89229 A briefing of good practices and lessons learned from the Europe and Central Asia region July 2014 > Volume 73 Mainstreaming Governance in Tajikistan through It’s Energy, Extractives and Public Procurement Sectors Authors: Kristina Mikulova, Kimberly Johns, and Jana Kunicova Introduction The Governance Partnership Facility (GPF)-supported program “Mainstreaming Governance in Tajikistan Portfolio” (FY10–14) was a landmark achievement in applying governance analy- sis and looking for entry points to improve transparency and accountability in key sectors in Tajikistan. This special brief provides recommendations from its energy-efficiency audit, the extractive industries sector, and public procurement authority pilot program. PART I. TALCO: Stronger Governance for Energy Savings in the Aluminum Company KEY MESSAGES TALCO, the largest aluminum producer in Central Asia, is the cornerstone of Tajikistan’s industrial base. It accounts for 5–7 • Measures to improve corporate governance of the percent of the country’s GDP and about 40 percent of exports, state-owned aluminum company TALCO, including and employs around 10,000 workers. modernizing energy management, improving information flows within the company, and reducing TALCO is also the single largest electricity user in the country, fragmentation, are key to further energy savings. responsible for about 40 percent of total net electricity con- sumption. As such, TALCO contributes to the regular electrical • The alignment of the institutional architecture and overloads that plague Tajikistan in the winter. By pursuing great- regulatory framework in the mining industry with er energy efficiency, TALCO could play a critical role in reducing good practices is a prerequisite to attracting foreign the occurrence of power shortages in the country. investment. Priorities for reform include declassifying geological data, safeguarding the security of tenure Toward Transparency: the First Power Audit of the State- and title, streamlining the institutional set-up, and Owned Powerhouse developing a user-friendly “one-stop shop” serving TALCO has demonstrated a commitment to seek energy sav- investors, donors, experts, media, and the public. ings and welcomed a review of its energy efficiency, marking a • Tajikistan has made an important step toward better milestone on the way to transparency. governance in public procurement by piloting the In 2012, the Government of Tajikistan and TALCO requested Procurement Performance Measurement Framework World Bank support for the first plant-wide assessment of (PPMF), aligning monitoring and reporting with global energy-efficiency options. The energy-efficiency audit was car- best practices. With the success of the pilot, the Public ried out by a competitively selected consortium of Norwegian, Procurement Authority (PPA) now faces the challenge Ukrainian, and Tajik companies supervised by the Bank in close of mainstreaming the PPFM within all procuring entities cooperation with technical experts and TALCO management. in the pilot and rollout implementation phases. The study covered all major equipment and production lines. The findings inspired an Energy Efficiency Action Plan detailing 33 financially viable measures to help TALCO reduce annual EUROPE AND CENTRAL ASIA KNOWLEDGE &LEARNING energy consumption by more than 22 percent. If fully company’s economists coordinate with procurement officers implemented, the Action Plan would substantially mitigate and plant engineering personnel to ensure that energy and TALCO’s contribution to the power shortages that peren- material savings are taken into consideration in production nially affect the population in the cold winter months. planning and capital investment plans. Once TALCO is more energy efficient, household electricity The transition to feedback-oriented management can also im- consumption could be increased by roughly 25 percent in prove the phasing of the energy management reform process. the winter season. TALCO’s management could identify “low-hanging fruit” more Modernizing Energy Management Practices easily by consulting staff before proceeding with capital-inten- While most of the measures included in the Action Plan sive technology improvement projects. At the other end of the focused on technical efficiency improvements in the information chain, updating process engineers about the costs company’s main equipment and operating procedures, of energy losses could boost their motivation to save energy. recommendations also touched on strengthening energy Better Management as a Key to Energy Efficiency: management practices. Making headway in establishing Accelerating Reform at TALCO effective and transparent governance mechanisms can lead The energy-efficiency audit is a new instrument in Tajikistan. to improvements on multiple fronts, such as: (i) enhancing The Government and TALCO should be commended for tak- the adequacy and availability of key energy-related data ing up the opportunity to explore the possibilities for energy (including cost centers); (ii) helping the company prioritize savings, which will help the company contribute to reducing energy conservation investments in a transparent and em- Tajikistan’s winter power shortages. The audit’s extensive policy ployee-inclusive manner; (iii) transitioning toward energy recommendations, designed to help TALCO adopt efficient-en- management systems based on international standards; ergy management practices aligned with international stand- and (iv) improving the monitoring, evaluation, and reporting ards, are currently under implementation. of the results achieved. The findings of the audit suggest that improving corporate gov- At the time of the energy-efficiency audit, TALCO had ernance and modernizing management mechanisms are crucial already incorporated some basic elements of global good for the broader reform process. Unleashing internal brainpower practice in energy management. However, the audit also by promoting greater communication and coordination across revealed that implementation of these practices, at least management, specialists, and personnel, among other meas- at the early stages, could be improved. The Action Plan ures, can help TALCO establish ownership of the reform. outlined specific recommendations on next steps for imple- menting an integrated energy management system that is Local operators, management, and engineering staff are well aligned with international standards. The starting point for placed to identify opportunities for energy savings. The ben- rationalizing energy management at TALCO is establish- efits of including them in the reform dialogue include improved ing the specialized position of energy manager, trained by reporting on energy issues to the management and increased external consultants, in tandem with other steps including staff motivation, which, in turn, will help strengthen project de- transitioning to an internationally recognized management velopment capacity and reduce implementation risks. Ultimate- system, improving documentation and reporting, and im- ly, collaboration across the management structure of TALCO proving project management capacities. will facilitate the development of a sustainable corporate energy strategy and improve corporate performance. Improving Communication and Reducing Fragmentation Efficient energy management goes hand in hand with a revamp of management practices. In this connection, the PART II. Institutional and Governance Elements of Extractive audit touched on several crucial governance issues, includ- Sector Reform in Tajikistan ing accountability and transparency. Tajikistan’s EITI Accession: A Driving Force of Extractive Sector For example, initiating dialogue and improving communica- Governance Reform tion channels between TALCO management and expert Tajikistan’s extractive sector offers considerable opportunities staff could significantly assist in the development of an for growth and development. Recent mineral discoveries high- energy-efficiency strategy. light the significant potential for expansion in the sector, which In the medium term, it is recommended that TALCO could raise the share of the mining industry from 1 percent of concentrate on reducing fragmentation and improving GDP to approximately 5 percent. The most promising of these coordination between facility managers and process discoveries, the Konimansur silver deposit, could become the engineers. Company support units currently operate largest silver mine in the world, potentially employing close to independently of each other, and facility managers rarely 16,000 people. assume overall responsibility for their facility’s operations, This strategic opportunity would enable Tajikistan to promote resulting in poor horizontal exchange of information and economic growth and decrease poverty. For the mining sector cooperation between units and weak vertical accountability. to become the engine of continued growth and development, Alignment with good practice would require that the reforms need to be undertaken to foster an enabling business KNOWLEDGE BRIEF > www.worldbank.org/eca environment and attract foreign direct investment (FDI). How- Restructuring the Institutional Architecture: Toward Open ever, these opportunities are unlikely to be realized while the and Effective Governance industry’s system of governance remains a “black box,” mak- The institutions governing the extractive sector in Tajikistan ing it difficult for investors to navigate the complex regulatory need to address two systemic deficiencies to complete the regime and layered institutional architecture. reform process: the diffusion of responsibility between multiple The Government’s recent pledge to follow the guideposts of institutions and the practice of discretionary decision making the Extractive Industries Transparency Initiative (EITI) has from the top down, which often circumvents official channels raised expectations for reform. To harness the full potential and thus increases uncertainty and risk. of Tajikistan’s mining industry, it would be important for the authorities to commit to removing multiple regulatory and Box 1. Global Good Practice in Extractive Sector Governance institutional barriers and building stakeholder support for an Laws governing Tajikistan’s extractive sector could be further open and well-sequenced reform process. aligned with the following main principles of international good Reforming the Regulatory Framework: Embracing and Securing practice: Foreign Investment Security of tenure: junior companies with an Exploration License The legal framework for the extractive industries has three that meet all their legal obligations should carry an irrevocable right to receive a mining license. They can then sell their rights to primary bottlenecks: the classification of geological data; the larger mining companies with production capability at a market complexity and uncertainty inherent in the licensing process; price. and the ambiguous tax code. Security of title: objective criteria for revoking licenses need to At the top of the value chain, geological data is classified as a be clarified and upheld in line with the New York Convention, state secret under the Law on State Secrets. The only way for signed by Tajikistan in 2012, to reduce uncertainty in government- an exploration company to access data is to set up a subsidi- investor relations. ary in Tajikistan and apply via the Department of Geology, a First come, first served: the Law on Concessions should ensure process that is costly for most junior investors. The data itself that the licensing process does not render investors vulnerable to can only be released via a presidential decree. shifts in the policy environment. Current licensing legislation does not guarantee security of Auctions: the provisions for competitive bidding in the Law on tenure and title, nor does it support granting licenses on a Concessions should incorporate transparency and accountability first-come, first-served basis. The Subsoil Law and the Law on safeguards. Concessions state that upon successful discovery of a deposit, Tajikistan’s mining sector has yet to overcome the legacy of the selection of the concession company is at the discretion of excessive bureaucracy, characterized by a proliferation of insti- the Government, which alone possesses the power to decide tutions with overlapping responsibilities and a lack of account- whether or not the successful explorer should be “rewarded” ability. The country has a three-tiered structure of government with a license. Moreover, licensing legislation does not com- bodies with stakes in the extractive sector on the national level: ply with international standards for bidding procedures. The offices under the presidency, principal offices under the prime bidding process in Tajikistan as outlined in the Law on Conces- minister (ministries and state committees), and smaller com- sions is overly complex, requiring companies to provide legal mittees, departments, and agencies that also formally report documents, proof of technical experience, and current financial to the prime minister. All of the key stakeholder entities are status as well as detailed plans for proposed mining opera- mirrored within the Executive Office of the President. Only a tions. These provisions are considered unnecessary before the presidential decree can release geological data, and the presi- completion of a feasibility study and effectively disqualify junior dent has to sanction any major legislative or institutional reform exploration companies. concerned with bidding, licensing, or taxation. Moreover, the tax code makes it difficult to calculate the effec- Tajikistan currently lacks a “one-stop shop” that would handle tive tax rate for a mining operation. The current tax code could interaction with exploration companies and potential inves- apply as many as 21 potential tax instruments to investments tors. There are up to four entities involved in the basic licens- such as Konimansur; it grants a maximum of only four years of ing process alone. The Department of Geology shares min- tax incentive stability arrangements and does not provide clear ing cadastre functions with the Department of Licensing at guidelines on royalties. In practice, the tax structure for specific the Ministry of Industry and Energy; the former administers projects is decided on a case-by-case basis at a meeting held exploration licenses, and the latter deals with mining licenses. by the Tax Committee and the Ministry of Finance. The Department for the State Supervision of Safety in Industry and the Mining Sector assesses mine development plans. The Ministry of Industry and Energy and the Ministry of Economic Development and Trade wield policy-making power, but they rarely coordinate their agendas or long-term strategies for the development of the extractive sector. KNOWLEDGE BRIEF > www.worldbank.org/eca A “one-stop shop” would simplify this complex institutional the impact of ongoing institutional and policy reforms on the set-up, streamline decision making, and ensure consistency in development of the mining sector. the application of government policy. One example is depicted Conclusion in figure 1, although different institutional templates can be explored in order to tailor good practices to the needs of the Tajikistan’s recently acquired status of an EITI candidate coun- local extractive sector. The Government could also demonstrate try marks a milestone on the path toward greater transparency its commitment to reform by developing a pro-reform coali- and accountability and provides a critical impetus for Tajik tion of relevant government agencies, business representatives, authorities to accelerate and intensify the reform process in the donors, blue-ribbon experts, and civil society organizations extractive sector. (CSOs). Securing the go-ahead from the presidency for these By taking this strategic opportunity to pioneer policy and insti- institutional reforms is an essential first step. tutional changes rooted in good practices, the Government of Figure 1. Extractive Sector Good Governance: Simplifying the Institutional Tajikistan could secure improvements in the business environ- Framework ment, attracting the FDI needed to develop the mining industry and helping the economy reach its full growth potential. PART 3: Toward Better Governance in Public Procurement in Tajikistan: Piloting a Procurement Performance Measurement Framework Procurement Performance Management: Stepping on the Reform Path Procurement performance monitoring is far more than a gen- erator of statistics. If implemented correctly, it becomes a radar for progress on good governance. The World Bank’s 2013 Country Procurement Status Re- port (CPSR) for Tajikistan identified several opportunities for improvement of the country’s public procurement system. Source: World Bank Staff Leading CPSR recommendations encouraged the Government Note: In the simplest reform scenario, a Mineral Resources Agency would fulfill the functions of the mining to “increase transparency in the use of public funds; establish rights cadastre, geological survey, and mining inspectorate. a reliable system of collecting, reporting and disseminating procurement information; and prepare a comprehensive public Gradual Reform: From “Touching Up” to “Revamping” annual procurement report.” 1 The transformation of Tajikistan’s extractive sector will be a Based on the report’s conclusions, Tajik authorities launched gradual and long-term undertaking. The immediate follow-up comprehensive public procurement reform. In 2013, the Gov- on EITI candidacy should be the establishment of an official ernment drew on World Bank support and co-developed a Pro- Advisory Committee for institutional and policy realignment. curement Performance Measurement Framework (PPMF), with Ensuring that this advisory body consists of a wide range of guidelines for data collection and analysis as well as a measure- stakeholders, including CSOs, would help initiate the kind of ment of procurement performance effectiveness. transparent and informed policy dialogue that should precede At the flash implementation stage in early 2014, the Public inclusive reforms. Procurement Authority (PPA) successfully piloted a limited The Advisory Committee would collaborate with the Govern- number of indicators from the PPMF within 14 state enterprises ment of Tajikistan to promote information sharing on Tajik- and joint stock companies. istan’s EITI candidacy and the reform process in mining more Extending the framework to all procuring entities would mark widely across the private sector and among the general public, the next step toward greater efficiency, transparency, and reaffirming their mutual commitment to implement good prac- fairness, and also reaffirm the Government’s commitment to tices. fully converge its public procurement system with global good The Advisory Committee could assume a leadership role in practice. pioneering an institutional review, and accordingly design PPMF Aspirations: Efficiency, Legal Compliance, and Good subsequent reform plans to clarify the roles and responsibilities Governance of institutions involved in the governance of Tajikistan’s min- ing sector. Immediate measures that would demonstrate the Implementation of systematic procurement performance authorities’ readiness to step up EITI-related reforms include: management has to be phased and tailored to existing capacity. improving the access to and quality of geological data; expedit- There are three dimensions of procurement performance ing the tax reform process; and developing a monitoring and evaluation framework that would allow stakeholders to assess World Bank, “Tajikistan: Country Procurement Status Review,” Report 77953 (Washington, DC: 1 World Bank, 2013). KNOWLEDGE BRIEF > www.worldbank.org/eca measurement: efficiency, compliance, and good governance. 2015 fiscal year. Tajikistan started by measuring efficiency, because the PPA, as In the flash implementation stage, the PPA will use the PPMF the oversight agency, and its procuring partners did not require to collect and analyze data from the existing electronic Govern- additional support in terms of human resources to monitor this ment Procurement (e-GP) system for a flash report. The PPA dimension. Once the procuring entities get results-oriented will assess whether the data available can support the chosen management under their belts and build capacity, they can indicators and build confidence among officials to move on turn to upgrading performance management by focusing on to the next level of PPMF implementation. During the pilot ensuring compliance with laws and regulations and promoting implementation stage, the PPA will capture data for a total of 17 good governance as an overarching goal. subindicators and a representative sample of procuring entities In the initial, efficiency-oriented phase, public procurement and contracts. At the rollout implementation stage, all indica- measurement has to incorporate methodological rigor and a tors, procuring entities, and procurement contracts funded by clear division of responsibilities between all participating stake- government or donor funds will be integrated into the PPMF. holders. In the Tajikistan context, procuring entities supervised The final version of the PPMF should incorporate lessons from by the PPA are expected to systematize procurement moni- the pilot phase, adjusting indicators, data collection, and analyt- toring by specifying indicators, data, and analytical methods, ics accordingly. which should be regularly updated within a framework of adap- PPMF Flash Report 2013: Reform Momentum and Chal- tive management. They also have to take care to allocate tasks lenges Ahead based on capacity, uncover and fill capacity gaps, and track delivery performance. The initial implementation phase generated overwhelmingly positive results and provided the confidence boost needed to The PPMF aims to provide a standard procurement perfor- extend the PPMF to more procurement entities and contracts. mance monitoring and evaluation tool for use by all procur- The data was collected for 10 subindicators based on the cen- ing entities on a day-to-day basis. As the PPMF replaces the tralized procurement activities of 14 state enterprises and joint existing system, it will highlight best and worst practices, reveal stock companies in 2013. weaknesses and delays in the procurement process, help com- pare prices against market standards, and assess the perfor- Under Key Area I, Compliance with the Legal Framework, Ta- mance of procurement units and committees, as well as suppli- jikistan’s procuring agencies received nearly perfect scores for ers, contractors, and consultants. In the long term, the analysis tendering with unlimited participation as a percentage of total of information submitted by the procuring agencies will enable procurement amount (98.4 percent) and volume of total pro- more effective policy and decision making and strengthen good curement (99.5 percent). The share of single source procure- governance. ment contracts as a percentage of total procurement remained extremely low at 1.5 percent, while tendering with limited PPMF “Going Live”: Critical Areas, Performance Indicators, participation as a percentage of total procurement was nearly and Implementation absent (0.0002 percent). The flash report also confirmed that The PPMF has been adapted from the Organization for the Government has a working website providing up-to-date Economic Co-operation and Development’s Development information on procurement activities. Assistance Committee Methodology for Assessing Figure 2. Number of Contracts by Procurement Method Procurement Systems (OECD-DAC MAPS). 2 In Tajikistan, the PPMF consists of 12 key performance indicators (KPIs) in four critical areas: (i) entity institutional framework and management capacity, (ii) compliance with the legal framework, (iii) procurement operations, and (iv) integrity/ transparency. The KPIs and 24 subindicators have been selected based on the core principles of Tajikistan public procurement policy as outlined in the public procurement law. These include securing maximum efficiency in public procurement; enhancing partici- pation and competition between bidders; ensuring transparency and fairness; improving the performance of executive authori- ties, state-owned enterprises, and other organizations in the sphere of public procurement; and developing market-based relations in this arena. Source: World Bank Staff The PPMF has a three-stage implementation schedule: first, flash implementation of 10 subindicators, which commenced in the first quarter of 2014; second, pilot implementation, which will add seven more indicators and begin in the first quarter of 2015; and third, rollout implementation, planned for the 2 Available at http://www.oecd.org/dac/effectiveness/45181522.pdf. KNOWLEDGE BRIEF > www.worldbank.org/eca ABOUT THE AUTHORS However, the flash implementation report also revealed areas where there is room for improve- ment and modernization ahead of the PPMF pilot implementation stage. For instance, e-GP is still used for only 2 percent of the total procurement volume and is not linked to other modules of support for procurement procedures. Hence, e-GP has yet to fulfill its purpose of automati- Kristina Mikulova cally capturing all information and transaction records to monitor desired indicators and help is a Consultant for the Public Sector and Institutional generate reports for procurement performance measurement. Reform Unit of the Europe Conclusion and Central Asia Region of the World Bank. The Government of Tajikistan’s commitment to PPMF implementation marks a decisive step forward in aligning with good practice in procurement performance management. The 2014 Kimberly Johns, flash report concluded that the PPA and procuring entities have made a smooth transition to is a Governance Specialist for the Public Sector and data analysis based on a well-designed set of indicators and rigorous methodology. The PPA Institutional Reform Unit of can now move on to the pilot implementation stage, which will test more indicators on a wider the Europe and Central Asia sample of procuring agencies. Region of the World Bank. In the medium term, as more of the procuring entities subscribe to the PPMF and thus dem- Jana Kunicova onstrate the buy-in to the provisions of the public procurement law and other procedures, is a Senior Public Sector monitoring has a potential to stimulate them to improve performance and may eventually help Specialist for the Public strengthen accountability. Sector and Institutional Reform Unit of the Europe In the long run, the Government’s goal is to use PPMF-generated procurement performance and Central Asia Region of assessments and Annual Procurement Performance Reports (APPRs) as feedback that inform the World Bank. policy design. If the reform momentum can be sustained, Tajikistan has a potential to gradually Other acknowledgements: converge to good practices in public procurement and improve its good governance ratings over Gary McMahon, Rajesh time. Shakya, Jeremy Weate, Alice Poole, and Kathrin Hofer. The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the International Bank for Reconstruction and Development /The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. “ECA Knowledge Brief” is a regular series of notes highlighting recent analyses, good practices, and lessons learned from the development work program of the World Bank’s Europe and Central Asia Region http:/ /www.worldbank.org/eca KNOWLEDGE BRIEF > www.worldbank.org/eca