Report No. 25653-UZ Republic of Uzbekistan Country Procurement Assessment Report February 2003 Central Asia Country Unit Operations Policy and Services Department Europe and Central Asia Region Document of the World Bank CURRENCY Currency Unit = Soum Rates of Exchange (effective February 28, 2003) US$1.00 = Soum 964.9]i (official exchange rate) US$ 1.00 = Soum 965.82 (commercial bank rate) U$ 1.00 = Soum 1,17(0.00 (curb market rate) FISCAIL. YEAR January 1 -December31 ACRONYMS & ABBREVIATIONS ADB Asian Development Bank AFER Agency for Foreign Economic Relations BER Bid Evaluation Report CAS Country Assistance Strategy CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment COM Cabinet of Ministers CPAR Country Procurement Assessment Report CPPR Country Portfolio Performance Review EBRD European Bank for Reconstruction and Developmenlt ECA Europe and Central Asia Region EU European Union FDI Foreign Direct Investment FY Financial Year GCAS Goscomarchitectstroy (State Commnittee for Architecture and Construction) GPA Agreement on Govemment Procurement ICB International Competitive Bidding ICM Initiating Concept Memorandum IMF International Monetary Fund IS International Shopping ISI Import-Substituting Industrialization LCB Local Competitive Bidding ME Ministry of Economics MFER Ministry of Foreign Economic Relations MMS Ministry of Macroeconomics and Statistics MOF Ministry of Finance NCB National Competitive Bidding NGO Non-Governmental Organization NS National Shopping PCA Partnership and Cooperation Agreement RPA Regional Procurement Advisor SBD Standard Bidding Documents SMP Staff Monitored Program TACIS Technical Assistance to the Commonwealth of Independent States UNCITRAL United Nations Commission for International Trade Law UNDP United Nations Development Program URM Uzbekistan Resident Mission of the Asian Development Bank USAID United States Agency for International Developmrent WTO World Trade Organization Regional Vice-President: Johannes F. Linn, ECAVP Country Director: Dennis N. de Tray, ECCU8 Sector Director: Alain Colliou, ECSPS Task Team Leader: Shaun C. Moss, ECSPS Uzbekistan CPAR __ Table of Contents TABLE OF CONTENTS EXECUTIVE SUMMARY .......................... iv A. PREFACE ............................ I Date and Bases for the Report .......................... 1 Acknowledgements .......................... 1 B. BACKGROUND. 3 B.1 Country Background. 3 B.2 World Bank Portfolio in Uzbekistan. B.3 Asian Development Bank Portfolio in Uzbekistan. 5 C. FINDINGS . . 6 PUBLIC SECTOR . . 6 C.1 Legal and Regulatory Framework. 6 C. 1.1 Development of the Legal Framework to Date. 6 C.1.2 Principal Legal Texts Governing Public Procurement. 7 C. 1.3 Scope of Application of the Existing Legislation .10 C. 1.4 Draft Law on Government Procurement .11 C. 1.5 Judicial and Altemative Enforcement .11 C.1.6 Accessibility of Legal Texts .11 C. 1.7 Current Drivers of Public Procurement Reform .11 C.2 Procedures, Practices and Application .13 C.2.1 Procurement Planing .13 C.2.2 Use of Procurement Agents .13 C.2.3 Eligibility of Bidders for Participation in Public Procurement .14 C.2.4 Assessment of Bidders' Qualifications .14 C.2.5 Participation by Foreign Bidders and Application of Domestic Preference . 15 C.2.6 Minimum Participation Requirements .15 C.2.7 Procurement Methods .15 C.2.8 Forms of Communications .16 C.2.9 Solicitation of Participation in Procurement Proceedings .16 C.2.10 Bidding Documents .17 C.2.11 Time Allowed for Preparation of Bids.17 C.2. 12 Clarification and Modification of Bidding Documents .18 C.2.13 Language .18 C.2.14 Bid and Contract Price and Currency .18 C.2.15 Bid Submission and Opening .18 C.2.16 Bid and Performance Securities .19 C.2.17 Bid Validity Peiod .19 C.2.18 Examination and Evaluation of Bids .19 C.2. 19 Notification of Contract Award, Contract Registration, Price Verification, Pre- Shipment Inspection and Entry into Effect of Contract .20 C.2.20 Payment .21 C.2.21 Records of Procurement Proceedings .22 C.2.22 Procurement of Consultants' Services .22 C.2.23 Bid Protest .23 i Uzbekistan CPAR T__ _ __ Table of Contents C.3 Organization and Resources ...................................................... 24 C.3.1 Organization of the Procurement Function within Government ....................... 24 C.3.2 Roles of the Leading Institutions: Ministry of Economics, Agency for Foreign Economics Relations and GCAS ...................................................... 24 C.3.3 Organization of'the Procurement Function within Procuring Entities ............... 26 C.3.4 Accountability Of Public Official]s When Conducting Public Procurement ...... 27 C.4 Audit & Anti-Corruption Measulres ...................................................... 28 C.4.1 Budget Preparation ...................................................... 28 C.4.2 Budget Implementation ...................................................... 28 C.4.3 Internal Controls ...................................................... 29 C.4.4 External Controls ...................................................... 29 C.4.5 Anti-Corruption Measures ...................................................... 29 C.5 Public Sector Management Perflormance ................................................. 31 C.5. 1 Quantification of Public Procurement Expenditures ...................... .................. 31 C.5.2 Survey of Selected Contracts for Civil Works in Eleven Regions, 2001 ........... 31 C.6 Performance on World Bank and ADB-Aissisted Projects ...................... 34 C.6.1 Development of the World Bank and ADB P'ortfolios ................... ................. 34 C.6.2 Performance of Procurement under WB and ADB Guidelines ............ ............ 34 C.6.3 Common Procurement Problems .................................. .................... 35 C.6.4 Procurement Post Review ................. ..................................... 37 C.6.5 Measures to Strengthen Fiduciary SafeguarcL on World Bank- and ADB- financed Projects ................................................ 38 C.7 Risk Assessment ................................................. 39 C.8 Recommended Supervision Plan for WB- and ADB-financed Projects 41 C.8. 1 Supervision Approach ................................................. 41 C.8.2 Procurement Thresholds ................................................ 41 C.8.3 Specific Supervision Issues ................................................. 42 C.9 Unacceptable Practices on WB and ADB-Financed Projects ................. 43 PRIVATE SECTOR ..45 C.10 Development of the Private Sector .45 C. 10.1 Privatization and Foreign Direct Investment .45 C. 10.2 Manufacturing Sector .45 C.10.3 Foreign Trade .46 C.10.4 Construction Industry .46 C.11 Commercial Practices ...................... 48 C.12 Private Sector Perspectives on Public Sector Procurement .48 D. RECOMMENDED ACTION PLAN.50 D.1 Recommendations ...................................................... 50 D.1.1 Legislative Reform ...................................................... 50 D. 1.2 Procurement Procedures and Practices ...................................................... 50 D. 1.3 Organization and Resources: Examples and Recommended Arrangements ...... 52 D.1.4 Audit and Anti-Corruption Measures ...................................................... 56 D.1.5 Measuring Performance and Efficiency in Public Procurement ..................... 56 D.2 Measures to be Taken by the Government ............................................... 57 D.3 Measures to be Taken by the W'orld Bank and ADB .............. ................ 57 ii Uzbekistan CPAR Table of Contents D.4 Technical Assistance ........................ 57 D.S Timetable ........................ 58 D.6 Funding Procurement Reform .......................... 58 D.7 Monitoring and Follow-up Plan ........................ 58 TABLES Table 1: Expenditures on Economy and Centralized Investments, 1999-2001 ............. 31 Table 2: Applicable Thresholds by Procurement Method - World Bank . ..................... 41 Table 3: Applicable Thresholds by Procurement Method - ADB .. Table 4 Uzbekistan 's Main Trading Partners (% of total). 46 ANNEXES AnnexA: Acknowledgements Annex B: Composition of World Bank Current Portfolio in Uzbekistan Annex C: Asian Development Bank Portfolio Annex D: The World Bank's Comments on the Draft Law on Government Procurement Annex E: List of Laws Related to Public Procurement in Uzbekistan Annex F.1: Republic of Uzbekistan: Office of the President and Oliy Majlis Annex F.2: Republic of Uzbekistan: Organization of the Government Annex F.3: Organization of State Committees Annex G: Action Plan Annex H: Price Data on 102 Publicly-funded Construction Works Contructs Awarded in 2001 Annex I: Model Supplemental Letter for Credit and Loan Agreements Uzbekistan CPAR __ __ _Executive Summary EXECUTIVE SUMMARY Introduction Since declaring its independence in August 1991, Uzbekistan has followed a course markedly different from most Commonwealth of Independent States (CIS) countries by pursuing a gradual transition to a market economy and adopting a development strategy aimed at accelerated industrialization. This strategy has been implemented through a policy of distorted product and factor prices and continued central control over the allocation of resources by maintaining state controls on the foreign exchange and trade regime as well as domestic prices. This state- controlled approach is mirrored in the slow pace of reform which the Government has so far adopted in the area of public procurement. Uzbekistan inherited the Soviet system for the procurement for goods, works and services for State needs. This system was suitable for a command economy but lacks the essential elements of competitiveness, transparency and accountability which are the hallmarks of a market-based approach to government contracting. Under the former system, mandated quantities of goods were supplied between enterprises under compulsory state orders and domestic supply contracts. Such international supply contracts as were awarded were chanmeled through clearing agreements, usually managed by Moscow-based foreign trade organizations (FTOs), which determined barter exchanges of goods with other countries. Given this history, competitive public procurement in Uzbekistan has shallow roots and the Government has relatively little experience of managing a transparent, efficient public procurement system. The World Bank provided Uzbekistan with grant-financed technical assistance beginning in 1996 to begin the job of overturning this legacy. While a draft Law on Government Procurement was drawn up, even now - two years after its preparation - this law has yet to be submitted to the Oliy Majlis (Parliament). Instead of pressing ahead with passing a new procurement law, the Government has enacted a proliferation of poorly-coordinated legal texts, mostly in the sub- legislative form of Cabinet of Ministers (COM) Resolutions, regulating different sectors and various aspects of public procurement. Because these resolutions leave large gaps in coverage, a significant volume of procurement transactions goes unregulated. Also, because procuring entities may choose which enactment to apply to a particular transaction, public officials enjoy excessive discretion in the way they handle procurement. The sum total of these various enactments falls far short of the clear, comprehensive legal and regulatory framework for public procurement which Uzbekistan needs as it moves towards market-based operations and tries to integrate its public markets into the global trading system. This Country Procurement Assessment Report (CPAR) comes at a time when a number of factors are creating an increased need for public procurement reform in Uzbekistan and at the same time creating a more amenable environment for future reform. Primary among these is that Uzbekistan has concluded a Partnership and Cooperation Agreement (PCA) with the European Union which commits the Government to develop conditions for open and competitive award of procurement contracts. Also, the country's application for membership in the World Trade Organization (WTO) may lead to accession to the WTO Agreement on Government Procurement (GPA), thereby creating an obligation on Uzbekistan to align its procurement legislation with the GPA. Since June 2001, the Government has taken several steps to reduce distortions caused by the foreign exchange regime. In addition, under the IMF Staff Monitored Program (SMP), agreed in early 2002, the Government committed itself to undertaking a series of reforms, among them iv Uzbekistan CPAR _ ____ Executive Summary trade liberalization, unification of'all exchange rates, and full ciurrency convertibility during 2002. However, although it has formally expired, not all the SMP's key objectives have been fully met, so that convertibility - and an IMF financial program to support it - has now effectively beer delayed until at least early 2003. In the World Bank's current Country Assistance Strategy (CAS) for Uzbekistan, there is also an obligation cr. the Government to implement the agreed recommendations of this report as one of the triggers for the Base Case Lending Program. Finally, the recent opening of discussions betweenT the Government and the World Bank about possible future structural adjustment lending is likely to create a dialogue in which public procurement reform can be promoted more vigorously by both parties. To its credit, the Government of Uzbekistan also seems to be fully cognizant of the unsatisfactory nature of the current situation regarding public procurement. The Cabinet of Ministers has itself expressed dissatisfaction with the pace of procurement reform, stating, with reference to the construction sector, that "Tendering for procurement is being implemented slowly; fulfillment of contracts remains unsatisfactory. Abuses, financial infringements and unjustified increases in the cost of construction and materials are still taking p lace." This first national assessment of public procurement in Uzbekistan examines all areas of public procurement operations, including the legislative framework, the performance of regulatory functions, the enforcement regime, the capacity of public sector institutions and the effects of corruption on procurement. The assessment, which was conducted jointly by the World Bank and the Asian Development Bank (ADB), was carried out in consultation with counterparts from Cabinet of Ministers, the then Ministry of Macroeconomics and Statistics and the then Ministry of Foreign Economic Relations.' Overall Assessment The key findings, including risk assessment, the main weaknesses of the public procurement system currently in place, and the main features of a proposed Action Plan are summarized below. Key Findings & Risk Assessment The development of While the other republics of Centnal Asia undertook an earlier start to Uzbekistan's public systemic reform of their public procurement systems, Uzbekistan's first procurement system attempt at developing its legislation and institutions for procurement began only in the mid- date only from the mid-1 990s. Therefore, the roots of competitive 1990s. public procurement in Uzbekistan are shallow and the Government has not yet tackled the challenge of procurement reform in a meaningful way. Yet public Estimates prepared for this report suggest that the value of expenditures procurement is by public institutions on the procurement of goods, services and capital important both in investments amnounted to approxirnately 352 billion Soums in 1991. terms of its economic That is equivalent to alrnost 28 percent of total public expenditures or value, more than 7 percent of GDP. Therefore, public procurement is a key component of public sector operations and improving the value for 'Following the September 2002 discussions of the draft CPAR between the World Bank and the Government, the Ministry of Macroeconomics and Statistics was replaced in December 2002 by a new Ministry of Economics and separate State Committee for Statistics. Also since then, the Ministry of Foreign Econornic Relations has become the Agency for Foreiga Econonmic Relations. v Uzbekistan CPAR ExecutIve Summaty public money spent on procurement holds out the promise of substantial savings in Government expenditures. The experience of other countries indicates that savings of at least 20 percent can be achieved by subjecting procurement to competitive tendering. Still, the public Based on a comprehensive analysis of its legislative framework, the procurement effectiveness of its regulatory institutions, the strength of its environment is enforcement regime, the capacity of its institutional and human severely under- resources and the threat of corruption, this assessment found that the developed environment for conducting public procurement in Uzbekistan is and rated as high-risk. substantially under-developed. The report gives Uzbekistan's procurement environment a high-risk rating. Key Weaknesses Legal Framework: The current legislation Instead of passing a law on public procurement, the Government has governing chosen to legislate in this area by means of a complex series of COM procurement is made Resolutions. These make up a poorly -coordinated, piecemeal approach up of a profusion of to procurement legislation and fail to provide a satisfactory set of rules poorly--coordinated for awarding government contracts. The current legislation fails the key sub-legislative tests of economy, efficiency, competitiveness, fairness, transparency enactments. and accountability which are essential to any well-functioning national public procurement system. Current Practices: The weakness of the The deficiencies in the legislation governing public procurement, as current legislation well as that in other areas of public sector operations, show through in breeds many abusive inefficient and nontransparent procurement practices. Planning for practices in public procurement is ineffective, with cost estimating for construction works procurement. projects usually done in outdated, Soviet era reference prices dating from 1991, which bear no relation to actual prices today. Many projects are under-funded at start-up and run into problems of delay and cost overrun during implementation. Bidders are not given sufficient time to prepare their bids, which excludes many bidders unfairly and reduces competition. Arrangements for the opening of bids - a crucial step in achieving transparency - are nontransparent, with bidders often denied the right to see their bids opened in public. The crucial process of evaluating bids and selecting the winning bidder is particularly nontransparent, as bid evaluation criteria are not pre-disclosed to the bidders and public officials are not being held accountable for their decisions. Organization & Resources: Because no single There is no single institution with oversight or regulatory authority over institution has public procurement. Instead, partial functions are spread between regulatory authority several institutions, including the Ministry of Economics, Agency for over public Foreign Economic Relations and the State Committee for Architecture procurement, and Construction (Goscomarchitectstroy or GCAS), and the Anti- vi Uzbekistan CPAR _ Executive Summary enforcement of the Monopoly Committee, each of which performs different functions rules is weak. related to public procurement. As a result, enforcement of the current legislation is weak and compliance is low. The rights of bidders Current arrangements for aLdministralive review of bidders' complaints are inadequately are weak. This means that bidders' rights are not being adequately protected. protected and public officials who violate the legislation are not being held accountable. Capacity to conduct At all levels of administration, untrained, non-specialist staff handle procurement is weak. procurement, often improperly, whith compounds the weaknesses in the legislation. Most pub]Lic officiaLs who handle procurement have received no training at all for the task. Both internal and The absence of internal audit funct,ons in procuring entities and the external controls over lack of an independent Supreme Audit Institution in Uzbekistan have procurement are meant that procurement cecisions have historically not been subjected inadequate. to independent scrutiny. While the Control Department of the Ministry of Finance examnines financial transactions, this is no substitute for systematic auditing of spending units' internal control systems and independent audit of procurement transactions. A welcome development of the institutional framework for control has been achieved with the establishment of the new Audit Chamber in June, 2002. Anti-Corruption Procurement-related Although no comprehensive measurement of corruption in Uzbekistan corruption is a threat has been undertaken to date, a 1999 study indicated that administrative to public expenditure corruption is "not insignificant." Many aspects of governance in on procurement. Uzbekistan - notably, transparency, accountability and institutional restraints on bureaucratic discretion - exhibit serious weaknesses which foster opportunities for "petty" corruption. While it is reasonable to assume, therefore, that substantial procurement expenditures are at risk from corruption, the Government has yet to articulate a coherent anti- corruption strategy. Private Sector: The private sector has Private-sector suppliers and contractors express a high level of little faith in the dissatisfaction with the current rules governing procurement and a low fairness of public level of confidence in the way in which public procuring entities apply tenders. them. Many bidders complain that procuring entities manipulate competition for public contracts arid that the continued use of 1991 reference prices causes them to suffer financial losses on government contract. The Governmelnt is missing an important opportunity to harness public procureme,nt as a tool for stimulating private-sector economic activity. Uzbekistan CPAR Executive Summary Summary of Recommendations and Action Plan Legislative Reform: A new, consolidated As an immediate measure to address the many gaps and weaknesses in COM Resolution on the current, multiplicity of resolutions, the Government should prepare Public Procurement a new, consolidated and comprehensive COM Resolution on Public should be enacted in Procurement. This new Resolution, which should address the many the short term. weaknesses identified in this report, should be enacted early in 2003. Further to the discussions between the Government and the Bank of the draft CPAR in September 2002, the Government has already started work on drafting such a unified resolution. But a new Law on The primary legislation governing public procurement should be Public Procurement upgraded to the status of a law, passed by the Oliy Majlis. Therefore, is needed in the the Government should prepare a new draft Law on Public medium term. Procurement, based on the January 2000 draft, and have it enacted by the end of 2003. The new law should be In order to underpin and clarify the application of the new law, the supported by Government should also prepare a comprehensive set of implementing implementing regulations, which should be ready to take effect immediately following regulations and the enactment of the new procurement law. In addition, the Govermment standard procurement should promulgate a set of standard procurement documents, including documents. bidding documents and standard fonrs of contract for the procurement of goods, works and services, whose use should be made mandatory by all procuring entities. Organizational Reform: In-the short term, the Given its considerable experience in this area, the Ministry of Ministry of Economics Economics should act as the lead agency for public procurement reform should lead in the short term. It should lead the development of the new COM procurement reform. Resolution and the new public procurement law and implementing regulations. But a new, Because, to be effective, the regulatory agency for public procurement independent must be independent of political influence, the new Law on Public regulatory agency Procurement should establish an independent institution to fulfill this should be established essential role. Options for the location of the new public procurement in the medium term. agency may be considered at the time of discussion of this draft report and include its reporting to the Cabinet of Ministers or the President's Office. Training and Capacity Buildiny: A valuable opportunity A recently launched project entitled "Integrating Central Asian CIS currently exists to member Countries into the Multilateral Trading System" which is being finance much-needed financed by the Swiss Government and implemented by the procurement training International Trade Centre, offers Uzbekistan the opportunity to benefit for Government from procurement training and capacity building programs developed viii Uzbekistan CPAR _ _ _ _ _ ___ _ __ _ ExecutiveSummary officials. specifically for Central Asian couniries. Uzbekistan should commit itself to active participation in this project. Uzbekistan needs to Over the long term, there is clearly a need for Uzbekistan to develop its build its a own own capacity and resources for trainirg public officials in procurement. capacity for This could be achieved by developing the curriculum of the State andI procurement training. Social Development Academy, under the President's Office, to offer procurement training for public officials. Audit Arrangements: Internal and external Internal audit units should be progressively set up in ministries and audit control over spending units. These units should audit both the control systems which procurement needs to spending units have in place to manage their procurement expenditures be strengthened, and should also conduct regular internal ex-post audits of samples of transactions and procurement operations. The Control Division of MOF should increase the frequency of ex-post audits of procurement transactions which it conducts. Ultimately, it would be desirable thalt Uzbekistan should establish a Supreme Audit Institution, reporting to the Oliy Majlis. and administrative The functions of the newr, independent public procurement agency, review of bidders' which should be mandated in the public procurement law, shoulcd complaint should be include the administrative review of appeals lodged by bidders. provided. ix Uzbekistan CPAR Preface A. PREFACE Date and Bases for the Report Following the submission of the draft CPAR to the Government in June, 2002, a World Bank rnission comprising Sunil Bhattacharya, Regional Procurement Advisor, and Shaun Moss, Task Team Leader for the CPAR, visited Tashkent from September 9 to 19, 2002 and held an extensive series of discussions of the draft report with senior Government officials from the President's Office, the Cabinet of Ministers, the Ministry of Finance, the Ministry of Macroeconomics and Statistics, the Ministry of Foreign Economic Relations, the State Committee for Architecture and Construction (Goscomarchitectstroy or GCAS) and members of the Banking and Budget Committees of the Oliy Majlis (Parliament). World Bank and ADB staff and consultants who worked on this report, together with those who reviewed and cleared the report and assisted in its production, are listed in Annex A. A roundtable discussion of the draft report was held with some 30 representatives of the many national ministries, state associations and local government organizations involved in public procurement. The draft report was also shared and discussed with other International Financial Institutions operating in Uzbekistan, including the European Commission, and consultations were held with members of the business community, in order to solicit their views on measures to facilitate the participation of the business community in public procurement. For the discussion of the draft report between the Government and the Bank, the main counterpart on the Government side was Mr. Nariman Mannapbekov, Head of the Department of External Economic Relations and Foreign Investments of the Cabinet of Ministers. Following these discussions, written comments on the draft report were received from the Department of Extemal Economic Relations and Foreign Investments of the Cabinet of Ministers and from the Ministry of Macroeconomics and Statistics. Both sets of comments have been reflected in this final version of the report. This report has been prepared in accordance with the World Bank's internal instruction on the preparation of Country Procurement Assessment Reports (CPARs). In addition, the Initiating Concept Memorandum (ICM) for this CPAR identified the following as priority issues to be examined in Uzbekistan: (i) a comprehensive review of the current enactments governing the conduct of public procurement; (ii) an assessment of current procurement procedures and practices - that is, how the current enactments are applied in practice; (iii) an assessment of the cost-effectiveness of expenditure on public procurement; (iv) an assessment of current institutional arrangements for the oversight of public procurement, including of the effectiveness of that oversight; (v) an assessment of the Government's performance of procurement on projects financed by the World Bank and the ADB, in accordance with the procurement guidelines of the two institutions. Acknowledgements The mission members wish to acknowledge the extensive cooperation and assistance received from officials and staff of the Cabinet of Ministries, Ministries and State Committees, members of the Oliy Majlis, local authorities, chambers of commerce and private companies interviewed for this assessment. Particular thanks are due to Mr. Nariman Mannapbekov, Head of the 1 Uzbekistan CPAR __ _ _ ___ Preface Department of External Economic Relations and Foreign Investments of the Cabinet of Ministers, and his staff, who facilitated the assessment and discussed thei findings and recommendations of the report with the Bank's task team at key stages during the assessment. 2 Uzbekistan CPAR Background B. BACKGROUND B.1 Country Background Of the 15 newly independent countries which emerged from the breakup of the Soviet Union in 1991, Uzbekistan is the third largest in terms of population (24.23 million in 1999) and the fourth largest in terms of land area (447,000 square kilometers). Strategically located at the crossroads of the ancient Silk Road between China and Europe, the area that is now Uzbekistan was for centuries one of the cradles of civilization. 2 Uzbekistan is rich in natural resources such as coal, copper, gold, natural gas, oil, silver and uranium and is one of the world's leading producers of cotton. Primaiy commodities still account for about 90 percent of merchandise exports, with cotton alone representing 30 percent. Agriculture accounts for some 30 percent of GDP, though only 9 percent of the country's land is arable. With an educated population and a young and growing labor force, the country has significant economic potential. Since independence in August 1991, Uzbekistan has followed a course markedly different from most CIS countries by choosing a gradual approach to transition to a market economy and adopting a development strategy aimed at accelerated industrialization. In a capital-scarce, agrarian economy, this strategy has been implemented through a policy of administered product and factor prices (negative real interest rates, multiple exchange rates, and subsidized prices of energy, raw materials, and agricultural products) and central allocation of resources with government controls on the foreign exchange and trade regime as well as on agricultural production, procurement of cotton and grain, and selected domestic prices. GDP has grown by an average of 4 percent annually since 1997 and the country has achieved energy and grain self-sufficiency, but at a high cost. Since 1996, Uzbekistan's total external debt has almost doubled and its debt service has tripled. At the same time, exports have fallen by 25 percent in value terms since 1996-97, partly due to extemal factors but also due to the adverse supply response to distorted domestic economic policies. Although the consolidated budget deficit of the central and local governments has been brought down to about 3 percent of GDP, the overall public sector deficit, including state enterprises, was equivalent to at least 7 percent of GDP in 2000 and as high as 12 percent of GDP in 1999. Government Economic Policy In early 1997, the Government introduced a system of multiple exchange rates and restrictions on current account transactions, whose aims have been to promote import-substituting industries, to protect foreign exchange reserves, to restrict the import of consumer goods considered to be of low priority or quality and to subsidize basic food imports. Since then, administrative restrictions on imports (which dropped by 40 percent between 1996-97 and 2001) and on access to foreign exchange have been maintained, in order to protect the domestic industrial base from external competition. As noted above, the value of merchandise exports has declined by 25 percent during the same period, illustrating fundamental problems of international competitiveness and of 2 This section draws oni the Bank's FY02-04 Country Assistance Strategy (CAS) for Uzbekistan and on the Concept Paper for the Country Economic Memorandum (CEM). 3 Uzbekistan CPAR ___ Background disinrcentives facing e) porters because of the restrictive foreilp exchange and trade regime and lagging structural reforms. Sirnce June 200'1, the Government has taken several steps to reduce distortions caused by the foi-eig) exchange regime. But, while the implicit taxation of exports has been reduced, the meas-ares taken to clate remain partial and are unlikely either to yield a significant response in exports or to reverse capital flight. Achieving these objectives will require full current account convertibility, in conjunction with consistent fiscal and monetary policies and with sufficient incentives for funds 1o be kept within Uzbekistan. Beyond appropriate fiscal and financial policies, liberalized trade policies and other structural reforirs are required. In this connection, the Govermment agreed to a six-month, later extended to e:.ght months, IMF Staff Monitored Program (SMP) in early 2002, under which it com3nitted itself' to undertaking a series of reforms, among them tracde liberalization, unification of all exchange rates, and full currency convertibility during 2002. However, although it has formally expired, nol all the SMP's key objectives have been fully met, so that convertibility - and an INE financial program to support it - has now effectively been delayed until at least early 2003. hI the enterprise sectoT, the government's industrialization policy has promoted industries such as chemicals and petrochemicals, non-ferrous metalluargy, automobiles, oil and gas, textiles, and food processing, which have been financed by iniplicit subsidies (through the foreign exchange regime, cotton and energy pricing, and subsidizecd domestic credit) and by significant foreign borrowing. In addition, preferential access to governinent-directed credits, as well as tolerance of tax, social security fuTnd and wage arrears accumulation, have together enabled many otherwtse non-viable enterprises to keep functioning. Liberalization wvill result in a dismantling of the implicit taxes on which the industrialization strategy has relied. At the same time, creditworthiness considerations place limits on foreign borrowing. Uzbekistan will consequently have to rely more on its ability to attract direct foreign investment (FDI) and promotion of the private sector, particularly srmall and medium-sized enterprises (SMEs), for its future economnic growth. Against this background, the overall business environment remains difficult for 'both local and foreign enterpnses. Foreign trade is constrained, on the one hand, by export bans on some commodities preserving relative price distortions, and, on the other, by burdensome import registration and certification procedures. As a result, FDI inflows have declined steadily year-on- year and, by 2000, were less than half their 1997 level and among the lowest in per capita terms of all CIS countries. [ndeed, a number of international firms have withdrawn from Uzbekistan; and, annual revenues from privatization, at 0.1 percent of GDP during 1998-2001, are well below their potential. The Soviet Legacy in Public Procurement Uzbelkistan inherited the Soviet public procurement system for goods, works and services, which was suitable for a command economy, but lacked the transparency and competition necessary f[or a market-oriented environment. Under the former systern, mandated quantities of goods were supplied between enterprises under compulsory state orders and domestic supply contracts. Such internatonal supply contracts as were awarded were channeled through clearing agreements, usually managed by Moscow-based foreign trade Drganizations (FTOs), which determined barter exchanges of goods with other countries. Given this history, competitive public, procurement in J7skisIan hais skallow roots and the government: has relatively little experience of managing a transparent, efficient public procurement system. Uzbekistan CPAR Background B.2 World Bank Portfolio in Uzbekistan Cumulative World Bank/IDA commitments to Uzbekistan to date total 12 loans and credits amounting to US$534.1 million, of which US$320.3 rnillion, or 60 percent, had been disbursed as of June 30, 2002 (see Annex B for details of WB portfolio). Three loans totaling US$247 million - Institution Building Technical Assistance (US$21 million), Rehabilitation (US$160 million), and Cotton Sub-Sector Improvement (US$66 million) - have been completed, with eight loans and one credit totaling US$292.1 rnillion currently under implementation. The pipeline of projects under preparation totals four under the US$150 million Low Case Lending Program approved in the FY02-04 Country Assistance Strategy (CAS), namely: (a) Karshi Pumping Cascade Rehabilitation, for a which a US$55 million loan and credit was negotiated last March and which is expected to submitted to Executive Directors for approval in early 2003 (FY03); (b) Drainage & Wetlands Rehabilitation, for which a US$20 million loan and credit is about to be appraised (FY03); (c) Public Finance Management Reform, for which a US$10 million loan and credit is under active preparation (FY04); and (d) Health II, for which a US$20 mnillion loan and credit is also under initial preparation (FY04). B.3 Asian Development Bank Portfolio in Uzbekistan Since joining the Asian Development Bank in 1995, Uzbekistan has received 15 public sector loans covering 13 projects with a total approved loan amount of US$695.5 million (see Annex C for details of ADB portfolio). The ongoing portfolio includes 9 project loans in the education, agriculture, railways, urban and rural water supply and energy sectors, one education sector development program, two development finance institution (DFI) loans, and one combined loan with project and DFI components. A rural enterprise development loan valued at US$50 million was closed in June 2002, and a road rehabilitation project valued at US$50 million was cancelled in August 2002. 5 Uzbekistan CPAR ____Public Sector. Legal and Regulatory Framework C. FINDINGS PUBLIC SECTOR C.A Legal and Regulatory Framework This section reviews the development to date of the legal and regulatory environment for public procurement in Uzbekistan, enumerates the legal enactments currently in effect and records the scope of application of these instruments and the extent to which legislative texts are accessible to those entrusted with applying thern and to the general public. The section also examines the forces which are currently creat.ing momentum for reform in tGhis area of legislation. This section is based on a comprehensive review of all relevant laws and other enactments which are listed in Annex F. C.1.1 Development of the Legal Framework to Date While some initial steps have been taken in the building of a legal and regulatory framework for public procurement in Uzbekistan, that process has to date not advanced very far, havng commenced significantly later than in most other transition countries and having thus far been somewhat halting. With technical assistance provided by the World Bank in the form of an Institutional Development Fund (IDF) grant, beginning m 1996, a draft of a law on public procurement was drawn up. However, even now, two years after its preparation, the draft law has yet to be submitted to the Oliy Majlis (Parliament). Meanwhile, in the absence of a clear and comprehensive legal and regulatory framework which, in every other transition country, has proven indispensable to promote good procurement practice, progress in establishing sound public procurement practices in Uzbekistan has been slow. As a result, the system today still falls far short, in many key respects, of achieving the fundamental objectives of economy and efficiency, competitiveness, fairness, transparency and accountability which are the hallmarks of any well-functioning national pub ic procurement system. Key weaknesses in the legal and regulatory framev ork include: • a proliferation of poorly coordinated legal texl:s, mostly in the sub-legislative form of Cabinet of Ministers' resolutions, regulates different sectors and various aspects of public procurement. Because they leave large gaps in coverage, a significant volume of procurerrent transactions still goes unregulated. Even where they apply, the current enactments conflict with each other in matters as fundamental as the range of procurement methods provided. Also, because public procuring entities may choose which enactment to apply in particular circumstances, excessive discretion is afforded to public officials in the manner in which they handle procurement transactions; . the absence of a consolidated, unifying instrument at the statutory level with clear hierarchical superiority, able to promote uniform practices of a high standard; • partial and, in some cases, substandard, coverage of the full range of issues needed to be addressed in a comprehensive legal and regulatory framework. For example, there is an insufficient number of procurement methods to deal with different situations encountered in day-to-day practice, such as the procurement of consultants' services and low-value procurement below the threshold for the use of tendering; the absence of a clear rule against Uzbekistan CPAR Public Sector: Legal and Regulatory Framework disaggregation of procurement requirements into small-value lots, which facilitates widespread avoidance of the application of tendering and therefore reduces competition. To its credit, the Government of Uzbekistan now seems to be fully cognizant of the unsatisfactory nature of the current situation. The Cabinet of Ministers has itself expressed dissatisfaction with the pace of procurement reform, stating, with reference to the construction sector that "Tendering for procurement is being implemented slowly; fulfillment of contracts remains unsatisfactory. Abuses, financial infringements, and unjustified increases in the cost of construction and materials are still taking place."3 Also, as public procurement reform has proceeded apace in the neighboring countries of Central Asia and throughout the Commonwealth of Independent States (CIS), it has become increasingly obvious that the time is overdue for Uzbekistan to take meaningful steps in the same direction. Exacerbating these weaknesses and gaps in the legal and regulatory framework, there are a number of other factors which represent significant obstacles to the development of efficient and effective public procurement in Uzbekistan: * widespread institutional weakness, including a shortage of trained and experienced personnel, which hampers implementation and enforcement of procurement rules; • a still underdeveloped private sector which fails to provide adequate competition for public contracts in many sectors; • encroachment of government interest, extending, in some cases, as far as ownership, into components of the procurement system which would better be performed independently of government. Examples include purportedly independent pre-shipment inspection and price verification agencies, insurance and freight forwarding companies which are, in fact, partially govemment-owned. Under more market-oriented procurement systems, arm's length dealing between public purchasers and such agencies is considered crucial to the effective operation of the procurement process; * the absence of convertibility of the national currency, the Soum, which complicates and delays import contracts and dissuades foreign bidders from participation in public tenders; • a low level of awareness, in both the public and private sectors, of the legislation applicable to public procurement, which may be exacerbated by the profuse and scattered nature of the legislation. C.1.2 Principal Legal Texts Governing Public Procurement Constitutional Provisions While the Constitution does not contain any provisions dealing directly with public procurement, there are a number of provisions which may bear indirectly on the subject, including those placing an obligation on the State to function on the basis of legality and the public interest (art. 14, 15.2), bid protests (art. 35) and on parliamentary control over budget execution (art. 78.8; 86). Cabinet of Ministers Resolutions In the absence of a statute goveming public procurement, the main regulatory texts have been issued in the form of Resolutions of the Cabinet of Ministers (COM). The primary resolutions in this area are described below. 3 COM resolution 305/2000, para. 2. 7 Uzbekistan CPAR Public Sector: Legal and Regulatory Framework COM Resolution 456 (21 November 2000) Resolution No. 456 on Measures to Improve Orgarnization of' Tenders brought into effect the associated Regulations on Holding Tenders for Purchases of Raw Materials, Spare Parts and. Equipment. The main thrust of Resolution 456 is to require the use of tendering proceedings for procurement with an estimated value exceedimg US$ 100,000 equivalent. The Resolution also addresses other issues including scope of application; fiscal responsibility in the initiation of procurement; an organizational paradigm for conclucting proc irement proceedings centered on Tender Committees anc. "working organs" that service the committees; the primacy of open tenders and conditions for use of closed tenders; solicitation procedures; bidding documents; assessment of bidders' qualifications; schedules and time periods for various stages of tendering; bid submission, receipt, opening and evaluation, bid1 and performance securities, registration of contracts and the liability of public officials and bidders for violations in the procuremen,t process. This instrument falls significantly short of providing a comprehensive legal framework for tht conduct of public procurzment. Pnrmary among its weaknesses End gaps are: * a high threshold for application (US$100,000), which results in a large volume ofr procurement transactions going unregulated; • the lack of a clear prohibition again the disaggregation of procurement requirements, which makes it easy for procunng entities to break their requirements down into values of less than US$100,000 and thus avoid the app'lication of the Resolution; * the lack of a ful' range of procurement methods, in particular for cases in which it is not feasible or advisable fully to define technical specifications at the outset of the proceedings and for whlch two-stage tendering would be appropriate, and for lower-valut procurement for which a Shopping method would be fitting; * the absence of'a clear requirement for drawing up technical specifications in an objectivt manner in order to facilitate competition; * failure to require public bid openmg; * the apparent rec;uirement that, in all tendering proceelings, the qualifications of every bidder must be evaluated, tlhus precluding the post-qualification approach; failure to require the expression of non-pnce evaluation criteria in monetary terms, and vague and open-ended provisions on bid evaluation that foster subjectivity and prolong a histoncal culture; of negotiation. COM Resolution 305 (1 8 July, 2000) Another seminal instrurment, COM Resolution No. 305 on Alditional Measures to Strengthen Economic Reforms in Capital Construction and the associated Regulations on Tenders in Capital Construction on the Territory of the Republic of Uzbekistan, was enacted in the face of persistent difficulties in the construction sector and requires that contracts for construction projects shouldl be awarded on the basis of tenders. The provisions of this Resolution address many of the same types of issues as those found in ihe Resolution 456. However, significant additions include a defnition of the oversight and regulatory role of the State Committee for Architecture andl Construction, Goscornaichitectstroy (GCAS); an additional variant of tendering, namely, two- stage tendering; a requirement for public bid opening; a prohibition on negotiations; and tht provision of an administ-ative bid protest procedure. Uzbeksstan CPAR Public Sector: Legal and Regulatory Framework ,fhilc Resolution 305 comes closer to international standards and practices in many respects than does Resolution 456, it nonetheless contains several significant gaps and weaknesses. Additional COM Resolutions and Other Legal Texts A iumnrbe, of other COM Resolutions and legal issuances are relevant to particular sectors, public entities oI aspects of public procurement, including: Resolution No. 492 on Approval of the Regulations and Structure of Goscomarchitectsroy (8 No-vember, 1999); * Rrsolution No. 368 on Questions of Organization and Holding of Open Bidding on Suburban, Long-Distance and International Passenger Automobile Transport (29 July, 1999); * Resolution No. 350 on Questions of Organization and Holding of Advertised Bidding on Libani Passenger Transport (17 August, 1998); P F-pesolution No. 379 issuing the Regulation on the order of tender organization and conducting foi piocwuement of goods and services by the Central Bank of Uzbekistan. (27 February, 1998); * Pnesol .,tior No. 454 on Organization of Food Stuff Supply foT the Country Needs on the Basis O,r diddi, and lthe associated Procedure for Conducting Tenders for Inport of Food Stuff 3 Lhe Country Needs (26 September, 1997); *i Esollition of COM No. 397 On Improvement of the Procurement System of the Major Foodstuffs for State Needs (14 August, 1997). • Resolution 409 on Additional Measures for Inproving of the Material Living Situation of the Tcachers and Pupils, and the attached Order for Free-of-charge Provision of School Supplies fr- First-grade Pupils and Order for Procurement of Winter Clothes (20 August, 1997); . Resolution 517 on Measures for increasing of effectiveness of the work of General-Economic ComTplex (29 December, 2000), assigning to the Ministry of Macroeconomics and Statistics 1- task of making recommendations on institutional development in public procurement; C idcr Number 41 of the State Committee on Architecture and Construction on Methodical i&ecomnendations on Detcrmination of the Price for Construction Objects in Current Prices Daring Signling the Contracts and Preparing the Address Lists of Construction (16 July, 200 1); • Recornmendations on Payments for the Complete Construction Works and the Works of 1B uifldirgs, Major-repairs That are Conducted as a Result of Tenders issued by GCAS. C_ivtqi Codcle a!d Other General Contract Law lhe Civil Code comains several categories of provisions pertinent to the procurement process, I, lc;uding: (a) general provisions on matters such as the free movement of goods, services and financial assets, and the authorization of state entities to enter into civil law relations; (b) provisions on the rights and obligations of parties in contracts generally, as well in specific categories of contracts; (c) rules goveming the Contract for State Needs and the Contract for Delivc.y of Goods for State Needs, two forms of public procurement contracts, the latter of which is a kior!' of framework contract for the benefit of third-party end-users who conclude individual suig)' y contracts pursuant to a framework contract. The conclusion of some of those contracts is t7h an-ie part of suppliers and contractors pursuant to the Civil Code, an apparent vci'. or a Ic comnrmand economy. With respect to all three categories of provisions, the 9 Uzbekistan CPAR Public Secior: Legal and Regulatory Framework pertinence of the Civil Code is magnified by its preeminent position in the hierarchy of law in Uzbekistan. So also are questions as to the meaning of atavLstic provisions in the Civil Code calling for compulsory conclusion of contracts and providng compulsory compensation of suppliers for losses suffered under Contracts for State Needs. It is clear that such provisions have no place in a modem, market-based public procuremnent systemn and that they place unnecessary and avoidable obligations on the Government cf Uzbekislan which are not borne by the govermments of other countries. The Law on the Contractual and Legal Basis for Activity Carried out by Economic Establishments (29 August, 1998) (hereinafter Law on Contracts) is also germane to public procurement. The Law has the flavor, from a not filly bygone era, of interventionist state power in regulating contracts. It mentions not only contracts for state needs, but also the Government's role in, for example, assisting the conclusion and1 monitoring the performance of contracts between economic establishments. C.1.3 Scope of Application of the Existing Legisliation Under applicable consbtutional and legislative normns, COM Resolutions, including 456 and 305, are applicable throughout the territory of Uzbekislan and to all levels of administration. At the same time, however, implementing decrees and instructions issued at various levels are not systematically checked for conformity with those Resolutions, a factor which magnifies the already excessive profusion of legislative enactrnents applicable to public procurement and therefore breeds heterogeneity of procurement procedure and practice. Further diversity is added by the fact that many public purchasers follow Resolution 305 for the procurement of goods and supplies, although it was written specifically for capital construction. The applicability - and, therefore, the impact - of these two principal legal texts is seriously diminished by the relatively high monetary threshold (US$100,000), above which Resolution 456 applies and by the fact that Resolution 305 applies only to capital construction projects. Outside these parameters, all other procurement goes either totally unregulated or only minimally regulated by the intemal regulations of individual institutions. The absence of any regulatory body for public procurement, to perform functions such as data collection, means that the extent and value of these unregulated transactions is currently urknown and would be difficult to measure. While it is clear that both Resolution 456 and 305 apply to procurement financed by budgetary funds, both texts also appear to apply to at least some procurement using extra-budgetary funds. While Resolution 456 applies to "off-budget purpose funds consolidated in the national budget," Resolution 305 is less clear on thls point, but might also be read as applicable to extra-budgetary funds, since the provisions on scope refer to procurement utilizing budget funds, "as well as in those cases where customers are organs of state adininistratioa." Further variability is introduced by the fact that, while Resolution 305 also alludes to state enterprises, no such extension appears in Resolution 456. Resolution 456 modifies its applicability to take into account procurement rules imposed as a condition of donor funding, as well as other COM Resolutions relating to procurement. However, no such provision is found in Resolution 305. 10 Uzbekistan CPAR Public Sector: Legal and_Regulatory Framework C.1.4 Draft Law on Government Procurement A draft Law on Govenmment Procurement has previously been prepared with financial assistance from the World Bank, but has not yet been submitted to the Oliy Majlis. In its most recent draft form (January 2000), the draft law reflects fundamental principles and best practices found in the UNCITRAL Model Law and other international standards and would, therefore, represent a substantial improvement over the current enactments. However, it would require strengthening in a number of important aspects. The World Bank's detailed comments on the January 2000 draft law are appended to this report as Annex D. C.1.5 Judicial and Alternative Enforcement Disputes concerning both contract award and contract implementation may be brought to the State Economic Court, whose judges have however not yet had extensive exposure to disputes arising from public procurement proceedings. Alternative means of settlement of disputes are generally undeveloped. Though a limited number of provisions on arbitration are present in the Economnic Procedural Code, Uzbekistan lacks a modem procedural statute that would provide a legal basis for arbitration meeting intemational standards. Unlike a number of other CIS countries, Uzbekistan has yet to enact legislation based on the UTNCITRAL Model Law on Intemational Commercial Arbitration. It has, however, acceded to the Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). C.1.6 Accessibility of Legal Texts Article 30 of Constitution provides that "all state bodies, public associations and officials in the Republic of Uzbekistan shall allow any citizen access to documents, resolutions and other materials, relating to their rights and interests". In addition, Article 83 (2) requires that promulgation of laws and other normative acts shall be a compulsory condition for their enforcement. The Law of the Republic of Uzbekistan on Normative and Legal Acts (December 14, 2000), complements those provisions by requiring official publication of normative and legal acts in official publications. The above articles are implemented for laws and sub-normative acts registered at Ministry of Justice (MOJ). All Laws are published in country's main newspaper Narodnoe Slovo. There are also brochures, published monthly, compiling decrees, resolutions of the Cabinet of Ministers and other enactments. The MOJ has received a grant from Open Society Foundation (Soros) aimed at developing an electronic legal database along with a website, where all legal acts registered with the MOJ will be placed. This is a welcome initiative which should substantially improve the accessibility of legal texts. By contrast, at the local govermment level, it is common practice for the decisions of local authorities neither to be registered with the MOJ nor officially published, and it is usually particularly difficult to obtain a record of the decisions of Hokims (mayors). C.1.7 Current Drivers of Public Procurement Reform Past efforts to promote reform of public procurement legislation in Uzbekistan have been largely disappointing. While the World Bank, the United States Agency for Intemational Development (USAID) and the Intemational Trade Center (WTOI/UNCTAD) have all tried, at different times over the past five years, to promote the enactment of a comprehensive public procurement law, Uzbekistan CPAR Public Sector: Legal and Regulatory Framework none of these efforts has borne fruit. While there have been some advocates within Government who have consistently supported the passage of the draft law, there have also been opponents of equal- or perhaps greater -influence: the draft law has been perceived as threatening vested economic interests in various sectors, including relations betwe en public purchasers and the many state-owned enterprises which rely on state orders and have historically obtained them without exposure to competition. While it is clear that current efforts to promote the enactment of a procurement law will need to overcome the same kind of opposition, there are a number of factors which may support a more favorable outcome this time: • Uzbekistan has concluded a Partnership aind Cooperation Agreement (PCA) with the European Union, Article 47 of which commnits the Government to develop conditions for open and competitive award of procurement contracts. . The country's application for WTO membership may lead to accession to the WTO Agreement on Government Procurement (GPA), thereby creating an obligation to align its procurement legislation with the GPA. • Under the IMF SMP, the Govermment corrmmitted itself to a program of far-reaching economic liberalization, including currency convertibility, which should help create an environment conducive to reform generally and in which public procurement reform might develop. However, as already noted, the SMP has formally expired and not all the its key objectives have been fully met. * An obligation to implement the agreed recommendations of this CPAR report forms one of the triggers for the Base Case Lending Program in the World Bank's current Country Assistance Strategy (CAS) for Uzbekistan. * The recent opening of discussions between tthe Goverrnment and the World Bank about possible future structural adjusttnent lending is likely to create a dialogue in which public procurement reform can be promoted more vigorously by both parties. 12 Uzbekistan CPAR Public Sector: Procedures, Practices and Application C.2 Procedures, Practices and Application This section provides a step-by-step commentary on the practical application of Resolution 456, Resolution 305 and other instruments applicable to public procurement, from planning through tendering to contract administration. It highlights how weaknesses and gaps in the legislation, as well as the absence of effective regulation, translate into diminished levels of economy and efficiency, transparency, competition, fairness and accountability. This section is based on interviews conducted during the assessment and on responses received to questionnaires on procurement operations administered as part of the assessment. C.2.1 Procurement Planning Basic planning of expenditures for public procurement takes place within the context of the annual preparation of the budget and of the annual Public Investment Program. Apart from the legal instruments goveming those processes and with the notable exception of the Regulations on Procedures to Discuss and Approve Investment Project Documentation (Resolution 305, Appendix 3), which address feasibility studies, provisions on procurement planning are scant. For example, Resolutions 456 and 305 assign to the end-user the decision to mitiate a procurement action. The body serving as the secretariat of the Tender Committee carries out preliminary tasks, such as defining the tender procedures and preparation of bidding documents, where such are issued. Other related provisions call for fiscal responsibility in the initiation of procurement (Resolution 456) and for pre-solicitation approvals (e.g., from GCAS, pursuant to COM Resolution 492) and from the Holdi (mayor), in municipal procurement. There is evidence of some degree of coordination of purchasing to achieve economies of scale in commonly used items, in particular for construction materials where GCAS is the purchaser. Despite such provisions, major weaknesses in planning persist and have serious, negative consequences for the implementation of procurement proceedings and the resultant contracts. A major cause of these chronic difficulties is the current process for budget formulation and execution, which usually means that all contracts whose duration spans the end of one fiscal year and beginning of another are starved of funding for the first two to three months of the new fiscal year. As a result, no payments are made during these months and, on civil works contracts, construction stops (see Section C.5). Other problems arise from the use of outdated pricing formulae, dating from 1991, for the estimation of contract prices, poor communication between government entities, inadequate designs prepared by unreforrned state-owned design institutes, the use of which is mandatory for public institutions, and the frequent leaking of confidential cost estimates to bidders during the tendering process, which facilitates bid rigging. In one such case, involving a tender for construction works, the cost estimate for which was 60 million Soums, three bids were submitted, priced at 59 million, 61 million and 63 million Soums, precipitating the Ministry of Macroeconomics and Statistics (MMS) to intervene to force re-bidding. C.2.2 Use of Procurement Agents The use of procurement agents is an established practice in Uzbekistan, recognized in Resolution 305 and elsewhere. Several state-owned companies have been established for the purpose of acting as procurement agents. Prime examples of such agents, who work on a contract basis unless directly assigned by the Government, include Uzbektenderconsulting, owned by the 13 Uzbekistan CPAR Public Sector: Procedures, Practices and Application Agency for Foreign Economic Relations (AFER) and Tashtenderconsulting, owned by the City of Tashkent. Uzbektenderconsulting, which operates on a for-profit basis, was originally established by AFER in order to concentratc what limited procurement slills were available in the central Government to handle high-value and complex procurement assignnments. From a near-monopoly of Government procurement when first established, the annual value of procurement handled by Uzbektenderconsulting has now shrunk to US$25-30 million equivalent as more and more procuring entities uncertake their own procurement. However, one sector where procurement continues to be centrf,lized under Uzbektenderco-nsultmg is that of foodstuffs (see Section C.3 below). C.2.3 Eligibility of .Bidders for Participation in Public Procurement Both Resolutions 45( and 305 contain provisions on eligibility, though neither distinguishes clearly between the related issucs of eligibility and the qualification of bidders. In reality, -the application of qualification requirements vaTies widely from one procuring entity to another and from one level of administration to another. For example, while many central government procuring entities follow the stipulation of Resolution 456 that bidders must have six months prior experience of operation, the City of Tashkenl. requires bidders to have been in business for at least three years to be qualified. Eligibility requirements rmay be imposed on a sector-specific basis: for example, COM Resolution No. 368 On Open Bidding for Allocation of Suburban, Intercity and International Passenger Bus Routes provides for registration to operate in the transport sector. Also noteworthy is a widely-practiced government policy of avoiding purchasing from traders or other middlemen, though this is sometimes difficult to apply when only traders are willing to provide needed financing. A salient feature of public bidding in Uzbekistan is the dominant position of state-owned enterprises as bidders and contractors. Uzbekistan has a large, inefficient and heavily indebted industrial sector, which has significant political and economic: vested interests. The Government's industrialization policy has promoted key industries (e.g. chemical and petrochemical, non- ferrous metallurgy, automobile, textiles, food processing) by implicit subsidies, for example through the foreign exchange regime, cotton and energy pricing, and subsidized domestic credit, and it also uses government contracts as a means of subsidizing these enterprises. As section C.2.9 below demonstrates, state-owned enterprises are often specifically invited to bid in competition with other bidders. However, there is a great risk that they are crowding out competitive participation in bidding by private sectDr bidders, both local and foreign. C.2.4 Assessment of Bidders' Qualifications The assessment of bidders' qualifications has been uneven thus far and is plagued by a fundamental lack of transparency, both in the provisions contained in the legislation and in their application. Contributing factors include inadequate defiition in the current legislation of the permissible range of qualification cnteria, weak provisions regarding the disclosure of qualification requirerments, and the widespread practice of inviting bids only by publication of a newspaper advertisernent, rather than by providing bidders with bidding documents which contain detailed provisions on rninimum qualification requirements. Another distorted practice, enshrined in Resolution 456, is the "pre-seleclion" in all tendering proceedings of bidders permitted to participate, which is tantamount to applying pre-qualification in every ternder proceeding, an econornically wasteful provision which is also open to the abusive exclusion of 14 Uzbekistan CPAR __ Public Sector. Procedures, Practices and Application some bidders. Resolution 305, in which the treatment of bidders' qualifications better reflects best practice, distinguishes between an optional pre-qualification stage and the assessment of bidders' qualifications in the absence of a pre-qualification proceeding. However, it is not clear whether such pre-qualification is preceded by an open call for application and whether the post- qualification approach is applied or the qualifications of all bidders are assessed. This is one of many important areas of the procurement process where the definitions in the current legislation are so vague as to leave excessive room for wide variations in practice. C.2.5 Participation by Foreign Bidders and Application of Domestic Preference While the existing legal framework does not specifically restrict participation by foreign bidders, it does not establish the important principle of non-discrimination. The practice reported to this assessment is that all public procuring entities are fully aware of which products are manufactured in the country and which must therefore be imported; to obtain imported products, they directly invite foreign manufacturers to bid on a case-by-case basis. As noted above, the practice of inviting the supply of foreign-manufactured goods through local trading companies, so commonplace in other Central Asian countries, is eschewed by Uzbek purchasers, apparently driven by the desire to improve economy by avoiding paying margins to middlemen. In general, the level of participation by foreign bidders in public tenders in Uzbekistan is low. The reasons lie not such much in the legislation as in a widespread lack of confidence in the way in which procurement proceedings are conducted and the difficulty of the business operating environment. These difficulties include lengthy and bureaucratic business registration requirements and the lack of convertibility of the Soum, which complicates most contract-based transactions, raises the risk of exchange losses, and inhibits the repatriation of profits. Perhaps for these reasons, participation by foreign bidders in externally-financed tenders, including those financed by the ADB and WoTld Bank, is higher than in Government-funded tenders. The concept of applying a margin of price preference to local content is recognized in Resolution 456, which declares an aim of involving domestic firms and that, "under all equal conditions," preference should be give to local bidders. However, no clear instruction is given on how such a preference is to be applied in practice. C.2.6 Minimum Participation Requirements Resolution 305 provides that proceedings with less than three participants are invalid, while, under Resolution 456, the minimum number is one. C.2.7 Procurement Methods Resolutions 456 and 305 take similar approaches to procurement methods in that they provide only the tendering method, and no methods tailored to procurement of consultants' services or to low-value procurement. Tendering is required for procurement of goods with an estimated value exceeding US$100,000 and for capital construction project works. Below the US$100,000 threshold for the procurement of goods, the only requirement in the legislation is a vague one that purchases should be made on the basis of "best competitive proposals." These high thresholds leave significant volumes of procurement effectively unregulated and seriously diminish economy and efficiency. 15 Uzbekistan CPAR _ Fublic Sector* Procedures, Practices and Application Each of the instruments cited above, as well as Resolution 454 (1997) on the supply of foodstuffs, provides for an Open and a Restricted Tendering method, while Resolution 305 also provides a two-stage variant. Open Tendering is generally understood as acccrnmodating participation by any and all bidders, but that general principle is diminished by provisions in Resolution 456 on "pre-selection" of bidders, which do not clearly require such pre-selection to be open to all. The pre-eminence of Open Tendering as the main method of procuremenit is reduced by the provision in the Foodstuffs Regulations which mandates the use of Closed Tendering for procurement of foodstuffs for "special consumers, establishments of the Government supply and the Government Reserve". 'The priority of Open Tendering is further weakened by vagueness in the conditions for use of Closed Tendering in Resolution 456, which refers merely to "exceptional cases" and the agreement of the relevant bureau of the COM Secretariat. By contrast, Resolution 305 provides what are generally considered two classic grounds for the use of Cosed Tendering: that only a limited number of suppliers exist for the required goods and that the value of the procurement is low. While Resolution 305, in particular, provides some of the essential features of competitive tendering, its effect is undermined by poor implernentation and weak enforcement. C.2.8 Forms of Communications Permissible forms of- comnunication in tendering are addressed only in Resolution 305, whlich posits a rule so broad as to permit the use of verbal submission of a bid price, albeit subject to subsequent wntten confirmation. Such a provision has no place in a transparent procurenment environment, in which a bidder should be required to commit to his bid price in a legally binding bid and be held to it at the evaluation and contract award stages. C.2.9 Solicitation of Participation in Procuremnent Proceedings For open tendering, publishing of an invitation lo bid in the mass media is required, though the precise publication is not specified, with the possible exception of Resolution 305. The Resolution requires GCAS approval of a list of acceptable publications, and publication also in a Competitive Bidding Bulletin to be issued by GCAS, though such a bulletin has not yet appeared. The general practice is that such invitations are published H local and national newspapers such as Narodnoe Slovo, Pravda Vostoka and Biznes Vestnik. Resolution 456 requires publication in foreign as well as domestic media, but that requirement does not appear to be uniformly applied, primarily because most procuring entities cannot afford the cost of advertising in a foreign publication. An additional form of solicitation is illustrated in the Samarkand Oblast, which publishes annually a list of upcoming construction projects to solicit expressions of interest. Some regulatory scrutiny of ihe solicitation process is entrusted to the Anti-Monopoly Commission, which, in accCrdance with the Presidential Decree establishing the Commission (No. UP-2676 dated February 8, 2000), may intervene if it spots irregularities. Direct solicitation to selected bidders, parallel to the piublication of an invitation, is also mentioned in each of the main normative texts, though not with uniform clarity. For instance, Resolution 456 seems inadvertently to suggest the incongruous notion that direct solicitation may substitute for publication in open tendering, and in Resolution 305, direct solicitation is presented in a similarly confusing manner with respect to invitations lo apply for pre-qualification. In some cases, procuring entities mix a general, open invitation with inviting specific entities to bid. For 16 Uzbekistan CPAR Public Sector: Procedures, Practices and Application example, an invitation to bid for the supply of educational materials and winter clothing, published by the Ministry of Public Education in Teacher of Uzbekistan magazine dated December 5, 2001 carries the following wording: "The following companies are invited for participation in the tender with the samples of their products: Uzbeklegprominvest Association, Uzbekcharm Poyfzali. Uzbeksavdo, Uzbekbirlashov factories and enterprises, joint ventures, foreign firms, other organizations and private firms." Whether bidders not specifically named in the invitation to bid would feel that they would have an equal chance of success in competition with the four state associations specifically named in the invitation is clearly open to question. The statement of the minimum required contents of invitations to bid varies from one Resolution to the other. This gives rise to great disparity in practice. For example, some procuring entities pre-disclose their cost estimate for the procurement requirement. This is an unacceptable breach of the confidentially to which such information should be subject. On the other hand, few, if any, procuring entities follow good practice and pTe-disclose to bidders the evaluation criteria to be used in the evaluation of their bids, which is considered an indispensable element of transparency in more developed procurement regimes. C.2.10 Bidding Documents This is one of the principal areas in which the incomplete provisions of the current legislation cause the most frequent and serious problems to the practice of procurement. Only rarely are written bidding documents actually issued. Other widespread, chronic problems when bidding documents are in fact issued: inadequate definition of scope of work, providing bidders with insufficient information on which to base their bids, which leads to wide and, in some cases, irreconcilable variations in the bids submitted, failure to disclose the bid evaluation criteria, poor designs produced by unreformed state-owned design institutes, and the disclosure of the purchaser's available budget or cost estimate. Such difficulties persist despite periodic interventions by organizations such as GCAS and the Anti-Monopoly Commission to have procuring entities correct bidding documents which contain obviously discriminatory conditions. Provisions as to the price that may be charged for bidding documents vary. Only Resolution 368 reflects best practice, in that the price of the docutnents should be based only on the cost of production and distribution. C.2.11 Time Allowed for Preparation of Bids Resolution 305 establishes, for Open Tendering, a rninimum bid preparation period of 30 days from publication of the invitation and, when there is parallel direct solicitation, 35 days from the date of dispatch. No reference is made to a minimum period for Closed Tendering. The other regulations establish a flat 30-day period before the date of the opening of tenders, apparently applicable to all procurement methods. This assessment noted instances where procuring entities have allowed bidders only a truncated period for bid submission, some as short as 15 days, raising the prospect that they are favoring a single, preferred bidder and restricting participation by others. 17 Uzbekistan CPAR __ _ __ PublicSector. Procedures, PracticesandApplication C.2.12 Clarification and Modification of Biddinig Documents Resolution 305 contains a provision permitting bidders tc, seek clarification of thhe bidding documents not less than ten days prior to the dead'line for submission of bids and also affirms the right of the procuring entity to modify the biddin,g documents prior to the deadline, subject to circulation of the amendment to all participating bidders. Neither issue is addressed in any of the other instments. C.2.13 Language Provisions on language of bidding documents, bids and contracts are not found in the normative texts governing public procurement. The general practice seems to be that documents are prepared in Uzbek, the official language, with the addition of a foreign language, rnost often Russian, for import operations. C.2.14 Bid and Contract Price and Currency It may be said without exaggeration that problems in bid and contract pricing have wrealced havoc on public procurement operations in Uzbekistan. These problems afflict all stages of the procurement cycle, from the preparation of inaccurate cost estimates through the pricing by bidders of their bids, and leading to skyrocketing cost overruns in contract implementation. The difficulties stem largely from the continued utilization, in particular in the construction field, of outdated, Soviet-era price data dating from 1991. From the vantage point of a market economny, these reference prices have probably always been umrealistic and more reflective of subsidization than of actual cost. Attempts have been made over the years, by way of application of coefficients to the price list, to adjust it for inflation, but those coefficients are widely regarded as being unrealistically low, by a factor of two or three. It appears that, despite the call in the Resolution 305 Regulations for the use of current prices, the use of the outdated price list persists. Some bidders have resorted to pricing bids in two prices, one based1 on the 1991 price list and the other on current prices, which complicates the comparison and evaluation of bids. Other factors and practices which complicate pricing include: mandatory price verification of import contracts; price controls (e.g., concerning construction materials, and insurance); the use of multiple exchange rates; and techniques for setting prices in which the parties agree on a rate for labor and estimated volume of work, without the cost of materials, which may depend on the choice by the procuring entities of the source country for the materials; the practice of overpaying linked to corruption; and difficulty in obtaining fixed prices, due to pricing difficulties as well as to payment delays. C.2.15 Bid Submission and Opening Bid opening practices display a significant lacek of transparency and create fertile ground for abuse by both public officials and bidders. The major defects in the current procedures, w'hich flow from weaknesses and gaps in the legal framework, include failure to require that the bid opening coincide with the deadline for submission of bids, resulting in the virtual non-application of that best practice; a time-lag of as long as one week between the deadline for submission of bids and bid opening; bid opening conducted in private, where the bidders' representatives have no right to attend, and failure to disclose the n-d utes of the bid-opening. While any one of these practices would represent a serious reduction in transparency, taken together they make for bid opening procedures in Uzbekistan that are shrouded in opacity and therefore open to manipulation. Uzbekistan CPAR Public Sector: Procedures, Practices and Application C.2.16 Bid and Performance Securities The availability of securities is hindered by banking regulations that preclude the use of hard currency as a cash deposit, and by non-issuance of guarantees by banks. The key normative texts for public procurement suggest that bid securities are required in all procurement proceedings. That may be reasonable to the extent that those instruments focus on contracts of significant value. However, bid security requirements pose a significant obstacle for many smaller companies. Provisions as to the amount, perrnissible form and other aspects of the bid security are not uniform and, in some instances, not in line with best practice. For example, there is no rule to ensure that bid securities have a sufficient validity period, grounds for forfeiture are not adequately stated, and bid securities of losing bidders may be returned prior to conclusion of a contract with the winning bidder, a step which unnecessarily increases the purchaser's risk. Performance securities appear to be required for all capital construction, but are not required for every procurement of goods. The Foodstuffs Regulation provides that the winning bidder's bid security deposit is converted into a performance security. C.2.17 Bid Validity Period Resolution 305 refers specifically to the notion of the bid validity period, but at the same time diminishes its meaning by permitting the bidder, unless otherwise provided in the bidding documents, to withdraw his bid prior to the expiry of the validity period. Another example of an anomalous rule is the restriction in Resolution 368 of modification of bids once they have been submitted, even before the deadline for submission of bids. C.2.18 Examination and Evaluation of Bids The legal framework addresses various aspects of the evaluation of bids, including mechanisms of the evaluation process, evaluation criteria, and approval of the evaluation report (in the case of construction, by Goscomarchitectsroy; in the case of goods, by the end-user, and, in the case of foodstuffs, the decision is made by the tender committee). However, to one extent or another, weaknesses, gaps and lack of uniformity in the applicable texts, together with the associated procedures and practices, make this an area of most serious deficiency, prone to lack of transparency, subjectivity, and high risk of abuse. Key problems include: • rules that are not uniformrily and sufficiently clear as to the permissible range of evaluation criteria, their relative weight and their disclosure to bidders in advance of bid preparation (e.g., provisions seem to distinguish between evaluation criteria disclosed in the bidding documents and additional ones that may be introduced during the evaluation itself); * the widespread practice of not fully determining evaluation criteria until bids have been opened and examined; focusing on "technical parameters" and expert group evaluations rather than on evaluation criteria; * diminished meaning of evaluation criteria due to the use of outdated price lists and inaccurate inflation coefficients and the failure to express non-price criteria in quantified terms; 19 Uzbekistan CPAR __ Ptublic Sector Procedures, Practices und Applicaiiorn * absence of the notion of a permissible range of re.sponsiveness artd quantification of non-material deviations, which leads, to bids with only minor deviations being rejected uTnnecessarily; * procedures; that foster subjectivity and abuse such as the merit-point systerm, allowing the reputation of bidders to be injected into the technical evaluation of bids, "awarcl by intervicw" and other forms of negoliation; • clarification of bids in person rather l1an in writing, which creates an opportunity: or corruption to occur and in which accountability is difficult, if not imnpossible, to ensure; • practices lhat promote collusion, such as gathermig all bidders in an anteroom and then callir g in each bidder individually while hls particular bid is beir.g opened, and pressuring bidders to offer discoimts. Bid evaluations are conducted by Tender Committees, composed of representatives of various entities including the end-user as well as, even in oblast or local government procurement, external bodies such as the Ministry of Finance, the Anti-Monopoly Comnmittee and the Agency for Foreign Economiz Relations. As noted earlier, AFER is, at the same time, directly or indirectly involved in ownership of procurement agents whic'-i conduct procurement proceedings, as well as in subseqluent stages involving pre--shipment inspection and price verificati,r, insurance, freight-forwarding, and registration ofc ontracts. In some cases, the Tender Cornrnittee may be chaired by thre respective Minister, an approach not conducive to de-politicization of procurement award decisions and one which contributes to the perception that tender cormrnittzes do not possess true aul onomy in the award decisio n from the relevant Minister or H okim (rnayor)). C.2.19 Notification of Contract Award, Contract Registration, Price Verificaltion, Pre- Shipment Inspection and Entry into Effect of Conitract The legal frameworl: is not harmonized as :regards notifications of contracil award. Only Resolution 305 refers to direct notice to the winning bidder, wntten notification to losing bidders, and publication of a notice of contract award. Resolution 456 refers only to the latter type of notification. Conclusion of the contract in many cases involves negotiation, for reasons zncluding the fact that bidding documents may not have been issued, or if they were issued, a con.ract form may not have been ineluded, both of whlch are common pracnces. Between the point of identifying the winning bid and putting in place an effective contract, tl' ere are many hurdles which a contract has to overcome under Uzbekistan's hugely complex, tightly Government-controlled contracting and import procedures. Firstly, all import contracts whose financing involves conversion of national currency into foreign currency on the domestic exchange market or credit lines issued by foreign and international institutions subject lo sovereign guarantee are subject to mandatory registration with the Agency for Foreign Econom;.c Relations (Regulation No. 988 dated December 12, 2000). Contract registration can add monthtls of delay not just to Govei-nrnent-funded contnLcts but also to those financed by external institutions, including the World Bank and ADB. Secondly, by Resolution No. 66 (February 2, 2001), the Government has made all import contracts for supplies in seven categories of goods subject to price verification. Under price verification, one of four appointed companies, )khich musi be registered with ihe Ministty of Justice for the purpose, checks contract prices against international market prices and has the right to force a negot.ated reduction in the contract price, even if that price has been established 20 Uzbekistan CPAR Public Sector: Procedures, Practices and Application as the result of a tender. It may even require the cancellation of the contract if the appointed company remains dissatisfied with the contracted price level. A price may be regarded as acceptable if it is in the range of 3-5% above the relevant reference price, though there have also been many occasions when, although a price verification firm has approved a contract price, the Pricing Department of AFER has insisted on its being negotiated downwards, based on AFER's own, more stringent standards. About 20% of contracts verified in this manner are rejected on the basis that the price is too low and are therefore regarded as attempts at price dumping. One of four partially government-owned companies, interviewed for this assessment, has verified 8,000 contracts since 1997 and claims to have produced "savings" - that is, negotiated price reductions - of US$60 million for its Uzbek clients in doing so. Thirdly, Pre-Shipment Inspection (PSI) is carried out by firms which are required to be accredited by Uzdavstandart in line with International Federation of Inspection Agencies standards. Four companies have been accredited to conduct PSI on behalf of importers, both public and private. Mandatory PSI applies to contracts above US$10,000 involving certain items which are identified in COM Resolution No. 66 (February 2, 2001), such as some foodstuffs, equipment and mechanical devices, including electrical equipment, imported for implementation of projects on the State Investment Program. C.2.20 Payment Payment delays are chronic due to irregular availability of budget financing, in particular at the beginning and end of the fiscal year. As a measure of how ubiquitous this problem is, of 677 tenders operated by GCAS in 2001, only 88 (13%) were completed at the originally contracted price. All of these were so-called "closed" contracts, that is, small-value contracts, typically for small construction works like schoolhouses and rural clinics, which were started and completed within the same fiscal year. All the other 589 contracts (87%) which went over the end of the 2001 fiscal year and into 2002, suffered payment delays in the first two or three months of 2002 which, in turn, pushed up the eventual contract price. These chronic payment problems have created a perverse incentive whereby contractors frequently submit inflated invoices in December of each year in order to generate sufficient funds to keep construction works going during the early months of the following year. Another response to payment problems has been the use of compensation arrangements - that is, payment in forms other than cash. Other peculiarnties of payment include the legal requirement that importers not pay before they receive the goods, and the related requirement that payment of a letter of credit should be subject to documentary evidence of the goods having crossed the border into the country, in contravention of the normal practice, under CIF and CIP Incotermns, of payment upon presentation of documentary proof of shipment from the seller's port of export. In line with applicable currency and banking regulations, payment to domestic suppliers is made in Soums. Payments to foreign suppliers in hard currency are extremely problematic. COM Resolution No. 405 (November 19, 1996) specifies a dedicated procedure which resident (Uzbek) legal entities must go through to obtain a license for converting Soums mto foreign currency, but securing such licenses is both difficult and unpredictable, adding delays to the implementation of most contracts which involve currency conversion. All the importers interviewed for this assessment expressed a keen wish that the Government should implement its undertaking, under 21 Uzbekistan CPAR Public Sector: Procedures, Practices and Application the Staff Monitored Program (SMP) with the RAF,4 to lift all restrictions on foreign exchange for current account transactions. Importers see this as one of the most positive moves which the Government could make towards facilitating foreign trade operations, including those under public-funded contracts, C.2.21 Records of Procurement Proceedings T]he practice of public procurement in Uzbekistan is generally characterized by secrecy with regard to information that would be disclosed, if best. practice were followed. For example, where no public bid opening is held, it is a typical practice not to disclose the price of the wrinning bid or the minutes of bid openings, information which should normally be in the public domain and whose publication increases transparency. The provisions of Resolution 305 pertaining to records of procurement proceedings specifically stipulate that the minutes of the bid opening are not to be published. Resolution 456 contains some minimum requirements regarding the inforrmation which the Tender Committee (TC) must record in the written "protocol" of the tender proceedings: the names of the bidders, the name of winning bidder and his bid price, a summary of the bids submitted, the names of the members of the TC and how they voted. While Resolution 456 also reqatires that the results of the tender should be published in the mass media within three days of the award decision, this provision does not compensate for the overall opacity of the evaluation procedure. The retention of documentary records of procuremnent proceedings is generally poorly done. Paper files and records are often found to be incomplete or in poor order, which creates an obstacle to effective project management, contract administration and auditing. This problem affects procurement on Bank-financed projects as much as it does Govemment-funded contracts; most implementing agencies are failing to keep their procurement records in order or to retain them for two years after loan closure, as Bank loan agreements require. C.2.22 Procurement of Consultants' Services The procurement of consultants' services in Uzbekistan is beset by problems. The main source of these is that the existing legal framework fails to provide a procurement procedure specifically designed for the unique nature of consultants' services. The main legal text which concems itself with services, Resolution 305, simply applies to them the Tendering procurement method, which is not appropriate for consulting services, where short-listing should be used to attract the interest of qualified firms and where quality, rather tharL cost, should be the overriding criterion in selection. Furthernore, given the relatively high threshold (US$100,000) above which Resolution 305 applies, the procurement of construction-related 3ervices is covered only above that threshold. Therefore, procurement of construction-related consultants' services falling below US$100,000 and the procurement of all non-construction-related consultants' services are effectively unregulated by the current legislation. Among the deficient practices applied to the selection of consultants are: * insufficient time given to consulting firms to prepare their technical and price proposals; 4Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding (January 31, 2002) available at www.imforg/externallnp/loi/2002/uzb/Ol/index.htm 22 Uzbekistan CPAR Public Sector: Procedures, Practices and Application * inadequate definition of the scope of services required, which makes it difficult for consulting firms to prepare responsive proposals and also leads to difficulties in the implementation of services; • inappropriate evaluation criteria, which emphasizes low cost, rather than high quality; • Insufficient time allowed to consulting firms to carry out their assignments. The cumulative effect of these difficulties is to discourage consulting firms from participation in public tenders. C.2.23 Bid Protest Resolution 305 establishes a bid protest procedure patterned generally on the one in the UNCITRAL Model Law, but available only before entry into force of the procurement contract, not during the tendering process itself. Otherwise, recourse is available before the courts in accordance with the applicable law. Under the other Resolutions, only judicial recourse is available for bid protests. 23 Uzbekistan CPAR __ __ _ ___ Ps'blic Sector. Organization and Resources C.3 Organization and Resources This section reviews organizational arrangements supporting public procurement in Uzbekistan, including the roles of the main organizations - the Ministry of Economics, the Agency for Foreign Economic Relations and GCAS - examines how the procurement function is organized within procuring entities and assesses current arrangements for holding public officials accountable for the decisions vhich they make regarding public procurement. C.3.1 Organization of the Procurement Function within Government Uzbekistan's public procurement system is broadly dccentralized, with responsibility for conducting procurement delegated to a large number of institutions at the level of the state, thirteen regions and local governments. Organization charts for the Government of Uzbekistan at various levels are attached at Annexes F. 11-F.3. There are, however, elements of centralization in the performance or approval of procurement in specific sectors, such as foodstuffs and civil works. While, in the past, procurement functions have been partially centralized by the concentration of a large volume of procurement in the hands of Uzbektenderconsulting under the Agency for Foreign Economic Relations (AFER) (see C.2.2 above), th s was primarily a short-term measure designed to capitalize on the limited availability of procurement skills, rather than a conscious attempt at centralization. The arrangement has unwound aicreasingly in the past few years as individual procuring entities have taken back responsibility for conducting their own procurement transactions. However, one area where the execution of procurement continues to be centralized under Uzbektenderconsulting is that of foodstuffs. Under Resolution No. 54 on the Organization of Foodstuff Supply for the Country Needs on the Basis of Bidding (September 26, 1997), all purchases of basic food products for state needs nmLust be conducted by Uzbektenderconsulting. In some regions, oblast-level authonties have voluntarily established Oblast Tender Committees which conduct procurement on behalf of sorme or all of the public procuring entities within a given oblast. C.3.2 Roles of the Leading Institutions: Ministry of Economics, Agency for Foreign Economics Relations and GCAS There is no single institution with oversight or regulatory authority over public procurement. Equally, no single institution bears responsibility for monitoring compliance with the legislation, for harmonization of the many resolutions and regulations, or for taking the lead in the professionalization of the procurement function within Government. The absence of such a lead institution is surely part of the reason why the procurement function has developed in such piecemeal manner over the past three to four years. Instead, important authorities over different areas of public procurement operations have been divided among the Ministry of Economics CME), AFER and GCAS (State Committee for Architecture and Construction), the sumn of which adds up to a complex set of interloching relationships. Ministry of Economics (MIE): The Cabinet of Ministers had assigned to the ME's predecessor, Ministry of Macroeconomnics and Statistics, by Resolution No. 517 On Measures for Increasing 24 Uzbekistan CPAR Public Sector: Organization and Resources the Effectiveness of the Work of General-Economic Complex (December 29, 2000) the following tasks: • development of the institutional arrangements and implementation of State needs, on the basis of a system of government procurement (by the second quarter of 2001); and • the development of the legal basis for the usage of state financial and material resources; (no deadline has been established, as the work is to be conducted on a continua] basis.) Both the Ministry of Finance and the State Tax Committee share some responsibilities for undertaking these tasks. Prior to its abolition by decree (December 24, 2002) and replacement by the new ME and a State Committee for Statistics, the Ministry of Macroeconomics and Statistics had shown commendable commitment and energy in furthering the cause of public procurement reform. It took the lead role in developing COM Resolution 305 which, as noted above, provides a much more comprehensive basis for public procurement than the earlier Resolution 456. Also, because it had authority over the planning of the annual Public Investment Program and the budget, it exercised considerable authority when intervening to correct dysfunctions in public procurement operations. The new Ministry of Economics (ME) retains the experience gained by its predecessor Ministry of Macroeconomics and Statistics, as well as authority over the annual investrnent program and foreign trade. Agency for Foreign Economic Relations (AFER): As described in C.2.19 above, current rules require that all contracts which involve converting Soumns into foreign exchange on the domestic exchange market or which are financed by credits from international financial institutions guaranteed by the Government, be registered with AFER. In addition, the Pricing Departmnent of AFER requires - and sometimes itself conducts - price verification on import contracts for seven categories of goods, checks the contract prices against international market prices and frequently insists on a negotiated reduction in the contract price, even for contracts which have already been the subject of competitive tendering. Goscomarchitectstroy (GCAS): Under Resolution 305, GCAS is autllorized to perform oversight functions specifically in the area of capital construction: * review of bidding documents; * review the correctness and appropriateness of the selected procurement methods and the proposed procurement procedure; * supervision of the organization conducting the procurement; * oversight functions to ensure the fulfillment of the terms and procedures of the tendering procedure by all participants. Where the estimated cost of the construction works exceeds Soum 2.0 million in 1991 prices, GCAS headquarters in Tashkent performs the authorized functions, while, below that threshold, they are performed by its regional subdivisions. It also appears to be common practice for many public procuring entities to ask GCAS to conduct tenders on their behalf, particularly in the case of complex works or when the entity has little experience of procurement. In this respect, GCAS both implements and oversees procurement. In 2001, GCAS oversaw or conducted 677 tenders with a total value of 69.7 billion Soums (US$101.3 million). Of these, 355 tenders (52%) were for construction works, 139 (21%) for 25 Uzbekistan CPAR Pu.blic Sector: Organization and Resources design services and 183 (27%) for goods. As these figures demonstrate and given its authorized functions under the legislation, GCAS is one of the key institutions in public procurement operations in Uzbekistan. It has accumulated substantial experience in the implementationL of procurement and has a strong technical and engineering skil' s base to complicate this experience. Its management has participated actively, with the Ministry of Macroeconomics and Statistics, in drafting Resolution 305 and has a sound knowledge of the practical application of the procurement legislation. C.3.3 Organization of the Procurement Function withhi Procuring Entities The various COM Resolutions dealing with public procurement (Nos. 397, 456, 305 and 368) provide for the establishment of Tender Committees (TC) to conduct procurement. These may be either temporary or permanent committees, whose members are appointed by the management of the procuring entity itself, except in cases where the value of the procurement requirement exceeds US$1.0 million, in which case the Cabinet of Ministers appoints the members. Tender Comrnittees must have an odd number of members, usually between 9 and 11, and, in addition to the procuring entity itself, both the Ministry of Finance and the Agency for Foreign Econornic Relations must be represented on all Committees. The duties of the MOF representative include making sure that budget financing has been allocated for the procurement requirement. However, as it is usually the Control Department of the Ministry of Finance which is represented, their participation raises difficult questions about that Department's ability to perfonn its core fumction of ex-post control of govermment expenditure decisions, when it has also taken part in the making of those decisions. Other institutions which regularly participate in Tender Ccimmittees include the Anti-Monopoly Committee, GCAS (for civil works), commercial banks, price verification and pre-shipment inspection agencies - any one of whom may later be tasked with verifying the price of the proposed contract award, a task which may involve them in recommending a reduction in the price of a public contract, the award of which they have already approved. Within Tender Committees, the decision on contract award is taken by simple majority vote, an nontransparent practice which seems to hark back to Soviet-era traditions of decision-making by consensus, rather than by strict application of the evaluation criteria as stipulated in the bidding documents. Also, given that these Tender Committees ofien comprise nine or more evaluators, decision-making processes are rendered unwieldy and the outcomes unpredictable. Institutional capacity for procurement is inadequate throughout the Govermnent at all levels of administration. There is a severe shortage of qualified., experienced staff able to perform procurement in a timely, accurate and effective manner. To exacerbate this situation, there is currently no provision of training in procuremenrit provided to public officials, although each of the IFIs involved in Uzbelistan has run short training courses in their own procurement guidelines for Govemment officials. As a result, some expertise and experience of international procurement has been built up in the Project Iiplementation Units (PIUs) which implement IFI- financed projects, but these resources are typically not available to the Government as a Vwhole, given the disparity in remuneration rates between PIU staff and officials in regular civil service positions. There is also a high turnover of skilled staff from the govenment agencies into the private sector, again mainly due to the better terrms and conditions on offer there. 26 Uzbekistan CPAR Public Sector: Organization and Resources C.3.4 Accountability Of Public Officials When Conductfng Public Procurement The environment for ensuring that public officials are held accountable for their actions, when implementing procurement, is weak. Public accountability is diluted by a political and economic system that is characterized by little or no oversight of public finances, a general lack of transparency in policy decision making and implementation and a poorly developed civil society. Gaps in the current arrangements include the fact that there is no published code of ethics which public officials are required to follow. Equally, there is no mechanism whereby bidders can report solicitations of bribes by government officials, other than reporting such demands to the Criminal Court. Given the weakness of the judiciary and the lengthy periods of time which the courts take to hear cases, few bidders decide to take this route. The Criminal Code, Articles 205-214, does establish criminal liability for offenses such as abuse of power or exceeding commission, negligence, inactivity of authorities, forgery, giving or taking a bribe, mediation in grafting, bribing of a public officer and extortion. However, this assessment found no evidence that prosecutions of public officials or bidders had been mounted on this basis. Also, as noted in Section C.2.22 above, current arrangements for the administrative review of bid protests are not comprehensive and the institutional architecture for such a review function has not yet been put in place. The absence of such arrangements greatly reduces opportunities for bidders to have public officials held accountable for illegal actions related to public procurement. 27 Uzbekistan CPAR Public Sector: Audit and Anti-Corruption Measures C.4 Audit & Anti-Corruption Measures This section reviews the interface between procurement operations and the preparation and execution of the budget in Uzbekistan, assesses current controls, both internal and external, over procurement expenditures and examines measu[res in place to combal procurement-related corruption. C.4.1 Budget Preparation Since 1996, the Government has initiated steps to improve fiscal management systems and processes. Budget organizations account and report in accordance with the Accounting Law 1996, National Accounting Standards (NAS), Accounting Instructions for Budget Organizations and operational classifications of revenues and expenditures of the State Budget. With a few exceptions, accounting standards, regulations and proceclures apply equally to public sector organizations and private-sector organizations. With respect to budgeting, the present Law of Budget Principles dates from 1988. A new Law on the Organization of the Budget was drafted in 1995 but has yet to be approved. In 1999, in place of this proposed law, the Cabinet of Ministers approved a Resolution on Improved Order of Budget Financing. This resolution updated revenue classifications to international standards and adopted some of the more acceptable provisions that had been included within the proposed law. A Public Investment Planning (PIP) framework and process has been established. The PIP framework covers capital budgeting and planning for the public sector and is overseen by the Ministry of Economics. However, while the annual overall envelope for investrrment is established by the Minisry of Finance (MOF), the current budget and the investment program are prepared separately and the annual investment program is enacted before the budget, which can lead to disconnects between planned investment financing and the actual financing available. C.4.2 Budget Implementation Budget execution currently follows these procedures: * Spending units prepare expenditure plans (smeta) in conformity with the annual budget implementation plan. * In principle, funds are released monthlly by MOF on the basis of monthly budget implementation plans (rospis) agreed between the spending units and the MOF. However, in order to keep control of cash, the monthly releases of funds are not automatic and are often made on a case-by-case basis, based on MOF's prioritization of requests submitted by spending units. * Spending units or regional consolidation centers are responsible for committing expenditures, making payments and accounting. • When making payments or transfers of fi-ds, the banks involved in budget execution control the transaction against the smeta of the rospis issued by the MOF. The system has a number of weaknesses. . Current procedures fail to take into account seasonality factors, actual implementation problems and the payment schedule for existing commitments. 28 Uzbekistan CPAR Public Sector: Audit and Anti-Corruption Measures • Often, as a precaution against delays in the release of funds by MOF, spending units hold up payments for goods, services and investments in order to build up cash reserves to pay wages. There are no safeguards within the current budget execution procedures to spot or prevent this practice. * Because spending units do not communicate to MOF the payment schedules arising from their existing commitments (such as contracts for goods, services or works), current procedures fail to allow adequately for the timing of payments as they fall due and lack the flexibility to cope with variations, such as those that occur in the physical advancement of construction works. C.4.3 Internal Controls Intemal management and control systems within spending units have historically been weak. Such controls as do exist operate within an organizational environment which often places insufficient emphasis on sound administration and in which the risk of political interference is ever-present. At the moment, there is no clear separation of duties between the functions of: authorizing expenditures; * committing expenditures (that is, approving contracts and placing orders); * verifying and certifying that goods have been received, services delivered or works completed; * accounting controls and authorizing payments. It is clear that internal management and control systems need to be reinforced. C.4.4 External Controls Uzbekistan does not yet have a Supreme Audit Institution (SAI). The Head Department of Control and Revision (HDCR), a division of the MOF, is the organization that is closest in concept to an SAI. The HDCR monitors financial activities, using a transaction-based approach i.e. examination of financial transactions, identification of financial discrepancies and fraud investigation. As a division of the Ministry of Finance, the HDCR is not independent from the executive, although it submits its reports directly to the Parliament. HDCR inspects budget organizations every two years and also investigates allegations of irregularity or fraud which are reported to it on a case-by-case basis. However, this transaction- based approach is no substitute for auditing the adequacy of spending units' internal control systems, which is currently not performed by any part of Government. Also, HDCR does not currently carry out sample-based audits of commitment and payment transactions, which should be an essential part of its audit functions. The introduction, in June 2002, of new legislation to establish Audit Chambers is a welcome step in the direction of strengthening oversight of public expenditures, including those on procurement. C.4.5 Anti-Corruption Measures While no comprehensive measurement of corruption in Uzbekistan has been undertaken to date, one of the few studies to address the issue, a 1999 Business Environment and Enterprise 29 Uzbekistan CPAR Public Sector: Audit and Anti-Corruption Measures Performance Survey, comrnissioned jointly by tlhe World Bank and EBRD, indicated that administrative corruption was "not insignificant." The World Bank's current CAS recognizes that, in several areas of governance - notably, transparency, accountability and institutional restraints on bureaucratic discretion - Uzbekistan exhibits serious weaknesses which foster opportunities for petty corruption. The high degree of governmental intervention in many aspects of econornic life in Uzbekistan, such as the discretionary award of tax and market concessions, administrative controls over access to foreign currency, bureaucratic controls over imports and contract registration, also create many opportunities for rent-seeking. An under-developed civil society also means that there is little vigilance over the actions of public officials in exercising the substantial discretion which they have at their disposal. The Government has yet to articulate a coherent anti-corruption strategy. Indeed, the CAS stipulates that one of the necessary actions for Uzbekistan's r emaining in the Base Case Lending Program is that it should develop, define and implemert an anti-corruption strategy. lThe Government's acceptance of the findings and implementation of the recomrnendations of this CPAR should form an integral part of such a strategy. 30 Uzbekistan CPAR Public Sector: Management Performance C.5 Public Sector Management Performance This section attempts to quantify the monetary value of public procurement expenditures in Uzbekistan and presents factual data, gathered as part of this assessment, on the timeliness and effectiveness of procurement operations. C.5.1 Quantification of Public Procurement Expenditures Any attempt at quantifying expenditures on public procurement in Uzbekistan runs into the ubiquitous paucity of official data, which hinders analysis in many fields. With the exception of GCAS, no governmental institution currently collects or publishes information on procurement and GCAS does so only for those contracts which it either conducts or supervises. Given these difficulties, this assessment took as an approximation of procurement expenditures budget data published by the International Monetary Fund (IMF). Among the line-items presented in the budget data, most of the Centralized Investments line and a large part of Economy line are thought to include the purchase of goods, services and capital expenditures. There are, however, procurement of goods and services likely to be included in other budget lines, including those for Education and Health, but it is not possible to tell what percentage of these line items comprise procurement. While approximate, the figures show that government procurement accounted for an average of 30 percent of public expenditures during the three years 1999-2001 or some 9 percent of GDP, though expenditure levels are steadily declining. Total expenditures of 352,658 rnillion Soums in 2001 equate to US$513 million at the official exchange rate. Table 1: Expenditures on Economy and Centralized Investments, 1999-2001 (Figures in Millfons of Soums) 1. Total Expenditure 663,286 926,811 1,283,699 of which: a. Economy 75,598 94,9211 109,998 b. Centralized investments 139,879 192,766 242,66C 2. Total Procurement Expenditure (1 a+1 b) 215,477 287,687 352,658 As a % of Total Expenditure 32.5% 31.00/ 27.5% As a % of GDP 10.1% 9.2% 7.2% GDP 2,128,660 3,139,53 4,868,41 Average Annual Inflation 29.0%/4 26.0% 27.2% C.5.2 Survey of Selected Contracts for Civil Works in Eleven Regions, 2001 This assessment included a desk-based survey of contract files for 102 publicly-financed civil works contracts awarded in eleven regions during 2001 (see Annex H for survey data). Outline information for this assessment was provided by GCAS and followed up with interviews of 31 Uzbekistan CPAR _ Pu,5lic Sector: Management Performance individual procuring entities in participating regions. It proved difficult to secure even the most basic data and some of the regions were reluctant to provide more detailed information, even when contacted directly. The data from this survey :nonetheless support the findings presented in Section C.2 , which were reported to the assessment in other interviews not related to the survey. Of the total of 102 construction contracts awarded in 2001, 93 contracts were initiated and completed within the same fiscal year. Of these 93, only five contracts were subject to price adjustment. Among those 5, the average price incr-.ase was 53% above the originally contracted price. The remaining nine contracts were carried over from 2001 to 2002 and, for all of these contracts, the fmal contract price at completion was higher than the original contract price at award. The prices at completion were between 48% and 81% higher than the price at award, with the average price adjustment being 60%. Among the salient findings to emerge from this survey are that public procuring entities repeatedly fail to allow for price contingencies when budgeting for civil works contracts. When construction on contracted works runs beyond the scheduled completion date, costs rise with inflation and contractors are invariably pressured to absorb these inflationary costs as losses on their contracts, as the procuring entity does not have the funds to finance these unbudgeted costs. Where public purchasers an unable to persuade thie contractor to meet unbudgeted inflationary costs, another common eventuality is that the completion of the construction works is postponed until the next fiscal year. Out of 365 construction projects overseen or procured by GCAS5 in 2001, only 88 were "closed" contracts, that is contracts which were completed at the original contract price. All of these 88 contracts were for small projects' which were started and completed within a single fiscal year and, therefore, were not affected by either beginning-of-year budget shortfalls or year-on-year inflation. Timeliness of completion is a major problem affecting the performance of construction workcs contracts. If a project is not completed on time, it is likely to be subject to increase of financing costs in the next fiscal year, due to high rates of inflation and the annual rise in the minimum wage. According to the data collected for this assessment, the most timely construction projects appear to be those where the customer is one of the regional Departments of Capital Construction (UKS) in one of the regional Khokimiyats (mayorallies). Out of 88 projects completed on time in 2001, 71 were projects implemented by regional Khokimiyats and 14 by the public utility and maintenance unions (TKEOs). Another fix which procuring entities use when unable to finance inflationary costs, is to reallocate funds from other, less important projects to those considered a priority or to those which were initiated in the previous year, so as to avoid further increases in the financing cost. This, in turn, has a negative knock-on effect on the fmnancing of future projects and is likely to worsen the situation, in that it results in new projects being put on hold. Among the projects surveyed, the application of 1991 prices f-avored the public procuring entity in most cases. Because the Government approved the maxmum price for each construction project, the contractor was often forced to reduce his price, which had risen because of inflation. Instead, the contractor received the lower price, which was based on the estimated cost which was 5 List of the construction objects completed in 2001 with closed price. Republican Department of Organizing Contract Tenders of GCAS. The list does not include Tas&kent, Navoi and Syrdarya Regions, and Tashkent City. 32 Uzbekistan CPAR Public Sector: Management Performance calculated by the research institute in 1991 prices using the indexation method. In these cases, the contractor was forced to agree to the ermployer's demand to lower his price.6 The survey also noted several cases where tenders were canceled because the bid price offered by winning bidder was much higher than procuring entity's cost estimate, which may indicate problems with the accuracy of cost estiTating using the adjusted 1991 prices. $uz 1: ThtEzptJm~wt $ndaing ir Uiban 1'JeTrsspt, SflwfresiU_ _uic tnprt f i hae traditional y te provided ty Se uOrned- 0tipanltS which eajy#4 wide 0s Howeverbeginningin t947W, the, Go~veruimeztt ;wblk @-'i~~~~~~~~~~~~~~~~~~~n, pub- W >,~~~~~~~~~~~~~~~~~~~~r h , 3 . sW Esw bpez lm iWtgrd+a obng-e m theorganization anzd regulti o m1iatt pbi bus~ ~ran$poxt servies, xeo s atis*bas bus services othe .baiti obf xch*4e route frahi§se , med ptighose frachsWes i tnmetiive teder.,a>" A specialcommiission establisbed h4eAci ciy administrat has conductd the lenders uder a series of COM Resolutions uttodized specificaly for the purpose (see Section C.1.2 above), and under clear rules laid Aownyi1 the Uzbek Agency for Autombile ed River Trafiort.- Patiation is opetn equallyto pdvpte. companies, associations of staill bus owner-operators and State-owted entrprsese slectiou crtera used in awarding contracts have included the discounts offered by biddeir on-maximum fare levels pre-defied by the city, the-bidder's -propsed sevce frequency, as well atthe number and chrateristics of the proposed bus fleet. he, dwratin of the franhise, -iAW y set at six mouths and- renewable oce for up to six ixnoths, is progessively big tnt to one ye. hese -reforms, implemented in -jut two years, have resulted in imrpessive changes in urban bus operations throughout Uvbckistan. Numerous private bus opeat have entered the pubic trsport market, rmany ,iw, i6bs have been created -in the g bus service sector and keen competifion has _'Wop -for the rapidlygrowigrtfius services. In Samarkand, for example, 63 out of the- 'tus routes tendered bet January and October 2001 attracted at least two bidders and tners have ben won 'by prvate operators. The Agency for Automobile and River tepra$- unproved performane mon most privatized bus r and a sharp drop in 6Quarterly Report of the Republican Department of Organizing Contract Tenders of GCAS, I" quarter, 2002. 33 Uzbekistan CPAR Public Sector: Recommended Supervision IPlan for WB and ADB-financed Projects C.6 Performance on World Bank and AD)B-Assisted Projects This section reviews the experience to date of the Government's performance of procurement in accordance with the World Bunk's and ADB's procurement guidelines on their respective projects highlighting major prol)lems thai: affect procurement performance. It also suggests measures to be taken to improve fiduciary function of future procurement operations to be financed by the donors in Uzbekistan. C.6.1 Development of the World Bank and AI1DB Portfolios The World Bank's IJzbekistan portfolio is diversified ac-ross the agriculture, health, water, transport, privatization and finance sectors. Since joining the WB in 1992, Uzbekistan has completed only two loans under the WB portfolio (IBTA: IJS$21m; Rehabilitation: US$160m). Despite the modest size of the WB portfolio, the performance of projects has been problematic, with 43 percent of the portfolio rated as unsatisfactory. As o r 31 December 2002, 15.4 percent of ADB's portfolio was rated unsatisfactory in terms of implementation progress. However, in terms of procurement, the ADB has concluded that the overall portfolio performance is generally satisfactory. Whereas ADB has delegated supervision of a railway rehabilitation project to its Residlent Mission, the World Bank is considering partially decentralizing procurement for certain of its projects, following the planned hiring of procurernent staff in its Almaty regional office during FY03-04. ADB's experience to date of partial decentralization has identified a need for additional training of the Resident Mission staff to carry out detailed reviews of procurement documents. C.6.2 Performance of Procurement under W1B and ADB Guidelines Implementing agencies on WB and ADB-financed projects generally require assistance fiom external consultants to prepare procurement documents. For ICB, ADB's and WB's Standard Bidding Documents (SBD) for the procurement of goods and works are used by all PlUs. Executing and implementing agency staff responsible for project implementation and monitoring appear to be generally knowledgeable regarding ADB requirements. However, in some cases, insufficient proficiency in the English language inhibits their performance. Both the WB and ADB have conducted training courses in their procurement procedures in Uzbekistan for local staff. Starting from 1998, the ADB has provided specialized in-country training on procurement under ADB-fmanced projects for PIU personnel, as well as for representatives of government ministries and agencies involved. ADB provides training related to procurement mainly through (1) Project Implementation and Administration (PIA) seminars covering procurement of goods and works, recruitment of consultants, and disbursement of loan proceeds and (ii) Use of Consulting Services (UCS) seminars entirely dedicated to issues relating to consulting services. To date, two PIA seminars were conducted (one each in 1998 and 2000) with attendance of 65 participants, including 15 governnent representatives and 50 PIU staff. Four UCS seminars were attended by 112 participants, including 100 from government agencies and 12 P1U staff inl998-2001. The next PIA seminar is plamned for 2003. In addition, under some consultancy services contracts, training on procurement and financial issues is being provided for PIU staff. 34 Uzbeldstan CPAR Public Sector: Recommended Supervision Plan for WB and ADB-financed Projects C.63 Common Procurement Problems The fmdings of this assessment indicate that most Bank projects continue to experience problems with not only ICB procedures, but also with low-value International and National Shopping procurements that result in inadequate bid evaluation that takes too long, and is compromnised by political interference and breaches of confidentiality. Often, bid evaluation reports lack the precision and clarity needed to secure prompt Bank clearance. Sources of such problems include the fact that members of evaluation committee are often unqualified technically for the job, leading to inaccurate outcomes, or that they fail to dedicate sufficient time to the task, resulting in the evaluation process being interrupted and, in many cases, dragged out over several weeks. There are three kinds of factors that frequently cause unsatisfactory perfornance in the implementation of Bank-financed projects: country-specific, procurement-specific, and those specific to Bank and ADB projects. Country-specific factors affect procurement as well as other areas of project activity. These are: insufficient political will to carry out key reforns; unclear ownership of projects; overly complex project design and ambitious policy frameworks; * time-consuming internal decision-maldng processes within Government; * weak project preparation, coordination and management capacity. Procurement-specific factors affect procurement in Bank- and ADB-financed as well as other projects. The exchange rate system, specifically the lack of convertibility of the Soum and the resulting applicability of different exchange rates for foreign currencies, causes major difficulties for implementing agencies in preparing cost estimates, as the estimated cost of goods to be imported is extremely difficult to calculate under different exchange rates. This also causes problems during project implementation, for example, when the prices of bids submitted significantly exceed the implementing agency's cost estimate, this often requires departure from the project procurement plan or from the allocation of funds specified in the loan agreement. Time-consuming contract registration requirements include the need to register each contract with three institutions, MEFR, a commercial bank, and customs. (i) Registration with MEFR, which issues a special certificate with two stamps and three signatures, can take anywhere from seven days to four months. For example, when registering WB-financed contracts, PIUs attach a copy of the WB's no-objection letter as supporting documentation; nevertheless MEFR often insists on contract price revisions and unit rate modifications through negotiations. Such practices are clearly unacceptable to both the WB AND ADB?, as has been pointed out to the Government during the CPPR in 2001 and 2002. (ii) After registration at AFER, a contract should be registered with the commercial bank where the Special Account is opened, which may take another seven days. (iii) Customs may reject a contract which has been entered into the AFER register, thus adding further delay and disruption to the importation process. 35 Uzbekistan CPAR f Public Sector: Recommended SzApervision Plan for WB and ADB-financed Projects Significant delays in procurement implementation are also caused by lack of decision- making autonomy of PIUs from their parent Ministrie,, shortage of qualified staff, and excessive bureauci-atic procedures required to approve procurement documents by relevant authorities, in particular, bidding documents and bid evaluation reports. Customs clearance formalities are aniother perpetual cause of' delay. In March 2001, the introduction of mandatory certification of imported goods above US$10,000 with the State Center for Standardization, Mdetrology and Certification has caused substantial delays in Customs clearance, resulting in procurement implementation delays and higher costs in many cases. • A lack of respect for the obligations which signed contracts place on the Government has led to a tendenicy on the part of some implementing agencies to seek informal solutions to contractual difficulties and to fail to respect suppliers' contractual rights; . The shortage of' staff trained in procurement acts as a barrier to the ability of implementirLg agencies to conduct procurement in a timely and efficient manner. While the World Bank periodically runs procurement training senminars for Uzbek personnel - most recently a five-day seminar in Tashkent on September 9-13, 2002, which attracted some 70 participants - theie is clearly a pressing need for Uzbekistan to develop a sustainable local source of procureraent training. The following factors specifically affect procurement in Batik- and ADB-financed projects. • Incompatibility of national procurement legislation, procedures and practices with the Bank's procurement guidelines is a frequent source of difficulty on Bank-financed projects. It is exacerbated by the failure of implementing agencies to respect the precedence of the Bank's procurement guidelmes over national legislation on Bank-financed contracts, even though Uzbekistan accepts and recognizes this precedence in the loan agreements which it has signed with the Bank. The application of certain aspects of national legislation that is at variance to Bank guidelines and therefore unacceptable to the Bank - for example, contract registration and subjecting the winning bidder of an ICB tender to price negotiations, as a result of the Go-vernment's Price Verification scheme -- is a serious breach of the Barlk's procurement procedures and creates the risk that the Bank may declare misprocurement and decline to finance the contract, in cases where ihe Bank f nds that this has happened. * Under World Bank projects, counterpari f'unds are not readily available and many clearances are required to make payments from the counterpart contribution. Although the absence of Government coumterpart funding was not a major problem in the past for ADB projects, there were concems that the decrease of the cost-sharing limit to 40% in 2002 as part of the graduation policy for Uzbekistan may lead to problems in project implementation, including procurement. A new cost-sharing limit of 65 percent for Uzbelistan was adopted effective January 1, 2003, for new project loans in line with the general Review of Cost- Sharing Lirnits f'or Project Financing approved in November 2002 by ADB's Board of Directors. Ihe new cost-sharing limit should facihtate project implementation. • The current under-developed state of the consulting, industry in Uzbekistan means that there are very few local consulting companies which are qualified to act as consultants to implementing agencies on Bank-financed projects, even though, given the particular circumstances of Uzbekistan, local knowledge is very valuable. Where qualified local organizations do exist, they are often ineligible to participate as consultants on Bank projects because of their governmental status; • The inability of the local banking sector to provide bank guarantees and securities to local bidders al: reasonable cost acts as an impediment to Uzbek bidders wishing to participate 36 Uzbekistan CPAR Public Sector: Recommended Supervision Planfor WB and ADB-financed Projects in Bank-financed tenders, where bid securities, performance securities and bank guarantees for advance payments are required; • Different arrangements for the Project Implementation Units have been randomly adopted for implementation of WB projects and no uniform approach has yet been developed. Models so far adopted include (i) the existing staff of the executing agency bear responsibility for procurement; (ii) the executing agency sets up a separate PIU, staffed by locally-hired individual consultants; and (iii) the PIU is under direct control of the executing agency but is established as a separate legal entity. For ADB-fmanced projects, PIUJs operate as legal entities. Because of numerous problems occurring with in such structures, a uniform approach should be adopted by the Government to speed up execution of projects and to build up the institutional capacity of executing entities on WB and ADB projects. * Unclear rules on the application of VAT is another source of difficulty. A review of selected WB-financed contracts found that VAT was imposed on some suppliers, despite the fact that the WB finances only 80% of the contract price for works and the remaining 20% is expected to be financed by the Government as part of its local contribution. Other bottlenecks in the procurement process include inadequate filing of procurement and contract documents, the absence of project procurement plans and failure to keep such plans up-to-date. • Under the World Bank-financed Water Supply, Sanitation and Health Project (Loan No. 4216-UZ), the Government is currently investigating, at its own initiative, possible wrongdoing related to procurement. The Bank's review has indicated that the performance of the PIU, contractors and consultants has been less than satisfactory. For example, the bid evaluation report prepared by the PIU contained incomplete and inaccurate information; the contractor has not performed satisfactorily, and the consultants have not applied due diligence in accordance with their terms of reference. These matters are currently under review by the World Bank and the findings will be conmmunicated to the Government shortly. C.6.4 Procurement Post Review To date, the World Bank has conducted only a limited number of post reviews on procurement on projects in Uzbekistan. Between November, 2001 and March 2002, Bank staff conducted 3 post reviews of a of total 31 contracts financed under the Cotton Sub-Sector Improvement Project and the Regional Central Asia Biodiversity Project, which were mainly procured by the National Shopping (NS) and International Shopping (IS) procurement methods. The findings of these post reviews were: * AFER insists on bilingual contact format (Uzbek and English); • delays in AFER contract registration requires modifications of delivery scheduled under contracts; * contract registration requirements significantly impede the opening of Letters of Credit. The conclusions of the post reviews were that: * the procedures approving contracts and for registration of contracts with AEFR need to be substantially improved; * evaluation reports should be signed by all members of Tender Committees rather than by only one person; 37 Uzbekistan CPAR Public Sector: Recommended Supervision P'lan for WB and ADB-financed Projects . the quality of technical specifications, bil'l of quantities and drawings is in need of improvement; * inspection and acceptance certificates should. be signed by the relevant technical expert, rather than by the PIU Director; * the procedures for selection of individual consultants should be followed correctly. C.6.5 Measures to Strengthen Fiduciary Safeguard on World Bank- and ADB- financed Projects In order to reduce further the risk to Bank funds disbursed on procurement under Bank-financed projects in Uzbekistan, the Bank should take the following steps: * At appraisal of all new projects, an assessment should be undertaken of institutional capacity of all agencies to be involved in the project to implement procurement under Bank guidelines and, where capacity is found to be weak a detailed action plan should be put in place to supplement and/or develop it, in order to ensure that appropriate capacity is in place to undertake procurement satisfactorily. * Also at appraisal, agreement should be reached with the Government on the institutional arrangements for project implementation, including procurement, and these should be reflected in the project documents. * Bank Task Team Leaders and procurement staff should make sure that, where Bank-financed projects are implemented by PIUJs, PIU staff are appointed following a competitive process and are properly qualified for the positions whLich they occupy. * A detailed procurement plan should be prepared and approved by the Bank at appraisal. Bank staff should follow up assiduously on the regular updating of these plans by implementing agencies, in order to make sure that plans are kept up-to-date and, where slippage does occur, that remedial action is taken promptly by both the Bon-ower and the Bank to get the project back on track. * Bank Task Team Leaders and procurement staff should work closely with the Borrower to ensure that all public officials appointed to serve on evaluation committees are fully qualified for the task, that they dedicate adequate time to the task of evaluation, and that such evaluation comnmittees contain specialists with technica'. expertise appropriate to the nature of the procurement requirement. * Procurement by less competitive procurement methods, including International Shopping and National Shopping, such be kept to a minimurn on all new projects. Both per contract and aggregate thresholds will be kept low. * Bank staff should check that no changes in bid or contract prices occur as a result of the price verification or contract registration requirements in force under the applicable law. * On World Bank-financed projects, all procu:rement-related complaints by bidders should be assiduously followed up by the Regional Procurement Adviser, the Bank's most senior procurement official for Europe and Central Asia Region. For ADB-fmanced Projects, complaints should be followed up by the Principal Director of the Central Operations Services Office. All allegations of procurement-related fraud or comrption should be investigated by the Bank's Investigations Unit. 38 Uzbekistan CPAR Public Sector: Recommended Supervision Plan for WB and ADB-financed Projects In addition, for World Bank-financed projects only: • Thresholds for prior review should be kept relatively low (e.g. >US$ 100,000 for goods) so that most contracts fall above the prior review threshold, thereby increasing the number of contracts subject to prior review by the Bank. * World Bank task teams should ensure that the level of post reviews conducted is in line with the various Development Credit Agreements by the end of CY 2002. C.7 Risk Assessment This section combines the above analysis of the legal framework, regulatory functions and organizational arrangements for procurement to produce a risk rating for public procurement in Uzbekistan at the country level. Any assessment of risk in a country's national public procurement system should be based on the stage of development of its legislative framework, the effectiveness of its regulatory institutions, the strength of its enforcement regime, the capacity of its institutional and human resources and the threat of corruption. Uzbekistan's legal framework is far from comprehensive, comprising as it does a multiplicity of poorly-coordinated sub-legislative enactments, none of which carries the force of a law passed by the Oliy Majlis. Even given the number of these enactments, their scope of coverage is incomplete and, as a result, some areas of public procurement go unregulated. Furthermore, within the main enactments, the legislative provisions governing public procurement fail to provide a sound basis for the conduct of public procurement, with too much leeway left for the use of uncompetitive procurement methods and excessive discretion entrusted to public officials in the way they handle procurement decisions. Regulatory functions over public procurement in Uzbekistan are neither sufficiently defined nor clearly located. At least three institutions - the Ministry of Economics, the Agency for Foreign Economic Relations and GCAS - all play a significant role in overseeing the conduct of public procurement, while others, such as the Anti-Monopoly Committee, have a related interest. Yet a salient weakness in Uzbekistan's public procurement system is that there is not a single institution with regulatory powers over public procurement and, as a result, compliance with the applicable legislation is not adequately enforced. With few exceptions, the public sector institutions_which conduct procurement are ill-equipped for the task. Most ministries do not have dedicated organizational units to undertake procurement and staff who handle the task invariably do so without training. The entire country lacks a planned training system for procurement. While no comprehensive assessment has yet been conducted of the prevalence of corruption in Uzbekistan, a 1999 Business Environment and Enterprise Performance Survey, commissioned jointly by the World Bank and EBRD, indicated that administrative corruption was not insignificant. Equally, the World Bank's current CAS recognizes that the country's public administration remains weak and is susceptible to petty corruption. 39 Uzbekistan CPAR Public Sector: Recommended Supervision Plan for WB and ADB-financed Projects Measured against all of these parameters, the environment for conducting public procurement in Uzbekistan is rated as high risk. 40 Uzbekistan CPAR Public Sector: Recommended Supervision Plan for WB and ADB-financed Projects C.8 Recommended Supervision Plan for World Bank- and ADB-financed Projects This section sets out the recommendations of the World Bank and ADB for the future supervision of the procurement aspects of projects which they rmance in Uzbekistan. C.8.1 Supervision Approach Giving the rating of Uzbekistan as a high-risk country from a procurement point of view, the approach to supervision by both the World Bank and the ADB should be suitably cautious. Specific approaches to supervision should include the following: * The Bank should conduct procurement capacity assessments on all institutions charged with implementing new Bank-financed projects. * Given the lack of any regular capacity to train the Government's own procurement staff, project launch workshops on new Bank projects should be conducted for every project and should contain at least two days of project-specific procurement training. * For civil works contracts, the appointment of consultants to carry out design and construction supervision should be required. * Bank procurement staff should review bid evaluation reports (BERs) with particular diligence and insist on a full and detailed justification of the recommendation for the award of contract. In all cases where an implementing agency initially submits a BER with insufficient information, this should be returned to the implementing agency with a requirement that full information be provided to justify the recommendation. In addition, specifically for World Bank-financed projects: World Bank Task Team Leaders should make sure that procurement post reviews are conducted by every supervision mission and that the Back-To-Office report of every supervision mission contains a specific annex dealing with procurement post review, which should be sent promptly to the Regional Procurement Adviser. C.8.2 Procurement Thresholds The following financial thresholds will apply for World Bank-financed procurement in Uzbekistan: Table 2: Applicable Thresholds by Procurement Method - World Bank ICB Wrork s >US$30000 NCB: Works >US$300,00 GCB: Works US$100,OO International Shopping: Goods US$100,000; and * contracts with individual consultants >US$50,000. For World Bank-fmanced contracts, at least I in 5 of contracts which are subject to post review should be post reviewed by the World Bank. By contrast, the ADB applies post review only to IS contract but, even for those, it also advocates prior review. The following financial thresholds will apply for ADB-financed procurement in Uzbekistan: Table 3: Applicable Thresholds by Procurement Method - ADB CB: Works >US$1,000,00 ICB: Goods >US$500,00 Iternatioral Shopping: Works _ US$ 1,000,00 International Shopping: Goods > Appendix NJ3 On <~~ K ' o~~~~~~~~ 0~~~~~~~~~~~~~~~~~~~~~~~ t L_ 0~~~ kI~~~~~~~~P ou ~ ~ ~ ~ ~ - u - u L~ jq g L |Xs RX 0 jt t] |c: u u ~uc > 7u to 'a cn .0 la u Cd 0 0 gi u u 0 0 0 r4 r4 co 0 V R V) 4. cr, 0 C', gb 0 -,4 CZ 0 0 0 40E v, 9b cci u P 0 'D z u 6 > 0 = 0 -G 40. 0 El .0 lu 41 0 ct) 4 'D C) 0 9 g : > C) ci .2 = tLo , , w 4 0 bLO 0 CJ EL U 0 4 -12 m 0 u ,+oj 13 0 00 tu tu In Cd ei 0 4) 4 u El .0 'P. 0 z O 0 ICU-eMill- u u WI 0 u WI ai Nd lu 0 401 v 72 -2 U 44 44 3a > >5 14 O 0 8 0 A >, 7i 0 G 0 A 9 - "s A 75 72 m 0 Z 6 z3 O 2 ot J.- CL r" Annexes Annex H: Price Data on 102 Publicly-funded Construction Works Contracts Awarded in 2001 contract Price rmnlnsoums) saving at pr cost ntac contract contract rIce Duration of contract Project name htimat prcat prie t aar adjustment rU= g Ifinal date Karalkalpakr Republic 1 Reconstruction of Araivodistroys belding 278.52 273.98 273,98 4.54 - Feb-Dl1 Nov-01 2 Construction of RMC In Amudtarya District 440 44.00 44.00, - - Jun-01 Nov-01 3 Construction of RMC in Oserunly District 26.90 26.90 26.90 - not available 4 Construction of RMC in Eitkalin DistrIc 34.00 34.00 34.00 - Mar-0l Jun-01 5 Reconstruction of PC In Nukus 638.70 570.50 907.61 68.20 337.11 Mar-01 Sep-02 6 Reconstruction of PC In Eliikalin DIsrct 070.0D 870.30 1, 142.56 (0.30) 472.26 Mar-01 Sep-02 7 Construction of RMC In Sh,umanai District 33.90 30.80 56.60 3.10 25.20 Mar-01 Sep-02 Total 1,726.02 37.8.8 1.286.49 72.74 337.11 Andljan Region 1IConstr-icrion of RMC In Altykun District 41,10 39.14 39.14 1.96 - Mar-01 Aug-01 2 Constnjitloln of office building for Khanabad Municipal Department of the National Securlly 45.98 44.66 44.66 1.32 - Mar-01 Oc-t-01 Service 3 Construiction of RMC In Izbaskan District 42.82 39.55 39,55 3,27 - Mar-01 Dec-01 4 Construction of RMC In Jalaikudtuk District 42.50 39.28 39.2 3322 - Mar-01 Dec-01 5 Construction of RMC in Ulugner District 44.00 41.42 41.42 2.58 - Mar-01 Dec-01 6 Construction of RMC In Merkthamnat DIstrict 41.30 39.43 62.73 1.57 23.30 Mar-01 Jun-02 7 Reconstruction of the building of oncology centre In Andlian 88.70 98.517 1I56.05 (13.17) 55.18 May-01 Aug-02 Total 216.50 204.05 204.05 12.45 - Bukhara Region I Construction of RtMC In Shafirkan District 22.60 22.50 22 50 0 10 - 4/20/01 Sep-01 2 ConstructIon of RMC in Ramitan District 22.60 22.60 22,45 - (0.15) 4/20/01 Sep-01 Total 45.20 45.10 44.95 0.10 (0.15) Jiszakht Region I Reconatrucion of Medical School in Dustik District and its reorganization to PC 532.00 479.00 479.00 53.00 - Feb-01 Sep-01 2 Construction of RMC ini Farish District 32.88 29.72 27.00 3.17 (2.72) Mar-0 1 Jun-01 3 Construction of RMC In Zaamin District 33.01 27.96 27.00 5.05 (0.96) Mar-01 Aug-01 4 Construction of RMC In Gallaral District 33.71 23.91 23.10 9,60 (0.61) Feb-Ci JUl-01 5 Construction of RMC In Bakhmal Distirct 27.32 25.29 22.40 2.03 (2.86) Feb-01 Jun-01 6 Construatan of RMC in Jizzakhl District 33.50 27.76 26.70 5.74 (1.06) Feb-01 Jun-01 7 Human Service PC for 600/50 places In Zoamin Village of Zaamin DIstrict 800.00 760.58 750.58 39.42 - Mar-01 Nov-01 8 Gas supply in Zaamin DIstrct 4.75 4.53 4.36 0.22 (0 15) May-01 Jun-01 9 Waler supply ini Yangiabad Disrit 3.47 3.30 3.30 0.17 - May-01 Jun-01 10 Gas supply in EBakhmaiei Dstrc 6.13 5.81 5.44 0.32 (0.36) Jun-01 Jukl-C I11 Gas supply in Yangiabad Distrct 14.50 14.50 13.81 0.00 (0.9) Jun-01I Dec-01 12 Water supply In Jizzakh District 4.20 4.00 3.70 0.20 (0.30) Jun-01 Jul-01 13 Reconstruction of Office of Public Prosecutor In JIzzak DIstrct 35.40 35.00 53.64 0.40 28.84 Mar-01 Nov-01 14 Reconstruction of PTC for PC In Zaarnln District 620.00 493.20 546.68 26.86 347.48 Mar-01 Se-p-01 Total 2,081,17 1,934.85 1,396.42 146.32 (10.23) _______ Kashkadarya Region 1IConstructiocl of RMC in Kasen District 35.34 34.57 34.66 0.67 (0.01) Feb-01 Junl-01 2 Construction of RMC in Yakktabag District 35.34 29.50 29.50 5.a4 - Feb-01 JuI-01 3 Construction of RMC in U.Yusupov District 35.31 34.29 34.29 1.02 - Feb-01 Jui-01 4 Constrctiorn of RMC In Nishan District 36.20 31.50 31.50 4.70 - Feb-0 1 .lun-01 S Constructior of RMC in Chirakchiin District 35.23 32.00 31.29 3.23 (0.71) Feb-01 Jul-01 6 ConstructIon of underwater gas pipeline In Kitab DistrIct 7.00 8.45 6.28 0,55 (0.17) Mar-01 Aug-01 7 Construction of underwater gas pipelne In Shakhirlsabz DItrct 16.48 14.70 13.66 1.78 (1.04) Apr-01 Jun-01 itConstruction of underwater glas pipeline In Yakkabag District 8.50 7.50 7.80 0.70 - Apr-01 Jun-01 S GesSoection of the Dehkanabad Distjiot Center 12.00 11.90 11.61 0.10 (0.09) Mar-01 Aug-01 10 Construction of underwater gas pipeline in Kamastin DistrIc 13.00 12.90 12.82 0.10 (0.08) Mar-01 Dec-0 1 1 1Construction of underwater gas pipeline In Kitab DIstbict 12.70 12.60 12.60) 0.10 - Apr-01 Sep-01 12 Constrction atf underwater gas pipeline In Chlrakrch,n DIstrict 6.50 8.45 5.40 0.05 (0.05) Apr-01 Jun-01 13 Construction of underwater gas pipeline in Guzar District 13.00 12.96 12.86 0.04 (0.1I0) Apr-01 Aug-01 14 Construction of underwater gas pipeline In Yakktabag Oisatct 7.74 7.70 7.70 0.04 - Apr-01 Jlun-01 1 5Construction of underwater gas pipeline In ChiIrakchlln DIaisti 17.00 18.50 116.40 0.49 (0.1I1) Apr-01 Aug-01 Total 291.33 271..92 289 58 19.41 (2.3) Namangan Region 1IConstruction of RMC In ChartaK Distrc 42,77 36.99 36.99 5.78 - Feb-01 May-01 2 Reconstructior of PC in Namangan 1,120.90 1,068.00 1,065.00 55 90 - Jan-01 Aug-01 3 Construction of RMC in Pap District 3690 35.93 35.93 0.97 - Feb-01I May-01 4 Construction ot RMC in Mlngbulak District 35.38 37.51 37.51 (1.13) - Feb-01 May-01 5 Construction of RMC in Namanigan District 45.01 43.80 43.80 1.20 - Feb-01 May-01 6 Construction of RMC in Turakurganl Distrct 37.02 36.62 36.62 0.40 - Feb-01 May-01 7 Construction of RMC In Chust District 38.91 35.00 35.00 1.91 - Feb-ClI May-01 8 Reconstrucion of PC #1 2 in Ulchin District 443.46 442.00 441.00 1.40 (1.06) Jan-01 Aug-01 9 Reconstructon of mnaterniy hospital In Ch~ust District and it reorganization to PC 790.92 768.11 786.30 2.50 (1.81) Jan-01 AuA-01 10 Construction of RMC in Naryn Ditrct 48.70 47.92 47.93 (1.22) 0.00 May-01 Aug-01 IIToa 2,53.95 2,566.54 2,558.06 58.01 (2 87)1 Annexes Samarkand Region I Reconstrurion of secondary school #103 in Urgut District and its reorganicetion to PC 620.00 616.34 616 34 1.66 - Feb-01 Oct-0 1 2 ReconstruciOn of SPTC-l I In Chelak District ensi its reorgjanization to PC 530.00 5411.50 540.50 9.50 - Jn-Cl Oct-0 1 3 Reconstrucion of SPTG-33 In Samarkand and Kts reorganization to PC 632,00 62 3.90 526.90 5.10 - Feb-D 1 Nov-0 1 4 Reconstr-ucron of Commercial College in Kattakurgan and Its reorganization to PC 626.50 51 5.00 516.00 10D.50 - Jan-01 Sep-01 S Reconstructioin of warehouse #i in Pastargoim District 9 70 9.54 0.54 0.15 Jul-01 Dec-01 S Construction of RMC In Pabtachi District 32.00 21 90 31.90 0.11 - ju-011 Dec-01 7 Constr-uction of RMC In Koshrrabad District 32.00 ~ 133 31.33 0.68 Jul-01 Dec-01 S Construction orf RMC in Ishttihani District 32.00 1,1.80 31.60 0.20 (0.00) Jul-01 Dec-it 6 Reconstruction of Railway College In Samarkcand 559.00 550.00 812.60 8.00 262.50 Jan-611 Mar-02 1 0Reconistruction of Hydromeorological College In Safnasrkand 632.00 6 31.60 1,226.60 0.20 397.00 Jan-01 Mar.02 11 Reconstruction of warehouse #4 In Samarkcand 19.00 17.50 21.88 1.50 4.38 Jul-02 Mar.02 12 Reconstruction of warehouse #2 in Payaryk District 7.80 7.80 11.25 - 3.45 Jul-02 Sep-02 1 3Construction of RMC In Urgut Di[strIct 32.00 31.91) 45.87 0.2D1 14.07 Jul-02 Sep-02 Total _-- 89220 ~2f56.3O 3,116.60 35.90 (0. 00) _______ Syrdarya Regionn I Construction of RMC In Rsshldov District 29.50 29.50 3.20 - Apr-01 Jun-02 2 Construction af RMC In Gulistan 29.50 28.80 8.20 - Mar-01 Jun-02 TrIal 387.20 361 50 345.00 25.70 (13.50) Surkhandarya Regioni I Construction of RMC in Angor District 43.20 40.00 40.00 3.20 - Apr-01 Dec-01 2 Construction of R4MC in Denau District 40.20 35 00 35.00 8.20 - ala nla 3 Construction of RMC in Muzrabrsd District 44 00 40.00 403,00 4.00 - Apr-01 Dec-01 4 Construction of RMC in Shurchin District 43020 41.50 41.50 1.70 - Apr-01 Dec-01 5 ConstructIon 01 RMC In Eiandyhian Olstrict 43.20 42.00 42.00 1.20 - Mar-01 Dec-01 S Gonstruction of RMC in Altyrsse District 40.20 37.50 37.50 5.70 - Apr-01 Dec-01 7 Construction of RMC In Kumkcurgan District 43.20 43.00 43,00 0.20 - Mar-01 Jun-Cl 6 Chilldrerns polyctoics In Jarkurgan District 64.00 52.50 69 00 I so (13.50) MAay-01 Oct-01 Total 367.20 361.50 345.00 25 70 (13.50i ________ Fergana Region I Reconistrucioin of Pedagugical College in Margilan sird its reorganization to PC 1,162.50 1,161.50 1.030,00 1.0 (131.50) Mar-01 Dec-01 2 Reconstrucior of PL #24 in Fergana D!strict end its reorganization to PC 456.40 453.50 398.70 2.90 (64.60: Mar-01 Nov-01 3 Reconstrucion of agricultural lycaum in Buvaidin District and Rs reorganization to PC 535.00 533 00 503.20 2.00) (29.90) Mar-01 Dec-01 4 Reconstruction of PC #24 In Tashiakc District 635.00 594.00 544,40 41.00 (49 60) Mar-01 Dec-0 5 Construction of RMC In Kuvasai 42.10 42,10 42.00 - (D.1I0) May-01 Dec,-01 6 Constru.ction of RMC in Akhunbabaev Distrot 40 70 40 70 40.30 - (0.40) Feb-01 Jun-0l 7 Constrution of RMC in Besahryir District 05.60 56.60 56.60 -- Feb-01 Jun-01 9 Corstruction of RMC in Dangartn District 59.00 69.00 64.50 - (4.50) Feb-01 Nov-01 0 Construction of RMC in Tashlak D1istrict 40 00 40.00 40.00 -- May-Cl Dec-01 10 Construction of RMC In Kujvir District 59.00 59.00 66.40 - (0.60) Feb-01 Aug-01 I11Construction of RMC in Soldh District 4.4.30 4.430 4.4.00 - (0.30) Feb-01 Aug-01 12 Construction of RtiC in Fergana Disr'ict 55 00 56.00 56.00 -- Feb-Cl Aug-0 1 13 Constructlon of RMC in Furket District 4200D 42.00 41.20 - (0.f 0) Feb-01 Jun-C1 14 Conistruction of RMC in Uzbekistan District 4000 40.00 40.00 -- Feb-01 Jun-C1 15 Construction of RMC in Yazyavon District 4000 40.00 40.00 -- Feb-l Jun-0l 16 Construction oif vertical drainage in Rishtan and Airyaryk Districts 46 60 46 50 40 60 0.10 (2.130) Feb-01 Oct-01 17 Underwater gas pipeline In Uchrkuprik District 7 80 7.50 750 0.30 - Juin-01 Dec-0 Total 3,990 3,351.70 307O6.40 47.30 f2 75.30'; Khorezrt Region I Reconstruction of PC in UrgencJi 525.20 492.75 4786.5 42.45 (4 09) Apr-01 Apr-D1 2 Reconstruction of PC in Khazarssp District 692.74 696.91 596.35 (4 17) (0.56) Apr-01 Sep-01 3 Reconstruction of PC In Sagat District 516B.90 517.72 517.44 1.18 (0.26) Apr-01 Sep-01 4 Water supply in Kushikupyr District 6.04 7.12 7.12 0.92 - n/a nis S Water supply in Yanigibazar District 5 16 5.13 5.06 0.03 (0.05) May-01 May-01 6 Development of water pipe system In Kjcshkupyr District Center 7 70 7.64 7.64 0.06 - may-Cl Jul-01 7 Water supply in Yangiaryk District 8 44 5.33 8.33 0.10 - Jul-01 Jul-0 Total I 1,766 1,725.61 1,720.62 40.57 (4.,981 ________ Drand Total: 1102 Proletss1.174 16.9 14,031.39 499.90 27.72 ________ Legend: RMC - Rural Medical Center PC - Professional College (Trade/vocatoinal school) SPTC - Speceia Professional Technical College PTC - Professional Technical College Bolded lines indticate 'open' projects, for which the completion clats tails In the year atear the jeer of initiation cif tile project. Annexes Annex I: Model Supplemental Letter for Credit and Loan Agreements TJZBEKISTAN [Date] International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Re: Credit No. _-UZ ( Project) Representations and assurances relating to National Competitive Bidding Procedures Dear Sirs: We refer to the Development Credit Agreement of even date herewith between Uzbekistan and the International Development Association (the Association) for the above- captioned Project, I am writing on behalf of Uzbekistan to set forth the following: 1. General The procedures to be followed for national competitive bidding under Schedule 3 to the Development Credit Agreement shall be those set forth in (insert title and reference of applicable legislation) Uzbekistan with the clarifications set forth in the following paragraphs required for compliance with the provisions of the "Guidelines for Procurement under IBRD Loans and IDA Credits" (the Guidelines). 2. Registration (a) Bidding shall not be restricted to pre-registered firms. (b) Where registration is required, bidders (i) shall be allowed a reasonable time to complete the registration process and (ii) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification. (c) Foreign bidders shall not be precluded from bidding. If a registration process is required, a foreign bidder declared the lowest evaluated bidder shall be given a reasonable opportunity to register. 3. Advertising Invitations to bid shall be advertised in at least one widely circulated national daily newspaper allowing a minimum of 30 days for the preparation and submission of bids. 4. Pre-oualification When pre-qualification shall be required for large or complex works, invitations to pre- qualify for bidding shall be advertised in at least one widely circulated national daily newspaper a Annexes minimum of 30 days prior to the deadline for the subrnission of pre-qualification applications. Minimum experience, technical and financial requirements shall te explicitly stated in the pre- qualification documents. 5. Participation by Govermnent-owned enterrises Government-owned enterprises in Uzbekistan shall be eligible to participate in bidding only if they can establish that they are legally aned financially autonomous, operate under commercial law and are not a dependent agency of the contracting authority. Furthermore, they will be subject to the same bid performance secunty requirements as other bidders. 6.Bidding Documents Purchasers shall use the appropriate standard bidding documents for the procurement of goods, works or services, acceptable to the Association. 7. Bid Opening and Bid Evaluation (a) Bids shall be opened in public, immediately after the deadline for submission of bids. (b) Evaluation of bids shall be made in strict adherence to the monetarily quantifiable criteria declared in the bidding documenis. (c) Contracts shall be awarded to the qualified bidder having submitted the lowegt evaluated substantially responsive bid and no negotiation shall take place. (d) Price verification should not be applied to Bank-financed contracts. 7. Price Adjustnent Civil works contracts of long duration (e.g. more than eighteen (18) months ) shall contain an appropriate price adjustment clause. 8. Reiection of Bids (a) All bids shall not be rejected andL new bids solicited without the Association's prior concurrence. (b) When the nurnber of bids received is less than three, re-bidding shall not be carried out without the Association's prior concurrence. Viery tnrly yours, Uzbekistan by__ Authorized Representative I I IMAGING Report No.: 25653 UZ Type: ER