract end date; fl name o f the assigned on site supervisor each implementing entity, as follows: (a) date o f the contract; (b) number o f the contract; (c) name o f the inspector for works or recipient for goods or services, where relevant; (a,name o f the assigned contract monitoring staff within the project team; @) contract value; (0 list o f invoices received for the contract; 0) amounts paid inrespect ofthe contract; (k) date ofthe last inspection, where relevant; and (0 record of procurement complaints. 239. For each payment, the following standard checklist would be filled in prior to the payment of any invoice to ensure that all appropriate contract monitoring procedures have been carried out, confirming: (a) that the invoice was accompanied by an appropriate certified completion certificate by the assigned resident inspector or other goods received note or acknowledgement o f receipt of the goods or services; (b) the mathematical accuracy of the invoice; (c) that the invoice agrees to the terms of payment as those contracted for; (e) the approval by the relevant staff member; fl the approval by the project specified in the contract; (d) that the works described in the invoice and resident inspector's report are manager; (' the date o f payment of the invoice; and (h) that the contract monitoring sheet has been updated. 240. The other procedures that would be performed include: (a) close timely monthly project accounting books; (b) close timely yearly project accounting book; (c) check the mathematical accuracy o f the FRs inputs with the accounting records; (d) check the opening figures of the IFRs with the closing figures o f the previous semester; (e) check the FRs figures for consistency between the various reports (Statement of Sources and Uses o f Funds, Uses o f Funds by Project Activities, Designated Account Statements, Physical Progress Reports, Procurement Reports and Contract Monitoring); (0 monthly Treasury and bank accounts statements reconciliation with project accounting records; (g) monthly WB disbursement records reconciliation with project accounting books, including SDR / USD reconciliation; and (h) inventory and fixed assets stock taking at least once per year and more often if needed. 241. A Project Operational Manual (POM) will be prepared for the Project. It will include a separate section on financial management includingdescription o f all internal controls. 63 242. The project financial management manual has been drafted and the related Board condition fulfilled. 243. Internal audit as a modern function hasjust started to develop in Moldova with the support of the PFM Project. As the internal audit departments within the two Ministries continue to develop, the Project may rely inthe future to the extent possible on these for the project internal audit. 244. The risk associated with internal controls is high before mitigation measures, and is assessed as moderate after mitigation measures. Procurement and ContractManagement 245. The two Ministries will be responsible for the preparation of bidding documents, inviting bids, evaluation of bids, and awarding contracts. The contracts will be signed between the relevant Minister and the contractor. 246. The working groups within each Ministry would technically supervise execution and implementationo f all contracts. On site construction supervisors will be used for civil works. 247. The Ministries will maintain contract management systems, where all information related to contracts shall be maintained as detailed in the internal control section above. Each payment will be recorded both inthe contract systemsas well as inthe accounting systems. Project Reporting and Monitoring 248. Project management-oriented Interim Financial Reports (IFRs) will be used for project monitoring and supervision. It has been provisionally agreed that the Head of the Department of Economic, Finance and Accounting within M o Hwould be responsible for the aggregation o f the semester reports for the entire project based on inputs from the two Ministries. The FRs format has been agreed upon and attached to the minutes o f negotiations. In addition the Treasury will submit to the Bank two statutory financial reports" for Project activities under each o f the implementing agencies and a consolidated report. This will enable additional controls over aggregate data. The reports will be submitted to IDA within 45 days after the calendar semester-end 249. The risk associatedwith reportingand monitoring is assessedas moderate. External Audit 250. The Project will be audited annually both by independent auditors acceptable to IDA and based on terms o f reference acceptableto IDA. The terms o f reference for the audit have been agreedupon and attached to the minutes o f negotiations. The audit scope will include the Project's books and records as maintained by the implementing entities, all withdrawal applications, and the designated accounts. The audited project financial statements together with the auditor's opinion thereon and the management letter, detailing internal control issues, will be provided to IDA within six months o f the end of the reporting period, being the fiscal year. It has been agreed that the auditors' selection be led by Ministry o f Health and conducted for the entire project and that contracts for audits be signed by Ministry o f Health. The cost o fthe project audits will be financed from the proceeds o fthe credit. This format is inaccordancewith Moldovanlegislation. 64 251. Inaddition, the Moldovan Court of Accounts (CoA), the country's supremeaudit institution, will continue to perform ad hoc external audits o f the implementingentities, including o f this project. The CoA, if deemed acceptable, or an independent audit firm will perform operational reviews of the Project to look at internal controls and specific issues related to governance, efficiency and performance, one at project mid-term and one at the end o fthe project. Audit Report Due Date Entity financial statements N/A Project financial statements (PFS), including SOEs and designated Within six months o f the end of each accounts. PFS include sources and uses o f funds by category, by fiscal year and also at the closing o f the components and by financing source; SOE statements, Statement project of designated accounts, notes to fmancial statements and reconciliation statement. Operational reviews on internal controls and specific issues related One at project mid-term and one at the to governance, efficiency and performance. end of the project 253, The riskassociatedwith external audit is considered moderate. Funds Flow 254. Project funds will flow from the IDA credit, by direct payments or via the Designated Accounts (DAs), one for MinistryofHealth and one for Ministry of Social Protection, Family and Child, which will be replenished on a transactional basis using Statements of Expenditure and full documentation as appropriate. The accounts will be opened by the Treasury in a commercial bank acceptable to IDA. Foreign currency amounts will be exchanged as needed in local currency, to cover eligible expenditures payments in local currency to suppliers, from the designated accounts into local currency transfer accounts also opened by the Treasury ina commercial bank acceptableto IDA. 255. The management o f the Treasury within the Ministry o f Finance has confirmed that there is no need to issue specific instructions empowering the territorial treasury office to waive the national procurement rules and regulations in respect o f contracts entered following World Bank procurement procedures stipulated inthe financing agreements, as this is allowed by existinglegislation. Funds Flow@om the WorldBank 0 The Treasury (Chisinau territorial office) will open two foreign currency designated accounts in a commercial Bank acceptable to IDA (Separate Accounts to be opened for Ministry); The World Bank will, at the request of the Ministries, transfer funds (from the credit) to the foreign currency designated accounts; and 0 The Chisinau territorial treasury office will make payments to contractors and consultants basedon payment orders submitted by the two Ministries. Direct Payments to Contractors/Consultants 256. Direct payments can be made for invoiced amounts exceeding the threshold stated in the disbursement letter, basedon specific requests of the Ministries endorsedby the Treasury. 65 Paymentsfor Works, Goodsand Consultant Services The Ministries will handle the procurement process following agreed procurement procedures. The Ministries will obtain the World Bank's No-Objections in respect of all prior review contracts at all stages o fthe procurement process. The Ministries will award a contract to the selected contractorhpplier; the contract will be signed by the Minister. The Ministries will register the contract with the Treasury (Chisinau territorial office). Once an invoice i s received from a works contractor, the works on-site supervisor would certify the quantity and quality o f the works covered by the invoice and forward the certified invoice to the Ministry; Once an invoice is received from a goods supplier or a consultant, the working groups within the Ministries will perform the normal verifications such as conformity with the contractual terms, quality o f goods delivered or the consultingwork outputs, arithmetical accuracy, etc. The accounting departments will forward the payment order including the supporting documentation to their Minister. The Minister will sign the payment order and submit it to the Treasury (Chisinau territorial office) for payment. The Chisinau territorial treasury office will make the payment directly to the contractor from the foreign currency designated account (opened and operated by the treasury in a commercial bank) and inform the Ministries about the completed payment. The treasury office will also submit regular bank statements to the Ministries for preparing necessary reconciliation. RequiredAction Treasury to open a two foreign currency project designated accounts in an acceptable commercial bank after the Credit Agreement ratijkation by the Moldovan Parliament. Financial Covenants 257. The borrower will maintain financial management systems acceptable to IDA. The Project's financial statements, withdrawal applications, and designated accounts will be audited by independent auditors acceptable to IDA and on terms o f reference acceptable to IDA. The annual audited financial statements and audit reports will be provided to IDA within six months o fthe endo f each fiscal year. SupervisionPlan 258. As part of its project supervision missions, IDA will conduct risk-based financial management supervisions, at appropriate intervals. During project implementation, IDA will supervise the project's financial management arrangements in the following ways: (a) review the project's semester financial management reports as well as the project's annual audited financial statements and auditor's management letter, remedial actions recommended in the auditor's Management Letters and operational review; (b) during IDA'S on-site supervision missions, review the following key areas: (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources; and (c) joint financial management and procurement contract post reviews will be conducted once per year. As required, a WB-accredited Financial Management Specialist will assist inthe supervision process. 66 DisbursementArrangements 259. The Treasury currently uses commercial banks for the financing of project expenditure and will open and manage two segregated Designated Accounts (DAs) specifically for this project, one for the Ministry of Health components and one for the Ministry of Social Protection, Family and Child in a commercial bank acceptable to IDA. The ceilings for the Designated Accounts are set at US$1,500,000 for MoH and US$750,000 for MoSPFC. Proceeds of the credit will flow as follows (i)from IDA to the corresponding segregateddesignated Accounts which will be replenishedon the basis of SOEs and full documentation; (ii)on the basis of direct payment withdrawal applications or (iii)by Special Commitments. The minimum application size for direct payments or for the issuance of the Special Commitments is US$160,000 equivalent for MOH and US$75,000 for MoSPFC. Withdrawal applications for the replenishmentsof the DAs will be sent to IDA on a monthlybasisor when 20 percent of the funds inthe Special Account have beenutilized, whichevercomes first. Retroactive financingwill be allowed up to an aggregate amount to the equivalent of SDR 135,000 for payments made after April 15,2007 for eligible expendituresunder the Project. 260. Use of Statement of Expenditures (SOEs). Disbursements will be made against SOEs for (a) goods andworks contracts costing less than US$lOO,OOO; (b) consultingcontracts with firms, costing less than US$50,000 equivalent each; (c) consultingcontracts with individuals, costing less than US$25,000 equivalent; (d) training and incremental operating costs. Full documentation in support of SOEs would be retainedby MoH andMoSPFC for at least one year after the Bank has receivedthe audit report for the fiscal year in which the last withdrawal from the Credit Account was made. This information will be made available for review during supervision by Bank staff and for annual audits which will be required to specificallycomment on the propriety of SOE disbursements and the quality of the associatedrecord- keeping. 261. The disbursement percentagefor the credit proceeds is set at 100 percent (inclusive of Taxes) of Eligible Expenditures, consisting of goods, works, consultants' services, training and incremental operatingcosts. Allocationof Credit proceeds Category Amount of credit Percentageof Expendituresto be Allocated in SDR (US%) Financed MoH: (1) Goods, works, consultant services, 8,000,000 100%( inclusive oftaxes) training andincrementaloperating (12,000,000) costs MoSPFC: (2) Goods, works, consultant services, 3,300,000 100%( inclusiveoftaxes) trainingandincrementaloperating (5,000,000) costs Total 11,300,000 (17,000,000) 67 Annex 8: Procurement Arrangements MOLDOVA: Health Services & SocialAssistance Project A. General 262. Procurement for the proposedproject would be carriedout in accordancewith the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May, 2004 revised on October 1, 2006; and "Guidelines:SelectionandEmploymentof Consultants by World Bank Borrowers" datedMay 2004, revised on October 1 2006, andthe provisionsstipulated inthe FinancingAgreement. The various items under different expenditure categories are described in general below. For each contract to be financedby the Credit the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan to be finalized at negotiations. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementationneeds and improvements in institutional capacity. Retroactive financing is planned up to SDR 135,000 effective from April 15, 2007, if the Borrower avails themselves of this possibility any Contracts subject to retroactivefinancing will be reflectedin the Procurement Plan and all procurementwill be carried out in accordancewith the Bank Guidelines. 263. A General Procurement Notice (GPN) will be published in the May 2007 issue of the Development Business and in dgMarkets andwebsite of bothMinistries announcing goods and consulting services to be procured and invitinginterestedeligible suppliers andconsultants to express interest andto request any complementary informationfrom the Borrower. Specific ProcurementNotices (SPN) will be published in dgMarkets and the on-line edition of Development Business for all ICB contracts and Consultants contracts above US$200,000 equivalent, and in the printed edition at the option of the Borrower.For goods to be procuredthrough ICB contracts and Consultants contracts above US$200,000 equivalent, individual bidding opportunities would also be advertised in the national procurement bulletin and a major localnewspaper of wide nationalcirculation on the same (or not later than 5) day(s) of the on-line publication.The local advertisementswill be in the English language and, at the option of the Borrower, will also be in the local language. For consultants' contracts above US$200,000, SPNEequest for Expressionof Interest will be advertised in on-line editionof the Development Business and in at least one major nationalnewspaper of wide circulation(in the national and English languages). Civil servants and government officials can be hired as individual consultants or as members of a consultant firm's team with financing under the Credit providedthey meet eligibility requirements as set up inpara. 1.11 ofthe ConsultantsGuidelines. 264. The Borrower will respect the debarment decisions made by the Bank and will ensure that debarredfirms listedon the Bankwebsite do not participateinprocurementunderthe Project 265. Procurement of Goods and Works: Goods procured under this project equivalent would include: mainly IT Equipment under Components 1 and 2, essential and specialized medical equipment under the Primary Health Care and Hospital Restructuringcomponents and IT hardware and software under the Social Protectioncomponent. In so far as possible procurement will be done usingthe latest Bank's SBDs posted on the World Bank website (www.worldbank.org) for all ICB and national SBD agreed with or satisfactory to the Bank (based on standard Bidding Documents developed under the Bank's IDF Grant). Forthe supply of specific specialized equipment (medicaland laboratoryequipment) an LIB procedure may be used, ifjustified and demonstratedthrough the fact that there are only a limited number of firms who can provide suchequipment. Packagingwould be designed for maximumeconomy and efficiencyreducingthe number of packagesto aminimum so as to reducethe administrativeburden. 68 266. Procurement of Civil Works will be carried out under the Primary Health Care and Hospital Modernization components, this will comprise financing of Phase 1 and 2 of the modernizationof the Republican Clinical Hospital and also some construction and rehabilitationworks for the PHC clinics. For the works required for the RCH (under Component 1.4) the procurement would be ICB or NCB depending on the size of the packages as recommendedby the Feasibility plan. There would be parallel financingavailable from CEB. 267. The following proceduresare envisagedto be usedunder the Credit. (i) International Competitive Bidding (ICB). Medical and IT equipment under all components of the Project for contracts above US$lOO,OOO equivalent per contract will be procured using ICB procedures in accordance with the Bank's Procurement Guidelines. (ii) Limited International Bidding (LIB). For the purchase of specialized medical and laboratory equipment a survey will be undertaken by the Borrower to identify suitable suppliers, and if justified an LIB procedure may be used. This procedure will be implemented in accordance with paragraph 3.2 of the Procurement Guidelines. Use of LIBwouldrequirepriorapprovalfromthe Bank; (iii) Shopping (SH) procedure will be used for readily available off-the-shelf equipment goods and minor works contracts estimatedto cost less than US$lOO,OOO equivalent per contract. Goods would include office and computer equipment where all items would have standard specifications. Goods will be procured by obtaining and comparing price offers from at least three qualified suppliers in accordance with paragraph 3.5 of ProcurementGuidelines. It is recommendedthat the World Bank shoppingsite shouldbe used as a basis to draw up shortlists for simple computer equipment. Works contracts will be procured by obtaining and comparing price offers from at least three qualified contractors in accordance with paragraph 3.5 of Procurement Guidelines. The smaller works documents shouldbe adaptedfor use for the receiptofthe pricequotations. (iv) National Competitive Bidding (NCB). Goods estimated to cost less than US$lOO,OOO equivalent per contract and Works estimatedto cost less that US$300,000 equivalent per contract will be procured according to NCB procedures in accordance with paragraphs 3.3 and 3.4 of the Bank's Procurement Guidelines using documents agreed with and acceptableto the Bank and subject to the NCB exceptions as indicated inthe side letter to the FinancingAgreement. It is expectedthis will apply mainly to civil works. (v) Direct Contracting. Where certain goods are available only from a particular supplier or incases where compatibility with existing equipment so requires goods may be procured under Direct Contractinghaveobtained prior approval from the Bank (in accordancewith para.3.6 ofthe ProcurementGuidelines). 268. Procurement of non-consulting services: The procurement of logistics for training events would be procured as non-consultants services, this would use the standarddocuments available from the Bank and depending on the estimated value of each contract would be procured either through shopping or open competitiveprocedures 269. Selection of Consultants: Contracts for Consulting Services will be packaged to combine related skills and services in order to make them attractive for competition and reduce the number of contracts to be administered taking into consideration the implementationarrangements. To the extent practicable, training activitieswould be incorporated within both consulting services contracts and goods and IT Supply and Installationcontracts. Consultant services consist of short-and long-termassignments to be contracted to firms and/or individuals (national and/or foreign or jointly) depending on the nature and duration of the assignments. Selection procedures will be managed through competition among 69 qualified short listed consultants. The short lists for consultant services contracts with firms shall comprise six firms with a wide geographical spread, and with no more than two firms from any one eligible country. The procurement of consultant services contracts financed under the Credit will be in accordance with the provisions of the Consultant Guidelines. For consulting assignments exceeding US$200,000 equivalent per contract, expressions of interest will be obtained by advertisement in the Development Business(on-line), supplemented with notices issued inthe national press. 270. Consultancy services will be requiredfor the following major tasks: M o H capacity development and sector regulation comprising skills and policy development, development of a strategy to increase health insurance coverage including a household survey and other tasks related to improved budgeting and financial management and overall fiduciary capacity o f the Ministry as well as for design and supervision o f the civil works elements. The credit will fund a number o f long term specialists infer alia a biomedical engineer and engineer to support the civil works. Finally there will be limited consultancy provided to support the implementation arrangements (Procurement Specialist, Financial Manager, M+E consultant and a Project Assistant). 271. Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants in accordancewith the provisions of paragraph 2.7 o f the Consultant Guidelines. 272. The following procurement procedureswill be usedfor selection of consultant services: Quality and Cost Based Selection (QCBS) procedures, as described in Section 11, paragraphs 2.1 to 2.31 of the Consultant Guidelines will be used ifnecessary for assignment under all Components of the Project. Selection under a Fixed Budget (FBS) would be used for activities in accordance with paragraph 3.5 of the Guidelines. In particular this may concern the design works for the civil works related to the PHC facilities. Least Cost Selection (LCS) procedure would be used for selection of an auditor to carry out audit o fthe Financial Statements o fthe Project. Selection Based on Consultants' Qualifications (CQ)will be usedfor contracting firms for certain assignments under all three components of the project for which the value o f the assignments is estimated to cost less than US$200,000 equivalent per contract and where it is considered that a small team of specialists would be more beneficial than a single individual. However, it is emphasized that CQ selection would be subject to the same shortlisting requirements as QCBS. Individual Consultants (IC). Many specialized activities where specific skills are needed for short period of time at scattered intervals and which would not be practical to package with the assignments for consulting firms described above, would be best served through the recruitment o f individual consultants (both foreign and national). Selection of individual consultants will be carried out in accordance with Section V o f the Consultant Guidelines. Individuals will be selected on the basis o f their qualifications for the assignment by comparing the CVs obtained in response to an advertisement in the national press or Development Business. Sole Source (SS).The method will be usedfor certain individuals with the prior approval of the Association inaccordancewith paragraphs5.1 to 5.4 ofthe Consultants Guidelines; 273. Training Activities: Training is an integral element of the project's capacity buildingobjective. The Credit will finance training programs, including training workshops, study tours and local training. Such training programs would be included in larger TA contracts with firms to reduce administrative burdenon project management. The MoH and MoSPFC, supported by consultants, would be responsible 70 for administration of a small number o f local workshops (including project launch, mid term and completion workshops) and a number o f study tours for the beneficiary agencies and other specialists. Expenditures related to such training activities include: (a) for local training and workshops - per diems o f participants to cover transportation, lodging and subsistence; minor organizational expenses (stationery, handouts, training materials, coffee breaks); (b) for international study tours - international travel and visa costs, per diems (lodging and subsistence) and course-related expenses (fixed tuition or participation fee). Design o f the training courses and study tours may be done by the specialists contracted as short term consultants under relevant QCBS, CQ and/or IC procedures depending on the value o f the assignment as described above in this Annex. Logistics services may be procured as non- consultants services basedon the submission o f quotations. 274. M o H and MoSPFC would be expected to prepare and agree a training plan with the Bank every year. Estimated budget, list o f participants and draft agenda for each training event will be subject to Banks prior review. Expenditure items for training activities, including study tours, would be reported under SOEs. The status of the training plan would be included as part of the quarterly progress reports, and would be updated and/or modified as may be mutually agreed between the coordination units and the Bank. 275. Others: No Special Arrangements 276. The procurement procedures and SBDs to be usedfor each procurement method, as well as model contracts for works and goods procured will be included in the Project Operational Manual which should be finalized not later than two months after Project effectiveness. B. Assessment of the agency's capacity to implement procurement Country Issues 277. A country procurement review (CPAR) for Moldova was finalized in 2003, a summary of which i s indicated in the following paragraphs. Public procurement represents a substantial element o f the expenditure side of the Government's budget. Estimates prepared for the CPAR indicated that total expenditure on procurement amounted to 1.6 billion lei (MDL) in 2002 [US$118 million]. Procurement accounted for 17 percent o f total expenditures by the State government and 42 percent o f expenditure by local governments. 278. While Moldova's procurement law is basically sound and draft new Law broadly in accordance with Internationalstandards, the practice of public procurement falls some way short ofthe relatively high standard which the law sets. Single Source Procurement, where competition is completely absent, although having fallen significantly is still usedtoo often (in 2001, 67 percent o f procurement expenditure was done by with method, this had dropped to less than 10percent by 2005), often in contravention of the procurement law. The former National Agency for Government Procurement (NAGP), whose primary function is to prevent such departures from the procurement law, is frequently subject to politicalpressure and is not held accountable for the way in which it performs its regulatory and oversight functions. A recent change in the status o f NAGP has meant that the Agency no longer carries out procurement directly but is responsible solely for its supervision and providing methodological assistance to all procuring entities. 279. Moldova's current Law on Procurement o f Goods, Works, and Services for Public Needs (No. 1166-XII, dated April 30, 1997) is based largely on the UNCITRAL Model Law includes a fairly comprehensive range of available procurement methods. However, there are a number o f specified weaknesses in the law-for example, the provisions on bid evaluation, which are overly subjective and 71 allow too much discretionto public officials in makingcontract award decisions-that, ifremedied(this is partially proposed in the draft new Law), would help create a better legislative framework for transparent procurementprocesses. The law also contains anumber of weaknesses that havethe effect of reducing transparency in the conduct of public procurement. Foremost among these are bid evaluation methodologies, which continue to be based on subjective merits points systems, allowing excessive discretion to public officials in making decisions on awarding contracts; and wholly inadequate arrangementsfor the reviewof protestslodgedby bidders. 280. Since its enactment in 1997, the applicationof the public procurement law has been undermined by the absence of a comprehensive set of implementing regulations, which would provide procuring entities with detailed instructionson the correct applicationof the law. Equally, there are weaknesses in the provisions of the law that facilitate nontransparent procurement practices, without their necessarily beinginconsistentwith the law. Examples ofthese are that the law permits the periodallowedfor bidders to preparetheir bidsto be as short as 10 days. Inpractice, most tenders observedfor this assessment were inthe rangeof 20 to 25 days, but eventhat istoo shortto maximizecompetition. 281. A draft new Law addresses many of the shortcomings and weaknesses of the existing law and also aims to re-establish the status of the now Department for Public Procurement back into that of an Agency andmake it directly answerableto either Parliamentor the Cabinet ofMinisters. ProcurementArrangements 282. An assessment of the capacity of the ImplementingAgencies to implement procurement actions for the project has been carried out by Procurement Accredited Specialist (PAS) assigned to the project during appraisal in March 2007. The assessment reviewed the organizationalstructure for implementing the project which needs to take into account two ministries and the interaction between the staff responsible for implementationand those responsible for procurement and the relevant central units for administration and finance. Overall responsibility for procurement management and coordination will rest with the Heads of the Department of Economy and Finance at both agencies. Within the departments,the procurementstaffwill be supportedby experiencedConsultants, for MoHthere will be a procurement officer and civil works manager specifically hired to assist the project implementation, within MoSPFC the specialists would be hired on an as needed basis, specifically this would include a specialist in IT Procurement. It is intended to use the existing Evaluation Committees in the two Agencies, supportedby external specialist on an as neededbasis. 283. The procedure and documents to be used for all small procurements (inc. bidding documents and contract forms) would be a modified national competitiveprocedure (NCB) and are all to be includedin the Project Operational Manual and are subject to agreement with the Bank as suitable for use (and standard) for the Project prior to the start of any related procurement. The procedure to be followed would be based on the national open tendering procedure. Similarly for NCB it is proposed to use existing documents, either the ECA NCB documents or documents based on standard documents developedunderthe Bank's IDFGrant for use in Moldova. 284. Discussions were held with the Department for Public Procurement concerning the role of the Department, currently part of the Agency for Material Reserves, Public Procurement and Humanitarian Aid, in the supervision of Procurement. According to binding legislation all contracts whose value is estimated to exceed 100,000 LEI (approximatelyUS$8,300) have to be reviewedby the department and procurementswhose value i s less thanthis needonly register the contracts. It is intendedtherefore to see if the Department could carry out some of the required post-reviews under NCB and smaller procurements below NCB threshold. All contracts requiring prior review would be subject to prior review by the Bank. 72 285. The key issues and risks concerning procurement for implementationof the project have been identifiedthe following measures havebeenagreedaimed at strengtheningprocurementunder the project. Given the decision not to use a PIU and based on the assessment of the capacity for procurement administrationof MOH and MoSPFC, which do not have significant experience in directly carrying out procurement under the Bank procedures, the following Action Plan to strengthen the procurement administrationcapacity of the Agencies is recommended: To make sure that all procurement arrangements are well defined and sufficientprogress is made upon Effectiveness, it was agreedthat at least one procurementstaff will be hiredas a consultant to the project by the time of Effectiveness. It was agreed that this Procurement Specialist should be experienced in Bank Procedures. It was agreed that the staff of the current PHRD/PlU will work on all procurement actions which are neededto be completed beforeEffectiveness. The MoH and MoSPFC procurement staff will be given the opportunity to attend intensive procurement training, immediatelyafter Credit Effectiveness, such as the regionaltraining workshop conductedby the Bank andthe one offeredby L O inTurin. For civil works to be carried out for the PHC facilities, the design and supervision shall be contracted to the independent firms selected by competitive procedures, tendering procedures should be agreedwith IDA and Project Standard Bidding Documents should be prepared and used, in addition a specialist engineer (consultant) will be hired to supervise the works. For civil works.to be carried out for the Republican Clinical Hospital, modified NCB procedureswill be agreedand implementedrelatedto the requiredcivil works. Initiating a Project Launch Workshop either before or immediately after Credit Effectiveness, as part of the project implementatiodcapacitybuilding initiatives, especially inprovidingtrainingon procurementto the implementingAgencies. The project will be subject to intensive supervision by the Bank. During each of the first two years of project implementation, there will be a minimum of two Bank (IDA) supervision missions; these will include on-the-job training on procurement procedures for the staffofthe implementingagencies. Periodic ex-post review by the Bank of a sample of contracts during the supervision missions and review of small contracts using Shopping and NCB procedures by the DepartmentofPublic Procurement. 286. The overallprojectriskfor procurement is highbasedonthe overallrisk ratingfor the Country. C. ProcurementPlan 287. The Procurement Plan contains all the relevant procurement information, including prior review thresholds for Bank financed contracts. For procurement under the Credit, the Borrower will use the Bank's latest Standard Bidding Documents (SBD), Standard Form of Consulting Contracts and Request for Proposals (RFP), and Standard Bid Evaluation Report Forms. For NCB procedures acceptable Bidding Documents will be agreed. The Standard Bidding Documents for procurement of Information Systems would be used for procurements of all IT equipment estimated to cost over US$lOO,OOO per contract. These will comprise Supply and Installationof Information Systems Single Stage Bidding or Supply and Installationof Information Systems Two Stage Bidding (both version March2003 or more - - recent). Also, the sample procurement documents and forms developed in ECA Region for small value procurement would be adaptedto suit the Project needs for procurement as outlinedinthe POM. 73 288. The Borrower, at appraisal, developed a draft procurement plan for project implementation which provides the basis for the procurement methods and indicates procurement packages subject to prior review by the Bank. This plan has been agreed between the Borrower and the Project Team and will be finalized at negotiations; it is available at the offices o f both the Agencies and will be posted on the website o f free access of both ministries(with the budget estimatesremoved at the Borrower's option). It will also be available inthe project's database and inthe Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as requiredto reflect the actual project implementationneeds and improvements ininstitutional capacity. D. FrequencyofProcurementSupervision 289. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended two supervision missions per year to visit the field to carry out post review o f procurement actions. It is envisaged that two out of every five procurements will be reviewed ex-post. E. Detailsof the ProcurementArrangements InvolvingInternational Competition (i) Goods, Works, and Non Consulting Services (a) List of contract packages to be procured following ICB, NCB and direct contracting (See Procurement Plan below); and (b) ICB contracts estimated to cost above $100,000 equivalent per contract for Goods and above US$300,000 equivalent per contract for Civil Works, all LIB contracts for goods, first two NCB for goods and works and first two shopping contracts (two each for goods and small works), and all direct contracting will be subject to prior review by the Bank. (ii) ConsultingServices (a) List of consulting assignments with short-list of international firms (see Procurement Plan below); (b) Consultancy services estimated to cost above US$50,000 equivalent per contract for firms and US$25,000 equivalent per contract for individuals and single source selection o f consultants will be subject to prior review by the Bank. The first CQ contract and first two IC contract irrespective o fprice will also be subject to Prior Review; and (c) Short lists composed entirely o f national consultants: Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions of paragraph 2.7 o f the Consultant Guidelines. 74 PROCUREMENT PLAN I. General 1. Agreed Date ofthe procurementPlan Original : April 23,2007 Revision 1 :..... Revision2 : .... 2. Date of GeneralProcurementNotice: May 2007 11. Goodsand Works and nonconsulting services. 1. Prior Review Threshold: Procurement Decisions subject to Prior Review by Bank as stated in Appendix 1to the Guidelines for Procurement : Comments *all Contracts subject to justification. 2. Pre-qualification. Bidders shall be pre-qualified in accordance with the provisions of paragraphs2.9 and 2.10 ofthe Guidelines (no pre-qualificationis envisaged). 3. CDD Procurement Manual: Project components to be carried out by community participation inaccordancewith the provisionsofparagraph3.17 include:No CDD is envisaged 4. Any Other Special ProcurementArrangements: There are no special arrangements. 5. ProcurementItemswith Methodsand Time Schedule: See below. 6. RetroactiveFinancing: Any goods or works subject to retroactivefinancinghave beenincluded in the Procurement Plan and will be procured in accordance with the Guidelines and procedures set out above. 111. Selection of Consultants 1. Prior Review Threshold: Selection Decisions subject to Prior Review by Bank as stated in Appendix 1to the Guidelines SelectionandEmploymentof Consultants: 75 Selection Method Threshold Prior Review Comments Threshold 1. Competitive Methods (Firms) QCBS >$200,000 > $100,000 All subjectto prior review 2. Competitive Methods (Firms) FBS Any amount First 2 FBS subject to prior review 3. Competitive Methods (Firms) LCS Any amount First 2 LCS subjectto prior review 4. Competitive Methods (Firms) CQ <$200,000 > $50,000 First 2 CQ and all subject to prior review 5. Individual Consultants (IC) > $25,000 First 2 IC and all subject to prior review 6. Single Source (Finns and Individuals)* All subjectto prior review 7. TORSfor Consulting Contracts Any amount All subjectto prior review 2. Short list comprising entirely of national consultants: Short list o f consultants for services, estimated to cost less thanUS$lOO,OOO equivalent per contract, may comprise entirely o f national consultants inaccordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. 3. ConsultancyAssignmentswith Selection Methodsand Time Schedule: See below. 4. Any Other Special Procurement Arrangements: The threshold for CQ is US$200,000, however, each procurement needs follow the Guidelines in respect o f short-listing (para. 2.6 o f the Guidelines), Iv. Other 1. Ex-Post Review: All other contracts below Bank's prior review threshold are subject to Bank's selective ex-post review. Periodic ex-post review by Bank staff will be undertaken duringregular supervision missions. Procurement documents, such as bidding documents, bids, bid evaluation reports and correspondence related to bids and contracts will be kept readily available for Bank's ex-post review during supervision missions or at any other points in time. Bank missions will review at least two out o f every five contracts which are subject to ex-post review. 2. Record Keeping: MoH and MoSPFC will maintain complete procurement files which will be reviewed by Bank supervision missions. All procurement related documentation that requires Bank prior review will be cleared by Procurement Accredited Staff (PAS) and relevant technical staff. No packages above mandatory review thresholds by RPA are anticipated. Procurement information will be recorded by the Agencies and submitted to Bank as part o f the quarterly (FMRs) and annual progress reports. A simple management information system with a procurement module would be established to assist the procurement specialists to monitor all procurement information. 76 T I I I I I I I I d I T T tr 00 0 Annex 9: Economic and FinancialAnalysis MOLDOVA: Health Services & SocialAssistanceProject A. Economic analysis of investmentsin healthservices (i) Primary healthcare 290. Primary health care benefits thepublic. A recent survey article explains six mechanisms through which primary health care improves public health.'' These are: "( 1) greater access to needed services, (2) better quality o f care, (3) a greater focus on prevention, (4) early management o f health problems, (5) the cumulative effect o f the main primary care delivery characteristics, and (6) the role o f primary care in reducing unnecessary and potentially harmful specialist 291. The most important may be provision o f greater access o f needed services to poor populations. In Moldova, rural residents -who most likely to be poor- make an average o f 2.8 visits per year to a family doctor while urban residents make 3.7 visits -suggesting a need for expanded coverage2'. This benefit i s most likely to emerge in countries, like Moldova, with health insurance programs that pay for primary care. 292. Primary care is particularly effective in prevention, especially in promoting generic forms o f prevention, such as improving diet and exercise and reducing alcohol and tobacco use. These are particularly relevant benefits for Moldova, considering its pattern o f life-style related chronic disease. Once chronic diseases have begun, early management by a primary care physician is particularly effective in reducingseverity and costs. 293. International evidence that primaly health care benefits the public. Research confirms the cost- effectiveness o f these investments22. The cost o f delivering medical care, and especially preventive care, through primary health care is low relative to delivery through hospitals or through specialists. Moreover, delivery by primary care physicians is associated with low use o f diagnostic tests, less referrals to secondary services, and less prescriptions, relative to other modes o f service delivery, all with no significant difference in patient sati~faction~~. 294. International comparative studies demonstrate strong evidence o f association between primary health care and population health outcomes. In a study o f 11 industrialized countries, Starfield finds that that weak primary health delivery systems are associated with poor health outcomes, most notably for 19 Starfield B, Shi L. and Macinko J. Contribution of Primary Care to Health Systems and Heath. The Milbank Quarterly, 2005, 83 (2), 457-502. 20 Ibid. P 474. 21 National Bureau of Statistics. Results o f Survey of Health Status of Population in the Republic of Moldova, 2006, p.75. 22 Mills A, Drummond M. Value for money in the health sector: the contribution of primary health care. Health policy and planning, 1987, 2 (2):107-128 and Soucat A et al. Affordability, cost-effectiveness and efficiency of primary health care: the Bamako Initiative experience in Benin and Guinea. Internationaljournal o f health planning and management, 1997, 12:S81-S108.. 23 Dale J et al. Cost effectiveness of treating primary care patients in accident and emergency: a comparison between general practitioners, senior house officers and registrars. BMJ, 1996, 312:1340-1344; Murphy AW et al. Randomized controlled trial of general practitioner versus usual medical care in an urban accident and emergency department: process, outcome and comparative cost. BMJ, 1996 312:1135-1142 and. Ward P, Huddy J, Hargreaves S. Primary care in London: an evaluation of general practitioners working in an inner city accident and emergency department.Journalo f accident and emergencymedicine, 1996, 13:ll-15. 81 indicators in early childhood, such as low birth weight and post-neonatal mortalip'. A study that compares 13 countries confirms that countries with weak primary care perform relatively poorly on most major aspects o f health, including mental health, such as years o f potential life lost because o f suicide2'. 295. A recent study assesses the contribution o f primary care to health outcomes in 18 OECD countries over three decades.26 The study shows that the strength o f a country`s primary care system is negatively associated with mortality. (More specifically, it is negatively associated with all cause mortality rates, with all-cause premature mortality rates, and with premature mortality from major respiratory and cardiovascular diseases.) 296. A comparative study within the United States demonstrates that the availability of primary care physicians is correlated positively with favorable health outcomes.27 (These outcomes include: age- adjusted and standardized overall mortality, mortality associated with cancer and heart disease, neonatal mortality, and life expectancy.) Moreover, the study finds that lack o f access to primary care is the most important factor in determining poor health. 291. Primary health care is particularly cost-effective in countries, such as Moldova, where the population suffers a high burden of chronic diseases. That is because family physicians manage chronic diseases effectively and this reduces hospital admissions. For instance, in the United Kingdom, each 15 to 20 percent increase in general practitioners per 10,000 people is statistically significantly associated with a decrease in hospital admission rates o f about 14 per 100,000 for acute illnesses and about 11 per 100,000 for chronic illnesses.28 This holds true after controlling for the degree o f social deprivation inthe area inwhich people live, their social class, ethnicity, and limiting long-term illness. (ii) Hospitalcare 298. Benefits of investments in hospital works and equipment. While the investments in primary care reduce hospital visits, the investments in hospital works & equipment reinforce the effectiveness o f beneficiary hospitals in delivering specialized services. This makes it possible for the Government to consolidate weaker hospitals into the reinforced hospitals, with no impact o f size o f hospital personnel.. 299. Moreover, renewed investment in equipment will add value to the services delivered at beneficiary hospitals. In municipal hospitals, 65 percent o f equipment is obsolete and 15 percent doesn't work; in rayon institutions, 80 percent o f medical equipment is obsolete and 20 percent does not work; even at the more favored level o f Republican institutions, 60 percent are obsolete and 10 percent are not 24 Starfield, B. 1991. Primary Care and Health. A Cross-National Comparison. Journal of the American Medical Association 266:2268-71; Starfield, B. 1994. Is Primary Care Essential?Lancet 344:1129-33; and Starfield, B.,and L.Shi.2002. PolicyRelevantDeterminantsofHealth: An InternationalPerspective.HealthPolicy60:201-1 8. 25 Starfield, B., and L. Shi. 2002. Policy Relevant Determinants of Health: An International Perspective. Health Policy 60:201-18, 26 Macinko J, Starfield B, Shi L.The contribution of primary care systems to health outcomes within Organization for Economic Cooperation and Development (OECD) countries, 1970-1998. Health services research, 2003, 38(3):83 1-865. 27 Shi, L. The relationship between primary care and life chances. Journal o f health care for the Door and underserved, 1992, 3:321-335 and Shea S et al. Predisposing factors for severe uncontrolled hypertension. New - - Englandjournal of medicine, 1992, 327:776-781. 28 Gulliford, M.C. 2002. Availability of Primary Care Doctors and Population Health in England: I s There an Association? Journalof Public Health Medicine24:252-4. 82 working.29 Furthermore, a pilot survey o f health infrastructure finds that about 30 percent have a damaged roof, and 30 percent have damaged windows and doors.30 300. As a result o f the lack o f equipment, much o f the nearly $5 million per year spent on the salaries o f the Consultation Department, where specialists work, is lost. The potential value o f specialist services lost must be significant, but is difficult to estimate, since there are no market prices for specialist services which could be used to impute these prices. (iii) Costs of investmentsin primary care and hospitals 301. Primary health care. The main costs o f the investments are the project expenditures, and related expenditures on training. (Some of this training may be funded, in grant, by the European Union.) 302. Hospital work & equipment. Beyond this, the health investments should impose modest costs on the budget. Project supported investments will be operated by staff already paid by the government, so there will be no net hiring or additional costs in wages and salaries. Project investments in medical equipment are limited to relatively simple equipment such as electrocardiogram machines that do not entail large operating costs, such large costs for electricity, fuel, or frequent repair by specialists. The cost o f operation will be limited to depreciation, which is expected to average 5 to 7 percent per year o f the value o f Project-financed equipment. (iv) Cost benefit analysis 303. The results from cost-benefit analysis are sensitive to the analyst's assumptions; therefore the analysis should be regarded as illustrative. The Internal Rate o f Return (IRR), in the main scenario, i s estimated at 31 percent for primary health care component alone and estimated at 22 percent for both primary health care and hospital restructuring (See Table1). Table 1: Summary of EstimatedNPV* of Costs and Benefits- Scenarios for Investment in Primary Health Care with and without hospital consolidation (in US%) PHC+ Hospital PHC Consolidation Total Cost 13,527,755 22,998,255 Total Benefit 22,089,634 30,389,593 Net Benefit 8,561,879 7,391,338 IRR 3 i percent 22 percent *discount rate=lO percent 304. This cost-benefit analysis distributes the benefits over a time horizon o f 10 years and into two major groups: direct and indirect benefits. The direct benefits are the expected tangible benefits attributable to the Project from reduced hospital stays, eliminating unnecessary discharges, reducing consultation from specialty care and saved travel time and costs. The indirect benefits include reduced mortality rate and associated potential years of life saved. The analysis includes the project costs and the recurrent expenditures such as maintenance and depreciation o f the medical equipments. Table 2 summarizes the costs and benefits for the primary health care component. 29 World Bank, Health Policy Note (Draft), August 2006, p. 25. 30 Ibid. p. 26, Table 6. 83 Table2 Summary of EstimatedCosts and Benefits (in US$) Year Total costs DirectBenefits IndirectBenefits Total Benefits Net Benefits 1 1,495,308 0 0 0 (1,495,308) 2 4,733,751 1,073,884 0 1,073,884 -3,659,867 3 3,294,837 1,610,826 588,369 2,199,195 -1,095,642 4 2,122,063 1,615,485 1,176,737 2,792,222 670,159 5 1,457,9 13 2,152,427 1,765,106 3,9 17,533 2,459,6 19 6 1,487,264 2,689,369 2,353,474 5,042,843 3,555,579 7 1,280,848 3,226,3 11 2,941,843 6,168,154 4,887,306 8 1,556,174 3,763,254 2,941,843 6,705,096 5,148,922 9 1,353,336 4,300,196 2,94 1,843 7,242,038 5,888,703 10 1,632,43 1 4,837,138 2,94 1,843 7,778,980 6,146,549 Total 20,413,927 25,268,890 17,651,056 42,919,946 22,506,019 NPV (10%) $13,527,755 $13,155,532 $8,934,102 $22,089,634 $8,561,879 - - - 305. The analysis applies the following assumptions to estimate direct and indirect benefits: 0 The average time o f visit saved is 0.5 day; 0 Hospital admissions for chronic illnesses fall, because o f the Project, from year 2 by 2 percent and then incrementally fall by a further 1 percent each year; 0 Specialty care consultations fall, because o f the Project, from year 2 by 1000 and then incrementallyby a further 500 each year; 0 Hospital utility costs and maintenance costs would increase by 5 percent each year; 0 Mortality rate from circulatory system, ischaemic heart disease, cerebrovascular diseases, malignant neoplasm, and diabetes would be reduced by 0.1 percent each year; 0 The economic value o f one year life valued i s US$1,200; 0 The average years o f life saved is five; and 0 Discount rate o f 10 percent. 306. The above assumptions imply that the analysis is quite conservative. Nonetheless, it is important to test the robustness o f the results with regard to potential delays or reductions in benefits (worse case scenario). This is done through the use o f sensitivity analysis assuming delays o f one-two years as well as a reduction in benefits o f 20 to 40 percent. The following table summarizes the results of the sensitivity analysis. 84 Table 3: Summary of Sensitivity Analysis NPV Types of SensitivityAnalysis (10 percent, US$ Million) IRR Base case 8.6 31% 1year delay inbenefits 3.8 19% 2 year delay inbenefits -0.3 9% 20% reduction inbenefits 4.1 21% 30% reduction inbenefits 1.9 15% 40% reduction inbenefits - 1.2 14% 307. Overall, the project would remain justifiable even assuming a one-year delay in project benefits or 40 percent reduction in project benefits received, assuming that the annual rate o f return earned i s greater than (or equal to) the discount rate o f the Project. The strong estimated set o f IRRs underscores the cost-effectiveness nature o f the project. Figure 1: MoldovanPublicExpenditureson Health In Lei (in real terms) and as a share of GDP 1,200 0 1,000 0 Realconsolidated public budget for 4 8000 health(in b- -.-.-8E 0 millions ofLei, ir 6000 2000 prices, chain weighted) .- 4000 Shareof consolidated 200 0 public budget for health in real 0 0 GDP (%points) 1998 1999 2000 2001 2002 2003 2004 2005 Source: WHO. (v) Fiscal sustainability 308. Governments sometimes fail to budget enough funds to operate and maintain donor-financed investments in health. This is a frequent cause o f failure o f these investments to benefit public health over the long-term. This section analyzes whether the government i s likely to allocate the minimum necessary funds in the future. The best evidence o f government intentions with regard to budgeting is its record o f past spending on public health. 309. Record of government expenditures on health. The Government o f Moldova has made a sustained effort to enhance spending on public health. The share o f consolidated government expenditures in GDP fell to 2.9 percent in 1999, when the Moldovan economy was shaken by the Russian financial crisis (bars inFigure 1). Then the Government improved the share of public health expenditures in GDP to 4.3 percent in 2005. Moreover, real government expenditures on public health rose over 2001- 2005 (solid area is Figure 1). 85 Table 4: Public Expenditures on Health/GDP in 2004 Moldova& other European countries (inpercentagepoints) European Shares in GDP Source: WHO estimates. 310. These figures can be understood better in an international context. Moldovan government spending on health i s higher, as a share in GDP, than in the CIS, but lower than in the European Union countries (Table 4). Despite the government contribution, total health spending in Moldova i s relatively low because o f relatively weak incomes and donor assistance. According to the WHO, per capita health expenditureinMoldova, at purchasing-power parity exchangerates, is $202 in2004, compared to $443 in the CIS and $2,268 inthe EuropeanUnion. Table 5: Moldova Shares of Public Expenditureson - SalariesofHealth Staff by type of Service (inpercentagepoints) 2004 2005 Total 100.0% 100.0% FamilyDoctor Centers 30.4% 28.8% Hospital 53.8% 53.1% ConsultationDepartment 6.4% 9.0% Emergency care 9.3% 9.1% Source: Ministry of Health and World Bank. 311. Government record of spending on primary health care. There is little information on Moldovan government expenditures on primary health care. Health clinics and centers that deliver primary care are included in the national expenditure data for hospitals; it is not simple to separate these. There are data on public expenditures on staff salaries by type of service, including for the Family Doctors Centers that deliver primary care (Table 5). 3 12. The Family Doctor Centers absorb a solid share of the salary bill for public health, but the share declines by nearly 2 percentage points, from 30.4 percent in 2004 to 28.8 percent in 2005. Apparently, health personnel are transferring to the Consultation Department, which delivers specialized medical services, rather than to the Family Doctor Centers. 313. Consistency of the Project with the medium-term expenditure framework (MTEF). As shown above, investments in health are sustainable in the sense that the Government can fund their operation and maintenance. The investments must also be sustainable inthe sense that they do not lead to aggregate health spending that exceeds limits agreed under the most recent MTEF. The MTEF plans for an increase inthe share of public expenditures, as a share in GDP, from 4.3 in 2005 to 5.0 percent in2008 and 2009 (Figure 2). 3 14. Through the MTEF, the Government programs an increaseinpublic expenditures on health to 2.5 billion Lei (US$193 million) in 2007, 2.8 billion Lei (US$ 215 million) in 2008, and 3.2 billion Lei (US$243 million) in2009 (this assumes a constant exchange rate of 13 MDL/US$l). 86 Table 6: ConsistencyofProjectwith MTEF (inmillionsofUS dollars) 2006 2007 2008 2009 Public HealthExpenditure:MTEF 152.15 193.41 215.38 243.46 Public HealthExpenditure:2006 152.15 152.15 152.15 152.15 Increase allowedunder MTEF 0.00 4 1.25 63.23 91.31 Costs ofmaintenance& rehabilitationofproject- supportedequipment 0.00 -0.12 -0.30 -0.54 Benefits o f projectthrough (i)substitutionto primarycare and (ii) increasedeffectiveness of Source: MTEF and World Bank estimates 3 15. As shown above, the cost of operating the Project is modest, and limited mostly to maintenance o f rehabilitation or replacement of project-supported equipment. Therefore, project costs and benefits do not significantly alter the Government's ability to increase health spending over the MTEF period (Table 6). Over 2007, 2008, and 2009, the Project would lower the funds available to the Government for new health spending by only US$120.000, US$150,000, and US$5,000. In further years annual benefits would exceed costs of operation and maintenance. (vi) Health personnel's incentivesto implement the Project. Table 7: Monthlysalariesof doctorsinthe public health system by service (natural persons) In .Moldovan Ler . Family DoctorCenters . 1,269 1,658 Hospital 1,407 1,825 ConsultationDepartment 946 1,197 Emergencycare 1,946 2,296 In USdollars: Hospital 114 145 ConsultationDepartment 77 95 Emergency care 158 182 Source: Ministryof Health and World Bank. 3 16. Health personnel in Moldova are paid poorly. In data for 2005, physicians earn between US$95 and US$l85 dollars per month (Table 7). Moreover, emergency care physicians were much better paid than physicians inthe Family Doctor Centers, which deliver primary health care. 317. Most physicians must supplement their formal income by charging informal fees. These are likely to be particularly high for physicians in hospitals and in the Consultation Department, where the 87 physicians are specialists. Based on information from the household budget expenditure survey, the Health Policy Note estimates that informal co-payments for health services are about 443 million Lei in 2005, or about $35 million.31 These informal co-payments account for about 13 percent o f total financing o fthe health system, almost double the contribution of formal co-payments. 318. Payments to physicians at the Family Doctor Centers could be improved by changing the way funds are transferred from the HIF. The funds are transferred to the rayon level, where they may be allocated away from wages to other uses, such as purchases o f pharmaceuticals. To address this, the HIF could contract directly with primary health care centers (Family Doctor Centers). This would establish a measure of budgetary autonomy at the primary health care level and allow for adjustment of salaries there. It would assure that funds needed by primary health care centers are not allocated to hospitals. Still, any upward adjustment of salaries would be limited by the size o f transfers from the HIF, and in turn, bythe limitedavailability offunding for the HIFthrough payroll taxes andthe government budget. 319. The low level of salaries suggest that physicians will continue to lack incentives to serve poor patients who they meet at Family Doctors Centers, and who have very limited ability to pay informal fees. These physicians will instead face continued incentives to work in hospitals and in the Consultancy Department, where they are more able to earn informal fees. Some will emigrate and young people will remain reluctant to become physicians. This situation is likely to impede use of the investments in primary health care and impede delivery o f primary health care to the poorest Moldovans. 320. The solution would be to harness some of the $35 million in informal fees that are already being paid. The Government could formalize payment of fees for specialized and hospital services, reserve these proceeds for increased pay such services and direct all government funding for wage increases to primary care physicians. There would continue to be some income-based inequity in delivery of specialized and hospital services. But overall, inequity would be reduced since poor households and rural residents would, at least, receive good quality primary health care services for free. B. ECONOMIC ANALYSIS OF INVESTMENTS INSOCIAL ASSISTANCE& WELFARE (i) SocialAssistance 321. The project invests in two components of a larger plan to improve the efficiency of government spending on social planning by targeting the transfers to the poorest Moldovans. The benefits are not in budget savings but ineffective use ofthe budget to reduce poverty among beneficiaries. 322. Social Assistance transfers are fragmented. In Moldova there are other 15 social assistance benefits with a range of eligibility criteria and processing procedures. This includes specific benefits for children living in difficult conditions and for individuals with specific conditions, such as war veterans and victims o f accidents. These benefits are small on average and only represent between 2 and 3 percent o f the household income. One of the major benefits is the Nominal Compensation for Energy and other Utility Payments, created in 2000 to offset the impact o f the increased cost of gas and fuel when the Government couldn't afford the general subsidies to utility companies. Nominal Compensation accounts for almost half o f the social assistancebudget, but is distributed in a similar way as the other programs. 31 Ibid. p. 29, Table 7. 88 Figure 2: Distribution of Recipient Households by Income Quintile, 2004 Source MET basedon HBS data 9 Old-age &Benefits Tarpargetedchild eted compensations for children benefit retirement pension Total social rotection Total SociaPmsurance Total social transfers 323. Less than a quarter of social assistancepayments go to the bottom two quintiles of households. In an unpublished paper, Verme (2006p2 finds that, in 2004, only about 8 percent of social assistance cash benefits when to households in the poorest quintile and only 14 percent when to households in the bottom 2 quintiles (for nominal compensation, the figures are 7 and 14 percent. The Ministry o f Economy and Trade (MET) published figures showing the share o f households in each income quintile that receives social assistance transfers (Figure 2). These figures imply that only a minority o fthe poorest two deciles receive payments. 324. From an equity perspective, however, public resources assigned to individuals and households that are not in need represent a waste o f resources since the poverty reduction impact could be larger if the resources were allocated to poor groups. This is the inefficiency in the allocation of resources that needs to be addressedin the Moldovan system. (Please note that `Targeted [nominal] compensations' and `Targeted childbenefit' inFigure2 above are targeted by category, not by household income.) 325. Social Assistance benefits are broadly distributed in the population because they are not targeted using poverty-related instruments. Eligibility for social assistance benefits is based on categories of people, such as war veterans, orphan children, and people with administratively defined disabilities. These categories are no longer effective in determining the income needs of households because other household income sources are increasingly heterogeneous. For example, the share o f private transfers, including remittances, in income doubled over 1999-2004. As a result, people in each category are present across the income distribution, and the benefits from public transfers are also broadly distributed. 326. In Moldova, the large rural sector and increased emigration complicate targeting by category and by income. The majority o f the Moldovan population lives in rural areas and their income depends on agriculture and processedagricultural products, although some o f these are consumed by the producers and not marketed. Agriculture poses several challenges for targeting by income. First, it is hard to observe agricultural production and sales for targeting purposes. Second, it is not possible to measure income net of input costs, since small family run farms supply much o f their own labor, and hire labor and buy other inputs on informal markets and without keepingrecords. Several o f these factors also apply in the urban context. For example, insmall family businesses, such as restaurants, sales or cost of inputs are not distinctively separate from the household consumption activities. Another element that affects both rural and urban households is the high level o f emigration and remittances that is hard to observe. The limitations of categories used in the previous system and the difficulty in measuring income suggest the use of other proxies for income for targeting. 327. DJlD leads the donor-supported technical assistance for targeting. The DfID, with the participation o f SIDA, has hireda consulting company, which is working with the Government to design 32 Verme (2006), "Republic of Moldova: An Assessment of SocialAssistance Benefits," September, 2006, World Bank backgroundpaper for the MoldovaPER. 89 the broader reform o f social assistance and o f welfare services. The World Bank is financing a central data base for social transfers and for social workers case-work files. The data base will enable the Government to carry out targeting. The social workers will collect information on applicants and beneficiaries o f social assistance transfers. They will help applicants to exit from use o f transfers through referrals to social agencies (such as an employment agency) or by directly addressing their issues (alcohol and drug abuse, for example). (ii) SocialWelfare 328. The social workers are necessary for operation o f the data base. The additional benefits o f their work the value o f prevention o f conditions such as child abuse, violence against women, and, for some recipients, dependency on welfare. There is no apparent way to estimate these benefits. The cost to the Government is their annual salary. The European Union is financing the salary o f the first 600 social workers through an agreement to transfer 450,000 Euro to the 2007 budget. 329. The issue o f incentives is more pressing for social workers than for health staff, since salaries are quite low and therefore incentives to work in rural areas are weak. Unlike the health sector, there are no private fee payments that could be captured by the Government and devoted to increasing social workers' salaries. 90 Annex 10: Safeguard Policy Issues MOLDOVA: Health Services & SocialAssistance Project 330. Component 1.3 o f the Project envisages refurbishing, remodeling, renovation and refitting of primary health care clinics as well as construction of new facilities on government property, where the old ones can not be renovated. The Component 1.4 comprises conduct of a feasibility study for restructuring o f the Republican Hospital in Chisinau. Based on the feasibility study, investment in reconstructionhenovation of this hospital will be considered. 331. The environmental screening category of the project is B and requires the preparation of an Environmental Management Plan. No major environmental impacts are anticipated given the relatively small size o f most buildings that are subject to intervention. 332. The environmental assessmentidentifiedthe following key issues and the subsequentrisks: Demolitiondebris may contain asbestos and toxic components from wall paint, plaster and roofs. If airborne and inhaled they could cause asbestosis, and silicosis, diseases whose main feature is impaired lungrespiratory capacity and also lungcancer. 0 Construction materials will comply with the present regulation eliminating the use of environmentally unfriendly materials. 0 Waste and sewerage systems which handled improperly or spilled can constitute a danger for the environment and its inhabitants even at long distances. The main danger is contaminating the underground water reservoirs, fountains and wells and the land itself. Improperly managed it may constitute a direct hazard for humans and animals in case insects (flies) and rodents (rats) have access to it. These animals are well knownvectors for various infectious diseases. 0 Healthcare waste from healthcare facilities is of concern to human health and the environment. A large fraction of healthcare wastes are similar to household wastes, while the remainder of these wastes may contain potentially harmful microorganisms which can infect hospital patients, health care employees, patients' visitors, and the general public. In addition, used needles, syringes and other sharps present risks of injury and infection (such as Hepatitis B and C, and HIV)for health care employees. Legal framework and institutionalcapacity 333. Moldova has a quite developed legal framework pertaining environment related issues. Environmental policies, laws and regulations related to construction activities which were reviewed and found to be sound. 334. The issue of Health Care Waste Management was addressed in a study carried out in partnership by the GoM and WHO in January 2004. It reviewed the current legislation pertaining to this realm and described the principles and procedures to be followed in order to mitigate the risks o f contamination and proposed the implementation o f a comprehensive National Action Plan for healthcare waste management. This plan pertains to categorizing specific types of medical waste (anatomo- pathological, infectious, chemical, pharmaceutical, sharps, radioactive) and to the designing o f specific procedures to deal with these types o f waste. These procedures include: color coding, labeling o f pictograms, and waste packaging, collection and disposal. The necessary regulation pertaining to the above stresses the appropriate use o f single-use instruments, minimizing quantities generated, the reuse and recycling whenever possible and segregation at source. The National Plan has been developed and approved by the Collegiums o f the Ministryo f Health and is currently under implementation. The project 91 will adopt principles and guidelines on which the plan is based and will be in compliance with pending regulation o f Moldova. 335. The current health care waste legislation of Moldova has as a main pillar the Regulation regarding medical waste management issued in 2002. It consists of a series o f guidelines pertaining to practices employed within medical facilities setting up the three-bin-system, setting up the color coding system, standardized bag holders, and implementing safe collection and transportation procedures. In hospitals, the management of the facility has the responsibility o f establishing a health care waste management system, and the personnel undergo an annual training. The curriculum o f this training is elaborated by the hospital management with the help o f the epidemiological surveillance authorities. In addition, health care waste management guidelines are part of medical education at the graduate and undergraduate level. 336. Currently biological waste resulting in hospital activities is treated with phormaline and then buried in a special designated area in cemeteries, whereas sharps, needles and syringes are collected in colored containers, disinfected and then disposed off. In addition the M o H has implemented a national policy towards sharps in accordanceto the Plan o f Action to Improve Injection Safety and Safe Disposal o f UsedInjection Equipment, issued inJuly 2004. This i s currently under implementation. EnvironmentalManagementPlan 337. The Environmental Management Plan has been prepared in order to integrate the possible environmental issues in the design and implementation o f the project. The EMP would support the following: 0 the inclusion o f the EMP follow-up procedures in the operational processes o f MoH, local health authorities and the Epidemiological Surveillance and Prevention network; 0 emphasizing the EMP follow-up responsibility for the designated staff inthe M o H structure; 0 training staff from health care centers in the use o f equipment for handling the health care waste 0 site specific environmental and epidemiological clearance for construction works 338. As part of the EMP, the project supported activities for renovation I construction of health care centers in primary health care would be subjected to a site-specific environmental screening and review process aimed at minimizing impacts and using a an appraisal format that includes but is not limited to the review o f (i)current environmental issues at sites (soil erosion, water contamination, air pollution) carried out by local health and environmental authorities and (ii)potential environmental impact, if any, due to project activities (noise, dust, etc.) Mitigation measures 339. No major environmental impacts are anticipated and mitigation measures are envisaged in advance. These mitigation measuresare described below: 0 Adoption o f safe demolition procedures in regard to the debris. Proper procedures for working with and disposal o f demolition debris will be implemented in order to protect the workers and the environment; they will comprise at least the use o f protective equipment, dust containment procedures, transportation and dumping methods. Dump sites will be in compliance with the environment protectionregulation of the country. 92 Use o f environment friendly construction materials. Particular attention will be paid on materials, isolation, paint and plaster. Prior to starting the works, the design o f the health care facilities will be reviewed to ensure that environmentally friendly construction materials are used. The design will include a proper system o f waste and sewerage system harmless to the environment and living beings for all facilities rehabilitated under the Project. The problem o f healthcare waste management will be addressed by ensuring that the M o H regulation on safe handling, disposal, transportation and destruction o f hazardous waste are implemented. Proper training will be delivered to the healthcare personnel and adequate procedures will be enforced. Public awareness training will be provided and the implementation of procedures will be monitored. Where necessary appropriate mechanisms for safe disposal o f health care wastes (based on WHO guidelines) will be provided under the Project. 0 As all civil works planned under the project will be on existing sites on government owned land, no new land will be acquired. As a consequence, no resettlement is planned in the project or expected as a consequence o fthe project. 340. The G o M and M o H are the key stakeholders in implementing the risk mitigation policies within the project. Environmental Impacts Mitigation measures component Soils III Contamination with demolition debris All demolition debris and wasted construction I and construction materials materialswill be properly disposedof inspecially designateddumps accordingto the regulation; Protection of soil surfaces during construction, daily cleaning ofthe construction site. Water Clogging of drainageworks Protection o f drainage works Proper disposalo f oil and other hazardous Spilling and leakage of hazardous materials wastes rehabilitation or construction of appropriate disposalfor wastewater and sewerage systems Air Dust during construction Dust control measures Noise Noise disturbance Construction restrainedto certain acceptable hours during the day Human Health Construction accidents Occupational hazards training and protection equipmentwill be used Handling or inhaling harmful Use of protective equipment substances or dust Monitoringand Evaluation 341. The MoH will work in close collaboration with the National Scientific Practical Center for Preventive Medicine and its network for the coordination and supervision o f the environmental plans and risk mitigation measures undertaken inthe project and would; 0 coordinate training for health staff and contractors; 0 disseminate existing environmental management guidelines and when necessary develop new ones in line with best practices accepted internationally; ensure contracting for construction and supply o f equipment includes reference to the appropriate guidelines; and conduct periodic visits to inspect and improve measures and monitor compliance. 93 341. All the activities requiredby the adoption o f mitigationmeasures will be properly described and monitored in the M&E framework being prepared under the PHRD preparation grant. They will pertain to adopting the required environment safety legislation and the PHC clinics structural standards. Implementation o f the National Action Plan for Health Care Waste Management will be closely monitored. Personnel designatedby the GoM and MoHand its local structures together with project team and specialist consultants will supervise the implementation o f environment safeguard measures. . They will follow the environmental management plan part o f the project and they will check the compliance with current regulation, procedures employed, and mitigationmeasurestaken. Possible harmful impacts, ifany, will bepromptly addressedandadequatemeasureswill betaken. 94 Annex 11:Anti-corruptionAction Plan MOLDOVA: HealthServices & SocialAssistance Project 342. Under the Moldova Health Service and Social Assistance project the main concern and vulnerability for corrupt practices is under the components considering health care reform. The health sector has also been identified by the Government of Moldova as one o f the focus areas for their anti- corruption agenda. Thus, it has been recognized by the Government that preventing corruption in the health sector can be effective only when linked to general anti-corruption strategies implemented at the national level. 343. The Government o f Moldova adopted a national anti-corruption strategy in December 2004. Since then, the efforts were made to ratify or amend laws on the criminal code, political party financing, conflict o f interest, public procurement, and code of ethics for civil servants. The anti-corruption strategy also recognizes the importance of civil society and media can play intracking and monitoring progress o f the anti-corruptionagenda. 344. However, for being credible and having impact, anti-corruption efforts need to be supported by financial means. As such, Moldova has requested US support from the Millennium Challenge Corporation (MCC) to address areas where corruption is persistent. This includes judiciary, the health care system, and the tax, customs, and police agencies. 345. InDecember 2006, Moldova received the MCC grant totaling US$24.7 million, ofwhich US$2.9 million will go to the health sector33.This is a two-year grant and the Government committed to reducing corruption inthe public sector via reforms injudiciary, health care, tax, customs and police agencies, and reforming the Center for Combating Economic Crimes and Corruption (CCECC). MCC funds are also usedfor training and TA to NGOs to monitor government anti-corruption reform efforts and to establish a working group to propose recommendations for increasing the role o f media in monitoring progress on the anti-corruption reforms. In January 2006, an alliance of NGOs was formed to bring greater public attention to the issue o f corruption. 346. In the health sector, there are two areas of corrupt practices that account for particularly large losses in resources and have negative direct effects on health outcomes by reducing quality of care and access to services34.These effects are especially severe for the poor. These areas are the procurement o f medical equipment and drugs, and informal payments to health care providers. The latter is o f special concern in Moldova and closely related to unsustainably low salarieso f medical per~onnel.~' 347. In social assistance, possible area of corruption when small cash benefits are paid is the opportunities for manipulation o f entitlement criteria, false claims etc, payment o f benefits to already expired people or those who have moved out of the country, etc). The central database for updating beneficiaries combined with a social worker cadre to review eligibility o f beneficiaries on the ground will help mitigate these risks. 33 http://www.mcc.gov/press/release/2006/release-l21906-moldovathreshold.php. 34 Taryn Vian, "Corruption and the HealthSector", SectoralPerspectiveson Corruption, November 2002, preparedby MSI,sponsoredby USAID, DCHADG, www,usaid.gov/our-workldemocracy_and_govemance/publications/ac/sector/ealth.doc. 35 Accordingto the World Bank 2006 MoldovaPublic Expenditure Review, informal co-payments are nearly two times larger than formal co-payments although on a declining trend. Also, the private purchase of pharmaceuticalsrepresents the bulk of private sector expenditure on health-drug costs are the major contributorto the lackoffinancial protection. 95 Anti-corruption activities 348. The actions under MCC for curbing and preventingcorruption in health care are focused on better standards, code o f conduct, improved financial management, transparency o f the system and public oversight. The action plan for curbing and preventing corruption in the health care system under the MCC grant includes the following priority activitie~.~~ Regularly published reports on medical and sanitary institutions activities to allow for public monitoring o f finance resources and public acquisitions. Active engagement o f civil society and community members in administrative councils o f sanitary institutions to further increase public participation. Rules for competitive employment o f medical institution managementwill be elaborated. An integrated informational system will be established and regular publication of information regarding budgets, performances of medical institutions, and a detailed breakdown o f expenditures contracted with National Health Insurance Company (NHIC) to ensure public access to all stages of budget formulation, execution and reporting. This system will also contain the regular publication o f the budget of NHIC and all financial resourcestransferred to medical institutions. Implementation of the Integrity Pact inpublic procurement in health protection system. The Pact is a comprehensive agreement for all suppliers and contracting agencies not to be involved in corruption. This measure will be complemented by publication o f all offers for tenders, terms and conditions, and processes for final evaluation and decision-making by all medical institutions contracted with the National Health Insurance Company. Capacities o f personnel in the Ministry o f Health and Social Protection will be built to conduct audits. The Ministry will conduct an audit o f entities managing financial resources in health protection to ensure effective monitoring of payment mechanisms. The TCP also seeks to produce a curriculum and conduct training courses for managers of medical institutions and administration councils in managing public finances and conducting effective internal audits. Consolidation o f the national capacities for the protection o f rights and interests of patients and introduction and effective promotion o fthe Code o f Ethics for medical personnel 349. A Bureau for the Protection of the Rights of Patients with 3 offices inthe center, north and south o f Moldova will be launched. The mandate o f Bureaus will be to offer consultations to patients; protection o f their rights, including legal assistance regarding rights and responsibilities; and monitor activities o f medical institutions. A mechanism for handling complaints will be established and the Bureaus will work closely with medical service providers to resolve these issues. A practical guide will be developed which will contain rules of procedure for Bureaus including its functions, mandate, responsibilities, and rights and obligations of patients. Public awareness campaigns will be conducted to raise public awareness o f the bureaus and their services. Public awareness efforts will include the production o f folders and booklets providing information on services, the bureaus' functional mechanism, and concrete modalitiesof addressing and obtaining of consultations. 36 htto://chisinau.usembassv.gov/utils/eprie.html, "Millennium Challenge Corporation THRESHOLD COUNTRY PLAN'May 2006. 96 350. Additionally, the project supports anti-corruption measuresand practices by: (a) continued reforms of the sector, including redefining and focusing the role of government from health care provider to policy maker; (b) promoting transparency, (c) improving incentives, and (d) training and awareness. 351. Potential risks and effects o f corrupt practices and mitigating measures under the Project are presentedinthe table below.37 Potential risks Potential effects Mitigating measures Constructionand Bribes, kickbacks and High costs, low quality WB procurementrules rehabilitationof political considerations constructionwork and Competitivebidding healthfacilities influencingthe contracting facilities Building code and processes Locationof facilities does standards Contractorsfail to perform not correspondto need Adequate supervision and are not held of civil works accountable Up-front agreement on site selectioncriteria Training Transparency Procurementof 0 Bribes, kickbacks and High cost, inappropriate WB procurementrules equipment and political considerations drugs and equipment Competitivebidding supplies influence specifications and Sub-standardequipment Specifications basedon winners ofbids and drugs needs assessmentand Lack o f incentives to internationalpractice choose low cost andhigh Training quality suppliers Implementationofthe Suppliers fail to deliver and Integrity Pact inpublic are not heldaccountable procurementinhealth protectionsystem. Provisionof services Informal paymentsrequired Reducedutilization of Addressingincentives by frontline health from patients for services services by patients who system in healthcare personnel cannot pay Improvedfinancial increasedpovertydueto management of health highhealthcare costs facilities Loss o f trust inthe system Improvedworking conditions for doctors Informationand communications 3 1This table is partially adapted from TarynVian, 2002. 97 Annex 11: Project Preparation and Supervision MOLDOVA: Health Services & Social Assistance Project Planned Actual PCNreview October 24,2006 Initial PID to PIC October 17; 2006 Initial ISDS to PIC October 17, 2006 Appraisal March28,2007 April 2,2007 Negotiations May 5,2007 April 23, 2007 Board/RVP approval June 14,2007 June 7,2007 Planneddate of effectiveness September 15,2007 Planneddate of mid-termreview October 6,2009 Plannedclosing date August 31,2011 352. Key institutions responsible for preparation o f the project: Ministry of Health, Ministry o f Social Protection, Family and Child. 353. Bank staff and consultants who worked on the project included: Name Title Unit RekhaMenon Task Team Leader & Sr. Economist ECSHD Maris Jesse Sr. Health Specialist ECSHD MenahemPrywes Sr. Economist ECSHD Ala Pinzari OperationsOfficer ECSHD Alexei Ionascu OperationsAnalyst ECSHD Valeriu Cosuleanu Junior Program Associate ECCMD Dan Ioan Sava Health Specialist ECCRO Xiaohui Hou Economist ECSHD Dorothee Eckertz OperationsOfficer ECHSD HidekiMori Sr. Social Protection Specialist ECSHD Anna Wielogorska Sr. ProcurementSpecialist ECSPS Irina Babich Financial Management Specialist ECSPS Bogdan Constantinescu Financial Management Specialist ECSPS Andrei Busuioc Consultant, Financial Management ECSPE Evelyn Lehis Consultant, Social Assessment ECSHD John Malmborg Consultant, Architect DonnaEdgerton Consultant, Information Technology ECSHD Irina Davydova Program Assistant ECCUA Anna Goodman Program Assistant ECSHD Tamara Ursu Program Assistant ECCMD 354. Bank funds expended to date on project preparation: 1. Bank resources: US$301,759.79 2. Trust funds: US$185,847.46 (PHRD -Government executed) 3. Total: US$487,607.25 355. Estimated Approval and Supervision costs: Remaining costs to approval: US$72,238 Estimated annual supervision cost: US$71,000 98 Annex 12: Documents in the Project File MOLDOVA: Health Services & SocialAssistance Project Atun, Rifat, "Functional Analysis ofthe Stewardship Function inMoldova", 1November 2004. Atun, Rifat, "Technical Assistance for Restructuring of the Ministry o f Health and Social Protection of the Republic of Moldova", August 2006. Cercone, James, "Moldova Health Policy Note", September 2006, World Bank. Government o f Moldova, "Economic Growth and poverty Reduction Strategy Paper for 2004-2006" and Updated annexes 5,6 and 7 for 2007, Chisinau 200312006 Grecianii Zinaida, "Millennium Challenge Corporation Threshold Plan", Chisinau, May 2006 Lehis, Evelin, "Social Assessment - Moldova Health Services and Social Assistance Project", World Bank 2007 Maaroos, Heidi-Ingrid et al, "Training in Family Medicine in Moldova: Position Paper", World Bank, November 2006. MinistryofFinance, "Medium Term Expenditure Review for 2007-2009", Chisinau 2006. Ministry of Health (2007), "Environment Management Plan, Moldova Health Services and Social Assistance Project", Government of Moldova. Ministry of Health and Social Protection, "National Health Policy and Action Plan", (draft) Chisinau 2006 Ministry of Health, "Plan of Action to Improve Injection Safety and Safe Disposal of Used Injection Equipment 2004-2010", Chisinau, July 2004. Ministry of Health and Social Protection, "Long Term Strategy for Development of the Healthcare System inthe Republic of Moldova", Chisinau 2006. Ministry of Health, "Report on the Activity of the Healthcare System during 2006", Chisinau, February 2007. Mocanu, V. I., "Reform inthe Public Health Care System: Social Conduct and Public Opinion", Chisinau 2003. Moldova Moderna Center for Public Opinion Research, "Report on the Evaluation of the Social- Information situation in Focus Groups", Chisinau 2002. National Bureau o f Statistics of the Republic of Moldova, "Results o f Survey o f Health Status o f Population in the Republic o f Moldova, Edutura "Statistica", Chisinau 2006. Nachinkina Darya, "Social Assistance Programs inMoldova", April 2006, World Bank. 99 National Scientific and Applied Center for Preventive Medicine and ORC Macro, "Moldova Demographic and Health Survey 2005", Calverton, Maryland 2006, National Scientific and Applied Center for Preventive Medicine, MoHSP, and ORC Macro. Oxford Policy Management, "Support to the Delivery o f Social Assistance Services in Moldova", Presentation, January 2007. Oxford Policy Management, "Support to the Delivery o f Effective and Sustainable Social Assistance Services, Donor Harmonization and Progresstowards a Sector-Wide Approach", August 2006. Oxford Policy Management, "Support to the Delivery o f Effective and Sustainable Social Assistance Services", Project Memorandum, August 2006. Rhodes, Grant et al, "End-of-Project Evaluation, Health Investment Fund Project, Moldova", Rotterdam, 10November 2006. Shishkin, Serget et al, "Evaluation of the Health Financing Reform in the Republic of Moldova, World Health Organisation, 2006. Verme, Paolo, "Social Assistance Note", September 2006, World Bank. Verme, Paolo, "Social Assistance and Poverty Reduction inMoldova", December 2006, World Bank. Verme, Paolo, "An Assessment of Social Assistance Benefits", September 2006, World Bank. World Bank (2004 a), Procurement Annex: Fiduciary Requirements for Procurement by IBRD, World Bank, July 2004. World Bank (2004b), "Moldova Country Assistance Strategy", November 2004, World Bank (28556- MD). World Health Organisation, "Health-Care Waste Management, Situation Analysis & Action Plan", January 2004, World Health Organisation. World Bank, "Improving Public Expenditure Efficiency for Growth and Poverty Reduction: A Public Expenditure Review for the Republic o f Moldova", Washington, D.C., February 12,2007. World Bank (2006a), "Moldova: Poverty Update", June 12, 2006, World Bank (35618-MD). World Bank (2006b), "Project Concept Note, Moldova - Health Service and Social Assistance", World Bank, October 2006. World Bank (2006c), "Project Information Document", World Bank, 2006. World Bank (2006d), Project Mission Documents. World Bank (2006e), "Poverty Reduction Support Credit", Program Document, September 2006, World Bank (37358-MD). World Bank, "Review o f Experience o f Family Medicine in Europe and Central Asia: Moldova Case Study, World Bank, May 2005. 100 Annex 13: Statement of Loans and Credits MOLDOVA: HealthServices & Social Assistance Project ~ Differencebetween expected and actual Original Amount in US$Millions disbursements PIOJeCtD FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Frrn Rev'd PO99166 2007 PRSC 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 PO99841 2006 AVIAN FLU - MD 0.00 4.00 0.00 0.00 0.00 7.73 0.03 0.00 PO92516 2006 BIOMASS HEAT INRUR COMM 0.00 0.00 0.00 0.00 0.00 1.94 0.00 0.00 (CDCF) PO90673 2006 RISP (APL #2) 0.00 7.50 0.00 0.00 0.00 13.23 -0.85 0.00 PO90340 2006 QUAL EDUC INRUR AREAS OF MD 0.00 5.00 0.00 0.00 0.00 14.27 -0.15 0.00 PO90037 2006 POPS STOCKPILES MGMT AND 0.00 0.00 0.00 6.35 0.00 5.23 2.07 0.00 DESTRUCTION PO89124 2006 COMPETITIVENESSENHANCEMENT 0.00 4.90 0.00 0.00 0.00 9.38 0.97 0.00 PO82916 2005 PUB FIN MGMT TA 0.00 8.55 0.00 0.00 0.00 8.17 0.36 0.00 PO75995 2004 AG POLLUTION CONTROL (GEF) 0.00 0.00 0.00 4.95 0.00 1.55 1.92 0.00 PO79314 2004 SIF 2 0.00 20.00 0.00 0.00 0.00 11.08 -2.41 0.00 PO40558 2004 ENERGY 2 0.00 35.00 0.00 0.00 0.00 25.85 10.50 0.00 PO73626 2003 TRADE & TRANS FACIL INSE EUR 0.00 7.21 0.00 0.00 0.00 0.44 -0.34 0.00 PO74122 2003 AIDS CONTROL 0.00 0.00 0.00 0.00 0.00 2.26 0.62 0.15 PO74469 2003 WS & SAN 0.00 12.00 0.00 0.00 0.00 7.86 6.27 0.35 PO51174 2001 HEALTH INVST FUND 0.00 10.00 0.00 0.00 0.00 0.18 -0.82 -0.82 PO51173 1999 SOC PROT 0.00 11.10 0.00 0.00 1.04 4.78 5.08 0.99 PO35771 1998 FIRST CADASTRE 0.00 15.90 0.00 0.00 0.00 1.94 -1.23 1.06 Total: 0.00 151.16 0.00 11.30 1.04 125.89 22.02 1.73 101 MOLDOVA STATEMENT OF IFC's Held and DisbursedPortfolio InMillions ofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2000 FinComBank 0.75 0.00 0.00 0.00 0.75 0.00 0.00 0.00 2004 FinComBank 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1997 INCON 2.39 0.00 0.00 0.00 2.39 0.00 0.00 0.00 2006 Mobiasbanca 5.00 0.00 0.00 0.00 2.50 0.00 0.00 0.00 2000 Moldindconbank 0.19 0.00 0.00 0.00 0.19 0.00 0.00 0.00 2004 Moldindconbank 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 2000 ProcreditMDA 0.00 0.00 0.90 0.00 0.00 0.00 0.90 0.00 2001 UFMoldova 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2001 Victoriabank 0.57 0.00 0.00 0.00 0.57 0.00 0.00 0.00 2004 Victoriabank 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1999 VoxTel 0.00 0.00 1.25 0.00 0.00 0.00 1.25 0.00 2000 VoxTel 0.00 0.00 0.07 0.00 0.00 0.00 0.07 0.00 2001 VoxTel 0.00 0.00 0.30 0.00 0.00 0.00 0.30 0.00 Total portfolio: 37.90 0.00 2.52 0.00 30.40 0.00 2.52 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pendingcommitment: 0.00 0.00 0.00 0.00 102 Annex 14: Country at a Glance MOLDOVA: HealthServices & SocialAssistance Project Europe 8 Lower- POVERTY and SOCIAL Central mlddle- M oldova Asla Income Development diamond. 2006 Population mid-year(millions) 42 473 2,475 GNIpercapita(Atlasme1hod U S ) 750 Lifeexpectancy 4,m 198 GNI(Atlas method, US$ billions) 3 2 1945 4.747 Average annual growth, 1999-06 Population (W -03 00 10 Laborforce 09 0.0 14 GNI Gross per m a w Most recent estimate (latest year avallable, l999.06) capita enrollment Poverty (%of pvpulation belownatronalpv veiiyline) 49 Urbanpopulation (%offotalpvpulabon) 47 64 50 hfeexpectancyat birth(pars) 68 69 70 Infantmortality (per 1000live birlhs) 23 28 33 Childmalnutntion (%of childrenunder51 5 a Access to improvedwatersource Access to an lmprovedwatersource (%ofpopulabon) 92 92 82 Literacy(%ofpopulaiion age 98 97 89 Gross primaryenrollment (%ofschool-agepopulalionJ 94 0 4 M -Moldova Male 95 0 5 m - Lowr-middle-income gmuo Female 94 02 It3 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1986 1996 2004 2006 GDP (US$ billions) 18 26 2 9 Gross capital formatioMGDP 24 9 25 3 29 8 Exparts Of goods and serviceslGDP 49 3 508 524 Trade Gross domestic savingslGDP 8 3 -5 8 -7 1 Gross nationalsavingslGDP 8 1 212 24 7 Current account balancelGDP -56 -44 -98 Interest paymentslGDP 11 18 Total debt/GDP 397 72 0 Total debt servicelexports 7 8 92 Present value of debtlGDP 660 Present value of debtleqons 85 1 Indebtedness 1986-86 1986-06 2004 2005 2005-09 (averageannualgrowth) GDP a 7 24 7 4 7.1 5.0 - Mold0va GDP percapita a 9 2 7 7 7 7.4 5.2 LO mer-middle-lncomegmup ~xportsof goods and services 6 7 8 3 8.5 5.5 STRUCTURE of the ECONOMY 1986 1996 2004 2006 (%of GDP) Agnculture 33 0 213 7 0 Industry 32 2 23 9 24 5 ~anufacturing 25 7 '68 7 3 services 34 8 54 7 58 5 Household final consumption expenditure 567 904 916 Generalgov't final consumption eqenditure 27 1 154 155 Imports of goods andservices 58 0 82 1 93 9 -GCF &GDP 19.36-96 1996-06 2004 2006 i2: I (averageannual gmwth) Growth of exports and Imports (%) Agnculture 03 a7 -17 40 T Industry 23 5 0 7 2 Manufactunng 24 43 3 2 20 Services 33 58 7 8 Household final consumption expenditure 7 7 28 8 2 Generalgov't final consumption eqenditure -37 -88 7 5 Gross capitalformation 2 5 0 1 4 6 ImpOrtSOfgOOdS andservices 9 1 03 24 6 Note 2005 data are preliminaryestimates This tablewas producedfrom the Development Economics LDB datebase 'Thediamonds show four keyindicators inthe country(in bold) comparedmthIts income-group average V data are missing.the diamond wll be incomplete 103 Moldova PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Domestic prices (% change) Consumer prices 9 9 P 5 131 Implicit GDP deflator 38 7 7 9 7 3 Government finance (%of GDP,includes current grants) Current revenue 39 4 35 5 37 1 00 01 02 03 04 05 Current budgetbalance -3 6 0 6 -22 Overall surplusldeficit -67 08 -11 TRADE 1985 1995 2004 2005 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 739 995 996 !,OOO T Liveanimals andanimalproducts 67 20 37 Vegetableproducts 75 P O 256 I500 Manufactures 96 252 220 Total imports (cif) 841 1,773 187 io00 Food 34 81 0 6 Fuel andenergy 293 385 304 500 I Capital goods 104 240 254 0 Ewort pnce index(2000=WO) 150 18 P 1 99 00 01 02 03 04 05 Import pnce index(2000=WO) 99 ni 105 aEkports nlmports Terms of trade (20OO=WO) 150 108 115 BALANCE of PAYMENTS 1985 1995 2004 2005 (US$ rnlllions) Current account balance to GDP (%) E ~ o r tof goods andservices s 865 1,3l7 1528 Imports of goods andservices 106 2,131 2,739 Resource balance -51 -813 -1211 Net income -29 337 359 Net currenttransfers 65 364 567 I Current account balance -115 -12s -285 Financing items (net) P 8 261 4# Changes innet reserves -13 -#8 -129 -15 Memo: Reserves includinggold (US$ millions) 256 470 597 Conversion rate (DEC,bcal/US$) 3 7 a 3 P 6 EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 (US$ rnllllons) Composition o f 2004 debt (US$ mill.) Total debt outstanding anddisbursed 695 1868 IBRD 152 8 5 6 1 IDA 0 201 209 I A: 185 Total debt service 71 248 G IBRD 8 B 20 IDA 0 2 2 Composition of net resource flows Official grants 0 39 Official creditors 0 0 -50 Pnvate creditors 24 -30 Foreigndirect investment (net inflows) 26 81 Portfolio equity(net inflows) -1 -2 F 457 World Bank program Commitments 30 28 Disbursements 50 20 24 A-IBRD E- Bildwal B .IDA D Other rmltllaterd - F Private - Pnncipal repayments 0 t3 T3 G Short-lerr I Net flows 50 7 10 Interest payments 8 8 8 Net transfers 42 -1 2 Note:This tablewas producedfrom the Development Economics LDB database. 81UlOE 104 MAP SECTION IBRD 33448R 27°E 28°E 29°E 30°E Dnestr To Vinnytsya UKRAINE To Chernivtsi Moghiliov-Moghiliov- To Vinnytsya OcnitaOcnita Podolski Podolski BriceniBriceni MOLDOVA B DonduseniDonduseni To Chernivtsi e EdinetEdinet SorocaSoroca s DrochiaDrochia 48°N s CamencaCamenca 48°N RīscaniRīscani a FlorestiFloresti Nistru Costesti Costesti SoldanestiSoldanesti r GlodeniGlodeni a Balti Balti RībnitaRībnita RezinaRezina Balatina Balatina Prut r SīngereiSīngerei To Voznesens'k FalestiFalesti a Telenesti elenesti Chiperceni Chiperceni 0 10 20 30 40 Kilometers b ROMANIA OrheiOrhei 0 10 20 30 Miles SculeniSculeni i Dubasari Dubasari TRANSNISTRIATRANSNISTRIA To Pascani Mt. Balanesti Mt. Balanesti a Calarasi (430 m) (430 m) CriuleniCriuleni Ungheni Ungheni Straseni GrigoriopolGrigoriopol NisporeniNisporeni StauceniStauceni To Zhmerynka 47°N CHISINAUCHISINAU 47°N LapusnaLapusna Ialoveni Ialoveni AneniiAnenii Noi Noi Tiraspol raspol Bender Bender LeuseniLeuseni HīncestiHīncesti (Tighina) (Tighina) SloboziaSlobozia Cainari Causeni To Odesa Plain Cimislia Cimislia To Birlad Leova Leova Bugeac Stefan-Voda Nistru This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank ComratComrat Basarabeasca Basarabeasca Group, any judgment on the legal status of any territory, or any To Birlad endorsement or acceptance of such boundaries. Cantemir Cantemir 27°E GAGAUZIA GAGAUZIA UKRAINE Ceadīr-Ceadīr- LungaLunga MOLDOVA To Artsyz 46°N SELECTED CITIES AND TOWNS Prut 46°N AUTONOMOUS TERRITORIAL UNIT CahulCahul Taraclia araclia CAPITALS GAGAUZIA GAGAUZIA RAIONS OR MUNICIPALITIES CAPITALS* Vulcanesti ulcanesti NATIONAL CAPITAL RIVERS MAIN ROADS RAILROADS To Imayil Black AUTONOMOUS TERRITORIAL UNIT BOUNDARIES To Bucharest Sea RAIONS OR MUNICIPALITIES and Constanta BOUNDARIES INTERNATIONAL BOUNDARIES *Names of the raions or municipalities are identical to their capitals. 28°E 29°E 30°E MAY 2007