ETHIOPIA COUNTRY PROCUREMENT ASSESSMENT REPORT
Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized29057ETHIOPIACOUNTRY PROCUREMENT ASSESSMENT REPORTVOLUME IIPublic Disclosure AuthorizedDATA AND ANALYSISJune 28, 2002AfricaAfrica RegionOperational Quality and Knowledge ServicesThe World Bank
Ethiopia Country Procurement Assessment Report, June 28, 2002TABLE OF CONTENTSANNEX A LEGAL FRAMEWORK . 2ANNEX B TRADE PRACTICES. 21ANNEX C FINANCIAL FRAMEWORK . 25ANNEX D PUBLIC SECTOR PROCUREMENT OF GOODS / WORKS . 27ANNEX E PUBLIC SECTOR PROCEDURES FOR SELECTION OF CONSULTANTS 55ANNEX F OVERALL ASSESSMENT OF PROCUREMENT PERFORMANCE . 60ANNEX G PRIVATE SECTOR PROCUREMENT . 67ANNEX H CHECKLIST COMPARING NATIONAL COMPETITIVE BIDDINGPROCEDURES AND WORLD BANK POLICY . 71Appendix 1 Ethiopia CPAR Concept Memorandum . 75Table : Commitments And Disbursements - Ethiopia. 79Appendix 2 List Of Laws, Regulations And Other Documents Collected . 81Appendix 3 List of Organizations and Individuals met. 84-1-
Ethiopia Country Procurement Assessment Report, June 28, 2002ANNEX ALEGAL FRAMEWORK-2-
Ethiopia Country Procurement Assessment Report, June 28, 2002Annex A – Legal Framework1.Legal System (i.e. Common/Civil Law; Socialist; Shari’a; other)Civil Law.2.Form of government (i.e. federal or centralized)Ethiopia has a federal structure of government comprising of the Federal Government and nine(9) autonomous states vested with powers of self-administration under the 1995 Constitution.3. Does the Constitution contain any provision directly bearing on public sectorprocurement? (If so, describe)None.4. Is the country a signatory to the World Trade Organization (WTO) Agreement onGovernment Procurement?Ethiopia is not a signatory to the World Trade Organization Agreement. Since 1997 it has beengranted observer status in WTO.5.Does basic contract law contain any provision directly bearing on public sectorprocurement? (If so, describe)The provisions of “Title XIX – Administrative Contracts” under the Civil Code of Ethiopia(Proclamation No. 165 of 1960) have applicability to procurement by public bodies1, withoutlimiting the special provisions made for public procurement under the Financial AdministrationProclamation No. 57/1996” and the “Council of Ministers Financial Regulations No. 17/1997” (Seeanswer to Item 6 below).6. Is there a separate body of law, which regulates public sector procurement? (If so,identify and specify whether it is a law, ordinance, presidential or ministerial decree, etc.)The “ Federal Government of Ethiopia The Financial Administration Proclamation No.57/1996” (hereinafter referred to as “the Financial Proclamation ”), which took effect from 19December 1996 deals inter alias with “procurement and contracts” by public bodies and publicdisbursements. This Financial Proclamation constitutes the Procurement Law issued pursuant toArticle 55(1) of the Constitution of the Federal Republic of Ethiopia. Articles 68 and 69 of theFinancial Proclamation authorize the issuance of “Regulations” and “Directives” by the Council ofMinisters and the Ministry of Finance respectively. Pursuant to the above-said FinancialProclamation, the “Council of Ministers Financial Regulations No. 17/1997” (hereinafterreferred to as “the Regulations”) – effective 1 July 1997 - have been issued, which contains moredetailed provisions on “Procurement – contracts” and deals with procurement principle, “supplier’s1Article 73 of the “Council of Ministers Financial Regulations No. 17/1997 refers.-3-
Ethiopia Country Procurement Assessment Report, June 28, 2002list’, “bids”, “bid security”, “contract security”, “Loan and Aid”, “Progress Payment” and“Retention of Records”.The “ Ministry of Finance Directives – Procurement and Contracts” (hereinafter referredto as “the MOF- Directives”) is presently being finalized. The Bank has provided to theGovernment its comments on the draft MOF-Directives dated 9 June 1997 though they have notbeen incorporated so far in the text.A “Procurement Manual”(revised 24 March 1999) was prepared to provide guidance topublic bodies in the organization and undertaking of procurement of goods and services and theBank has provided comments on the draft Procurement Manual. Though already useful, the Manualis incomplete and should be improved.7. Do other bodies of law regulating associated aspects of procurement contain provisions,which are directly related to problems identified within the local system (e.g. labor, tax,customs, insurance, national standards, banking, foreign exchange laws or controls, etc.)? (Ifso, describe)Under the Commercial Registration and Business Licensing Proclamation No. 67/1997, abusinessperson before starting a commercial activity shall make an application to the Ministry ofTrade and Industry or such other appropriate authority for the issuance of a license to undertake thecommercial activity.Under the Ethiopian Foreign Exchange Control Regulations, the business person who isregistered to undertake a commercial activity, who desires to import goods and services, shouldmake an application to the Exchange Control Department of the National Bank of Ethiopia (NBE)for the issuance of an import license and for the purchase of foreign currencies needed for theimport. The importer will furnish to the Exchange Control Department of NBE, the details of theproposed purchase price to be paid with copies of at least two price quotations received for theimport. The Market Intelligence Department of NBE checks whether the price for the proposedimport is fair and then authorizes the participation of such applicant in the foreign exchangeauction, while at the same time issuing business firm an import license. In some cases, where NBEconsiders that the price is not fair, it asks the importer to search for alternative sources and gives theaddresses of firms who can supply the alternatives. However in the case of a public body orparastatal, an import license is not required; and they would apply to the National Bank of Ethiopia(NBE) for an import permit and for the requisite amount of foreign currency through the MOF withthe statement that they have enough budget to cover the foreign currency required. Followingissuance of the import license/permit by NBE, the importer, whether private or public organization,participates in the weekly public auction held by NBE for sale of foreign exchange and purchaseshis requirements of foreign exchange.Under Ethiopian Customs Regulations read with the “Re-Establishment and Modernization ofCustoms Authority proclamation No. 60/1997”, import duties are payable on goods imported,unless exemptions to government or non-government organizations to import duty free all capitalgoods machinery, equipment and initial spare parts have been authorized by the EthiopianInvestment Authority under Proclamation No. 37/1996 and/or special exemptions granted by the-4-
Ethiopia Country Procurement Assessment Report, June 28, 2002Federal Government based on international agreements etc. The required documentation forclearance of imported goods from the Customs Authority are (i) the import license or permit, calledthe Bank permit, (ii) the bill of lading, (iii) the packing list, and (iv) other necessary documents asmay be asked by the Customs Authority. All the items that enter Ethiopia through the authorizedtransit routes either from Djibouti or from Bure, a customs checkpoint at the Eritrean border, arecleared expeditiously. Although the public bodies and the parastatals claimed that it takes aboutthree to four months to clear the items from the Customs Authority, the Manager Leghar Customsclaimed that as per their study 80 percent of the cases are cleared in 5 days or below, while theremaining 20 percent took more time due to incomplete documentation.Under the Ethiopian Authority for Standardization Establishment Proclamation No. 328/1987read with the Standards Marks and Fees Council of Ministers Regulations No. 13/1990, all thestandards to be used in Ethiopia were compulsory standards to be prescribed by the EthiopianStandards Authority (ESA). However such standards need not be Ethiopian standards. With a viewto set the matter very clear, a new proclamation, called the Reestablishment Proclamation has beenapproved and is now under printing. Under this proclamation, the areas where standards areapplicable are broken down into two parts, namely compulsory standards and optional standards.Compulsory standards will address health and safety concerns and will cover few items. In areaswhere optional standards are prescribed, the end user or the importer can choose his own standardsand not be obligated to follow Ethiopian Standards, Because of this provision, public bodies,parastatals and private organization can choose their own applicable standards in those areas, whichcould be international standard or a national standard of another country. Be this as it may, due toincorrect understanding of the legal requirements as to standards, all the public bodies andparastatals reviewed, have required in regard to procurement not financed by external fundingagencies, the use of Ethiopian Standards in their bidding documents and have allowed the use ofinternational standards only where national standards are not available. This situation will standcorrected in the near future after the release of the new Proclamation.Under the Ethiopian Licensing and Supervision of Insurance Business proclamation No.86/1994, marine insurance is compulsory for imports and should be obtained from EthiopianInsurance Corporation (EIC), a 100 percent state-owned parastatal organization, or other Ethiopianinsurance companies. EIC and other Ethiopian companies provide transit, marine, erection all-risks,contractor's all-risks, workmen’s compensation etc. policies. Ethiopian organizations are requiredby law to obtain their insurance polices from these Ethiopian companies. However the cover is notpresently being provided in foreign currency by these companies, but EIC could do so, if anapplicant has a necessity under an international agreement to obtain the same. Public bodies andparastatals, where they have the responsibility for insurance, are required to obtain insurancethrough the EIC. In regard to project imports financed by external funding agencies, the applicableprovisions of the external funding agencies will govern in matters of insurance.The laws relating to personal income tax (Proclamation No. 107/1994) and the corporateincome tax are not directly related to procurement problems.The rate of sales tax is 5 percent on selected agricultural products and essential goods and 12percent on all other products and is paid by the producer, importer or the person rendering theservice as the case may be. Excise tax is levied on selected items when produced locally or-5-
Ethiopia Country Procurement Assessment Report, June 28, 2002imported from abroad and ranges from 10 percent to 200 percent and is paid by the local produceror the importer, as the case may be. These provisions have no direct bearing on the procurementproblems.Do different laws govern the procurement of goods, works and consultant services? (If so,describe)The Financial Proclamation and the Financial Regulations are applicable to procurement ofgoods, works and consulting services. While the provisions of the MOF-Directives are applicable toprocurement of goods (except for vehicles) in its entirety, its applicability to procurement forworks, construction and procurement of consultancy services are restricted for reasons detailedbelow.In regard to procurement of vehicles, they will have to be made through the RoadTransport Authority (RTA), who have special prescriptions.In regard to “certain areas as defined by Proclamation 4/1995, the Ministry of Works andUrban Development (MOWUD), now Ministry of Infrastructure (MOI), is responsible forproviding guidance to public bodies in consultation with MOFED.In regard to procurement of consultancy services by public bodies, the Ministry of EconomicDevelopment and Cooperation (MEDAC), now absorbed by MOFED, had the responsibility forpreparing the list of approved consultants and for preparing the directives relating to selection andappointment of consultants by public bodies. No action however was carried out by MEDAC untilthe date of the report.In regard to procurement of works, the applicable procurement method is open competitivebidding, with or without prequalification, depending on the size of the contracts. For all contractsexceeding the value of US 10 million, prequalification of bidders procedure is followed. Forcontracts below the value of US 10 million, no prequalification of bidders' procedure is followed,but the bidding documents prescribes the grade of the contractor. Foreign contractors are allowed toparticipate under the terms of the local competitive bidding procedures. The evaluation criterion isprice amongst bids, which are substantively responsive to the bidding documents. In regard tocontracts financed by externally funding agencies, the rules of such agencies are followed. In cases,where the implementing Ministry and MOI determine that there is an urgency for the works by apublic body, the invitation and related document for prequalification of contractors and the biddingdocuments for the works are issued in tandem and proposals are invited in two envelopes, to besubmitted at the same time, which would be opened sequentially in separate sessions. At first, theprequalification material will be opened and evaluated on the basis pass/fail test. The bids forconstruction contracts of those bidders, who pass the prequalification exercise, will be opened andcontract will be awarded to the lowest evaluated substantially responsive bid. And the evaluationcriteria will be price. This procedure is followed only where funding is provided by Ethiopianresources. It would be pertinent to point out that this procedure is unacceptable under the Bank’sGuidelines for Procurement. For national contracts, advertising may limit participation to predefined categories of contractors and/or shortlisting of contractors is resorted to, where the-6-
Ethiopia Country Procurement Assessment Report, June 28, 2002implementing ministry/public body and MOI establish urgency for the works.In regard to procurement of consultancy services, MEDAC did not come up with a set ofdirectives, even in draft form. This responsibility has been now devoluted to MOFED. In regard toconsulting services contracts, which are financed from out of the proceeds of loans and grants fromIDA, ADB, EU etc., the selection procedures followed are those prescribed in the respectivefinancing agreements. Consequently MOFED’s instructions will govern those cases which are notfinanced by external funding agencies.8. Is the system clear, comprehensive and consistent? Does it cover all essential aspects withno unduly complicated, conflicting or outdated regulations and are rules easily found within awell-coordinated legal framework? Are there an appropriate variety of procurement methodsallowed in special cases? (Describe)The proposed legal and regulatory framework does not follow the generally acceptedprinciples and norms prescribed in UNCITRAL Model Law on Procurement of Goods,Construction and Services, or other recognized public procurement system. The specificdeficiencies are in the areas of (a) the choice of various approved procurement methods and theconditions for their use; (b) the restriction as to the use of approved suppliers who are registeredwith the Government; and the need for bidders who are not on the approved list of suppliers to gothrough a qualification procedure for their registration as an approved supplier before their bids aretaken into consideration for evaluation; (c) one of the approved method of procurement, namely“negotiated procurement” which “should be used where the end product is difficult to define”,being a mix of “direct contracting without competition”, “consulting services”, “turnkeycontracts”, “two-stage bidding” and “two envelope procedure where technical and price proposalsare solicited at the same time and opened in separate sequential sessions’; (d) a bid evaluationprocedure based on the merit point system, that is technical attributes (40%), split into essentialattributes and desirable attributes, price tendered (40%) and service aspects, such as availability ofspare parts, maintenance facilities and delivery time (20%), which is applicable to all contracts2 forgoods; (e) absence of provisions relating to “Settlement of Disputes”; and (f) absence of criteria foruse of prequalification of bidders procedure.The draft MOF-Directives provide for four different methods of procurement, namely (i)“open tender”, (ii) “selective tender from an approved list of suppliers”, (iii) “negotiatedprocurement”, and (iv) “direct requests for quotations from selected suppliers”. Even in “opentender” method of procurement if a bid is received from a supplier who is not in the approved list ofsuppliers maintained by the Government, the public body in consultation with MOF shoulddetermine whether that supplier meets all of the criteria required for inclusion in the approved list,namely “technical competence”; “managerial competence”; “financial stability”; “level ofresources”; “commercial standing”; and “reliability, including any previous record of corruption”.If such supplier does not meet any of the above criteria, his/her bid is rejected from consideration.Procurement by “open tender’ will be the norm, unless justification is provided for the use of othermethod of procurement by the application of criteria specified in the Directives and approved bythe competent authority. The competent authority for this purpose is (a) the MOF where the value2Public bodies are empowered to vary the weightings by plus or minus 10% to reflect the relative importance of theelement vide Article 26 of the draft MOF – Directives.-7-
Ethiopia Country Procurement Assessment Report, June 28, 2002of the contract exceeds Birr 500,000 in the case of local procurement and Birr 2 million in the caseof international procurement; and (b) the public body in other cases. [See answer to Question No. 7under Annex A “Basis of Transparency” for more details on “procurement methods”].9. Is the hierarchy of the sources of procurement rules well established?Yes. The hierarchy of applicable procurement law and rules in the descending order ofsupremacy is as follows:(i) “ Federal Government of Ethiopia The Financial Administration Proclamation No.57/1996” ;(ii) The “Council of Ministers Financial Regulations No. 17/1997”;(iii) The“ Ministry of Finance Directives – Procurement and Contracts” (revised draft dated9 June, 1997); and(iv) The “Procurement Manual” (revised draft dated 24 March 1999).Currently the draft MOF – Directives, namely item (iii) above, is in the last stages offinalization. It should be noted that these rules are applicable only to procurement financed by MOFbudget and is not applicable to procurement financed by (a) external funding agencies, in whichcase the rules of the funding agencies will govern the procurement; and (b) local resources notallocated from MOF budget. Further these MOF-Directives will stand modified in regard to (a)works contracts where special rule
disbursements. This Financial Proclamation constitutes the Procurement Law issued pursuant to Article 55(1) of the Constitution of the Federal Republic of Ethiopia. Articles 68 and 69 of the Financial Proclamation authorize the issuance of “Regulations” and “Directives” by the Council of Ministers and the Ministry of Finance respectively.
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