Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD928 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$100 MILLION TO THE REPUBLIC OF AZERBAIJAN FOR A JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT June 13, 2014 Public Sector Institutional Reform Cluster Poverty Reduction and Economic Management Department Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective May 31, 2014) Currency Unit = AZN AZN0.78 = US$1 FISCAL YEAR [January 1 – December 31] ABBREVIATIONS AND ACRONYMS ABA American Bar Association GiZ German International Cooperation Enterprise for Sustainable Development ABA American Bar Association Central and East GRECO European Council’s Group of States Against CEELI European Law Initiative Corruption ADR Alternative Dispute Resolution GPO General Prosecutor’s Office ASAN State Agency for Public Services and Social IA Implementing Agency Innovations BEEPS Business Environment and Enterprise IBRD International Bank for Reconstruction and Performance Survey Development CBA Cost Benefit Analysis IC Individual Consultant CCPE Consultative Council of European Prosecutors ICB International Competitive Bidding CE Council of Europe ICR Implementation Completion & Results Report CEPEJ Commission for Efficiency of Justice ICT Information and Communication Technology CMS Case Management System IDA International Development Association CPAR Country Procurement Assessment Report IDP Internally Displaced Person CPF Country Partnership Framework IFC International Finance Corporation CPS Country Partnership Strategy IFR Interim (unaudited) Financial Report CQ Consultants’ Qualifications IOC Incremental Operating Costs DAC Development Assistance Committee ISA International Standards on Auditing DMS Document Management System IT Information Technology EBRD European Bank for Reconstruction and ITR Independent Technical Review Development ECA Europe and Central Asia JAAG Justice At A Glance EITI Extractive Industries Transparency Initiative JICA Japan International Cooperation Agency EMP Environmental Management Plan JMP Judicial Modernization Project ERR Economic Rate of Return JMT Judicial Modernization Team EU European Union JSSIP Judicial Services & Smart Infrastructure Project EXT External Affairs JUSTPAL Justice Sector Peer-Assisted Learning (Network) FBS Fixed-Budget Selection LCS Least-Cost Selection FM Financial Management LEGVP Legal Vice Presidency GDP Gross Domestic Product M&E Monitoring and Evaluation MOF Ministry of Finance SBD Standard Bid Document MOJ Ministry of Justice SCD Systematic Country Diagnostic NCB National Competitive Bidding SEER Sector Efficiency and Expenditure Review NGO Non-Governmental Organization SDN Social Development Network NPV Net Present Value SME Small and Medium Enterprise OECD Organization for Economic Cooperation and SMS Short Messaging Service Development ORAF Operational Risk Assessment Framework SOE Statement of Expenditure OSCE Organization for Security and Cooperation in SPPRED State Program on Poverty Reduction and Europe Economic Development PAP Project Affected People SSS Single-Source Selection PDO Project Development Objective TV Television PEFA Public Expenditure and Financial TWICT Transport, Water, Information and Accountability Communications Technology PIU Project Implementation Unit UNDB United Nations Development Business POM Project Operational Manual UNDP United Nations Development Program PPL Public Procurement Law UNHCR United Nations High Commissioner for Refugees PSIA Poverty and Social Impact Analysis UNICEF United Nations Children’s Fund QBS Quality-Based Selection UNODC United Nations Office of Drugs and Crime QCBS Quality and Cost-Based Selection USAID United States Agency for International Development RAP Resettlement Action Plan VAT Value-Added Tax RPF Resettlement Policy Framework VC Video Conference WB The World Bank Regional Vice President: Laura Tuck Country Director: Henry G. R. Kerali Acting Sector Director: Roumeen Islam Sector Manager: Adrian Fozzard Task Team Leader: Amitabha Mukherjee AZERBAIJAN JUDICIAL SERVICES AND SMART INFRASTRUCTURE PROJECT TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sector and Institutional Context.................................................................................... 2 C. Higher Level Objectives to which the Project Contributes .......................................... 4 II. PROJECT DEVELOPMENT OBJECTIVE ..................................................................5 III. PROJECT DESCRIPTION ..............................................................................................6 A. Project Components ...................................................................................................... 6 B. Project Financing .......................................................................................................... 9 C. Lessons Learned and Reflected in the Project Design ................................................ 10 IV. IMPLEMENTATION .....................................................................................................11 A. Institutional and Implementation Arrangements ........................................................ 11 B. Results Monitoring and Evaluation ............................................................................ 11 C. Sustainability............................................................................................................... 11 V. KEY RISKS AND MITIGATION MEASURES ..........................................................12 A. Risk Ratings Summary Table ..................................................................................... 12 B. Overall Risk Rating Explanation ................................................................................ 12 VI. APPRAISAL SUMMARY ..............................................................................................13 A. Economic and Financial Analysis ............................................................................... 13 B. Technical ..................................................................................................................... 13 C. Financial Management ................................................................................................ 13 D. Procurement ................................................................................................................ 14 E. Social (including Safeguards) ..................................................................................... 14 F. Environment (including Safeguards) .......................................................................... 14 Annex 1: Results Framework and Monitoring ........................................................................15 Annex 2: Country and Sector Background ..............................................................................22 Annex 3: Detailed Project Description ......................................................................................33 Annex 4: Implementation Arrangements .................................................................................40 Annex 5: Operational Risk Assessment Framework (ORAF) ................................................53 Annex 6: Implementation Support Plan ...................................................................................57 Annex 7: Economic and Financial Analysis .............................................................................60 Annex 8: Environmental and Social Safeguards .....................................................................72 Annex 9: Justice At A Glance ....................................................................................................75 PAD DATA SHEET Azerbaijan Judicial Services and Smart Infrastructure Project (P144700) PROJECT APPRAISAL DOCUMENT . EUROPE AND CENTRAL ASIA ECSP4 Report No.: PAD928 . Basic Information Project ID EA Category Team Leader P144700 B - Partial Assessment Amitabha Mukherjee Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 01-Oct-2014 31-Dec-2018 Expected Effectiveness Date Expected Closing Date 30-Sep-2014 31-Dec-2018 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Adrian Fozzard Roumeen Islam Henry G. R. Kerali Laura Tuck . Borrower: Republic of Azerbaijan Responsible Agency: Ministry of Justice Contact: Ramin Gurbanov Title: Judge, Baku City Yasamal Court & Project Coordinator JMP & JSSIP Telephone No.: +994125100444 Email: ramingurbanov@yahoo.com . Project Financing Data(in USD Million) [X] Loan [ ] Grant [ ] Guarantee [ ] Credit [ ] IDA Grant [ ] Other Total Project Cost: 200.00 Total Bank Financing: 100.00 Financing Gap: 0.00 . i Financing Source Amount Borrower 100.00 International Bank for Reconstruction and Development 100.00 Total 200.00 . Expected Disbursements (in USD Million) Fiscal Year 2015 2016 2017 2018 2019 Annual 3.00 12.00 15.00 25.00 45.00 Cumulative 3.00 15.00 30.00 55.00 100.00 . Proposed Development Objective The objective of the project is to improve the access, transparency and efficiency of delivery of selected justice services. . Components Component Name Cost (USD Millions) A. Judicial Service Delivery Improvements 16.38 B. Strengthening Institutional Capacity, Efficiency and M&E 13.59 C. Expansion and Modernization of Justice Infrastructure 59.71 D. Project Management and Coordination 7.39 Contingency 2.67 . Institutional Data Sector Board Public Sector Governance . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Public Administration, Law, and Justice Law and justice 60 Public Administration, Law, and Justice Public administration- 20 Information and communications Public Administration, Law, and Justice General public 20 administration sector Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . ii Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rule of law Judicial and other dispute resolution 30 mechanisms Public sector governance e-Government 30 Rule of law Access to law and justice 40 Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X] . Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [ ] No [X] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Due Date Institutional Arrangements for Project Execution Recurrent - continuous Description of Covenant The Borrower shall vest the overall responsibility for the implementation of the Project in the JMT and shall maintain the JMT, at all times during Project implementation, with resources and responsibilities acceptable to the Bank, and with competent staff in adequate numbers. The Borrower shall ensure that the JMT shall carry out the Project in accordance with the Operational Manual and, except as the Bank shall otherwise agree, shall not amend, suspend, abrogate, repeal or waive any provision of said Manual without iii the prior written approval of the Bank. Name Due Date Chief Information and Technology Officer Recurrent - continuous Description of Covenant The Borrower, through the MOJ, shall retain a chief information and technology officer within the JMT with responsibilities acceptable to the Bank. Name Due Date Establishment of Information Technology Department in the Ministry of Justice 01-Jan-2016 Description of Covenant The Borrower, through the MOJ, shall establish by not later than January 1, 2016, and thereafter maintain an information technology department in the MOJ, with resources and responsibilities acceptable to the Bank, and with competent staff in adequate numbers. Name Due Date Environmental Safeguards Recurrent - continuous Description of Covenant The Borrower shall ensure that the Project is carried out in accordance with the EMP and RPF, and shall ensure that all measures necessary for the carrying out of the EMP and RPF shall be taken in a timely manner. Except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the EMP and/or RPF. Name Due Date Environmental Safeguards Recurrent - continuous Description of Covenant Prior to the commencement of works for each proposed site, the Borrower shall ensure that: (a) the related Site-specific EMPs are prepared in accordance with the EMP; (b) the proposed design and site for said works incorporate the provisions of Site-specific EMPs; (c) the provisions of said Site-specific EMPs are adequately included in the proposed contract for said works; and (d) such works are carried out in accordance with the respective Site-specific EMPs. The Bank shall conduct a post-review of the documentation related to the design, contracts and Site-specific EMPs for selected works and field visits of such selected works as part of regular Project supervision. Name Due Date Social Safeguards Recurrent - continuous Description of Covenant The Borrower shall ensure that the RAPs: (a) shall be prepared in a manner satisfactory to the Bank in accordance with the RPF prior to commencement of any activities for the areas where physical relocation, land acquisition and/or loss of income due to the Project activities have been identified, and; (b) shall be carried out in a timely manner, satisfactory to the Bank. In the event that land acquisition or resettlement is required for the purposes of carrying out activities under the Project, the Borrower shall: (a) notify the Bank or ensure that the Ministry of Justice notifies the Bank, of any intended acquisition of land or resettlement, in whole or in part, and of each Resettlement Action Plan (if any) prepared in accordance with the Resettlement Policy Framework; of any of the following: residences, agricultural holdings, commercial structures and businesses, land used by people without claim to legal title, and persons affected by Project activities; iv (b) disclose, or ensure that the Ministry of Justice discloses, the Resettlement Policy Framework and each Resettlement Action Plan (if any) prepared under the Project and all relevant information relating thereto in a manner satisfactory to the Bank no less than sixty (60) days prior to carrying out any land acquisition or resettlement; and (c) ensure that the Ministry of Justice causes all land acquisition and resettlement under the Project to be undertaken in accordance with the provisions and procedures contained in the Resettlement Policy Framework and the respective Resettlement Action Plans, and that all relevant information is adequately provided to all affected persons, and potentially affected persons, in a timely and adequate manner. Team Composition Bank Staff Name Title Specialization Unit Diala Makdssi Afram Consultant Justice Reform ECSP4 Vusala Asadova Senior Program Assistant Administrative & Client ECCAZ Support Saida R. Bagirli Senior Operations Officer Operations ECCAZ Rufiz Vakhid Chirag-Zade Senior Operations Officer Operations ECSAR Conrad Charles Daly Consultant Justice Reform ECSP4 Deepal Fernando Senior Procurement Procurement ECSO2 Specialist Joseph Paul Formoso Senior Finance Officer Project Financing CTRLA Nyeso Stanley George Voice Secondee Public Sector Reform ECSP4 Gulana Enar Hajiyeva Senior Environmental Environmental Specialist ECSEN Specialist Alim Hasanov Economist Economics ECSP2 Mammad Jafarzade Information Specialist Technology Management ECCAZ Tural Jamalov Financial Management Financial Management ECSO3 Specialist Milena Joksimovic Consultant Operations Support ECSP4 Yoko Kagawa Senior Operations Officer Operations ECSP4 Zainab Mangga Kyari Voice Secondee Public Sector Reform ECSP4 Danijel Marasovic Consultant Physical Infrastructure ECSP4 Jasna Mestnik Finance Officer Disbursement CTRLA Alexey Nickolaevich Morozov Consultant Justice Reform ECSEG Karina Mostipan Senior Procurement Procurement ECSO2 Specialist Amitabha Mukherjee Lead Public Sector Specialist Team Lead; Institutional & ECSP4 Justice Reform Susana M. Padilla Program Assistant Administrative & Client ECSP4 v Support Zoi Melina Papoutsi Consultant Analytics and Operations ECSP4 Maya Sheli Port Consultant Justice Reform ECSP4 Aly Zulficar Rahim Senior Social Development Social Development ECSSO Specialist Nadir Ramazanov Economist Economics ECSP2 Zaur Rzayev Communications Associate Communications ECCAZ Nigar Sadikhova Program Assistant Administrative & Client ECCAZ Support Ramesh Sivapathasundram Lead Information Officer E-Services TWICT Marinos Skempas Consultant Physical Infrastructure ECSTR Gerald Thacker Consultant Physical Infrastructure ECSP4 Nijat Valiyev Senior Infrastructure IDP Issues ECSTR Specialist Dusan Vujovic Consultant Economist (Economic and ECCAZ Financial Analysis) Ghada Youness Senior Counsel Country Lawyer LEGLE . Locations Country First Location Planned Actual Comments Administrative Division Azerbaijan Masalli Rayon Masalli X Masalli District Court Azerbaijan Baki Baku City X Baku City Narimanov District Court Azerbaijan Baki Baku City X Baku City Surakhani District Court Azerbaijan Baki Baku City X Baku Grave Crimes Court Complex Azerbaijan Baki Baku City X Data Center Azerbaijan Baki Baku City X Disaster Recovery Center Azerbaijan Sheki City Sheki City X Sheki Court Complex Annex Azerbaijan Sumgait Sumgait City X Sumgait Court Complex vi I. STRATEGIC CONTEXT A. Country Context 1. Driven by a natural resource boom, Azerbaijan’s annual economic growth averaged 16 percent during 2002-10. Over this period, substantial oil extraction, high oil prices and efforts to save a significant part of oil-related revenues resulted in large fiscal surpluses, accumulation of sizable foreign assets and low government debt. A decline in oil production brought down the pace of economic growth to almost zero in 2011 and 2.2 percent in 2012. Growth recovered to 5.8 percent in 2013. The decline in oil production was stemmed as a result of investments in the sector and growth in construction and services. Over the medium term, Azerbaijan’s economy will continue to be dominated by developments in the hydrocarbon sector, offset in part by expansion in production and export of natural gas. Towards this, the Shah Deniz gas consortium chose the Trans-Adriatic Pipeline to transport gas to Europe. The pipeline is expected to be operational by 2019 and will carry Caspian gas to Italy via Turkey, Greece and Albania. 2. Fiscal policy has been expansionary in the past few years with a quadrupling (in nominal terms) of consolidated government expenditures between 2006 and 2012, faster than the growth in nominal GDP. Overall expenditures are budgeted to grow from 37.9 percent of GDP in 2013 to nearly 38.2 percent in 2014, up from an average of 30.5 percent during 2006-2011. Much of this increase is driven by public investment geared to boosting the economy, which almost doubled in nominal terms in only two years, with relatively modest increases in education and health spending. Growth in spending has largely been financed by increasing transfers from the Oil Fund, accounting for 52 percent of expenditures in 2013 (up from 43 percent in 2010), with a commensurate reduction in the share of oil revenues assigned to savings. 3. Poverty declined from 46.7 percent in 2002 to 6 percent in 2012, one of the fastest rates of reduction in the world. Azerbaijan also achieved a significant decline in inequality, with the Gini index dropping from 36.5 percent in 2001 to 29 percent in 2011. Extreme poverty, measured by the World Bank’s Europe and Central Asia (ECA) Region’s poverty line of US$2.50 per day, fell from 11.5 percent in 2002 to 4.5 percent in 2008. Joblessness has fallen over the last decade from 10 percent in 2002 to 5.2 percent in 2012, in part reflecting a sharp drop in labor force participation but also due to the creation of more than a half a million jobs since 2000, with agriculture, construction and other services accounting for about three-quarters of this increase. The poor have benefited from a 13 percent increase in real wages over the same period. Social transfers have also played an important role in reducing poverty: almost two-thirds of households receive some form of social transfer. The most effective of these transfers in terms of poverty reduction are pensions, which were increased from 42 percent of the subsistence rate in 2002 to 95 percent in 2011. Targeted social assistance has also proved particularly effective in reaching the poor and very poor. 4. Notwithstanding the dramatic reduction in poverty over the last decade, distinct groups remain economically and socially vulnerable. Prominent among the vulnerable groups is Azerbaijan’s population of about 1.2 million Internally Displaced Persons (IDPs) and refugees. Among this population poverty is most pervasive in cities outside Baku. IDPs and refugees who have sought their own accommodation outside of government provision appear to be at greater risk of poverty. The risk of poverty increases significantly for IDPs and refugees living with relatives, suggesting a phenomenon of “hidden poor” within the IDP and refugee population. In 1 addition, some parts of Azerbaijan’s population live in remote areas with insufficient access to public (including justice) services. 5. Azerbaijan’s longer-term growth, development and further progress in poverty reduction prospects are tied to successful economic diversification. With the decline in oil production, the government realizes that it will have to develop alternative sources of growth and revenues. On December 29, 2012 the President approved “Azerbaijan 2020 Vision of the Future” as the national concept of development. This outlines the government’s diversification strategy and lays out the goal to reach high income status. While the vision statement promotes specific sectors to facilitate regional development and product export diversification, the primary focus is on developing tangible and intangible assets - physical capital, human capital and institutions. 6. One element of the diversification strategy that has gained traction is the development of the Information and Communications Technology (ICT) sector. E-Government solutions have become an important feature of efforts to strengthen the public sector, improve the delivery of public services and reduce red tape and corruption. The President proclaimed 2013 as the ICT Year for Azerbaijan, obligating state authorities to implement electronic document management from July 1, 2013. Other Presidential decrees have mandated disclosure of state and local bodies’ acts through electronic information systems and approved a State Program for ICT development and e-government activities in state bodies, including rules for delivery of electronic services by ministries and a list of electronic services to be provided. 7. Diversification requires private sector investment, which in turn needs a supportive environment for business creation, competition and protection of property rights. Doing Business points to progress in some areas – notably starting a business, paying taxes, registering property and protecting investors – but it also reveals that progress has been limited in areas such as contract enforcement. International indicators highlight some persistent weaknesses of Azerbaijan’s institutions, reflected in perceptions of high levels of corruption, of unpredictable rules and arbitrary enforcement, and of an insufficiently independent judiciary. The consequences are overall negative for economic growth and employment generation, for the vulnerable and the marginalized, for private sector development and for attracting foreign investment. B. Sector and Institutional Context 8. From 2000 Azerbaijan began to gradually modernize its judiciary. The objectives of the first phase of reforms were to modernize the legal framework for the justice system; strengthen judges’ professionalism and ensure a transparent and merit-based recruitment; improve courts’ physical and technological infrastructure; and improve access to justice. Azerbaijan adopted modern criminal, criminal procedure, civil and civil procedure codes conforming to international practices. Legislative and procedural reforms fulfilled obligations arising from Azerbaijan’s membership of the Council of Europe (CE) in January 2001. In 2000 the first open, competitive, objective and transparent examination for judges’ selection was held in Baku, monitored by the media and international observers. This testing system has been improved over the years and has led to the selection of a new generation of judges. Today more than 70 percent of judges in first- instance courts have been recruited through competitive procedures - supported by the World Bank-financed Judicial Modernization Project (JMP) - open to international observers and the media, with results being displayed in real time. Judges’ salaries have been increased 30-fold since 2000: this has improved the quality of applicants and increased the status of the profession. 2 The court network has been expanded with twenty new regional courts, regional Grave Crimes Courts and Administrative Courts. An independent body, the Judicial Legal Council, comprising judges and representatives of the Presidential Office, Parliament, the prosecution service and the Bar, has been empowered to manage the judiciary, handle judicial discipline and strengthen judicial independence. A ‘hot line’ to the Council to report judicial corruption is now functional. 9. World Bank assistance under the JMP supported the reform agenda laid out in the 2006 Presidential Decree “On Development of Institutions of Justice”. The Decree mandated the creation of new courts, upgrading court facilities, training and evaluation of judges, the introduction of ICT applications, increasing system efficiency, improving legal aid and boosting citizens’ trust in the judiciary. The JMP has pioneered the concept of user-oriented ‘smart courts’ for more accessible and transparent judicial service delivery. Built for function, the smart courts include design features such as separate access for the public, judges, judicial staff and accused persons - critical for preserving due process and the dignity of those involved. Courts are accessible to physically challenged persons and have Braille signage and floor bands for the visually challenged. Completed JMP-financed pilot ‘smart courts’ in Baku, Gandja, Oguz and Gedabey are used intensively. Three more ‘smart’ courthouses in Sheki, Sabunchu and Guba are under construction. Innovatively designed courthouses have brought criminal, administrative civil courts and other justice functions (e.g. prosecution and enforcement) under one roof. Legal Information Centers were piloted in Baku and Guba, providing free legal aid to 4,380 users and enabling the MOJ to test cost-effective approaches to legal aid for the vulnerable. 10. Testing ICT solutions has been an important feature of the JMP. Automated case and document management are being piloted and the experience from the pilots will guide the roll- out of user-friendly systems across the country including through the Judicial Services and Smart Infrastructure Project (JSSIP). ICT applications strengthen the ‘housekeeping’ aspect of judicial functioning through random case allocation and contribute to the reduction of corruption: they automate case management, personnel management, financial management and archiving. Advances include electronic public information kiosks; automatic audio-video recording of court proceedings ensuring easy archiving, retrieval and transmission; and the creation of a court decision database and an improved company registry. 11. Policy makers have given considerable attention to the use of ICT applications to address the “demand side” of judicial services. E-services include electronic filing of plaints, electronic notice of service and electronic document submission. A pilot E-Notary system enables users to access notarial services through the internet. Services currently being piloted include short messaging service (SMS) applications through mobile phones to notify parties to cases and trials. A unified web-portal for all courts (http://courts.gov.az ) contains a growing database of court decisions and information about courts (e.g. territorial and subject-matter jurisdiction, on-going cases and judgments, documents to file a case or an appeal). In future, all final court decisions will be posted on the portal once digitized. More than 1,500 staff of the Ministry of Justice (MOJ) have been trained in basic ICT courses to operate the JMP-piloted applications. 12. A Presidential Decree of February 2014 lays out the next generation of ICT solutions to support justice sector reform. The Decree mandates the establishment of electronic court information systems and the use of electronic document management systems to enhance access to justice, reduce red tape, improve sector transparency, enhance the responsiveness of service delivery and strengthen the implementation of judicial decisions. 3 13. However, progress in improving access to justice has trailed progress in modernization of the judiciary. This is particularly true for vulnerable groups. For example, IDPs face difficulties in access to justice in remoter areas. Azerbaijan is also yet to enact a law on legal aid. Provision of legal aid is concentrated in Baku and other major cities and there is no provision for legal aid to eligible persons in non-criminal cases. As a result, vulnerable litigants are often not able to secure legal advice or representation in non-criminal cases. 14. Issues related to gender and the youth are receiving increasing attention but much remains to be done. There are relatively few women in the judiciary, prosecution and the legal profession: there are no women Court Presidents in any of the 111 court locations, women constitute about 10 percent of judges and lawyers and only 5 percent of prosecutors. There are concerns about the manner in which gender issues, such as domestic violence, are addressed. The justice system is also not geared to addressing the special needs of young offenders. There is no juvenile justice system, no national strategy for prevention of offences by juveniles and no program for reintegrating juvenile offenders. Studies commissioned by the United Nations International Children’s Emergency Fund (UNICEF) show that long sentences are still common and a cause for concern. 15. Policy-makers are trying to transform the arbitrary and opaque functioning of regulatory entities to reduce the regulatory burden on the private sector and lower corruption and compliance costs, especially for small businesses. In this connection attention has turned to the potentially significant role of justice entities such as the MOJ and the courts in this endeavor. On August 28, 2013 the President signed an Inspections Law which seeks to streamline inspections procedures by giving the MOJ the lead role overseeing the inspection regime. The law mandates the implementation of inspection check-lists to reduce harassment, the application of risk criteria for a more objective determination of the need for inspections and maximum inspection frequencies for different risk ratings. The law strengthens the role of the Business Inspections E- Registry, obliges all inspectorates to create a hot-line telephone service for inspection-related questions and prohibits Inspectorates from adopting additional internal rules and regulations on inspections unless ratified by the Cabinet of Ministers. The annual compliance cost savings as a result of this new law are estimated by the ‘Doing Business’ team at US$10 million (five times more than the original target). Next steps include the adoption of implementing regulations and technical guidelines and the initiation of a large-scale public communications and outreach campaign by the Ministries of Justice and Economy. Annex 2 provides further information on sector context and challenges. C. Higher Level Objectives to which the Project Contributes 16. The 2011-2014 Country Partnership Strategy (CPS) identifies two objectives for the Bank's engagement with Azerbaijan: building a competitive non-oil economy and strengthening social and municipal services, with a strong cross cutting theme of governance and anti- corruption. The project contributes to the second objective, seeking to improve public sector management and civil rights by upgrading the judicial system in line with international good practices and expanding equal access to judicial and legal institutions, especially for low-income and other vulnerable groups such as IDPs, refugees, women, juveniles and unserved populations in remote areas. By supporting activities aimed at strengthening institutional capacity, operational quality and responsiveness, the project will contribute to efficiency, modernization and transparency of the justice system. 4 17. The project will also contribute to the first CPS objective. Strengthening the judicial system will improve checks and balances against arbitrary exercise of state power and facilitate the shift to a more market-oriented and transparent economy. Speedier and fairer resolution of disputes will save resources and time for private sector litigants and the state, strengthen trust in the judiciary and predictability in the application of regulations, thereby contributing to a more business-friendly investment climate and a more competitive economy. Improvements in efficiency, transparency and accountability within the judiciary will reduce the risks of corruption and strengthen accountability of the executive branch of government. Strengthening judicial accountability (externally to users and internally to credible integrity systems) is expected – gradually and over time – to improve public trust and confidence. 18. The project will also contribute to the Bank Group’s twin objectives of ending extreme poverty and promoting shared prosperity, by strengthening access to judicial services and protection for vulnerable groups. An ongoing Poverty and Social Impact Analysis (PSIA) of the justice sector will inform the refinement of project interventions aimed at supporting vulnerable groups and help track the flow of project benefits to these groups. The project will train MOJ and judicial staff to apply PSIA to improve the flow of justice services to economically and socially vulnerable groups. The JSSIP will also finance the development of a Gender Strategy and Action Plan. Where relevant, project indicators will be disaggregated by gender and identify other vulnerable groups such as IDPs and refugees. This will support the Bank’s efforts to boost shared prosperity, notably by protecting the rights and property of the most vulnerable groups. 19. The Government regards the World Bank as an important partner in supporting its justice sector reforms and strengthening its judicial institutions. The Bank has been able to provide global knowledge and good practices relevant for Azerbaijan through its technical support, peer- to-peer networking and learning services. The Bank helps the authorities adapt global experience to Azerbaijan’s circumstances. It provides hands-on implementation support for justice reform and technical solutions to service delivery challenges drawing on the experience working with other clients within the region and at a global level. The Bank also provides implementation support for complex projects such as this, where it assists the authorities in in the procurement and supervision of works, ICT services and technical assistance providers, drawing on the Bank’s extensive experience in these areas. This helps authorities identify and mitigate fiduciary and other risks and helps the implementing agencies stay focused on project results and impact. II. PROJECT DEVELOPMENT OBJECTIVE 20. PDO. The objective of the project is to improve the access, transparency and efficiency of delivery of selected justice services. 21. Project Beneficiaries. Beneficiaries include economically and socially vulnerable groups, notably IDPs, refugees, women, juveniles and unserved populations in remote areas. Households stand to benefit from streamlined processing and service delivery from the courts and the MOJ. The private sector will be the main beneficiary of e-notary and business e-registry services. Other direct project beneficiaries comprise the officials and other staff of the Ministry of Justice, the Supreme Court, all lower and appellate courts and the Justice Academy. The project will also benefit external entities key to a well-functioning justice sector, including the media, civil society organizations, advocates and the Bar Association. 22. PDO Level Results Indicators. These are at Annex 1 and comprise: 5 a) Users expressing satisfaction with access, transparency and efficiency of selected justice services; b) Access to justice, measured by beneficiaries utilizing legal aid services; c) Transparency, measured by the availability of performance information 1 on Ministry of Justice and Supreme Court websites; and d) Efficiency, measured by the time taken to enforce contracts through courts. III. PROJECT DESCRIPTION 23. The JSSIP constitutes a second and more nuanced phase of World Bank support for Azerbaijan’s planned multi-phase transformative process to improve the performance of its justice sector and strengthen access to justice, especially for the vulnerable. The project is designed to sustain Azerbaijan’s continuing justice sector modernization by expanding access, strengthening due process and ensuring transparency in the delivery of key justice and legal services, notably through the expansion of e-justice services, strengthening of management systems and institutionalizing public feedback. Building on JMP achievements, the JSSIP seeks to focus improvements across three broad areas: service delivery; sector efficiency, capacity and results monitoring; and expansion of smart infrastructure. Special attention has been paid to selected poverty, gender and social inclusion issues and policies as they relate to the justice system and access to justice for IDPs, refugees, women, juveniles and unserved populations in remote areas. Azerbaijan has been an active participant in the World Bank’s Justice Sector Peer- Based Learning (JUSTPAL) Network, whose members share reform experiences and knowledge on performance improvements. Among other things, JUSTPAL-led demand spurred the development of a justice performance indicator framework (Justice At-A-Glance, or JAAG) to enable countries to self-assess their status on different dimensions of justice performance. The JAAG for Azerbaijan (Table 1, with more details at Annex 9) indicates that the issues on which the authorities propose to place emphasis through the JSSIP are the areas on which Azerbaijan seeks to move closer to its European comparators. The JSSIP is envisaged to have four components. A. Project Components 24. Component A: Judicial Service Delivery Improvements (estimated cost US$33.56 million of which IBRD US$16.38 million) will finance two sub-components: access to justice and the expansion of e-Justice services. 25. Sub-component A.1 (estimated cost US$3.25 million) will seek to improve access to justice through: (a) piloting innovative, participatory and more efficient ways to provide legal aid services to the vulnerable and marginalized through the provision of goods, consultants’ services and training to the MOJ; and (b) analytic and diagnostic studies focusing on: (i) the legal aid system, in particular for vulnerable groups; (ii) the development of alternative dispute resolution systems; (iii) the policies and institutional arrangements on access to justice particularly for vulnerable groups and on gender issues related to justice; and (iv) the development of specific interventions to support access to justice for IDPs, refugees and other vulnerable groups through the provision of consultants’ services and training. 1 For example, on decisions enforced, registrations processed, inspections conducted and user survey results. 6 26. Sub-component activities will comprise analytics and technical assistance to expand access to justice, especially for vulnerable groups, and to examine gender and social inclusion issues and challenges. Table 1. Azerbaijan: Justice At A Glance (Sources: Annex 9) Drawing on this analytical work the project will support interventions to enhance access to justice for low-income households and other vulnerable groups, including IDPs, refugees, women, juveniles and segments of the population in unserved or under-served areas. These activities will complement ongoing Bank-financed support to the target groups, including through the IDP Project. 27. JSSIP support for vulnerable groups will include: streamlining judicial business processes; legal aid services and alternative dispute resolution, working with the State Committee for Refugees and IDPs, the MOJ and the Bar Association, facilitating access to such services in new settlements by locating legal aid offices in administrative buildings and community centers in key IDP and refugee locations; capacity building for the staff of the State Committee for Refugees and IDPs and support for NGOs and civil society entities providing free legal services to IDPs and refugees. A project financed by the United States Agency for International Development (USAID) provides free legal counseling for vulnerable groups including IDPs. The JSSIP will support awareness- building among IDPs and refugees on topical legal issues. A gender dimension will be embedded in the design, focusing on activities such as the preparation of a gender strategy and action plan, and addressing domestic violence and human trafficking. 7 28. Sub-component A.2 (estimated cost US$30.31 million) will expand the provision of electronic access to selected justice services through: (a) the development and rollout of selected justice e-services; (b) the improvement of the infrastructure for the justice sector information and communications technology; and (c) the construction of a data center and the rehabilitation and upgrading of a facility for disaster recovery center, through the provision of goods, consultants’ services and training and the carrying out of works. 29. Under this sub-component a broader range of e-justice services will be upgraded and rolled out, including: e-filing of cases; automated case and document management systems; a business e-registry and business inspection modernization. The sub-component will also finance the design of an improved system for enforcement of judicial decisions. Support for developing and rolling out e-justice services will typically include business process reengineering, capacity- building and systems development. These access enhancements will be served by stronger justice ICT infrastructure. 30. Component B: Strengthening Institutional Capacity, Efficiency and Monitoring and Evaluation (estimated cost US$16.41 million of which IBRD US$13.59 million) will finance technical assistance, training and advisory services to improve the capability of key justice entities to make informed policy decisions and implement reforms. There are four sub- components. 31. Sub-component B.1 (estimated cost US$3.27 million) will finance improvements to justice sector performance through, inter alia: (a) a sector efficiency and expenditure review including analyses of court case backlogs, efficiency and justice system revenues; (b) strengthening justice sector monitoring and evaluation capacity and quality including through the development of a justice sector performance monitoring framework and performance indicators and the preparation of a strategy and action plan to improve such capacity; (c) strengthening sector capacity to undertake and apply poverty and social impact analysis to improve service delivery to economically and socially vulnerable groups such as IDPs; and (d) the carrying out of periodic surveys of, inter alia, court users, lawyers, judges, court staff, notaries, and other justice sector service providers all through the provision of goods, consultants’ services and training. The sub-component will support evidence-based decision-making and improve sector performance management. The periodic user surveys will help institutionalize user feedback. 32. Sub-component B.2 (estimated cost US$7.59 million) will strengthen the information systems management and operational capability of the MOJ to support the provision of selected justice services, through the provision of goods, consultants’ services and training. By building internal MOJ capacity to manage and support the extensive e-services facilities, it will complement sub-component B.1. 33. Sub-component B.3 (estimated cost US$2.60 million) will finance communications, outreach and change management activities aimed at facilitating stakeholder engagement in justice sector reforms, including but not limited to (a) the development and implementation of a communications, outreach and change management strategy and (b) the conduct of stakeholder workshops, roundtables, public awareness campaigns, radio, television and print media/internet programs, all through the provision of consultants’ services and training. By strengthening stakeholder engagement, the activities will improve the design and roll-out of justice e-services. 34. Sub-component B.4 (estimated cost US$2.95 million) aims to strengthen the professional capacity of judges, of staff of courts and the MOJ, and of the Justice Academy 8 through, among other things: (a) the preparation of a justice sector gender strategy and action plan based on an assessment of gender-based barriers to employment for judges, lawyers and other justice professionals and an analysis of training and sensitization needs on gender issues for justice professionals; (b) the development of training courses and curricula and the delivery of training for judges and other justice professionals aimed at but not limited to improving the quality of judicial decisions in economic and commercial disputes and in first-instance courts; and (c) the carrying out of knowledge-sharing activities between judges and other justice sector professionals in Azerbaijan and between Azerbaijan and other judiciaries, justice training institutions and professional networks, through the provision of goods, consultants’ services and training (including through twinning arrangements with European and Asian judiciaries and knowledge-sharing through JUSTPAL and other professional networks). 35. Component C: Expansion and Modernization of Justice Infrastructure (estimated cost US$135.80 million of which IBRD US$59.71 million) will finance the construction and rehabilitation of about six courthouses and court complexes at locations selected in accordance with criteria set forth in the Operational Manual, through the carrying out of works and the provision of goods, consultants’ services and training. 36. It will also finance related ICT infrastructure for the courthouses and complexes. The ‘smart courts’ will be functionally innovative courthouses and court complexes integrating IT applications and services at each location. The building designs will emphasize functionality, accessibility, transparency and energy efficiency. Facades, finishes and fixtures are selected for economy and functionality. The MOJ has consistently applied modern design standards to World Bank-financed courts under the JMP, and will do so for the JSSIP as well. Advances in courthouse design and functionality across the world are tracked, adapted if feasible and applied. Justice infrastructure will be made more energy-efficient. Independent technical reviews (ITRs) of architectural designs and of construction will be commissioned by the MOJ to assure quality. The project will finance courts identified as part of the MOJ’s prioritized investment program. Courthouse and court complex locations are based on the following criteria: regional court complexes in large cities and courthouses in areas with populations of IDPs, refugees and other vulnerable groups and urban locations with high and growing case volumes. 37. Component D: Project Management and Coordination (estimated cost US$8.04 million of which IBRD US$7.39 million) will strengthen the capacity of the MOJ in project management, monitoring and coordination including audits of (i) project financial statements, (ii) environmental and social safeguard compliance and (iii) implementation of information and communications technology activities under the project, all through the provision of goods, consultants’ services, and training, and the financing of incremental operating costs. Under this component the MOJ will also engage specialist consultants to assist the MOJ to manage and implement the project. 38. US$5.95 million (of which IBRD US$2.67 million) has been provided for contingencies. B. Project Financing Project Cost and Financing Estimated IBRD Financing % Project Components Cost (US$ m.) (US$ m.) Financing A. Judicial Service Delivery Improvements 33.56 16.38 49 A.1 Expanding Access to Justice for All 3.25 2.75 A.2 Expanding e-Justice Services Across Azerbaijan 30.31 13.63 9 B. Strengthening Institutional Capacity, Efficiency and M&E 16.41 13.59 83 B.1 Improving Sector Efficiency, Performance and M&E 3.27 2.77 B.2 Strengthening IT Management and Operational Capacity 7.59 6.12 B.3 Communications, Outreach and Change Management 2.60 2.20 B.4 Strengthening Professionalization & Knowledge Sharing 2.95 2.50 C. Expansion and Modernization of Justice Infrastructure 135.80 59.71 44 C.1 Expanding ‘Smart’ Courts and Court Complexes 135.80 59.71 D. Project Management and Coordination 8.04 7.39 92 Component Costs 193.81 97.08 50 Contingencies 5.95 2.67 45 Total Project Costs 199.75 99.75 50 Front-End Fees 0.25 0.25 100 Total Financing Required 200.00 100.00 50 C. Lessons Learned and Reflected in the Project Design 39. Justice reform is complex, long-term and requires careful sequencing, management and stakeholder engagement. Much of this complexity arises from the multiple institutions involved from the executive and judicial branches of government, interacting closely with the legislative branch. Tensions arising from different interpretations of independence and accountability constantly play out at policy and technical levels. This is especially true in transition countries where roles of the three branches of state and between entities in the justice system are still evolving. Strong and consistent support from across these institutions is indispensable for justice reform. In Azerbaijan, such support has come from the President, the Prime Minister and Deputy Prime Ministers, the Minister of Justice, the Chief Justice, the Minister of Finance, the Minister of Economy and the Cabinet of Ministers. It is desirable that such reforms be generated in-country and be publicly supported by credible domestic champions. It is important to build broad coalitions of stakeholders to overcome entrenched and powerful interests that can derail reforms. Building in voice and participation into project design increases the likelihood of success. A participatory approach is helpful: ownership can be strengthened through stakeholder consultations, strategic communications, public outreach and change management. 40. The interests and rights of economically and socially vulnerable sections of the population may be ignored due to lack of effective mechanisms for voice and accountability. Awareness of these risks is important to address the needs of the socially and economically vulnerable and thereby boost shared prosperity and ensure that the benefits of reforms are accessible to the poor and the vulnerable. 41. Justice sector reforms should avoid wholesale importation of so-called ‘international good practices’. Laws and practices require adaptation to national legal systems. Social, economic and administrative characteristics and culture also have to be taken into consideration. Knowledge and good practices from international experts should be fused with the wisdom, knowledge and experience of the local legal and judicial community. While the effectiveness and coherence of legal and judicial reforms suggests a comprehensive approach, care must be taken to design and sequence reforms in line with implementation and coordination capacity. 42. The management capacity of justice entities has to be strengthened if these institutions are to deliver sustainable improvements in services and governance. In transition countries, 10 decades of under-resourcing of key sector entities such as courts and Ministries of Justice tend to leave authorities preoccupied with closing large implementation gaps in skills, business processes and related information systems. The JSSIP addresses this challenge by providing support to the decision-making process and to sector management. 43. Lastly, the MOJ and other stakeholders have gained valuable experience in implementing complex institutional reforms, ICT solutions and civil works under the on-going JMP. Sector leadership understands the importance of focusing on outcomes throughout implementation in order to maintain the momentum of reform and the need to monitor progress towards strategic objectives. The MOJ recognizes the need for careful sequencing of reforms and the development of ICT solutions, allowing adequate time for consultation, business process reengineering, piloting and review. It has also gained familiarity with Bank procurement and safeguards policies and put in place robust systems to ensure compliance. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 44. The implementing agency will be the Ministry of Justice, which has been successfully implementing the ongoing JMP (total project cost about US$97 million) since 2006. The performance of the MOJ’s implementation team for the JMP – referred to as the Judicial Modernization Team or JMT - has been satisfactory, with rapid progress on implementation and disbursements. Apart from its own responsibilities as an executive agency, the MOJ is also responsible for providing and maintaining the physical and ICT infrastructure of all courts (except the Supreme Court). The JMT is headed by a Judge with strong experience of reform design and implementation (seconded to the MOJ as Project Coordinator) and includes MOJ civil servants supplemented by a small team of specialist consultants on procurement, financial management, ICT and civil engineering. This composite team is well-integrated into the MOJ structure and coordinates efficiently with courts, the MOJ, the Ministry of Economy and the Ministry of Finance (MOF). The MOJ has initiated selection of additional consultants to augment the JMT capacity to implement the JSSIP. The MOJ, as the budget executor for the project under Azerbaijan’s procedures, will be responsible for the project budget, project management and implementation and for monitoring and reporting project results. Institutional and implementation arrangements are discussed in Annex 4. B. Results Monitoring and Evaluation 45. A Results Framework with project-specific actionable indicators and monitoring arrangements has been agreed (Annex 1). The MOJ will develop robust monitoring and evaluation (M&E) arrangements to collect and report on project results. The M&E system will support project implementation by maintaining records on implementation and generating semi- annual project progress reports and annual reports prepared within four months of the end of the financial year. These will focus on results and progress against targets. C. Sustainability 46. The Government has committed sufficient resources to carry out the activities initiated under the project. This is expected to continue beyond the project’s life. 47. In the broader context, sustainability of project investments will be achieved by system- wide capacity and efficiency gains which the project expects to foster. Project activities aimed at 11 strengthening the institutional capacity for management and accountability of the justice system should improve the sustainability of the reforms. Borrower commitment and ownership of the reform programs underlying this operation are high. The simplification and streamlining of court procedures, automation of case management, improvements to sector performance monitoring and increased access to information are expected to lead to gains in terms of efficiency and service quality for a range of stakeholders. Lastly, and perhaps most importantly, the project’s emphasis on access and user feedback through surveys and consultations is expected to generate increased demand for sustainable reform, pressure to prevent backtracking on key reforms and – over time - increased public trust and confidence in the justice system. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Category Rating Stakeholder Risk Moderate Implementing Agency Risk Substantial - Capacity Substantial - Governance Substantial Project Risk Substantial - Design Substantial - Social and Environmental Substantial - Program and Donor Low - Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Substantial B. Overall Risk Rating Explanation 48. The project enjoys strong support and ownership from the highest levels of the Azerbaijan government. Implementation of the ongoing JMP has been satisfactory. The risks arising during the implementation of the JMP relating to fiduciary matters, governance and compliance with social safeguards have been effectively addressed through concerted action by the relevant authorities. The track record of the implementing agency has been satisfactory. 49. However, project scale, scope and complexity pose significant implementation risks. The JSSIP, like the JMP, is designed as a multi-agency project. Design and implementation risks are compounded when the project spans both the executive and the judicial branches of the government. Furthermore, several factors could negatively impact implementation pace and the sustainability of project results and impact. These include changes to senior management and key technical staff in implementing and participating agencies; challenges in inter-agency coordination; delays in procurement and difficulties in implementing ‘soft reforms’. Hence the overall implementation risk is rated “Substantial”. 12 VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 50. Public sector institutional reform projects are rarely underpinned by a detailed economic and financial analysis owing to difficulties of attribution and in the estimation of costs and benefits. However, in the case of the JSSIP, a detailed analysis has been attempted in view of the project size, scope and complexity. 51. The summary results of the financial analysis indicate that, with only a small element of financial benefits evaluated, the JSSIP has a satisfactory financial rate of return of 55.7 percent and a Net Present Value (NPV) of US$224 million based on financial prices and a discount rate of 12 percent. The economic analysis suggests an even higher rate of return of 72.3 percent and an NPV of US$222 million based on economic prices and a 12 percent discount rate. The true economic and financial return of the JSSIP is likely to be even higher due to indirect (multiplier) effects on local businesses and beneficial impacts of reduced business inspections and better enforcement: the Economic Rate of Return (ERR) rises to almost 115 percent and the NPV reaches US$388 million. The detailed economic and financial analysis is at Annex 7. 52. The main indirect benefits are expected to accrue through positive multiplier effects on the local economy and improved business environment, especially the dimensions of doing business where Azerbaijan presently trails behind its comparators. On the macro-economic side, reduced administrative and compliance burdens from business inspections, improvements in the rule of law and stronger enforcement are expected to lower risks, increase predictability, reduce corruption and enhance creditor rights, leading to lower interest rate margins over time (the current high margins limit the development of non-oil sectors). B. Technical 53. Overall, the status of preparation is satisfactory and the project is ready for implementation. PIU capacity augmentation has begun: terms of reference for PIU personnel and project activities have been reviewed by the Bank and have been advertised. Site screenings for civil works locations have begun and preparation of architectural and technical designs for several proposed court complexes is under way. Within the MOJ there is seamless linkage between JMP implementation and JSSIP preparation. C. Financial Management 54. The PIU’s financial management arrangements have been assessed as satisfactory. Its accounting and internal control system is assessed as reliable and effective. The PIU FM staffing arrangements are also assessed as adequate. To ensure that the FM arrangements are up to date, the PIU has upgraded its current accounting system to accommodate JSSIP requirements, and FM policies and procedures have been revised to meet JSSIP needs. IBRD Loan proceeds will be disbursed through transaction-based disbursement methods. The Government contribution will be disbursed through the Treasury system of the MOF. The MOJ is in full compliance with Bank audit requirements. Following the Bank’s formal receipt of financial statements from the Borrower, the Bank will make them publicly available in accordance with Bank policy. The Government contribution of US$100 million (including Value-Added Tax or VAT) to finance project expenditures will be disbursed from budget allocations through the Treasury system of the MOF. Funds will be released to finance expenditures as they are incurred. 13 D. Procurement 55. Procurement for the project will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-consulting Services Under IBRD Loans and IDA Credits & Grants" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Loan Agreement. Responsibility for project procurement will rest with the MOJ PIU currently implementing the ongoing JMP. This PIU has been operational for more than five years, is experienced in managing a World Bank-financed project and is therefore capable of undertaking JSSIP procurement. This has allowed rapid project preparation and should ensure a quick start to project implementation. 56. The procurement capacity assessment takes into account the experience from past and ongoing Bank-financed projects in Azerbaijan, the general public procurement environment in Azerbaijan, the positive procurement track record of the MOJ in implementing the JMP and the proactive steps initiated by the MOJ to augment PIU capacity to deal with the increased JSSIP procurement workload. Information on procurement risks and mitigation measures is at Annex 4. E. Social (including Safeguards) 57. The project will trigger the World Bank’s Involuntary Resettlement Policy (OP 4.12). While land acquisition is not anticipated during the project, the policy will be triggered on a precautionary basis in case there is a need to expand or change project sites or should unanticipated land acquisition issues arise. A Resettlement Policy Framework (RPF) developed under the preceding JMP was updated and re-disclosed to guide any possible land acquisition that might arise under the project. Should social safeguards screening identify the existence of project-affected persons associated with any of the proposed sites for physical works, site- specific Resettlement Action Plans (RAPs) would be developed, providing detailed description of compensation and rehabilitation measures. F. Environment (including Safeguards) 58. The project is classified for environmental purposes as a Category B project. The project will trigger the World Bank’s Environment Assessment (OP 4.01) and Physical Cultural Resources (OP 4.11) Policies. The negative environmental impacts which might be caused by project activities are not considered to be significant or irreversible. They are of a temporary nature and mainly associated with the construction or renovation of courthouses and other facilities to be implemented at the proposed project sites. The anticipated impacts will be avoided, minimized or mitigated by implementing the preventive, restorative and mitigation measures envisaged by the project Environmental Management Plan (EMP). Those measures will be detailed in site-specific EMP Checklists to be prepared for each project site at the design stage and included in the bidding documents and respective construction contracts. The EMP includes proactive measures to carry out preliminary surveys/assessments of relevant sites prior to beginning works, to determine if there are historically valuable assets or artifacts which require protection. The EMP also incorporates the procedures to be followed by the contractor and client in case of chance finds at project sites. There are no cases involving renovation of known historical buildings. 14 Annex 1: Results Framework and Monitoring Country: Azerbaijan Project Name: Judicial Services and Smart Infrastructure Project (P144700) . Project Development Objectives . PDO Statement: The objective of the project is to improve the access, transparency and efficiency of delivery of selected justice services. These results are at Project Level Project Development Objective Indicators 2 Unit of Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Baseline Frequency Measure 2015 2016 2017 2018 Methodology Data Collection 1. Users expressing satisfaction with access, MOJ and survey transparency and Percentage 0 25 30 40 50 Annual MOJ reports efficiency of selected justice services 2. Access: Beneficiaries MOJ and project Number 2200 3000 4000 6000 10000 Semi-annual MOJ utilizing legal aid services reports 3. Transparency: Performance information MOJ, Supreme Supreme Court; available on Ministry of Number 0 2 4 5 5 Annual Court, user surveys MOJ Justice and Supreme Court websites 4. Efficiency: Time taken to enforce contracts Days 237 237 230 225 215 Annual MOJ reports MOJ through courts 2 Disaggregated data on the number and percentage of female, IDP and refugee beneficiaries will also be reported for PDO indicators 1 and 2. 15 Intermediate Results Indicators 3 Responsibility Cumulative Target Values Unit of Data Source/ for Data Indicator Name Core Baseline (by calendar year) Frequency Measure Methodology Collection 2015 2016 2017 2018 Direct project MOJ and project Supreme X Number 0 5000 10000 20000 70000 Annual beneficiaries reports Court, MOJ MOJ and project Supreme Female beneficiaries X Percentage 0 5 10 15 25 Annual reports Court, MOJ IDP and refugee MOJ and project Supreme Percentage 0 2 4 7 10 Annual beneficiaries reports Court, MOJ 1. Access 1.1 Legal aid laws and procedures MOJ and project reviewed and Yes/No No No Yes Yes Yes Annual MOJ reports improvements adopted 1.2 Disputes MOJ and project submitted to pilot Number 0 0 0 200 400 Annual MOJ reports ADR systems 1.3 Supreme Court E-Library Supreme Court and Number 0 0 0 4000 10000 Annual Supreme Court information is project reports accessed by users 1.4 MOJ IT Call MOJ and project Center and Help Yes/No No No Yes Yes Yes Annual MOJ reports Desk operational 1.5. Smart courts Number 7 7 8 10 13 Annual Project reports MOJ constructed 3 Wherever applicable and feasible, disaggregated data on the number and percentage of female, IDP and refugee beneficiaries will be collected and reported. 16 2. Transparency 2.1 Audio-video court proceedings MOJ and project transcription system Yes/No No No Yes Yes Yes Annual MOJ reports operational in JSSIP financed courts 2.2 Information on construction MOJ and project Yes/No No Yes Yes Yes Yes Annual MOJ activities is publicly reports accessible 2.3 Information on performance and budgets is available Supreme Court and Supreme Yes/No No No No Yes Yes Annual on MOJ and MOJ reports Court; MOJ Supreme Court websites 2.4 Justice Sector MOJ; Supreme Gender Strategy and MOJ and Supreme Yes/No No No Yes Yes Yes Annual Court; Judicial Action Plan publicly Court reports Legal Council available 3. Efficiency 3.1 Cost savings from reduced Amount administrative and (USD 0 10 15 25 40 Annual MOJ reports MOJ compliance burden million) of business inspections Amount 3.2 Average energy (kilowatt- consumption in hours per MOJ and project 700 0 0 500 300 Annual MOJ JSSIP-financed square reports ‘smart courts’ meter per annum) 17 Annex 1: Results Framework and Monitoring . Country: Azerbaijan Project Name: Judicial Services and Smart Infrastructure Project (P144700) . Results Framework – Descriptions and Definitions . Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Users expressing satisfaction This is an indicator of project impact. It will be based on periodic surveys, including court- with access, transparency and specific ones, to measure the satisfaction of users (e.g. litigants and lawyers) with access to, efficiency of selected justice transparency and efficiency of justice services financed by the JSSIP. Survey questions or services findings will not relate to specific judges or court staff. The indicator value refers to respondents who state they are ‘fully’ or ‘somewhat’ satisfied. The survey data will be disaggregated to show the percentage of women, IDP, refugee and low-income beneficiaries. Beneficiaries utilizing legal aid Azerbaijan has a relatively limited number of qualified lawyers: about 9 per 100,000 services population, according to CEPEJ data (compared to, for example, Georgia which has more than 75 lawyers per 100,000 population). Partly because of the limited number of lawyers, and partly due to the way its legal aid system is currently designed and operated, legal aid services do not fully reach eligible or intended beneficiaries, especially those outside Baku and/or in remote areas. The indicator measures the total number of beneficiaries actually utilizing legal aid services financed by the JSSIP. The growth in the number of beneficiaries is proposed to be accomplished by a combination of alternative providers, greater access through simplified e-applications and more efficient administration of the legal aid system. Results data will be collected and reported semi-annually by the MOJ from project and MOJ reports. Supplemental indicators will measure the percentage of women, IDP, refugee and low-income beneficiaries. Performance information Five categories of information, each relevant to JSSIP-financed activities, are relevant for this available on Ministry of Justice indicator: (1) number and value of judicial decisions enforced (MOJ); (2) number of state and Supreme Court websites registration requests received and processed (MOJ); (3) number of inspections conducted (MOJ); (4) court-level (not by individual judge) data on the number of cases received and 18 number of cases resolved by category each year (e.g. civil, administrative and criminal (Supreme Court); and (5) results of periodic surveys of users of the justice system (litigants, lawyers, notaries, etc.) to assess their satisfaction with service delivery, updated each time the survey is conducted (MOJ and Supreme Court). Each year, on June 30 and December 31, the publication of each element of the 5 sets of data above will be tracked, scored and reported on by the PIU. Scoring will be done as follows: each of the five data elements published counts for a score of 1 point. Non-publication will result in a score of zero. Hence the maximum possible score for each year under this indicator is 5 points. The indicator value will range from zero to five. Using this scoring system, the baseline as of March 31, 2014 is zero as none of these elements are published on the MOJ or SC public websites. Time taken to enforce contracts This is an indicator of efficiency. The project will finance activities to improve the through courts enforcement of contracts in Azerbaijan. This indicator will measure the time taken (in days) to enforce contracts through courts (i.e. through judicial decisions). . Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Direct project beneficiaries Direct beneficiaries are people or groups who directly derive benefits from an intervention. Supplemental Value: Female beneficiaries (percentage). Female beneficiaries Based on the assessment and definition of direct project beneficiaries, this indicator specifies what percentage of the direct project beneficiaries are female. Legal aid laws and procedures This is an intermediate indicator of access. reviewed and improvements adopted Disputes submitted to pilot This is an intermediate indicator of access. The unit of measurement is the number of disputes ADR systems submitted to pilot ADR systems during a calendar year. Supreme Court E-Library This is an intermediate indicator of access. The unit of measurement is the number of unique information is accessed by users website hits per year on the E-Library website. The website will be designed to automatically track the number of unique hits, among other usage statistics. ‘Smart courts’ constructed The baseline is as of March 31, 2014. It refers to (a) four locations where JMP-financed smart courts (Baku Yasamal, Gandja, Gedabey and Oguz) are functional as of March 31, 2014 and 19 (b) three locations where JMP-financed smart courts are under construction (Sheki, Sabunchu and Guba). The latter three are to be completed in December 2014. JSSIP-financed smart courts will be built at five locations (Masalli, Sumgait, Baku Grave Crimes, Baku Narimanov and Baku Surakhani) and an Annex in Sheki. Hence the cumulative total of 13 courts. Information on construction This is an intermediate indicator of transparency. The project will finance construction of activities is publicly accessible courts, court complexes, a data center and a data backup center. This indicator discloses whether, for each construction location, there is live web streaming of construction 24 hours a day/7 days a week and quarterly uploading of satellite pictures of the sites on the publicly accessible parts of the MOJ and Supreme Court websites. These measures are in addition to the current practice of prominently displayed public notice-boards at each site with details of the construction work Information on performance This intermediate indicator measures transparency and includes information on (i) budget and budgets is available on MOJ allocations and actual expenditures, by function (in the case of the MOJ – where such and Supreme Court websites information is public); (ii) performance targets and achievements (e.g. for the courts, cases received and resolved; for MOJ, functional performance targets and actual achievements). The performance information is at the organizational level. No information will be disclosed on performance of individuals. Justice Sector Gender Strategy This is an intermediate indicator of transparency. The Justice Sector Gender Strategy and and Action Plan publicly Action Plan to be prepared under the JSSIP will be publicly available on the website of the available MOJ (in addition to stakeholder consultations during preparation and public dissemination after completion). Cost savings from reduced This intermediate indicator measures the efficiency of delivery of a key justice sector service administrative and compliance (business inspections). Such inspections have been burdensome for firms and individuals, burden of business inspections contribute to stifling private sector performance and growth, and create opportunities for corruption. The unit of measurement is cost savings in US$ per calendar year. Savings in average energy This intermediate indicator measures the energy efficiency of JSSIP-financed smart courts, consumption in JSSIP-financed which will be designed to be more energy-efficient than the existing stock of court buildings. ‘smart courts’ The unit of measurement is kilowatt-hours (kwh) per square meter per annum (i.e. electrical energy used per unit of area per year). The average annual energy consumption of the inventory of court buildings under the MOJ, excluding those financed by the JMP, is about 700 kwh per square meter. This is the baseline. The JSSIP-financed SEER will, among other 20 things, review the scope for greater energy efficiency. Once the SEER recommendations on energy efficiency are fully implemented, average annual energy consumption in courts is expected to decrease by at least 80 percent (to about 140 kwh per square meter per annum). JSSIP-financed courts are budgeting annual energy use, when fully operational, of about 70 kwh per square meter. 21 Annex 2: Country and Sector Background Judicial Services and Smart Infrastructure Project (P144700) 1. The “Azerbaijan 2020 Vision of the Future” lays out the strategy for the transformation of Azerbaijan into a high income country. This goal is to be achieved through economic diversification and integration in the global economy. Implementation of this strategy requires a supportive environment for business creation, investment and competition. Improvements in governance are an essential part of this agenda. 2. Figure 2.1 compares Azerbaijan’s performance on five key dimensions of governance (rule of law, control of corruption, government effectiveness, regulatory quality and ease of doing business) with the performance of other ECA countries using 2012 World Governance Indicators and Doing Business. The figure shows Azerbaijan in the bottom left quadrant on all dimensions except one: ease of doing business. The challenge for Azerbaijan, in line with its ambitious development agenda, is to transit from the bottom left to the top right quadrant, alongside countries with a strong governance framework. In order to do so, Azerbaijan will have to strengthen its justice sector. In this context, the Government of Azerbaijan has sought the Bank’s assistance to support its justice sector reforms as a high priority task with strong support from the highest levels of government. Figure 2.1: ECA Region Performance against Governance Indicators Source: World Bank staff estimates. 3. The World Bank’s 2011-2014 Country Partnership Strategy (CPS) identifies two objectives for the Bank's engagement with Azerbaijan: building a competitive non-oil economy and strengthening social and municipal services. The CPS also has a strong cross cutting theme of 22 governance and anti-corruption, recognizing the close interaction between governance and the broader development goals. The JSSIP supports this strategy. The project strengthens institutional capacity through training, development of management systems, ICT solutions and infrastructure, whilst at the same time strengthening the sector governance through transparency and stakeholder engagement. 4. The JSSIP is expected to contribute to the Bank Group’s twin objectives of ending extreme poverty and promoting shared prosperity by strengthening access to judicial services and protection for vulnerable groups. Table 2.1 outlines a conceptual framework for policies to reduce poverty and build shared prosperity. The policy areas relevant to the justice system and proposed project activities are italicized. Further diagnostic work is needed to articulate the process by which justice sector reforms and project interventions can contribute and to establish the basis for impact measurement. Table 2.1: Conceptual Framework Policies to enrich livelihoods through economic growth, inclusion and sustainability The development agenda to reduce poverty and build shared prosperity focuses on enriching livelihoods through economic growth, inclusion and sustainability. This policy agenda is informed by decades of development experience, knowledge and research. It encompasses both national policies and global actions, and it combines common elements across developing countries with country-specific actions tailored to diverse country circumstances. Economic growth that creates Inclusion entails empowering Sustainability ensures that good jobs fuels development. all citizens to participate in today’s development progress Creating good jobs hinges on: and benefit from the is not reversed tomorrow and • mobilizing private investment development process. This that the pace of progress does • developing effective public requires policies to: not flag in the future. institutions that: • improve the access of poor and Sustainability permeates all o operate under good disadvantaged people to elements of the policy agenda: governance principles education, health, • greening economic growth o mobilize domestic infrastructure, financial • strengthening social consensus resources efficiently services, and productive assets through inclusion o fight corruption • remove barriers against those • safeguarding jobs through o promote competitiveness who are often excluded, such sound macroeconomic o strengthen human capital as women, youth and management that keeps public and improve infrastructure minorities finances on a sustainable path o strengthen the financial • protect fundamental human • working to mitigate and system rights and dignity overcome fragility, violence, • ensure that the voice of all and environmental degradation citizens can be heard Source: World Bank Group Strategy, p. 6. COUNTRY AND SECTOR CONTEXT 5. Azerbaijan is a constitutional Presidential democracy, divided into three branches of government; the legislative, executive and judicial. An independently elected President serves as head of state. The legislative branch is charged with passing of legislation. The Government manages the executive power, with a Prime Minister heading the work of the Government. The 23 Supreme Court heads the third branch, namely the judiciary. 6. The justice system operates according to the Constitution of Azerbaijan, laws and other regulatory legal acts and treaties in force. The relevant actors in the justice system are the judiciary, the Judicial-Legal Council, the prosecution, the Ministry of Justice, the Ministry of Interior and the Justice Academy. 7. The judiciary consists of the Supreme Court, district and other courts established by the Constitution and Azerbaijan’s laws. Aside from specialized courts (military, economic and administrative), Azerbaijan has a four-tier court system (Figure 2.2) comprising the following: i) District Courts consist of local municipal courts that serve as first instance courts. The district level courts hear most civil and criminal cases. ii) The Appellate Courts hear appeals against first-level court decisions and judgments. iii) The Autonomous Republic of Nakhchivan has its own court system. iv) The Supreme Court is the highest judicial body for civil, criminal and other cases which are under district and regional level courts. The Supreme Court also serves as a court of original jurisdiction for certain categories of disputes. It also provides interpretation on issues of judicial practice. 8. A Judicial-Legal Council governs the judiciary – making nominations for judges, evaluating judges’ performance and handling judges’ promotions and discipline. The Constitutional Court is not part of the court system. However, it performs some key judicial and quasi-judicial functions, such as determining the constitutionality of laws adopted by the legislature, ruling on challenges to elections and referendums and interpreting the Constitution. 9. The General Prosecutor’s Office (GPO) exercises, on behalf of the state, supervision over exact and uniform application of the law, the decrees of the President and other regulatory legal acts, the legality of preliminary investigation, inquest and inspection, and administrative and executive legal procedure. The GPO is responsible for the exposure and elimination of any violations of the law, the independence of courts, as well as the appeal of laws and other regulatory legal acts contradicting the Constitution and other laws. It protects the interest of the state in court and conducts criminal prosecution. The GPO is a unified centralized system led by the Procurator General. It shall, according to the Constitution, exercise its authorities independently of other state bodies and officials, and is accountable only to the President. 10. The Ministry of Justice, which forms part of the executive branch, plays an important role in the administration of justice. Its main responsibilities include: (i) strategic planning and evaluation of the justice sector; (ii) participation in the selection of judicial personnel; (iv) drafting, adoption and implementation of bylaws and regulations; (v) coordination of law- drafting activities of the Government and legal review of the quality of draft laws; and (vi) rendering administrative regulations and performing other administrative functions relevant to the judiciary. The MOJ is responsible for legal aid, oversight of the work of the notary system, registration of legal entities and real property, and enforcement of judicial decisions. 11. The Justice Academy provides training for candidates for judgeships and for in-career training of existing judges. It works in close cooperation with the Supreme Court. 24 Figure 2.2 – Azerbaijan’s Judicial System 25 JUSTICE SECTOR REFORM 12. Azerbaijan, like many other countries in transition, recognized the importance of judicial reform early on and embarked on a re-orientation of its legal and judicial institutions beginning from about 2000. The State Program on Poverty Reduction and Economic Development (SPPRED) 2004-2008, and the updated version for the years 2008-2015, identify judicial and legal reform as critical to reducing poverty, stating that “implementing a successful poverty reduction policy requires strong, transparent and accountable public institutions that are staffed by a professional civil service, guided by appropriate laws, and reinforced by a responsive judicial system”. 13. The Presidential Decree on Development of Institutions of Justice of August 17, 2006 laid out the initial national strategy for the development of the justice sector. The Decree called for creating new courts and upgrading court facilities, training and evaluating judges, applying new technologies, increasing system efficiency, improving legal assistance, and boosting citizen's trust. The key reforms and reform achievements are reviewed below. 14. New Judicial Bodies. Azerbaijan is on the way to aligning its legislative and institutional framework with international norms and good practices, such as the human rights standards of the Council of Europe. A Judicial-Legal Council was established in 2005 as an independent entity for judicial governance. The Council handles judiciary-related issues and guarantees judicial independence. It is vested with powers to select candidates to judicial positions, undertake performance evaluation of judges and handle issues of jurisdiction, promotion and discipline. The Council consists of 15 members: 9 judges and representatives from the Presidential Office, parliament, prosecution and the Bar. The Council established an independent Judicial Selection Committee, tasked with carrying out the selection of candidates. The Committee consists of 11 members, of whom 6 are judges. The remaining members represent other legal entities (e.g. the prosecution). 15. Expansion of the Court System. Following the above initial judicial and legal reforms, the judicial system was restructured and a new three-tier judicial system was established. In the past 3-4 years, Azerbaijan has established up to 20 regional courts, including 5 appellate courts, which constitute 20 percent of the total number of courts. Previously, there was only one Court of Appeal, located in Baku. The network of specialized courts has also been strengthened. One grave crimes court was replaced with 5 regional grave crimes courts. Administrative courts were established in 2011. 16. Recruitment of Judges. The process for selecting and appointing new judges, instituted in 2000, rests on open examinations and tests. In collaboration with the CE’s Commission for the Efficiency of Justice (CEPEJ), Azerbaijan has reformed its procedures for the selection and appointment of new judges, to increase transparency and merit. The procedures include a multi- stage screening process that includes tests, written and oral examinations, long-term initial training and internships at courts. The preparatory work for written exams, including the selection of questions, and the actual examination, are executed in one examination hall. Once the examinations are concluded, the review of the exams and the announcement of the results are also conducted in the examination hall immediately following the examination. This entire process is covered by the media and broadcast live on the internet to ensure maximum transparency. The procedure is considered good practice by CEPEJ and was recommended to 26 neighboring member states by the EU. The training of new judges has also been further developed, which entails alternating training and internships at the courts. 17. Improvements in Court Infrastructure. New court buildings – with technical designs and design standards financed by the JMP - significantly improved upon courthouses from Soviet times (Box 1). All new buildings have unified design and standards, taking objective criteria into account such as the number of judges and judicial staff, co-located justice services (e.g. bailiffs and prosecutors) and demographic and case inflow projections. Some of the features of the new ‘smart’ court buildings include modern court houses, customized software, courthouse areas divided into administrative and public areas respectively, each area having a separate entrance, and automated information booths in public areas with information about cases, procedures, forms and hearing dates. In addition to single court houses, court complexes have been built, containing 3-4 courts (usually a district court, a court of appeal, a grave crimes court and an administrative-economic court). 18. Use of Information and Communications Technology. The government adopted a unified judicial ICT strategy for 2003-2012 based on studies of the use of ICT in courts in other countries. The ICT strategy requires the development of an integrated ICT for the courts by the MOJ. The reforms in the strategy aim to simplify the management of the judiciary, which will provide a unified computerized system containing data about case flows and progress, such as registration, procedural correspondence, statistics, archiving and workload of judges. The Constitutional and Supreme Courts and several first instance courts have already implemented such a system. Courts have also installed video and audio recording facilities in courtrooms. Besides providing accurate transcriptions to parties and their lawyers, the pilots have helped curb corruption and undesirable behaviors in the courtroom: lawyers and judges have been disciplined using evidence from the audio-video system while malicious complaints against honest judges have also been exposed through such evidence. A unified web-portal for all courts, including a unified database containing court decisions, has been introduced. The web-portal provides information about supreme, appellate and first instance courts, their jurisdiction, all judges, ongoing cases and judgments, documents necessary to make an appeal, and various forms and samples of other court relevant documents. Online requests can also be made through the portal. The portal also posts all court cases and judgments/decisions. 19. A February 2014 Presidential Decree has provided a significant impetus and a legal basis to enhance e-applications to improve the delivery of justice services. The Decree mandated the implementation of electronic applications and electronic document management systems by judicial bodies to enhance user access to services, reduce red-tape, improve judicial transparency and responsiveness and strengthen enforcement of judicial decisions. Specifically, the Decree mentions the following major categories of work where electronic applications and e-access must be introduced: electronic receipt of complaints, applications and files; electronic case management and document management for criminal, civil, administrative and economic cases; random allocation of cases between judges; electronic delivery of information to parties in court cases including through email and short messaging service (SMS); audio and video recording of court hearings and capability of online viewing of such materials; electronic tracking of processing deadlines and issuance of flags when deadlines approach; tracking enforcement of judicial decisions; electronic maintenance and archiving of judicial statistics; integration of judicial e-systems and applications with the national e-government portal and the Prosecutor- General's information system. The JSSIP ICT activities are completely aligned with this vision 27 and strategy, and will constitute the first phase of implementing robust and publicly accessible e- justice applications across the justice system. 20. Anti-Corruption Strategy. Azerbaijan has joined the European Council’s Group of States against Corruption (GRECO), the Istanbul Anti-Corruption Action Plan under the Organization for Economic Cooperation and Development (OECD), and the Extractive Industries Transparency Initiative (EITI). In 2004, Azerbaijan adopted a State Anti-Corruption Program (2004-2006) and amended its legislation to enforce anti-corruption measures. In order to ensure implementation of the country's Anti-Corruption Law, an Anti-Corruption Commission was established along with an Anti-Corruption Department under the Prosecutor General. Furthermore, a National Strategy on Transparency Enhancement and Anti-Corruption and an Action Plan on Implementation of the National Strategy in 2007-2011 were adopted. 21. Anti-Corruption Measures. Azerbaijan has increased the budget for the judiciary more than 25-fold since 2000. Judges' salaries have increased 30-fold in the last decade. The Judicial- Legal Council has adopted a Judges' Code of Ethics, which takes into account the Bangalore Principles and the European Charter of Judges. The Council has also established a special anti- corruption unit and a hotline, located in the Council, which enables citizens to report cases of corruption. Such cases are then investigated: over the past few years, eighteen judges have been punished for creating conditions for corruption. At a more operational level, the courts have piloted automatic and random allocation of cases to judges, though much more remains to be done on this issue. 22. Collaboration with Development Partners. The Bank-financed JMP is the largest externally financed project in the sector and has supported key justice sector reforms (Box 1). Other development partners include: the CE which advises – among other things - on the modernization of the legal framework, the selection and hiring of new judges, and the development of supervision systems; USAID and the German International Cooperation Enterprise for Sustainable Development (GiZ) which support improvements in training; and the American Bar Association which supports legal education and information and judicial training on ethics. The authorities encourage close collaboration between partners and sharing of experience so that successes can be identified and scaled up. The World Bank will continue to work closely with development partners in the context of the authorities’ broader justice sector reform agenda. KEY CHALLENGES 23. While significant progress has been made in reforming the justice sector in recent years, there are significant challenges ahead. These relate to capacity of the institutions of the justice system to respond to growing demand, the governance of the sector and the extent to which it can engender trust and the need to address the specific needs of the poor and vulnerable groups in terms of access to justice. 28 Box 1: Judicial Modernization Project – Achievements and Lessons The JMP was approved in 2006. Its objective is to support the initial phase of a long-term judicial modernization program through improvements in efficiency, information provision to citizens, and increased system capacity to handle future demand. Initially approved for an amount of US$22 million equivalent, additional financing in an amount of US$33 million was approved in June 2011. With a significant government contribution and a US$3 million grant from Japan, the total project cost is a little over US$97 million. The project is scheduled to close in December 2014. Significant results have been achieved so far. The transparent merit-based selection of judges through computerized testing (in venues open to observers from the media and embassies) has created a new cadre of young judges who now constitute more than 70 percent of lower court judges. Innovatively designed courthouses enable criminal, administrative and civil courts and other justice functions (prosecution, enforcement) to be co-located under one roof. Information technology has increased access to judicial matters by litigants and lawyers through public information kiosks and provides automatic audio-video recording of proceedings, with different levels of access for the public, judicial staff and judges. Energy- efficient heating and ventilation and automated business processes are saving time and money. Physically handicapped access and Braille signage and floor bands have made these courthouses an example for the public sector. The project has helped the authorities to pilot ICT applications such as automating notarial services, random allocation of cases to judges, free legal aid for the vulnerable and e-filing of plaints. ‘Smart’ courts have been completed for Baku City Yasamal District Court (a large urban high-volume court); Gandja City Nizami District Court (a middle-sized urban court) and Oguz and Gedabey District Courts (smaller courts in remoter areas). Construction is ongoing at Sheki, Sabunchu and Guba. The JMP has been an important learning experience for both the Bank and stakeholders in Azerbaijan’s justice sector. It demonstrates how a project that finances hardware – infrastructure and ICT systems – can provide an entry point for softer but more challenging governance reforms and change management. Indeed, the success of the JMP lies in focusing the attention of key stakeholders on justice as a service and the policy and institutional changes needed to improve delivery. These soft reforms – and the analytics that need to underpin them – are being front-loaded in the JSSIP to avoid the JMP experience of undue attention to physical infrastructure at the expense of needed institutional reforms. 24. Court caseloads are increasing, disposals are slowing and judges are overworked. The indicators point to a judiciary increasingly under strain. CEPEJ data show that the judiciary is relatively efficient: the average disposition time for cases is low and enforcing contracts (at 237 days) is lower than EU or EU-10 averages. However, MOJ data indicate that criminal, civil and administrative caseloads are rising fast. Civil case inflows in 2012 registered a 5-fold increase over 2000 (Figure 2.3). Case volumes on a per capita basis are lower than EU and EU-10 averages: 1,519 cases per 1000,000 of population of which 154 criminal cases as compared with 6,582 cases of which 2,327 criminal for the EU. Nevertheless, between 2007 and 2012, the number of incoming civil and economic cases increased more than two-fold. In 2007, first instance courts in Azerbaijan delivered 45,675 judgments on civil and economic disputes: by 2012 this caseload had doubled. Average disposition times are also creeping up. 29 Figure 2.3: Caseload Volumes by Category (2000-2012) 25. Staffing levels lag behind EU comparators. JAAG data indicate that Azerbaijan with 7 professional judges and 26 non-judge staff per 100,000 of population are significantly lower than EU averages of 19 judges and 66 non-judge staff. The numbers of prosecutors, in contrast, are comparable and even favor Azerbaijan at 11 per 100,000 compared with the EU’s 10. 26. Funding levels for the justice sector are also lower than EU comparators. Azerbaijan’s expenditure on justice amounts to 0.25 percent of GDP as compared with the EU’s 0.69 percent. The disparity in terms of per capita spending is wider still at €11 in Azerbaijan as compared to an average of €160 in the EU. Azerbaijan also allocates significantly less legal aid per case per annum (at EUR61 in 2012) than the EU or EU-10 averages (EUR787 and EUR205 respectively). 27. Notwithstanding recent investments, the network of courts and other justice physical facilities is inadequate. When Azerbaijan attained independence following the break-up of the USSR, it had a limited network of courts and large parts of the population were unserved by courts. Reflecting this legacy Azerbaijan has less than one first-instance court per 100,000 inhabitants, compared to the EU average of 1-2 courts. Recently the Azerbaijan begun to expand its court network, paying attention to under-served and unserved areas as well as creating specialized courts for economic and administrative law and a network of appellate courts 28. The legal profession as a whole is under-developed. Azerbaijan has about 9 lawyers per 100,000 population, far lower than comparable countries: Georgia for example has 77. About 60 percent of lawyers reportedly practice in Baku and its environs. The division of the profession into rigid categories of advocates, jurists and notaries is a further constraint. Azerbaijan’s Bar Association has limited authority to develop the profession and an effective system for continuing professional education for lawyers has yet to be put in place. 2012 data show that the number of lawyers doubled between 2003 and 2012, but even so there were still not enough lawyers to provide legal assistance to all parties. The 2011 Trial Monitoring Report of the Organization for Security and Cooperation in Europe (OSCE) Baku Office 4 indicates that access 4 OSCE Office in Baku “Trial Monitoring Report”, Azerbaijan, 2011, page 33 30 to legal aid in Baku was significantly better than in other regions but even so 33-50 percent of defendants in criminal cases did not have access to legal aid between 2009 and 2011 (Figures 2.4 and 2.5). Figure 2.4 Availability of Legal Aid 2009-2011 Figure 2.5 Lack of Legal Aid – Baku vs. Elsewhere Source: OSCE Office in Baku 29. Notwithstanding these constraints, and based on official data, Azerbaijan’s justice system appears to compare favorably with the EU in terms of clearance rates, disposition times and enforcement of contracts. Disposition times for litigious civil cases are less than a fifth of the EU average. Similarly, enforcement of contracts at 237 days is less than half the EU average of 556 days. Legislation on enforcement lays out a transparent, predictable and equitable system. Still, there is room for improvement in efficiency. Some experts argue that official data masks challenges in improving the quality of justice, with the acquittal rates in criminal cases at close to 1 percent being an indicator of particular concern. There is certainly room for improving business processes and judicial procedures to ensure due process and the quality of judicial decisions and thereby enhance public trust and credibility. 30. Further work is needed to improve public and expert perceptions about the integrity of the justice system. The proportion of citizens reporting prevalence of unofficial payments in civil courts amounts to 61 percent in contrast to 5 percent in the EU. The proportion of population reporting some or complete trust in the courts is higher than in the EU at 43 percent compared to 34 percent. However, data from the EBRD-World Bank Business Environment and Enterprise Performance Survey indicate that on average about 5 percent of businesses appear to use courts in Azerbaijan, compared to 30 percent in ECA overall and 25 percent in Commonwealth of Independent States countries. This suggests that firms do not necessarily regard approaching the courts as the most effective way to resolve disputes. 31. More needs to be done to strengthen institutional capabilities and the management of the justice system. According to a March 2013 joint CE-EU report “Enhancing Judicial Reform”, improvements needed cover budget management, performance management, tackling case backlogs, equipping courts with ICT and videoconferencing and making more use of regular, representative and robust surveys to assess user satisfaction with access and quality. In addition, M&E systems need to be further developed and the quality and reliability of court statistics improved. 32. Access to justice for the poor and vulnerable merits particular attention. Low income households and the vulnerable are disadvantaged even when trying to protect their fundamental rights. A 2010 study of the legal problems and needs of vulnerable people in Azerbaijan 31 identified the most common legal problems they encountered were obtaining identification documents (19 percent), family relationship issues (18 percent), use/ownership of house/land (16.5 percent) and employment (11 percent). The social network appears to be the most important source of advice, followed by NGOs, when a legal problem arises. However the prevalence of problems relating to identity documents, land/house ownership and access to social benefits implies a high unmet demand for professional legal aid and advice. 33. When cases do come to court the poor and vulnerable have difficulty securing adequate representation. The law provides for legal representation of all accused persons in criminal cases. The Bar Association is responsible for providing the lawyers. However, hourly rates offered for legal aid are unattractive to professionals. Moreover there is no compulsion to provide legal aid to eligible persons in non-criminal cases. As a result, vulnerable litigants are not able to secure legal advice or representation in non-criminal cases. 34. Access to justice is a particular concern in relation to Azerbaijan’s 1.2 million Internally Displaced Persons (IDPs) and refugees. The European Commission and the UN High Commissioner for Refugees (UNHCR), for example, note that IDPs and refugees face difficulties in securing administrative legal services such as IDP certification, birth certificates and civil status issues. IDPs and refugees outside urban areas face greater challenges to access to justice and the protection of the laws. 35. While there are relatively few juveniles in conflict with the law, there is no juvenile justice system to address these cases when they do arise. UNICEF analyses show that the number of juveniles given custodial sentences is declining but long sentences are still common and a cause for concern. There is no national strategy for prevention of offences by juveniles and no programs for reintegrating juvenile offenders. 36. Very little is known regarding the prevalence of gender-based crimes and domestic violence. There are concerns that justice system is poorly equipped to deal with these crime not least because of the limited number of females in positions of authority within the system. MOJ data show that Azerbaijan has no women Court Presidents in any of its 111 court locations. Women constitute about 10 percent of judges and lawyers and only 5 percent of prosecutors. 37. A recurring theme in studies of Azerbaijan’s justice reforms is the relative lack of consultation with stakeholders, and of the absence of a strategy for communication and outreach. Stakeholder groups such as universities, think tanks, the Azerbaijan Young Lawyers Union, the Bar Association, representative associations of IDPs and women and the media can contribute to the reform agenda. An important element of the design of the JSSIP is to establish mechanisms for outreach and consultations that will allow stakeholders to play a role in improving reform design and implementation. 32 Annex 3: Detailed Project Description Judicial Services and Smart Infrastructure Project 1. The JSSIP seeks to improve access to and transparency and efficiency in the delivery of selected justice services. The project builds on more than a decade of justice sector reforms in Azerbaijan and the experience of the on-going World Bank-financed JMP. While the impact of the project will necessarily be incremental, the project will contribute towards the achievement of aspirational goals that seek to transform the justice sector. By improving access to justice services, the project contributes to the goal of justice for all; by improving transparency and efficiency it contributes to the goal of achieving a justice system which enjoys the trust of citizens and the private sector. 2. In support of these goals, the project’s design and implementation arrangements include specific measures intended to strengthen sector governance and institutional capacity. The project will improve the quantity and quality of information on the justice sector available to the public. It will develop feedback mechanisms, such as user surveys, and promote outreach, communications and consultations with citizens and other stakeholders. These measures will contribute to the broader justice sector reform agenda. They will also help mitigate fiduciary risks in project implementation. 3. The JSSIP has four components. Component A: Judicial Service Delivery Improvements 4. The objective of this component (estimated cost US$33.56 million of which IBRD US$16.38 million) is to support the government in developing and implementing measures that will expand access to justice, with special attention to access by vulnerable groups such as IDPs, refugees, women, juveniles and unserved segments of the population in remote areas. 5. Sub-component A.1 (total cost US$3.25 million of which IBRD US$2.75 million) will improve access to justice through: (a) piloting innovative, participatory and more efficient ways to provide legal aid services to the vulnerable and marginalized through the provision of goods, consultants’ services and training to the MOJ; and (b) analytic and diagnostic studies focusing on: (i) the legal aid system, in particular for vulnerable groups; (ii) the development of alternative dispute resolution systems; (iii) the policies and institutional arrangements on access to justice particularly for vulnerable groups and on gender issues related to justice; and (iv) the development of specific interventions to support access to justice for IDPs, refugees and other vulnerable groups through the provision of consultants’ services and training. 6. This sub-component will finance diagnostic and analytical work aimed at tackling the legal, institutional and social barriers to expanding access to justice and technical support for the development of measures to help overcome these barriers and for implementation. This will include analytic work to identify demand- and supply-side barriers to access to justice for low-income households and other vulnerable groups, including IDPs, refugees, women, juveniles and unserved populations in remote areas, with specific studies on gender-related issues such as the extent and causes of gender-based offences. 7. Activities supporting the development of policy measures and implementation support will include financing for: (i) expanding access to the legal aid system, including a needs analysis, identifying policy options and technical support to strengthen the policy and 33 institutional framework and capacity; (ii) piloting alternative approaches to providing legal aid and advice including through university law faculties, NGOs and civil society organizations; (iii) introducing alternative dispute resolution methods, including a needs analysis, a review of policy options and technical support to improve policy formulation and implementation capacity; (iv) strengthening the legal profession and expanding the population’s access to lawyers, including through measures to improve law school curricula, strengthening lawyers’ continuing education and support to strengthen the Bar Association and university law faculties; (v) a strategy and action plan to improve the efficiency and transparency of enforcement of judicial decisions and technical support to improve implementation capacity; (vi) an analysis of the extent and causes of gender-based offences and support for preparation of a National Strategy and Action Plan for improving support for victims of such offences and (vii) establishing a juvenile justice system in Azerbaijan including by assessing the policy options for introducing a legal and institutional framework for juvenile justice and a pilot program for reintegrating juvenile offenders. A gender dimension will be embedded in the design of measures tackling these significant challenges, focusing on issues such as domestic violence and human trafficking. 8. The above activities will complement ongoing Bank-financed support to the target groups, including through the IDP Project. JSSIP support for vulnerable groups will include working with the State Committee for Refugees and IDPs, the State Committee for Family and Women and the Bar Association, facilitating access to legal and judicial services for the IDP population in new settlements by, for example, accommodating legal aid offices in administrative buildings and community centers in the new settlements and key IDP and refugee locations; capacity building for the staff of the above State Committees and support for NGOs and civil society entities providing free legal services to IDPs and refugees. The JSSIP will support awareness-building of IDPs on topical legal issues. 9. Sub-component A.2 (total cost US$30.31 million of which IBRD US$13.63 million) will finance the expansion of the provision of electronic access to selected justice services through: (a) the development and rollout of selected justice e-services; (b) the improvement of the infrastructure for the justice sector information and communications technology; and (c) the construction of a data center and the rehabilitation and upgrading of a facility for disaster recovery center, through the provision of goods, consultants’ services and training and the carrying out of works. The expansion of e-justice services will be facilitated by activities such as the streamlining of internal business processes in justice entities and reducing the administrative and compliance burden for the private sector. 10. The sub-component will include financing for needs assessments, business process reengineering, software design, acquisition and/or development covering the following justice services: (i) reducing the administrative and compliance burden from inspections by supporting the implementation of the 2013 Law on Inspections and Business Inspections e-Registry - such support will include the establishment of telephone hotlines for inspections questions and complaints, periodic public consultations, strategic communication and outreach; (ii) the design and implementation of an e-Library under the Supreme Court accessible to judges, judicial staff, other justice officials, advocates, litigants, media and the public to emulate similar initiatives in other countries which have significantly improved access to courts and transparency in court functioning; (iii) evaluating the e-Notary services piloted through the JMP and preparation of a costed and sequenced Action Plan for rolling out electronic access to notarial services across Azerbaijan; (iv) upgrading the business registry and ensuring broader access to the business 34 registry by the public; (v) improving access to electronic filing of cases and case documents through automation and integration of case and document management, ICT networks and software applications; (vi) rolling out the audio-video court proceedings transcription system (piloted under the JMP) to high-volume courts and (vii) improved information and communications capabilities for selected courts and bailiff offices to expedite enforcement of judicial decisions. In order to provide these services, the justice system ICT infrastructure will be strengthened through the installation of Wide Area Networks and a Network Operations/ICT Management System, the construction of one Data Center and the rehabilitation and upgrading of a facility for a Disaster Recovery Center. These investments will help the justice system to handle and protect the increasing data flows due to progressively higher case inflows, increased electronic access by external users and an increasing number of courts across the country. Component B: Strengthening Institutional Capacity, Efficiency and Monitoring and Evaluation 11. This component (estimated cost US$16.41 million of which IBRD US$13.59 million) finances improvements in justice sector performance, capacity and results. It has four sub- components. 12. Sub-component B.1 (total cost US$3.27 million of which IBRD US$2.77 million) will support improvements to justice sector performance through, inter alia: (a) a sector efficiency and expenditure review including analyses of court case backlogs, efficiency, justice system revenues; (b) strengthening justice sector monitoring and evaluation capacity and quality including through the development of a justice sector performance monitoring framework and performance indicators and the preparation of a strategy and action plan to improve such capacity; (c) strengthening sector capacity to undertake and apply poverty and social impact analysis to improve service delivery to economically and socially vulnerable groups such as IDPs; and (d) the carrying out of periodic surveys of, inter alia, court users, lawyers, judges, court staff, notaries, and other justice sector service providers all through the provision of goods, consultants’ services and training. 13. Overall, therefore, the sub-component will focus on improving sector efficiency, performance and monitoring and evaluation capacity. It will include financing for technical assistance and training for: a SEER including an analysis of court case backlogs; implementation of SEER recommendations; the development of a justice sector performance monitoring framework; improving capacity for sector evaluation and for impact evaluations; strengthening institutional capacity for PSIA to improve sector service delivery to vulnerable groups 5; and the conduct and publication of periodic user surveys to institutionalize user feedback on key judicial and legal services (including through court-specific user surveys to provide court management with real-time information on user satisfaction, trust and confidence). As part of the efficiency and M&E focus of this sub-component, the MOJ and Supreme Court will collect and publish, on their respective public websites, information on performance and public feedback. 5 The Bank is undertaking a PSIA for the justice sector in collaboration with the MOJ to improve and track the flow of project benefits to economically and socially vulnerable groups. The JSSIP will finance the training of MOJ and judicial staff in the application of the PSIA methodology to future justice reforms to increase the capacity of the MOJ to enhance and track the flow of justice reform and service delivery benefits to such vulnerable groups. 35 14. Sub-component B.2 (total cost US$7.59 million of which IBRD US$6.12 million) aims at strengthening the information systems management and operational capability of the MOJ, so as to support the provision of selected justice services. It will accomplish this through the provision of goods, consultants’ services and training. 15. The lack of an IT Department in the MOJ has constrained, for years, the Ministry’s ability to provide effective ICT services to the justice sector including to the courts. The establishment of an IT Department is a dated covenant under the JSSIP: the MOJ will establish such a department by January 1, 2016 to enable it to effectively discharge its ICT-related functions and responsibilities under its own public service delivery mandate as well as for the courts. This sub-component will finance core short-term ICT capacity-building technical support for the MOJ including a Chief Information Technology Officer, a Call Center, a Help Desk and a Network Operations Center. It will also finance a policy review on sourcing and retention of skilled IT professionals for the MOJ’s IT Department, as a key input for discussions between the MOF and the MOJ to resolve this long-standing practical challenge of establishing a credible IT Department taking into account the constraints imposed by Azerbaijan’s civil service wage policy. Financing is also included for twinning arrangements between the MOJ IT Department and its counterpart Departments in other countries recognized by peers as centers of excellence. The authorities have expressed particular interest in the innovative justice sector ICT organizational and staffing models in South Korea and Singapore, where judges and ICT professionals together design and manage information systems. 16. Sub-component B.3 (total cost US$2.60 million of which IBRD US$2.20 million) will finance the carrying out of communications, outreach and change management activities aimed at facilitating stakeholder engagement in justice sector reforms, including but not limited to: (a) the development and implementation of a communications, outreach and change management strategy; and (b) the conduct of stakeholder workshops, roundtables, public awareness campaigns, radio, television and print media/internet programs, all through the provision of consultants’ services and training. 17. This sub-component will focus on improving communications, outreach and change management in the justice sector to strengthen stakeholder engagement and promote transparency in designing and implementing institutional reforms. This will address a key gap in justice reform design and implementation (not only in Azerbaijan but in other countries as well) and covers the public and other external stakeholders (such as the private sector, media, academia, civil society and Azerbaijan’s development partners) as well as actors within the justice system (judges, judicial staff, staff of the MOJ, notaries, bailiffs and the Bar Association). These activities will ensure that a broad range of perspectives is taken into account in the design and implementation of justice sector reforms. 18. Activities to be financed will include: (i) strategic communications and outreach on access to justice issues involving IDPs, refugees, youth, women, universities and experts including through the internet and preparation of TV and radio programs and other communications materials; (ii) private sector roundtables, periodic forums and consultations to obtain feedback on justice reforms from domestic and foreign private sector representative associations to be held in various cities on a rotating basis with wide publicity; (iii) improving communications and transparency in the functioning of justice entities by promoting interaction between justice entities (e.g. courts) and the media and professionalizing the reportage of justice issues through training and skill development for media professionals; (iv) raising student 36 awareness of the justice system and justice issues through, for example, school and college students’ visits to courts on courthouse ‘Open Days’ and through strategic outreach to students and faculty of universities; and (v) internal change management and communication within justice entities including through the intranet, newsletters and forums. 19. Sub-component B.4 (total cost US$2.95 million of which IBRD US$2.50 million) focuses on strengthening the professional capacity of judges, of staff of courts and the MOJ and of the Justice Academy through, inter alia: (a) the preparation of a justice sector gender strategy and action plan based on an assessment of gender-based barriers to employment for judges, lawyers and other justice professionals and an analysis of training and sensitization needs on gender issues for justice professionals; (b) the development of training courses and curricula and the delivery of training for judges and other justice professionals aimed at, but not limited to, improving the quality of judicial decisions in economic and commercial disputes and in first- instance courts; and (c) the carrying out of knowledge-sharing activities between judges and other justice sector professionals in Azerbaijan and between Azerbaijan and other judiciaries, justice training institutions and professional networks, through the provision of goods, consultants’ services and training. 20. Activities financed under this sub-component will include: a) An assessment of gender barriers in justice including a study on overcoming such barriers to career advancement in justice professions for women who are or want to become judges, prosecutors, lawyers, bailiffs, notaries and justice staff; sensitization training on gender and social inclusion issues for managers and staff in the justice sector; and the preparation of a Justice Sector Gender Strategy and Action Plan. b) In response to the expressed need for improving the quality of judicial decisions in economic and commercial disputes, the sub-component will finance the development of such training curricula and training materials and the delivery of high-quality specialized training for judges of specialized courts such as economic and administrative courts. c) The new generation of competitively selected judges has expressed the need for higher- quality training including on managing courts and hearing and dealing with litigants and lawyers. To address this concern the sub-component will finance the preparation of Benchbooks (practical guidelines for judges), training curricula and the delivery of training for first-instance judges and their assistants. d) Support for peer-to-peer learning and knowledge-sharing activities with other judiciaries, justice training institutions, and professional networks. Component C: Expansion and Modernization of Justice Infrastructure 21. This component (estimated cost US$135.80 million of which IBRD US$59.71 million) will finance the construction and rehabilitation of about six courthouses and court complexes at locations selected in accordance with criteria set forth in the Operational Manual, through the carrying out of works and the provision of goods, consultants’ services and training. 22. With financing from this component, “smart courts” with related ICT infrastructure will be made functional in about six selected locations. The "smart courts" will be functionally innovative district courts and court complexes integrating ICT applications and services in selected cities, applying the lessons from the pilots financed by the JMP and from international experience. 37 23. The expansion of physical infrastructure follows an MOJ court mapping exercise which took into account the rise in case inflows coupled with estimated population increases during the next two decades. This has served as the basis of a prioritized investment strategy to expand access to justice. Figure 3.1 shows the current and planned court network, distinguishing courts financed by the JMP and those to be financed by the JSSIP. Existing courts will not be changed or renovated if they meet the minimum standards and/or demand is not projected to increase significantly. New courts will be financed from Azerbaijan’s own budgetary resources allocated to the MOJ. Pilot ‘smart courts’ are financed by the JMP. The next-generation of ‘smart courts’ incorporating the lessons from the JMP pilots and from international experience will be financed through the JSSIP. Figure 3.1: Azerbaijan: Court Network - Current and Planned 24. New court construction activities are envisaged as follows: (a) construction and upgrading of three court complexes (Sumgait, Sheki and Baku Grave Crimes Court Complex), each housing 3-5 courts; (b) one smart district court in a location with a significant population in an under-served remote location (Masalli District Court) and (c) two smart courts in high-volume urban districts with high IDP populations (Baku City Narimanov and Baku City Surakhani District Courts). 25. This component will also finance technical assistance and training for capacity- strengthening for facility design, supervision and operations, as well as consultancy services 38 associated with construction such as updating architectural and technical designs where needed, technical supervision and independent technical review of design and construction. 26. The JMP ‘smart court’ experience shows that transparency in contracting and construction, when coupled with effective MOJ project management and technical supervision, can yield good results. With the JSSIP, the MOJ has expressed its intention to take transparency significantly further: (a) a live web camera feed, accessible by any person with an internet connection from any place in the world, will be streamed through the MOJ website from each construction site, twenty-four hours a day, seven days a week and (b) the MOJ and the Supreme Court will publish, on their websites, satellite images of each site every quarter (from before construction begins), along with the coordinates of each site, for geo-location purposes. Geographic information on each site will also be publicly available from the World Bank’s projects database. Component D: Project Management and Coordination 27. This component (estimated cost US$8.04 million of which IBRD US$7.39 million) aims to strengthen the capacity of the MOJ in project management, monitoring and coordination including audits of: (i) project financial statements, (ii) environmental and social safeguard compliance; and (iii) implementation of information and communications technology activities under the project, all through the provision of goods, consultants’ services, and training, and financing of incremental operating costs. 28. Activities will include the engagement of specialist consultants for the project implementation unit (on terms of reference agreed with the Bank) and training for project and key governmental staff associated with the project. Contingencies 29. There is a provision of US$5.95 million (of which IBRD US$2.67 million) for contingencies. The JMP revealed some of the challenges in costing construction projects in Azerbaijan, where (a) unanticipated increases in market prices for some construction materials and (b) cost increases arising from changes in design to take into account learning from on-going projects led to the original construction program being scaled back. Construction price and design risks have been accommodated in the JSSIP though some residual risk remains. ICT solutions under Component B.2 have been costed on the basis of comparable systems developed in other Bank-financed projects. These costs remain indicative until detailed design and business processing reengineering has been completed. Finally, the contingency provides for some flexibility in responding to reform priorities emerging from diagnostic and analytical work undertaken in Components A and B. 39 Annex 4: Implementation Arrangements Judicial Services and Smart Infrastructure Project Project Implementing Agency 1. The MOJ of Azerbaijan will be the project implementing agency. It has been the implementing agency for the ongoing JMP since 2006 and has developed extensive experience and skills in managing and implementing a World Bank-financed project. The Minister of Justice will provide strategic oversight and guidance on implementation. Operationally, the Deputy Minister of Justice will be designated as the Project Director and will be in charge of project implementation, management and coordination. Relevant departments and units of the Ministry of Justice dealing with budgeting, procurement, financial management, substantive reforms for which the Ministry is responsible will assist in implementation. 2. The JMP has been implemented by a composite group of MOJ civil servants and a small group of specialist consultants on procurement, financial management, IT and civil engineering. This group is referred to as the Judicial Modernization Team (JMT). Its skill mix and composition, as well as its capacity to work with different MOJ departments and units and to support the MOJ in coordinating across entities (e.g. coordinating with the Ministries of Finance and Economy, and with the Supreme Court and lower courts) has been tested and proven over seven years of JMP implementation. Due to this track record, the JSSIP implementation arrangements will be the same as those for the JMP, i.e. the JMT will implement the JSSIP. However, since the scale and scope of the JSSIP is more extensive than that of the JMP, the capacity of the JMT will be augmented with additional consultants. 3. The experience of implementing the JMP has generated significant institutional and implementation capacity within the MOJ in procurement, budgeting and financial management, asset management and results monitoring. This has stood the MOJ in good stead in preparing the JSSIP while simultaneously implementing the JMP. However, there is a significant capacity gap related to ICT. The MOJ does not have an ICT Department or in-house ICT staff or experts. It has depended exclusively on external consultants on an ad hoc basis for such skills because civil service salary scales make it difficult to attract and retain skilled ICT personnel. The MOJ management was keenly aware of this critical skill gap which was the key factor behind some delays in the implementation of JMP-financed ICT activities. 4. To address the ICT skills gap concerns, the Borrower, through the MOJ, shall establish by not later than January 1, 2016, and thereafter maintain an information technology department in the MOJ, with resources and responsibilities acceptable to the Bank, and with competent staff in adequate numbers. As an urgent but interim capacity augmentation measure, the JSSIP will finance the engagement of a Chief Information and Technology Officer in the JMT and of essential ICT skills (including for a Help Desk and a Network Operations Center) on terms of reference acceptable to the Bank. The Borrower, through the MOJ, shall retain the chief information and technology officer within the JMT with responsibilities acceptable to the Bank. This interim solution will enable the MOJ to move ahead quickly with designing and implementing the JSSIP-financed e-services in the justice sector. 5. Furthermore, in order to address the issue of compensation levels for future MOJ ICT personnel and to provide the basis for the MOJ to discuss these issues with the MOF, the JSSIP will finance an analysis on recruitment and remuneration of IT personnel in the public and 40 private sectors in Azerbaijan so that the MOJ and the MOF can work out, during the next 2-3 years, how best to staff the proposed MOJ IT Department on a permanent basis. Project Implementation Unit (PIU) 6. The JMT referred to above constitutes the project implementation unit within the MOJ. It has been implementing the JMP since 2006. The JMP closing date is December 30, 2014. The same JMT – with augmented capacity - will implement the JSSIP. The JMT, through its implementation experience has built up extensive experience and skills in procurement, financial management, project management, accounting, engineering, information technology and safeguard compliance. The JMT has disbursed about US$45 million out of a total of US$55 million IBRD and IDA proceeds, and about US$75 million against a total project cost of US$97 million till end-March 2014. 7. The Head of the JMT is designated as the Project Coordinator. Until October 2013, the Project Coordinator position was held by the Chief of the MOJ Reform Implementation Division - a senior MOJ civil servant. In October 2013, the Project Coordinator was appointed as a judge. To ensure continuity in JMT management, and given the importance attached to the JMP and the JSSIP by the MOJ and the judiciary, the Judge has been seconded to the MOJ to continue as the Project Coordinator for the JMP and the JSSIP. This additional responsibility has been assigned with the full agreement and support of the Chief Justice and the Minister of Justice. These arrangements provide assurance to the Bank and to the Azerbaijan authorities that project management and implementation will remain with an experienced core team, with the JMP JMT team seamlessly transiting to become the JSSIP project implementation and management team. 8. The MOJ agreed, at an early stage of project preparation, to expand the JMT’s capacity and skill mix to handle the preparation and implementation of a complex project such as the JSSIP. This is particularly urgent given the significant additional work during 2014 to smoothly close the JMP and prepare all completion documents and reports and ramp up implementation of JSSIP. The MOJ and the Bank have agreed on the revised PIU staffing and skill mix profile. Additional experts are being engaged on terms of reference acceptable to the Bank for project management, procurement, financial management, M&E, engineering, information technology and office management. These specialists are expected to be in position by project effectiveness. 9. In view of the risks and technical complexities of certain project activities such as civil works, the Bank and MOJ have also agreed that it would be helpful for the MOJ to engage the services of ITR consultants (firms) for quality assurance of civil works design and construction. The ITR will consist of two elements. The first element will be an ITR of the quality of the architectural and technical designs of major courthouses and court complexes, to ensure that the highest feasible technical standards have been applied. The second element will be an ITR of major JSSIP civil works constructions such as the Baku Grave Crimes Court Complex, to be accomplished through random checks and site inspections, to assure the MOJ that at such sites, all applicable technical, procedural, safeguard, quality and legal requirements and standards are being adhered to. The ITRs will constitute a crucial element in a multi-tiered quality assurance and risk mitigation strategy for JSSIP-financed civil works. 10. The agencies participating in the project comprise the Ministry of Justice, the Supreme Court, all lower and appellate courts and the Justice Academy. External entities key to a well- functioning justice sector (e.g. the media, civil society organizations, the Bar Association and Universities) will also participate in the project through various project activities. 41 Monitoring and Evaluation 11. The results monitoring arrangements and responsibilities, results indicators and baseline values are at Annex 1 (Results Framework). Under Sub-Component B.2 the JSSIP will provide technical advice, analytical and training activities to facilitate the development of a sector M&E system and framework, the adoption of sector performance indicators and for automating and periodically publishing for transparency and accountability key sector statistical and performance data. The JSSIP will focus on the development of a monitoring and evaluation framework using national systems to meet the needs of stakeholders, including policy makers and oversight institutions, sector management and citizens. The State Statistical Committee of Azerbaijan, which is responsible for the national M&E system, will advise and support the MOJ and other project participants in this endeavor. Financial Management 12. The JMT within the MOJ will function as the PIU for the JSSIP and will be responsible for FM arrangements. This PIU is implementing the ongoing JMP and its financial management arrangements have been assessed as Satisfactory. The PIU accounting and internal control systems are now reliable and effective. The financial management staffing arrangements of the PIU were also assessed as adequate. 13. The inherent FM risk, control risk, and the overall FM risk are all rated as Moderate. To ensure that FM arrangements are current, the PIU has upgraded the current accounting system to accommodate the requirements of the ongoing JMP as well as the JSSIP, and FM policies and procedures have been revised for the needs of the JSSIP. 14. Budgeting and counterpart funding. The PIU will have overall responsibility for coordinating project budget preparation. Budget figures will be entered into the accounting system and execution will be monitored through quarterly interim unaudited financial reports (IFRs). The PIU will ensure timely data inflows from project beneficiaries in an agreed format. The project annual budget will be split by quarterly expenditures, components and sources of finance. The draft annual budget will need to be agreed with the relevant government organizations before submission to the Bank. The Government contribution to the project budget should be sent to relevant government agencies in a timely manner to ensure that adequate and timely counterpart funding is available during the project. 15. Flow of Funds. The Bank funds under the Project will be disbursed through transaction- based disbursement methods that include reimbursements with full documentation, reimbursements based on Statements of Expenditure (SOEs) for small expenditures with defined thresholds, payments against issued Special Commitments, direct payments to third parties, and payments through the Designated Account. The Government contribution will be disbursed through the Treasury system operated by the MOF. 16. Accounting, Internal Controls and Reporting: The PIU maintains its accounting records through a 1C-based accounting system. This will be upgraded to accommodate the needs of the JSSIP. The software will have capacity to generate IFRs of the Project. The PIU will submit quarterly IFRs covering one quarter, the format and content of which have been agreed upon. The IFRs will include the following reports: Sources and Uses of Funds; Uses of Funds by project activities; designated account statement; project Balance Sheet and Uses of Funds by project categories such as Works, Goods, Consultancy Services and Operating expenditures. 42 The PIU accounting software is able to record and report incurred obligations, availability of funds, and payments made against each contract. A financial management section, which outlines the internal control framework of the PIU, will be an integral part of the POM. A draft POM has been prepared by the MOJ and is being reviewed by the Bank. The POM satisfactory to the Bank is expected to be adopted by effectiveness. PIU accounting and internal control systems were assessed as reliable and effective. External Audit. The MOJ is in compliance with the audit requirements of the JMP. As with the JMP, only financial audits of project financial statements will be required: an independent auditor will audit the project financial statements under terms of reference acceptable to the Bank and in accordance with International Standards on Auditing (ISA). Project audit reports will need to be submitted to the Bank within six months of the end of each calendar year and at project closing. In accordance with "The World Bank Policy on Access to Information" dated July 1, 2010 the Bank requires the Borrower to make the audited financial statements publicly available in a timely fashion and manner acceptable to the Bank. In addition, following the Bank’s formal receipt of these financial statements from the Borrower, the Bank makes them available to the public in accordance with this policy. Disbursements 17. The loan will be disbursed through transaction-based disbursement methods that will include: reimbursements with full documentation; reimbursements on the basis of SOEs for small expenditures with defined thresholds; payments against Special Commitments; direct payments to third parties; and payments through the Designated Account. 18. Designated Accounts. To facilitate project implementation, a Designated Account will be opened in a commercial bank for the IBRD loan, on terms and conditions acceptable to the Bank. The Designated Account, which will be managed by the PIU, will be replenished on a quarterly basis, as needed. The total ceiling will be limited to US$5 million for the IBRD loan. The Designated Account will be audited annually in conjunction with the audit of the project financial statements. 19. Disbursements will be made on the basis of full documentation for: (i) contracts for goods costing more than US$200,000 equivalent each; (ii) contracts for works costing more US$1 million equivalent each; and (iii) services under contracts costing more than US$100,000 equivalent each for firms and more than US$50,000 equivalent each for individual consultants. Disbursements below these thresholds and for expenditures against incremental operating costs and training will be made according against certified SOEs. For all expenditures financed under SOEs, full documentation in support of the SOEs will be retained in the PIU for at least two years after the project closing date. This information will be available for review by Bank implementation support missions and by the project auditor. SOEs will be audited in conjunction with the annual audit of the Project. Further instructions on the size of the Minimum Application and on how funds will be withdrawn from the Loan will be provided in the Disbursement letter. 20. The withdrawal of proceeds from the IBRD loan will be made in accordance with the schedule in Table 4.1 below. 21. Government Counterpart Funding. The Government’s contribution is US$100 million (including VAT) to finance project expenditures. This will be disbursed from budget allocations 43 through the Treasury system within the MOF. Funds will be released to finance expenditures as they are incurred. 44 Table 4.1: Schedule for Withdrawal of Loan Proceeds Amount of the Percentage of Expenditures to Category of IBRD Loan be Financed Expenditure Allocated (Net of VAT) (Expressed in USD) (1) Goods, Works and Non- 65,734,738 49% Consulting Services (2) Consultants’ Services including Audit, Training and 31,340,359 100% Incremental Operating Costs (3) Unallocated 2,674,903 --- Amount payable pursuant to Section 2.03 of the IBRD (4) Front-end Fee 250,000 Agreement in accordance with Section 2.07 (b) of the General Conditions (5) Premium for Interest Rate Amount due under Section --- Caps and Interest Rate Collars 2.07(c) of the IBRD Agreement TOTAL AMOUNTS 100,000,000 Procurement 22. Applicable guidelines and other provisions. Procurement for the project will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non- consulting Services Under IBRD Loans and IDA Credits & Grants" dated January 2011 (Procurement Guidelines), the "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions of the Loan Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised January 2011 will also apply. 23. Procurement responsibility. Responsibility for all procurement for the new project will rest with the PIU currently responsible for managing and implementing the ongoing JMP. This PIU team, which has been operational for more than five years, has gained extensive experience in managing a World Bank-financed project and has built up the core skills and capability to carry out JSSIP procurement. This has facilitated rapid project preparation and should accelerate project start-up. 24. Assessment of procurement capacity. The PIU has maintained adequate procurement capacity and has been handling JMP procurement since 2006. In spite of teething problems, the pace and quality of procurement has improved throughout JMP implementation. Procurement has been managed by two full-time specialists: one each for procurement and technical. They have been trained on the Bank’s procurement Guidelines at in-country workshops for Borrower representatives and have also participated in regional procurement workshops. However, with the PIU handling JMP procurement and contract administration and simultaneously handling JSSIP procurement preparation as well, current PIU procurement capacity is insufficient for JSSIP procurement needs. 45 25. Augmenting procurement capacity. The PIU’s JSSIP-related procurement workload has sharply increased since mid-2013 due to the additional work needed to (a) develop and finalize the JSSIP Procurement Plan and (b) prepare technical specifications, terms of reference, bid documents and advertisements for JSSIP procurement packages. This is over and above procurement and contract administration work for the JMP. It has therefore been agreed with the MOJ that PIU procurement capacity will be strengthened by engaging an additional procurement specialist by effectiveness. Terms of reference for this position have been reviewed by the Bank. 26. Risk assessment and Bank support. The Bank’s procurement staff based in Baku and Headquarters will provide procurement advice and assistance on a continuous basis. A risk assessment rating for the project has been done using the Bank’s Procurement Risk Assessment and Management System. The identified risks and proposed mitigation measures are summarized in Table 4.2. The overall procurement risk is rated ‘Substantial’ after mitigation. The POM will include a Procurement Section (acceptable to the Bank) to foster national competition, wide and advance advertising will be carried out, and proactive search and contact of potential suppliers and consultants will be facilitated for competitive project procurement. 27. Procurement Plan. A Procurement Plan has been prepared for the entire period of the project. The Procurement Plan will be updated at least once every calendar year and each update will be subject to prior review by the Bank. The initial procurement plan and subsequent updates will be published on the Bank’s external website in line the Bank’s Guidelines. A General Procurement Notice covering the project procurement activities has been prepared and published. Specific Procurement Notices will be published for all International Competitive Bidding (ICB) and National Competitive Bidding (NCB) procurement and for all consulting services contracts as required under the respective Guidelines. 28. Procurement of Goods. Goods contracts estimated to cost US$500,000 equivalent or more will be procured under ICB procedures using the Bank’s Standard Bid Document (SBD) for procurement of goods. National Competitive Bidding (NCB) will be applicable for goods contracts estimated to cost less than US$500,000. The sample NCB bidding documents shall be prepared taking into account the NCB conditions set forth in the Loan Agreement. In case of NCB, the sample bidding documents will be subject to prior review by the Bank before launching the bidding process. Goods contracts estimated to cost less than US$100,000 equivalent may be procured using Shopping procedures on the basis of at least three written price quotations obtained from qualified suppliers. The list of suppliers to be invited to submit quotations should be defined by a tender committee. The World Bank sample form for Invitation to Quote will be used. Framework Agreements for non-consulting services may be used, based on the nature of the services, with the Bank’s prior agreement. Direct Contracting for goods, consistent with justifications specified in the Procurement Guidelines, will be specified in the Loan Agreement and will be subject to prior review. 29. Procurement of Works. Works contracts estimated to cost US$5,000,000 or more per contract will be procured using the ICB method. Works estimated to cost less than US$5,000,000 per contract will be procured using NCB. Smaller works estimated to cost less than US$200,000 per contract will be procured through Shopping procedures on the basis of three written quotations obtained from qualified contractors. The World Bank sample for Invitation to Quote shall be used. Direct Contracting for works, consistent with justifications in the Procurement Guidelines, will be specified in the Loan Agreement and will be subject to prior review. 46 30. Consultants’ Services. Consultants’ services to be provided by firms estimated to cost US$200,000 or more per contract will be procured through the Quality and Cost-Based Selection (QCBS) method. Consultants’ services to be provided by consultancy firms estimated to cost less than US$200,000 per contract may be procured through the Consultants’ Qualifications (CQ) method. The consultancy firm for audit of project financial statements will be selected through the Least Cost Selection (LCS) method. Other methods such as Fixed Budget Selection (FBS), Quality Based Selection (QBS), LCS and selection of specified United Nations agencies will be made available through the Loan Agreement irrespective of the amount. Individual Consultants (IC) will be selected in accordance with Section V of the Consultancy Guidelines. The Single Source Selection (SSS) method for firms and individuals consistent with the justifications in the Consultant Guidelines will be also specified in the Loan Agreement and will be subject to prior review. The Procurement Plan will specify the circumstances under which such methods may be used. Contracts estimated to cost above US$300,000 equivalent will be advertised through the United Nations Development Business (UNDB), the World Bank website and local media (one newspaper of national circulation or the official gazette, and the MOJ website). Shortlists of consultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely of national consultants (as provided in paragraph 2.7 of the Consultant Guidelines). 31. Incremental operating costs. The MOJ will incur incremental operating costs (IOC) on account of project implementation, management and monitoring. IOC means incremental operating expenses incurred by the MOJ on account of Project implementation, management and monitoring. These include but are not limited to project audits, bank charges, communications, office supplies, vehicle operation and maintenance costs, office equipment maintenance and repair, fuel, publication of procurement and other project-related notices, printing, translation/interpretation, travel, subsistence and other miscellaneous costs directly associated with the project, but excluding salaries and allowances of officials and employees of the Borrower. IOC will be included in an annual project budget agreed with the Bank, Purchases will be carried out in accordance with the implementing agency’s internal administrative procedures as set forth in the POM. 32. Training and Knowledge Sharing. Training and knowledge-sharing visits will be based on an annual program and budget for such activities, to be prepared by the MOJ and reviewed by and agreed with the Bank. 33. Governance and Anti-Corruption Action Plan. The project will follow the Bank Group’s Anti-Corruption policies as set forth in the Guidelines: On Preventing and Combating Fraud and Corruption in Projects financed by IBRD Loans and IDA Credits and Grants (current edition). The Bank team intends to maintain close oversight and will carry out prior review of all major contracts according to the thresholds that will be regularly reviewed and adjusted as needed in the procurement plan. The following measures will be applied to mitigate governance and corruption risks: (a) Training of fiduciary staff: starting from project launch and periodically thereafter; training will be customized to the procedures and methods required for the next 12 month periods. The relevant project staff shall attend relevant Regional Procurement Workshops periodically organized by the Bank. 47 (b) Prior review: There will be close supervision by the Bank’s procurement accredited staff. In addition, all contract amendments will be subject to prior approval by the Bank. (c) Publication of Advertisements and Contracts: All publications for advertisements and contract awards, including the results of the awards, will be done in accordance with the Procurement Guidelines and published through the Bank’s Client Connection system and on external websites, e.g. UNDB and Bank websites. (d) Debarred Firms: Appropriate attention will be given to ensuring that debarred firms or individuals (to be verified from the Bank’s external website) are not given opportunities to compete for Bank-financed contracts. (e) Temporarily suspended firms: Appropriate attention will be given to ensuring that temporarily suspended firms or individuals (to be verified through Client Connection) are not given opportunities to compete for Bank-financed contracts. (f) Complaints: All complaints by bidders will be diligently addressed and monitored in consultation with the Bank. (g) Tender Committee: If required, the Bank will review the qualifications and experience of proposed members of Evaluation Committee(s) to avoid the nomination of unqualified or biased candidates. All members will be required to sign a confidentiality/impartiality form. (h) Monitoring of contract awards: All contracts are required to be signed within the validity of the bids/proposals and, in case of contracts subject to prior review, promptly after the Bank’s “no objection” is issued. The Procurement Plan format will include information on actual dates (of “no objections” and award) and will be monitored for undue delay which will be reviewed on a case-by-case basis to identify the reasons. The MOJ will maintain up-to-date procurement records available to Bank staff and auditors. (i) Monitoring of payment against physical progress: Monitoring reports prepared for the Bank will be customized to include a form to monitor physical progress compared to payment installments. (j) Timeliness of payments: Payment to contractors, suppliers and consultants will be monitored through semi-annual IFRs to ensure timely payments. The MOJ will maintain a system/database (acceptable to the Bank) covering procurement, contract administration and financial management to (a) monitor all commitments and unpaid obligations, (b) ensure sufficiency of uncommitted funds before entering into obligations, (c) track payments to ensure that payments to suppliers and contractors are paid without delay according to the conditions of the contract. 34. The last Country Procurement Assessment Report was prepared in November 2009. It was based on the four OECD-DAC/World Bank pillars for public procurement, and concluded that all four pillars require improvements for the system to meet international standards and good practices. Azerbaijan has an advanced Public Procurement Law, but its institutional aspects and its enforcement require improvement. 35. The country is experiencing severe governance challenges. Its still-evolving institutional framework provides ample opportunities for corruption, which in turn is a key constraint to 48 efficiency in the use of public resources and the needed non-oil diversification of the economy. This has been indicated in the CPS Progress Report. 36. In 2011 the Government launched an anticorruption campaign, which was reinforced in September 2012 by four Presidential decrees aimed at strengthening institutions and improving governance. These decrees mandated: the enforcement of the National Anticorruption Plan; the establishment of a State Agency for Public Services and Social Innovations (ASAN), a single- window agency for public service delivery; the promotion of open government; and the enforcement of the new Urban Construction Code. Amendments to selected legal acts to launch implementation of the decrees followed suit. 37. The country’s Public Procurement Law (PPL) sets out a number of provisions which seek to prevent problems such as misrepresentation, conflicts of interest and bid-rigging. With the PPL in place and a competent regulatory agency to oversee its implementation, the main weaknesses in the procurement system appear to be institutional capacity and skilled human resources. There are few trained procurement personnel in Azerbaijan as procurement based on market economy principles remains a relatively new concept. 38. Based on the procurement capacity assessment conducted in December 2013, Table 4.2 indicates the inherent procurement risk, the proposed mitigation measures and the residual risk rating. The overall procurement risk for the project after mitigation is rated “Substantial”. 39. Frequency of Procurement Supervision: Initially, procurement supervision will include prior review of contracts and procurement implementation support missions (part of project supervision missions) once every six months. Once PIU capacity is strengthened, the frequency of procurement supervision missions and prior review thresholds will be revised as appropriate. Table 4.2: Summary of Procurement Risks and Ratings Description of inherent risk Rating Mitigation measures Rating of of risk residual risk The overall procurement environment H Regular post reviews by the Bank (1 H in the country is rated as “high risk”. every 6 months, 1 in every 5 contracts). Project procurement will be carried Regular post reviews by the Bank. out under the WB Procurement and Consultant Guidelines of January 2011. The pace and quality of tendering, H There is an experienced procurement S contract implementation and contract specialist in the PIU. PIU capacity is administration may be affected by the being further augmented by hiring a increasing workload. second procurement specialist/assistant at an early stage of project preparation. Information provided by bidders on H Financial and other capabilities of the S their financial capacity (e.g. liquid winning contract will be carefully assets, annual average turnover, etc.) reviewed at the evaluation stage given may lack reliability and transparency; the risks and constraints mentioned. To bidders’ financial capability may be avoid liquidity problems for suppliers, adversely affected by lack of timely vendors and consultants, payments on payments from their creditors. the basis of contract provisions will be required to be made in a timely manner. Average H S 49 Note: H = High; S = Substantial; M = Moderate and L = Low. 40. The procurement packages planned during the first eighteen months of project implementation are summarized in Tables 4.3 and 4.4 below. Table 4.3 Goods, Works and Non-consulting Services Ref. Description Estimated Packages Domestic Review Comments No. Cost Preference by Bank (US$ (yes/no) (Prior / million) Post) 1. Summary of The Procurement ICB (Works) Plan shall set 97.67 4 No Yes forth prior review contracts 2. Summary of Not 51.24 16 Yes As above ICB (Goods) applicable 3. Summary of 8.46 2 No Yes As above NCB (Works) 4. Summary of Not 0.86 2 Yes As Above NCB (Goods) applicable 5. Shopping 0.68 1 No Yes As above Goods 6. Summary of ICB (Non- Not Not Not Not Consultant applicable applicable applicable applicable Services) Total 158.30 Table 4.4 Consulting Services Ref. Description of Estimated Number of Review Comments No. Assignment Cost Packages by Bank (US$ (Prior / million) Post) 1. Summary of number of The Procurement contracts that will be let Plan shall set forth 19.70 24 Prior under QCBS prior review contracts 2. Summary of number of contracts that will be let under other methods 8.92 7 Prior/Post As above (CQS, LCS, SSS, Agreed Procedure, etc.) 3. Summary of number of contracts that will be let 6.88 37 Prior/Post As above under IC method Total 35.50 50 41. Prior review thresholds: These will be indicated in the Procurement Plan to provide adequate flexibility during implementation. The prior review thresholds will be periodically reviewed and revised during implementation based on risk assessment, procurement post-review reports and the capacity of the implementing agency. 42. Post Review: All contracts not subject to prior review will be subject to ex-post review. There will be several shopping contracts – these are expected to be subject to post review. Contracts not subject to the World Bank’s prior review will be post-reviewed during the Bank’s implementation support visits and/or during regular post-reviews by the Procurement Specialist on a sampling basis (1 out of every 5 contracts, i.e. 20 percent). Environmental and Social (including safeguards) 43. These are addressed in Annex 8. In order to ensure compliance with environmental and social safeguards, the MOJ will engage the services of a qualified consultant to conduct annual audits of environmental and safeguard compliance, on terms of reference acceptable to the Bank. The annual audit reports will assist the MOJ to pinpoint weaknesses in or deviations from compliance (if any) and efficiently target resources for such compliance. Role of Partners 44. Several project activities will complement ongoing and planned support from Azerbaijan’s multilateral and bilateral partners on justice sector modernization. The areas of focus and the resulting complementarities and collaboration opportunities are at Annex 6. 45. Partnership with Singapore’s Supreme Court and Ministry of Law. A high-level Azerbaijan delegation (led by the Minister of Justice and including the Chief Justice of the Supreme Court and the Deputy Minister of Justice) was in Singapore from October 28- November 1, 2013. The objectives of the visit, facilitated by the World Bank, were to: acquaint the delegation with the significant strides made by Singapore in the last two decades in expanding access to justice, including through electronic provision of justice services by the courts and the Ministry of Law; share with the Singapore authorities Azerbaijan’s vision of and progress on judicial reforms; and participate in the Asia-Pacific Judicial Reform Forum on October 31-November 1, 2013 (an exclusive forum of Chief Justices to which Azerbaijan was invited as an Observer). The delegation met with the Chief Justice of Singapore and the Minister of State for Law and visited offices and courts to see first-hand the transparency, access and efficiency aspects of Singapore’s justice system. It was agreed that JSSIP design, activities and impact could be strengthened by a joint World Bank-Singapore Supreme Court Knowledge Brief on the lessons from Singapore’s access-to-justice justice reforms, targeted to Azerbaijan’s justice sector practitioners and policy-makers and a visit by a team from the Singapore judiciary to Azerbaijan to conduct a joint peer-based sector assessment-cum-knowledge-sharing exercise. The World Bank team is facilitating the broadening and deepening of this partnership. 46. Partnership with the Council of Europe (CE). Azerbaijan is a member of the CE. In furtherance of its membership obligations, it has undertaken numerous reforms including modernizing its laws and judicial processes to meet EU and other international good practices. The World Bank team works closely with CEPEJ to support Azerbaijan in improving justice sector performance and service delivery. 47. Partnership with the European Union. The World Bank has proposed the initiation– as a measure to support sector entities to improve performance and accountability – of a pilot Public 51 Expenditure and Financial Accountability (PEFA) assessment for the justice sector (the first time this is being done in any country) upon project effectiveness. The Delegation of the European Commission in Azerbaijan has expressed interest in collaborating with the Bank on such a pilot PEFA exercise. Details are being worked out with the Delegation and the MOJ. In addition, the Delegation intends to provide budget support for justice sector policy reforms including on enforcement of judicial decisions and access to justice. The JSSIP will complement the operation and provide technical support for policy reforms on, for example, legal aid and introduction of ADR systems. 48. Possible partnership with Japan International Cooperation Agency (JICA). Following up on discussions with Azerbaijan authorities during project preparation on the desirability of analyzing and strengthening disaster-proofing of justice sector physical infrastructure and the disaster management capacity of justice sector entities (as a first step for a possible public sector- wide exercise), the World Bank team is in discussions with JICA on a possible partnership where technical experts from Japan can partner with the MOJ and the Bank to assess the adequacy of disaster-proofing (especially on seismic issues) of justice sector physical infrastructure. 49. Other partnerships. The United States judiciary, the American Bar Association’s Rule of Law Initiative and the Department of State’s Public Diplomacy wing have expressed possible interest in partnering with the World Bank and Azerbaijan’s justice entities on topical issues such as judicial training, integrity enhancement, user surveys, access to justice and communications and outreach. Details are expected to be worked out in the next 5-6 months. 52 Annex 5: Operational Risk Assessment Framework (ORAF) AZERBAIJAN: Judicial Services and Smart Infrastructure Project Project Stakeholder Risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: The project has several stakeholders across the judicial The Bank will maintain contact with key stakeholders to mitigate and manage this risk. and executive branches (Ministry of Justice, judiciary, Resp: Status: Stage: Recurrent: Due Date: Frequency: Justice Academy, Ministry of Finance, Cabinet of Ministers). Their commitment to the project is high, but Bank In Progress Implementation inter agency coordination can be challenging. Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Risk Description: Risk Management: PIU procurement and FM capacity is being augmented by engaging additional The IA risks include fiduciary and safeguard risks. There specialists on terms of reference satisfactory to the Bank. may be a lack of capacity in the PIU to ensure compliance with Bank procurement procedures and there may be Resp: Status: Stage: Recurrent: Due Date: Frequency: weaknesses in the IA capacity to monitor financial Client In Progress Implementation 15-Jun-2014 obligations and their liquidation. Risk Management: Intensive procurement attention and procurement reviews to ensure compliance with Bank procurement guidelines. Resp: Status: Stage: Recurrent: Due Date: Frequency: Bank In Progress Implementation Quarterly Risk Management: Financial management supervision needs to be periodic, proactive and of high standard. Resp: Status: Stage: Recurrent: Due Date: Frequency: Bank In Progress Implementation Quarterly 53 Risk Management: The PIU FM software has been upgraded, to the Bank's satisfaction, to enable recording and reporting of obligations incurred, availability of funds, and payments made. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Completed Implementation Continuous Governance Rating Substantial Risk Description: Risk Management: The Bank and MOJ teams will ensure that Bank procurement guidelines are followed, The implementing environment for the project is especially those which create a competitive procurement environment and transparent challenging because of (a) numerous procurement decision making. packages for ICT and civil works requiring careful development of technical specifications and bid Resp: Status: Stage: Recurrent: Due Date: Frequency: documents and (b) numerous consultants’ services Both In Progress Both Continuous packages. In addition, internal controls will need to be robust to ensure accurate accounting and reporting. Risk Management: Internal controls have been strengthened by the MOJ. Project accounting software has been modified to enable submission of monthly special reports. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Completed Both Continuous Risk Management: Careful preparation of procurement documents by the PIU, robust bid evaluations by beneficiaries and other stakeholders, and intensive procurement review by the Bank. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Continuous Risk Management: Intensive supervision by the Bank with high on-the-ground presence. Resp: Status: Stage: Recurrent: Due Date: Frequency: Bank In Progress Both Quarterly Project Risks 54 Design Rating Substantial Risk Description: Risk Management: Considering scale, scope, wide range of beneficiaries and Close monitoring of implementation by Bank and client, to mitigate any design risk complexity of the project, the risk is substantial. issues discovered during implementation. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Yearly Social and Environmental Rating Substantial Risk Description: Risk Management: An RPF has been prepared by the MOJ, approved by the Bank, and disclosed on No land acquisition or physical displacement of residents November 19, 2013 in Azerbaijan and December 3, 2013 in Washington D.C. through is expected. However, experience from ongoing Bank- Info Shop. Site-specific RAPs will be developed - if and as necessary – during financed projects shows that minor land acquisition could implementation. The RPF and RAPs will ensure proper calculation and recording of the be needed to improve construction design and provide land area to be acquired and identify and mitigate the impacts of land acquisition for the access space. In addition, land acquisition may be affected persons to ensure that there is no adverse effect on living conditions and required due to unforeseen events, in which case the livelihoods. The Bank and the implementing agency will jointly monitor compliance works may require more land. with social safeguards. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Yearly Risk Management: OP 4.11 ‘Physical Cultural Resources’ is being triggered to ensure that the construction does not disturb areas of historical value, and that archaeological chance finds, if discovered during project implementation, are preserved and properly treated. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Yearly Risk Management: The environmental impacts associated with the implementation of the proposed activities are addressed in the Environmental Management Plan (EMP). The MOJ will also undertake an annual audit of compliance with environmental safeguards. Resp: Status: Stage: Recurrent: Due Date: Frequency: 55 Both In Progress Implementation Yearly Risk Management: No land acquisition or physical displacement of persons is expected under the JSSIP. The MOJ will also undertake an annual audit of compliance with social safeguards. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Yearly Program and Donor Rating Low Risk Description: Risk Management: There is a risk of duplication or overlap with judicial Effective coordination and liaison with Azerbaijan's development partners supporting modernization programs supported by Azerbaijan's other judicial modernization, to reduce the risk of duplication and overlap. development partners. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Yearly Delivery Monitoring and Sustainability Rating Substantial Risk Description: Risk Management: The PIU may not be able to systematically and timely The MOJ will engage an M&E specialist under terms of reference acceptable to the report on project deliverables, safeguard compliance and Bank to prepare semi-annual M&E reports. results. However, sustainability is less of an issue since Resp: Status: Stage: Recurrent: Due Date: Frequency: Azerbaijan does not yet have significant funding constraints, and has allocated sufficient financial resources Client In Progress Implementation 15-Jun-2014 to enable the project gains to be sustained. Overall Risk Overall Implementation Risk: Rating Substantial Risk Description: While the project enjoys strong support and ownership from the highest levels of the Azerbaijan government and the capacity of the existing Project Implementation Unit (which has substantial experience with implementing the World Bank-financed Judicial Modernization Project) is being enhanced to implement the JSSIP, the overall implementation risk is rated “Substantial” because of the scope and complexity of the project. 56 Annex 6: Implementation Support Plan Judicial Services and Smart Infrastructure Project Strategy and Approach for Implementation Support 1. The World Bank team will adopt a risk-based implementation support strategy and approach. The lessons from the JMP implementation experience and from JSSIP project preparation have been distilled in the Operational Risk Assessment Framework at Annex 5. In addition, lessons from the implementation experience of the World Bank’s Azerbaijan project portfolio and the Bank’s implementation support experience in comparable countries in the World Bank’s ECA Region will guide the overall implementation support strategy and approach. Implementation Support Plan 2. Technical and substantive implementation support will be provided by a cross-sectoral team of World Bank experts and specialized consultants with the requisite mix of national and international experience. The subject-matter implementation support needs for Components A through D are sufficiently challenging and cross-cutting to require a seamlessly coordinated World Bank Group (IBRD and IFC) implementation support team. Table 6.1: Implementation Support Time Focus Skills Needed Resource Partner Role Estimate First twelve Getting activities off Institutional and Justice US$200,000 Coordination months the ground for Reform experts (including with other Components A, B lawyers, current/former bilateral (e.g. and C – substantive judges/magistrates, ADR JICA) and technical advice and and legal aid experts). multilateral support on project Business inspection. (e.g. EU) activities and support Poverty, gender and social partners. for fiduciary inclusion. M&E. ICT. (procurement, FM) Surveys. Safeguards. and safeguard Engineer/architect. Public compliance. financial management. Procurement. Financial management. 12 months - Substantive As above. US$150,000 project technical advice and closing support and fiduciary (procurement, FM) and safeguard compliance. 3. Financial Management: To ensure appropriate implementation support for financial management, the World Bank will conduct risk-based financial management implementation support and supervision within six months from the project effectiveness date, and then at appropriate intervals. During JSSIP implementation, the World Bank will supervise the project’s financial management arrangements by: (a) reviewing the project’s quarterly IFRs, annual 57 audited financial statements, the auditor’s management letters and remedial actions recommended therein and (b) during on-site implementation support missions, reviewing project accounting and internal control systems, budgeting and financial planning arrangements, disbursement arrangements and financial flows (including counterpart funds, as applicable) and any incidence of corrupt practices involving project resources. As required, a World Bank- accredited financial management specialist will participate in the implementation support and supervision process. 4. Procurement Supervision and Ex-post Review: Procurement reviews and supervision will be provided by the procurement specialist assigned to the project and complemented by Baku- based procurement staff. In addition, two procurement supervision missions are planned annually during which ex-post reviews will be conducted for contracts not subject to Bank prior review. These will be done on a sample basis (20 percent of the number of contracts). One ex- post review report will be prepared per fiscal year, including findings of physical inspections for not less than 10 percent of the contracts awarded during the review period. Table 6.2: Skills Mix Required (annually) Skills Needed Number of Number of Comments Staff Weeks Trips Justice reform + task 7 3 Headquarters, Baku-based and management elsewhere. ICT 4 1 Cross-support from TWICT, partly Baku-based. Review of/feedback on draft 4 0 Cross-support and consultants; partly laws & regulations and their Baku-based and partly from implementation headquarters and elsewhere. User surveys 4 0 Support from Baku and headquarters. Environmental 3 1.5 Cross-support from SDN, based in Baku, all trips will be local. Social Safeguards 3 1.5 Cross-support from SDN to be based in Tbilisi with oversight from headquarters. Engineer + architect 6 2 Expert consultants. Shared trips. Country Lawyer 1 0 Cross-support from LEGVP Strategic communications, 3 2 Cross-support from EXT. Specialized outreach and change consultants. management M&E and Results Monitoring 4 2 Partly headquarters and partly Baku- based. Shared trips. Procurement 2 2 Procurement support (Baku-based for responsiveness and economy). Financial Management 3 0 Support from Baku. Administrative and Client 4 0 Shared 50:50 (Baku and Support headquarters) 58 Table 6.3: Partners Organization Name of Program/Project Role ABA CEELI • Legal Education Reform and Civic Education Intensive coordination • Access to Justice and Human Rights and liaison to avoid American Bar • Criminal Law Reform and Anti-Human overlaps and strengthen Association Trafficking complementarity. • European Commission for the Efficiency of Council of Justice (CEPEJ) Collaboration and cost- Europe • Consultative Council of European Prosecutors sharing wherever feasible (CCPE) and value-added for • Enhancing access to justice for internally client, such as with: displaced persons and strengthening civil • European society efforts to improve the national Commission on European Union response in Azerbaijan support for reforms • Justice Reform Support Program - Budget and proposed pilot Support Justice Sector PEFA • Reforming the Civil Service Assessment GiZ • Advice on Legal and Judicial Reform in the • UNICEF on juvenile South Caucasus justice, PSIA and other issues • Infrastructure and Energy Efficiency JICA • CEPEJ and Singapore • Disaster Risk Management Judiciary on justice • Monitoring court proceedings and detention sector performance facilities assessment, service • Strengthening the capacity of justice and law- delivery improvement enforcement actors and capacity-building OSCE • Legal resource centers across the country technical support • Providing human rights advice • JICA on disaster risk • Support for legal reforms and implementation management for of legislation physical infrastructure • Enhancing the professional and operational with emphasis on UNDP capacity of the State Agency for Public seismic risk- Service and Social Innovations mitigating architectural designs UNICEF • Children’s issues including juvenile justice and construction (under discussion) USAID • Strengthening Access to Justice in Azerbaijan (implemented by OSCE) 59 Annex 7: Economic and Financial Analysis Judicial Services and Smart Infrastructure Project RATIONALE FOR AN ECONOMIC AND FINANCIAL ANALYSIS 1. Public sector institutional reform projects are rarely underpinned by a detailed economic and financial analysis owing to difficulties of attribution and in the estimation of costs and benefits. However, in the case of the JSSIP, a detailed analysis has been undertaken in view of the project size, scope and complexity. 2. During the Bank’s discussions with the Ministries of Finance and Economy on project preparation, the project coverage and cost were discussed. The Bank team was requested to conduct an economic and financial analysis of the project to enable an assessment of project costs, benefits, risks and expected results so that the Azerbaijan authorities could take an informed decision on project scope and financing. The MOF emphasized that it would be important to be able to identify and quantify the key economic and financial costs and benefits so that the use of public funds for the project could be justified. 3. With an estimated total project cost of US$200 million (excluding VAT) the JSSIP will constitute a significant public investment for Azerbaijan’s public sector as a whole and one of the larger public sector investment projects in the World Bank’s ECA region. Furthermore, regional court complexes represent, relatively, even larger public investments at the regional or municipal level, with non-marginal impacts on the local economy. The possible indirect costs of local communal and wider economic infrastructure are likely to be surpassed by larger indirect benefits, initially related to construction and later to the operation of the court complexes. 4. With its pivotal role in the public sector, justice system reform (i.e. not only the courts but also other key elements such as bailiffs, notaries and the legal profession) is likely to elevate the level of transparency and the application of the rule of law in Azerbaijan. Reliable estimates of project financial and economic costs and benefits can provide policy-makers with a credible standard to assess the performance of other public services and of the public administration as a whole, and introduce a new metric to assess the performance of public sector reform and modernization projects. METHODOLOGY 5. Starting from applied Cost Benefit Analysis (CBA) principles and relying on the guidelines for economic analysis of public sector projects developed by the World Bank, the approach adopted in the economic analysis relies on the following principles: • Elimination of transfer payments (taxes and subsidies); • Use of competitive market prices where applicable, world prices for tradeables and conversion factors for non-tradeables in sectors where market distortions or monopoly powers are present; • Valuation of resources obtained free of charge (such as land) at reasonable opportunity cost (defined as alternative public sector use) or prevailing market prices; 60 • Direct measurement of economic benefits through savings of time and effort in providing quality justice-related services; wider and faster access to legal aid and advice and to alternative dispute resolution mechanisms (e.g. mediation and arbitration); improved quality of training and more effective protection of the rights of firms and individuals (especially the more marginalized and vulnerable segments of the population); • Indirect measurement and/or qualitative assessment of the effects on improved business environment, enhanced competition and efficiency of key market institutions (including contract enforcement and protection of creditor rights); and • Combined measurement and/or assessment of project impact on improved macroeconomic environment and investment climate through stronger and more predictable law enforcement that is likely, for example, to lower large interest rate spreads caused, among other factors, by weak enforcement of loan collaterals, and attract foreign direct investment in knowledge-intensive areas which are sensitive to risks associated with the weak rule of law. 6. The approach to financial and economic CBA, the scope of the analysis and the data requirements were discussed by the Bank team in November-December 2013 with the MOJ JSSIP project preparation team, the European Union Delegation in Baku (the EU is financing a budget support operation on Judicial Reform) and MOJ staff working on the new Law on Inspection and on the inspection registry function, which will be part of the business-enabling function of Azerbaijan’s modernized justice system. DATA AVAILABILITY AND EVALUATION OF COSTS AND BENEFITS BY COMPONENT 7. Based on an exhaustive list of data and information requirements left with the authorities, by January 2013 the Bank team received sufficient and reliable data to evaluate the financial and economic benefits associated with the following subset of proposed project components, sub- components and activities. Component A: Judicial Service Delivery Improvements A.1 Expanding Access to Justice for All Activity: Expanding access to free legal aid including through innovative pilots 8. A pilot legal aid activity under the ongoing JMP provided free legal aid to 4,380 persons over two years in two legal aid centers (Baku and Guba). Each participant (person) received indirect benefits worth US$70 (in terms of lawyers’ fees). The total cost per beneficiary was US$120 (including lawyers’ fees and other costs). Under the JSSIP, about 10,000 persons are proposed to be provided free legal aid during the project implementation period (2014-2018) and more than 5,000 persons annually year thereafter. On average, each participant will receive legal aid worth at least US$100 in terms of lawyers’ fees or US$150 in terms of market value. Annual benefits are estimated to grow during project implementation from US$0.33 million in 2014 to US$1.5 million in 2018 and remaining at that level throughout the economic life of the project (assumed to be till 2030). A.2 Expanding e-Justice Services Across Azerbaijan Activity: Reducing the Administrative & Compliance Burden from Inspections: support for implementation of the 2013 Law on Inspections and Business Inspections e-Registry 61 9. This activity is estimated to impact approximately 600,000 entities both physical and juridical. The main benefits will be lower compliance costs due to increased predictability of inspections and reduced scope for corruption due to random allocation of inspectors, open feedback (telephone hotlines) and more transparent processes. The most obvious measurable aspect of lower compliance cost will be time saved due to orderly preparation for business inspections based on better planning of inspections and early announcement of inspections through a business e-registry system. It is conservatively estimated that prior notice of inspections through the e-registry would save at least one day (8 hours) a year for each of the 500,000 small and medium enterprises (SMEs) registered as physical persons, and two days (16 hours) for each of the 100,000 larger SMEs registered as legal persons. Overall, it is estimated that at least 1.7 million hours or US$15 million would be saved each year. Indirect savings due to significantly lower disruption of normal business operations and reduced scope for corruption could be even larger, but reliable estimates would require a longer time-frame and significant resources to conduct a dedicated survey (this has been provided in the project, so as to update and confirm these estimates of costs and benefits). Activity: E-Library services to be provided by the Supreme Court and accessible to judges, judicial staff, other justice officials, advocates, litigants, media and the public 10. Approximately 10,000 persons are estimated to benefit directly from the Supreme Court’s proposed e-Library services (including 600 judges, 2,000 court staff, approximately 1,000 lawyers, students of law, legal departments in companies and banks, media and the general public). Assuming that the cost of obtaining new and updated laws in printed form is at least US$20-30 per volume, the average annual cost per person exceeds US$100, which brings the direct monetary savings from the e-Library system to about US$1 million per year. Aside from direct monetary savings, the e-Library will generate considerable time savings (on searching relevant articles and quoting, referencing and cross-referencing relevant laws and regulations in legal documents). At a minimum, the e-Library is expected to save one week per year per participant or US$3 million annually. Activity: E-filing: countrywide access through (a) automation and integration of case and document management, (b) modernized networks and (c) software applications 11. The modernization of ICT infrastructure and the system-wide rollout of Document Management Systems (DMS) and Case Management Systems (CMS) will increase court efficiency by allowing more productive use of administrative resources and time of judges and court staff. It is estimated that up to 25-30 percent of the available work time is presently wasted on non-procedural relations and interruptions, technical and procedural inefficiencies related to archiving and retrieval of documents, and dealing with paper-based case material. E-filing will help avoid nonprocedural wasted time, protect judges and court staff from undue influences and pressure, free up their time and attention to efficiently review the case and speed up case processing times. This would allow an increase in the number of decided cases per judge and improve the quality of judicial decisions. On average a judge presently decides 570 cases per year. Freeing up 30 percent of judges’ time could increase the number of decided cases by more than 100,000 without hiring an additional 180 judges, their direct complement of support staff and building or renting additional court offices. Annual direct savings, conservatively estimated, would amount to more than US$2.3 million. Activity: Strengthening information and communications capability for courts and bailiff offices 62 12. Improved ICT capability for courts and the MOJ would enable countrywide use of a video conferencing network that could be used for multiple court functions. • One of the most prominent cost-saving uses would enable online VC communication with pre-trial detained from facilities at various locations. Presently, such persons have to be transported from pre-trial detention facilities to courts at least twice during the pre- trial process. On average, the cost of special transportation and required security procedures cost US$150 per trip (comprising US$13 fuel cost, US$77 salaries for the required 6 staff and US$60 for car amortization). Based on the number of criminal cases processed in 2012 (12,825 criminal cases were decided in first-instance courts and 6,652 criminal cases in appeal courts, for a total of 19,477 criminal cases decided), the secure transportation costs in future years could run as high as US$5.8 million per annum. Assuming that one-third of such cases could utilize the new ICT services (video- conferenced network), this would yield annual cost saving of US$1.9 million. • With other uses of video-conferenced networks (e.g. depositions and witness statements) the total annual benefits attributable to enhanced ICT capability of courts could approach US$2.5 million. • At the same time, ICT would improve the operation of bailiff offices in enforcing judicial decisions. At present, there are about 1,000 bailiffs operating in Azerbaijan. The introduction of ICT based e-bailiff services and integration with e-government and other government DMS is likely to markedly improve the efficiency of bailiffs. It is estimated that e-bailiff services will decrease the time needed to enforce court decisions by at least 20 percent, while improving the quality, accuracy, transparency and integrity of bailiff actions. Assuming that average bailiff gross salaries and direct costs are about US$1,000 per bailiff per month, annual savings are estimated at US$2.4 million. Component B: Strengthening Sector Efficiency, Institutional Capacity and M&E Sub-Component B.1 - Improving Sector Efficiency, Performance and M&E Activity: Support to implement Sector Efficiency & Effectiveness Review (SEER) recommendations 13. The average annual energy consumption of the entire inventory of court buildings under the MOJ, excluding buildings financed by the JMP, is about 700 KWh per square meter. The project will finance a SEER which will, among other things, review the scope for greater energy efficiency. With the implementation of SEER recommendations on energy efficiency, average annual energy consumption is expected to decrease by at least 80 percent (to about 140 KWh per square meter per annum). The courts to be financed by the JSSIP are budgeting energy costs at about US$136,000 per annum and an annual energy use of about 70 KWh per square meter: these will yield annual savings of about US$108,000. Sub-Component B.3 - Communications, Outreach and Change Management Activity: Access to justice - strategic communications and outreach to involve youth, women, other vulnerable groups, universities and experts; preparation of TV and radio programs; other information materials. 63 14. This activity will focus on the population in peri-urban and rural areas, estimated at 4 million. It is estimated that dissemination of relevant legal information and better access to justice will empower at least 1 percent of the targeted population to utilize or access justice services themselves without professional interlocutors. Assuming an average fee cost of US$50, savings would amount to a minimum of US$2 million per year. Sub-Component B.4 - Strengthening Professionalization and Knowledge Sharing Activity: ICT training for judges, court staff and staff of other justice institutions 15. The benefits of training proposed under sub-component B.4 are difficult to estimate although it would appear that combined training activities could substantially increase the knowledge and productivity of judges, their support teams, courts in general and all other participants in the justice system. The training will be for 5-6 days and cover about 1,800 persons at an average cost US$500 per person. The market value of improved skills is estimated at US$150 per month (US$1,800 per year), yielding an annual benefit of US$5 million. Component C: Modernization of Justice Physical Infrastructure Sub-Component C.1 - Expansion of smart courts & court complexes for access to justice Activity: Construction and upgrading of 3 Court Complexes (Sumgait, Sheki, Baku Grave Crimes) 16. Court complexes combine 3-5 courts within a single complex and thus yield around 25 percent direct savings (one common area, joint administration and support facilities etc.). This is equivalent to the cost of one regional court complex with four courts, providing approximately 2 million persons (20 percent of Azerbaijan’s population) with better access to justice. In monetary terms, these savings are already reflected in the combined cost of court complexes estimated at US$98 million including VAT. Without economies of scale and savings associated with ‘smart’ designs, the cost of building equivalent capacity using traditional architectural design and standard materials (based on stand-alone courthouses) would have been 33 percent higher or close to US$130 million. Indirect savings attributable to a network of smart regional court complexes and smart district courts amount to approximately US$14 million per year due to lower transportation and subsistence costs incurred (usually by lower-income users from rural areas or small towns who have to travel scores or hundreds of kilometers to attend hearings and otherwise access justice facilities and services). EVALUATION OF INDIRECT ECONOMIC COSTS AND BENEFITS 17. The measurable benefits presented in the previous section represent a relatively small subset of the broader benefits expected from this project. The PDO is to improve the access, transparency and efficiency of delivery of selected justice services. The JSSIP is likely to contribute to improving the business environment and greater competition, to alleviating poverty, to promoting equality and shared prosperity from better access to legal services, and to enhancing the rule of law through more efficient judicial services and enforcement. 18. Additional savings from e-case management: In addition to e-filing, the project also envisages the introduction of e-case management currently being piloted under the ongoing JMP. Since it does not appear as a separate cost component in the JSSIP, the benefits of e-case management have not been presented under component A.2 but rather treated as a likely 64 additional effect in this section. Based on experience from other judicial reform projects and expected effects of e-filing under this project, it is estimated that e-case management would both further reduce processing time and improve the transparency and quality of the process in first instance courts, leading to a notable reduction in the number of appeals. Combined savings are estimated to reach US$7.5 million annually by 2020. 19. Local multiplier effects of court complexes and smart courts: Smart regional court complexes and smart courthouses represent large public investments at the regional or municipal level. The construction of two regional court complexes (and an annex in a third complex), three smart courts and the MOJ Data Center and Recovery Backup Center is expected to have significant local multiplier effects in the regional cities and in the city of Baku. The civil works estimated to cost US$140 million are expected to boost the local economy during construction and catalyze a range of new private sector activities and investments once the courts and relevant offices come into operation. The evidence from the JMP (especially the Yasamal District Court in Baku) shows that new smart courts tend to generate a sizeable volume of private sector investment in response to demand for services (including coffee shops, restaurants, legal services, paralegal and other related services, notaries, parking, office rentals and hotels). 20. Based on the expected number of staff employed in new courts, the size of new court buildings and the need for operating supplies, maintenance and provision of utilities, as well as the expected total number of visitors in new courts, total additional demand for services at the local level is estimated to approach US$85 million annually at full operation by the end of 2018. The associated net effect on increased value-added attributable to the JSSIP is US$29 million annually at full operation, phased in at the ICT implementation dynamics during the 2014-2018 period. 21. As depicted in Table 7.1 below, these estimates are based on detailed information for every court provided by the MOJ and a set of very conservative assumptions, namely: • Court staff would spend US$15 daily in Baku and US$10 in other cities on all services including food and related services; the assumed amounts spent by visitors were twice as high (US$30 in Baku and US$20 in other cities) due to the broader range of needs; • Courts would annually require local supplies, utilities and maintenance services equivalent to 5 percent of investment cost; • One-third of the total number of visitors would demand one room-night of lodging in the vicinity of courts the night before the trial or court hearing, and an additional ten percent of visitors would require one hotel room-night after the court event; and • The shares of value added in sales revenues are 25 percent for food and related services, and 40 percent for supplies, utilities, maintenance and provision of lodging and/or hotel services. 65 Table 7.1: Azerbaijan JSSIP – Multiplier Effects on Local Businesses Annual demand Number Annual Annual Annual Total Area for supplies, Number of TOTAL LOCAL of days demand for demand for demand for Name of court number (square utilities and visitors INDIRECT in court services by services by lodging by of staff meters) maintenance @ per year EFFECTS annually court staff* visitors**) visitors ***) 5% of inv. cost Sumgayit Court Complex 246 61500 $ 615,000 21,598 $ 1,885,000 452853 $ 9,057,060 $ 13,736,541 $ 25,293,601 Baku Grave Crimes Court Complex 272 68000 $ 1,020,000 18,283 $ 1,550,000 373488 $ 7,469,760 $ 11,329,136 $ 21,368,896 Sheki Court Complex - Annex 36 9000 $ 90,000 7,894 $ 575,000 357273 $ 7,145,460 $ 10,837,281 $ 18,647,741 Baku City Narimanov District Court 85 21250 $ 318,750 7,210 $ 530,000 137987 $ 4,139,610 $ 4,185,606 $ 9,173,966 Baku City Surakhany District Court 54 13500 $ 202,500 4,529 $ 335,000 109816 $ 3,294,480 $ 3,331,085 $ 7,163,065 Masalli District Court 36 9000 $ 135,000 3,164 $ 225,000 57644 $ 1,729,320 $ 1,748,535 $ 3,837,855 TOTAL SALES GENERATED $ 2,381,250 $ 5,100,000 $ 32,835,690 $ 45,168,184 $ 85,485,124 Share of Value Added in Revenues 25% 40% 25% 40% 34% TOTAL VALUE ADDED GENERATED $ 595,313 $ 2,040,000 $ 8,208,923 $ 18,067,273 $ 28,911,508 *) Daily demand for food and related small services for court staff is conservatively estimated at US$15 for Baku and US$10 for other cities. **) Daily demand for food and related services for visitors is estimated at US$30 for Baku and US$20 for other cities. ***) It is estimated that 1/3 of visitors will require one night of lodging before the day in court, and 1/10 another night after attending the court session, at US$70 per night. 66 22. On that basis it is estimated that the new courts constructed under the JSSIP will induce private investment amounting to at least one-third of the value of the planned JSSIP civil works (i.e. US$45 million). Assuming a modest 15 percent return on investment and a one-third share of gross wages in value added, the indirect benefits on local businesses are estimated to reach US$10 million annually in 2019, one year after project completion. 23. Effects on improved business environment: Although Azerbaijan held a solid seventieth position in the 2014 Doing Business report which ranked 189 countries globally, its performance continues to be uneven. Much of the achievements in the areas of “Starting a Business” (10th position), “Registering Property” (13th) or “Protecting Investors” (22nd) have limited impact on the quality of the overall business environment in the presence of poor performance on some important dimensions of regular business operation (e.g. 168th position on “Trading across Borders”, 180th on “Dealing with Construction Permits” and 181st on “Getting Electricity”). A simple review of factors behind such low scores reveals that slow processing times and high costs are primarily caused by multiple agencies, coordination difficulties, administrative inefficiency and lack of accountability. 24. Obtaining a building permit for a simple warehouse involves 28 procedures, takes 212 days and costs almost US$19,000 (2.8 times per capita income). This is 50 days longer and twice more expensive in per capita income terms than the average for seven comparator countries ranked closely behind Azerbaijan in Doing Business 2014. Similarly, getting electricity for a simple business takes 240 days and costs almost US$38,000 (5.7 times per capita income). Again, this is 100 days longer and twice more expensive than the average for comparator countries. 25. Finally, a container to export or import goods costs about US$3,500. This is almost three times more expensive than the average for comparator countries (US$1,200) and more than eight times more expensive than in leading countries (US$440 for Singapore and Malaysia). 26. Clearly, there is significant scope to improve these important aspects of running a business as they erode the competitiveness of existing firms and constitute barriers to entry of new firms, especially modern SMEs based on ICT and the knowledge economy. The legal and policy basis for improvements is partially in place. Azerbaijan has already passed laws enabling more efficient processes for issuing building permits and facilitating trade across borders. In addition, relevant policy documents (including Presidential Decrees) call for full integration of e- government systems and databases across different ministries and departments to facilitate more efficient provision of all (including business-related) government services. 27. Although it is reasonable to assume that the project will contribute to improving the business environment and to helping reduce the time and cost of obtaining a simple building permit, obtaining electricity and reduce the cost of a container (both in exports and imports) in line with comparator countries, the attribution of these benefits requires additional data and empirical analysis which is beyond the scope of the project preparation timeline. These issues will be more fully explored during project implementation as part of project M&E activities. Hence, such indirect benefits are not reflected in the full economic analysis presented below. 28. Effects on improved macroeconomic environment (interest rate spreads): Presently, Azerbaijan has one of the highest loan interest rates (and largest interest rate spreads) in the world for its level of macroeconomic fundamentals (low single-digit inflation, budget and current account surpluses and a low central bank refinancing rate). The loan rates and spreads 67 are particularly high for foreign exchange denominated loans given to individuals (over 20 and 10 percent respectively) and somewhat lower for loans in domestic currency (over 18 and 8 percent respectively). These loan rates apply to the vast majority of SMEs and hence represent an effective barrier to economic growth in the non-oil sector. The project is expected to generate significant beneficial impacts at the macroeconomic level due to enhanced rule of law and stronger and fairer enforcement. These effects will manifest themselves, inter alia, through lower macroeconomic risks, improved creditor rights and reduced interest rate margins. 29. With better enforcement of creditor rights and increased competition in the banking sector, it is reasonable to expect a major reduction in the loan rates and spreads. However, the attribution of these benefits requires additional data and empirical analysis which could not be completed during the short project preparation time. These issues, too, will be explored in more detail as part of the project M&E activities. Hence, these indirect benefits are not reflected in the full economic analysis presented below. SUMMARY RESULTS OF FINANCIAL AND ECONOMIC COSTS AND BENEFITS 30. To enable proper CBA based on the subset of measurable financial and economic benefits, it is important to distinguish the situation before and after the project, as well as the situation with and without the project. The situation “before the project” refers to past developments up to and including 2013 based on actual data and estimates for recent periods. The situation “after the project” is based on projected costs and benefits during the project implementation period (2014-2018) and ten years beyond the expected project completion date (2019-2028). Future costs and benefits are projected not only for the situation “with the project,” based on expected investment costs and future benefits and operating costs, but also for the situation “without the project” which serves as a counterfactual. 31. Net project cash flow is defined as the difference between the situations with and without the project. In simple projects, the situation without the project usually assumes zero new investment and constant level of past benefits and operating costs. For the JSSIP this is not the case. A substantial increase in the number of courts, judges and court staff is needed to meet the growing demand for judicial services during 2014-2018 even if the new project was not implemented. The situation “without the project,” therefore, reflects these necessary increases in operating costs and minimal investments needed to meet the growing demand for judicial services based on historically established cost standards and existing quality of provided judicial services. By contrast, the situation “with the project” reflects an alternative way of meeting the expected growth in demand for judicial services in the 2014-2018 period and beyond, as well as providing a range of new e-services that would increase the efficiency of the judicial system, improve the quality of judicial services and provide better access to legal services for all. In addition, the new system is expected to improve the business environment over time through more efficient and effective inspections, better contract enforcement and lower cost of financing. 32. The summary results of the financial analysis are presented in Table 7.2 below. With a small portion of financial benefits evaluated, the JSSIP has a satisfactory financial rate of return of 55.7 percent and an NPV of US$224 million (based on financial prices and 12 percent discount rate). The economic analysis, presented in Table 7.3, has a higher rate of return (72.3 percent) and a Net Present Value (NPV) of US$222 million (based on economic prices and a 12 percent discount rate). The true economic and financial profitability of the JSSIP (Table 7.4) is 68 even higher due to indirect benefits on local businesses: the ERR rises to almost 115 percent and the NPV reaches US$388 million. Table 7.2: Azerbaijan JSSIP – Financial Analysis (direct effects) In million US Dollars unless indicated otherwise 2014 2015 2016 2017 2018 2019 2020-30 w/o VAT w VAT DIRECT FINANCIAL COSTS 170.7 200.0 55.6 62.2 55.0 20.0 7.2 A Better delivery 28.4 33.6 B Improved efficiency 14.3 16.4 C Civil works 115.5 136.1 D Overhead and contingency 12.4 13.9 Cost of land and utilities - - DIRECT FINANCIAL BENEFITS 5.1 10.9 30.3 19.8 36.2 44.2 37.3 A.1.9 Free legal aid 0.3 0.5 0.8 1.1 1.5 1.5 1.5 A.2.2 e-Registry for Inspections* 1.8 4.2 8.4 12.0 15.0 15.0 15.0 A.2.3 e-Library* 0.4 0.8 1.7 2.4 3.0 3.0 3.0 A.2.8 e-Filing* 0.3 0.6 1.3 1.8 2.3 2.3 2.3 A.2.9 e-Bailiff* 0.3 0.7 1.3 1.9 2.4 2.4 2.4 B.1.3 Energy savings 0.1 0.1 0.1 0.1 0.1 0.1 0.1 B.3.1 Access to justice 0.2 0.6 1.1 1.6 2.0 2.0 2.0 B.4.6 ICT training 0.7 1.4 2.1 2.9 3.6 4.3 5.0 C.1.1 Court Complexes 1.0 2.0 3.0 4.0 5.0 6.0 6.0 Sale of vacated courts 2.5 1.3 7.6 With Net Cash Flow FIN Analysis - 50.5 - 51.3 - 35.2 10.3 29.0 44.2 37.3 W/O Less NCF w/o project - 14.6 - 27.2 - 39.9 - 52.5 - 52.8 - 53.1 - 53.4 NET CASH FLOW OF THE PROJECT - 35.9 - 24.0 4.7 62.8 81.8 97.3 90.7 Financial IRR 57.7% NPV at 12% Financial Prices 224.0 Minimal investment needed w/o the project -- old W/O 14.3 26.7 39.0 51.4 51.4 51.4 51.4 technology -- financial prices Building new courts 6.0 12.0 18.0 24.0 24.0 24.0 24.0 Reconstruction of old courts 6.4 12.7 19.1 25.5 25.5 25.5 25.5 Rental of court space 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Additional judges and staff needed w/o the project -- W/O 0.3 0.6 0.8 1.1 1.4 1.7 1.9 salaries and admin costs based on old productivity Memo item: ICT implementation dynamics 12% 28% 56% 80% 100% 100% 100% *) Weighted by ICT implementation dynamics. 69 Table 7.3: Azerbaijan JSSIP – Economic Analysis (direct effects) In million US Dollars unless indicated otherwise 2014 2015 2016 2017 2018 2019 2020-30 w/o VAT w VAT DIRECT ECONOMIC COSTS 149.1 149.1 40.2 46.6 40.5 15.3 6.5 A Better delivery 28.4 28.4 B Improved efficiency 14.3 14.3 C Civil works** 86.7 86.7 D Overhead and contingency 12.4 12.4 Cost of land and utilities 7.3 7.3 DIRECT ECONOMIC BENEFITS 5.1 10.9 30.3 19.8 36.2 44.2 37.3 A.1.9 Free legal aid 0.3 0.5 0.8 1.1 1.5 1.5 1.5 A.2.2 e-Registry for Inspections* 1.8 4.2 8.4 12.0 15.0 15.0 15.0 A.2.3 e-Library* 0.4 0.8 1.7 2.4 3.0 3.0 3.0 A.2.8 e-Filing* 0.3 0.6 1.3 1.8 2.3 2.3 2.3 A.2.9 e-Bailiff* 0.3 0.7 1.3 1.9 2.4 2.4 2.4 B.1.3 Energy savings 0.1 0.1 0.1 0.1 0.1 0.1 0.1 B.3.1 Access to justice 0.2 0.6 1.1 1.6 2.0 2.0 2.0 B.4.6 ICT training 0.7 1.4 2.1 2.9 3.6 4.3 5.0 C.1.1 Court Complexes 1.0 2.0 3.0 4.0 5.0 6.0 6.0 Sale of vacated courts 2.5 1.3 7.6 With Net Cash Flow ECON Analysis - 35.1 - 35.7 - 20.7 15.0 29.6 44.2 37.3 W/O Less ECON NCF w/o project - 11.3 - 20.8 - 30.4 - 40.0 - 40.2 - 40.5 - 40.8 NET ECON CASH FLOW OF THE PROJECT - 23.8 - 14.9 9.7 55.0 69.9 84.7 78.1 ERR 72.3% NPV at 12% Economic Prices 221.9 W/O Minimal Investment needed w/o the project - old 11.0 20.3 29.6 38.8 38.8 38.8 38.8 technology - economic prices Building new courts 4.5 9.0 13.5 18.0 18.0 18.0 18.0 Reconstruction of old courts 4.8 9.6 14.3 19.1 19.1 19.1 19.1 Rental of court space 1.7 1.7 1.7 1.7 1.7 1.7 1.7 W/O Additional judges and staff needed w/o the project -- 0.3 0.6 0.8 1.1 1.4 1.7 1.9 salaries and admin costs based on old productivity Memo item: ICT implementation dynamics 12% 28% 56% 80% 100% 100% 100% *) Weighted by ICT implementation dynamics. **) Conversion factor for construction and real estate was estimated at 0.75 due to effects of high oil revenues. 70 Table 7.4: Azerbaijan JSSIP – Economic Analysis (direct and indirect effects) In million US Dollars unless indicated otherwise w/o VAT w VAT 2014 2015 2016 2017 2018 2019 2020-30 FC TOTAL ECONOMIC COSTS 149.1 149.1 40.2 46.6 40.5 15.3 6.5 A Better delivery 28.4 28.4 B Improved efficiency 14.3 14.3 C Civil works 86.7 86.7 D Overhead and contingency 12.4 12.4 Cost of land and utilities 7.3 7.3 FB TOTAL ECONOMIC BENEFITS 8.9 19.6 37.3 55.3 67.4 75.4 68.5 Direct Economic Benefits 5.1 10.9 19.8 30.3 36.2 44.2 37.3 A.1.9 Free legal aid 0.3 0.5 0.8 1.1 1.5 1.5 1.5 A.2.2 e-Registry for Inspections* 1.8 4.2 8.4 12.0 15.0 15.0 15.0 A.2.3 e-Library* 0.4 0.8 1.7 2.4 3.0 3.0 3.0 A.2.8 e-Filing* 0.3 0.6 1.3 1.8 2.3 2.3 2.3 A.2.9 e-Bailiff* 0.3 0.7 1.3 1.9 2.4 2.4 2.4 B.1.3 Energy savings 0.1 0.1 0.1 0.1 0.1 0.1 0.1 B.3.1 Access to justice 0.2 0.6 1.1 1.6 2.0 2.0 2.0 B.4.6 ICT training 0.7 1.4 2.1 2.9 3.6 4.3 5.0 C.1.1 Court Complexes 1.0 2.0 3.0 4.0 5.0 6.0 6.0 Sale of vacated courts 2.5 1.3 7.6 Indirect Economic Benefits 3.7 8.7 17.5 25.0 31.2 31.2 31.2 Additional effects of e-Case Management 0.3 0.6 1.3 1.8 2.3 2.3 2.3 Multiplier effects on local businesses* 3.5 8.1 16.2 23.1 28.9 28.9 28.9 With Net Cash Flow FULL ECON Analysis -31.3 -27.0 -3.2 40.0 60.9 75.4 68.5 W/O Less ECON NCF w/o project -11.3 -20.8 -30.4 -40.0 -40.2 -40.5 -40.8 NET FULL ECON CASH FLOW OF THE PROJECT -20.1 -6.2 27.2 80.0 101.1 115.9 109.3 ERR 114.9% NPV at 12% Economic Prices 388.0 W/O Minimal Investment needed w/o the project -- based 11.0 20.3 29.6 38.8 38.8 38.8 38.8 on old technology -- economic prices Building new courts 4.5 9.0 13.5 18.0 18.0 18.0 18.0 Reconstruction of old courts 4.8 9.6 14.3 19.1 19.1 19.1 19.1 Rental of court space 1.7 1.7 1.7 1.7 1.7 1.7 1.7 W/O Additional judges and staff needed w/o the project -- 0.3 0.6 0.8 1.1 1.4 1.7 1.9 salaries and admin costs based on old productivity Memo item: ICT implementation dynamics 12% 28% 56% 80% 100% 100% 100% *) Weighted by ICT implementation dynamics starting in 2014. 71 Annex 8: Environmental and Social Safeguards Judicial Services and Smart Infrastructure Project Social Safeguards 1. The project triggers the World Bank’s Involuntary Resettlement Policy (OP 4.12) on a precautionary basis. While no immediate land acquisition is identified based on the proposed sites, the policy has been triggered given that sites are primarily in populated areas and unanticipated land acquisition could arise. A Resettlement Policy Framework (RPF) was prepared that describes potential project impacts and sets out policies and procedures that will apply to the project. It provides compensation principles and eligibility criteria, which is in line with the Bank social safeguards policy. The RPF was disclosed in Azerbaijan on November 19, 2013 and subsequently disclosed by the Bank on December 3, 2013 through its Infoshop. 2. The RPF provides a framework to screen all project sites prior to commencement of works to ensure that information is collected on all contested ownerships, encumbrances and privately owned assets. The screening will also verify that all sites previously acquired (if any) were done so on a “willing buyer, willing seller” basis. Site screening reports will be completed and shared with the Bank for each site where civil works are envisaged to be undertaken. A robust social screening process will ensure identification of and attention to any project affected persons at project sites. Under the screening format agreed with the MOJ, detailed information will be collected on land title/ownership, survey/demarcation, ownership of existing assets/structures and confirmation of legal and voluntary prior transfers of ownership. Screening for each site will have to be completed prior to the commencement of any works on that site. 3. The screening process includes the following steps: (i) the PIU will perform a social screening of each site prior to any works being commenced (for which the PIU will visit and undertake screening at all potential sites); (ii) the PIU will make an inventory of any identifiable encumbrances on the proposed site and will discuss these encumbrances with any potentially affected people; (iii) the PIU will record all encumbrances in the screening format and will, for two weeks, publish a list of all affected people in the area in which a facility will be constructed; (iv) during these weeks, the PIU is responsible for conducting a public consultation meeting with affected person(s) and subsequently, (v) the PIU will adjust the physical infrastructure to be built and the construction schedule based on comments during the consultation and prepare a protocol, which will be signed by each affected beneficiary. 4. In cases of identified impacts, a Resettlement Action Plan (RAP) will be prepared in line with the RPF provisions to mitigate impacts and losses. Wherever land acquisition impacts are triggered based on the social screening, a site-specific RAP will be developed in consultation with the affected people and the draft will be submitted to the World Bank for prior review. The RAP will provide a detailed inventory of project impacts, compensation and rehabilitation packages for eligible categories of project affected people (PAPs) and grievance redress mechanisms in line with the provisions of the RPF and OP 4.12. All actions and compensations specified in the RAP will be completed before commencement of the civil works. 5. The Project Implementation Unit (PIU) in the MOJ will be responsible for the RPF and for any land acquisition issues that might occur in any of their project regions in Azerbaijan. For the purposes of RAP preparation, the PIU staff will be responsible for: (i) screening the projects and subsequently ensuring that the RAPs are properly prepared and sent to the World Bank for 72 review; (ii) supervising any consultants who may be hired to prepare the RAPs and assist in their implementation; (iii) ensuring due compensation and implementation of RAPs and all subsequent monitoring and evaluation. Depending upon the magnitude of impacts that arise following screenings, necessary steps will be taken to strengthen the PIU for the implementation of land acquisition related impacts. Environmental Safeguards 6. Environmental Assessment (OP 4.01) is triggered. The environmental impacts are associated with the proposed construction of courthouses, court complexes and a Data Center and the rehabilitation and upgrading of a facility for a Disaster Recovery Center. These will be similar to those already addressed in the updated EMP for the on-going JMP. For the purposes of the proposed project the EMP has been updated to reflect the most recent changes in the description of project activities and geographical coverage. 7. The project will be implemented country-wide. Construction of court complexes and courthouses is currently proposed at Baku City (2 locations), Sumgait, Sheki and Masalli. In addition the locations of the Data Center and Disaster Recovery Center will be in or near Baku City. The final list of locations may differ from this initial list. The new construction is planned to be mostly undertaken in already developed urban areas with municipal services. In some cases (e.g. in outlying areas such as Masalli) municipal services may not be well-developed. 8. The negative environmental impacts which might be caused by the project activities are not considered to be significant or irreversible, are of temporary nature and mainly associated with the construction and rehabilitation of courthouse facilities, the Data Center and the Disaster Recovery Center, all to be implemented in the proposed project sites. The impacts include generation of excessive dust, solid waste and waste water (both construction and domestic) as well as noise and vibration which, if not properly managed, may cause contamination of soil and surface water, affect air quality and have an impact on human health. These anticipated impacts will be avoided, minimized or mitigated by the implementation of the preventive, restorative and mitigation measures envisaged by the project EMP. Those measures will be detailed in site- specific EMP Checklists to be prepared for each project site at the design stage and included in the Bidding documents and respective construction contracts. The EMP includes proactive measures to carry out preliminary surveys/assessments of relevant sites prior to beginning works, to determine if there are historically valuable assets or artifacts which require protection. The EMP also incorporates the procedures to be followed by the contractor and client in case of chance finds at project sites. There are no cases involving renovation of known historical buildings. 9. The EMP, RPF and two site-specific EMPs were prepared for the project by the MOJ PIU. These have been duly disclosed on the MOJ official web-site, disclosed at the two selected sites and posted in the World Bank Infoshop. All the site-specific EMPs to be prepared further during project implementation, and any site-specific RAPs deemed necessary following social screening, will undergo the similar disclosure process. The implementing agency demonstrated its commitment and capacity to deal effectively with the environmental and social aspects under the on-going project. 10. The project stakeholders include the staff of the court houses to be constructed as well as the population which will enjoy better quality services at the new courts. Discussions with judges, support staff and bailiffs were held in Baku and other regional locations during the 73 preparation and implementation of the original on-going project. Also, consultations were held then with community associations and NGOs. Two site-specific EMPs were duly disclosed at the project sites. Similar disclosure procedures are envisaged for all the other site-specific EMPs, and any necessary RAPs, to be prepared later in the course of project implementation. Implementation Arrangements and Compliance Monitoring 11. For the JMP, the PIU has a designated staff responsible for regular environmental and social monitoring and coordination of environmental and social matters with designers, technical experts and contractors, and for providing regular (quarterly) reports to the world Bank. Similar arrangements will be maintained for the JSSIP. 12. In addition, the MOJ will engage a qualified consultant to conduct annual audits of compliance with social and environmental safeguards on terms of reference acceptable to the Bank. Besides providing assurance to MOJ management on compliance issues, the audits will also enable the PIU to efficiently deploy resources to ensure such compliance and identify capacity challenges (if any) that require to be addressed. 74 Annex 9: Justice At A Glance Judicial Services and Smart Infrastructure Project 75 76 77