Economic and Financial Management Support Project

31 Pages·2013·0.94 MB·English

AFRICAN DEVELOPMENT BANK GROUP

PROJECT : ECONOMIC AND FINANCIAL MANAGEMENT
SUPPORT PROJECT (PAGEF)

COUNTRY : SAO TOME AND PRINCIPE

PROJECT APPRAISAL REPORT
December 2012

Appraisal Team
Sector Director : Mr. Isaac LOBE NDOUMBE, Director, OSGE
Regional Director : Mr. C. OJUKWU, Regional Director, ORSB
Sector Manager : Mr. J-L. BERNASCONI, Manager, OSGE.1

Team Leader : Mr. A.F. EKPO, Principal Macro-Economist,OSGE.2

OSGE DEPARTMENT

Translated Document
TABLE OF CONTENTS

I –Strategic Thrust and Rationale .......................................................................................... 1
1.1 Project Linkages with Country Strategy and Objectives ............................................. 1
1.2 Rationale for Bank's Involvement ............................................................................... 2
1.3 Aid Coordination ........................................................................................................... 6
II – Project Description ........................................................................................................... 7
2.1 Project Components ..................................................................................................... 7
2.2 Technical Solutions Adopted and Alternatives Explored ............................................ 8
2.3 Project Type ................................................................................................................. 8
2.4 Project Cost and Financing Arrangements .................................................................. 8
2.5 Project Target Area and Beneficiaries ......................................................................... 9
2.6 Participatory Approach for Project Identification, Design and Implementation ....... 10
2.7 Bank Group Experience and Lessons Reflected in Project Design ........................... 10
2.8 Key Performance Indicators ...................................................................................... 10
III – Project Feasibility .......................................................................................................... 11
3.1 Economic and Financial Performance ....................................................................... 11
3.2 Environmental and Social Impact .............................................................................. 11
IV – Project Implementation ................................................................................................ 12
4.1 Implementation Arrangements .................................................................................. 12
4.2 Project Monitoring ..................................................................................................... 14
4.3 Governance ................................................................................................................ 14
4.4 Sustainability ............................................................................................................. 15
4.5 Risk Management ...................................................................................................... 15
4.6 Knowledge Building .................................................................................................. 15
V – Legal Framework ............................................................................................................ 16
5.1 Legal Instrument ........................................................................................................ 16
5.2 Conditions Associated with Banks Intervention ....................................................... 16
5.3 Compliance with Bank Policies ................................................................................. 16
VI – Recommendation ........................................................................................................... 16
LIST OF APPENDICES
Annex 1: Sao Tome and Principe Comparative Socio-economic Indicators
Annex 2: Table of ADB Active Portfolio in Sao Tome and Principe
Annex 3: Map of Project Area
Annex 4: Summary Table of Donor Operations

LIST OF TABLES
Table 2.1-1 : Project Components and Estimated Cost in UAM .............................................. 7
Table 2.4-1 : Project Estimated Cost by Component ................................................................ 9
Table 2.4-2 : Project Estimated Cost by Source of Financing .................................................. 9
Table 2.4-3 : Project Cost by Expenditure Category ................................................................ 9
Table 2.4-4 : Expenditure Schedule by Component ................................................................. 9

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Currency Equivalents
August 2012

Currency Unit = STD
UA 1 = STD 30 176.4
UA 1 = EUR 1.2068
UA 1 = USD 1.5220

Fiscal Year
[1 January – 31 December]

Acronyms and Abbreviations

ADB : African Development Bank
ADF : African Development Fund
AGER : General Regulatory Authority
ANP-STP : National Petroleum Agency of Sao Tome and Principe
CSP : Country Strategy Paper
DGB : General Directorate of the Budget
DGT : General Directorate of the Treasury
EITI : Extractive Industries Transparency Initiative
EMAE : National Energy and Water Company
ENASA : National Airports and Air Safety Corporation
EU : European Union
FSF : Fragile States Facility
GDP : Gross Domestic Product
HSE : Health Safety and Environment
IGF : General Inspectorate of Finance
IMF : International Monetary Fund
INAC : National Civil Aviation Institute
INIC : National Institute for Innovation and Research
JDZ : Joint Development Zone
MTEF : Medium-Term Expenditure Framework
NIS : National Institute of Statistics
PAGEF : Economic and Financial Management Support Project
PEFA : Public Expenditure and Financial Accountability
PIU : Project Implementation Unit
PRSP II : Second Generation Poverty Reduction Strategy Paper
SAFE : Integrated Public Finance Management System
SME : Small and Medium-sized Enterprise
STP : Sao Tome and Principe
TFP : Technical and Financial Partner
UA : Unit of Account
UNDP : United Nations Development Programme
WB : World Bank

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Project Information Sheet
Client Information Sheet
BORROWER: Democratic Republic of Sao Tome and Principe

EXECUTING AGENCY: Ministry of Finance and International Cooperation

Financing Plan
Source of Financing Amount (UA) Instrument

ADF 5 000 000 ADF Grant
FSF – Pillar III 2 000 000 FSF Grant
Government 41 000

TOTAL COST 7 041 000

ADB Key Financing Information

ADF and FSF Grant Currency EUR 8 496 520 or
STD 212.46 billion

Timeline – Main Milestones (Expected)

Concept Note Approval August 2012
Project Approval December 2012
Effectiveness February 2013
Last Disbursement 30 June 2016
Completion 31 December 2015
Last Reimbursement Not Applicable
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Project Summary
Project Overview: the Economic and Financial Management Support Project (PAGEF) will
be implemented in a context marked by increasingly bright prospects of the country joining
the club of oil producers. The total cost of this project, which will span three years, is UA
7.04 million. It will be financed with the country's entire ADF-12 allocation (UA 5 million)
and outstanding FSF Pillar III resources (UA 2 million). The pooling of ADF and FSF
resources to finance a single project was motivated by the quest for greater efficiency and
impact of the Bank's operations. Government's contribution to project financing is estimated
at UA 41 000, representing 0.6% of the overall project cost. This modest contribution reflects
the serious financial constraints faced by the country due principally to its debt level and
meager domestic resources. To ensure project ownership at the national level, all
stakeholders, notably the public administration, the private sector and civil society, are
involved in the project design, preparation and implementation phases. The project will cover
the entire territory, namely the island of Sao Tome and that of Principe. It is the Bank's
response to two major Government concerns outlined in the National Development Strategy
which was approved in May 2012, namely: (i) strengthening economic and financial
governance in anticipation of an inflow of oil resources by 2015, and (ii) diversifying the
economy in order to steer clear of the Dutch disease which generally results in excessive
focus of economic activity on oil and a decline in competitiveness. The main expected
outcomes of PAGEF implementation are: (i) improved public finance planning and
management; (ii) improved domestic resource mobilization; (iii) greater public accountability;
(iv) achievement of the status of Extractive Industries Transparency Initiative (EITI)
compliant country; (v) enhanced private sector environment, in particular reduced costs of
insularity; and (vi) greater promotion of small and medium-sized enterprises operating in the
tourism sector, by particularly targeting women entrepreneurs and youths.
Needs Assessment: the country's needs regarding governance in public finance and oil
revenue management derive from several assessments carried out by the Bank and other
development partners. These include the 2009 PEFA review, the Country Governance Profile
produced by the Bank in 2010, the 2012-2016 CSP and reform programmes supported by the
IMF and the World Bank. These studies were supplemented and updated during the
preparation of this project.
Bank's Value Added: many technical and financial partners are supporting the country to
improve public finance and oil revenue management, and the business climate. However,
apart from the oil sector where assistance provided by the Norwegian Cooperation Agency is
comprehensive, assistance in public finance management and improvement of the business
climate is inconsistent. The Bank's value added is based on the comprehensive nature of the
assistance that this project will provide in public finance management. Furthermore, the
project will largely depend on the promotion of South-South cooperation between Portuguese-
speaking countries to ensure the sustainability of knowledge transfer to beneficiaries. It
should also be noted that by targeting the tourism sector, PAGEF will complement the Bank's
support for economic diversification in the agriculture and fisheries sectors.
Knowledge Building: PAGEF is mainly based on knowledge transfer among Portuguese-
speaking countries. In addition, studies will be carried out to consolidate knowledge,
particularly in the domains of taxation, decentralized finance management, oil and financing
of tourism-related activities. The project will also contribute to consolidating the knowledge
of local universities and students by involving them in training courses taught by experts.
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Project Implementation Schedule
2013 2014 2015 2016
T- T- T- T- T- T- T- T- T- T- T- T- T- T-
1 2 3 4 1 2 3 4 1 2 3 4 1 2
Effectiveness

First disbursement

Establishment of the PIU

Recruitment of PIU staff

Designation of Steering Committee
Members
PIU equipment

Procurement of materials and equipment

Computer hardware and office supplies

Technical equipment

Technical assistance

Public finance planning and mgt.

Control systems

EITI

Justice

Tourism

AGER

EMAE

Training

Public finance management

Control systems

EITI

Justice

Tourism

INAC/ENASA (civil aviation)

PIU Operation

Steering committees

Mid-term review

Auditing

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Results-based Logical Framework
Country and Project Name: Sao Tome and Principe - Economic and Financial Management Support Project (PAGEF)
Project Goal: Contribute to improving the management of public resources and diversifying the economy

PERFORMANCE INDICATORS
MEANS OF RISKS/MITIGATION
RESULTS CHAIN
Indicator VERIFICATION MEASURES
Baseline Situation Target
(including CSI)

T
C
A Consolidation of economic growth and Economic growth rate 4.3 % in 2011 > 6% in 2016 PRSP II implementation
P poverty reduction Incidence of poverty 49.6% in 2010 44.6% in 2016 report
M
I
PEFA Scores

PI-12: Multiyear prospects in budget and public D+ in 2009 C+ in 2015 Risk 1: deterioration of the
spending policy planning macro-economic
Outcome 1: improved strategic planning and PI-2: Composition of approved budget D in 2009 C in 2015 environment
public finance management compared to budget execution Mitigation: ongoing
PI-15: Efficiency of domestic resource D+ in 2009 C+ in 2015 PEFA report implementation of
mobilization economic policies with the
PI-22: Regularity and timeliness of accounts C in 2009 B in 2015 IMF and the World Bank
reconciliation operations

Risk 2: low Government
PEFA Scores
PI-21: Efficiency of internal audit D+ in 2009 commitment
C+ in 2015
PI-25: Quality and timeliness of annual financial Mitigation: maintaining
D in 2009
S Outcome 2: improved public accountability statements C in 2015 dialogue between the Bank
E PI-26: Scope, nature and monitoring of external D+ in 2009 PEFA report and all TFPs and the
M and transparency oil sector management
O audit recommendations C+ in 2015 Government on priorities
CT PI-28: Legislative review of external audit D+ in 2009 Risk 3:
UO reports Candidate country in 2012 D+ in 2015 EITI report commencement of oil
Country's EITI compliance production is postponed
Compliant country in 2015
beyond 2015, resulting in
macro-economic tensions
Mitigation: continuation
of implementation of
reforms and measures to
Reduction in insularity costs on transportation, Updating of study on ensure efficient resource
13.9% of GDP in 2010 <= 12% of GDP in 2015
Outcome 3: the private sector climate is more energy and telecommunications insularity costs management and
conducive to economic diversification diversification of the
Average hotel occupancy rate 50% in 2011 70% in 2015 GD Tourism economy

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PERFORMANCE INDICATORS
MEANS OF
RESULTS CHAIN RISKS/MITIGATION
Indicator VERIFICATION
Baseline Situation Target
(including CSI)
COMPONENT 1: SUPPORT FOR PLANNING, PUBLIC FINANCE MANAGEMENT AND TRANSPARENCY IN THE OIL SECTOR
Improved strategic planning and public Risk 4: low capacity of the
finance management administration to implement

the project and coordinate its
1. Budget planning capacity is strengthened 1. Development of a Medium-Term Budget 1. No MTBF 1. The MTBF is available from 2013 Progress reports of various components
2. Public policy monitoring and evaluation Framework (MTBF) 2. No monitoring and evaluation 2. The first report on PRSP II financial services
capacity is strengthened 2. Preparation of reports on PRSP II s3y. sNteom in terconnection implementation is prepared in - General Directorate of the Mitigative measures: a
3. The government services interconnection implementation 4. No training in 2011 and 2012 2012 Budget Project Implementation Unit
network is established 3. Interconnection of DAFs to the public finance 5. No action plan 3. DAFs of all Ministries are (PIU) will be established
- General Directorate of within the Ministry of
management system (SAFE) 6. Training is irregular interconnected in 2014
4. The capacity of DAFs in budget Accounting Finance and International
7. No SGA has been prepared for
preparation and execution is built 4. Number of DAFs trained in public finance more than two decades now 4. All DAFs are trained twice a year Cooperation to implement
management from 2013 - General Directorate of the the Project. The Unit will
5. An action plan to optimize tax revenue is Treasury benefit from technical
prepared 5. Design of an action plan to optimize tax 5. An action plan is prepared in 2013 assistance upon project start-
6. The capacities of taxation services in tax revenue 6. At least two training sessions are - Directorate of Taxation up.
revenue collection are improved 6. Number of staff of taxation services trained organized each year from 2013 - Directorate of Customs
7. Public accounts for 2012 are prepared 7. Preparation of the State General Account 7. The 2012 SGA is prepared in 2013
(SGA)
ST Improved public accountability and
U
PT transparency in the management of the oil
U sector
O 1. Preparation of audit procedures manuals Progress reports of audit
1. No procedures manuals 1. A procedures manual is available institutions
1. Internal auditing capacity is strengthened
in 2013
2. External public finance auditing capacity is 2. Preparation of notices of compliance on SGA
strengthened 2. The Audit Court has never - General Inspectorate of
3. A strategy to improve auditing by the Audit 3. Absence of a strategy prepared notices of compliance 2. The notices of compliance are Finance
regularly prepared from 2013
Court is designed
3. The legal framework for financial 4. Preparation of statutory instruments on 3. No strategy to improve auditing - Audit Court
accountability is revised financial accountability by the Audit Court 3. A strategy is available in 2013
5. Parliamentary control over public finance is

strengthened 5. Number of MPs trained in the examination of 4. Lack of clarity in current 4. Statutory instruments are prepared
in 2014
6. The institutional framework for oil sector finance bills and budget execution reports instruments
Progress report of the EITI
regulation and management is strengthened
7. EITI reports for 2014 and 2015 are 6. Preparation of a study on the institutional 5. At least one training session is Committee Secretariat
prepared framework for oil sector regulation and 5. No training on the review of organized each year for MPs from
management MTEFs and SGA 2013
7. Availability of reports 6. No study 6. A study is available in 2014
7. No report 7. Reports for 2014 and 2015 are
available
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COMPONENT 2: SUPPORT FOR IMPROVEMENT OF PRIVATE SECTOR CLIMATE AND PROMOTION OF THE TOURISM SECTOR

Improvement of the regulatory
framework of key economic sectors
(telecommunications; energy; transport;

trade)
1. Design of a telecommunications cost model 1. A cost model is available in 2014 General Regulatory
1. Absence of a cost model
1. Strengthening of telecommunications and price study Authority (AGER)
regulation capacity 2. Electrical grid mapping in 2014
2. Electrical grid mapping 2. No mapping National Energy and Water
2. Strengthening of electrical grid Company (EMAE)
management capacity 3. Number of INAC and ENASA staff trained 3. Absence of a staff refresher 3. All technical staff are trained from
2013
3. Enhancement of civil aviation safety course
and security 4. Operationalization of a trade dispute 4. A mediation centre is operational General Directorate of
4. Strengthening of mediation in trade mediation and arbitration centre 4. No mediation centre from 2014 Tourism
disputes National Civil Aviation
Institute (INAC)

Private sector development, particularly
tourism sector activities

1. Design of a private sector development 1. No strategy 1. No strategy 1. At least three senior officers are
strategy trained each year from 2013
2. Number of senior officers of the General 2. No training
2. Building of capacity in tourism Directorate of Tourism trained in 2. The strategy is available in 2014

promotion communication techniques

3. No training
3. Building of the capacity of small 3. Number of SMEs trained in management and
3. At least 10 SMEs are trained each
operators in the tourism sector communication techniques
year from 2014
4. Establishment of a mechanism for 4. Availability of a financing mechanism 4. The Tourism Promotion Fund is
4. Operationalization of the
financing tourism sector activities through the Tourism Promotion Fund not functional
mechanism for utilization of
Promotion Fund resources in 2014

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