Attachment_7__Initial_Environmental_Examination_(IEE)_No_DCN_2016-KOS-113.pdf

DCN: 2016-KOS-113

Kosovo Mission / TEAM Project 1 EE.BEU Standard Form: RCE.v1 (effective date 7/4/2012)

United States Agency for International Development (USAID)

USAID/KOSOVO

Request for Categorical Exclusion (RCE)

Program/Project/Activity Data:

Activity/Project Name:

Transparent Effective and Accountable Municipalities (TEAM)

Assistance Objective: Governing Justly and Democratically Program Area: 2.2. Good Governance Country(ies) and/or Operating Unit: KOSOVO/E&E Originating Office: DGO Date: February 2, 2016 PAD Level RCE: Yes No RCE/IEE Amendment: Yes No Supplemental RCE: Yes No

DCN of Original RCE/IEE:

DCN of Amendment(s):

If Yes, Purpose of Amendment: N/A

DCN(s) of Related EA/IEE/RCE/ER(s): N/A

Implementation Start/End:

LOP: November 2016 – November 2021

Funding Amount: LOP Amount: $15,000,000

Contract/Award Number (if known): TBD IEE Expiration Date (if any): TBD Reporting due dates (if any): TBD

Recommended Determination: Categorical Exclusion

Additional Elements:

Government to Government: Local Procurement: Donor Co-Funded:

1. Project and Activity Description

The program aims to decrease corruption in Kosovo through the increase in transparency of public procurement processes via implementation of e-procurement at the local government level. In Kosovo, government procurement is often the main source of misdirected public funds used to reward political cronies and politically - connected private businesses from the local level to the central. While there is some degree of transparency in government procurement, it is not sufficient. A lack of enforcement allows many malfeasances to go unchecked and for some officials to operate without being held accountable. As a result, corruption reduces public resources and undermines public confidence in government.

Corruption both at the municipal and national level threatens the trust of the public in government institutions and further perpetuates and sanctions lawless behavior. A November 2015 UNDP report, shows that 29 percent of the public believe that corruption is most pervasive in municipal governments. The reason for this perception is due to several factors, including:

deficits in human capital; and deficient systems and procedures. This program will address the

Kosovo Mission / TEAM Project 2 problem through the development of integrity plans for municipalities, strengthening capacities of procurement bodies at the local and central levels; and engaging civil society in monitoring and tackling the problem of corruption. The development hypothesis is: if municipal officials make procurement more transparent, the perception of corruption will decrease as will rent-seeking behaviors, leading to the improvement of local governance and service delivery.

Issues diminishing the total transparency of procurement are linked to lack of human capacity at the local level, created in part by the pervasiveness of nepotism and dearth of skills building.

According to a public poll, 85 percent of Kosovars believe that family connections, bribes, party alliances, and other non-merit based factors are most important in garnering employment in the public sector. Only about 15 percent reported that education, professional experience, and vocational training help in attaining a job in the public sector.

Frequently noted by internal audit units (IAUs) is the practice of placing unqualified staff that collude with or are otherwise under the influence of municipal executives. Some mayors also complain that due to the fiscal and/or legalistic constraints they are not permitted by law to hire additional staff and often do not have funding to hire temporary consultants. The Auditor General states that most “red flags” regarding municipal audits are related to procurement.

About 35 percent of procurements are canceled by procurement officers for various reasons, according to the Anti-Corruption Agency’s report.

In addition to corruption and nepotism, municipal staff at times are just ignorant of the rules and do not have the capacity for adherence. Contractors and vendors are often more sophisticated than municipal procurement officials, who enter into agreements that are not advantageous for municipalities. For example, sometimes reportedly municipalities are duped by contractors into signing contracts for public works that are to be completed in a certain number of days, but the days may not be sequential. Municipal officials often lack the skills to be able to inspect construction projects to be able to determine if specifications are being met, and if/when progress payments should be made.

Municipal assemblies remain weak and unable to organize themselves to properly counterbalance the executive office or properly oversee procurement. Citizen participation in and oversight of municipal governance is insufficient. All 38 municipal assemblies are supposed to have audit committees, but the Auditor General found that only 15 do. In some municipalities where they are in opposition to the mayor, they actively block his/her initiatives. Perhaps as a result, public municipal meetings and public sessions of municipal assemblies are sparsely attended by citizens. This indifference may create an impression that public demand for good governance is decreasing, but may also be due in part to citizens’ apathy. Apathy may further decrease demands for better governance and exacerbate corruption.

Kosovo Mission / TEAM Project 3

In addition to problems stated above, a major issue contributing to corruption in Kosovo is the lack of enforcement. The information that is created by the Auditor General and the corruption cases served by the Anti-Corruption Agency to the prosecutor are not acted upon adequately.

The reasons for this appear to be twofold. First, prosecutors reportedly lack sufficient expertise in prosecuting complex cases such as procurements gone awry. Second, corruption within the judiciary itself may also explain why cases are not prosecuted more actively. Cases are reportedly left to languish until deadlines have expired and they have to be dismissed. The Auditor General produces what many consider to be a very good and credible report every year in which findings are detailed for every municipality (as well as other parts of the GOK).1 Completion of parts of the AG’s report are contracted out to large, international auditing firms.

However, AG staff stated that while they can often see that something did not go right with procurement, they cannot always explain why. For this reason, AG staff have requested from USAID specialized training in forensic and investigative auditing.

The Government of Kosovo (GOK) has pledged to reduce corruption at all levels of the government. The GOK also appears motivated to address corruption, as this has become a high priority issue with many bi- and multilateral organizations that deal with the GOK. Unlike many other countries in which USAID operates, the GOK may have an incentive to address corruption, because doing so along with a host of other reforms is a prerequisite to closer EU and NATO integration. The International Monetary Fund (IMF) is linking conditionality’s to implementation of e-procurement, which seems to have generated motivation for the GOK, in particular the Ministry of Finance, to roll out this system.

The GOK is taking steps to ensure that more transparent systems are in place in order to mitigate fraud, waste and abuse. One example of this is the Resources Information Management System (RIMS), which was rolled out to the Ministry of Internal Affairs which includes the Kosovo Academy for Public Safety, the Kosovo Agency for Forensic, Kosovo Police Inspectorate, and the Emergency Management Agency and Civil Registration Agency. In 2009-2011, the GOK adopted legislation to fight corruption2. The GOK adopted an Anti-Corruption Strategy (2013– 2017). According to this Strategy, all public institutions are required to develop and implement an Integrity Management System. At this moment, only two municipalities have such plans in place. The Public Procurement Law was also recently revised, on December/15, to comply with European Standards. And the Office of the Auditor General has significantly stepped up public audits of municipal budgets. However, implementation of anti-corruption efforts and legislation remains weak and corruption remains a significant issue.

Kosovo Mission / TEAM Project 4

The GOK’s Declaration of Medium-Term Policy Priorities (2014-2016), approved in April 2013 and the GOK’s Anti-Corruption Strategy, approved by the Assembly in February 2013, set out the Good Governance priorities to include: 1) Public Administration; 2) Local Administration; 3) Anti-corruption; 4) Human Rights; and 5) Management of Strategic and Public Financial Planning. Good governance is a key priority and will be addressed through various means, including improving public procurement, financial planning and management. A special emphasis is placed on the organization and functioning of municipal governments and direct participation of citizens in decision-making processes.

Part of the reform packages described above includes an e-procurement system. The use of e-procurement by municipalities could help to address some of the problems related to corruption described above. This new e-procurement system will be used by over 170 of the GOK’s budgetary units, including the 38 municipalities (the only GOK entities exempted are the ones that use RIMS, described above). The World Bank is currently implementing the Public Sector Modernization Project, which is introducing this e-procurement system. This e-procurement portion of the Public Sector Modernization Project includes both hard- and software which has already been installed at the central level. With the approved the modified Law, the World Bank’s project will train a number of trainers which is supposed to ultimately result in the training of at least one person from each of the GOK’s 171 budgetary units.

I. STATEMENT OF WORK

The Transparent, Effective and Accountable Municipalities (TEAM) project pursues one primary objective - Reducing Corruption at the Municipal level. It will do so through a three-pronged approach as listed below:

1.Develop, refine and roll out models for transparent and accountable municipalities

2. Engage the central level in addressing municipal corruption within the procurement process; and 3.Enable civil society to track and expose corruption

Up to 25 percent of the total budget of about $11.2 million will go towards incentive grants for a select number of focus municipalities and sub-contracts and grants to local organizations such as NGOs and think tanks. Municipalities and organizations will receive incentive grants to improve and reinforce watchdog efforts over anti-corruption and e-procurement efforts. Selection will be based on targets for areas of improvement derived from the baseline survey. Focus municipalities will be required to provide in-kind contributions of around 20 percent towards incentive grants implemented under TEAM.

Some TEAM activities will be only implemented in the focus municipalities, such as incentive grants and extensive training and other technical assistance. Other trainings will be made

Kosovo Mission / TEAM Project 5 available to all 38 municipalities. These TEAM components are discussed in greater detail below along with the kinds of activities and interventions planned for each.

Component One - Develop, refine and roll out models for transparent and accountable municipalities

The objective of this component is to identify approximately five reform-minded municipalities through a review of data and indices on performance (e.g. Mosaic Report, DEMOS reporting, AG reports) prior to program launch. Municipalities will be selected based on criteria such as their degree of transparency (measured by the Kosovo Democratic Institute and other reports), the number of Auditor General (AG) findings they have, the extent to which they attempt to address AG findings, an active citizenry, and other similar criteria TEAM will contain a grants component that will be utilized primarily in support to achieving results under this objective.

The incentive/support grants component will allow for approximately five grants per year of about $30,000 each, and will require municipal matching of approximately 20 percent. Grants will allow municipalities and their citizenry to together identify problems that lead to vulnerability of the Local Government to the corruption and to address them. Grants will mainly be utilized to purchase equipment (e.g. office equipment, IT equipment) and software that will support more transparent municipal budgeting and procurement process. At the end of the lifecycle of the equipment the grantees will properly dispose of equipment and recycle if possible.

Once the municipalities are identified, TEAM will then work extensively in these focus municipalities to champion anti-corruption reforms, particularly in the area of procurement. In the latter years of this project, if success can be declared in the initial focus municipalities (and depending on the availability of funding) TEAM may phase into additional municipalities as the original ones “graduate”. The initial focus municipalities where new procurement processes and practices are put in place will serve as models which TEAM and other donors can replicate and scale up, and which other municipalities can emulate.

Defined or illustrative activities under Component One— Develop, refine and roll out models for transparent and accountable municipalities

1.1 Increase capacity of the municipal Procurement Managers on the Procurement

Cycle -Training municipal procurement managers on planning solicitations, to evaluating bids, to construction and contract management, and all other parts of the procurement cycle so that the anti-corruption safeguard mechanisms within the procurement processes are put in place.

1.2 Train municipal (and other Kosovo Budgetary Units if needed) officials on the use of E-Procurement - provide basic and or supplemental training so that more municipal officials have a greater understanding of e-procurement.

Kosovo Mission / TEAM Project 6

Defined or illustrative activities under Component One— Develop, refine and roll out models for transparent and accountable municipalities

1.3 Increase the capacity of Municipal Internal Audit Units (IAUs) in the areas of fraud detection, investigative and forensic auditing - Train municipal IAUs so that they are better able to investigate cases of municipal procurement fraud and other malfeasance to a level that it results in sufficient evidence that can be referred to the prosecutor's office for further investigation.

1.4 Increase the transparency of municipal procurement - In the focus municipalities, use government systems for making public all non-confidential details of procurements on websites and otherwise in formats that can be readily used by civil society and media for analysis.

1.5 Provide technical assistance to municipalities in preparing and/or implementing Integrity Plans - As per Kosovo’s Anti-Corruption Strategy, all municipalities must have Integrity Plans in place

1.6 Train Municipal Finance Departments - in the focus municipalities so that they are better able to prepare budgets in accordance with Kosovar law and in performance-based budgeting so that budgets are based on the relationship between program funding and expected results.

1.7 Transfer Municipal Best Practices – Municipal best practices, used in other countries in improving procurement processes and preventing corruption should be made available to the municipalities. In addition, some Kosovo municipalities have themselves developed systems to improve the transparency of their procurement and human resource processes.

1.8 Capacitate Municipal Assembly Audit Committees - in being better able to understand and act upon the findings of the Internal Audit Units and the Auditor General.

1.9 Train businesses on how to use e-procurement and business ethics - In order to increase competition for municipal procurements, train businesses that wish to respond to solicitations and require training on how to use e-procurement.

1.10 Increase the capacity of municipalities to counter corruption through enforcing ethics and eliminating conflicts of interest that would introduce the concept of corruption and nepotism and how to reduce or eliminate it within the recruitment process through increased awareness of laws and guidelines as well as the costs of corruption.3The intervention will be informed by the baseline on training and implemented in only focus municipalities.

Expected Results

All municipal procurement officers from all 38 municipalities are trained in basic e-

3The European Union is taking the leads on public administration reform efforts in Kosovo.

Kosovo Mission / TEAM Project 7 procurement subjects and ethics, All 38 municipal internal audit units receive training and are better able to detect procurement fraud and other malfeasance, Internal Audit Units in five focus municipalities are more independent and empowered to identify and report fraud.

Municipal procurement in all 38 municipalities becomes more transparent4, and more information is made available in formats that are more conducive to analysis by CSOs and the public.

The focus municipalities are implementing integrity plans that are in compliance with the GOK’s Anti-Corruption Strategy.

Municipal finance departments in focus municipalities are better able to prepare performance-based budgets in accordance with Kosovar law.

Municipalities are making more use of systems to improve transparency developed in other municipalities.

At least the five first focus municipalities are addressing more findings of the Internal Audit Units and the Auditor General.

Municipal assembly audit committees in at least the focus municipalities are better able to understand and act upon the findings of the Internal Audit Units and the Auditor General.

An increasing number of businesses are able to use e-procurement and participate in municipal procurements.

Kosovar organizations are closer to becoming sustainable in providing e-procurement training to businesses.

Component Two- Engage the Central Level in Addressing Municipal Corruption

This component will work with select entities within the GOK that are relevant to addressing corruption at the municipal level. Select staff within the Auditor General’s office whose counterparts are staff at the municipal level (such as: Regularity Audit of Local Governments Division and the Department of Value for Money in Procurement within the Performance Audit Division), as well as the Central Harmonization Unit in the Ministry of Finance which coordinates with municipal IAUs deal with municipal corruption. Support to these GOK institutions will help strengthen their ties to the IAUs and enable both to better understand procurement processes and detect and address the weaknesses in procurement. Increasing the capacity of the IAUs may also help them become less susceptible to pressure from municipal executives. IAUs with improved capacity should be able to produce better audits that provide the prosecutor with more actionable information so that corruption can be better prosecuted.

4Based on secondary data sources.

Kosovo Mission / TEAM Project 8

Defined or illustrative activities under Component Two— Engage the Central Level in Addressing Municipal Corruption

2.1 Increase the capacity of the Auditor General (AG) in the areas of fraud detection at the Local Government level - Increase the ability of the AG’s Regularity Audit of Local Government Division and the Department of Value for Money within the Performance Audit Division, to conduct municipal Value for Money audits and production of the comparative studies on the costs of the selected municipal procurements.

2.2 Increase the capacity of the Ministry of Finance's Central Harmonization Unit (CHU) to oversee and direct municipal Internal Audit Units (IAUs) - Increase the involvement of the CHU in coordinating with the IAUs in order to make them more objective and less likely to be influenced by municipal officials.

2.3 Develop guidelines for training Prosecutors and Judges – Develop training guidelines to be used for training prosecutors and judges to understand procurement process in order to collect and better understand evidence presented to them for further prosecution and conviction of corrupt government officials.

2.4 Create a Contractor Past Performance Records - Similar to the USG’s “Past Performance Information Retrieval System” (PPIRS), a system is needed so that municipalities are able to determine how contractors performed in past procurements.

Illustrative Results

The Auditor General is better able to detect systemic weaknesses in the municipal procurement system and detect fraud.

The Ministry of Finance’s Central Harmonization Unit has increased ability to oversee and coordinate with municipal IAUs.

Municipal Internal Audit Units are more independent and less likely to be pressured by municipal executives.

The Public Procurement Regulatory Commission has technical capacities to be able to ensure proper operation of the e-procurement system.

Prosecutors and judges are better able to understand the procurement process.

A system is in place that will allow municipalities (and possibly other parts of the GOK) to determine contractor past performance.

Component Three- Enable Civil Society to Track and Expose Corruption

TEAM’s Civil Society component is focused on monitoring corruption at the municipal level.

The implementer will provide sub-contracts and/or grants to national-level CSOs, which will monitor all 38 municipalities in areas such as procurement and recruitment while ensuring greater citizen engagement, especially in rural areas. These CSOs will use publically available

Kosovo Mission / TEAM Project 9 information and analyze it to create scorecards, highlight corruption and generally shed more light on municipal governance. Under this component, CSOs will use media as a vehicle to expose corruption to the public. Differential results are anticipated between the focus municipalities and the others; media exposure will help reveal this. This spotlighting of anti-corruption should create pressure on poorly performing municipalities and the political parties, to which their leadership belong, thereby creating more disincentives for corrupt behavior.

Defined or illustrative activities under Component Three— Enable Civil Society to Track and Expose Corruption

3.1 Enhance national-level CSOs ability to monitor municipal procurement – For example, support national-level think tanks and/or NGOs to analyze municipal procurements, other spending, and recruitment and create and maintain municipal scorecards, reports and other material to increase exposure of corrupt practices.

3.2 Enhance national-level CSOs ability to monitor enforcement related to the litigation of corrupt municipal practices – For example, enable CSOs to track and widely publicize indictments, convictions and paroles of municipal officials and other persons and businesses linked to corrupt municipal practices. Where possible, this information should be included in national indices and publications on corruption.

3.3 Enable national-level CSOs to train local-level CSOs in monitoring municipal procurements –For example, fund national-level CSOs to produce training material and train municipal-level CSOs on how to monitor and expose municipal-level malfeasance.

3.4 Enable CSOs to use Social Media to expose corrupt municipal practices – For example, enable and fund CSOs to use social media to allow Kosovars to create, share and exchange information, ideas, and photographs/videos in virtual communities and networks, as they pertain to corrupt municipal practices.

Illustrative Results

National-level think tanks and/or NGOs are analyzing municipal procurements, other spending, and recruitment on a regular basis.

Kosovan CSOs are increasingly capable of tracking and widely publicizing indictments, convictions and paroles of municipal officials and other persons and businesses linked to corrupt municipal practices.

National-level CSOs have increased capacity to train municipal-level CSOs on how to monitor and expose municipal-level malfeasance.

CSOs are better able to use social media and other communication vehicles to expose corrupt municipal practices.

Kosovo Mission / TEAM Project 10

2. Justification for Categorical Exclusion Determination

The activities that aims to decrease corruption in Kosovo through the increase in transparency of public procurement processes via implementation of e-procurement at the local government level will not have an effect on the natural or physical environment and are among the classes of activities listed under 22 CFR 216.2(c)(2): Therefore, under §216.2(c)(1), neither IEE nor Environment Assessment will be required for these activities. Instead, a categorical exclusion threshold determination is recommended for the following identified activities:

• Activities 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 2.1, 2.2, 2.3, 2.4, 3.1, 3.2, 3.3, and 3.4, , under §216.2(c)(2)(i) education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.).

3. Limitations of the Categorical Exclusion Determination

This categorical exclusion does not cover classes of actions normally having a significant effect on the environment under §216.2(d):

i. Programs of river basin development;

ii. Irrigation and water management;

iii. Agricultural land leveling;

iv. Drainage projects;

v. Large scale agricultural mechanization;

vi. Resettlement projects;

vii. New land development;

viii. Penetration road building and road improvement;

ix. Power plants;

x. Industrial plants; and

xi. Potable water and sewerage projects.

In addition, this categorical exclusion does not cover activities that:

• Support project preparation, project feasibility studies, engineering design for activities listed in §216.2(d)(1);

• Affect endangered species;

• Provide support to extractive industries (e.g. mining and quarrying);

• Promote timber harvesting;

• Lead to construction, reconstruction, rehabilitation, or renovation work;

Kosovo Mission / TEAM Project 11

• Support agro-processing or industrial enterprises;

• Provide support for regulatory permitting;

• Lead to privatization of industrial facilities or infrastructure with heavily polluted property;

• Assist the procurement (including payment in kind, donations, guarantees of credit) or use (including handling, transport, fuel for transport, storage, mixing, loading, application, clean-up of spray equipment, and disposal) of pesticides or activities involving procurement, transport, use, storage, or disposal of toxic materials--pesticides cover all insecticides, fungicides, rodenticides, etc. covered under the Federal Insecticide, Fungicide, and Rodenticide Act; and/or

• Procure or use genetically modified organisms.

Any of these actions would require a Europe and Eurasia Bureau Environmental Officer (BEO) approved amendment to the categorical exclusion.

4. Mandatory Inclusion of Environmental Compliance Requirements in Solicitations, Awards, Budgets and Work Plans

4.1 Appropriate environmental compliance language, including limitations defined in Section 3, shall be incorporated into solicitations and awards for this activity.

4.2 The implementing partner shall ensure annual work plans do not prescribe activities that are defined as limitations in Section 3.

5. Revisions

Under §216.3(a)(9), if new information becomes available that indicates that activities covered by the categorical exclusion might be considered major and their effect significant, or if additional activities are proposed that might be considered major and their adverse effect significant, this categorical exclusion determination will be reviewed and, if necessary, revised by the Mission Environmental Officer (MEO) with concurrence by the BEO. It is the responsibility of the USAID Contract Officer’s Representative (COR)/Agreement Officer’s Representative (AOR) to keep the MEO and BEO informed of any new information or changes in the activity that might require revision of this determination.

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6. Recommended Environmental Threshold Decision Clearances:

Approval :

James Hope, Mission Director

Date

Clearance:

Mike De La Rosa, Deputy Mission Director

Clearance :

Arijeta Dushi-Carkaxhiu, Acting Director, PPO

Perihan Ymeri-Ustaibo, Mission Environmental Officer

Sara Buchanan, DGO Director

Concurrence:

Mark Kamiya E&E Bureau Environmental Officer

Distribution:

IEE File Mission Environmental Officer (to also provide a copy to AOR/COR)