Document of

The World Bank

Report No. T-7184-UA

TECHNICAL ANNEX

TO THE

MEMORANDUM AND RECOMMENDATION

OF THE PRESIDENT

UKRAINE

TREASURY SYSTEMS PROJECT

JANUARY 27, 1998

Poverty Reduction and Economic Management UnitEurope and Central Asia Region

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CURRENCY EOUIVALENTS(as on June 1997)

Currency Unit = HR1.95 HR =US $1.0

US$1= 0.51HR

1993 1994 1995 June 1997US l.00= - - - 1.95

PRINCIPAL ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyDC Direct ContractingFAD Fiscal Affairs departmentGFMIS Government Financial Management Information SystemGFS Government Finance StatisticsH/W HardwareIBL Institutional Building LoanIBRD International Bank for Reconstruction and DevelopmentICB International Competitive BiddingIMF International Monetary FundIS International ShoppingIT Information TechnologyMOF Ministry of FinanceNS National ShoppingNBU National Bank of UkrainePC Personal ComputerPFM Public Finance ManagementPHRD Policy and Human Resources Development FundPIU Project Implementation UnitQCBS Quality and Cost Based Method of SelectionRDBMS Relational Data Base Management SystemRTU Regional Treasury UnitsS/W SoftwareSOE Statement of ExpensesSU Spending UnitSL Short ListTLS Treasury Ledger SystemTSA Treasury Single Account

Fiscal YearJanuary I - December 31

Vice President: Johannes F. Linn, ECAVPCountry Director: Paul J. Siegelbaum, ECC 11Sector Director: Pradeep K. Mitra, ECSPESector Leader: Sanjay Pradhan, ECSPETeam Leader : Lilia Burunciuc, ECC 11Co-Team-Leader: Ali Hashim, ECSPE

TABLE OF CONTENTS

1. COUNTRY AND SECTOR BACKGROUND 2

2. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT 3Progress to date 4

3. LESSONS OF EXPERIENCE AND BANK STRATEGY 5Lessons Learned 5Rationale for Bank Involvement 5

4, THE PROJECT 6Objectives 6Project Description 6

A. Policy Framework and Institutional Reforms 6B. Key Cbaracteristics of the Treasury Ledger System Design 7

Items to be Financed 9A. Technical Assistance (base cost US $ 2.62 million) 10B. Computer Hardware and Software (base cost US $ 21.4 million) 12C. Training (base cost US $ 0.6 million) 13

5. IMPLEMENTATION ARRANGEMENTS, PLANS AND SCHEDULES,MONITORING AND EVALUATION 14Project Implementation Arrangements 14Implementation Strategy & Schedule 14Project Sustainability 15Project Launch, Monitoring and Evaluation 15

6. PROJECT FINANCING AND COSTS; PROCUREMENT AND DISBURSEMENTARRANGEMENTS 17Financing and Costs 17Procurement Arrangements and Schedules 19

Methods other than ICB 20Technical Assistance 21

Disbursement and Financing Schedules 23Financial Management System 24

Special Account 24Project Audits 25

8. BENEFITS AND RISKS 26Benefits 26Critical Assumptions and Risks 26

9. AGREEMENTS REACHED 28

LIST OF ANNEXES:

Annex 1: Detailed Functionality of the Treasury Ledger System and the Technology Architecture

Required for Implementation.

Annex II: Treasury Systems Project Implementation Schedule.

Annex III: Project Performance Monitoring Indicators.

Annex IV: Detailed Cost Tables.

Annex V: Detailed List of Technical Assistance Requirements.

GOVERNMENT OF UKRAINE

Treasury Systems Project

Loan and Project Summary

Borrower: Ukraine

Implementing Agency: The Ministry of Finance

Beneficiaries: The Ministry of Finance, the Treasury Department

Poverty: Not applicable

Amount: US$ 16.4 million

Terms:The loan would be made in US Dollar at the Bank's standardinterest rate for LIBOR based single currency loans, with amaturity of 20 years including five years of grace.

Commitment Fee: 0.75 percent on undisbursed credit balances, beginning 60 daysafter signing, less any waiver.

Financing Plan: See para. 6.1

Staff Appraisal Report: Technical Annex (Report No. T-7184-UA) in Lieu of AppraisalReport to supplement Memorandum of the President (Report No. P-71 84-UA).

Project ID Number: 49174

1. COUNTRY AND SECTOR BACKGROUND

1.1 Over the last two years, the Government of Ukraine has carried out important reformsthat have stopped hyper-inflation, provided a stable currency, and led to a recovery in hardcurrency exports. However, unless there is a more fundamental reform of the public sector, thesuccess of the reform program in sustaining macroeconomic stability and in reversing the declinein output may be jeopardized.

1.2 One of the main factors which indicates the fragility of the achieved success is theunsustainable fiscal situation. For the last few years, the Government has been running uparrears and postponing expenditures, caused by the unrealistic budget and by poor expen dituremanagement and control. To achieve sustainability, the Government budget has to correspond toa realistic assessment of available resources. The preparation of the budget and its executionneeds central coordination, first, to ensure that the resources are allocated to priorities andsecond, to guarantee that expenditure commitments do not deviate from available revenues. Thisrequires strengthening the Ministry of Finance (MOF) and creating a well functioning treasurysystem. It also means setting clear rules for expenditure selection, allocating expenditureresponsibility and ensuring oversight. All these measures will contribute to a stable and efficientsystem.

1.3 At present, the Government has developed a reform program to address the issue of fiscalsustainability and to improve the management of public resources as well as to address many ofthe existing government-imposed obstacles to business through a proposed Public ResourceManagement Loan. Reforming the public expenditure system and creating a well functioningTreasury system is an important element of this program -- the Government realizes its crucialimportance for the success of the whole reform program. Moreover, the Government has agreedwith the IMF on a set of reform actions aimed at improving public expenditure management tobe supported by the stand-by program.

1.4 The Bank is already active in restructuring the public sector in Ukraine. The IBL, alreadyin place, helps to develop a number of key institutions and their associated systems. Three piecesof economic and sector work, namely a study of Debt Management, a Public ExpenditureReview and a Public Investment Review provide the analytical underpinnings for reforms inPublic Sector aimed at rationalizing taxes and improving tax administration, restructuring thebudget expenditure management, improving administrative efficiency, and making governmentmore responsive to private sector needs.

1.5 The IMF has also been extensively involved in advising the Government in the areasaddressed by the project. In particular, assistance is being provided to the Treasury in thedevelopment of a new budget classification structure, a chart of accounts and the functionalspecifications for a fully functioning treasury system through a resident expert in Ukraine. TheGovernment has expressed a strong desire to ensure IMF involvement in the implementationphases of its reform program and the IMF would continue to be responsible for advising theMOF and Treasury on the substantive aspects of the budget execution, cash management andtreasury operations, and to assist the Treasury in designing and installing the full treasury system.

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2. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT

2.1 Previous analyses by the Ukrainian authorities and by the IMF and the World Bank staffhighlighted significant weaknesses in the budget system and the financial management ofgovernnent operations. These have been reported on in previous IMF reports (e.g. Ukraine- APrograrn to set up a Treasury System, IMF/FAD, April 1993). The features of the previoussystem that hindered effective financial management in the central and local governments aresummarized below.

2.2 In the process of transformation from a centrally planned to a market economy, the publicexpenditure management system will need to be re-structured and take on new tasks in order tobe an efficient instrument of economic management. Specifically, past preoccupation withcompliance with centrally issued directives to fulfill the planned targets is no longer relevant.Other major weaknesses in the former public expenditure management system are:

1) Diffusion of responsibilities for fiscal matters among a number of different entitieswithin the Government in addition to the MOF;

2) Inappropriate budget classifications, which do not allow meaningful budgetmonitoring;

3) Inappropriate legal framework for budget preparation, approval, implementation andmonitoring;

4) Lack of reliable, comprehensive and timely accounting information;5) Underdeveloped debt and cash management operations that are not linked to overall

budget management;6) Dispersion of budget money in many spending units accounts, instead of concentrating

money in a single treasury account, which makes cash management difficult;7) Lack of macro economic framework needed for formulation of the budget and making

of revenue and expenditure projections;8) Lack of administrative capacity to adjust the budget in response to changing

circumstances;

2.3 The proposed project will address the points 1-6 mentioned above: assist the Governmentto define the functional responsibilities of the Treasury, the Budget and Taxation Departments ofthe MOF, design new budget classification structures to allow meaningful resource allocationand monitoring, design a new legal framework to underpin budget execution, design andimplement a treasury system to centralize payment processing and optimize cash management,and provide timely information on the deployment and use of fiscal resources.

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Progress to date

2.4 The Treasury Department has been established as an organization and has begun takingover the budget execution functions formerly carried out by the financing departments of theMOF. However, fiscal management accounting still depends on records maintained by theNational Bank of Ukraine (NBU). Payments are, for a large part, still made directly from thespending units' accounts held in banks. Nevertheless, the Government is extremely committedto establishing well functioning Treasury to meet the needs of financial administration in amarket economy. Moreover, difficult fiscal situation is forcing the Government to take actions toimprovement of expenditure management and control. It is committed to addressing remainingsystemic problems, such as fiscal reporting which is dependent on records maintained by theNBU and payments which are made directly from spending unit accounts held in banks. It hasset up its own targets for making the Treasury operational -- start performing basic functions (theinterim system) in 1997 and become fully operational in 2000.

2.5 Originally, the work on the treasury system had started under the Institution BuildingLoan (IBL) Treasury component, which was canceled in April 1996, due to the lack of progressat that stage. However, some operational procedures, operating manuals and directives for thenew system have been developed under the IBL Treasury component.

2.6 Over the last twelve months, the Treasury Department has embarked on a project to setup an interim computer based system with the assistance of the NBU. This system will cater tobasic requirements for treasury operations related to financing Government programs andprocessing payments from Government agencies. The Government has started to centralizepayment processing on a pilot basis from June 1, 1997 for the Kiev University, Ministry ofHealth, and the Chernobyl and the Employment funds, for three Oblasts. Subsequently, thescope was increased to include all central Government institutions based in Kiev. The pilot isbeing extended now to cover all Oblasts by end 1997. In addition, a draft of the new BudgetManagement Law has been prepared. Finally, the new Minister of Finance has taken an activeinterest in the project and has set up a formal working group and the Treasury has developed adetailed action plan required for project implementation.

2.7 A separate computer department has also been set up and is currently staffed with about20 analysts and programmers at the Treasury headquarters. In addition 2-3 analysts andprogrammers are located at each Oblast Treasury office. To set up the interim system, theTreasury has acquired computer hardware and software worth about $6.4 million, financed fromits own resources.

2.8 The Government has approached the Bank to finance the development andimplementation of new systems, processes, procedures and methodologies required for theestablishment of the fully functional Treasury. The Bank loan would supplement Government'sown outlays and enable the full implementation of the treasury system. The project will build onwork already done by the borrower in establishing a Treasury Department and associatedsystems.

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3. LESSONS OF EXPERIENCE AND BANK STRATEGY

Lessons Learned

3.1 The Bank's experience with the Treasury component under the IBL shows that theborrower's commitment and extensive local involvement in designing the project (participatoryapproach) as well as extensive involvement by the Bank's resident mission in the process ofpreparation and supervision, are essential for the success of the project. The Bank's experiencewith similar projects indicates that other important aspects that need to be kept in mind are: (i)well defined objectives consistent with the country's absorptive capacity; (ii) thorough preparationand accurate assessment of needs; (iii) close monitoring of project preparation actions to beundertaken by the borrower and provision of necessary technical assistance; and (iv) rigoroussupervision to handle the design, procurement and implementation challenges that these projectstypically present.

3.2 The project incorporates the above mentioned lessons by: (i) focusing on areas to whichthe Government is currently committed; (ii) building on existing Government efforts in theseareas; (iii) providing technical assistance to help the borrower to implement the actions requiredfor the project preparation and providing financing for skills required for project implementation;(iv) proposing a PIU to meet implementation challenges; and (v) anticipating intensive supervisionrequirements and involving the resident mission in Kiev in this process.

3.3 The Government is very committed to the project. An indication of the Government'scommitment and ownership is that the project scope and design are based on an action plan andcost estimates developed jointly with Treasury officials. Government commitment is alsoconfirmed by the intention to make its own contribution to the project of about 37 percent of theproject cost which includes US$ 6.4 million for hardware and software for the interim budget andUS$ 3.6 million for duties and taxes.

Rationale for Bank Involvement

3.4 The Country Assistance Strategy (CAS) emphasizes the need for restructuring the publicsector and recasting it in a supportive role essential to the efficient operation of a marketeconomy. The indicators established in the CAS for monitoring progress towards thisdevelopment objective include strengthening economic management institutions. The creation ofa Treasury Departmern to manage budget execution - including oversight of extra budgetary andlocal budget operations - and implementation of associated systems and procedures, is an essentialstep to meet the needs of financial administration in a market economy. The project will help buildinstitutional capacity in Ukraine to deal with public expenditure management issues and assist theGovernment to set up the Treasury in close collaboration with the IMF. The Bank and Fund arecurrently involved in several similar projects in the countries in transition, and over the years, havedeveloped valuable expertise in this area that give them a comparative advantage. Bank supportwould thus significantly help the Government to develop an efficient system of public finance.This would be in line with the objectives of the CAS (Report No. 15674-UA, June 3, 1996).

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4. THE PROJECT

Objectives

4.1 The overall objective of the Project is to support ongoing Government efforts to assist theGovernment to design and implement a fully functional, automated treasury system, that wouldserve as an effective instrument for budget execution and cash management.

Project Description

4.2 The Government is in the process of implementing several key policy actions to enable theTreasury to be set up and function in accordance with international best practices. To supportthis activity, this project will assist the Government in designing and implementing a fullyfunctional automated treasury system capable of serving as an effective instrument for budgetexecution and cash management. The proposed project would provide technical assistance,computer equipment and software and training to enable the authorities to design, develop, testand implement processes, procedures and systems, related regulations and training programs forbudget execution and treasury operations and payroll management. The project would first assistin the design of the systems. The system will then be implemented at a number of pilot sites and,after the pilot exercise, replicated across the country.

4.3 Following is a brief description of the institutional and policy reforms underway, and ofthe information systems and associated technology to be set up for the Treasury under the project.

A. Policy Framework and Institutional Reforms

4.4 The IMF and World Bank have been extensively involved in advising the Government indeveloping policy and institutional reforms to enable the treasury to be set up and function inaccordance with international best practices. A comprehensive package of public sector reformsis being undertaken by the Government and supported by the Bank as part of preparation of theproposed Public Resource Management Loan. The proposed Treasury project will complementthe reforms proposed under the Public Sector Resource Management Loan and will supportGovernment efforts to reform the system of public expenditures. In addition, these reforms arebeing supported by the IMF's program. Some of the key actions and policy reforms beingundertaken are detailed below:

(i) Development of a comprehensive Budget Management Law which will provide aframework for the proper management of public moneys and property, with specificemphasis on: (a) the receipt and custody of public moneys (including bankingarrangements); (b) public expenditure management (including control processes andlinkages with appropriations); (c) the accounting system; (d) the role and responsibilitiesof the Treasury and other MOF departments; (e) asset management and control; (f)borrowing and investment (specifically the management of the public debt); and (g)reporting and audit. The first draft of the law has already been prepared by the MOF, andreviewed by the Bank and the IMF, and is currently being discussed in severalParliamentary committees.

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(ii) Adoption of a budget classification system consistent with the IMF's GovernmentFinance Statistics (GFS) methodology, and final design of a treasury chart of accountsembodying this classification system for implementation. The Ministry of Finance alreadyissued the new budget classification system on December 3, 1997.

(iii) Implementation of a transaction based treasury ledger system embodying the newchart of accounts.

(iv) Centralization of all Government payments through the Treasury and consolidationof bank accounts to a single account at the NBU. The Government started a pilot on June1, 1997, to implement central payment processing for the Kiev University, Ministry ofHealth, and the Chernobyl and the Employment funds, for three Oblasts. The pilot will beextended to cover all Oblasts by end 1997. Centralized payment processing will beprogressively extended across the Government during 1998, with 70% of transactions byvalue expected to be processed centrally by June 1998.

(v) Reducing reliance on physical movements of cash in the budget revenue collectionprocess and implementation of a payroll system that makes direct deposits to employeebank accounts, replacing cash payments. It is expected that the government will pilot anautomated payroll system within the MOF in 1999. This system would then beprogressively implemented across the Government.

(vi) Conducting a functional review of the Treasury Department to first review theallocation of functions between the Treasury and Budget Departments of the MOF, andTax Administration by November 1997. Consequently, a comprehensive operational andeffectiveness review of the Treasury will be completed by end- 1998.

B. Key Characteristics of the Treasury Ledger System Design

4.5. At a policy level, recommendations related to the scope and functions of the Treasury andassociated systems and procedures have been developed by the IMF and are based oninternational best practice as adapted for economies in transition. The Treasury Ledger System(TLS) proposes a centralized approach to payment processing through the Treasury, rather than adecentralized approach, in which the accounting departments of ministries would be directlyresponsible for processing payments for expenditures incurred by their respective agencies. TheIMF has weighed the advantages and disadvantages of a centralized versus a decentralized systemin the early 1990s, while designing this system, and believes that the centralized approach is moreappropriate for Ukraine for the following reasons:

(a) Under the current system the Ministry of Finance (MOF) periodically distributesfunds to spending agency bank accounts, and the spending units directly process paymenttransactions against these accounts. This results in a situation where, on the one hand,sizable idle balances can build up in spending unit bank accounts, while the MOF is indeficit in overall terms. This, in turn, necessitates additional government borrowing and/or causes arrears in payments.

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(b) The MOF cannot exercise any control to ensure that public expenditures incurredby spending units were in accordance with budget appropriations.

(c) The MOF does not receive timely information on public expenditures or receiptsfrom line agencies.

In view of this, the IMF has recommended implementation of a centralized model in which allGovernment funds would be placed in a TSA at the NBU (Central Bank), spending agency bankaccounts would be closed, and all payments for spending agencies would be processed by theTreasury Department, which would control the TSA at the Central Bank.

4.6 The proposed system would not, however, undermine spending unit authority andresponsibility for budget preparation or administrative and financial control of expenditures duringthe budget execution phase. These responsibilities would continue to lie with the spendingagencies. Thus, the finance departments of spending agencies would continue to be responsiblefor budget preparation and ex- ante financial control (including commitment control) oftransactions. The accounting departments of these agencies would verify receipts of goods andensure that proposed expenditures are in accordance with budgeted appropriations, prior toforwarding payment orders to Treasury for payment. Though a good treasury system cannotrectify problems of bad budgeting, the new system would, nevertheless, enable the Treasury toensure that proposed expenditures are in fact in accordance with the budget appropriations, asthey should be under any well performing fiscal management system. It would also provide theMOF a means to exercise control on which payments need to be given priority in a situation inwhich there is a shortage of funds. Since all payments would be processed through Treasury, thesystem would also enable the Treasury to, simultaneously, compile overall information for theMOF on public expenditures and receipts. Therefore, in view of the current need for centralcontrol over expenditures and idle balances in agency accounts, and for up to date information onpublic expenditures and receipts, a centralized system holds clear advantages over a decentralizedapproach.

4.7 The core functional processes and information flows associated with the system are shownschematically in Figure 1. The project envisages implementing systems at the Treasury headoffices and at each of the Oblast and Rayon branches of the Treasury to process and controlcentral government payments in their respective areas. Local government payments are notenvisaged to be part of the system at this stage. Nevertheless, the implementation of the treasurysystem would not preclude the installation of a similar system for local governments at a laterdate.

4.8 The TLS would be the core Government Financial Management Information System(GFMIS) and would be used by:

(i) the Treasury and its regional offices to perform the basic accounting functions andto undertake budget implementation;

(ii) the Budget Department of the MOF to obtain the status of actual expenditures andperform the processes associated with budget preparation and monitoring;

(iii) the Cash Management Department of Treasury to provide the information itrequires for cash management and implementation of cash limits;

Figure 1: Ukraine- Core Government Fiscal Management Processes, Information Systems and Information Flows Treasury will be Responsible for Making Payments. Central Bank Directly responsible for Retail Bankin-g Operations.

Core Functional Processes Spending Ministry of Finance GFM Information National Bank of Ukraine CommercialMinistries & SUa Treasury Syatems TSA Banks

Central ProcessesDeve"lo Maka-cro Economic Framework (with Sectoral Ministry Input) J Legend

.--* Information FlowsBnudge1jt GuidellneS Bu--- Sdget GuidelinesJ

J Agency Involvement in the ProcessRic-eiv-e B-u dg-et P r-o p osals W (Mnits-tirie-s sen d con- solI 'date-d -propo- s-als Budget Proposals(including SUs) to MOF) ]Budget Preparation system

Consolidate Bud-get Propo~sals i-nalize Bud-ge-t ]T-BudijetAppm-p4i I-o-tig-nal-a-ri r- -r-rBudget- BudgetI

Ministries Appropriitios Appropriations

Consolidated Fiscal reportsMo-nitor- Overall Budget_Execution -- rom System

CentralTreasury Ledger&Casth Management

-- Expenditure ManagementlControliProcesss ___

Treasury, Line Ministry Heatd Offices and SUs at the Center)-Receive'Cash- Req-uire-m ent Forecas-ts firom Ministries Cash Forecasts/Requirennents!

Obtain Expenditure_Figures and Cash Balances from TLSDetermine Ortly Limits on Commitments ( Enter_In_System and inform Ministries) .4 Ortlcorrmndment-LnilTits-Determine Funds Allocationg to Ministries (Enter in System, Inform Ministries) Financial releases -

_____ - - Budget ~~~~~~~~~~~~~~~~~approMinistries Determine Btudget Appropriations and Commitment Limits for Stis o m ~ J -4Finaniaiil Release toSAccounts (Enter into System and inform SLIs) FssilRlae oSt) 7K;equ-est-foe-E-xoenifdiidFiJ?, -AdmTni-tstaiti~/I-A~p-pvaT-W Bu-dg-IUary Zo-ntrtof--aMinistries) LCo6m-mitm-e-nt-s an-d Verif-ic-ati-o-ns (ofdo-ods Receipt) Transactions -commitmentsANefitcations~ National Bank CommerciatPayment Orders_to make Expenditure-.Payment orders ot Ukraine Banks

Budgetary~ Cnrol at Treasury 1] TSA)Payment transcti1fons agais TS yTesr -Paymeni Transactions against T ~Cre dit to -Commercial Banks of Amounts authorized for credit to Govt. Creditors Credit to Suppliers Acc,o.ts]Daily Filei of paym ents -r-o-m- T-SA and_Reconcililation by Treasu ry F~DiyF n ot Payments from TSA Summary of Receipts (Tax and Non Tax) to the TSA -_ _ ] S mmary of Receipts -- Summary of Receipts

Detie Accounso instries fro-m ystem Det-ailed-Accounts-at Mi tne

Deaaled Sl, Accoun-ts f r onm -Syste jDetailedSUA Aount

in-fo-rmati-on flows_tfolfrom Subo-rdinate 'Unitt s -

UssRegional and District Spending Unit Processes -RTUs Regional Regional Branches of

Req~uest for Ex-pe-n-diture_Admini~strative Appr-ov-al & Lo-cal_1Bu-dg-etary Cont-rol- Systems Branches of CommercialCom6mitmenrt-s and Verifications (of_Goods Receipt) Transactions U CommitmentsNerifications' Modules NBUt BanksPa-ymenti O-rders to_ m- a ke_Expenditure -Payment orders --

Budigetary Control at Treasury_(RTU) _------

Pay-me-n-tt-ra-nsacet-ions against TSA by Treasury - -- -- Payment Transactions against TSA, JCreditto Commercial B-anks of Amounts authorized for credit to Go-vt. Creditors Crecht to Suppliers AccountsJWeaily- Fil 1-9 of' -paym ents f-rom T-S-A- -- 1Daily File of Payments from TSA

Summnary of Receipts (Tax and Non Tax) to the TSA ISummary of Receipts JSummary of ReceiptsJDetailed Accounts of SUs from System b etailed Su Acco.nsot

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(iv) line agencies, to cater to their accounting and financial information needs; and

(v) the Government auditing organization to access financial transaction data forauditing purposes.

4.9 In a fully automated accounting system, as it exists in most developed countries andseveral middle income countries, the basic accounting processes are automated and data capturedonly once as an accounting transaction progresses through the system. Such a system, introducedalong with a modem budget classification system and an appropriate chart of accounts, enablesexpenditures and revenues to be recorded at a very detailed level and related to specific programsand projects. Data recorded at this level can be directly used for program and projectmanagement. This data is also easily amenable to cross classification in other ways as required forfinancial analyses. In the absence of an automated accounting system, data recording is not at asdetailed a level. More important, cross classification of data to other schema is very cumbersomeand therefore is seldom carried out. The introduction of an automated accounting system wouldensure completeness of data capture (that is no transaction would be processed outside thesystem) and rigorous application of appropriate financial controls to all transactions processed bythe system.

4.10 The information contained in the system data bases would provide the MOF and othercore financial agencies with comprehensive management information related to the country'sfinancial resources. In addition, the system would provide useful financial information to theministries and other spending units (in their respective areas) to enable them to better managetheir work programs.

4.11 The system will encompass the functional requirements for the budget implementation andaccounting processes and would cover the appropriation, commitment, funds allocation, andpayment processes for both the investment and current budgets. The details of the functionalityof the TLS and of the technology architecture to be used are given in Annex I.

Items to be Financed

4.12 A description of the technical assistance, computer hardware and software, and training tobe financed under the project are given in the following paragraphs.

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A. Technical Assistance (base cost US $ 2.62 million)

4.13 The IMF has been providing technical assistance to the Treasury in the development of anew budget classification structure, a chart of accounts and the functional specifications for a fullyfunctioning treasury system through an expert resident in Ukraine and would continue to beresponsible for advising the MOF/ Treasury on the substantive aspects of the Budget Execution,Cash Management and Treasury Operations. For this purpose, the IMF proposes to designate andfinance experts/ advisors to continue to advise the Government on the functional aspects ofTreasury operations and to assist the Treasury in the design and installation of the full treasurysystem.

4.14 The project would supplement this with technical assistance in the functional and technicalareas as well as for project implementation as described below:

Functional Aspects:

4.15 Technical assistance in functional aspects would include:

(i) Review of existing budget classifications and coding structures and develop anddesign a revised structure and chart of accounts conforming with the IMF's GFSclassification methodology and suitable for both budget preparation and implementation.

(ii) Developing the legal regulatory and operational framework and develop detailedguidelines, procedures, regulations, forms and operating manuals for budget executionprocesses required at all levels of Treasury operations to implement the treasury systemand for payroll management.

(iii) Developing methods to improve forecasting of expenditure requirements and cashmanagement.

(iv) Developing the fiscal reporting system of Treasury and improve linkages betweenthe Treasury fiscal reports and MOF analysis.

(v) Developing detailed functional specifications for the treasury ledger system andpayroll system, including requirements for incorporating necessary expenditure controlprocedures.

(vi) Assessing training requirements for institutional development, including,assessment of the skill levels of Treasury/ MOF staff to operate and manage a modemfiscal management system as well as necessary technical skills required for theimplementation and operation of the new treasury system, and develop and implement atraining, skills upgrading and recruitment program as may be necessary.

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Technical Aspects:

4.16 In the information systems area, technical assistance would be provided to develop thetechnical design of the TLS and payroll system and implement the systems first at a designated setof PILOT sites - the center, one oblast and a few (4-5) rayons and after testing the system in thisenvironment, replicate the new system country wide. This would include:

(i) Developing the technology architecture for implementing the budget executiontreasury and payroll systems and specifying the hardware, software and communicationsdesign, systems software and application software environment (UNIX, RDBMS &Application development tools)

(ii) Researching and identifying application software for the Treasury and payrollsystems and determine customization requirements.

(iii) Specifying the hardware and software requirements and prepare biddingdocuments in accordance with World Bank Procurement Guidelines.

(iv) Supervising implementation of the budget execution and treasury operations andpayroll systems, including:

v Technical project coordination and systems integration;* Procurement of hardware and software;v Installation and testing of H/W and S/W;* Customization or development (as may be required) of application software

for budget execution and treasury operations and payroll.* Acquisition, installation and testing of S/W for the treasury systemA Developing operational guidelines, security and disaster recovery procedures* Developing procedures and check list for replicating systems at subsequent

sites.

(v) Develop a plan for upgrading the informatics capability of the Treasury to enable itto carry out the design, implementation, operation and maintenance of the above systems;including:

* Specifying an organization structure and training/ skills requirements for thisfacility

* Developing a training strategy and plans for the implementation of the systemscountry wide

* Developing end user manuals and training materials and documentation* Training end users at Pilot sites* Designing and specifying systems training facilities for the Treasury/MOF

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Project Implementation

4.17 Technical assistance would also be provided to assist the Treasury to administer andmanage the project and assist with Bank procedures (project monitoring, accounting,disbursement). A Project Implementation Unit (PIU) will be established at the Treasury forproject monitoring, implementation, administration, procurement, and disbursement. The projectwill provide financing for salaries and operating costs of the PIU.

B. Computer Hardware and Software (base cost US $ 21.4 million)

4.18 Details of computer hardware, software, related equipment to be provided under theproject are summarized below:

Hardwvare, Systems Software and Application Development Tools, DBMS's.

Equipment (UNIX servers, work stations, networks, printers, uninterrupted power supply[UPS], site preparation), systems software and application development tools for centralfacilities at the Treasury Headquarters, Oblast and selected Rayon treasury offices. Eachoffice would receive an appropriately sized UNIX server, a Local Area Network (LAN), aRDBMS and application development tools, laser and line printers and windows basedwork stations and modem connections connecting with the overall treasury network.Details of equipment to be procured would be determined by the Treasury and Projectconsultants. The project would also provide some computer hardware to supplement thehardware procured from Government's own resources, that is required for the fulimplementation of the interim system.

Application Software

Application software will be necessary for treasury systems at center, regional units, andspending units and customization, as may be necessary, and application software tomanage and operate a payroll system for Government employees. This includes cost ofpackage software purchase and customization as identified by project consultants. In casepackage software is not available the application software would need to be customdeveloped.

Miscellaneous

These include office equipment and training facilities for Treasury, as may be necessary.

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C Training (base cost US $ 0.5 million)

4.19 Training is recognized to be a crucial element for project implementation. Trainingrequirements for the project can be divided into several areas:

(i) Training in principles, concepts and methodologies of the subject areas covered bythe project, namely, budget execution, cash management and treasury operations.

(ii) Senior level management training / orientation in the use of computer basedfinancial management information systems.

(iii) End user training in the use of the computerized information systems to be set upunder the project. This would include training for line agency finance staff and forGovernment auditors.

(iv) Technical training in the use of the specific tools to be employed for developingand implementing the information systems under the project. e.g. the chosen RDBMS, theoperating system-UNIX, application development and computer assisted softwareengineering (CASE) tools, etc.

(v) More general training related to the design and development of informationsystems.

(vi) Training in electronic data processing (EDP) project management and theprovision of end user support to staff who will use the systems.

4.20 The project would provide financing for:

(i) Technical assistance for a training needs analysis and development of an overalltraining strategy and a schedule for training users in the light of the results of the trainingneeds analysis; the design and specification of in-house training facilities and/ oridentification of suitable training courses within the country and abroad; the developmentand acquisition of training materials, technical documentation and end user manuals.

(ii) Training courses to be arranged at site, or in local or foreign institutes to cover theabove mentioned areas. Staff to be trained under the project would include the MOF, LineAgency, Government Auditors, and Treasury.

(iii) The project would also finance study assignments for government officials in thebudget execution and treasury operations areas to enable them to benefit from theexperiences of other countries in these areas. This would include financing of courses andstudy tours on specific topics.

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5. IMPLEMENTATION ARRANGEMENTS, PLANS ANDSCHEDULES, MONITORING AND EVALUATION

Project Implementation Arrangements

5.1 Project Implementation Arrangements are summarized below:

(a) Implementation Period: Four Years; FY1998-FY2001

(b) Executing Agencies: The Treasury would admninister funds under the project

(c) Project Oversight: An Inter-Agency Coordinating Committee chaired by the Head ofthe Treasury has been set up by a resolution of the Cabinet of Ministers on April 3, 1997to oversee overall implementation of the project and advise on policy issues. Thecommittee includes representatives of the MOF, the NBU, the National Agency forReconstruction and Development, the Ministry of Economy and the Treasury.

(d) Project Coordination: The working group that was part of project preparation willnow form part of project steering committee during project implementation.

(e) Project Accounting, Reporting, Monitoring, and Evaluation and Auditing: (i) AProject Implementation Unit (PrU) in the Treasury would be responsible or activitiesrelated to project monitoring, administration, accounting, disbursement, procurement andperiodic reporting to the Bank; (ii) Project Accounts and the Special Account will beaudited in accordance with the Guidelines for Financial Reporting and Auditing of ProjectsFinanced by the World Bank (March 1982); (iii) World Bank supervision missions.

Implementation Strategy & Schedule

5.2 The various steps involved in the implementation of this new system are detailed in theaccompanying project implementation schedule attached as Annex II. The schedule describes themain tasks involved in the implementation of the full treasury system and gives the estimated startand completion dates for these tasks.

5.3 The implementation strategy adopted for the project was arrived at after an analysis ofpossible alternatives in order to achieve a cost effective solution to the Government's needs for aset of efficient and effective tools for public expenditure management. The following aspects areparticularly important:

(a) Technology Platform: The choice of an OPEN and scaleable systems technologicalplatform that is proposed for the project was arrived at after an analysis of othertechnological options, since it strikes a balance between large main-frame systems, whichwould be cumbersome and expensive and other PC based options ( e.g. stand- alone PCs)that could be under-powered and not scaleable to sites with a large number oftransactions;

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(b) Applications Software Package Selection and Systems Pilot: The ProjectImplementation Schedule shows that the project would first look at feasible alternativesfor an appropriate technological platform and an off the shelf software package that couldpossibly meet the Treasury requirements, after customization. This would be followed byacquiring the application software for a few pilot sites. This software would be tested onthe computers acquired for the interim system. After the pilot system has beenimplemented and the Treasury has confirmed the fit between the new system and treasuryrequirements, it would be replicated across the remaining sites. The application softwarewould be acquired in a single contract through a process of International CompetitiveBidding (ICB). The delivery schedule for the contract would specify, first, a delivery of afew licenses for the pilot phase only. After a successful pilot implementation, additionalcopies would be acquired under the same contract for the replication phase. Customdevelopment of application software would be undertaken only if no off the shelfapplication software package is found that could possibly be used for the Treasury systemafter suitable customization. Additional hardware required for the final replication wouldbe procured after the Pilot exercise has been successfully completed.

Project Sustainability

5.4 The sustainability of the project would largely depend upon the commitment by theauthorities to the project objectives. Work under this project builds upon local efforts alreadyunderway, which give a strong indication of Government commitment. Another critical conditionfor project sustainability is that the Treasury be able to assimilate and retain the transfer oftechnical skills. The project would build on existing efforts and supplement technical skills asrequired. To institutionalize the technological changes smoothly the project would recruit foreignand local specialists and structure training programs for staff. By developing long term trainingstrategies the project would ensure sustained institutional capacity. Participation of the localprivate sector in systems development and implementation activities proposed in the projectwould also contribute to sustainability counter balancing attrition tendencies.

Project Launch, Monitoring and Evaluation

5.5 A set of project monitoring and performance indicators have been developed (Annex III)to measure the inputs, key process milestones, track outputs and assess the impact of the projectinputs on the project's major development objectives. These will be used as a basis for monitoringand evaluating the project. A project launch workshop would be held in Spring 1998. The projectlaunch workshop would include a session on procurement. A mid-term review to assessperformance achieved and to review the appropriateness and continuing relevance of the projectdesign. In addition, more concise progress reports would be provided to the Bank on a quarterlybasis by the Treasury describing the status of implementation and procurement activities.

5.6 Reporting and Annual Reviews. The Treasury will prepare semi-annual descriptive andfinancial reports on each project component, objective and activity (beginning from the date ofLoan Effectiveness). The reports will describe: (i) current status; (ii) deviations, if any, from theimplementation plan; and (iii) the reasons for deviations and corrective actions being taken.Reporting and Bank supervision will focus on reviews of. (i) the emerging policy framework;

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(ii) the effectiveness of component and sub-component activities and their consistency withagreements reached at negotiations; (iii) performance of the implementing groups and institutions;(iv) emerging needs for adjustments to project parameters; and (v) possible follow-up operationswhich could be supported by the Bank. Bank supervision will be based on the quarterly and semi-annual progress reports and the annual evaluation of project activities by the Treasury. This willbe supplemented by a review of project expenditures and availability of financial resources, inaddition to substantive discussions with technical assistance groups implementing or assisting inthe implementation of various components, and discussions with responsible authorities. A mid-term review of the project is planned for Spring 2000.

5.7 In view of the significant complexity and difficulty of technical assistance projects of thissort, Bank staff and consultant supervision inputs are expected to be high and atypical, ascompared to the average, but comparable to other similar projects. It is estimated that therequirements wili be in the range of 16-20 staff weeks per year. Supervision would include: (a)general portfolio management - review of procurement and consultant contracting documents,progress reports and correspondence; (b) formal reviews- participation in the midterm and otherreviews; and (c) supervision missions. At least two supervision missions would be necessaryannually each for a period of two weeks on average. Table I shows the supervision plan.

Table 1: Supervision Plan

Timing Staff Weeks Staffing

FY98 12 weeks Team Leader (4 weeks)Information Systems Specialist (4 weeks)PFM Specialist (4 weeks)

FY99 20 weeks Team Leader (8 weeks)Information Systems Specialist (6 weeks)PFM Specialist (6 weeks)

FY2000 16 weeks Team Leader (6 weeks)Information Systems Specialist (6 weeks)PFM Specialist (4 weeks)

FY 2001 10 weeks Team Leader (4 weeks)Information Systems Specialist (4 weeks)PFM Specialist (2 weeks)

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6. PROJECT FINANCING, COSTS & PROCUREMENTAND DISBURSEMENT ARRANGEMENTS

Financing and Costs

6.1 The proposed Bank loan of US$ 16.4 million equivalent will finance 70 percent of thetotal project investment costs and 70.2 percent of the foreign exchange costs. The Governmentwill finance 37 percent of project investment costs. This includes US$ 6.39 million equivalent forhardware and software for the interim system, and duties and taxes which are estimated at US$3.41 million equivalent. Recurrent incremental costs, which comprise equipment operations andmaintenance and facilities service costs (US$ 0.7 million equivalent), will be financed entirely bythe Government. It is expected that the IMF would designate and finance specialist advisors forvarying periods of time up to a total of 24 person months, to assist in the design andimplementation of the system.

6.2 Project costs and financing plan is shown in Table II. This table also shows total projectcosts, by project component and by expenditure category. Project costs include a physicalcontingency for unforeseen variations (US$ 0.906 million) equivalent to about 5% percent of thebase cost of all project items. The foreign exchange component is estimated at about US$ 23.285million including contingencies, or 86.6 percent of total project costs. Taxes and duties on goodsand service contracts are calculated at 25 percent. Therefore, project costs include an estimatedUS$ 3.41 million equivalent in direct and indirect taxes and duties on goods and services, to befinanced by the Government. About US$0.7 million equivalent is required to cover incrementaloperating costs directly attributable to the Project during the period July 1997 to December 2001.These consist of incremental operation and maintenance expenditure for equipment and facilitiesrelated charges. Detailed Cost Tables are attached at Annex IV.

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Table II: Financing Plan by Financier and Component(Total amounts including duties and taxes)

Cost Component IBRD % Govt. % Total For. % Local % DutiesExch. (exclud and

ing TaxesTaxes)

Equipment &SoftwareStandard H/W and S/W 10,379 54 8,995 46 19,374 16,779 87 - 2,595

Application S/W 2,714 80 679 20 3,393 2,714 80 - 679Sub Total 13,093 56 9,673 44 22,767 19,494 86 - 3,273Technical AssistanceInformation Systems 1,906 100 - - 1,906 1,906 100 - 100Experts I_ITreasury Systems 545 80 136 20 682 545 80 - - 136ExpertsProject Implementation 271 100 - - 271 271 100 - 100Support _

Sub Total 2,722 95 136 5 2,859 2,723 95 - 136Training IlITraining courses, 585 100 - - 544 544 100 - - -

fellowships, study tours& attachments)

Total Investment 16,400 63 9,810 37 26,170 22,760 87 - 8 3,410CostsRecurrent Costs

HIW, S/W, Maint.J - - 696 100 696 525 71 171 29 -

License Fees,Telecommunicationscosts, and incrementaloperational expensesduring projectimplementationperiodTotal - - 696 - 696 500 - 171 - 3,410

Total Project Costs 16,400 61 10,506 39 26,866 23,285 79 171 8 3,410

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Procurement Arrangements and Schedules

6.3 Procurement arrangements under the Project are summarized in Table III.

Table m: Procurement ArrangementsTotal Cost, including contingencies, taxes and duties

(US$ million) a

Expenditure Type ICB Other NBF d TotalEquipment

Standard Hardware and 8.88 1.5 8.99 19.37Software (8 .8 8 ) b (1.5)c (10.38)

Application Software 2.71 0.68 3.39(2.71) (2.71)

Consulting Services 2.72 0.14 2.86(2.72) (2.72)

Training 0.54 0.54(0.54)e (0.54)

Total 11.59 4.76 9.81 26.16(11.59) (4.76) (6.36)

Recurrent CostsEquipment Operations and 0.70 0.70Maintenance, includin2 H/W.Software Maintenance,License Fees, etc.Total 0.70 0.70Total Project Costs 11.59 4.76 10.50 26.86

(11.59) (4.76) (16.36)

Notes:a: Numbers may not add up due to rounding.b: Figures in parenthesis are respective amounts financed by IBRD.c: Includes International shopping (IS) for small amounts of goods not exceeding $300,000 per contract,

up to an aggregate amount of US$ 1.000 million; prudent National Shopping may be used for sundryitems not exceeding US $ 25,000 per contract up to an aggregate amount of $0.350 million. Directcontracting for proprietazy, time critical or special compatible equipment may be used up to anaggregate amount of US 0. 15 million equivalent subject to Bank's prior review.

d: NBF: Not Bank Financed includes, US$6.4 million of equipment and software acquired by theGovernment from its own resources and US$3.27 million in taxes and US$ 0.7 million in recurrentcosts to be paid by the Government.

e: Includes Bank financed consulting services and training to be procured in accordance with the Bank'sguidelines for use of consultants.

6.4. Procurement of Goods. Equipment contracts which are estimated to cost more thanUS$300,000 equivalent per contract will be procured following international competitive bidding(ICB) procedures in accordance with the Bank's "Guidelines for Procurement Under MBRD Loansand IDA Credits" January 1995, revised January and August 1996. Equipment procurement hasbeen packaged according to related specialized fields (para. 6.8). Equipment procured throughICB will account for about 90 percent of the total equipment value financed by the Bank (US$9.38 million out of a total equipment cost of US$10.38 million (excluding duties and taxes). Forcontracts or goods to be awarded on the basis of ICB, the Borrower may, as set forth in the Loan

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Agreement, grant a margin of preference in the evaluation of bids up to 15% or the amount ofapplicable custom duties, which ever is lower, to qualified domestic manufacturers of goods inaccordance with the World Bank Procurement Guidelines (January 1995, revised January andAugust 1996). The General Procurement Notice for the project will appear in the January 98edition of United Nations Development Business.

Methods other than ICB

6.5 International Shopping. Procedures for International Shopping will be used for smallamounts of equipment where the cost of ICB would clearly outweigh possible price advantages.Contracts for equipment costing less than $300,000 equivalent, not to exceed an aggregateamount of US$1.0 million equivalent, will be awarded under international shopping procedures,based on comparing price quotations obtained from at least three suppliers from two eligiblecountries.

6.6 National Shopping (NS). Minor sundry items, such as small lots of informationtechnologies and office equipment, not exceeding US$25,000 per contract, up to an aggregateamount of US$0.350 million equivalent, could be purchased on the basis of prudent nationalshopping by comparing price quotations obtained from at least three local suppliers.

6.7. Direct Contracting (DC). Goods and technical licenses which: (i) are of proprietarynature; or (ii) need to be compatible with other installed equipment, may be procured throughdirect negotiations with property and/or copyright owners, on terms and conditions acceptable tothe Bank. Such items include contracts for intellectual property such as books, technical journals,training materials, audio-visual materials, computer applications software, including annualupgrading and licensing arrangements, copyrights, translation and reprinting rights for trainingmaterials, are estimated to cost under US$150,000 equivalent in the aggregate.

6.8 Table IV shows the major procurement packages for goods. The major procurement of thehardware and software has been separated in to three ICB packages for the following reasons:

(a) Package-I consists of the hardware requirements for the interim system(comprising only standard hardware and software- mainly PCs and servers and some LANequipment). This has to be procured about a year or more earlier than the equipment forthe full system.

(b) Package-2 is for the application software for the full system. The applicationsoftware is sold by specialized firms and is best procured separately from these firms. Thisprocurement will take place about 9-12 months after the interim system has been put inplace.

(c) Package-3 will be the hardware for the full system and will be procured one yearafter the purchase of the first package.

Since the project envisages the employment of a UNIX / OPEN systems environment, theseparate purchases of hardware as envisaged under packages 1 and 3 and application softwareunder package 2 would not pose any compatibility problems or restrict competition for bidding.

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Table IV: Summary of Major Procurement Packages for Goods(Costs excluding taxes and duties)

Component/ Estimated Procurement Start Doc. Invitation Award ContractPackage Cost Method Preparatio Contract Completion

US$ million n

Standard Hardware and 3.1 ICB 2/98 4/98 10/98 12/98Software for InterimSystemStandard Hardware and 5.78 ICB 10/98 12/98 2/99 12/2000Software for Full SystemApplication Software 2.71 ICB 2/98 4/98 10/98 12/2000

Technical Assistance

6.9 As discussed in chapter 4, the major technical assistance required in the functional areawould be provided by experts deputed and financed by the IMF. The project would supplementthis technical assistance in specific areas. Technical assistance assignments are estimated at US$2.72 million equivalent. Consulting services will be contracted in accordance with the"Guidelines for the Use of Consultants by World Bank Borrowers, January 1995 (The ConsultantGuidelines). Firms and individuals will be selected for consultant assignments in accordance withthe Bank's consultant guidelines. The Terms of Reference of all assignments would be subject toBank's prior review. The following methods of procurement, summarized in Table V, will befollowed.:

(a) Quality and Cost Based Selection: A set of consultancies valued at US$1.25million equivalent, comprising Information Systems Specialists with wide internationalexperience in the implementation of accounting systems would be contractedinternationally utilizing the procedures prescribed for the Quality and Cost Based Methodof Selection (QCBS) from short listed firms. This group would typically includeApplications Systems analysts, Systems Software Specialists, Database Specialists andNetworking Specialists.

(b) Individual Consultant Procedures will be used for small consultant contracts upto US$100,000 each. Many of the services provided under the project involve contractingof specialized experts, both national and international as individuals where knowledge ofthe various disciplines to be treated under the project is the paramount requirement. Thefollowing categories of experts would be contracted under these procedures:

(i) Treasury Experts: These assignments require specific skills normallyavailable from ex-Treasury/MOF officials from other countries with relevantexperience. The total estimate for these services is US$ 0.54 million equivalent.

(ii) Technical Experts for Project Implementation (Computer Programmers,End User Support Staff Training and Documentation Specialists): This categoryof experts are mainly intended to supplement the shortage of technical skills in the

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Treasury and required for project implementation. This category of experts wouldbe procured at a total cost of US$0.65 million equivalent.

(iii) Procurement, Disbursement and Accounting Specialists: These personnelare required to staff the PIU, and this set of consultancies is valued at US$ 0.24million equivalent. Procurement specialists hired under this category would enablethe Treasury to manage the procurement arrangements relating to consultants andequipment required for the project.

6.10 Table V shows the major procurement packages for technical assistance.

Table V: Summary of Procurement Packages for Technical Assistance a

Est. Cost Procurement Start Invitation Award ContractPackage US $ million Method Tender Contract Completion

PreparationInfornation Systems 1.25 S/L (QCBS) 11/97 12/97 2/98 6/2000SpecialistsTreasury Experts 0.54 Individuals 11/97 12/97 2/98 6/2000

(based onqualifications)

Technical experts for 0.65 Individuals 10/98 12/98 2/99 6/2000project implementation (based on

qualifications)

Procurement/ 0.24 Individuals 11/97 12/97 2/98 6/2000Disbursement/ (based onAccounting Specialists qualifications)

a = Detailed list of experts is given at Annex V

6.11 The Treasury is the main implementing agency of the project. It is felt that the Treasurywould require assistance in activities related to implementing the project and therefore asmentioned in paragraph 4.17 a PIU would be set up to, inter-alia, assist in procurement activities.The project would finance procurement specialists to ensure that procurement activities arecarried out in a cost effective manner and in accordance with Bank procedures. A CountryProcurement Assessment Review (CPAR) has not been prepared for the Ukraine. For this projectthe Government would follow agreed Bank procurement procedures as described above and asset forth in the Loan agreement.

6.12 Bank Review. For goods, the Bank shall review the Borrower's procurement plans,decisions and procedures in accordance with Appendix 1 of the Guidelines for Procurement underIMRD Loans and IDA Credits (January 1995). In particular: (i) each contract estimated to costUS$300,000 or more, which will cover all ICB contracts; and (ii) all DC shall be subject to priorreview, in accordance with paragraph 2 of Appendix 1 of the above Guidelines Other contractsfor goods for amounts less than US$300,000, shall be subject to post review. Terms of referencefor all consulting contracts would require prior review by the Bank. Consultants contracts above$100,000 for firns and above $50,000 for individuals would require prior review by the Bank.However, for technical assistance contracts under US$100,000 for firms and under US$50,000for individuals, the Bank will require prior review of only the terms of reference and short-lists ofcandidates.

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Disbursement and Financing Schedules

6.13 Disbursements. Disbursements against contracts for goods less than US$300,000equivalent would be made on the basis of statement of expenses (SOE). SOE will also be usedfor all consulting firm contracts less than $100,000 and individual consultants contracts less thanUS$50,000 and for all expenses on training, fellowships and studies. All related SOEdocumentation would be retained by the Treasury, the implementing agency, and made availablefor subsequent examination by independent auditors and Bank supervision missions. Theproposed Project is expected to be disbursed over a period of five years. The closing date will beJune 30, 2002.

6.14 Disbursements of World Bank Funds will be made as shown in Table VI. A summary ofthe disbursement plan is shown in Table VII.

Table VI: Proposed Disbursement Categories

Category Amount of Loan Percent of Expenditures to(US$ million) be Financed

Equipment & Software 12.0 100 percent of foreignexpenditures and 100 percentof local expenditures (ex-factory cost) and 80 percent ofother local expenditures

Consulting Services 2.22 100 percent of expendituresTraining 0.5 100 percent of expendituresProject Implementation Unit 0.28 100 percent of expendituresUn-allocated 1.4Total 16.4

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Table VIIDisbursement by Semesters

Total Project Costs(US$ 000)

Semester IBRD Financing Costs to be Cash Flow CumulativeFinanced Cash Flow

1 4,738.5 -4,738.5 -4,738.52 1,273.2 4,738.5 -3,465.3 -8,203.73 1,273.2 1,729.2 -456.0 -8,659.74 1,416.2 1,729.2 -313.0 -8,972.75 1,416.2 3,615.3 -2,199.1 -11,171.86 2,857.0 3,615.3 -758.3 -11,930.27 2,857.0 3,350.1 -493.1 -12,423.38 2,633.6 3,350.1 -716.5 -13,139.89 2,664.4 _ 2,664.4 -10,475.3Total 16.4 26,866.3 -10.506.1 -10.506.1

Financial Management System

6.15 The Treasury is responsible for the accounting function for the Government as a whole.Staff in Treasury are therefore familiar with accounting and auditing practices, standards, andinternal controls required to ensure adherence to proper accounting and auditing standards. Theproject will nevertheless provide assistance to the PIU to finance accounting and disbursementspecialists, acceptable to the Bank, to ensure that a proper financial management system is inplace. An appropriate accounting system, acceptable to the Bank, will be set up, and projectrelated accounting/auditing and disbursement activities are to be carried out satisfactorily and inaccordance with Bank procedures. Periodic project reports would, inter-alia, include: (a) financialstatements that give an assessment of the projects financial status, including reports of costsactually incurred by expenditure category (specified in Table II) and variances compared to theplan for the period; (b) project progress reports, that give a summary of the status of the projectand explanation and variances in key project indicators listed at Annex III; and (c) procurementmanagement reports giving status and details of contracts above the prior review threshold.

Special Account

6.16 The Borrower will establish and maintain a Special Account (as specified in the LoanAgreement) with an authorized allocation of US$1,600,000. This will be exclusively for makingpayments from the proceeds of the Bank Loan. The initial deposit of the authorized allocationwill be limited to US$800,000 and the remaining portion of the authorized allocation would bereleased when disbursements reach a level of US$3,000,000: In addition:

(i) All applications for direct payment or special commitments must be for an amountnot less than 20 percent of the initial deposit of the authorized allocation to the specialaccount or not less than 20 percent of the full authorized allocation once available; and

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(ii) Applications for replenishment of the Special Account would be submitted on amonthly basis or when one third of the amount deposited has been withdrawn, which everoccurred earlier. Submission of replenishment applications takes precedence over theminimum size application as stated in (i) above.

Project Audits

6.17 Project Accounts and the Special Account will be audited in accordance with the Guidelinesfor Financial Reporting and Auditing of Projects Financed by the World Bank (March 1982). ABank approved auditor will be identified prior to effectiveness. The Borrower will provide theBank (within six months of the end of each fiscal year), an audit report of such scope and detail asthe Bank may reasonably request, including a separate opinion by an independent auditoracceptable to the Bank, on disbursements against certified SOE. The separate opinion shouldmention whether the SOEs subniitted during the fiscal year, together with the procedures andinternal controls involved in their preparation, can be relied upon to support the relatedwithdrawal applications.

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8. BENEFITS AND RISKS

Benerits

8.1 Current budget processes in Ukraine suffer from the following basic weaknesses: (a) thebudget classification system is not useful for allocating resources to specific areas and functions;(b) the budget execution processes cannot ensure that actual public expenditures are according tobudgeted categories; (c) the system of transferring funds to spending unit bank accounts, leads toa situation where significant idle balances are built up in these accounts while the MOF is indeficit in overall terms, thereby creating arrears or necessitating further borrowing; and (d) theMOF does have access to timely and accurate information on public expenditures and receipts toenable it to perform its functions. The project would help remove each of these weaknesses by:(a) implementing a GFS based classification system that would give the Government a tool toimprove resource allocation and enable functional and economic analyses of the budget to becarried out; (b) improving budget execution processes which will enable implementation ofimproved expenditure controls in Government and assist in ensuring that these expendituresfollow approved budget appropriations; (c) implementing a Treasury Single Account at the NBUand centralizing payment processing through Treasury which would eliminate the need of separateagency bank accounts and the danger of idle balance build up; and (d) implementing a TLS thatwould provide the MOF a means to obtain timely, consistent and accurate financial information.

8.2 These actions, taken together, will enable Government to improve resource planning, cashmanagement, budgeting and public expenditure management and control. The improvements inthe quality and timeliness of financial information and improvement in the capacity to carry outfunctional and economic analyses of the budget would promote the capacity to properly formulateand execute fiscal policies. The consistency in the classification of expenditure items and aneffective system to control and monitor cash flows would enhance transparency and accountabilityin the fiscal process.

8.3 The total cost of the project is a very small fraction of the projected annual publicexpenditures in 1997. The benefits of even minor improvements to the efficiency, effectiveness ormanagement of public expenditure, which would arise from improved financial information andcontrol would significantly exceed project costs. The net development impact of the project istherefore expected to be positive. The fiscal impact of the project cost would be negligible.

Critical Assumptions and Risks

8.4 Continued Government commitment to reform of the public sector and to strengtheningthe basic economic management institutions is a pre- requisite for successful projectimplementation. Specifically, by improving the quality of fiscal management systems the projectwould introduce transparency in the fiscal and resource allocation and expenditure processes.This would affect those who benefit from the current weaknesses. These interests may act todelay the project actions and divert it from its objectives. The Government has indicated its

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commitment to treasury system reform and has set an explicit timetable for the implementation ofa full treasury system. Moreover, work under this project builds upon efforts already underway.These factors mitigate against some of the risks involved.

8.5 Introduction of the new institutional structure of budget execution would require areorganization and re- alignment of the roles and responsibilities of related government agencies,such as the MOF, the NBU, the Treasury, as well as the relationships with the line ministries.Another key element is the requirement that the TSA be established at the NBU and spending unitaccounts at commercial banks be closed and payment processing centralized through Treasury.Implementation of these aspects would need government support at the highest levels, whorecognize the need for change, to ensure that the change process is completed smoothly. Aphased and gradual introduction of new policies and procedures and a broad training program inthe use of the new systems and methodologies would allow a wider appreciation of benefits andwould enhance ownership.

8.6 The project would need to cope with: (a) the organizational capacities of the Treasury tomanage project implementation; (b) lack of adequate technical skills within the Government; (c)the ability of Government to retain staff who have been trained. To ameliorate this risk the projectwould provide financing for hiring project implementation specialists and other technical skillsfrom the private sector as required. However, it is likely that an ongoing policy of training wouldneed to be adopted with significant attrition rates expected.

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9. AGREEMENTS REACHED

9.1 During appraisal agreements were reached with the Government that the following actionswould be completed before loan negotiations: (a) a GFS consistent budget classification systemand a treasury chart of accounts embodying this classification would be adopted; and (b) centralpayment processing would be introduced for payments related to the Kiev University, the Ministryof Health, the Chernobyl and Employment Funds. Both conditions have been met.

9.2 During negotiations agreements were reached with the Government that as a condition forBoard presentation, the Treasury will have to submit to the Bank evidence that the PIU has beenestablished. This condition has been met.

Annex IPage 1 of 2

Detailed Functionality of the Treasury Ledger System

and the Technology Architecture Required for Implementation

A. Functionality

The Treasury Ledger System would have a capability to:

(i) Record initial budgets and distribute the budget appropriations as approved by thelegislature, to spending ministries and keep a record of initial budgets, revised budgets,and budget transfers, for a typical government spending unit.

(ii) Distribute appropriation and commitment authorizations to spending units and torecord commitments incurred by a spending unit against the approved limits and theappropriation during the course of a year.

(iii) Distribute funds allocations to spending units and keep a record of the amounts offunds allocations against the appropriations and any changes thereto.

(iv) Record expenditure against commitments and funds allocations (e.g.. due topurchase orders, or other payments). The system will have facilities to check availabilityof appropriation, commitment and funds allocation prior to approving a payment.

(v) Print consolidated payment instructions for action by the banking system.

(vi) Record revenue and other receipts against appropriate account heads.

(vii) If required, print checks against payment instructions and or make arrangementsfor the electronic transfer of payment information to an external paying entity.( e.g. abank).

(viii) Consolidate data from all ministries and regional offices, as necessary. Thesystem will have good report writing facilitates and enable easy retrieval and reporting ondata in the system data bases, in a variety of formats. The system would be able toproduce the commonly required accounting and management reports.

(ix) The system would have facilities to restrict access only to duly authorized staff.

B. Technology Architecture Requiredfor the Information Systems

Hardware Configuration: Implementation of the treasury system would require a distributedarchitecture with computer processing power located at the various nodes of the network (thecenter, the regional treasury units at the Oblasts and the Rayons and the line agencies). These

Annex IPage 2 of 2

nodes would be connected via the public switched data network that is available in Ukraine. Thetransaction processing and database management required at each node would be carried out bythe computers installed at these nodes. Summary or detailed data. as required, would betransmitted via telecommunications facilities to the central computers located at the Treasuryoffice in Kiev. Such an architecture distributes computing power, commensurate with needs, todifferent nodes of the network, thereby optimizing usage and making it more reliable and lessvulnerable to malfunctions at a single central site. In addition, end users at the regional treasuryunits and spending agencies would have better control over their technological and data resourcesand this fosters a sense of ownership for the systems they use. The size and distribution ofcomputing power across the various nodes of the network will be determined by the volumes ofdata and transactions that are generated and stored at the various nodes and the volumes andfrequencies of data that are transmitted between the nodes. Information gathered fromdiscussions with the Treasury has been used to estimate the size and location of computers. Thisinformation is being progressively refined by the consultants during the preparation phase of theproject, by undertaking actual surveys to gather data for each site.

Software Characteristics: The nature of the application systems requires that the same corefunctionality be available at all nodes of the network. Thus, for example, the core functionalityrequirements will be similar at all Regional Treasury Units. Therefore the same applicationsoftware package would need to be replicated at multiple sites. This characteristic requires thatthe application software be scaleable and be able to run on small or large computers withoutmajor changes. Scalability can be achieved either by choosing a line of computers of varyingcapacities which are fully compatible from the software perspective. However, such a choicewould restrict further additions to the network to this vendor and to this line of computers.Alternatively, to avoid these restrictions, the application systems should be developed usingapplication development tools and Relational Data Base Management System (RDBMS)software that can operate on machines of different sizes offered by several vendors. This featureis called software portability.

Several application development and RDBMS packages are available in the market whichare both vertically and horizontally portable. Ideally the way to ensure vertical and horizontalportability and scalability at the various nodes of the network is to choose hardware and softwarethat subscribes to the OPEN systems concepts. In practice, the environment that comes closest tothis concept in current technology is the UNIX environment. Applications developed under thisenvironment would be able to run, with minimum changes, on any computer that has a UNIXbased operating system. Most hardware vendors now offer a version of UNIX as an operatingsystems alternative. Another operating systems option that is gaining popularity in view of itsrelative simplicity is Windows NT. The project therefore proposes to use UNIX or Windows NTas the operating systems environmnents across the nodes of the network. In addition theapplication development environment chosen will use Fourth Generation Languages (4GLs) andRelational Database Management Systems and associated development tools, Graphical UserInterfaces (GUIs), to increase application development productivity and offer a user friendlyenvironment for data access and usage. This approach strikes a balance between large mainframe systems which would be cumbersome and expensive and other options which could beunder powered and not scaleable to sites with a large number of transactions.

Annex II: Ukraine- Treasury Systems Project - Implementation Schedule_9I s7 I g8 1 -' 99 00 01

ID Task Name Duration 1 6 |123456789 123456789 123456789 123456789I Bank Project Processing 437d

2 World Bank Identification Mission 2w

3 PHRD Grant Funds available ld

4 Pre - Appraisal mission 10d

5 Appraisal Mission 2w

6 Project Negotiations at World Bank 1w

7 Board Approval 1 d

8 Loan Effectiveness Id

9 Appoint IMF Advisor/Experts 1 _20w . . . , : _.

10 Select and Appoint Information Systems and Treasury 24wExperts (Consultants -PHRD financed) __:___.

11 Select and Appoint Information Systems and Treasury 24wExperts (Consultants -Project Financed) _____ ___.__:_

12 Develop and Implement Interim System 1261d13 Document Functional Requirements for Financing 52w _ . .... ._

and Payment Processes and App. SNW Specs. ._._._._.14 Develop/ Customize Application Software for 52w : :-_77 :

Interim System15 Procure and Install Hardware for Interim System 52w .._ .

(Government Financed) ._.___:16 Procure Hardware for Interim System ( Bank 26w

Financed) _____ __ _.-.1 7 Install Interim System Country Wide 2

18 Interim System Installed Od

19 Operate Interim system 135w

20 Finalize and Document Treasury System 120dFunctional Requirements _ ____ _.___

21 Bud Exec Processes and Guidelines, Chart of 24wAccounts, Trans. Docs. Inform Flows, ReportsD D

22 Develop Operating Manuals and detailed 260dInstructions _________________________ ; ________ ____________________________ _______ag

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Annex II: Ukraine- Treasury Systems Project - Implementation Schedule 0

97 98 99 0001 1XID Task Name Duration 1 )2i3L4L5L6J7J8|9J F | 1231415167 89| | 12345 19 123456789 1 3456789 H

23 Finalize Legal Framework and Regulations, 52w _HDevelop Detailed Operating Manuals/Directives _ |_._._I

24 Develop Technical Systems Design For Full 120d_____ Treasury Ledger System _m ___ _ ___:.

25 Develop High Level Design and Technical 24wArchitecture

26 Develop Detailed Software 24wRequirements/specifications __.___

27 Develop HNv Specifications 24w_:_-.__________________

28 Procure & Customize Application Software 120d_pplication Software __

29 App. SN Search, Procurement, Testing, 24wEvaluation, Contract Award

30 Install Systems 120d

31 Install, Customize and Test Application SNv ( TLS 24wand Payroll systems) (Pilot Sites) _ ___

32 Customize /Develop training material t2w

33 Train Users (Pilot Sites) 12w ._ _ _ __ _

34 Complete Pilot System Installation Od

35 Replicate at Remaining Sites 180C

36 Procure and Install Any Additional HNv Required 36w.

37 Replicate systems at all remaining sites260d

38 Receive and Install HNV and Systems SAN 24w

39 Install and Test Application SAN (TLS/Payroll) 24w

40 Train Users (TLS/Payroll) 24w

41 Cut over to Full System (TLS/Payroll) 24w

42 TLS/Payroll fully operational Od

43 Systems Replication Completed O

44 Assessinst'itut'ional development requirements 945d

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-Annex II: Ukraine- Treasury Systems Project - Implementation Schedule97 1 98 99 00 01

ID Task Name Duration I I |1 12131415161718191 | | 112131415161718191 | |11121314151617189 1| 1213141516171819 12345678945 Training needs analysis 8w

46 Implement Training/ skills Upgrading/Recruitment 100wProgram

47 Project Complete Od

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Annex III - Project Performance Monitoring Indicators

Objectives Ensure smooth and timely execution of the budget, while minimizing the cost of Government financing throughi the establishmilent of improved Treasuryoperations and cash management processes, procedures and systems.

Input Indicators Process Indicators Output Indicators Impact In(dicatorsConsultancy Services The followinig activities will be completed in Full finctional design of systems, processes and T'he systems implemented under the projectfinanced by the project in accordance with the project implementation schedule. procedures for ''reasury Operations completed and will give the government the ability tovarious aspects of implemented ; produce budget projections, functional andTreasury Operations and Engagement of Consultants; economic analysis, fiscal reports consistentCash Malnagement, GFS consistent budget classification system approved with GIS classification.Information Systems Design and development of a fuill ftinctional treasury and effective for all Government expenditure, revenueDesign and Development. system and a payroll system; and financing operations; The new 'FSA'based liniancial management

procedtires, covering cash allocation,Development of methiodologies for ef'fective cash I)etailed regulations and operating maniuals covering commitment, payment processing, accounting

flardware, Systems management; 'I'reasury Single Account (TSA) based budget and reporting, implemented under the project,Software and Application execution processes (cash allocationi, commitment and will enable commitment, payment andSoftware required for the Development of a plan for upgrading the informatics payment control, payment processing, accounting and internal audit control at the Center, and at allTreasury Operation System capability for the Treasury IMOI for the management reporting) completed and in use; Oblasts and Rayon branches of the Treasury.at Regional and District of the above systems;Treasury Units and Technical design of Treasury Ledger and Playroll A pilot for the payroll system will beCenter. Development of a training strategy and plan for the Systems completed and implemented; introduiced whicih vill enable personnel

implementation of the revised Treasury Operations control and direct salary deposits to staffSystem. Treasury training center established and operational bank accounits.

and adequate numbers of staif trained in the use of theAcquisition, Delivery, installation and testing of I I/W new Treasury and Payroll Systems; The TSA based bud(get cxecution processesand S/W per implementation schedule; will result in improved Cash maniagemiient. At

I I/W, S/W delivered, installe(d and tested; least 80% of the national governmi)elntApplication SIW tested for the following minimum payments, by amount, will he routedl throtigiIunctionallity for the Treasury Ledger System: the Treasury.maintaining and processing cash allocation,colmlm)itmllelit, paymenit and( receipts transactions, Improved cash mianagcient systemii willaccountinig lor government finianicial assets and reduce total government cash balances withliabilities and producing core Financial reports the banking system to at least half the presentre(luired by the MOF/ Treasury, and the required amounit.functionality for the lPayroll System;

Cost Table IUkraine

Tresawy Systems ProjectExpenditur Accounts B.sualdown

All Detailed Tables (USS '00)

Physical

PlusBass Cost Physical Cotingeoncies Tce Contingencls _otaltontl. Coen. Base Costs Price

Local LOCAl Localt Local * Price Cool, ontfE6cl. Duties & for. (E.ct. Duties & For. (Excl. Duties (Execl. Duties & Ceonl on Phylcal

for. Exht. Teats) Taxes Total Exth. Tes) T_1xs Toalx Exch. Tates) Taxes Tetal For. Exth. 7sxes) Texes Total Base Costs Cont.1. Invernflsot Costs

A. Technical Assistancefl10llsrweSysltels LePot 1,7200 - 1. 7200 n0o - 860 t87 - ' B8.7 1,872.7 1,872.7 1,7B3B 89.2

Treasury Sysleoro Experts 5000 125.0 625.0 25.0 . 6 3 31.3 20-4 5.1 23.5 540.4 - 138.4 681.8 640.3 32.0Subtotal TechnicalAsslstance 2.2200 125.0 2.3450 111.0 683 117.3 672 5.1 923 2,4182 - 1364 2.5545 2,432.Y t216B Trainitg 500.0 - 50000 25 0 -25.0 368 . 1886 5438 5 43 6 557.7 25.9C. Equilprnnlt

StandardtHW&SW 9.5000 - 2,3750 11.8750 4750 - 1188 5936 404.3 t0t S00.3 10i379 3 2,594.8 12974t1 12.3563 6t7.Standard HNWand SIW Govt Frnanced 6.400 0 - . 6,400.0 - - - 6,400.0 - 68400.0 6,400.0Alst,Katmnns N 2.500 0 . 1025.0 3,125.0 1325.0 - 31.3 108.3 804 A 22.4 111. 2.714 4 67086 3.393 0 3,231.4 161.6SubtotalEqsipment 18,4000 . 3,000.0 21400.0 6000 1f00 7500 493 1234 617.1 1943.7 32734 22,707.1 21.9877 T77.4

D. PIUConsuiarnlSalanestAtxwancs 2450 - - 245.0 12.3 - - 12.3 93 - 9.3 2666 - 2666 253.9 12.7Operabonal expenses 35.0 - . 35.0 1.S - - L 14 - - 1.4 35.1 - - 38.1 36.3 18

SsblelalP3U 2800 ~~~~~~~~~~~~~---- . 280.0 14.0 . 4 17 * 07 304.7 .304 7 2902 14.5Total tRwestmnenlCosts 21,4000 . 3.125O 24,520.0 700.0 1503 90.3 6102 128.5 738.7 22,7602 - 3,4098 26.19°9 25.2280 941.4Ii Recu"nen Costs

A Mantlenance and License Fres,T.lecomm 0sts 525 0 1750 70. .3.7 - .37 0250 171 3 76683 868.Total Rerestnt Costs 5250 1750 7000 _ .37 .3.7 0525.0 17123. 696.3 69638

Tolal 21,9250 1750 3.1250 25.2250 750:0 1503 9063 610.2 -37 128.5 7350 23.2i52 171.3 3,4098 26,8663 25.9248 9414

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Cost Table 2 , V

Ukraine o CTreasury Systems Project

Expenditure Accounts by Years - Totals Including Contingencies %DAll Detailed Tables (US$ '000)

Totals Including Contingencies1998 1999 2000 2001 2002 Total

I. Investment CostsA. Technical Assistance

Information Systems Experts 265.3 539.5 546.8 521.2 - 1,872.7Treasury Systems Experts - 269.8 273.4 138.6 - 681.8

Subtotal Technical Assistance 265.3 809.3 820.2 659.8 - 2,554.5B. Training 106.1 107.9 218.7 110.9 543.6C. Equipment

Standard HW&SW 1,989.4 1,348.8 4,784.4 4,851.4 - 12,974.1Standard HNWand SNV Govt Financed 6,400.0 - - - - 6,400.0Applications SN 663.1 1,011.6 1,025.2 693.1 - 3,393.0

Subtotal Equipment 9,052.6 2,360.4 5,809.7 5,544.5 - 22,767.1D. PIU

Consultant SalarieslAllowances 47.7 70.1 71.1 77.6 - 266.6Operational expenses 5.3 10.8 10.9 11.1 - 38.1

Subtotal PIU 53.1 80.9 82.0 88.7 - 304.7Total Investment Costs 9,477.0 3,358.4 6,930.6 6,403.9 - 26,169.9II. Recurrent Costs

A. Maintenance and License Fees,Telecomm costs - 100.0 300.0 296.3 696.3Total Recurrent Costs - 100.0 300.0 296.3 - 696.3Total PROJECT COSTS 9,477.0 3,458.4 7,230.6 6,700.2 - 26,866.3

Cost Table 3

UkraineTreasury Systems Project

Project Components by Year - Base CostsAll Detailed Tables (USS '000)

Base Cost1998 1999 2000 2001 2002 Total

Treasury Systems 9,300.0 3,212.5 6,637.5 6,075.0 - 25,225.0Total BASELINE COSTS 9,300.0 3,212.5 6,637.5 6,075.0 - 25,225.0

Physical Contingencies 145.0 155.6 316.9 288.8 - 906.3Price Contingencies

InflationLocal 5.5 14.1 48.5 60.4 - 128.5Foreign 26.5 76.2 227.8 279.8 - 610.2

Subtotal Inflation 32.0 90.3 276.2 340.1 738.7Devaluation - - -3.7 - -3.7

Subtotal Price Contingencies 32.0 90.3 276.2 336.5 - 735.0Total PROJECT COSTS 9,477.0 3,458.4 7,230.6 6,700.2 - 26,866.3

Taxes 530.5 526&0 t,216.6 1,136.6 - 3,409.8Foreign Exchange 8,946.5 2,907.4 5,939.0 5,492.3 23,285.2

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Cost Table 4 HUkraine o

Trreasury Systems ProjectExpenditure Accounts by Years -- Base Costs

All Detailed Tables (US$ '000)

Base Cost Foreign Exchange1998 1999 2000 2001 2002 Total % Amount

I. Investment CostsA. Technical Assistance

Information Systems Experts 250.0 500.0 500.0 470.0 - 1,720.0 100.0 1,720.0Treasury Systems Experts - 250.0 250.0 125.0 - 625.0 80.0 500.0

Subtotal Technical Assistance 250.0 750.0 750.0 595.0 - 2,345.0 94.7 2,220.0B. Training 100.0 100.0 200.0 100.0 - 500.0 100.0 500.0C. Equipment

Standard HW&SW 1,875.0 1,250.0 4,375.0 4,375.0 - 11,875.0 80.0 9,500.0Standard H/Wand S/W Govt Financed 6,400.0 - - - - 6,400.0 100.0 6,400.0Applications SN/ 625.0 937.5 937.5 625.0 - 3,125.0 80.0 2,500.0

Subtotal Equipment 8,900.0 2,187.5 5,312.5 5,000.0 - 21,400.0 86.0 18,400.0D. PIU

Consultant Salaries/Allowances 45.0 65.0 65.0 70.0 - 245.0 100.0 245.0Operational expenses 5.0 10.0 10.0 10.0 - 35.0 100.0 35.0

Subtotal PIU 50.0 75.0 75.0 80.0 - 280.0 100.0 280.0Total Investment Costs 9,300.0 3,112.5 6,337.5 5,775.0 - 24,525.0 87.3 21,400.0II. Recurrent Costs

A. Maintenance and License Fees,Telecomm costs - 100.0 300.0 300.0 - 700.0 75.0 525.0Total Recurrent Costs - 100.0 300.0 300.0 - 700.0 75.0 525.0Total BASELINE COSTS 9,300.0 3,212.5 6,637.5 6,075.0 - 25,225.0 86.9 21,925.0

Physical Contingencies 145.0 155.6 316.9 288.8 - 906.3 82.8 750.0Price Contingencies

InflationLocal 5.5 14.1 48.5 60.4 - 128.5Foreign 26.5 76.2 227.8 279.8 - 610.2 100.0 610.2

Subtotal Inflation 32.0 90.3 276.2 340.1 - 738.7 82.6 610.2Devaluation - - - -3.7 - -3.7 -

Subtotal Price Contingencies 32.0 90.3 276.2 336.5 - 735.0 83.0 610.2Total PROJECT COSTS 9,477.0 3,458.4 7,230.6 6,700.2 - 26,866.3 86.7 23,285.2

Taxes 530.5 526.0 1,216.6 1,136.6 - 3,409.8 -

Foreign Exchange 8,946.5 2,907.4 5,939.0 5,492.3 - 23,285.2

Cost Table 5Ukraine

T reasury Systems ProjectExpenditure Accounts Project Cost Summary

All Detailed Tables

% % Total(Local '000) (US$ 000) Foreign Base

Local Foreign Total Local Foreign Total Exchange Costs

I. Investment CostsA. Technical Assistance

Information Systems Experts - 3,354.0 3,354.0 - 1,720.0 1,720.0 100 7Treasury Systems Experts 243.8 975.0 1,218.8 125.0 500.0 625.0 80 2

Subtotal Technical Assistance 243.8 4,329.0 4,572.8 125.0 2,220.0 2,345.0 95 9B. Training - 975.0 975.0 - 500.0 500.0 100 2C. Equipment

Standard HW&SW 4,631.3 18,525.0 23,156.3 2,375.0 9,500.0 11,875.0 80 47Standard H/Wand Sl\ Govt Financed - 12,480.0 12,480.0 - 6,400.0 6,400.0 100 25Applications SAN 1,218.8 4,875.0 6,093.8 625.0 2,500.0 3,125.0 80 12

Subtotal Equipment 5,850.0 35,880.0 41,730.0 3,000.0 18,400.0 21,400.0 86 85D. PIU

Consultant Salaries/Allowances - 477.8 477.8 - 245.0 245.0 100 IOperational expenses - 68.3 68.3 - 35.0 35.0 100

Subtotal PIU - 546.0 546.0 - 280.0 280.0 100 1Total Investment Costs 6,093.8 41,730.0 47,823.8 3,125.0 21,400.0 24,525.0 87 97II. Recurrent Costs

A. Maintenance and License Fees,Telecomm costs 341.3 1,023.8 1,365.0 175.0 525.0 700.0 75 3Total Recurrent Costs 341.3 1,023.8 1,365.0 175.0 525.0 700.0 75 3Total BASELINE COSTS 6,435.0 42,753.8 49,188.8 3,300.0 21,925.0 25,225.0 87 100

Physical Contingencies 304.7 1,462.5 1,767.2 156.3 750.0 906.3 83 4Price Contingencies 364.3 1,739.0 2,103.3 124.9 610.2 735.0 83 3

Total PROJECT COSTS 7,104.0 45,955.3 53,059.2 3,581.1 23,285.2 26,866.3 87 107

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Cost Table 6 °NUkraine ° 0

Treasury Systems ProjectExpenditure Accounts by Financiers

All Detailed Tables (US$ '000)

LocalThe Government tBRD Total 4Excl. Duties &

Amount % Amount % Amount % For. Exch. Taxes) Taxes

I. Investment CostsA. Technical Assistance

Information Systems Experts - - 1,872.7 100.0 1,872.7 7.0 1,872.7 - -

Treasury Systems Experts 136.4 20.0 545.4 80.0 681.8 2.5 545.4 - 136.4Subtotal Technical Assistance 136.4 5.3 2,418.2 94.7 2,554.5 9.5 .2,418.2 - 136.48. Training - - 543.6 100.0 543.6 2.0 543.6 - -

C. EquipmentStandard HW&SW 2,594.8 20.0 10,379.3 80.0 12,9741 48.3 10,379.3 - 2,594.8Slandard HNVand SNW Govt Financed 6,400.0 100.0 - - 6,400.0 23.8 6i400.0 - -

Applications SAN 678.6 20.0 2,714.4 80.0 3,393.0 12.6 2,714.4 - 678.6Subtotal Equipment 9,673.4 42.5 13,093.7 57.5 22,767.1 84.7 19,493.7 - 3,273.40. Piu

Consultant Salaries/Allowances - - 266.6 100.0 266.6 1.0 266.6 -

Operational expenses - - 38.1 100.0 38.1 0.1 38.1 -

Subtotal PIU - - 304.7 100.0 304.7 1.1 304.7 -

Total Investment Costs 9,809.8 37.5 16,360.2 62.5 26,169.9 97.4 22,760.2 - 3,409.8li. Recurrent Costs

A. Maintenance and License Fees,Telecomm costs 696.3 100.0 - - 696.3 2.6 525.0 171.3Total Recurrent Costs 696.3 100.0 - - 696.3 2.6 525.0 171.3Total Disbursement 10,506.1 39.1 16,360.2 60.9 26,866.3 100.0 23,285.2 171.3 3,409.8

Cost Table 7Ukraine

Treasury Systems ProjectTable 1. Treasury Operations

Detailed CostsAN Deailed Tables

Breakdown of Totals Incl. Cont. (USSL 000) Parameters (in %)

Lotal PIty.Base Cost 1US$ 000) Totals Including Contingencies USS '000) (Exct. Duttes & Cont. For. GrossUnlt 1998 Is99 2000 2001 2002 Total 199B 1999 2000 2001 2002 Total For. Exch. Texas) Tunes Total Rate Exch. Tax Rate

1. tt rnl taCostsA. Technisca Assistance

Information Systems Expets (Local) amount 250.0 500.0 500.0 470.0 - 1.720.0 265.3 539.5 540.t 521.2 1,872.7 1,872.7 - '1,872.7 S 0 100 0 0 0

Treasury Systems Exopers amount . 2500 2500 12S0 6250 26300 273.4 1386 681. 5450.4 136.4 681. S 0 800 200

Subtotal Technical Assistance 250 0 750.0 7500 09 0 - 2,345.0 265.3 809.3 020.2 659.6 - 2.554.5 2,416.2 020.4 2,554.59. Equipment

Standanrd.lardwar and System Software amount 1,875.0 1,2500 4,3750 4.375.0 11.875 0 1080.4 1.348.0 4,784 4 4,551.4 t2.974.1 10.379.3 2,594.0 1,974.1 50 50.0 20.0

KW S GOVT Foansed amrunt 6,400.0 . . . 6400.0 0.400.0 - - - 0.400.0 6.400.0 .6,4000 00 100.0 0.0

APPatroO So1nware amount 625 0 937.5 037.5 025.0 3,025.0 63.1 1'011.8 14023.2 83.1 - 3,393 0 2.714,4 3,8.0 3432 .0 50 8000 200

Subtotal Eqalpmenl 8.90000 2.107.5 52312.0 0,000.0 21,400.0 8,002.6 2,200.4 5.009 7 5,044.0 22.707,1 09,403.7 - 3.273 4 22.707 IC Traiing amount 1000 1000 200.0 100.0 - 500.0 106.1 107.9 210.7 110.9 043.6 543.6 - - 0436 50 1000 00

t. Ptoject ltmplemtntalton UnitConsurant Salaries/Allowances amount 45.0 65.0 650 70.0 245.0 47.7 70.1 71.1 77.6 268.6 266.6 262.8 5.0 100.0 00

Operatlonaltexpenses amount 50 100 00.0 10.0 - 35.0 5.3 10.8 10.9 11.1 30.1 38.1 . 32.1 5.0 100.0 0.0

Subtotal Project tmplementation Unit 50.0 75.0 75.0 00.0 . 260.0 03.1 80 0 82 0 e.?7 304 7 304.7 - 304.7

Total tnvestment Costs 9,300.0 3,1125 6,337,5 5,775.0 - 24.5250 0,477.0 3,350.4 0,930.6 6,403.9 - 26,169.9 22,760.2 - 3,409.8 20.1099I. Recurrent Costt

W1, SWNMainI. Licence fees, Tetecom costs amount - 100.0 3000 3000 - 7000 100.0 300.0 290.3 896.3 525.0 171.3 - 696.3 0.0 750 0.0

Total Recurr ntCosts too00 3000 3000 700.0 100.0 3000 296.3 26086.3 525.0 171.3 3 696.3

Total 0.32000 2.212 0 6.637,5 0,070.0 25.220 0 0,477.0 2,450.4 7,2305 0 ,700.2 - 26,866.3 23,285.2 171.3 3.409 6 26.056 3

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Cost Table 8Ukraine

Treasury Systems ProjectTable 1. Treasury Operatons

Detailed CostsAll Detailed Tables

Expenditures by Financiers (USS 000)The Govemment IBRD

Unit 1998 1999 2000 2001 2002 Total 1998 1999 2000 2001 2002 Total

L tnvestment CostsA. Technical Assistance

Intormation Systems Experts (Local) amount 265.3 539.5 546.8 521.2 1.8727Treasury Systems Experts amount 54.0 54.7 27.7 - 136.4 - 215.8 218.7 110.9 - 545.4

Subtotal Technical Assistance - 54.0 54.7 27.7 - 136.4 265.3 755.3 765.5 632.1 - 2,41802B. Equipment

Standard Hardware and System Sottware amount 397.9 269.8 956.9 970.3 - 2,594.8 1,591.5 1,079.0 3,827.6 3,881.1 - 10,379.3HVW SNV GOVT Financed amount 6,400.0 -- 6,400.0Application Software amount 132.6 202.3 205.0 138.6 - 678.6 530.5 809.3 820.2 554.4 2,7144

Subtotal Equlpment 6,930.5 472.1 1,161.9 1,108.9 9,673.4 2,122.1 1,888.3 4,647.8 4,435.6 13,0937C. Training (courses,tellowships,sludy tours,alttachments) amount - - - - - 106 1 107.9 218.7 110.9 - 543.60. Project Implementation Unit

ConsultantSalanes/Allowances amount - - - - 47.7 70.1 71.1 77.6 - 266.6Operabional expenses amount - - - - 5.3 10.8 10.9 11.1 - 38.1

Subtotal Project Implementation Unit - - - 53.1 80.9 82.0 88.7 304.7Total Investment Costs 6,930.5 526.0 1,216.6 1,136.6 9,809.8 2,546.5 2,832.4 5,714.0 5,267.3 16,360.2II. Recurrent Costs

HNV, SAN Maint, Licence fees, Telecom costs amount - 100.0 300.0 296.3 696.3 - - -3 -Total Recurrent Costs - 100.0 300.0 296.3 _ 696.3 ---Total 6,930.5 626.0 1,516.6 1,433.0 10,506.1 2,546.5 2,832.4 5,714.0 5,267.3 - 16,360 2

Cost Table 9Ukraine

Treasury Systems ProjectI nflation and Exchange Rates

All Detailed Tables

UptoUp to Project

Negotiation Start 1998 1999 2000 2001 2002

Inflation (in %s) laMost Goods and Services

Annual ratesLocal 0.0 0.0 25.0 15.0 11.0 10.0 10.0Foreign 0.0 0.0 2.1 1.3 1.4 1.4 1.4

Compounded ratesLocal 0.0 0.0 12.5 34.4 51.7 67.5 84.3Foreign 0.0 0.0 1.1 2.8 4.2 5.6 7.1

Exchange rates (Local/Foreign) lbMost Goods and Services

Rates actually used 2.0 2.0 2.0 2.0 2.0 2.1 2.1Constant purchasing parity rates 2.0 2.0 2.2 2.5 2.8 3.1 3.4% deviation 0.0 0.0 -10.2 -23.5 -31.3 -33.7 -38.9

ZeroRates actually used 2.0 2.0 2.0 2.0 2.0 2.1 2.1Constant purchasing parity rates 2.0 2.0 2.0 2.0 2.0 2.0 2.0% deviation 0.0 0.0 0.0 0.0 0.0 5.1 5.1

\a Yearly values are within Each Project Year\b Yearly values are at Project Year Midpoints

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Annex V

Detailed List of Technical Assistance Requirements§ .

Method of Selection Item Estimated Estimated Annual Rate Approximate Time PeriodNumber US$

Quality and Cost Based Selection

Information Systems Specialists Systems Analysts 2 US$ 60,000 3 years(Estimated Total Cost Systems Software Specialists 1 US$ 60,000 3 years

US $ 1.25 million)Database Specialists 2 US$ 60,000 3 yearsNetworking Specialists 2 US$ 60000 3 years

Individual ConsultantProceduresCategory I - Treasuty Experts Functional Treasumy Specialist I US$ 100,000 4 ycars

(Estimated Total Cost US$0.54 Accouniting Specialist 1 US$ 1(0,000 1.5 yearsmillion)

Category II - Tchlinical Experts Computer Programmers 7 US$ 24,000 3 yearsfor Project Implementation

(Estimated Totzil Cost US$0.65 Eiitd lJser Sutpport Staff 2 US$ 18,000 2 yearsIillionl)

Documentation/ Training I US$ 18,000 2 yearsSpecialists

Category III- Staff for PIU Procurement Specialists 2 US $ 12,000 4 years(Estimated Total Cost US $ 0.24 Disbursement/ Accounting 3 US $12,000 4 years

million) Specialists