Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 73506-RU

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF

US$50 MILLION EQUIVALENT

TO THE

RUSSIAN FEDERATION

FOR A

PUBLIC FINANCE MANAGEMENT TECHNICAL ASSISTANCE PROJECT

August 9th, 2013

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

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CURRENCY EQUIVALENTS (Exchange Rate Effective as of August 7, 2013)

Currency Unit = Russian Ruble (RUB) USD 1 = RUB 32.94

RUB 1 = USD 0.03

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

COSO Committee of Sponsoring Organizations MOF Ministry of Finance CPS Country Partnership Strategy NCB National Competitive Bidding EBFs Extra-Budgetary Funds NGOs Non-Governmental Organizations E-Budget Integrated Information System for Managing

Public Finances OECD Organization for Economic Co-operation and

Development EU FER

European Union Agency for Economic Restructuring

ORAF Operational Risk Assessment Framework

FMIS Financial Management Information System PDO Project Development Objective FT Federal Treasury PFM Public Financial Management FTAS Automated Treasury System PIU Project Implementation Unit FTS Federal Tax Service POM Project Operational Manual GDP Gross Domestic Product IBRD International Bank of Reconstruction and

Development QBS Quality-Based Selection

ICB International Competitive Bidding QCBS Quality- and Cost-Based Selection ICR Implementation Completion Report SBCQ Selection Based on Consultant’s Qualification ICT Information and Communication Technology SMEs Small and Medium-Size Enterprises IDA International Development Association SOEs Statement of Expenditures IIA Institute of Internal Auditors SSS Single-Source Selection INTOSAI International Organization of Supreme Audit

Institutions TA Technical Assistance

IPSAS International Public Sector Accounting Standards TAL Technical Assistance Loan ISR Implementation Status Report TAMP Tax Administration Modernization Project IT Information Technology TDP Treasury Development Project IUFRs Interim Unaudited Financial Reports TOR Terms of Reference LCS Least Cost Selection VAT Value Added Tax M&E Monitoring and Evaluation VIES Value Added Tax Information Exchange System WG Working Group

Acting Vice President : Laura Tuck Country Director : Michal Rutkowski

Sector Director : Yvonne Tsikata Sector Manager : Adrian Fozzard

Task Team Leaders : Ivor Beazley and Stepan Titov

ii

TABLE OF CONTENTS

Page

I.  STRATEGIC CONTEXT ................................................................................................................ 8 

A.  Country Context ................................................................................................................................ 8 

B.  Sectoral and Institutional Context ..................................................................................................... 8 

C.  Higher Level Objectives to which the Project Contributes .............................................................. 13 

II.  PROJECT DEVELOPMENT OBJECTIVE .................................................................................. 14 

A.  PDO .................................................................................................................................................. 14 

B.  Project Beneficiaries ........................................................................................................................ 14 

C.  PDO Level Results Indicators ........................................................................................................... 14 

III.  PROJECT DESCRIPTION ............................................................................................................ 15 

A.  Project Components ........................................................................................................................ 15 

B.  Project Financing ............................................................................................................................. 20 

C.  Lessons Learned and Reflected in the Project Design ..................................................................... 21 

IV.  IMPLEMENTATION .................................................................................................................... 22 

A.  Institutional and Implementation Arrangements ........................................................................... 22 

B.  Results Monitoring and Evaluation ................................................................................................. 22 

C.  Sustainability ................................................................................................................................... 23 

D. Key Risks and Mitigation Measures ................................................................................................. 23 

V.  APPRAISAL SUMMARY ............................................................................................................ 24 

A.  Economic and Financial Analyses .................................................................................................... 24 

B.  Technical .......................................................................................................................................... 25 

C.  Financial Management .................................................................................................................... 25 

D. Procurement .................................................................................................................................... 26 

E.  Social (including Safeguards) ........................................................................................................... 26 

F.  Environment (including Safeguards) ............................................................................................... 27 

G. Other Safeguards Policies Triggered (if required) ........................................................................... 27 

ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................................ 28 ANNEX 2: DETAILED PROJECT DESCRIPTION ................................................................................. 34 ANNEX 3: IMPLEMENTATION ARRANGEMENTS ............................................................................ 62 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) ........................................ 70 ANNEX 5: IMPLEMENTATION SUPPORT PLAN ................................................................................ 73 ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS ....................................................................... 75 ANNEX 7: PROCUREMENT PLAN ........................................................................................................ 76 ANNEX 8: RUSSIA AT-A- GLANCE ...................................................................................................... 84 

3

PAD DATA SHEET

Russian Federation

Public Finance Management Technical Assistance Project (P122998)

PROJECT APPRAISAL DOCUMENT

.

EUROPE AND CENTRAL ASIA

ECSP4

Report No.: 73506-RU.

Basic Information

Project ID Lending Instrument EA Category Team Leader

P122998 Technical Assistance Loan

C - Not Required John Ivor Beazley

Project Implementation Start Date Project Implementation End Date

31-Dec-2013 31 --Dec-2017

Expected Effectiveness Date Expected Closing Date

31-Dec-2013 31-Dec-2017

Joint IFC

No

Sector Manager Sector Director Country Director Regional Vice President

Adrian Fozzard Yvonne M. Tsikata Michal J. Rutkowski Laura Tuck (Acting VP).

Borrower: Russian Federation

Responsible Agency: Ministry of Finance

Contact: Alexey M. Lavrov Title: Deputy Minister of Finance

Telephone No.:

7-495-298-91-01 Email: alavrov@minfin.ru

.

Project Financing Data(US$M)

[ X ] Loan [ ] Grant [ ] Other

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost (US$M): 133.571

Total Bank Financing (US$M):

50.00

.

Financing Source Amount(US$M)

4

Borrower 83.571

International Bank for Reconstruction and Development

50.00

Total 133.571.

Expected Disbursements (in USD Million)

Fiscal Year 2014 2015 2016 2017 2018

Annual 0.75 6.21 18.99 16.17 7.88

Cumulative 0.75 6.96 25.95 42.12 50.00 .

Project Development Objective(s)

To improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and accountability. .

Components

Component Name Cost (USD Millions)

Improving the Economic Efficiency of Tax Policy and Administration

39.744

Improving Efficiency of Inter-Governmental Fiscal Relations and Sub-National Public Finance Management

24.840

Support for Development of the E-Budget System 39.148

Enhancing Budget Efficiency 24.840

Project Management 5.000.

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects?

Yes [ ] No [ X ]

.

Does the project require any waivers of Bank policies? Yes [ ] No [X ]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [ X]

Explanation:

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

5

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Recurrent Due Date Frequency

Project implementation arrangements X

Description of Covenant

At all times during the implementation of the Project, the Borrower shall maintain the Working Group, the Sub-groups established by the Working Group for each of the components, and the Project Implementation Unit.

Name Recurrent Due Date Frequency

Project Operations Manual X

Description of Covenant

The Borrower shall cause the PIU to carry out the Project in accordance with the provisions of the Project Operations Manual.

Name Recurrent Due Date Frequency

Agency Agreement X

Description of Covenant

The Borrower shall cause the PIU to perform its obligations under the Agency Agreement signed between the Borrower and the PIU. .

Conditions

Name Type

Agency Agreement Effectiveness

Description of Condition

The Agency Agreement has been entered into between the Ministry of Finance and the Project Implementation Unit.

Name Type

Project Operations Manual Board

Description of Condition

The Project Working Group has adopted the Project Operations Manual, satisfactory to the Bank

Team Composition

Bank Staff

Name Title Specialization Unit

6

John Ivor Beazley Lead Public Sector Specialist

Team Lead ECSP4

Stepan Anatolievich Titov

Sr. Economist Intergovernmental and Sub-national Finance

ECSP3

Margaret Png Lead Counsel Country Lawyer LEGLE

Galina S. Kuznetsova Sr. Financial Management Specialist

Financial Management ECSO3

Alexander Balakov Sr. Procurement Specialist

Procurement ECSO2

Munawer Sultan Khwaja Sr. Public Sector Spec. Tax policy and administration

ECSP4

Silvana Tordo Lead Energy Economist Oil and Gas Taxation SEGM1

Elena Nikulina Sr. Public Sector Spec. E-Budget ECSP4

Maya V. Gusarova Public Sector Specialist Public Sector Specialist ECSP4

Yoko Kagawa Operations Officer Operations Officer ECSP4

Dolly Elizabeth Teju Program Assistant Program Assistant ECSP4

Irina Rostovtseva E T Temporary E T Temporary ECCU1

Non Bank Staff

Name Title Office Phone City

.

Locations

Country First Administrative

Division

Location Planned Actual Comments

Russian Federation

.

Institutional Data

Sector Board

Public Sector Governance .

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits %

Mitigation Co-benefits %

Public Administration, Law, and Justice

Central government administration

100

Total 100

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information

7

applicable to this project. .

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Public sector governance Public expenditure, financial management and procurement

75

Public sector governance Tax policy and administration 25

Total 100

8

I. STRATEGIC CONTEXT

A. COUNTRY CONTEXT

1. During the decade from 1999 to 2008, sound fiscal management, strong macroeconomic fundamentals, and a favorable external environment enabled the Russian economy to grow at an annual rate of about 6.9 percent, and most Russian citizens enjoyed improvements in income and living standards. Unemployment reached a low of 5.4 percent and the poverty rate was nearly cut in half from 2002 to 2007, bringing better lives to 12.5 million people. The Russian Federation advanced to become a top ten world economy in dollar GDP, current account, and federal budget surpluses. The impact of the 2008-2009 global financial crisis on the real economy was swift and deep: the decline in global demand, collapse of oil prices, reversal of capital flows, and tightening of credit triggered a sharp slowdown of the Russian economy in the fourth quarter of 2008, followed by a severe contraction in 2009 across all sectors. The social impact of the crisis was also significant: rising unemployment, falling incomes, and higher poverty rates.

2. Strong pre-crisis macroeconomic fundamentals and a quick and massive policy response prevented a systemic banking crisis, liquidity crunch and currency collapse. Following a real GDP drop of 7.8 percent in 2009 the Russian economy grew steadily in 2010 (4.0 percent) and 2011 (4.3 percent) and the economy returned to the pre-crisis peak towards the end of 2011. Employment returned to pre- crisis levels even earlier than output, and wages grew at a solid pace both in 2011 and in 2012. The fiscal balance returned to a surplus and Russia's public debt was no more than 10 percent of GDP. While the achievements of the twin-surplus economy are impressive, a fair share of the recent accomplishments was tied to high oil prices; and recent economic news has been less encouraging. Excluding the crisis years of 1998 and 2009, growth in 2012 declined to its lowest rate in a decade and a half, 3.4 percent. A challenging external environment and pessimistic sentiments among businesses and consumers translate into weak growth prospects. Growth is projected to decline further in 2013 to 2.3 percent in 2014. Even such growth is at risk should the euro area and the global economy fail to improve, or oil prices recede from their recent highs.

3. The weak outlook means that strong policy action is essential to reinvigorate the economy, including supporting higher competitiveness and the diversification of the economy; and improving transport connectivity. Slower economic growth, long term decline in oil and gas revenues and an ageing population are expected to put the budget under increasing pressure. Therefore the need to improve productivity and effectiveness in the public sector will also be essential for Russia’s continued economic growth and fiscal stability.

B. SECTORAL AND INSTITUTIONAL CONTEXT

4. Over the past few years, the Russian Federation has undertaken significant public financial management and institutional reforms, incorporating good international practice and laying the foundations for a modern public finance management system. The most notable achievements include; (i) the successful implementation of a modern Treasury Accounting System and a single treasury account, (ii) the regulation of the overall budget process and introduction of three-year federal budgets, (iii) the creation of the Oil Stabilization Fund, (iv) the reform of regional fiscal relations and the establishment of fiscal rules for the sub-national

9

government, and (v) the modernization of the tax administration, leading to a cultural shift from the traditional command-and-control approach to a modern service-oriented approach.

5. Notwithstanding these reforms, revenue shortfalls across all government levels, inefficient budget spending, weak investment in public infrastructure modernization, and rigid financial management models in public institutions hamper the government's ability to pursue an effective fiscal and economic policy. These problems are especially acute at the regional and local levels, where they are exacerbated by a weak revenue base, under-funded mandates and widely different degrees of public finance management capacity.

6. The challenges of improving the efficiency of revenue and expenditure management are not new but they have been exposed and aggravated by the financial crisis. The proposed technical assistance (TA) to the Ministry of Finance (MOF) and the Federal Tax Service (FTS) builds on a long history of cooperation with the Bank in the areas of budgeting, tax policy and tax administration. Strategic directions for change have already been laid out by the Government in policy documents on tax policy and administration, budget effectiveness, inter-budgetary relations, and e-budget.

Tax Policy and Administration

7. Oil and Gas Taxation: The current fiscal regime for oil and gas upstream activities has performed well in terms of fiscal revenue generation but has depressed industry investment, particularly with respect to maturing and declining fields, and new fields in remote areas or in complex geological structures. Tax mechanisms designed to adjust to changing costs and prices – have shown inadequacy in supporting long term development of the sector and sustaining future revenues. Furthermore, this approach appears to have distorted investment decisions, increased the cost of tax administration, reduced transparency and increased perceived investor risk.

8. To address these deficiencies, the Government intends to gradually reform the taxation of oil and gas upstream activities to improve their competitiveness and overall attractiveness to investors, including by aligning the tax burden to the risk profile and profitability of such activities. To this end, two instructions were issued in 2012, to incentivize new offshore petroleum exploration and production and production of hard-to-recover oil. These measures are intended as an initial transition mechanism and will serve as the basis for the design of a permanent tax policy concept, to be developed under this Project.

9. Transfer Pricing: Before July 2011, the rules on transfer pricing in Russia were basic and lax by international standards. Tax authorities had limited powers to investigate the validity of prices and only in limited situations. In July 2011, a new law was passed, broadly in line with the OECD’s Transfer Pricing Guidelines. For effective implementation of transfer pricing legislation, tax officials in both the MOF and FTS will need regulations, guidelines and training on how to apply the new transfer pricing rules, including advance pricing agreements. FTS will also need standard databases for investigating arms-length price comparison e.g. from Bloomberg, Reuters, and the Russian equivalent “Spark”.

10

10. Tax Expenditure:1 The use of tax expenditures in the Russian tax system is pervasive and growing. Federal, regional and municipal governments have the authority to grant special tax benefits and exemptions and there is often pressure to utilize tax expenditures as means of promoting government objectives. The Russian Government recognizes the importance both of measuring tax expenditures and analyzing their cost and benefits. The tax policy department of the MOF would like to introduce more systematic and rigorous analysis and to examine the feasibility of publishing information on tax expenditure with the annual budget.

11. Harmonization within the customs union: Russia has entered into a customs union with Kazakhstan and Belarus. While the Customs Code for the union has been harmonized, the other indirect taxes, namely VAT and excise, both of which affect trade within the customs union, have not been harmonized. The Government intends to work closely with the other members of the customs union to harmonize VAT and excise within the customs union.

12. Tax Code: The Government plans to review legislation and amend the tax code where necessary in the areas of: (i) financial sector taxation, especially those related to complicated financial transactions like derivatives, (ii) taxation of non-hydrocarbon minerals, and (iii) provisions in double taxation avoidance treaties relating to beneficiary ownership of income. The Government also plans to redraft the procedural part of the tax code to include more modern procedures that would facilitate risk management, anti-avoidance rules, and advance ruling procedures. Subordinate legislation, instructions and clarifications to implement these will have to be developed.

13. Special tax regimes: Since adoption of the Tax Code in Russia the following special regimes have been used: simplified income tax, unified imputed tax, taxation of agricultural production and product sharing agreements. In addition, in January 2013 patent taxation was introduced. The purpose of the special tax regimes is to reduce the tax burden on selected categories of taxpayers. They arevery different, in rates and bases, compared to the corporate tax regime. However, the Government is concerned that the current use of special tax regimes is being abused and ineligible tax payers use them for their benefits. Therefore, the Government sees the need to revise the special tax regime system to ensure it facilitates fair tax liabilities for eligible taxpayers but prevents abuse of the system.

14. Taxpayer Services: The FTS would like to make itself more service-oriented and enhance the level of taxpayer satisfaction. Despite customer service improvements, including e-registration and telephone call centers, the range of services is still limited and taxpayer awareness is low. Government plans to upgrade taxpayer services through training of FTS staff in a more client-friendly approach, upgrading information systems and outreach to taxpayers. A systems upgrade is underway, and the FTS has been conducting in-depth surveys of taxpayers to get better feedback on service quality.

15. Departmental Appeals: Although the current appeal and review mechanism has helped reduce the number of cases going to higher courts, taxpayers’ perceptions of the fairness of the tax dispute resolution system (non-court appeals) are poor. For this reason, FTS plans to review

1 The tax system is often used to achieve public policy objectives through the application of special measures such as low tax rates, exemptions, deductions, deferrals and credits. These measures described as “tax expenditures” are achieved at the cost of lower tax revenue.

11

the dispute resolution system and improve tax officials’ mediation skills, with the objective of attracting more taxpayers to use the internal appellate system rather than go to the courts.

Intergovernmental Fiscal Relations and Sub-national PFM

16. With 83 constituent regions which vary widely in population, geography, economic development, and natural resources, the Russian Federation confronted serious issues of intergovernmental fiscal relations in the late 1990s. The legal framework for fiscal federalism was deficient, numerous federal mandates for sub-national governments were unfunded, revenue and expenditure responsibilities between different levels of governance were unclear, equalization transfers did not exist either at the federal or regional levels, and regions with strong lobbying powers enjoyed special treatment from the federal authorities.

17. The government initiated a series of programs to introduce more order and symmetry into the system of fiscal federalism in 1999-2001 and again in 2002-2007. As a result, unfunded mandates were transformed into targeted subventions to the regions, a more transparent system of the federal and intraregional transfers was created giving priority to equalization transfers, and clear revenue and expenditure assignments were established for different levels of government. Special privileges for some regions were abolished and the intergovernmental legal framework became uniform across the country. In addition, fiscal rules for borrowing, debt service and deficit financing for sub-national governments were established under the Budget Code.

18. Over time, deficiencies in the system have become apparent. The number of transfers with unclear outcomes has expanded and currently there are more than 110 federal transfer windows. Many of these are too small to achieve their intended results, and their results are not properly evaluated. The role of equalization transfers has diminished: their share in total transfers decreased over the last decade from 60 to about 40 percent. The sub-national revenue base has remained generally weak, and while a small number of regions have strong revenues from local industries and/or natural resources, most sub-national governments remain highly dependent on federal transfers to fund public services and investment.

19. Over the past several years, federal and sub-national authorities have taken actions to improve the PFM system at the sub-national level. Many sub-national governments have adopted three-year budgets, and the Treasury system is operating at the sub-national level. However, the quality of PFM varies widely across regional and municipal governments and is poor in 20 out of 83 regions. Problems include wasteful spending, poor management of capital investment, failure to implement existing measures to improve budget efficiency, and extensive use of tax benefits and tax exemptions (on average 31 percent of regional tax revenue is lost). Transparency of the budget process is still an issue, especially at the municipal level.

20. The federal authorities are committed, under The Concept of Inter-budgetary Relations and Organization of the Budget Process in RF Subjects and Municipal Entities Until 2013 to undertake new reform steps. They intend to clarify expenditure obligations of state bodies and municipal governments, strengthen the internal revenue base of sub-national governments and streamline intergovernmental transfers, to make the whole budget cycle more transparent. The Program on Enhancing the Efficiency of Budget Spending till 2018 will extend program budgeting principles, expenditure efficiency programs, innovations in service delivery, and anti-

12

corruption measures to regional and municipal government. These reforms will be complemented by capacity-building programs for civil servants at all levels of governance.

E-Budget System

21. The MOF sees better information management as critical to the achievement of its objectives of improving efficiency, effectiveness and transparency of public finances. An automated treasury system (FTAS) has been fully operational in 83 regions since September 2011 and a web-portal, providing access to FTAS, was rolled out to nearly 35,000 spending units during 2012. The E-Budget program represents the next stage of systems development and integration. Its objective is to improve the transparency, openness and accountability of the government and local self-government authorities, and to improve financial management of the same organizations through developing a single information space and applying the latest information and communication technology (ICT) to public financial management (PFM).

22. The development of E-Budget (an integrated information system for managing public finances) was initiated by a Government Directive (No. 1275-r of July 20, 2011). According to MOF Order No. 433 of October 24, 2011, the Operator of the e-Budget system is the Federal Treasury (FT) and a project statute (charter) prepared by the MOF presents the main objectives, activities and implementation arrangements, with defined roles/responsibilities and risk mitigation measures. A government mechanism to ensure coordination between the Ministry of Finance, Federal Treasury, Federal Tax Service, other state bodies and municipal authorities during the development and implementation of the integrated MIS E-Budget was established in December 2012. The E-Budget ICT and the communications infrastructure for the system will be funded from the federal budget and are outside the scope of this Project.

Budget Efficiency

23. Government has made significant progress towards improving budget efficiency and sustainability. Notable achievements have been better regulation of the overall budget process, treasury system implementation and treasury single account, use of three-year rolling budgets; the creation of the Oil Stabilization Fund and the establishment of fiscal rules for sub-national governments. These reforms played a significant role in helping Russia to weather the 2008-9 financial crisis.

24. Government has begun a series of new initiatives with the aim of further improving budget sustainability, expenditure efficiency, and creating incentives through the introduction of new transparency, accountability. These policy directions are described in the Concept of Long-term Social and Economic Development of the RF, in the Program on Enhancing the Efficiency of Budget Spending, Presidential budget addresses to the Federal Assembly in 2011 and 2012 and other policy documents referred to below.

25. Program Budgeting: Since 2010 the Government has been piloting program-based budgeting. The current plan is to prepare and approve the 3-year budget, based on program classification, starting with the 2014-2016 budget. This approach needs further refinement and capacity building in budget/program analysis and evaluation. At the same time the Government

13

wishes to improve long term fiscal and budget planning, including possible expanded use of fiscal rules.

26. Innovation in Service Delivery: Since 2008 Government has permitted increased use of autonomous agencies, and outsourcing to the private sector and NGOs to deliver public services. Such arrangements are not subject to consistent regulation or oversight. Before general implementation, government wants to improve governance and accountability mechanisms, covering a range of outsourcing and partnership arrangements and to ensure that all organizations in the budget sector are equipped with the necessary capacity to manage service delivery efficiently and effectively.

27. Federal Contracting: The recently adopted Law on Federal Contracting, will introduce new procurement methods, strengthen procurement regulation and improve monitoring of contract implementation The current public procurement system is widely recognized as delivering poor results and failing to prevent fraud and corruption. The MOF wants to ensure that new legislation leads to better budget planning and budgeting with respect to public procurement, greater transparency, improved contract management and results monitoring. Extensive work will be required to make the law operational and ensure that it delivers the intended benefits and can be applied across the whole budget sector.

28. Non-Tax Revenue: The Government is initiating a program to improve management of non-tax revenues. Many service delivery agencies generate own revenues in the form of property rents, fees for public services, administrative penalties and other charges. In 2011, non tax revenues accounted for 5.7 percent of total government revenues. Weaknesses in forecasting and revenue accounting mean that substantial balances are held in suspense and many government institutions generate revenues that are not remitted to the Treasury.

29. Internal Control and Internal Audit: New approaches to the internal budget control are proposed in the Government Draft Law on Amendments to the Budget Code in the Area of State Financial Control. Russia has a largely unreformed internal control system based on inspection and compliance checks. The new law proposes splitting internal financial control functions into internal control, to be implemented by Rosfinnadzor, and internal audit, to be introduced at the Ministry/agency level.

30. Accounting and Reporting: A new Law on Federal Accounting will introduce financial reporting for the public sector using new accounting standards based on International Public Sector Accounting Standards (IPSAS). This is due to become effective in 2013-2014. Government is currently working to develop a set of standards and prepare plans for implementation and roll out.

C. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES

31. The 2012-2016 Country Partnership Strategy (CPS) for the Russian Federation focuses on four strategic themes: (i) increasing growth and diversification, (ii) expanding human potential, (iii) deepening Russia’s global and regional role and (iv) improving governance and transparency. The primary focus of this operation - to improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency,

14

effectiveness and accountability – directly supports the theme of improving governance and transparency. It will also help ensure that public investment and service delivery are more efficient and fiscally sustainable, in turn fostering income growth for the bottom 40 percent of the population. Changes in tax policies, and more strategic alignment of public spending with government policy goals, indirectly support all four themes. Within one of the project components there are activities that focus on strengthening Russia’s international development program, thereby helping to deepen Russia’s global and regional role.

II. PROJECT DEVELOPMENT OBJECTIVE

A. PDO

32. The project development objective is to improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and accountability. This will be achieved through support to four main areas of activity:

(a) Enhancing the economic efficiency of the tax system through changes in key areas of tax policy and improving the services provided by the FTS

(b) Streamlining the methods of financing sub-national governments, strengthening their focus on results at all stages of the budget cycle, and building their capacity to manage public finances

(c) Enhancing the quality, flow and accessibility of budget information through implementation of the E-Budget system, contributing to improved transparency and accountability

(d) Strengthening budget preparation, control and monitoring processes to ensure greater focus on expenditure efficiency, effectiveness and results.

B. PROJECT BENEFICIARIES

33. The direct beneficiaries of the project are the MoF, the FTS, Federal Treasury, Ministry of Economic Development and Rosfinnadzor. Indirect beneficiaries are expected to include line ministries and sub-national governments. Taxpayers should benefit as a result of changes in the FTS's approach to taxpayer service and improved dispute resolution processes and business can benefit from changes in tax policy and administration that contribute towards a better climate for business and investment.

C. PDO LEVEL RESULTS INDICATORS

34. The realization of the PDOs will be assessed using selected quantifiable results indicators. The expected results associated with these strategic objectives are as follows:

(a) Reduced time spent by SMEs on tax calculation and payment (b) Increased number of regions with satisfactory PFM performance

15

(c) Improved budget transparency scores (d) Improved coverage of the federal budget with performance measures

35. The baseline measures and target values have been agreed with the MOF and FTS. They reflect the Government’s preferred performance measures and make use of established monitoring systems and indicators derived from Government statistics, the MOF, the FTS, and the independently derived Open Budget Index. The taxpayer survey is commissioned annually by the FTS and conducted by independent survey firms selected competitively.

36. Progress during project implementation will be tracked using intermediate results indicators which capture intermediate output/outcomes to be delivered by the project. These have been established for all project components. In addition, disbursement of project funds will be monitored regularly to assess progress.

III. PROJECT DESCRIPTION

A. PROJECT COMPONENTS

37. The project is organized into four substantive components supported by a project management component (see Figure 1). The four substantive components address budget sustainability and efficiency in a comprehensive manner. while The four components are closely interrelated and mutually supportive.

 

Component 1 - Improving Efficiency of Tax Policy and Administration

Figure 1 – Project Structure

Component 1 – Tax Policy and 

Administration

Component 2‐ Intergovernmental and 

Sub‐National PFM

Component 3‐ E‐Budget System

Component 4 ‐ Budget Efficiency and Sustainability

1.1. Oil and Gas Taxation 1.2 Tax expenditures 1.3 Transfer pricing 1.4 Customs harmonization 1.5 SME taxation 1.6 Revision of the Tax Code  1.7 Tax payer services 1.8 Tax dispute resolution

2.1 Revision of responsibilities across levels of government  2.2 Streamlining transfers and incentive payments 2.3 PFM quality, transparency and anti‐corruption 2.4 Program budgeting at sub‐national level 2.5 Training and capacity building

3.1 Advice on budget process automation and integration  3.2 Access to international good practices 3.3 Expansion of analytical capability and transparency 3.4 Training and information dissemination 3.5 Support for program management and monitoring

4.1 Planning and budgeting 4.2 Procurement and contract management 4.3 Internal control and internal audit 4.4 Accounting and financial reporting 4.5 Innovation in service delivery 4.6 Revenue management

Component 5 – Project Management

PDO: to improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and

accountability

16

38. This component strengthens the revenue base of government by modernizing important aspects of tax policy and administration. The Government has set out strategic directions for change in the Main Directions of Tax Policy of the Russian Federation for the Medium Term, updated on an annual basis. The project will help to implement these changes, and will support the design and implementation of related tax policy reforms. The project will provide advice and capacity building support both to the MOF on the development of tax policy and to the Federal Tax Service for implementation of tax changes in the following areas:

(a) Oil and Gas Taxation: Improving the transparency, equity and efficiency of the fiscal regime for oil and gas activities in capturing the rent under different and volatile economic and project conditions while taking into account the effect that this would have on private sector investment.

(b) Transfer Pricing: Decreasing the use of transfer pricing for tax avoidance by, inter alia developing guidelines and regulations on transfer pricing, formulating rules on controlled foreign companies, developing regulations and methodological approaches for advance pricing agreements, enhancing skills of Federal Tax Service staff, and securing access for employees of Federal Tax Service of Russia (FTS) and FTS Interregional Inspectorate for Price Determination for Taxation Purposes, with access to information that is used to compare transactions conditions between related parties with transactions conditions between unrelated parties.

(c) Tax Expenditure: Designing a methodology on improving legal regulation and practical provision and administration of tax expenditures.

(d) Tax Policy Development within the Customs Union: Assisting with harmonization of VAT and excise within the customs union.

(e) Tax Code: Developing the procedural part of the tax code to include modern procedures; review of legislation in the areas of: (i) financial sector taxation, related to complicated financial transactions like derivatives, taxation of non-hydrocarbon minerals, and provisions in double taxation avoidance treaties relating to beneficiary ownership of income.

(f) Special tax regimes: Improving special tax regimes design and implementation, inter alia, reviewing applicable tax regimes and developing a strategy to facilitate tax compliance and preventing abuse.

(g) Taxpayer Services: Improving taxpayer services, implementing program of tax literacy enhancement, design and implementation of public information programs and developing infrastructure for provision of information services to taxpayers in local tax offices.

(h) Departmental Appeals: Improving the appeals system within FTS by, inter alia, designing and conducting training programs for tax employees involved in pre-court appeals consideration and developing rules and procedures aimed at improving the credibility of the appeals system.

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Component 2 – Improving Efficiency of the System of Inter-Governmental Fiscal Relations and Sub-National PFM 39. This component addresses the vertical efficiency of government financing to sub-national government and helps to strengthen PFM at sub-national level. The Government is committed, under The Concept of Inter-budgetary Relations and Organization of the Budget Process in RF Subjects and Municipal Entities Until 20132, to improve the quality of budget management at regional and municipal level, increase the efficiency and effectiveness of budget transfer mechanisms, clarify expenditure obligations of federal, regional, and municipal governments, increase transparency of the budget process at the sub-national level and strengthen the internal revenue base of sub-national governments.

40. The objective of this component is to increase efficiency and effectiveness of the system of federal/regional fiscal transfers to regional/municipal governments. The project will also improve the general quality of public finance management and support the implementation of ongoing PFM reform initiatives at the sub-national level, including program budgeting, improved investment planning and outsourcing of activities to autonomous agencies. These objectives will be supported through the design of an incentive/disincentive mechanism to encourage better performance of lagging regions, analytical work and investments in capacity building for sub-national governments Improvements in public financial management should help to deliver improvements in the efficiency and effectiveness of public spending and in quality of service delivery. 41. The project will support:

(a) Improvement of assignments of fiscal responsibilities across levels of government: analyzing assignments between different levels of the government, and developing methodological recommendations for enhancement of the sub-national revenue base, and risk analysis and mitigation for sub-national budgets.

(b) Improving intergovernmental fiscal transfer system: Preparing the medium-term strategy of inter-budgetary relations and the implementation plan; developing recommendations on the system of targeted intergovernmental fiscal transfers; fine tuning of equalization transfer system, and development of specific approaches to regions that are highly dependent on federal transfers; creating a mechanism of incentives/sanctions to promote PFM reforms in regions, highly dependent on federal transfers; and improving the equalization transfer system.

(c) PFM quality, transparency, and anticorruption at the sub-national level: developing regulation and methodologies for quality enhancement of public services delivery at the sub-national level in the course of transformation of the budgetary network into autonomous agencies, including outsourcing; developing capacity for performing risk analysis and proposing risk mitigating measures for the sub-national budgets; advising sub-national governments on incorporation of anticorruption mechanisms into the budget process and increasing transparency of

2 Approved by Decree No. 1123-r of the RF Government, dated 8 August 2009.

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their budget cycle; developing the system of non-governmental monitoring of efficiency of public expenditures at the sub-national level.

(d) Program budgeting at the sub-national level: facilitating implementation of program budgeting at sub-national level, including preparation, monitoring and evaluation of budget programs, capacity building programs for staff of the sub-national finance departments, and drafting relevant legislation and instructions.

(e) Training and institutional capacity building across levels of government: capacity building and training for the staff of department of inter-budgetary relations of the Ministry of Finance; capacity building and training of staff in regional and municipal governments on a wide range of issues related to the budget process, taking into account international experience and PFM initiatives at the federal level.

Component 3 – Support for the Development of E-Budget System 42. Component 3 provides more efficient information flows through development of an integrated financial management system which are an essential part of better management and control. The Government plans to complete the design of E-Budget sub-systems in 2012-2013 and move to implementation in 2014-2015. The new E-Budget system is aimed to improve access to information about assets, liabilities and financial status/activity of public organizations; create instruments for harmonization of strategic and budget planning, as well as monitoring of the progress in state programs and results that characterize the scope and quality of public services (performance of state functions); provide free access to the publications on planned and actual performance indicators of organizations working in the public financial management sector; harmonize the budget planning, execution, accounting and preparation of financial and other reports of the public organizations; strengthen the coordination between budget process and planning of procurement of goods, works and services for public organizations, placement of delivery orders and fulfillment of the relevant state (municipal) contracts; as well as bring the budget spending liabilities registers into conformity with the powers of public organizations that are stipulated in the Russian legislation.

43. This project component is expected to support some of the activities identified in the MOF’s broader E-Budget action plan, to complement the MOF’s ongoing efforts for developing and implementing the key modules of the system. Particularly the component activities will support:

(a) Improvement of legal and methodological foundation for automation of budget procedures and integration of budget process information flows,

(b) Review of the latest international tendencies and best practice on automation of budget process and implementing E-Budget systems,

(c) Expanding the analytical and information management tools under the E-Budget system and the development of the unified standards for data storage and exchange,

(d) Budget sector staff capacity building through training programs, knowledge-sharing workshops and conferences, and by developing a code of good practices on implementing the E-Budget and improving public access to information,

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(e) Support to implementation of the E-Budget system through development of implementation regulation and guidelines, organizing quality assurance through external international peer-review, and monitoring and evaluation, and

(f) Additional advisory support and training activities to support emerging needs during the implementation of the MOF’s broader E-Budget program.

Component 4 – Enhancing Budget Efficiency 44. Component 4 improves expenditure planning, control and monitoring . The Government has completed implementing its Program for Enhancing Efficiency of Budget Expenditures until 2012 and is currently finalizing a successor program that will carry this effort forward to 2018. This component will provide advice to the government on the design and implementation of key aspects of this program, based on international good practices, as follows:

(a) Improvements in Budget Planning and Preparation: revamping medium and long term budget planning processes, including better integration of capital planning and procurement planning, strengthening the links to strategic planning, and potential adoption of fiscal rules; continuing support to the introduction of program based budgeting, including use of cost norms, and program evaluation techniques,

(b) Innovation in Service Delivery: providing advice on governance, public finance management and accountability aspects for the use of autonomous agencies and partnerships with the private sector and NGOs,

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(c) Internal controls and internal audit: rationalizing and modernizing the system of state financial control, following the approach set out in the Draft Law on Amendments to the Budget Code in the Area of State Financial Control; establishing modern systems of internal control and internal audit, across the public sector, in line with COSO, INTOSAI and the Institute of Internal Auditors (IIA) principles and standards,

(d) Accounting and Financial Reporting: developing a full set of Federal Standards for Public Sector Accounting, including recommendations on implementation, education and outreach,

(e) Revenue management: enhancing the effectiveness of administration of non-tax budget revenues at all levels,

(f) Procurement planning and contracting: supporting implementation of the new federal contracting system, with particular attention to budget planning and enhanced transparency and accountability in procurement and contract implementation,

(g) Improvement of the budget process in the area of cooperation with the international financial institutions, and

(h) Supporting the preparation of related follow-up operations.

45. The project will provide support for the development of methodological approaches, new legislation, implementation planning and training. The redesign of business processes envisaged in this component will need to be coordinated with the design of E-Budget modules. The E-Budget system will provide many of the information flows necessary to deliver the full potential of the Program for Enhancing Efficiency of Budget Expenditures.

Component 5 – Project Management 46. This component will strengthen the borrower’s capacity to ensure timely implementation of project activities, adherence to procedures and quality standards and monitoring and reporting of project implementation and results. It includes financing of a project implementation unit, including procurement and financial management experts. Eligible expenses under this this component will be financed fully by the loan.

B. PROJECT FINANCING

Lending Instrument 47. The Project will be financed by a Technical Assistance Loan (TAL) in the amount of US$50 million on IBRD terms, and a government contribution with project implementation over a four-year period. Most of the financing will be for technical assistance. $3.275 million has been allocated for the purchase of hardware and software to create the infrastructure of information and reference services to taxpayers in the local tax offices.

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Project Cost and Financing

Project Components Project Cost

(US$, mil.)

IBRD or

IDA Financing

(US$, mil.)

% Financing

1. Improving Efficiency of Tax Policy and Tax Administration

39.744 13.9 35

2. Intergovernmental Fiscal Relations and Sub-national PFM

24.840 8.7 35

3. Support to E-Budget 39.148 13.7 35

4. Enhancing Budget Efficiency and

Sustainability 24.840 8.7 35

5. Project Management 5.000 5.0 100 Total 133.571 50.0 37

C. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN

48. This section explains the key lessons from other relevant projects and how they have been applied to the design of this project. Many of the lessons from the ICRs for recent World Bank-financed projects in Russia are similar to those provided by the more comprehensive evaluation of PFM reform projects carried out by IEG in 20083, although some lessons are specific to the country and sector context.

49. Two previous projects in Russia have supported reforms of intergovernmental finance (Regional Fiscal Technical Assistance Project, Fiscal Federalism & Regional Fiscal Reform Project), two have supported modernization of tax administration (Tax Administration Modernization Projects I and II (TAMP)) while the recently completed Treasury Development Project (TDP) primarily supported IT system development. The main lessons and how they have been applied are as follows:

(a) Strong ownership of the reform programs is essential. A general lesson from public sector reform projects is that client ownership and leadership of the reform agenda is critical to success. The steady support of key officials within the Finance Ministry across a 14-year period was critical to the achievements of the regional fiscal TA projects, TAMP and TDP. The fact that this project is seen by the Ministry as the continuation of a series of highly productive engagement under early TA projects provides confidence in an effective partnership under this project,

(b) TALs in the public sector are often weak performers in the Bank’s portfolio, and previous projects in Russia have suffered from slow implementation and delays in disbursement. Factors that have contributed to this included longer than expected time to approve consultancy TORs, selection and clearance of reports etc. An important step taken by the Ministry is to require part of procurement packages to be prepared before the loan agreement is approved by the Government.

3 Public Sector Reform: What Works and Why?, Independent Evaluation Group, 2008.

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Additionally the Ministry proposes to set up a system for monitoring the handling of reports to ensure appropriate actions are taken in a timely fashion. In the case of TDP slow disbursement was mostly attributable to delays in the procurement of IT. The problem of delays in IT procurement has been avoided in this project by limiting the financing of the E-Budget system to the provision of TA, and

(c) The TAMP project demonstrated that technical working groups at component level were critical in maintaining ownership and direction of project activities over time, reducing dependence on individual reform champions and spreading ownership. This approach is replicated in the project management arrangements that are designed to ensure accountability for project implementation and to manage risks associated with poor coordination and overlap. These include technical working groups responsible for approval of TORs and sign-off on deliverables.

IV. IMPLEMENTATION

A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS

50. The MOF will have overall responsibility for the implementation of the project. Implementation arrangements are designed to ensure the efficient management of the project and to facilitate inter-departmental coordination within the MOF and between the MOF and other stakeholders. The project implementation structure will consist of three levels: strategic decision-making, operational management and project implementation.

51. The Working Group (WG) is responsible overall for preparation, and implementation of the Project and will coordinate the strategic level decision making process. The WG will be led by a Deputy Minister of Finance and will be supported in this task by a team located in the Budget Methodology Department. Sub-groups, established by the WG, will be responsible for coordination and management of their respective activities under components 1, 2, 3 and 4 of the Project.

52. The Project Implementation Unit (PIU) will support day to day reform implementation, and work with the thematic group leaders (one for each project component) and managers of individual tasks to ensure timely implementation of project activities. The PIU will help to ensure that the Ministry adheres to the procurement, financial management and disbursement procedures as set out in the Loan Agreement and the Project Operational Manual (POM). MoF decided to contract a PIU for this operation given its limited capacity, and the PIU’s strong track record with World Bank financed projects.

B. RESULTS MONITORING AND EVALUATION

53. The results framework and monitoring arrangements have been developed jointly with the Ministry of Finance. These are set out in detail in Annex 1. The project monitoring system will maintain records on implementation and generate (i) quarterly reports prepared by the MOF through PIU and provided to the Bank a minimum of two weeks before scheduled implementation support missions, and (ii) annual reports prepared within four (4) months of the

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end of the financial year, focusing on results based accountability and accomplishments against performance expectations. Progress reports will be submitted to the Working Group which will review them. MOF will report to the Government the progress towards the achievement of key objectives. Regular supervision missions will report on progress to World Bank management in the form of implementation status reports (ISRs), a mid-term review, and an implementation and completion report (ICR) within six months from the end of the Project.

C. SUSTAINABILITY

54. Government’s leadership of the reform program, and broadly distributed ownership of the components amongst senior officials, provide a high level of confidence in the sustainability of the results. The Government’s commitment to PFM reforms is demonstrated in several government strategy papers and speeches of the President. Several factors considered critical for project sustainability have been addressed in the project design

(a) Clear direction and participation of the Government in project design. The MOF and FTS have engaged proactively in project preparation and have approved the overall scope of the Project.

(b) The project supports the adoption of international standards in accounting and auditing that are supported by international bodies.

(c) The Ministry of Finance and the FTS have a track record of successful reform implementation and partnership with the Bank in the same policy areas.

(d) Reliance on modern technology is a key business strategy. The implementation of advanced IT systems in the MoF and FTS, will simplify procedures, increase transparency, and support the adoption of international standards. Such changes would be difficult to reverse.

(e) The private sector was consulted during the design stage of the project and will continue to be consulted during implementation.

(f) The early establishment of baseline indictors and use of pre-existing monitoring systems should help to keep track of performance and enable early action in the events that activities go off track.

D. KEY RISKS AND MITIGATION MEASURES

55. The overall risk for Project implementation is rated as substantial. While the lessons learned from previous Bank-financed projects have been factored in, several risks have been identified that could impact the project’s success. The adoption of tax policy reforms, for example, is likely to affect powerful commercial interests. While the Government’s approach provides for analysis of stakeholder interests and consultation there is no assurance that the advice financed by the project will be fully adopted. Similarly, successful implementation of the E-Budget system will depend on strong communication and collaboration between many agencies. Past experience is that uncertainties associated with passing new legislation can lead to substantial delays in project implementation. In this case most of the key enabling legislation is already in place. Nevertheless, the project has been designed to allow for flexibility in the event that one or more activities become blocked. The capacity of officials to manage project

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activities and act on the recommendations is identified as a substantial risk, given the pressure of their day to day responsibilities. To help address this risk the Ministry intends to institute a rigorous monitoring and follow up system. A more detailed analysis of the risks is provided in the Operational Risk Assessment Framework (ORAF) in Annex 4.

Risk Ratings Summary Table

Stakeholder Risk Moderate

Implementing Agency Risk

- Capacity Substantial

- Governance Moderate

Project Risk

- Design Substantial

- Social and Environmental Low

- Program and Donor Low

- Delivery Monitoring and Sustainability Moderate

Overall Implementation Risk Substantial

56. The overall risk for this project is assessed as substantial if the risks materialize. More detail is provided in Annex 4.

V. APPRAISAL SUMMARY

A. ECONOMIC AND FINANCIAL ANALYSES

57. The benefits of this Project have multiple dimensions which will be monitored through a robust set of indicators. These are however difficult to quantify in economic or financial terms. Changes in policies, processes and controls, supported by the project, are expected to contribute to efficiency gains in revenue collection and expenditure management across government. More effective targeting of expenditures through strengthening the links between policy objectives and expenditure allocation, and improving the quality of results monitoring and reporting of government expenditures, should ensure that spending is better aligned with the government’s goals in relation to economic development and poverty reduction.

58. The project gives a high priority to increasing transparency and accountability. These benefits are hard to quantify in financial terms, and they cannot be attributed directly to the project. Most of the economic benefits will be realized beyond the lifetime of the project, and their achievement will depend on the effectiveness of government economic policies and on parallel efforts to improve the business climate, crack down on corruption and improve human resource management.

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B. TECHNICAL

59. The project content is determined by the Government’s PFM reform program, and the identification of problems and strategies is dependent on the Government’s analysis. This consists of a number of separate parallel, complementary initiatives taken by different departments and directorates within the Ministry and the Federal Tax Service. Together these set clear directions for reform and constitute an ambitious reform program that aims to provide Russia with a comprehensive modern set of policies and systems strongly based in international standards and good practices.

60. The Bank’s role in the project is primarily to provide technical advice on reform implementation, bringing to bear knowledge of international good practices and the Bank’s knowledge and experience gained during many years of engagement with previous PFM reform initiatives in Russia. Very little formal diagnostic or analytical work is available and so a key feature of the project design has been involvement of Bank team members with extensive prior knowledge and experience gained on previous projects and through ad hoc advice on budget issues.

61. A number of reform initiatives are due to expire or be renewed during the lifetime of the project, most notably the Program on Budget Efficiency for 2013-18. Although the project has been designed to support the new program this may yet be changed and for this reason flexibility needs to be retained to respond to new issues and support dialogue feeding into the design of possible new reform initiatives.

62. Given the number and complexity of the tasks planned within the project, management of reform sequencing and coordination will be important determinants of success. These issues will be handled primarily by the Project Director. Within each component strategic advice, including on coordination and sequencing issues, will be supported by one or more senior technical advisers with international experience, whose services will be procured as part of contracts under components 1-4.

63. Given that the project is supporting implementation of ongoing Government reform initiatives, prospects for an early start to activities are considered good. The absence of large contracts for goods work and services will hopefully avoid lengthy procurement delays associated with acquisition of IT.

C. FINANCIAL MANAGEMENT

64. All fiduciary functions for the project, including procurement, financial management and disbursement, will be carried out by the PIU (FER), which was competitively selected. FER has extensive experience in supporting World Bank-financed projects with fiduciary aspects. FER is in compliance with the audit covenants of existing Bank-financed projects. The FM arrangements of FER have been reviewed periodically as part of the project preparations and supervisions of the on-going projects and found to be satisfactory. An assessment of the financial management arrangements for the Public Finance Management Technical Assistant project was undertaken in December 2012 which confirmed that the FM arrangements are satisfactory and acceptable for project implementation.

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65. The FM arrangements of the project are going to be the same as for the on-going projects implemented by FER, considered acceptable to the Bank. The large share of Government co-financing is fairly common for the Russia portfolio and reflects the new modalities of working in Russia for the past several years.

66. The annual audited financial statements together with the auditor’s opinion and the management letter will be provided to the World Bank within six months of the end of the fiscal year, or from the end of the grace period after the project’s closing date. Following the Bank’s formal receipt of audited financial statements from the Borrower, the Bank will make them available to the public in accordance with the World Bank Policy on Access to Information through its website. In addition, the Borrower will make the audited financial statements available to the public in a manner acceptable to the Bank.

D. PROCUREMENT

67. Procurement for the proposed Project would be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Loan Agreement. The Project shall also follow the Guidelines: On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 and revised in January, 2011.

68. The draft procurement plan for the first 18 months of project implementation has been prepared by the Ministry of Finance and will be discussed and agreed by negotiations. PIU will be responsible for carrying out procurement under the project in accordance with IBRD Procurement and Consultant Guidelines. All technical specifications and TOR for major consulting assignments will be prepared at an early stage, and the first procurement packages will be ready by effectiveness. The PIU has the necessary full time staff responsible for this work, and has extensive experience with managing and implementing World Bank-financed projects.

69. As part of project preparation the Bank team carried out procurement capacity assessment and the risks identified and mitigation measures are detailed in the PRAMS and Procurement Capacity Assessment Report. The report is available in the project files. The Project procurement risk is “High” and residual risk after implementation of risk mitigation measures is rated “Substantial”.

E. SOCIAL (INCLUDING SAFEGUARDS)

70. The Project does not comprise activities that could cause any social risk or negatively affect the population.

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F. ENVIRONMENT (INCLUDING SAFEGUARDS)

71. The Project has been rated as category C for environmental purposes. None of the envisaged activities will require any special permission. Hence the Project will not be subject to the Environmental Impact Assessment procedures, or any permission relating to environmental protection.

G. OTHER SAFEGUARDS POLICIES TRIGGERED (IF REQUIRED)

72. No other safeguards policies are triggered.

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ANNEX 1: RESULTS FRAMEWORK AND MONITORING

Russia: Public Finance Management Technical Assistance Project

Project Development Objective (PDO):

To improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and accountability.

PDO Level Results Indicators

Cor

e Unit of Measure

Baseline Cumulative Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator

definition etc.) YR 1 YR 2 YR3 YR 4 YR5 1. Maximum time spent on tax calculation and payment by SMEs (within Doing Business rating)

Man-hours 290 180 170 160 160 160 Annual World Bank "Doing Business" Indicator

World Bank Reduced time spent dealing with Taxes based on Doing Business Survey for small and medium businesses

2. Number of regions with PFM quality satisfactory to MOF

Number 71 72 73 74 75 76 Annual Results of MoF monitoring and evaluation of PFM quality at the regional level, based on MoF Rules

MoF Increase in the number of regions with PFM quality satisfactory to the MOF, based on a regular MOF monitoring according to methodology on an annual basis

3. Open budget index (calculated by International budget partnership)

Points 74 74 77 77 80 80 Annual Open Budget Index (Open Budget Project)

MoF Improvement in Open Budget Index (OBI) score

4. Coverage of the federal budget appropriations with performance indicators depicting goals and results of budget implementation

Percentage 1.3 25 50 70 90 90 Annual MoF reports MoF Share of the budget expenditure allocations, covered by

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performance measures

INTERMEDIATE RESULTS

Intermediate Result (Component One): Improving the Economic Efficiency of Tax Policy and Administration

Results Indicators C

ore Unit of

Measure Baseline

Cumulative Target Values Frequency

Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator

definition etc.) YR 1 YR 2 YR3 YR 4 YR5 1.1 Reformed tax regime for oil and gas sector

Text Fiscal reforms set out in Instruction #700-p of May 3, 2012 and Instruction #433-p of April 12, 2012

Financial model of proposed tax regime is developed

Pilot applications of new tax regime are completed

National roll-out of new tax regime

Annual MoF reports MoF A reformed tax regime for oil and gas sectors that improves their transparency, equity and efficiency in capturing the rent under different and volatile economic and project conditions while taking into account the effect that this would have on private sector investment

1.2 Ratio of tax appeals settled via pre-court mechanism (by higher tax office) to tax appeals produced by the courts

Percentage 2.10 2.60 3.63 4.03 4.50 4.50 Annual Federal Tax Service (FTS) Statistics

FTS Proportion of tax disputes that are resolved through administrative rather than judicial processes

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Intermediate Result (Component Two): Modernizing the System of Inter-Governmental Fiscal Relations and Sub-National PFM

Results Indicators

Cor

e Unit of Measure

Baseline Cumulative Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator

definition etc.) YR 1 YR 2 YR3 YR 4 YR5

2.1 The number of subjects of the RF in which the estimated share of intergovernmental transfers from the federal budget (excluding subventions, and federal Investment Fund subsidies to the subjects of the Russian Federation) exceeds 60 percent

Number 7 7 7 6 5 5 Annual MoF Reports MoF Reducing the number of subjects of the RF in which the estimated share of intergovernmental transfers from the federal budget exceeds 60 percent

2.2 Share of RF regions, which transformed their regional budgets towards program budgeting

Percentage 40 45 50 55 60 64 Annual Regional data, submitted to the MoF

MoF Percentage of RF regions from the total number of RF regions, that transform their non-consolidated budgets into budgets presented on a program basis.

Intermediate Result (Component Three): Support for the Development of E-Budget System

3.1 Access of public sector bodies at the regional and local level of the RF to E-Budget system (share of regions (municipalities) of Russia, budget organizations of public management of which have access to E-budget)

Percentage 0 0 0 5(0) 15(5) 15(5) Annual

MoF reports Results of supervision missions

MoF

Percentage of the regions (municipalities) of the RF, where public sector organizations have access to E-Budget system

3.2 User satisfaction with the E-Budget system Percentage 0 60 60

Once, before the

Survey MoF Percentage of E-Budget system

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end of the project.

users surveyed who respond that the performance of the E-Budget system is satisfactory or better

3.3 Monthly publication of comprehensive federal budget execution reports based on the data extracted from FTAS databases

Text Federal budget execution reports are not publicly available on a monthly basis

Monthly publication of comprehensive federal budget execution reports using FTAS data

Continued monthly publication of comprehensive federal budget execution reports using FTAS data

Continued monthly publication of comprehensive federal budget execution reports using FTAS data

Continued monthly publication of comprehensive federal budget execution reports using FTAS data

Annual from Year 2

MoF MoF Benchmark of publication of monthly comprehensive (reflecting all codes of budget classification) federal budget execution reports achieved and maintained

Intermediate Result (Component Four): Enhancing Budget Efficiency

Results Indicators

Cor

e Unit of Measure

Baseline Cumulative Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator

definition etc.) YR 1 YR 2 YR3 YR 4 YR5 4.1 Implementation of the Government budget reform Program till 2018

Text The Program is drafted, but not approved

Year 1 milestones achieved

Year 2 milestones achieved

Year 3 milestones achieved

Year 4 milestones achieved

The Program is approved by the Government and implemented

Annual MoF reports and findings from supervision missions

MoF The Government budget reform Program till 2018 provides a road map for the next phase of the budget reform, aimed at improving effectiveness and efficiency of public finance management in Russia

4.2 Internal audit is introduced at the federal level in Russia

Text Internal audit function is

Relevant primary and

Internal audit procedur

700 civil servant have

Internal audit function is

First internal audit

Annual MoF reports and findings from

MoF Internal audit standards and manuals

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not implemented The new approaches to the internal budget control were reflected in the Government Draft Law on Amendments to the Budget Code in the Area of State Financial Control

secondary legislation required for implementation of internal audit is adopted. Strategy for implementation of internal audit in the RF is developed

es and standards are adopted

been trained in new approaches, procedures and standards for internal budget control and audit

operating in 70% of Federal Ministries

reports issued for 70% of federal ministries and agencies

supervision missions

developed and implemented

4.3 Federal standards for accounting and financial reporting in the public sector, based on IPSAS, are developed and implemented

Text 5 federal accounting standards drafted but not implemented New law on accounting will be effective from January 2013, requiring use of uniform federal accounting standards.

20% of standards are implemented

30% of standards are implemented

40% of standards are implemented

60% of approved standards are implemented

60% of planned (20) federal accounting standards have been implemented across all entities to which they apply.

Annual MoF reports and findings from supervision missions

MoF Federal standards for public sector accounting are formally approved and issued and a timetable for implementation is set out

4.4 Budget efficiency and stability enhancement

Text Budget allocations are not linked with strategic

90% of State programs are approved

95%of State programs are approved

3 year budget is approved on the basis of

3 year budget is approved on the basis of

3 year budget is approved on the basis of state

Annual Project monitoring and supervision

MoF and World Bank

Achievement of milestones in the development and implementation

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policy objectives and measurable results

by the Government

by the Government 3year budget is prepared and adopted on program classification

state programs 95%of State programs are approved by the Government

state programs 95%of State programs are approved by the Government

programs 95%of State programs are approved by the Government

of program budgeting

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ANNEX 2: DETAILED PROJECT DESCRIPTION

1. The project provides an overall framework and financing to support detailed design and implementation of the main directions of PFM reform in Russia, over a four year period. The project will finance analysis, development of recommendations and support with implementation and training. In addition to financing, the World Bank will help to facilitate access to international experience and help to ensure the quality of project implementation. 2. The project is organized into four substantive components supported by a project management component (see Figure 1 below). The four substantive components address budget sustainability and efficiency in a comprehensive manner. Component 1 sustains revenues over the medium term, stimulates investment and innovation and increases fairness in the application of the tax regime. Component 2 addresses the vertical efficiency of government financing to sub-national government and helps to strengthen PFM at sub-national level. Component 3 provides more efficient information flows through development of an integrated financial management system which are an essential part of better management and control while Component 4 improves expenditure planning, control and monitoring. These four components are closely interrelated and mutually supportive. Component 5 will finance the activities of the project implementation unit.  

Component 5 – Project Management

Figure 1 – Project Structure

PDO: to improve transparency and results focus in public financial management and build institutional foundations for improved budget efficiency, effectiveness and

accountability

Component 1 – Tax Policy and 

Administration

Component 2‐ Intergovernmental Fiscal Relations and Sub‐National PFM

Component 3‐ E‐Budget System

Component 4 ‐ Budget Efficiency and Sustainability

1.1. Oil and Gas Taxation 1.2 Tax expenditures 1.3 Transfer pricing 1.4  Customs harmonization 1.5  SME taxation 1.6  Revision of the Tax Code  1.7 Tax payer services 1.8 Tax dispute resolution

2.1 Revision of responsibilities across levels of government  2.2 Streamlining transfers and incentive payments 2.3 PFM quality, transparency and anti‐corruption 2.4 Program budgeting at sub‐national level 2.5 Training and capacity building

3.1 Advice on budget process automation and integration  3.2  Access to international good practices 3.3 Expansion of analytical capability and transparency 3.4 Training and information dissemination 3.5 Support for program management and monitoring

4.1 Planning and budgeting 4.2 Procurement and contract management 4.3 Internal control and internal audit 4.4 Accounting and financial reporting 4.5 Innovation in service delivery 4.6 Revenue management

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Component 1 – Improving Efficiency of Tax Policy and Administration (US$ 39.744 million)

3. Government has set out strategic directions for change in the Main Directions of Tax Policy of the Russian Federation for the Medium Term, updated annually. The project will help to implement the changes envisaged as well as making provision for support to other likely tax policy reforms. The project will provide advice and capacity building support both to the Ministry of Finance on the development of tax policy and to the Federal Tax Service for implementation of tax changes in the following areas:

Oil and Gas Taxation

4. The current fiscal regime for oil and gas upstream activities has performed well in terms of fiscal revenue generation. On the other hand it imposes a higher average burden as the pre-tax rate of return on a project decreases. This has affected the level of industry investment, particularly with respect to maturing and declining fields and new fields in remote areas or complex geological structures. Fiscal incentives and mechanisms that were devised to improve the flexibility of the fiscal regime – that is to cope with adjustments to cost and prices – have shown their limitations in terms of their adequacy to support the long term development of the sector and to sustain the current levels of fiscal revenue in the future. Furthermore this approach appears to have generated unintended distortions to investment decisions, increased the cost of tax administration, lowered its overall transparency and increased perceived investor risk. 5. To address these deficiencies the Government intends to gradually reform the taxation of oil and gas upstream and downstream activities to improve their competitiveness and overall attractiveness to investors, including by more closely aligning the tax burden to the risk profile and profitability of such activities. 6. The policy objective underlying the reform of the fiscal regime for petroleum activities is to improve its transparency, equity and efficiency in capturing the rent under different and volatile economic and project conditions while taking into account the effect that this would have on private sector’s investment. 7. The following activities will be supported under the project:

(a) Modeling of current upstream and downstream activities with the objective to assess the economic and financial impact of alternative policy options.

(b) Study of other countries’ experience with fiscal regime changes.

(c) Design of target fiscal regime, including transitional arrangements.

(d) Preparation of relevant legal and regulatory instruments.

(e) Monitoring of implementation of the new system of taxation for oil and gas.

Transfer Pricing

8. The abuse of transfer pricing for tax avoidance has been a serious concern in Russia, mainly in the oil and gas sector, but also in other sectors. It involves payments from one part of a firm for goods or services provided by another at non-market prices that are not at arm’s length.

36

The incentive for transfer pricing is greatest where the tax burden in one jurisdiction is higher than another. Alternatively, it can occur within a jurisdiction if the tax burden is higher at a particular stage in the production chain. For instance in the oil sector, the upstream activity of extracting the oil has a higher burden than the downstream activity of refining. It is frequent in vertically integrated companies, but can also occur through sister or related entities.

9. A new law on transfer pricing, broadly in line with OECD guidelines has been passed in July 2011 and staff training on the new legislation has been provided. Mechanism for advance pricing agreement has been set up. In order to properly implement transfer pricing rules, and investigate the right arm’s length price, standard price databases will be needed. .

10. The following activities will be supported under the project:

(a) Development by MOF of instructions, guidelines and regulations on transfer pricing; (b) Formulation of rules on controlled foreign companies; (c) Development of regulations and methodological approaches for advance pricing

agreements; (d) Augmenting professional skills of FTS staff to understand transfer pricing and identify

and detect transfer pricing risks where they occur; (e) Providing Federal Tax Service of Russia (FTS) and FTS Interregional Inspectorate for

Price Determination for Taxation Purposes with access to information which is used to compare transactions conditions between related parties with transactions conditions between unrelated parties.

Tax Expenditure

11. The Russian Government is beginning to acknowledge the importance of measuring tax expenditures, so that the cost of these exemptions or benefits are clearly understood and appreciated both by the government and the public. The tax policy department of the MOF does conduct analysis of various tax expenditures on an ad hoc basis, but would now like to do it in a systematic manner, and formalizing the data, format and methodology. The government would like to study the feasibility of publishing information on tax expenditure with the annual budget.

12. The first step would be to lay down a benchmark tax system and to identify what would be classified as tax expenditure. Another useful study would be to do an impact analysis of the various tax expenditures to determine whether they have helped achieve the policy objective sought to have been met. One difficult issue would be the monitoring of sub-national exemptions in inter-governmental fiscal relations.

13. The project will support the following activities:

(a) Review of international experience in developing tax expenditure evaluations and reports;

(b) Design of a methodology and format for evaluation of tax expenditures, including defining what would be included as tax expenditure;

(c) Development of the dataset for the evaluation of tax expenditure;

(d) Conduct analysis of the impact of selected tax expenditure to evaluate whether the policy objective for these tax expenditures have been met;

37

(e) Prepare a prototype of a tax expenditure report.

Harmonization within Customs Union

14. Russia has entered into a customs union with Kazakhstan and Belarus in July 2011. While a new customs code for the customs unions has harmonized the tariff system and customs rules to reflect the common tariff system for the customs union, other indirect taxes that affect trade within the customs union have not been harmonized. Moreover, trading within the customs union will require a robust system of information exchange for VAT since this tax is levied in the country of destination. For instance, in the EU, the Sixth Directive harmonizes the VAT system within the EU member states and operates a VAT Information Exchange System (VIES). The Government plans to work with the other two members of the customs union to harmonize to the extent possible, the VAT and the excise regimes within the customs union.

15. The project will support the following activities:

(a) Harmonization of tax legislation and procedures within the customs union

Tax Code

16. In the substantive part of the tax code many provisions will need to be improved in accordance with international standards to keep abreast with new business models and products. In addition to the provisions relating to transfer pricing discussed earlier, the provisions in the tax code relating to financial sector taxation will need to be strengthened to provide for solid rules for complex financial transactions such as derivatives trading and capital gains of financial assets. The taxation regime, including royalties, for non-petroleum minerals will also need to be modernized to reflect current practices. Likewise, the provisions in many double taxation avoidance treaties relating to beneficiary ownership income will need to be reviewed.

17. The project will support the following activities:

(a) Review of legislation and recommendation for improvement in the areas of: (i) financial sector taxation, related to complicated financial transactions like

derivatives (ii) taxation of non-hydrocarbon minerals (iii) provision in double taxation avoidance treaties relating to beneficiary ownership

of income (iv) development of sub-ordinate legislation, instructions and clarifications to

implement new procedures. Special Tax Regimes

18. Since adoption of the Tax Code in Russia the following special regimes have been used: simplified income tax, unified imputed tax, taxation of agricultural production and product sharing agreements. In addition, in January 2013 patent taxation was introduced. The purpose of the special tax regimes is to reduce the tax burden on selected categories of taxpayers and they arevery different, in rates and bases, compared to the corporate tax regime. However, the Government is concerned that the current use of special tax regimes is being abused and

38

ineligible tax payers use them for their benefits. Therefore, the Government sees the need to revise the special tax regime system to ensure it facilitates fair tax liabilities for eligible taxpayers but prevents abuse of the system.

19. The project will support the following activities:

(a) Review the special tax regimes implementation;

(b) Develop a compliance strategy to make special tax regimes effective and preventing abuse.

Taxpayer Services

20. Augmenting taxpayer service is an important objective of the government with a view to improving the image of the FTS as an open and transparent service delivery agency and improve revenues collection. The aim is to simplify dissemination of information and communications between taxpayers and tax authorities by reducing the need for physical contact and shifting to e-service. The Government is already investing in new initiatives allowing taxpayers to access their tax accounts electronically from their own offices and fulfill most of their tax obligation using web-based services and the e-government gateway. Taxpayer education and outreach will need to be strengthened to encourage taxpayers to use the new facilities that will be available to them. The new focus of the government is on creating a client-oriented tax administration which will help change the mindset of taxpayers who consider the tax authority purely as an enforcement agency rather than a service delivery organization.

21. The project will support the following activities:

(a) Development of recommendations on tax administration enhancement, including procedures for risk management, anti-avoidance, etc;

(b) Analysis of best international practice, development and conduction of special informational programs aimed at popularization of Federal Tax Service activities;

(c) Development of recommendations and technical assistance in implementation of program aimed at improvement of tax literacy of population;

(d) Delivery, assembly and installation of hardware and software to create the infrastructure of information and reference services to taxpayers in the local tax offices.

Departmental Appeals

22. Creation of a reasonably good appeal and review mechanism has helped reduced the number of cases going to higher court. The internal appeals system needs to develop training for appeal officers in mediation strategy and develop rules and procedures that would improve the appeals consideration' practice. There is need for a review of existing system of dispute resolution within the FTS to improve quality of internal reconsideration of tax system decisions, to form unified legal position and to increase taxpayers trust to the tax officers.

23. The project will support the following activities:

(a) Review the existing internal appeals system within the FTS;

39

(b) Develop rules and procedure aimed at improving the credibility of the appeals system;

(c) Development of training courses on internal appeal system functioning. Delivery of training to FTS employees in this field.

24. Total costs of this Component are estimated to be US$ 39.744 million (US$ 25.83 million from the federal budget and US$13.91 million from IBRD). Breakdown of costs for the Component and timeline for the activities is presented in Table 2.1.1.

40

Table 2.1.1: The Costs and Timeline for Component 1 - Improving Efficiency of Tax Policy and Tax Administration

Component 1 Activities1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

1.A  Transfer pricing 10,650

PFMP/QCBS/1.1

1,1

Development of methodolical  recommendations on application of tax rules in the cases  

of transfer pricing in l ine with best international  practice and methodological  

approach of the OECD

2,900

PFMP/QCBS/1.2

1,2

Development and conduction of training program for Federal  Tax Service on theoretical  

and practical  issues of  tax administration and trasactions' prices  monitoring for tax 

purposes basing on best international  experience

0,250

PFMP/ICB/1.3.1.‐

1.3.6.

1,3

Providing Federal  Tax Service of Russia (FTS) and FTS Interregional  Inspectorate for 

Price Control  for Taxation Purposes  with access to information which is used to 

compare transactions conditions between related parties  with transactions conditions  

between unrelated parties (there will  be several  contracts  for the whole duration of the 

project for four years, each contract may have the total  amount between USD 200,000 

and USD1,600,000) 

7,500

1.B Tax policy enhancement 8,344

PFMP/QCBS/1.4

1,4Development of recommendations  on legal  regulation and practical  application and 

administration of tax exemptions

1,800

PFMP/QCBS/1.51,5

Development of recommendations  on tax policy improvement in the countries of Custom 

Union 

2,000

PFMP/QCBS/1.6

1,6Technical  assistance to MF in transistion to new system of taxation of hydrocarbons 

extraction, basing on rental  income, and other issues of tax policy

1,544

PFMP/QCBS/1.7

1,7Monitoring of implementation of new system of taxation of extraction and exporting of 

hydrocarbons

2,000

PFMP/QCBS/1.81,8 Taxation of local  natural  resources  (not hydrocarbonic)

1,000

1.C   Tax administration enhancement 20,750

PFMP/QCBS/1.91,9

Development of recommendations  on tax administration enhancement, including 

procedures for risk management, anti‐avoidance, etc.

3,000

PFMP/QCBS/1.101,10

Developent of recommendations  on improvement of taxation of control led foreign 

companies

1,500

PFMP/QCBS/1.11

1,11

Development of concept of benericiary ownership of income and recommendations on 

introduction of it to double taxation avoidance treaties and  the Russian tax legislation 

on the basis  of best international  practice

1,500

PFMP/QCBS/1.12

1,12Development of recommendations  on enhancement of tax regulation of Russian 

financial  markets  on the basis  of best international  practice

2,000

PFMP/QCBS/1.131,13 Taxation within special  tax regimes  

0,500

PFMP/QCBS/1.14

1,14Analysis  of best international  practice, design and implementation of public 

information programs 

1,500

PFMP/QCBS/1.15

1,15Development of recommendations  and technical  asistance in implementation of 

program aimed at improvement of tax l iteracy of population

1,100

PFMP/ICB/1.16

1,16Delivery, assembly and installation of hardware and software to create the developing 

infrastructure for provision of information services to taxpayers in local  tax offices

9,350

PFMP/QCBS/1.17

1,17Development of  training courses on internal  appeal  system fuctioning. Delivery  of 

training to FTS employees in this  field

0,300

Total 39,744

A S E C

20172015 2016Proc. Package

Activity 

#

Est Cost 

(mUSD)

2013 2014

Procurement Implementation

41

Component 2 – Improving Efficiency of the System of Inter-Governmental Fiscal Relations and Sub-National PFM (US$ 24.840 million) 25. The Government is committed, under The State Program “Creation of Conditions for Efficient and Responsible Management of Regional and Municipal Finance, Increasing Sustainability of Budgets of the Subjects of the Russian Federation”4, to improve the quality of budget management at regional and municipal level, increase the efficiency and effectiveness of budget transfer mechanisms, clarify expenditure obligations of federal, regional, and municipal governments, increase transparency of the budget process at the sub-national level and strengthen the internal revenue base of sub-national governments. 26. The objective of this component is to increase efficiency and effectiveness of the system of federal/regional fiscal transfers to regional/municipal governments. The project will also improve the general quality of public finance management and support the implementation of ongoing PFM reform initiatives at the sub-national level, including program budgeting, improved investment planning and outsourcing of activities to autonomous agencies. These objectives will be supported through the design of an incentive/disincentive mechanism to encourage better performance of lagging regions, analytical work and investments in capacity building for sub-national governments Improvements in public financial management should help to deliver improvements in the efficiency and effectiveness of public spending and in quality of service delivery. 27. The project consists of the following sub-components:

Development of recommendations for improving the system of assignments of fiscal responsibilities and establishment of sustainable revenue base across levels of government 28. The project will support the following activities:

(a) analysis and monitoring of the existing system of expenditure assignments across

levels of governance with respect to adequacy of funding and efficiency. Development of measures to increase sub-national budget revenue base including methodological recommendations on increasing revenue base;

(b) analysis and development of methodological recommendations and drafting normative acts, which could enhance regional and municipal asset management techniques, taking into account best international practice;

(c) enhancement of the sub-national budget revenue, including analytical studies on regional tax benefits, suggestions for transformation of this system, evaluation of regional tax benefits, development of formats of reflection of regional tax expenditures in annual budgets, and preparing action plans aimed at phasing out sub-national tax benefits and tax exemptions;

(d) development of the early warning system at the federal and regional level aimed against possible insolvency of sub-national budgets;

4 Approved by the Government Decree No. 376-r of the RF Government, dated 18 February 2013.

42

(e) risk analysis and recommendations on risk mitigating measures for the sub-national budgets, including creation of reserve funds at the sub-national level;

(f) development of recommendations for sustainability of the revenue base and expenditure assignments at the settlement level;

(g) training staff of the Department of Inter-budgetary Relations (MOF) with respect to international experience on design of intergovernmental fiscal systems.

Enhancing intergovernmental fiscal transfer system at the sub-national level 29. Under this sub-component the following activities will be funded:

(a) preparation of the medium-term strategy of interbudgetary relations and support to its implementation;

(b) streamlining of existing federal and regional funding mechanisms consistent with the aims of the budget efficiency program, through analytical and advisory work, and through drafting necessary legal and normative acts,

(c) development of recommendations on increasing efficiency of the system of targeted interbudgetary transfers;

(d) creation of a mechanism of work with regions, highly dependent on the federal transfers, through analytical study of feasibility of PFM reforms in these regions and development of a system of incentives and sanctions to promote PFM reforms in the regions, highly dependent of federal transfers;

(e) fine tuning of equalization transfer system, especially at the sub-national level;

(f) performing analysis and drafting normative acts on special approaches to the regions, which are highly dependent on the federal transfers;

(g) recommendations on increasing efficiency of federal transfers provided to municipalities with a special status (so called “closed territories”, Russian space center in Kazakhstan- Baikonur, university towns- “naukograd”);

(h) training staff of the Department of Inter-budgetary Relations (MOF) with respect to international experience on regional development programs.

Enhancing PFM quality at the sub-national level

30. This sub-component will provide support to the following activities:

(a) technical assistance including review of international experience and development of regulation and methodologies for quality enhancement of public services delivery at the sub-national level in the course of transformation of the budgetary network into autonomous agencies, including outsourcing;

(b) analysis of international experience on service agreements, including control of quality of services, planning of expenditures;

(c) development of recommendations on evaluation of performance of reorganized sub-national budget entities;

(d) training programs for sub-national staff issues on budgeting with respect to autonomous entities, service agreements, quality control of services provided by autonomous entities;

43

(e) advising sub-national governments on incorporation of anticorruption mechanisms into the budget process and increasing transparency of their budget cycle through drafting relevant methodological recommendations and legal and normative acts.

Facilitating implementation of program budgeting at the sub-national level 31. This sub-component will fund:

(a) facilitating implementation of program budgeting at sub-national level through delivering materials, including international experience on preparation, monitoring and evaluation of budget programs, analytical and advisory work, and drafting relevant model legislation and instructions;

(b) analysis efficiency and effectiveness of relevant federal programs, where federal transfers are allocated to the regions;

(c) capacity building programs for federal civil servants and staff of the sub-national departments on preparation, monitoring and evaluation of budget programs;

(d) development of the system of non-governmental monitoring of efficiency of public expenditures (including budget programs) at the sub-national level.

Training and institutional capacity building across levels of government 32. Under Capacity building sub-component the funds will be provided for:

(a) development of recommendations on optimization of structure of the sub-national executive branch;

(b) publishing reference book on public finance issues for regions and municipalities;

(c) analysis of application of public financial management and information systems on budget process and quality of PFM at the sub-national level;

(d) capacity building and training of staff at regional and municipal finance departments on a wide range of issues related to the budget cycle, taking into account international experience and PFM initiatives at the federal level;

(e) technical support to MOF on monitoring and evaluation of the project.

33. Total costs of this Component are estimated to be US$ 24.840 million (US$ 16.15 million from the federal budget and US$ 8.69 million from IBRD). Breakdown of costs for the Component and timeline for activities is presented in Table 2.2.1.

44

Table 2.2.1: The Costs and Timelines of Component 2 – Improving Efficiency of the System of Inter-Governmental Fiscal Relations and Sub-National PFM

Component 2 Activities1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

2.A 

Development of recommendations on distribution of expenditure 

responsibilities between the budget levels and development of 

sustainable revenue base of regions and municipalities of the Russian 

Federation

5,000

PFMP/QCBS/2.1

2,1

Analysis and monitoring of system of distribution of expenditure 

responsibil ities: financial  sustainabil ity and implementation 

efficiency 

2,500

PFMP/QCBS/2.22,2

Development of methodical  recommendations  on enhancement of 

revenues  of regional  and local  budgets  in the RF

1,500

PFMP/QCBS/2.32,3

Analysis and development of recommendations on minimizing risks  

of budget implementation on regional  and local  levels

1,000

2.BEnhancement of interbudgetary financial support mechanisms for 

regional and local budgets in RF

8,000

PFMP/QCBS/2.42,4

Development of fiscal  federalism strategy for midterm perspective 

and support to its' implememntation

1,500

PFMP/QCBS/2.52,5

Development of recommendations on enhancement of system of 

targeted interbudgetary transfers

1,000

PFMP/QCBS/2.62,6

Development of system of incentive‐based and restrictive forms  of 

interbudgetary relations

2,000

PFMP/QCBS/2.72,7 Assistance to priority development of highly sibsidized regions 

2,500

PFMP/QCBS/2.82,8

Development of equalization (leveling) mechanism of budget  wealth 

of regions  and municipalities

1,000

2.C  Development of recommendations on financial management quality 

enhancement in public sector on subnational level 

3,200

PFMP/QCBS/2.92,9

Assistance to quality enhancement of public servises  provided on 

regional  and local  levels  

2,500

PFMP/QCBS/2.11

2,10Assistance to development and introduction of anticorruption 

mechanisms  into budget process on regional  and local  levels

0,700

2.DMonitoring and assistance to program budgeting implementation on 

regional and local levels

2,800

PFMP/QCBS/2.10

2,11Public expenditures' effectiveness  enhancement and assistance to 

program budgeting implementation on regional  and local  levels

2,000

PFMP/QCBS/2.122,12

Development of system of non‐governmental  monitoring of 

effectiveness  of public expenditures  

0,800

2.E

Institutional development of Intergovernmenral Relathions 

Department of RF Minfin, regional and local financial bodies, including 

training of staff

5,840

PFMP/QCBS/2.13

2,13

Technical  assistance to the RF Minfin in the field of 

intergovernmental  fiscal  relations  enhancement, including 

development of institutional  capacity of Integovernmental  Fiscal  

Relations Department of the RF Minfin

1,340

PFMP/QCBS/2.14

2,14

Development and implementation of training program for regional  

and local  financial  bodies  in the field of new methods  of budget 

planning and assessment of quality of public services  provided

4,500

Total 24,840

A S E C

2015 2016 2017Proc. Package

Activity 

#

Est Cost 

(mUSD)

2013 2014

Procurement Implementation

45

Component 3 - Support for the Development of E-Budget System (US$ 39.148 million)

34. The key objective of the E-Budget program is to improve the transparency, openness and accountability of the activities of the government and local self-government authorities, and better financial management of the government administration organizations through developing a single information space and applying the latest information and telecommunications technologies to public financial management (PFM). 35. The legal basis of E-Budget is the Government Directive (GoR Directive No. 1275-r of July 20, 2011) for the development of Electronic Budget (E-Budget : an integrated information system for managing public finances). According to the Ministry of Finance (MoF) Order No. 433 of October 24, 2011, the Operator of the e-Budget system is the Federal Treasury (FT). The project statue (charter) prepared by the MoF presents the main objectives, activities, action plan, implementation arrangements with roles/responsibilities and risks/mitigation measures. 36. In order to achieve these objectives, the E-Budget system has the following goals:

(a) improve access to information about the financial performance and financial status of public legal entities and their assets and liabilities;

(b) develop tools for correlating strategic and budget plans, for monitoring the performance of government programs and the achievement of results characterizing the scope and quality of the provision of government services (performance of government functions);

(c) provide public access to information on planned and actual results of activities of public sector organizations in the area of public financial management;

(d) integrate the processes of budget formulation and execution, accounting and preparation of financial and other statutory reports by legal entities of public law;

(e) strengthen links between the budgeting process and procedures for planning of procurement of goods, works and services for needs of legal entities of public law, placement of orders for their delivery, and execution of state (municipal) contracts concluded on the basis of outcomes of order placement; and

(f) ensure that registers of spending commitments are aligned with spending authority of legal entities of public law as established by the Russian laws.

37. Following the establishment of project management structure and working groups, an action plan was developed to implement the planned activities and this was revised in October 2012 (Table 2.3.1). The MoF is in the process of developing the first four modules of the E-Budget system by using the MoF budget funds. The MoF has signed a contract with a local consulting firm to work on the business process modeling of existing procedures. A questionnaire has been sent to selected suppliers/system integrators in April 2012, in order to identify potential system developers. The development of information and communication technology (ICT) solutions was initiated in Q4 2012, and the first four modules (out of 12) of the integrated E-Budget platform (Procurement Management, HR Management, Non-financial Asset Management, Accounting and Reporting for budget institutions and public entities) are expected to be ready for pilot implementation in three public entities (MoF, FT and the Federal Drug Control Service) in 2013. This will be followed by the implementation of four additional modules in each subsequent year (2014 and 2015) to cover the full functionality for three pilot entities at the federal level.

46

Another important step will be the creation of the united (single) portal for the budget system (www.budget.gov.ru) in 2013. Expansion of the system to other central level federal authorities (up to 150) and their regional departments, as well as the regional and local budget levels (including spending units and municipalities), is expected to be designed and implemented in parallel, until the end of 2016. The proposed approach (iterative system development) is challenging, since the potential improvements in procedures and legislative/normative changes should be identified sufficiently early during 2013-2014. 38. The MoF has already identified the following main sub-systems of the Electronic Budget system (Figure 2.1):

(a) Basic subsystem (maintains registers, classifiers and forms, providing data for all other functional subsystems, and functions of centralized maintenance of reference info).

(b) Transactional subsystems (automation of key public financial management processes with online transaction processing capability).

Budget planning subsystem; Revenue management subsystem; Expenditure management subsystem; Cash management subsystem; Procurement management subsystem; Financial assets and debt management subsystem; Non-financial asset management subsystem; Human resources management subsystem.

Derivative subsystems (consolidation of information from transactional subsystems, information processing and preparation of financial, budget and statistical reports).

Accounting and reporting subsystem; Financial control subsystem; Information and analytical subsystem.

39. The existing Federal Treasury Automation System (FTAS) functional modules support most of the budget execution processes for cash based operations of the Russian Federation budgetary system. Extension of these capabilities for supporting other ministries and agencies, as well as the regional and municipal authorities, and improving FTAS integration mechanisms will allow the utilization of FTAS platform as a basis for the implementation of these E-Budget or integrated Financial Management Information System (FMIS) modules (Figure 2.2). 40. This project component is expected to support some of the activities identified in the MoF’s broader E-Budget action plan, to complement the MoF’s ongoing efforts for developing and implementing the key modules of the system. Particularly the component activities will support:

(a) Improvement of Development of legal and methodological foundation for automation of budget procedures and integration of budget process information flows;

(b) Review of the latest international tendencies and best practice on automation of budget process and implementing E-Budget systems;

47

(c) Expanding the analytical and information management tools under the E-Budget system and the development of the unified standards for data storage and exchange;

(d) Budget sector staff capacity building through training programs, knowledge-sharing workshops and conferences, and by developing a code of good practices on implementing the E-Budget and improving public access to information development of the Code of Best Practice;

(e) Support to implementation of the E-Budget system through development of implementation regulation and guidelines, organizing quality assurance through external international peer-review, and monitoring and evaluation; and.

(f) Additional advisory support and training activities to support emerging needs during the implementation of the MoF’s broader E-Budget program.

41. The design and implementation of the E-Budget information and communication technology (ICT) solutions, and establishment of infrastructure for the system, including the budget portal will be funded from the federal budget, and these activities are outside the scope of this Project. 42. Estimates cost of this component is US$ 39.148 million (US$ 25.5 mil. from the Federal Budget and US$ 13.7 mil. from the IBRD). The breakdown of cost estimates for the Component and timelines of planned activities are presented in Table 2.3.2. Since most of the component activities are linked with several ongoing E-Budget program activities (listed in Table 2.3.1), priorities and sequencing of these component activities, as well as the total number of relevant procurement packages (mostly QCBS) need to be adjusted during project implementation. Therefore, additional advisory support and training activities are embedded in the project plan to provide flexibility for unforeseen support needs.

48

Figure 2.1: e-Budget Modules5

Figure 1. Structure of the E-Budget System

Source: Presentation by the Ministry of Finance of the RF at the meeting of the Expert Group of the Coordinating Committee on design and development of the state integrated public financial management information system “Electronic Budget”, October 22, 2011

Figure 2.2: Integration of e-Budget with other government information systems6

5 Source: Presentation by the Federal Treasury during PEM-PAL Treasury CoP workshop in Moscow (June 2012). 6 Source: Presentation by the MoF during APEC FMIS Workshop in Kazan (March 2012).

<<< E‐Budget

49

Table 2.3.1: The MoF’s “Electronic Budget” implementation plan 2011-2016 (as of May 2013)

Timeline Activities Status 1. Administration of the Creation and Development of the E-Budget State Integrated Public Finance Management Information System [ Q3 2011- Q4 2014 ]

Q3 2011 1.1. Organizing administration of the creation and development of the E-Budget state integrated information system of public finance management, including the development of requisite organizational and directive documents and regulations on interactions between participants in the creation and development of the E-Budget System.

Completed

Q3 2011 1.2. Establishing an interagency working group to deal with designing, maintaining and applying national registers, classifiers and other information resources used in the E-Budget System.

Completed

Q4 2011 1.3. Introducing (developing when necessary) an information system to monitor the implementation of measures to create and develop the E-Budget System.

Completed

Q1 2013 - Q2 2013 1.4. Designing procedures to maintain the single portal of the Russian Federation budget system.

Planned

Q1 2013 - Q2 2013 1.5. Defining the mix of information and procedures for posting and presenting such information on the single portal of the Russian Federation budget system.

Planned Key activity

Q2 2013 - Q3 2013 1.6. Developing procedures for E-Budget System introduction. Planned Key activity

2. General and Comprehensive Design/Modernization of the Databases of Russia’s MoF and Federal Treasury and Development of Technological Platform [ Q4 2011 - Q3 2013 ]

Q4 2011 2.1 General design of the E-Budget System, including formulation of requirements to the system and its architecture and the list and contents of the centralized subsystems.

Completed Key activity

Q1 2012 - Q3 2012 2.2 Comprehensive design of the E-Budget System (system architecture).

Completed

Q1 2012 – Q2 2012 2.3 Analysis of the development, application, maintenance and updating of national classifiers and registers and formulation of proposals for developing Planned or amending existing procedures for the maintenance of registers and classifiers to be used in the E-Budget System and other gov systems.

Completed Key activity

Q3 2012 – Q4 2012 2.4 Analysis of existing processes and development of forms and reference manuals for subsystems of registers maintenance and information and analytical support.

Completed

Q3 2012 – Q4 2012 2.5 Analysis of existing information systems functionally linked with the E-Budget System (according to the list of systems specified in Section 4 of the Concept of the Creation and Development of the E-Budget System) and drafting of proposals for their integration.

Completed

Q2 2012 – Q3 2012 2.6 Development of the statement of work for the E-Budget System and formulation of general requirements to the functional subsystems and requirements to the integration and information interactions with external systems.

Completed

Q2 2012 – Q4 2012 2.7 Modernization of the existing databases of Russia's Ministry In progress

50

Timeline Activities Status of Finance and Federal Treasury (register of expenditure liabilities, aggregate budget quarterly profile, register of government contracts, etc.), including possibilities of access to information in the databases for a broad range of users.

70% complete

Q1 2013 2.8 Determination of the parameters of information interaction between the E-Budget System and e-government infrastructure (including the system of interagency electronic interactions and the integral identification and authentication system).

In progress. 90% complete (final harmonization)

Q4 2012 – Q1 2013 2.9 Development of technologies for the centralized collection and aggregation of annual, quarterly and monthly reports on the execution of budgets in the RF budget system.

In progress 50% complete

Key activity for developing the

prototype of Information and Analysis System

Q4 2012 – Q1 2013 2.10 Design of technological subsystems of the E-Budget System (including the registers maintenance subsystem).

In progress 90% complete (final

harmonization) Q4 2012 – Q1 2013 2.11 Design of the first stage of the information and analytical

support subsystem, namely, support for the centralized collection and aggregation of annual, quarterly and monthly reports on the execution of budgets in the RF budget system.

In progress 70% complete

Mock-up sub-system has been developed

Q1 2013 – Q2 2013 2.12 Development of technological subsystems of the E-Budget System (including the registers maintenance subsystem) and their transfer for operational testing.

In progress 40% complete

Mock-up sub-system has been developed

Q1 2013 – Q2 2013 2.13 Development and transfer for operational testing of the first stage of the information and analytical support subsystem, namely, one ensuring support for the centralized collection and aggregation of annual, quarterly and monthly reports on the execution of budgets in the RF budget system.

In progress 20% complete

Mock-up sub-system has been developed

Q3 2013 2.14 Operational testing of technological subsystems of the E-Budget System (including the registers maintenance subsystem).

Planned Key activity providing the technological base

for developing functional subsystems of

the E-Budget System Q3 2013 2.15 Operational testing of the first stage of the information and

analytical support subsystem, namely, one ensuring support for the centralized collection and aggregation of annual, quarterly and monthly reports on the execution of budgets in the RF budget system.

Planned

Q4 2012 2.16 Development of the design and content of the single portal of the budget system of the Russian Federation

Completed Key activity for

developing the RF budget portal (open part)

Q4 2012 – Q1 2013 2.17 Design of the single portal of the budget system of the Russian Federation (unclassified segment).

Completed Mock-up sub-system has been

developed Q1 2013 – Q2 2013 2.18 Development and transfer for operational testing of the single

portal of the budget system of the Russian Federation Completed

Test version has been

51

Timeline Activities Status (unclassified segment). developed

Q3 2013 2.19 Operational testing of the single portal of the budget system of the Russian Federation (unclassified segment) with subsequent transfer for routine operation.

Planned Key activity

3. First Stage Implementation [ Q3 2012 – Q2 2014 ] Q3 2012 – Q4 2012 3.1 Analysis of legislative and other regulatory legal acts and their

drafts for impact on the creation and development of the E-Budget System.

Completed

Q4 2012 3.2 Preparing a plan of drafting legislative and other regulatory legal acts required for the implementation of the first stage of the development of the E-Budget System.

Completed

Q4 2012 – Q4 2013 3.3 Drafting of regulatory legal acts (amendments thereto) governing procedures for the development, maintenance and use of national registers, classifiers and other information resources used in the E-Budget System

In progress 20% complete

Key activity for the subsystem of

maintaining registers and functional modules

Q1 2013 – Q2 2014 3.4 Drafting of legislative and other regulatory legal acts required for the implementation of the first stage of the development of the E-Budget System.

In progress 10% complete

Q3 2012 – Q1 2013 3.5 Analysis of existing processes and development of forms and

reference manuals in the spheres of procurement, HR and non-financial assets management and in accounting

In progress 30% complete

Q1 2013 – Q3 2013 3.6 Design of procurement and HR management subsystems Planned Q3 2013 – Q4 2013 3.7 Development and transfer for operational testing (including

with regard to integration with external information systems) of procurement and HR management subsystems

Planned

Q1 2014 3.8 Operational testing of procurement and HR management subsystems

Planned

Q3 2013 – Q4 2013 3.9 Design of non-financial assets and accounting and reporting subsystems

Planned

Q4 2013 – Q1 2014 3.10 Development and transfer for operational testing (including with regard to integration with external information systems) of non-financial assets and accounting and reporting management subsystems

Planned

Q2 2014 3.11 Operational testing of non-financial assets and accounting and reporting management subsystems

Planned

4. Second Stage Implementation [ Q1 2013 – Q4 2014 ] Q1 2013 – Q3 2013 4.1 Analysis of legislative and other regulatory legal acts and their

drafts for impact on the creation and development of the E-Budget System

Planned

Q3 2013 4.2 Preparing a plan for drafting legislative and other regulatory legal acts required for the implementation of the second stage of the development of the E-Budget System

Planned

Q3 2013 – Q4 2014 4.3 Drafting legislative and other regulatory legal acts required for the implementation of the second stage of the development of the E-Budget System

Planned

Q1 2013 – Q3 2013 4.4 Analysis of existing processes and development of forms and reference manuals in the spheres of budget planning and expenditures and cash flow management

Planned

52

Timeline Activities Status Q3 2013 – Q4 2013 4.5 Design of budget planning and expenditure and cash flow

management subsystems Planned

Q1 2014 – Q3 2014 4.6 Development and transfer for operational testing (including with regard to integration with external information systems) of budget planning and expenditure and cash flow management subsystems

Planned

Q4 2014 4.7 Operational testing of budget planning and expenditure and cash flow management subsystems

Planned

5. Third Stage Implementation [ Q3 2013 – Q4 2015 ] Q3 2013 – Q4 2013 5.1 Analysis of legislative and other regulatory legal acts and their

drafts for impact on the creation and development of the E-Budget System

Planned

Q4 2013 5.2 Preparing a plan of drafting legislative and other regulatory legal acts required for the implementation of the third stage of the development of the E-Budget System

Planned

Q1 2014 – Q4 2015 5.3 Drafting of legislative and other regulatory legal acts required for the implementation of the third stage of the development of the E-Budget System

Planned

Q3 2013 – Q4 2013 5.4 Analysis of existing processes and development of forms and reference manuals in the spheres of revenue, debt and financial assets management and financial control

Planned

Q1 2014 – Q2 2014 5.5 Design of revenue, debt and financial assets management and financial control subsystems

Planned

Q3 2014 – Q1 2015 5.6 Development and transfer for operational testing (including with regard to integration with external information systems) of revenue, debt and financial assets management and financial control subsystems

Planned

Q2 2015 5.7 Operational testing of revenue, debt and financial assets management and financial control subsystems

Planned

6. E-Budget Implementation Stage [ Q3 2013 – Q4 2016 ] Q3 2013 – Q4 2016 6.1 Support for government administration organizations in

computerizing accounting and financial reporting Planned

Q3 2013 – Q4 2016 6.2 Development of methodological documentation and training programs; training of E-Budget System users

Planned

Q1 2015 – Q4 2016 6.3 Assistance to executive authorities of RF constituent subjects, local self-government bodies, and government and municipal institutions in transition to the use of service subsystems and information services of the E-Budget System

Planned

53

Table 2.3.2: The Costs and Timelines of Component 3 - E-Budget

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

3.A  

Improvement of normative legal and methodical base in the area of 

public and municipal finance management, to automate budget 

procedures and integrate information flows in the public sector

8,500

QCBS/3.1 3,1Advisory support for improvement of legal  and other regulatory acts, 

regulating public and municipal  finance management3,110

QCBS/3.2 3,2Assistance in improvement of classifiers' system according to the 

requirements of the E‐budget system2,209

QCBS/3.3 3,3Advisory support on improvement of practices and forms  of mgmt 

accounting and prog budgeting of bud org within the E‐budget system3,181

3.B 

Monitoring of the latest tendencies and the best practice on budget 

process automation and introduction of the E‐budget procedures in 

other countries

5,000

QCBS/3.4 3,4Development on the basis of the int'l  experience recommendations on 

the development of information systems in the Russian Federation5,000

3.C  Expansion of analytical and informational capabilities of provision of 

effective budget policy implementation by the RF Minfin

5,900

QCBS/3.5 3,5Recomm on transp and account of public (municipal) finances  

system, incl  disclosure of info via E‐Budget and a single budget portal2,500

QCBS/3.6 3,6Recomm on interrelation of all  types of acct of public legal  entities 

and tech assist to MoF in integration of budget prep, exec, acct. 3,400

3.D  

Development  and conduction of training programs, dissemination of 

experience of using the "E‐Budget" system  for public and municipal 

authorities and agencies

11,200

QCBS/3.7 3,7Methodical  support to public management sector organizations on 

development of automation of accounting and financial  reporting3,500

QCBS/3.8 3,8Development  and conduction of training program for   the E‐Budget 

system users  6,700

QCBS/3.9 3,9Development of the code of the best practice for E‐Budget system 

usage and assist in its  application for the users1,000

3.E  Support to the realization of the program on development and 

introduction of the E‐budget system

8,548

QCBS/3.10 3,10Monitoring of quality of implementation of the project on creation 

and implementation of the E‐budget system3,000

QCBS/3.11 3,11Development of structuring and methodological  documentation on 

creation of the E‐budget system2,900

QCBS/3.12 3,12TA to MoF in management of changes  during the course of the 

practical  introduction of the E‐budget system2,648

Total 39,148

2014 2015 2016 2017Proc. Package

Activity 

#Component 3 Activities

Est Cost 

(mUSD)

2013

Procurement Implementation

54

Component 4 – Enhancing Budget Efficiency (US$ 24.840 million) 43. In recent years the Government has initiated a broad set of budget reforms with the objective of ensuring long term budget balance, improving the alignment of budget resources with policy priorities and enhancing the efficiency and effectiveness of resource use in the public sector. These policy directions are described in the Concept of Long-term Social and Economic Development of the RF, in the Program on Enhancing the Efficiency of Budget Spending, Presidential budget addresses to the Federal Assembly in 2011 and 2012 and other policy documents. A new Program for Enhancing the Efficiency of Budget Spending 2013 to 2018 is under development and is expected to be approved by the time the project is effective. In addition already adopted State Program on budget planning and execution will financially support the reform. The project will provide advice to the government on the design and implementation of key aspects of this program, drawing on international experience and good practices.

A. Improvements in Budget Planning and Preparation

Current status

44. Some time ago long term budget forecasts started to be developed (up to year 2020-2030). Interest in it is based on pension sector long-term sustainability problem, plus long-term investment needs first of all, infrastructure. Along with these needs there is high level of uncertainty in economic forecasts for such a long perspective. But nevertheless it is required by the Government that MF develops such forecasts to inform long term budget policy and planning. MF currently lacks institutional capacity and reliable experience to do it independently without international experience. 45. Russia introduced a three-year budget planning framework from 2007 that covers 100 percent of the federal budget and around 61 percent of the consolidated general government. This rolling budget framework is updated on an annual basis and provides the basis for longer term budget planning by line ministries and agencies (referred to as Main Budget Fund Administrators). 46. “The Government Program for Enhancing Efficiency of Budget Expenditures till 2012” set an objective of moving progressively to use of program budgeting from 2010. The current plan is to prepare and approve 3-year budget based on program classification starting with the 2014-2016 budget. It is expected that development of state programs will encourage planning and budgeting of line-ministries activities based on the key government priorities and sector policy objectives. Federal executive authorities are developing State Programs and, starting in 2014 the budget will be presented based on program basis. The new system will increase line-ministries responsibility for delivering program outputs and achieving program objectives, but it will also require strengthened capacity for budget analysis and for monitoring program implementation at the level of individual ministries. 47. While a methodological approach has been developed and program classification developed, based on 41 state programs approved by the Government, only a limited number of programs, covering about 1 percent of the budget expenditures, have been fully developed as of

55

2012. Most of the programs are still in progress and initial experience in program development revealed the need for methodological support in quality assurance of the state programs design and budgets. 48. The project will update medium and long term budget planning processes, including better integration of procurement planning, strengthening the links to strategic planning, adoption of a program approach and potential adoption of fiscal rules Activities 49. The project will support the following activities:

(a) Improving the practical effectiveness of long term and medium term budget planning processes, including use of fiscal rules;

(b) Advice on the development of state programs, quality assurance of program based budget submissions and monitoring and evaluation of program implementation;

(c) Advice on the development and use of cost norms in budget preparation and analysis (d) Expanding the application of program budgeting to different levels of government; (e) Enhancing the approach to monitoring of the quality of financial management of

budget recipients; (f) Support to planning and implementation of the Program on Enhancement of

Efficiency of Public Finance Management till 2018; (g) Advice on improving expenditure efficiency at sector level; (h) Improvement of the budget process in the area of cooperation with the international

financial institutions; (i) Supporting the preparation of related follow up operations.

B. Innovation in Service Delivery Current status 50. A budget reform in late 2008 introduced “Service agreements” which promote new budgeting principles for public services, reflecting the idea of transfer from budget organization staff schedule and infrastructure financing to per capita financing. In addition, service agreements are intended to provide accountability framework in relations between the executive authority - budget holder and service provider in terms of technical requirements, staff qualification, number of recipients to be served, service quality standards and indicators. 51. Although these arrangements are being implemented at all levels of the government in Russia there is no consistent approach or rules governing contractual relationships between the federal government and non-state service providers. As a result Government is frequently represented by business entities which acquire inappropriate rights and obligations. At the same time the NGO sector, which plays an important role in service delivery in many countries, is under-developed in Russia and there is scope to increase its involvement. 52. As part of the program to improve budget efficiency, the Government intends to strengthen the institutional frameworks, financial management capacity and the level of

56

accountability of agencies responsible for delivery of public services. The reforms envisage better definition of the roles and responsibilities of semi-autonomous agencies and partnerships between the public, private and voluntary sectors, to support better quality services. The project will support these changes through analysis of international experience, policy advice, and support for implementation and capacity building in the areas described below. Activities 53. The project will support the following activities (a) Advice on the PFM aspects of the introduction of new models of service delivery, including financing, costing and budgeting of services, financial management capacity, and control; (b) Advice on strengthening the stewardship role of Government as owner/financier. C. Internal controls and internal audit Current situation 54. The Russian government sector does not yet have a modern uniform internal audit system. Currently, budget control is exercised at the levels of the Federal and Sub-National Chambers of Accounts; the Federal Service of Financial and Budgetary Control and Supervision (Rosfinnadzor) under the Ministry of Finance and by internal control units within government bodies (ministries and agencies). 55. In spite of the three-level system, the objectives of state control at all levels are similar and focused on verification of compliance with the national budget legislation. It means that the tasks of Rosfinnadzor overlap with those of the Accounts Chamber, on the one hand, and those of the internal audit units within the ministries, on the other hand. As a consequence, there are excessive audits of the same area/entity by various oversight bodies. 56. The need for reform in budget control has been articulated in the Program for Enhancing Efficiency of Budget Expenditures until 2012. The new approaches to the internal budget control were reflected in the Government Draft Law on Amendments to the Budget Code in the Area of State Financial Control. These amendments propose (i) clarifying functions of state control between key responsible stakeholders, (ii) splitting functions of internal financial control into internal control, implemented by Rosfinnadzor, and internal audit, introduced at the Ministry/agency level, (iii) a classification of violations, (iv) introducing rules for budget control over budget subsidies, provided to organizations operating outside of the budget system. 57. The Government aims to rationalize and modernize the system of state financial control with a view to enhance budget efficiency and long-term sustainability. To achieve this objective, the concepts of “ex ante” and “ex post”, “internal” and “external” control will be introduced into Budget legislation. A special attention will be paid to preventive control and risk management through introducing internal audit function, as a part of internal state financial control.

57

Activities

58. The following activities will be supported under the project:

(a) Introduction of the legislative acts on internal control and internal audit; (b) Development of the methodology, standards and manuals in the areas of internal control

and internal audit in line with COSO recommendations and INTOSAI and the Institute of Internal Auditors (IIA) principles and standards;

(c) Development of a detailed implementation strategy; (d) Capacity building of civil servants involved in conducting internal audits and passing on

the knowledge and skills needed to implement the methodology in practice through study tours, training of trainers, etc.

D. Accounting and Financial Reporting Current situation 59. The Government has requested MoF to develop federal standards for public sector accounting and reporting based on International Public Sector Accounting Standards (IPSAS). The new federal law “On accounting”7 which will come into effect on the 1st of January 2013, requires the use of the uniform federal standards. Under the Treasury Development project, five draft Russian public sector accounting standards8 have been developed and publicly discussed. The draft standards have been developed following a broader gap analysis performed by comparing national accounting system with International Public Sector Accounting Standards (IPSAS). Additionally, 31 IPSAS 2010 standards were translated into Russian, and this translation was approved by the IFAC as the latest official translation into Russian. 60. The transfer to international standards in the field of accounting and financial reporting will help to improve the quality of financial statements on the government budget and public assets and liabilities. This will provide greater transparency and facilitate better understanding of the Government’s financial position. The adoption of accrual based accounting standards will also facilitate budget efficiency reforms. A direct adoption of IPSAS standards is not possible and so it will be necessary to evaluate mechanisms for the introduction of standards, and to develop Russian national standards that correspond to international standards. Activities 61. The following activities will be supported under the project:

(a) Development of federal standards for accounting and financial reporting in the public sector based on IPSAS;

(b) Development of an implementation plan for the development and adoption of the new federal standards, including public consultation and communication;

7 Federal Law 402- FZ dated December 6, 2011. 8 The standards include the conceptual framework.

58

(c) Development of methodological recommendations to reflect specific requirements of application of federal accounting and financial reporting standards in social segments of public sector as well as dissemination of such recommendations, popularization and implementation assistance.

E. Revenue management Current status 62. Many service delivery agencies generate own revenues in the form of property rents, fees for public services, administrative penalties, fines and other charges. This is an important source of revenue. In 2011, non tax revenues accounted for 5.7 percent of total revenue for consolidated budget (includes federal budget, federal extra-budgetary funds (EBFs) , consolidated sub-national budget and sub-national EBFs) or 2.2 percent of GDP. For the federal budget non-tax revenue amounted to 6.1 percent of total revenue or 1.3 percent of GDP. For consolidated sub-national budgets non-tax revenue amounted to 7.2 percent of total revenue or 1.0 percent of GDP. 63. Government currently experiences a high degree of unpredictability in the receipt of non-tax revenues. Within these revenue categories there are wide divergences between budgeted and actual revenues, leading to problems in budget execution and cash management. This is attributed to weaknesses in forecasting and revenue accounting. The time taken to properly classify and account for revenues is also a contributing factor, with substantial balances held in suspense accounts. Receipt of non-tax revenues is handled though the Treasury system. However, many government institutions generate own revenues from user charges etc. that are not remitted to the Treasury, and the accounting treatment is unclear. 64. The project will help to improve the accuracy of non tax revenue forecasts, strengthen control frameworks for management of non-tax revenues and improve the speed and accuracy of reporting of non-tax revenues across all levels of government. Activities 65. The following activities will be supported under the project: (a) Recommendations for improved budgeting, management, control and accounting for non-tax revenues.

F. Procurement planning and contracting 66. The Government is in the process of reforming the federal contracting system. The new law, already adopted, is intended to improve budget planning with respect to public procurement, provide a broader selection of procurement methods, professionalize procurement and strengthen monitoring of contract performance. Extensive work will be required to make the law operational and ensure that it delivers the intended benefits. The project will support the implementation of changes in federal contracting law as they affect the Budget Efficiency

59

Program. The main opportunities are expected to arise from better integration of procurement planning and budgeting, especially in respect of large and long term contracts, and more effective monitoring of service delivery by agencies and other bodies operating under service agreements and similar contractual type relationships.

Activities

67. The following activities will be supported under the project:

(a) Develop new methodology and legal bases to improve budget planning and monitoring in relation to state procurement and contract implementation, with particular focus on improving spending efficiency, transparency and results.

(b) Develop methodologies and legal bases for establishing contractual relationships governing economic transactions with the full range of institutions that the state is involved in, ensuring that these are brought within the framework of federal contracting law

68. Total costs of this Component are estimated to be US$ 24.840 million (US$ 16.15 million from the federal budget and US$ 8.69 million from IBRD). Breakdown of costs for the Component and timeline for activities implementation is presented in Table 2.4.1.

60

Table 2.4.1: The Costs and Timelines of Component 4 – Enhancing Budget Efficiency Component 4 Activities

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

PFMP/QCBS/4.1

4,1Development of metodology and recommendations for practical implementation of

midterm amd longterm budget planning on the basis of international best practice (in

particular, budget rules issue) for the purpose of budget accountability and

transparancy enhancement

1,000

PFMP/QCBS/4.2

4,2Development of federal accounting and financial reporting standards in public sector

on the basis of IPSAS

3,000

PFMP/QCBS/4.3

4,3Development of methodological recommendations on transition to federal accounting

and financial reporting standards in public sector application, dissemination and

popularization

1,200

PFMP/QCBS/4.4

4,4

Development of methodological recommendations to reflect specific requirements of

application of federal accounting and financial reporting standards in social segments

of public sector

1,400

PFMP/QCBS/4.5

4,5

Dissemination of methodological recommendations to reflect specific requirements of

application of federal accounting and financial reporting standards in social segments

of public sector, popularization and implementation assistance

0,800

PFMP/QCBS/4.64,6

Development of normative expenditure ratios for state functions execution and

monitoring of their practical  application

0,500

PFMP/QCBS/4.7

4,7Technical assistatance to the RF Minfin in the field of state budget programs

development, consideration and implementation

1,840

PFMP/QCBS/4.8

4,8

Analysis and development of recommendations for the application of international and

Russian experience of program budget implementation on federal, regional and local

levels of budget system

0,500

PFMP/QCBS/4.9

4,9Development of legislation and methodology necessary for planning of budget

expenditures on procurement of goods, works and services for state and municipal

needs, in particular, for the purpose of transparancy and accountability enhancement

1,200

PFMP/QCBS/4.10

4,10Development of recommendations for enhancement of system for monitoring the quality

of financial  management of budget recepients  of the federal  budget

1,200

PFMP/QCBS/4.11

4,11Development of new methods, forms, control system and financial arrangements for

provision of public services (including measures available to the Government as the

owner of the service provider) leading to enhancement of quality of services provided

1,000

PFMP/QCBS/4.12

4,12Development of internal control and audit system in the sector of public management

(bodies  of power, municipal  bodies, budget institutions)

1,500

PFMP/QCBS/4.134,13

Enhancement of internal  state financial  control  system (Rosfinnadzor)1,500

PFMP/QCBS/4.14

4,14Development of legislation and methodology necessary for inclusion of public bodies

into the transactions regulated by the civil  contract legislation

1,000

PFMP/QCBS/4.15

4,15Assistance to the implementation of Program of the Government of the Russian

Federation on enhancement of efficiency of public finance management (state and

municiplal) up to year 2018, including annual  plans of its' real isation

1,200

PFMP/QCBS/4.164,16 Enhancement of budget revenues administration system on all  levels of budget

1,000

PFMP/QCBS/4.18

4,18

Elaboration of recommendations on transition to programmatic approach to planning

and management of budget expenditures related to cooperartion with multilateral

development banks and on methods of evaluation of results of such cooperation on the

basis of international  best practice

1,250

PFMP/QCBS/4.19

4,19Assistance to development of methodology and practical implementation of monitoring

of efficiency of MDB projects' expenditures  in Russia

2,000

PFMP/QCBS/4.20

4,20Assistance to RF Minfin institutional capacity enhancement in the field of planning and

implementation of the MDB projects

1,750

Total 24,840

2015 2016 2017Proc. Package

Activity 

#

Est Cost 

(mUSD)

2013 2014

Procurement Implementation

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Component 5 – Project Management (US$ 5.000 million)

69. A project implementation unit (PIU) will provide day to day support to MOF in the Project implementation, inter alia, providing support in the preparation of budgets, project implementation plan, and procurement plan. The PIU will also prepare detailed bidding documents, bid evaluation reports and contracts, requests for disbursement and regular financial progress reports.

70. Total costs of this Component are estimated to be US$ 5.000 million (100 percent funded from IBRD).

.

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ANNEX 3: IMPLEMENTATION ARRANGEMENTS

Project Institutional and Implementation Arrangements

1. The MOF will be responsible for Project implementation and coordination with other concerned agencies. The project implementation structure will consist of three levels: strategic decision-making, operational management and support for project implementation (see Figure 3.1).

2. The level of strategic decision-making intra-ministerial coordination will be represented by the Working Group (WG) made up of representative of the key relevant MoF Departments, and chaired by the Deputy Minister of Finance. The WG is responsible overall for preparation and implementation of the project and will set reform priorities, make key strategic decisions, monitor overall project implementation progress, and resolve high level implementation and coordination issues as they arise. The WG will meet as frequently as required and its decisions will be reflected in the minutes, signed by the Chair of the WG. The WG will also ensure that activities of the project remain relevant and appropriately aligned with Government policy and strategies.

3. At the level of operational management of the project, the Deputy Minister of Finance, as the Chair of the WG appointed by the Minister of Finance, will take operational decisions, exercise fiduciary responsibilities and ensure project implementation according to the Project Implementation Plan. The Chair of the WG will approve the Project Operations Manual (POM) and will provide overall management, control over execution of all Project activities, and ensure compliance with World Bank project management requirements. Finally, the Chair of the WG will lead the dialogue and serve as the focal point for communication with the World Bank on all project related issues.

4. Sub-groups will be established under the WG for each project component. These Sub-Groups will be responsible for the direction of project activities within the respective components, including preparation of terms of references and technical specifications of the planned activities and for annual procurement plans. They will also oversee contract implementation and ensure timely delivery of specified component outputs. The Sub-Groups will be led by the department head (or appropriate deputy heads) responsible for leading technical implementation of project component.

5. At the implementation level, the Project Implementation Unit (PIU) will coordinate and support reform implementation, working with the thematic Sub-Groups and activity leaders to ensure timely implementation of project activities. The PIU will provide support to ensure that financial management, procurement and disbursement are carried out in accordance with Bank rules as described in the Loan Agreement and Project Operations Manual (POM). The PIU will submit quarterly project progress reports and provide updated information on project implementation to the Bank as required.

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6. Technical support to functioning of the project implementation arrangement will be provided by the following MOF departments:

(a) The Department for Budget Methodology will provide secretariat support to the WG, following up on implementation of the WG decisions and coordinating preparation of operational documents.

(b) The Department for International Financial Affairs will be responsible for contracting the PIU and for liaising with PIU on the Project implementation issues, facilitating POM preparation and ensuring implementation of effectiveness conditions of the World Bank Load Agreement.

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Figure 3.1: Project Implementation Arrangements

Chair of the WG/Deputy Minister of Finance

Overall management of Project: Project preparation and implementation

Operational decisions and fiduciary responsibilities Approval of POM, ToRs for Component 5 (Project Management),

procurement plan, work plans, implementation reports

Working Group (Representatives from the Ministry of Finance stakeholder departments)

Project Implementation Unit (Reports to the Chair of the WG/ Deputy Minister of Finance)

Assistance to MoF in Routine and day-to-day project management Coordination of project activities with various Thematic Sub-Groups Preparation of project implementation plans, progress reports, and

updating the outcome indicators Prepare project budgets and procurement plan

Prepare bidding documents, evaluation reports, draft contracts Disbursements: ensure compliance with World Bank FM and reporting

requirements

Evaluation Commissions

Procurement of goods and selection of

consultants

Sub-Group Group Budget Efficiency and Sustainability

Component 4

Sub-Group Inter-Governmental Fiscal Relations and Sub-National PFM

Component 2

Sub-Group Tax Regulation and

Administration Component 1

Sub-Group e-Budget

Component 3

Sub-Groups (Officials of the respective department and agencies concerned with the specific activities)

Develop and approve TORs and technical specifications for activities in their respective areas Participation in bid evaluation and Evaluation Committees

Supervision of consulting services and procurement of goods in their respective components

Budget Methodology Dept. Organizational and technical support to the WG Follow up on implementation of the WG decisions Coordination of preparation of operational documents

International Financial Affairs Dept.

Contracting PIU Liaising with PIU on the

Project implementation Organization of draft

budget, procurement plans, implementation plans development

Organization of Project preparation

65

Financial Management, Disbursements and Procurement Financial Management

7. The overall FM risk is assessed as moderate. For reasons described in section IV all fiduciary arrangements of the project will be carried out by a PIU (FER). In particular, FER will be responsible for all payments under the project. FER has acceptable planning and budgeting capacity; finance staff with years of experience in implementing Bank-financed projects; adequate accounting MIS software. FER is in compliance with the financial covenants of all World Bank financed projects it supports. 8. FER has adequate internal controls for project implementation, including adequate segregation of duties, defined internal control procedures (e.g., expenditure approval), and reconciliation of disbursement summaries of the World Bank with project accounting records. These controls were reviewed periodically as part of previous projects’ supervision and have been found to be acceptable. The internal control procedures for the project are detailed in the financial management sections of the POM. A draft Project Operational Manual was reviewed by the World Bank and it was found to be acceptable. The internal controls include the established procedure of operating costs allocation between the projects FER implements. The costs allocation is reviewed by auditors annually, no issues have been raised. 9. FER will be responsible for producing all financial reports for the Bank. Project interim unaudited financial reports (IUFRs) will be prepared on a modified cash basis. The PIU will produce and submit to the Bank a full set of IUFRs every quarter throughout the life of the project. IUFRs will be due within forty five (45) days of the end of the quarter. Draft formats of these IUFRs will be prepared by FER and will be attached to the POM 10. The project audit will be conducted by independent private auditors acceptable to the World Bank, using International Standards on Auditing. The auditors will be engaged through standard terms of reference acceptable to the World Bank and procured by the PIU (FER) in accordance with World Bank procurement guidelines. The cost of the audit will be financed out of the proceeds of the loan. 11. The audited financial statements together with the auditor’s opinion and the management letter will be provided to the World Bank within six months of the end of the fiscal year. Following the Bank’s formal receipt of project audited financial statements from the Borrower, the Bank will make them available to the public on its website in accordance with the World Bank Policy on Access to Information. In addition, the Borrower will make the project audited financial statements available to the public in a timely manner acceptable to the Bank.

Disbursements

Disbursement Arrangements

12. The proceeds of the IBRD loan will be disbursed in accordance with the traditional disbursement procedures of the Bank. These will be used to finance project activities through the disbursement procedures currently used, that is, Advances, Direct Payments, Reimbursement

66

and Special Commitments accompanied by appropriate supporting documentation (Summary Sheets with records and/or Statement of Expenditures (SOEs)) in accordance with the procedures described in the Bank’s Disbursement Guidelines. The minimum application size for direct payment, reimbursement and special commitment will be specified in the Disbursement Letter. Designated Account

13. The Borrower will open a segregated Designated Account in a Commercial Bank acceptable to the Bank in US dollars to cover the Loan’s shares of eligible project expenditures. The Ceiling of the Designated Account will be specified in the disbursement letter. FER will be responsible for submitting quarterly replenishment applications with appropriate supporting documentation along with a reconciled bank statement. The Designated Account will be audited annually in conjunction with the audit of the project financial statements. Statement of Expenditures (SOEs)

14. Necessary supporting documents will be sent to the Bank in connection with contracts that are above the prior review threshold, except for expenditures under contracts with an estimated value of (a) less than US$500,000 equivalent for Goods; (b) less than US$ 300,000 equivalent for Consulting Firms and Non-Consulting Services; (c) less than US$50,000 for individual consultants, as well as operating costs and Training, which will be claimed on the basis of SOEs. The documentation supporting expenditures will be retained at FER and will be readily accessible for review by the external auditors and periodic Bank supervision missions. All disbursements will be subject to the conditions of the Loan Agreement and disbursement procedures as defined in the Disbursement Letter.

Procurement 15. The procurement function has been outsourced to Noncommercial Foundation for Enterprise Restructuring and Financial Institutions Development (FER) to take the role of Project Implementation Unit (PIU). The FER staff has experience in World Bank procurement policy and procedure. The capacity assessment has been carried out. The FER is not required to have additional procurement staff for everyday procurement activities, as one of the currently implemented projects (Judicial Reform Support Project, P089733 - will be closed on March 30, 2014, Registration Project, P093050 – will be closed on May 31, 2014, Financial Education and Financial Literacy Project, P120338 – will be closed on June 30, 2016. If the workload during the peak periods of project implementation requires, an additional procurement staff might be hired or assigned. The project foresees a large number of contracts for procurement of Information Systems, goods, consulting services and training (including logistical services). The overall project risk for procurement is high (as for all projects in Russia). Mitigation measures include the following: the Russian Government should continue making measures in decreasing corruption risks by adopting new laws and strict control for their implementation, the use of Bank procurement procedures may minimize corruption; good detailed complaints handling system should be described in Project Operation Manual (POM). After implementation of risk mitigation measures the residual risk will be “Substantial”. The PRAMS for the project has been

67

completed and Procurement Capacity Assessment report with detailed risk mitigation plan has been filled in the PRAMS.

16. Procurement of Goods and services other than consulting services will be carried out in accordance with the World Bank’s relevant Guidelines: “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011 (Procurement Guidelines), while consulting services will be procured in accordance with the World Bank’s "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines), and the provisions stipulated in the Legal Agreement. The Project shall also follow Guidelines: On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 and revised in January, 2011. For each contract to be financed by the loan, different methods, estimated costs, prior review requirements, and time frames will be agreed between the Borrower and the Bank in the procurement plan. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

17. The Bank’s standard bidding documents will be used for all International Competitive Bidding (ICB). The Bidding Documents for National Competitive Bidding (NCB) as well as sample documents for shopping will be discussed and agreed with the Bank. Goods and services (other than consulting services) estimated to cost US$1,000,000 equivalent and more will be procured through ICB. Goods and services (other than consultants’ services) estimated to cost less than US$1,000,000 equivalent will be procured through NCB and the additional provisions set forth in the Annex to Schedule 4 of Loan Agreement will also apply. Contracts procured under shopping procedures shall not exceed USD 100,000 equivalent. DC method will be used for the procurement of goods which the Bank agrees meet the requirements for Direct Contracting. Procurement of access to databases for evaluation of transfer pricing under Component 1, on an exceptional basis, will be subject to the Bank’s Procurement Guidelines.

18. Selection of Consultants and training: Consulting services will be contracted for the implementation of various tasks, including, for example: development of guidelines and recommendations, experts’ studies, development of technical specifications, development of training modules and provision of training, feasibility studies, development of strategies, etc.

19. The following methods will be used for selecting consulting firms depending on the nature and complexity of assignments, attractiveness to foreign firms and need for international expertise, estimated budget of the services: Quality- and Cost-Based Selection (QCBS), Quality-Based Selection (QBS), Least Cost Selection (LCS), Selection Based on Consultant’s Qualification (SBCQ) and Single-Source Selection (SSS). A number of individual consultants will be hired for implementation of simple assignments. Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants under the provisions of paragraph 2.7 of Consultant Guidelines. Training activities which will be carried out other than through service providers’ contracts, will be procured through procedures agreed with or satisfactory to the Bank, including travel expenses of the trainees, trainers, representatives of ministries and administrations and other relevant organizations of federal and regional levels, which are involved in project implementation. These

68

procedures will be described in details in the POM. The PIU will prepare annual training plan indicating the type of training, estimated number of trainees, estimated cost of training, etc.

20. Operating Costs: Operating costs of the PIU will be financed from the Loan proceeds and will include all expenses necessary to ensure proper implementation of the project. The PIU will prepare annual operating budget indicating the name and estimated cost of expenses to be covered as part of operating expenses such as rent for office space, utilities, telecommunication expenses, etc. and agreed with the Bank.

21. Procurement Plan: The initial procurement plan shall be agreed between the Borrower and the project team and will be finalized during negotiations. After the project is approved by the Board it will be available in the project’s database and in the Bank’s external website. The procurement plan will be updated in agreement with the project team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

22. Frequency of Procurement Supervision: Procurement supervision will be on-going through the review of procurement documents and day-to-day contacts with the PIU. Supervision missions, which will include post-reviews and contract administration reviews, will be conducted on a regular basis but not less than at least once a year, depending on the success of the project, number of post-review contracts and other factors. At least 20 percent of the post review contracts shall undergo the reviews. Environmental and Social (including Safeguards) 23. The Project has been rated as Category “C “ for environmental purposes. None of the envisaged activities will require any special permission on environmental issues. Hence, the Project will not be subject to the Environmental Impact Assessment procedures or any permission relating to environmental protection aspect. The Project does not comprise activities which could cause any social risks or negatively affect the population in general. The Project would benefit citizens of Russia by improving transparency in public finance. Monitoring & Evaluation 24. A results framework with project specific indicators and actionable monitoring arrangements has been designed to support progress monitoring and result oriented project implementation (Annex 1). Specific time-bound benchmarks and target values for the results framework have been identified and will be agreed prior to the World Bank’s Board approval. The MOF will develop a robust system for monitoring and evaluation (M&E) of the target outcomes and outputs. The M&E system will support the successful implementation of the Project by maintaining records on implementation and generating the following performance reports: (i) quarterly reports prepared by the PIU; and (ii) annual reports prepared within four months of the end of the financial year, focusing on results-based accountability and accomplishments against performance expectations. 25. The Project will be subject to regular supervision missions. The progress assessed during supervision missions will be reported to the World Bank’s management through implementation

69

status reports (ISRs), a mid-term review, and at the completion of the Project, an implementation completion report (ICR).

70

ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) RUSSIAN FEDERATION: PUBLIC FINANCE MANAGEMENT TECHNICAL ASSISTANCE PROJECT (P122998)

71

72

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ANNEX 5: IMPLEMENTATION SUPPORT PLAN

1. World Bank’s support to public finance management reforms is not limited just to financial resources but also to non-financial, technical support for project preparation and implementation. As an investment operation, the Bank will perform close supervision of Project implementation and support the client in achieving the intended Project results. To enhance the value of the implementation support, resources will need to be adapted to the specific Project needs. This is particularly significant in this Project which encompasses technical assistance lending for 4 major areas, each of which require different expertise within the Bank: (i) tax policy and administration, (ii) inter-governmental fiscal relation and sub-national capacity in PFM; (iii) e-budget and (vi) budget efficiency and sustainability. Within each of these broad headings there is a need for highly specialized skills in areas such as oil and gas taxation. Close supervision by a component specialist for each of the components will ensure effective implementation of the reforms. 2. The strategy for Project Implementation Support has been designed to mitigate specific Project implementation risks. In particular, it took into account the political economy context, as well as the risks and challenges mentioned in the ORAF section. In particular, the following aspects have been considered:

3. Co-ordination will be a challenge because project activities fall under the responsibility of several Deputy Ministers in the Ministry of Finance and the Head of the Federal Tax Service.

4. Capacityofsub‐nationalauthoritiesinPFMvaries,whichcouldslowdownimplementationofnewPFMandtaxpolicies.

5. Regional and local authorities may lobby against changes in inter‐budgetaryrelationspolicyandimplementationofprogrambudgeting.

6. The implementation support plan will incorporate policy, technical and operational support. Bank will continue its policy dialogue on budget efficiency and sustainability, inter-governmental fiscal relations, tax administration and tax policy, as well as technical support related to the design and implementation of reform measures, facilitation of change management, and monitoring of Project results, as well as operational support in procurement, financial management and project management. The strategy for the Implementation Support Plan is built on the following key aspects:

7. Policy Dialogue: The Project addresses key issues in Russia’s public finance environment. The Bank is uniquely positioned to engage with the Government on broader policy issues, including through appropriate policy measures supported under various Bank projects. The Project Aide Memoires will be used to track progress in policy development and identify any policy actions needed for the Government’s consideration.

8. Technical and Change Management Support: The Bank team has been advising the MOF on the sequencing of reform measures during project preparation, and will continue to provide regular support in sequencing reform measures, as well as review and quality assurance for the technical design and specifications of major procurement packages. The Bank team will liaise

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closely with the international experts hired under the project to ensure that change management issues are in the forefront.

9. Result Monitoring: Beyond transaction based operational supervision, result orientation has increasingly become the focus of Project supervision. Through regular supervision mission, the Bank will assist the Government in tracking progress towards the achievement of the intended Project results. This will ensure that outputs translate into real impact in terms of a more efficient public finance management.

10. Procurement: During project implementation, the Bank’s procurement specialist will provide regular supervision, in line with procurement guidelines. Procurement implementation support by the Bank will ensure that the PIU selected by the government performs procurement functions diligently and in a timely manner. This will include reviewing procurement documents and providing timely feedback, monitoring procurement progress against the Procurement Plan. In addition, post reviews will be carried on selected contracts subject to post review. Contract deliverables will be physically inspected – as appropriate and feasible.

11. Financial Management: The Bank will conduct risk-based financial management implementation support and supervision mission within a year of the project effectiveness, and then at appropriate intervals. In addition, the regular IFRs and annual project audit reports will be reviewed by the Bank. As required, a Bank-accredited Financial Management Specialist will assist in the implementation support and supervision process. 12. The team will maintain continuity and a regular dialogue with Government counterparts on all relevant operational, technical, policy issues. There will be two formal supervision and implementation support missions per year complemented by ongoing support provided by field based staff in Moscow. The following is the Bank team for implementation support

Table 5.1: Bank’s Implementation Support Team

Skills Number of Staff-

Weeks Number of Trips

Task Team Leader/co-TTL/PFM Specialists 10 weeks per year At least 2 per year e-Budget Specialist 4 weeks per year At least 2 per year Tax Policy/O&G Taxation/ Tax Administration Specialists

8 weeks per year At least 2 per year

IGFR Specialist 4 weeks per year At least 2 per year Procurement Specialist 4 weeks per year Field Based FM Specialist 2 weeks per year Field Based Team Assistant 6 weeks per year Field Based

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ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS

1. Changes in policies, processes and controls, supported by the project, are expected to contribute to efficiency gains in revenue collection and expenditure management across government. More effective targeting of expenditures through strengthening the links between policy objectives and expenditure allocation, and improving the quality of results monitoring and reporting of government expenditures, should ensure that spending is better aligned with the government’s goals in relation to economic development and poverty reduction. 2. Reforms to the tax regime, including streamlining of tax expenditures and modernization of taxes and duties on oil and gas, are designed to sustain revenues over the medium term, stimulate investment and innovation and increase fairness in the application of the tax regime. Improving the quality of tax administration, including the introduction of more electronic services, should reduce compliance costs for businesses and contribute to an improved investment climate. 3. By reforming the system of inter-governmental transfers, supporting new models of service delivery and strengthening the capacity of sub-national governments in PFM, the project will contribute to improving the quality of public service delivery and a reduction in social and economic inequalities between citizens living in different regions. 4. The project gives a high priority to increasing transparency and accountability. The project will finance the development of performance informed budgets and an integrated financial management system (E-budget) that will improve the quality and timeliness of reporting at all levels of government. The alignment of public sector accounting and reporting standards with international standards (IPSAS) should ensure greater transparency and provide the basis for improved accountability. Modernization of internal controls and internal audit should help to reduce the incidence of fraud, corruption, waste and abuse. 5. These benefits are hard to quantify in financial terms, and they cannot be attributed directly to the project, which will put in place the policy and institutional frameworks that will enable government to realize higher level, longer term objectives. Most of the economic benefits described will be realized beyond the lifetime of the project, and their achievement will depend on the effectiveness of government economic policies and on parallel efforts to improve the business climate, crack down on corruption and improve human resource management in the public sector. However given the size of the budget sector, marginal improvements in revenue and expenditure efficiency would imply a high rate of return. 6. The Government of the Russian Federation is not dependent on external financing to carry out these reforms. The rationale for World Bank financing is twofold; that through its engagement the Government is able to access international expertise and knowledge of good practices; and that the rigor of World Bank procurement will help ensure the quality technical advice in areas of critical importance. Financial sustainability is not a concern.

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ANNEX 7: PROCUREMENT PLAN

Reference Number Description Estimated Cost (Loan

+MF)

Procurement / Selection

Method

Review by the Bank

A B C D

COMPONENT 1 - Improving the Economic Efficiency of Tax Policy and Administration

PFMP/QCBS/1.1

Development of methodological recommendations on application of tax rules in the cases of transfer pricing in line with best international practice and methodological approach of the OECD

2.900 QCBS Prior

PFMP/QCBS/1.2

Development and conduction of training program for Ministry of Finance, Federal Tax Service (FTS) FTS Interregional Inspectorate for Price Determination for Taxation Purposes on theoretical and practical issues of tax administration and transactions' prices monitoring for tax purposes basing on best international experience

0.250 QCBS Post

PFMP/ICB/1.3.1-1.3.6

Providing Federal Tax Service of Russia (FTS) and FTS Interregional Inspectorate for Price Control for Taxation Purposes with access to information which is used to compare transactions conditions between related parties with transactions conditions between unrelated parties (there will be several contracts for the whole duration of the project for four years, each contract may have the total amount between USD 200,000 and USD1,600,000)

7.500 ICB Prior

PFMP/QCBS/1.4 Development of recommendations on legal regulation and practical application and administration of tax exemptions

1.800 QCBS Prior

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Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/1.5 Development of recommendations on tax policy improvement in the countries of Custom Union  

2.000  QCBS  Prior 

PFMP/QCBS/1.6 

Technical assistance to MoF in transition to new system of taxation of hydrocarbons extraction, basing on rental income, and other issues of tax policy 

1.544  QCBS  Prior 

PFMP/QCBS/1.7 Monitoring of implementation of new system of taxation of extraction and exporting of hydrocarbons 

2.000  QCBS  Prior 

PFMP/QCBS/1.8 Taxation of local natural resources (not hydro carbonic) 

1.000  QCBS  Prior 

PFMP/QCBS/1.9 Development of recommendations on tax administration enhancement, including procedures for risk management, anti‐avoidance, etc. 

3.000  QCBS  Prior 

PFMP/QCBS/1.10 Development of recommendations on improvement of taxation of controlled foreign companies 

1.500  QCBS  Prior 

PFMP/QCBS/1.11 

Development of concept of beneficiary ownership of income and recommendations on introduction of it to double taxation avoidance treaties and  the Russian tax legislation on the basis of best international practice 

1.500  QCBS  Prior 

PFMP/QCBS/1.12 Development of recommendations on enhancement of tax regulation of Russian financial markets on the basis of best international practice 

2.000  QCBS  Prior 

PFMP/QCBS/1.13  Taxation within special tax regimes  0.500  QCBS  Post 

PFMP/QCBS/1.14 

Analysis of best international practice, development and conduction of special informational programs aimed at popularization of Federal Tax Service activities 

1.500  QCBS  Prior 

PFMP/QCBS/1.15 Development of recommendations and technical assistance in implementation of program aimed at improvement of tax literacy of population 

1.100  QCBS  Prior 

78

Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/ICB/1.16 

Delivery, assembly and installation of hardware and software to create the infrastructure of information and reference services to taxpayers in the local tax offices 

9.350  ICB  Prior 

PFMP/QCBS/1.17 Development of training courses on internal appeal system functioning. Delivery  of training to FTS employees in this field 

0.300  QCBS  Post 

   TOTAL COMPONENT 1  39.744       

  COMPONENT 2 ‐ Modernizing the System of Inter‐Governmental Fiscal Relations and Sub‐National 

PFM          

PFMP/QCBS/2.1 Analysis and monitoring of system of distribution of expenditure responsibilities: financial sustainability and implementation efficiency  

2.500  QCBS  Prior 

PFMP/QCBS/2.2 Development of methodical recommendations on enhancement of revenues of regional and local budgets in the RF 

1.500  QCBS  Prior 

PFMP/QCBS/2.3 Analysis and development of recommendations on minimizing risks of budget implementation on regional and local levels 

1.000  QCBS  Prior 

PFMP/QCBS/2.4 Development of strategy of interbudgetary relationsfor midterm perspective and support to its' implementation 

1.500  QCBS  Prior 

PFMP/QCBS/2.5 Development of recommendations on enhancement of system of targeted interbudgetary transfers 

1.000  QCBS  Prior 

PFMP/QCBS/2.6 Development of system of incentive‐based and restrictive forms of interbudgetary relations 

2.000  QCBS  Prior 

PFMP/QCBS/2.7 Assistance to priority development of highly subsidized regions  

2.500  QCBS  Prior 

PFMP/QCBS/2.8 Development of equalization (leveling) mechanism of budget  wealth of regions and municipalities 

1.000  QCBS  Prior 

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Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/2.9 Assistance to quality enhancement of public services provided on regional and local levels  

2.500  QCBS  Prior 

PFMP/QCBS/2.10 Assistance to development and introduction of anticorruption mechanisms into budget process on regional and local levels 

0.700  QCBS  Prior 

PFMP/QCBS/2.11 Public expenditures' effectiveness enhancement and assistance to program budgeting implementation on regional and local levels 

2.000  QCBS  Prior 

PFMP/QCBS/2.12 Development of system of non‐governmental monitoring of effectiveness of public expenditures  

0.800  QCBS  Prior 

PFMP/QCBS/2.13 

Technical assistance to the RF MoF in the field of intergovernmental fiscal relations enhancement, including development of institutional capacity of Intergovernmental Fiscal Relations Department of the RF MoF 

1.340  QCBS  Prior 

PFMP/QCBS/2.14 

Development and implementation of training program for regional and local financial bodies in the field of new methods of budget planning and assessment of quality of public services provided 

4.500  QCBS  Prior 

   TOTAL COMPONENT 2  24.840       

  COMPONENT 3 ‐ Support for the Development of E‐

Budget System         

PFMP/QCBS/3.1 Advisory support for improvement of legal and other regulatory acts, regulating public and municipal finance management 

3.110  QCBS  Prior 

PFMP/QCBS/3.2 Assistance in improvement of classifiers' system according to the requirements of the E‐budget system 

2.209  QCBS  Prior 

PFMP/QCBS/3.3 Advisory support on improvement of practices and forms of management accounting and program budgeting of bud org within the E‐budget system 

3.181  QCBS  Prior 

80

Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/3.4 Development on the basis of the int'l experience recommendations on the development of FMIS in the Russian Federation 

5.000  QCBS  Prior 

PFMP/QCBS/3.5 

Recommendation on transparency and accountability of public (municipal) finances system, including disclosure of info via E‐Budget and a single budget portal 

2.500  QCBS  Prior 

PFMP/QCBS/3.6 Recommendations on interrelation of all types of acct of public legal entities and tech assist to MoF in integration of budget prep, exec, acct.  

3.400  QCBS  Prior 

PFMP/QCBS/3.7 Methodical support to public management sector organizations on development of automation of accounting and financial reporting 

3.500  QCBS  Prior 

PFMP/QCBS/3.8 Development  and conduction of training program for   the E‐Budget system users  

6.700  QCBS  Prior 

PFMP/QCBS/3.9 Development of the code of the best practice for E‐Budget system usage and assist in its application for the users 

1.000  QCBS  Prior 

PFMP/QCBS/3.10 Monitoring of quality of implementation of the project on creation and implementation of the E‐budget system 

3.000  QCBS  Prior 

PFMP/QCBS/3.11 Development of structuring and methodological documentation on creation of the E‐budget system 

2.900  QCBS  Prior 

PFMP/QCBS/3.12 TA to MoF in management of changes during the course of the practical introduction of the E‐budget system 

2.648  QCBS  Prior 

   TOTAL COMPONENT 3  39.148       

   COPONENT 4 –Enhancing Budget Efficiency            

81

Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/4.1 

Development of methodology and recommendations for  practical  implementation  of midterm  and  long‐term  budget  planning  on  the  basis  of  international best practice (in particular, budget rules issue) for the purpose  of  budget  accountability  and  transparency enhancement 

1.000  QCBS  Prior 

PFMP/QCBS/4.2 Development  of  federal  accounting  and  financial reporting  standards  in public  sector on  the basis of IPSAS 

3.000  QCBS  Prior 

PFMP/QCBS/4.3 

Development  of  methodological  recommendations on  transition  to  federal  accounting  and  financial reporting  standards  in  public  sector  application, dissemination and popularization 

1.200  QCBS  Prior 

PFMP/QCBS/4.4 

Development  of  methodological  recommendations to  reflect  specific  requirements  of  application  of federal accounting and  financial  reporting standards in social segments of public sector 

1.400  QCBS  Prior 

PFMP/QCBS/4.5 

Dissemination  of  methodological  recommendations to  reflect  specific  requirements  of  application  of federal accounting and  financial  reporting standards in  social  segments  of  public  sector,  popularization and implementation assistance 

0.800  QCBS  Prior 

PFMP/QCBS/4.6 Development  of  normative  expenditure  ratios  for state  functions  execution  and  monitoring  of  their practical application 

0.500  QCBS  Post 

PFMP/QCBS/4.7 Technical  assistance  to  the  RF MoF  in  the  field  of state  budget  programs  development,  consideration and implementation 

1.840  QCBS  Prior 

PFMP/QCBS/4.8 

Analysis  and  development  of  recommendations  for the  application  of  international  and  Russian experience  of  program  budget  implementation  on federal, regional and local levels of budget system 

0.500  QCBS  Post 

82

Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/4.9 

Development  of  legislation  and  methodology necessary  for  planning  of  budget  expenditures  on procurement of goods, works and  services  for  state and municipal needs, in particular, for the purpose of transparency and accountability enhancement 

1.200  QCBS  Prior 

PFMP/QCBS/4.10 

Development of recommendations for enhancement of  system  for  monitoring  the  quality  of  financial management  of  budget  recipients  of  the  federal budget 

1.200  QCBS  Prior 

PFMP/QCBS/4.11 

Development of new methods, forms, control system and  financial  arrangements  for  provision  of  public services  (including  measures  available  to  the Government  as  the  owner  of  the  service  provider) leading  to  enhancement  of  quality  of  services provided 

1.000  QCBS  Prior 

PFMP/QCBS/4.12 Development of  internal control and audit system  in the  sector of public management  (bodies of power, municipal bodies, budget institutions) 

1.500  QCBS  Prior 

PFMP/QCBS/4.13 Enhancement  of  internal  state  financial  control system (Rosfinnadzor) 

1.500  QCBS  Prior 

PFMP/QCBS/4.14 Development  of  legislation  and  methodology necessary  for  inclusion  of  public  bodies  into  the transactions regulated by the civil contract legislation 

1.000  QCBS  Prior 

PFMP/QCBS/4.15 

Assistance  to  the  implementation of Program of  the Government  of  the  Russian  Federation  on enhancement  of  efficiency  of  public  finance management  (state and municipal) up to year 2018, including annual plans of its' realization 

1.200  QCBS  Prior 

PFMP/QCBS/4.16 Enhancement  of  budget  revenues  administration system on all levels of budget 

1.000  QCBS  Prior 

83

Reference Number  Description Estimated Cost (Loan 

+MF) 

Procurement / Selection Method 

Review by the Bank 

PFMP/QCBS/4.17 

Development  of  recommendations  on  transition  to programmatic  approach  to  planning  and management  of  budget  expenditures  related  to program  of  cooperation  with  international development banks and on methods of evaluation of results of such program expenditures on the basis of international best practice 

1.250  QCBS  Prior 

PFMP/QCBS/4.18 

Assistance  to  development  of  methodology  and practical  implementation of monitoring of efficiency of IDB projects' expenditures in Russia 

2.000  QCBS  Prior 

PFMP/QCBS/4.19 

Assistance  to  RF  Minfin  institutional  capacity enhancement  in  the  field  of  planning  and implementation of the IDB projects 

1.750  QCBS  Prior 

   TOTAL COMPONENT 4  24.840       

   COMPONENT 5 ‐ Project Management          

   Agency Agreement with PIU  5.000       

   TOTAL COMPONENT 5  5.000       

  PROJECT TOTAL  133.571     

The proposed thresholds for prior review would be the following: all contracts equal to or above USD 1000,000 equivalent for goods and non-consulting services, all contracts equal to or above USD 500,000 equivalent for consulting firms, all contracts equal to or above USD 200,000 equivalent for individual consultants, each DC and SSS contract.

Contracts procured through SCQS shall not exceed USD 300,000. Contracts estimated to cost USD 300,000 equivalent and more will be advertised internationally. Short lists of consultants for services estimated to cost less than USD 300,000 equivalent per contract may be composed entirely of national consultants.

84

ANNEX 8: RUSSIA AT-A- GLANCE

Russian Federation at a glance 4/5/12

Europe & UpperKey D evelo pment Indicato rs Russian Central middle

Federation Asia income(2010)

Population, mid-year (millions) 141.8 405 2,452Surface area (thousand sq. km) 17,098 23,614 59,328Population growth (%) -0.1 0.4 0.7Urban population (% of to tal population) 73 64 57

GNI (Atlas method, US$ billions) 1,403.8 2,947 14,429GNI per capita (Atlas method, US$) 9,900 7,272 5,884GNI per capita (PPP, international $) 19,240 13,396 9,970

GDP growth (%) 4.0 5.7 7.8GDP per capita growth (%) 4.1 5.3 7.1

(mo st recent est imate, 2004–2010)

Poverty headcount ratio at $1.25 a day (PPP, %) <2 0 ..Poverty headcount ratio at $2.00 a day (PPP, %) <2 2 ..Life expectancy at birth (years) 69 71 73Infant mortality (per 1,000 live births) 9 19 17Child malnutrition (% of children under 5) .. 2 3

Adult literacy, male (% of ages 15 and o lder) 100 99 96Adult literacy, female (% of ages 15 and o lder) 99 97 91Gross primary enrollment, male (% of age group) 99 99 111Gross primary enrollment, female (% of age group) 99 98 111

Access to an improved water source (% of population) 97 96 93Access to improved sanitation facilities (% of population) 70 84 73

N et A id F lo ws 1980 1990 2000 2010

(US$ millions)Net ODA and official aid .. 254 1,554 ..Top 3 donors (in 2010): Australia .. 0 0 .. Austria .. 0 1 .. Belgium .. 0 1 ..

A id (% of GNI) .. 0.0 0.6 ..A id per capita (US$) .. 2 11 ..

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) .. 5.6 20.8 6.9GDP implicit deflator (annual % change) .. 15.9 37.7 11.4

Exchange rate (annual average, local per US$) .. 0.0 28.1 30.4Terms of trade index (2000 = 100) .. .. 100 247

1980–90 1990–2000 2000–10

Population, mid-year (millions) 139.0 148.3 146.3 141.8 0.6 -0.1 -0.3GDP (US$ millions) .. 516,814 259,708 1,479,819 .. -4.7 5.4

Agriculture .. 16.6 6.4 4.0 .. -4.9 1.5Industry .. 48.4 37.9 36.7 .. -7.1 4.1 M anufacturing .. .. 17.1 16.4 .. .. ..Services .. 35.0 55.6 59.3 .. -4.7 6.5

Household final consumption expenditure .. 48.9 46.2 49.4 .. 2.0 10.4General gov't final consumption expenditure .. 20.8 15.1 19.5 .. -2.2 2.0Gross capital fo rmation .. 30.1 18.7 22.8 .. -19.1 7.6

Exports of goods and services .. 18.2 44.1 30.0 .. 0.8 6.5Imports of goods and services .. 17.9 24.0 21.7 .. -6.1 14.5Gross savings .. .. 36.2 27.7

Note: Figures in italics are for years other than those specified. .. indicates data are not available.Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

6 4 2 0 2 4 6

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2010

Male Female

0

10

20

30

40

50

60

1990 1995 2000 2010

Russian Federatio n Europ e & Central Asia

Under-5 mortality rate (per 1,000)

-20

-10

0

10

20

95 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

85

Russian Federation

B alance o f P ayments and T rade 2000 2010

(US$ millions)

Total merchandise exports (fob) 105,033 400,419Total merchandise imports (cif) 47,192 257,240Net trade in goods and services 53,506 122,484

Current account balance 46,839 70,599 as a % of GDP 18.0 4.8

Workers' remittances and compensation of employees (receipts) 1,275 5,264

Reserves, including go ld 27,970 756,075

C entral Go vernment F inance

(% of GDP)Current revenue (including grants) 35.9 35.4

Tax revenue 34.1 32.2Current expenditure 28.0 36.4

T echno lo gy and Infrastructure 2000 2010Overall surplus/deficit 3.1 -3.5

Paved roads (% o f to tal) 67.4 80.1Highest marginal tax rate (%) Fixed line and mobile phone Individual .. 13 subscribers (per 100 people) 24 199

Corporate 43 20 High technology exports (% of manufactured exports) 16.1 8.8

External D ebt and R eso urce F lo ws

Enviro nment(US$ millions)Total debt outstanding and disbursed 159,993 384,740 Agricultural land (% o f land area) 13 13Total debt service 11,825 61,849 Forest area (% of land area) 49.4 49.4Debt relief (HIPC, M DRI) – – Terrestrial pro tected areas (% o f land area) 9.0 9.1

Total debt (% of GDP) 61.6 26.0 Freshwater resources per capita (cu. meters) 29,683 30,405Total debt service (% of exports) 9.9 10.2 Freshwater withdrawal (% o f internal resources) 1.5 1.5

Foreign direct investment (net inflows) 2,714 42,868 CO2 emissions per capita (mt) 10.6 12.0Portfo lio equity (net inflows) 150 -4,808

GDP per unit o f energy use (2005 PPP $ per kg of o il equivalent) 2.0 3.0

Energy use per capita (kg o f o il equivalent) 4,233 4,561

Wo rld B ank Gro up po rtfo lio 2000 2010

(US$ millions)

IBRD Total debt outstanding and disbursed 6,844 2,618 Disbursements 540 135 Principal repayments 266 731 Interest payments 412 30

IDA Total debt outstanding and disbursed 0 0 Disbursements 0 0

P rivate Secto r D evelo pment 2000 2011 Total debt service 0 0

Time required to start a business (days) – 30 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 2.0 Total disbursed and outstanding portfo lio 275 2,029Time required to register property (days) – 43 o f which IFC own account 226 1,764

Disbursements for IFC own account 33 270Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC own account 20 372 Economic and regulatory policy uncertainty .. 25.8 Tax administration .. 24.2 M IGA

Gross exposure 274 939Stock market capitalization (% of GDP) 15.0 67.9 New guarantees 71 10Bank capital to asset ratio (%) 12.1 14.0

Note: Figures in italics are for years other than those specified. 4/5/12.. indicates data are not available. – indicates observation is not applicable.Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Polit ical stability andabsence of violence

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2010

2000

Governance indicators, 2000 and 2010

Source: Worldw ide Governance Indicators (w ww.govindicators.org)

IBRD, 2,618IDA, 0 IMF, 0

Other multi-lateral, 425

Bilateral, 3,347

Private, 339,594

Short-term, 38,756

Composition of total external debt, 2010

US$ millions

86

Millennium Development Goals Russian Federation

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2010

Poverty headcount ratio at $1.25 a day (PPP, % of population) <2 2.8 <2 <2 Poverty headcount ratio at national poverty line (% of population) .. .. 19.7 11.1 Share o f income or consumption to the poorest qunitile (%) 10.0 4.4 6.1 6.5 Prevalence of malnutrition (% of children under 5) .. .. .. ..

Go al 2: ensure that children are able to co mplete primary scho o ling

Primary school enro llment (net, %) .. 92 .. 93 Primary completion rate (% of relevant age group) .. 91 91 98 Secondary school enro llment (gross, %) 95 87 92 89 Youth literacy rate (% of people ages 15-24) 100 .. 100 100

Go al 3: eliminate gender disparity in educat io n and empo wer wo men

Ratio of girls to boys in primary and secondary education (%) 101 106 .. 98 Women employed in the nonagricultural sector (% of nonagricultural employment) 51 50 50 53 Proportion of seats held by women in national parliament (%) .. 10 8 14

Go al 4: reduce under-5 mo rtality by two -thirds

Under-5 mortality rate (per 1,000) 27 26 23 12 Infant mortality rate (per 1,000 live births) 22 21 18 9 M easles immunization (proportion o f one-year o lds immunized, %) 83 85 97 98

Go al 5: reduce maternal mo rta lity by three-fo urths

M aternal mortality ratio (modeled estimate, per 100,000 live births) 74 72 57 39 B irths attended by skilled health staff (% of to tal) 99 99 99 100 Contraceptive prevalence (% of women ages 15-49) .. 63 .. 80

Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases

Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.3 1.0 Incidence of tuberculosis (per 100,000 people) 107 107 122 106 Tuberculosis case detection rate (%, all forms) 32 53 79 78

Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs

Access to an improved water source (% of population) 93 94 95 97 Access to improved sanitation facilities (% of population) 74 73 72 70 Forest area (% of to tal land area) 49.4 .. 49.4 49.4 Terrestrial protected areas (% of land area) 5.0 7.8 9.0 9.1 CO2 emissions (metric tons per capita) 14.9 11.4 10.6 12.0 GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 2.1 1.8 2.0 3.0

Go al 8: develo p a glo bal partnership fo r develo pment

Telephone mainlines (per 100 people) 14.0 16.9 21.9 31.7 M obile phone subscribers (per 100 people) 0.0 0.1 2.2 167.7 Internet users (per 100 people) 0.0 0.1 2.0 43.4 Computer users (per 100 people) .. .. .. 40.3

Note: Figures in italics are for years o ther than those specified. .. indicates data are not available. 4/5/12Development Economics, Development Data Group (DECDG).

R ussian F ederat io n

0

25

50

75

100

125

2000 2005 2010

Primary net enrollm ent ratio

Ratio of girls to boys in pr ima ry & secondaryeducation

Education indicators (%)

0

50

100

150

200

250

2000 2005 2010

Fixed + mob ile subscribers

Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2010

Russian Federatio n Europ e & Central Asia

Measles immunization (% of 1-year olds)

Petropavlovsk-Petropavlovsk-KamchatskiyKamchatskiy

MagadanMagadan

OkhotskOkhotsk

AnadyrAnadyr

KhabarovskKhabarovsk

Yuzhno-Yuzhno-SakhalinskSakhalinsk

VladivostokVladivostok

BirobidzhanBirobidzhanBlagoveshchenskBlagoveshchensk

YakutskYakutsk

AginskoyeAginskoyeUlan UdeUlan Ude

Ust' OrdynskiyUst' Ordynskiy

IrkutskIrkutskKyzylKyzyl

AbakanAbakan

KrasnoyarskKrasnoyarsk

Gorno-Gorno-AltayskAltaysk

NovokuznetskNovokuznetsk

KemerovoKemerovo

TomskTomsk

BarnaulBarnaul

NovosibirskNovosibirsk

OmskOmsk

KurganKurgan

TyumenTyumen

YekaterinburgYekaterinburg

ChelyabinskChelyabinsk

UfaUfa

Khanty-Khanty-MansiyskMansiysk

SalekhardSalekhard

VorkutaVorkuta

Nar'yan MarNar'yan Mar

MurmanskMurmansk

Arkhangel'skArkhangel'skPetrozavodskPetrozavodsk

KareliaKarelia

NovgorodNovgorodPskovPskov

KaliningradKaliningrad

ChitaChita

Perm'Perm'

SyktyvkarSyktyvkar

KotlasKotlas

OrenburgOrenburg

SamaraSamaraKrasnodarKrasnodarMaykopMaykop

CherkesskCherkessk

VladikavkazVladikavkaz

MakhachkalaMakhachkalaGroznyyGroznyy

NazranNazranNal'chikNal'chik AstrakhanAstrakhan

ElistaElistaStavropolStavropol

Rostov-Rostov-on-Donon-Don

VolgogradVolgograd

BelgorodBelgorod

VoronezhVoronezh

SaratovSaratov

Ul'yanovskUl'yanovskPenzaPenza

TambovTambovSaranskSaransk

LipetskLipetskKurskKursk

OrelOrel

BryanskBryansk

St. PetersburgSt. Petersburg

TulaTula

KalugaKaluga

SmolenskSmolensk TverTver

RyazanRyazan

VologdaVologda

YaroslavlYaroslavlKostromaKostroma

IvanovoIvanovoVladimirVladimir

Nizhny NovgorodNizhny Novgorod

CheboksaryCheboksary Yoshkar-OlaYoshkar-OlaKirovKirov

Kazan'Kazan' IzhevskIzhevsk

MOSCOWMOSCOW

Ura

l Mts.

C e n t r a lC e n t r a l

S i b e r i a nS i b e r i a n

P l a t e a uP l a t e a uWestWest

Siber ianSiberian

PlainPlain

Kolm

ya R

ange

Dzh

ugdz

hur

Rang

e

Sikh

ote-

Alin

Andayr Range

Cherskiy Range

Taymyr Peninsula

Novaya NovayaZemlyaZemlya

Severnaya SevernayaZemlyaZemlya

New Siberia New SiberiaIslandsIslands

Franz JosefFranz JosefLandLand

KolaKolaPen.Pen.

YamalYamalPen.Pen.

GydaGydaPen.Pen.

Siberian Lowland

Gora El'brusGora El'brus(5,633 m) (5,633 m)

Petropavlovsk-Kamchatskiy

Magadan

Okhotsk

Anadyr

Khabarovsk

Yuzhno-Sakhalinsk

Vladivostok

BirobidzhanBlagoveshchensk

Yakutsk

AginskoyeUlan Ude

Ust' Ordynskiy

IrkutskKyzyl

Abakan

Krasnoyarsk

Gorno-Altaysk

Novokuznetsk

Kemerovo

Tomsk

Barnaul

Novosibirsk

Omsk

Kurgan

Tyumen

Yekaterinburg

Chelyabinsk

Ufa

Khanty-Mansiysk

Salekhard

Vorkuta

Nar'yan Mar

Murmansk

Arkhangel'skPetrozavodsk

Karelia

NovgorodPskov

Kaliningrad

Chita

Perm'

Syktyvkar

Kotlas

Orenburg

SamaraKrasnodarMaykop

Cherkessk

Vladikavkaz

MakhachkalaGroznyy

NazranNal'chik Astrakhan

ElistaStavropol

Rostov-on-Don

Volgograd

Belgorod

Voronezh

Saratov

Ul'yanovskPenza

TambovSaransk

LipetskKursk

Orel

Bryansk

St. Petersburg

Tula

Kaluga

Smolensk Tver

Ryazan

Vologda

YaroslavlKostroma

IvanovoVladimir

Nizhny Novgorod

Cheboksary Yoshkar-OlaKirov

Kazan' Izhevsk

MOSCOW

K A Z A K H S TA N

J A PA N

C H I N A

M O N G O L I A

UKRAINE

BELARUS

SWEDEN

NORWAY

FINLAND

POLAND

UNITED STATES OF AMERICA

D.P.R.OF

KOREA REP.OF

KOREA

UZBEKISTAN

AZERBAIJAN

ESTONIA

DENMARK

NETH.

GERMANY

LATV

IA

LITH.

RUSSIANFED.

GEORGIA

R.

Ob

ObTobol

Yenisey

Am

ur

Indigir ka

Lena

Kolym

a

Khata

nga

Lena

Alden

Angara Ural

ARCTIC OCEAN

LakeBaikal

B a r e n t sS e a

Kara SeaLap t ev

Sea

Nor weg ian Sea

BlackSea

Eas t S ibe r ianSea

Sea o f

Okho t s k

Sea o f

Japan

Cas

pian

Sea

Bering Strait

Ura

l Mts.

C e n t r a l

S i b e r i a n

P l a t e a uWest

Siber ian

Plain

Kolm

ya R

ange

Dzh

ugdz

hur

Rang

e

Sikh

ote-

Alin

Andayr Range

Cherskiy Range

Taymyr Peninsula

NovayaZemlya

SevernayaZemlya

New SiberiaIslands

Franz JosefLand

KolaPen.

YamalPen.

GydaPen.

Siberian Lowland

Gora El'brus(5,633 m)

70°N 80°N 80°N

130°E120°E110°E100°E90°E

50°N

40°N

30°N

60°N

RUSSIANFEDERATION

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 200 400

0 200 400 600 Miles

600 Kilometers

IBRD 33470R2

MAY 2009

RUSSIANFEDERATION

OBLAST CENTERS

FEDERAL CITIES

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

OBLAST, KRAI, REPUBLIC, AUTONOMOUSOBLAST, OR AUTONOMOUS OKRUGBOUNDARIES

INTERNATIONAL BOUNDARIES