MICROGRAPHI CS FOR OFFMCLAL USE ONLY. Repot No MA STAFF APPRAISAL REPORT MALAYSIA HEALTH DEVELOPMENT PROJECT NOVEMBER 15, 1993

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documlt of The World Bank FOR OFFMCLAL USE ONLY STAFF APPRAISAL REPORT MALAYSIA HEALTH DEVELOPMENT PROJECT NOVEMBER 15, 1993 Population and Human Resources Division Country Department I East Asia and Pacific Regional Office MICROGRAPHI CS Report No: MA Type: SAP Repot No MA This document bas a restricted distribution and mayv be used by recipients only in the performance of their offilcial duties. Its contents may not otherwise be disclosed wvithout World Banki authorization.

2 CURRENCY EQUIVALENTS (July 1993) Currency Unit - Ringgit (RM) US$ RM2.55 RMl.00 US$0.39 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB AIDS BCG CMR DOC DP&D EPU GNP HIV ICB IMR JKR LCB MOH NRR PIU SOE TFR Asian Development Bank Acquired Immunodeficiency Syndrome Baccille Calmette-Guerin Child Mortality Rate Department of Chemistry Division of Planning and Development (MOH) Economic Planning Unit, Prime Minister's Department Gross National Product Human Immunodeficiency Virus International Competitive Bidding Infant Mortality Rate Jabatan Kerja Raya (Public Works Department) Local Competitive Bidding Ministry of Health Net Reproduction Rate Project Implementation Unit Statement of Expenditures Total Fertility Rate

3 FOR OFFICIAL USE ONLY MALAYSIA HEALTH DEVELOPMENT PROJECT Loan and Project Summary Borrower: Amount: Terms: Malaysia US$50.0 million equivalent Repayable in 17 years, including 5 years of grace, at the standard variable interest rate. Project Description: The project aims to meet emerging environmental and occupational health concerns, improve equaitable access primary to health care, introduce appropriate new health technologies that improve quality of services and meet priority growing needs, and institutional strengthening. The project is designed to: (a) increase the capacity environmental of and public health laboratories for surveillance and disease control; (b) expand and improve primary health care facilities in three states with lower health status; (c) improve the efficacy and safety blood of transfusion services; and (d) strengthen the Ministry of Health for policy formulation, management clinical and skills development, with specific attention occupational to health. The project finances civil works, furniture, equipment and vehicles, training and consultant services. Benefits and Risks: The project will increase capacity to monitor environmental and public health and improve occupational health and safety. The quality of services to mothers and children in poorer states will be enhanced through improvement in the efficacy and safety of primary health care services in targeted areas with low health status, and will contribute to poverty alleviation in the three targeted states. The use of blood products will be made safer in view of the present threat of AIDS and Hepatitis. The project will also have a demonstration effect in the introduction of priority health technology, and strengthen the Government's institutional capacity and policy development. The managerial capacity of the Department of Chemistry to implement its component is a risk that must be addressed by the provision of appropriate support, because of the present lack of a locus for project implementation. The establishment of a Project Implementation Unit in DOC is a condition of loan effectiveness, and special attention will be given during supervision to the management of the DOC component. Technical aspects of the project will require continued attention. To minimize any risk:s, the project has gone through lengthy and detailed technical preparation made This document has a restricte distribution and may be used of by their recipients offcial duties. only in Its the contents performance may not otherwise be disclosed without World Bank authorization.

4 - iipossible through a Japan Grant. The technical effort in preparation will be followed by intensive technical supervision during implementation. Estimated Costs: Local Foreign Total ---- (US$ million) ---- Environmental Health and Disease Control Primary Health Cdre Health Technology Strengthening of Ministry of Health Base Costs Physical Contingencies Price Contingencies Total Project Costs -/ Figures may not add due rounding. a/ Including 3% in duties mainly on imported building equipment and materials. Financing Plan: IBRD Local Foreign Total ---- (US$ million) Government , Total Estimated Disbursements: Bank FY (US$ million) Annual Cumulative

5 - iii - Economic Rate of Return: Not applicable Poverty Category: MaR: While this pro3ect is not specifically designed to address poverty aileviation, the Primary Health Care component of the project would benefit the rural poor by improving access to basic health services in three low-income states. IBRD No R

6 -iv- MALAYSIA HEALTH DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents LOAN AND PROJECT SUMMARY I. SECTORAL CONTEXT Page No. i A. Population, Health and Nutrition B. The Health 1 Care System C. Health Care 3 Resources and Utilization D. Health Care 5 Expenditure and Financing E. Government 7 Health Policies F. Issues and 9 Strategies for the Future c. Bank's Role in 9 the Malaysian Health Sector 11 II, THE PROJECT A. Project Origin B. Project Rationale and Objectives C. Project Description III. PROJECT COSTS AND FINANCING IV. A. Costs B. Financing PROJECT IMPLEMENTATION A. Status of Project Preparation B. Organization and Management C. Monitoring and Evaluation D Environmental Aspects E. Impact on Women This report is based upon the findings of an appraisal mission to Malaysia from 20 April to 9 May 1992, and a mission in May Mission members were Messrs. J. M. Martins (Task Manager), V. C. Demetriou (Architect), T. R. King (Consultant, Health Technology), T. K. Ng (Consultant, Occupational Health), S. Villard (Consultant, Environmental Health), 24. Vienonen (Consultant, Primary Health Care). Peer Reviewers were Messrs. W. De Geyndt, 0. Echeverri and R. McGough. This document was cleared by J. Shivakumar (Chief, EAIPH) and C. E. Madavo (Director, EAl).

7 MALAYSIA HEALTH DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents (continued) Page Nc. V. BENEFITS AND RISKS A. Benefits 30 B. Risks 30 VI. AGREEMENTS REACHED AND RECOMMENDATION ANNEXES A. Agreements Reached 30 B. Recommendation Fellowships Program Technical Assistance Program Costs Implementation Schedule of Key Activities Procurement by Category and Method, Bank Review and 43 Withdrawal Documentation 6. Disbursement Forecast Organization Chart: Ministry of Health Organization Chart: Department of Chemistry Project Implementation Unit: Department of Chemistry Project Implementation Unit: Ministry of Health Project Impact Assessment Field Supervision Plan Selected Documents Available in Project File Statistical Annex 52 MAP.BRD No R

8 MALAYSIA HEALTH DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. SECTORAL CONTEXT A. lopulation. Health and Nutrition 1.1 Population. Malaysia's population was estimated In at spite 18.2 million of increasing in industrialization, some areas. 50 percent The average live in population rural density is 55 people varies per square greatly kilometer. between Peninsular It Malaysia and the sparsely Sabah and settled Sarawak, states in of East Malaysia. Malaysia's density than is that considerably of neighboring lower Indonesia (93/sq..km) and Korea Thailand (432/sq.km). (ll0/sq.km), In 1991, and of the crude birth rate was thousand 27.7 people live births and the per death rate was 4.7, which resulted increase in of a 2.3 natural percent. rate of The declining, but high, given rate of rise population to a relatively growth has young population with 26 percent This will under have the a lasting age of impact 10. on the size of the labor needs. force The and age health distribution service of the population is 37 as percent; follows: 15-64: 0-14 years: 59 percent; and over 64: 4 percent. ratio of The 69 percent high dependency is falling with lower rates of population growth. 1.2 The decreasing total fertility rate (TFR) TFR reached is substantially 3.7 in higher This than that in Indonesia (3.3), Korea Thailand (1.8), but (2.5) similar and to that of the Philippines acceptors (3.7). The of contraceptives number of new has been increasing in recent in the years early after 1980s. a decline The pill is by far the most popular (76%) contraception followed by condoms method (13%). Age-specific fertility substantial rates have declines shown in recent years, especially in The the high case of rate younger of female females. participation in basic education this trend. (96%) should The continuing support high fertility rates among risk older to both females mother is and a health the newborn-. Fertility in to Malaysia fall with should the forecast continue rise in the female labor participation expected to reach rate, 49 which percent is by the year The net Bank reproduction has estimated rate that (NRR) the of one will be reached hypothetical in 2015, and that size the of stationary population is 43 million. 1.3 Health and Nutrition Status. Health status has shown significant improvements in the 1980s. Life expectancy in Malaysia was 71 years in 1991, compared with 68 in 1980, and 64 years in It compares favorably with life expectancy in Indonesia (61 years) and Thailand (66 years), and it is similar to that in Korea (71 years). Infant Mortality Rates (IMR) reported show a considerable drop from 23.9 infant deaths per thousand live births in 1980 to 12.5 in Maternal mortality has also improved considerably and stood at 0.39 maternal deaths per thousand live births in These rates compare well with those in Indonesia and Thailand, and are similar to those in Korea. Maternal and infant death risks increase with the age of the mother, after 34 years of age. The risk of congenital anomalies also increases.

9 Age-specific mortality varies substantially among states in Peninsular Malaysia. In 1987/1988, both Kelantan and Terengganu had 11% more deaths than expected /f the average age-specific rates for Peninsular Malaysia were applied.- Table 1.1: Index of Differential Mortality Age-Standardized Mortality Based on Peninsular Malaysia Experience Peninsular Malaysia 1987/1988 Standardized Mortality Mortality 2 above (+) State Index or Below (-) Peninsular Peninsular Malaysia=100.0 Malaysia Average 2 Kelantan Terengganu Selangor Kedah Pahang Perlis Perak Pulau Pinang Melaka N. Sembilan Johor Kuala Lumpur PENINSULAR MALAYSIA Source: Department of Statistics, Malaysia. World Bank estimates. 1.5 Birthweight is the major factor in the survival of the newborn. There has been a steady improvement in those most at risk, namely babies weighing less than 2.5 kilograms; their proportion declined from 10.3% in 1980 to 8.2% in The nutritional status of children affects their physical and intellectual functioning and development. The proportion of children suffering from severe/moderate malnutrition has decreased. This has been associated with programs aimed at the alleviation of poverty, including nutrition supplementation for mothers and children at-riso. The improvement is reflected in the halving of the child mortality rate (CMR)- from 2.1 deaths per thousand children 1-4 years of age in 1980 to 1.0 in The states of Kelantan (1.1/1,000), Terengganu (1.3/l,G00), Pahang (1.3/1,00) and Sabah (1.4/1,000) had CMRs above average. Although the proportion of children affected by severe malnutrition is small, those suffering from moderate/mild malnutrition is still significant. The average for Peninsular Malaysia was 25% in Kelantan, with 31% of children under 5 years of age in this category, is more severely affected than other states. 2/ The recording of vital events is also difficult because of the relative isolation of some conmnunities. 31 The child mortality rate (CMRP is often used as an indicator of child nutrition.

10 Malaysia has been successful in preventing and controlling communicable diseases. For instance, no new cases of polio were reported in the period Nevertheless, incidence rates for various preventable diseases justify the Government's concern with improvements in the quality and coverage of the immunization of children. In 1990, a major drive led to the complete tripleantigen immunization of 92% of infants in Peninsular Malaysia and respectively 79% and 86% in Sabah and Sarawak. However, this achievement reflects a range from 60% to full coverage of the target population, among health districus. Measles immunization coverage is lagging. Tuberculosis has diminished in importance, but it continues to have a hold on some sections of society. Nearly 100% BCG vaccination of infants against tuberculosis has been helpful but not sufficient in the prevention of this disease. Although Halaysia has been highly successful in controlling malaria and dengue, they continue to require attention and control. Periodic outbreaks of cholera, typhoid, dysentery and food poisoning are a cause of concern with the quality of the water supply, sanitation and personal hygiene. There is also a relatively high incidence of hepatitis and a growing number of people found to be HIV positive in at-risk groups in the community. The number of detected HIV positive cases in Malaysia increased from 19 in 1988 to 630 in The number of new HIV positive cases in 1991 was 1,686 and 2,417 in The improvement in life expectancy has led to an increasing number of people over 40 years of age at risk of chronic illness, including heart and other diseases of the circulatory system. Accordingly, the proportion of people admitted to hospital suffering from this condition (6.0%) has risen to third place, after causes related to pregnancy and accidents, in In view of the mentioned risks associated with births to mothers over the age of 34 years, it is noteworthy that congenital anomalies are among the ten highest causes of certified death in Malaysia (3.3%). Further, the declining but relatively large proportion of certified deaths due to ill-defined conditions (6.8%) and the proportion of undiagnosed cases in hospitals (5.2%) point to the need to continue to improve diagnostic skills and related services. 1.8 Malaysia is experiencing an "epidemic" of second accidents, major which cause are of certified the deaths and hospital admissions. and occupation-related Motor vehicle accidents are two major causes addition of this to problem, other trauma in usually associated with an Since active 1983, young the male rate population. of motor vehicle accidents reported thousand has declined people in to 1990, 5.0 per in spite of a large growth while in motor industrial vehicle accident ownership, rates have continued to increase health risk and became at the a rate greater of 6.8 per thousand people. The accidents rise in is industrial well above the growth in employees registered in Malaysia. B. The Health Care System 1.9 Constitutional Government and Organization of the Health Sy.sem. The Malaysian constitution provides for a federal system of government with powers being allocated to a federal and 13 state governments. Elected representative bodies exist at both federal (Parliament) and state (Legislative Assemblies) levels. Separate federal and state governments are headed by elected politicians who are members of the Parliament and the Legislative Assemblies. Local governments or authorities are made up of appointed representatives of local

11 -4- communities. Under the Constituticn, the Federas government is responsible for medicine and health. The federal mandate includes hospitals and clinics, maternal and child welfare, care of lepers and menlal patients, control of poisons and dangerous drugs and the medical profession. Some public health functions (outside the federal capital) such as sanitation and the prevention of disease are in a concurren.- list. State governments control local governments within their boundaries. Lccal governments undertake many health-related functions, such as environmental sanitation, standards of housing and enforcement of food hygiene laws. Water supply is a state matter, but the Federal government is inzreasing its participation in this area. The Economic Planning Unit (EPU), in the Prime Minister's Department, plays a major role in economic and social policy development and the allocation of federal development funds Public and private health services co-exist in the country, The Ministry of Health (MOH) is the chief provider of health services. Other public sector providers include the Armed Forces for its own personnel, and special community health projects, the Department of Aboriginal Affairs for the Aboriginal population, the Ministry of Education through a few major teaching hospitals, and local authorities and municipalities. The Department of Chemistry provides limited analytical laboratory services for a number of ministries, including MOH Medical practitioners training is the responsibility of medical schools in different universities, including post-graduate specialization. Dentists and pharmacists are also.rained in universities. Training of nurses and other health personnel is usually carried out by MOH. Statutory registration boards regulate conditions of entry and practice in health profess-ons. MOH is also concerned with licensing and supervision of private hospitals and nursing homes, pharmaceutical production and distribution, in addition to the other federal statutory responsibilities mandated by the Constitution. The absence of a comprehensive public health act hinders the ability of MOH to carry out its regulatory role. In addition to research carried out by academic institutions, MOH has an active and respected Institute of Medical Research. Health systems research is also used by MOH to evaluate and develop its approach to the delivery of health care Public Sector. MOH is responsible for most of the development of public health policies and their implementation. However, some health-related areas are regulated by other ministries, such as occupational safety by the Ministry of Human Resources. This situation requires an increasing degree of coordination and cooperation among different ministries. MOH's central office is concerned with program development, evaluation and resource allocation related to district, state and national programs involving: public health services, including health promotion and education, maternal and child health, epidemiology and disease control; medical services in hospitals and major health centers; dental preventive and treatment services; pharmaceutical and medical supplies; training of health personnel; medical research; engineering and maintenance of health facilities and equipment; planning; and administration MOH has instituted a program of decentralization through the establishment of 13 state administrations. They manage the networks of primary health care activities based in rural midwives units, a gradation of health

12 -5- centers in urban and rural settings, backed up by outpatient services and inpatient in district hospitals. They provide a range of comprehensive and curative preventive services, including - mily planning in rural areas, mechanisms and referral to larger general hosp_ As, at state and national levels In addition to a limited range of environmental health services provided by local government, the municipalities of Kuala Lumpur, Penang, Ipoh and Malacca also provide maternal and child health and communicable disease control services. The Ministry of Education operates two large teaching hospitals in Petaling Jaya and Kota Bahru and also carries out teaching at the Kuala Lumpur General Hospital operated by MOH Private Sector. The number of doctors in private practice is increasing and constituted 57% of the total licensed in Private practice is concentrated in urban centers and mostly concerned with curative services. The private sector also provided i4% of hospital beds for all purposes in the same year. PrivatG hospitals with some exceptions tend to be small and specialized, with an emphasis on the provision of obstetric services in urban areas. The number of dentists and pharmacists in Malaysia is relatively small. Most are in private practice, respe.xively 53% and 68% of the numbers registered in C. Health Care Resource.nd Utilization 1.16 Health Personne1. In the past, the delivery of primary health care relied on midwives, nursing personnel and medical assistants, with varying levels of training and skill. They were supported by doctors based in hospitals and major health center, usually located in urban centers. The number of medical specialists was relatively small, and most were in the public sector. This lowcost personnel composition and the provision of safe water and sanitation to urban and rural communities were successful in controlling communicable diseases and reducing maternal and infant mortality. However, concern with the perceived quality of care (reflected in the significant proportion of undiagnosed cases), and challenges presented by trauma and non-infectious diseases have led to changes in the health workforce's composition In the period , the number of registered doctors increased by 82% while that of nurses by 53%. Population grew by 29% during the same period. This represents a rise in health personnel per head of population and also a more skillful and costly mixture. There were 2,500 people per doctor in Malaysia in 1990, and one medical assistant or nursing personnel in the public sector per 600 people. The supply of doctors and nurses in Malaysia is about half-way between Thailand and Korea which have respectively 4,500 and 940 people per doctor, and 960 and 500 people per nurse. The numbers of medical specialists in Malaysia continues to be low, in spite of recent rises in their number. For instance, there were only 18 pathologists employed in public hospitals for 18 million people in Most doctors are now working in the private sector, but the number of nurses in private employment continues to be relatively small Access and Utilization of Services. Malaysia has for some time followed a policy of improving access to safe water and sanitation, to reduce the prevalence of illness. By 1988, respectively 95% and 62% of the urban and rural

13 -6- populations had access, but capacity to monitor water quality is lagging. Although the availability of doctors is limited, 78% of mothers were provided with some ante-natal care and 93% of deliveries were cari-_d out by trained health personnel in Maternal mortality almost halved in the 1980s. In general, immunization coverage of children is high but, as mentioned earlier, there are substantial variations in geographical coverage and for different types of vaccines. Survey data indicate that on average Malaysians make 2.86 outpatient visits per year (1986/87). The visits are almost evenly divided between the public and the private sectors. The data also indicates that the poor, with higher illness rates, are greater users of public than private services, and that the use of private services increases with income. Distance from services lowers utilization, regardless of income. Private outpatient visits are mainly for curative services. Up to three-fold differences in the availability of doctors per population among some states continues to cause difficulties in the management of acute illness. The increasing numbers in the private sector have not made a contribution in addressing the geographic imbalance in the availability of medical services. Their distribution is less even than that of doctors in the public sector In 1990, Malaysia had 2.3 hospital beds per thousand people for all purposes (including special medical institustions) the public and private sectors. The supply of acute hospital beds is estimated at nearly 1.9 per thousand, with 16% in the private sector which are mostly located in the larger urban centers. On average, there were 1.6/1,000 acute beds in MOH and University hospitals. The related admission rate was 77 per thousand people, with an additional 14/1,000 in private hospitals. The average occupancy rate in public hospitals was 64%. The low occupancy rate is partly due to past investments in small hospitals, with small catchment areas and a limited range of services, which has been associated with over supply in some cases. While supply ranged from 1.3 to 2.3 bads per thousand people.mong the states, utilization varied less around the average of 1.0/1,000. The apparent low utilization rates must be placed in the context of the relatively young population involved. The average length of stay was a low 5 days per admission. This reflects the increasing :-umber of normal deliveries in acute public hospitals which is the single largest cause of admission to public hospitals Medical Technology. The emphasis placed by the public sector on primary health care, the low degree of medical specialization in Malaysia, and the relatively small capacity of private hospitals has restrained the introduction and diffusion of diagnostic and other costly medical technologies. The increasing concern of the Government with the quality of care provided in public and private health facilities, growing expectations and disposable income, and the swelling private sector are changing the modelling forces of the medical system. It is important that the Government acqui-<.s expertise in health technology assessment, and develops policies encompassing both the public and private sectors, that will ensure the relevance of introduced technologies, and quality and efficiency in their use, as well as equity in access by different groups in the community.

14 -7- D. Health Care Expenditure and Financing 1.21 Expenditure. Malaysia spent 3.2% of GNP on health This services was in considerably less than 5.2% in Korea, in the same year health for similar outcomes, and 5.1% in Thailand for lower health outcomes, conventional in terms health of indicators. Part of the explanation for the effectiveness cost- of the Malaysia health system lies in the low-cost approach public adopted health by Malaysia, which relied on public sector supply total (76.5% expenditure). of Nevertheless, changes in the intensity costly of use personnel and a more mixture in the public sector, as well as growth sector, in have the private led to a growing ;--:oportion of GNP spent on health. sector The share private in 1985 was 23.5% of the total expenditure on expenditure health. Most in of private the sector services were for professional charges fees and (11.5% other of total health expenditure) and pharmaceutical There drugs are (4.6%). no reliable estimates of private health expenditure Malaysia. for recent Available years evidence in points to a continuing growth in available. private services Table 1.2: Actual Operating Expenditure by Program Ministry of Health, Malaysia RM (Millions) I Programs R R MM X X _ P M I _ M Z Public Health Medical Care Dental Care Pharm., 58.5 Suppl. 5.4 & 0th Admin & Planning Training Research Total MOH MOH % GNP Source: Ministry of Health, Malaysia MOH actual operating expenditure in 1990 was the equivalent of 1.2% of GNP. Expenditure for medical care in hospitals and major health centers absorbed the largest proportion of funds (63.0% plus its share of pharmacy and supplies). Public health services, including preventive and basic health care in rural areas, received 22.4% of the financial resources used in Programs concerned with dental care (5.3%), training of health personnel (3.5%), planning and administration (2.5%), pharmacy, medical supplies and other (2.4%) and research (0.9%) account for the remainder of MOH operating expenditure. Training of health personnel is the only program showing a substantial decline in its share of the total over the period This decline may explain the present perceived need to increase nurse training. It also provides an opportunity to examine possible alternatives for health personnel training outside MOH in the education sector.

15 1.23 Although the proportion of the Federal budget allocated to MOH is similar in 1980 and 1990, actual MOH capital and operating expenditures rose by respectively 248% and 62% in real terms in Some of these increases were necessary to cope with rapid population growth. Nevertheless, over the period, per capita actual expenditures in real terms increased by 170% and 26% respectively. Two thirds (66.8%) of MOH operating expenses in 1990 related to salaries and wages. There has been an actual decline in the proportion of labor costs since 1981 (67.5%), in spite of the more costly mixture of labor resources. This and other evidence points to a possible decline in real incomes in the public sector over this period of time, which might have contributed to the difficulty in retaining medical personnel in public health services Funding. Federal government taxation is the major source of funds for MOH services and hospitals in the public sector. MOH's total allocation for development and operating expenditures from the Federal budget declined from 5.3% in 1980 to 3.4% in It has increased since then to 5.5% in However, MOH allocation from the Federal operating budget has dropped from 7.0% in 1980 to 5.5% in To some extent these proportional changes reflect fluctuations in the size of the Federal budget. The observed rise in MOH operating expenditure as a proportion of GNP in 1986 is also due to a decline in GNP in due to stringent economic conditions. The level of MOH operating expenditure at constant prices shows a plateau in the years , but became a larger proportion of a smaller whole. The essential and labor intensive nature of public health services hindered short-term cuts in current levels of expenditures. As GNP and the Federal budget grew again in the late 1980s, MOH expenditure became a smaller proportion of the enlarged whole. The Federal budget is the major source of MOH funds, as fees and other charges were the equivalent of only 2.9% of the Ministry's operating expenditure in Equity and Efficiency. Recent research for Malaysia shows that: (a) expenditures on preventive services such as safe water and immunization have the greatest impact on health status; (b) the subsidization of health services have a major effect on income redistribution representing up to 20% of the imputed income of the poor; over time, the subsidy of curative services has increasingly been used by the poor, due to the progressive shift by those in higher income groups to the private sector. Policies aimed at reducing dependency on public subsidies of health care need to be tempered by the understanding of the benefits from free provision of preventive services (because of the externalities involved), and the alleviation of poverty secured through the supply of curative services to the poor, when they need them most. Estimates prepared by the Bank indicate that there is some potential for increases in charges for curative services in the public sector in Malaysia. However, the same estimates also show substantial reductions in welfare by the imposition of non-discriminating fees aimed at eliminating public subsidies for curative services. Therefore, any user-fee rises should be applied in accordance with ability to pay and protect the poor from additional losses in welfare. In view of the demonstrated cost-effectiveness of the public health system in Malaysia, it is important that health financing schemes aimed at the greater use of the private sector continue to be tested against criteria of efficiency, equity and effectiveness. The challenge faced by the Government is to take advantage of resources in the private sector, which have higher costs, but contain potential losses in efficiency. It will need to manage the public/private mixture and the

16 -9- incomes of suppliers to avoid substantial rises in costs, due to the need to pay higher incomes to retain essential health personnel in the less costly public sector. E. Government Health Policies 1.26 The Government strategies for health development, for the period , are set forth in the context of the Second Outline Perspective Plan adopted in During the 1990s, the Government intends to provide for more equitable access to an improved mix and quality of services, with increased efficiency and effectiveness. It envisages that financial mechanisms will encourage wider use of the private sector associated with measures to ensure quality and efficiency in delivery. Emphasis is also given to occupational health and safety These policy thrusts have been given greater specificity Malaysia in the Plan. Sixth The Government intends to strengthen occupational appropriate health through legislation and preventive measures; increase efforts environmental to improve health through sanitation, especially in rural and squatter and step up areas; surveillance of the quality of water and food. It plans immunization to expand against disease and nutrition supplementation programs and urban for poor. the rural Policies for c.urative services would improve outpatient through a program services of hospital facilities expansion, and upgrading centers of health in rural and urban areas. Other thrusts are directed of to diagnostic the improvement services, quality of care, rehabilitation medicine of and blood the transfusion quality services. The Government also intends to improve dental services access to by the poor and promote the safety and efficacy of drugs To support the implementation of these policy objectives, the Government intends to increase the numbers and improve training of medical, nursing and other personnel. The Government also seeks greater coordination of the public and private sectors. It will continue to study and review equity, efficiency, financing and organizational issues concerned with mobilization and use of resources in the public and private sectors. The Sixth Malaysia Plan contains an allocation of RM2,253 million (US$835 million), which doubled the commitment to the health sector in the previous five-.year plan. F. Issues and Strategies for the Future 1.29 The health status of Malaysians has improved considerably in the 1980s. It compares favorably with neighboring countries and other developing countries in Asia. Future health policies will need to be concerned with larger and relevant capacity, greater efficiency and higher quality, and equity in access to health care Capacity and Relevance. It is forecast that Malaysia's population will increase by 25% in the 1990s. This will require substantial investment in health services capacity. It is inevitable that birth - and the events leading to it - as well as problems of childhood will continue to be a major concern in health policy development. Increases in?ersonnel will be required to provide primary health care (PHC) and institutional services for this purpose. It is envisaged that the population years of age will grow faster than the total

17 - ~ ~ ~ ~ ~ ~ ~ ~ ~ - o population, and that the labor force will increase by 33% in the same period. Accidents arising from growing industrialization, motor vehicle use and an active young population will need to be haneled from two complementary perspectives: (a) preventive occupational and other safety measures; and (b) treatment and rehabilitation of victims, to improve their physical and social functioning. The success in the prevention of communicable diseases needs to be maintained and extended to emerging areas of concern related to sanitation, hygiene and bodyfluid transmitted diseases (Hepatitis B and AIDS). The need to expand capacity to monitor the quality of water supply, commercial foods and ensure the safety of blood products used in health services is apparent. Continuing improvament in life expectancy and the growing number of middle-aged people will increase the numbers suffering from chronic conditions such as heart and other disaases of the circulatory system. Health promotion activities to minimize risk and a larger supply of diagnostic, treatment and rehabilitation services will be required, to meet the needs of people suffering from these conditions Efficiency and Ouality. Population and epidemiological changes, technology development and perceived need to increase efficiency and quality of services will require selective expansion of capacity. Expansion should take advantage of existing strengths in primary health care and add complementary services that improve the range and quality of care. The low 64% occupancy rate of MOH inpatient services represents a major waste of capital and operating costs. Increasing urbanization and improvements in transport should lead to additional lower use of past investments in smaller hospitals in rural areas. Thus, a change in the norms and practices in the supply of hospital services would yield major efficiency gains in the program that consumes 63% of MOH operating costs. Growth in capacity should promote both efficiency and quality, by extending outreach services in which scale of production does not place the consumer at-risk, while consolidating capacity in others, where efficiency and quality require it and transport and communications allow it. Increasing specialization, to improve diagnosis and management of some clinical conditions of growing importance, needs to be accompanied by deliberate policies that will ensure quality and minimize the social costs of medical technology. The use of cooperative efforts that involve the public and private sectors would avoid wasteful duplication of capacity, in view of the large catchment populations required by some medical services, and fully use existing specialists. Also, rewards in the private sector, with 57% of the doctors, will influence the availability of medical practitioners and their cost in the public sector. This will be increasingly important as the composition of the health work.orce shifts to a more costly mixture MOH's present preoccupation with the direct provision of services needs to shift to more policy development, monitoring and regulation of services, both in the public and private sectors. To allow this change in emphasis to take place, MOH would need to take a number of innovative steps, which would include: (a) the implementation of Government policy on incorporation of services of a non-regulatory nature, thus reducing MOH direct management of health services; and (b) a reduction in the heavy load imposed by the formal training of health personnel, by transferring it to the education sector. To effect this change in emphasis, MOH will need additional skills in epidemiological surveillance, health technology assessment, statutory regulation, monitoring and evaluation of the

18 -11- performance of others, and in the use of financial mechanisms in the pursuit of public health goals, through both the public and private sectors Eguitv. The success of government agencies in improving the health status in Malaysia has made more noticeable the significant inequalities that prevail in the supply of services and health status of people in different geographical areas. It is inevitable that people in rural areas will have a geographical disadvantage in access to services that require large catchment areas for efficiency and/or quality reasons, which are located in major urban centers. Nevertheless, access to safe water by about 40% of the rural population without it is technically possible and within reach. The same applies to the provision of primary health care to rural populations, and qualitative improvements in it. The uneven distribution of doctors among the states, which ranges from one medical practitioner per 4,200 people in Terengganu to 1:1,800 in P. Penang (excluding Kuala Lumpur with 1:700) is a major obstacle in gaining access to skilled management of illness in some states. It also raises substantial equity issues in the development of health financing schemes that include equal access to medical practitioners. Concerns with the Government's fiscal burden in the financing of health care, and the greater use of the private sector in the provision of medical care, will need to take into consideration the effects of user charges on the poor. Appropriate subsidies and/or easy access to public sector services should ensure both geographical and financial access by the poor to quality medical services. C. Bank's Role in the Malaysian Health Sector 1.34 The Bank has supported the Malaysian health sector through two population projects. The first population project (Loan 880-MA) was approved in January 1973 with a loan of US$5 million. The project was concerned with the strengthening of the national family planning program, through improved management, emphasis on provision of rural facilities, training of health personnel and research. Project completion was delayed due to site acquisition and organizational problems related to planning, administrative and training capacity. The Project Performance Audit Report mentioned that inter-agency coordination and political commitment were additional difficulties experienced in the completion of the project. Nevertheless, many constraints to the family planning program were overcome under the project. The project had a major impact on institution building, increased the number of family-planning acceptors and improved the supply of rural health facilities and services The second population project (Loan 1608-MA) was approved in July 1978 with a loan of US$17 million. It had similar objectives to the first, but placed some resources in the development of urban family planning services. The project involved greater inter-agency coordination. The Project Completion Report states that the constraining factors that affected slow disbursement during the first project also affected the second project. Site acquisition continued to be a problem and there were also conceptual differences regarding the objectives of the program. Inter-agency coordination was a constraint too, and there were difficulties regarding the locus of responsibility for implementation of the project. The Project Completion Report also mentioned political commitment as another constraint. The loan was closed in December Only US$5.9 million or 35% of the loan had been disbursed. The balance was cancelled in July 1985.

19 There has been no other health-related Bank lending to Malaysia since then. In 1989, the Government of Malaysia and the Bank entered into a health policy dialogue prior to the identification of the project. This took the form of analytical support by the Bank as an input to the formulation of the Sixth Malaysia Plan. The analytical work highlighted a number of strategic areas needing attention in Malaysia's future development of the health sector: environmental and occupational health, equity and quality in access to primary health care, selective introduction and diffusion of relevant medical technologies and institutional strengthening. These concerns form part of the Government's health strategies put forward in the Second Outline Perspective Plan adopted in 1991 and in more detail in the Sixth Malaysia Plan. This became the basis for the ensuing dialogue on how the Bank might support the Government in the implementation of relevant policy objectives. The policy dialogue has been continued during project preparation, and through analytical studies included in the Bank's country economic work. The Bank's analytical work concerned with public financing and the social sector is addressing inter alia fiscal issues and potential policy options regarding financing of health services and the regulatory role of MOH In view of the identified need to respond to the rise in industrial accidents, the Government also asked the Bank for a review of the present capacity to formulate and implement occupational health policy. A report presented to the Government highlighted: (a) growth and structural change in the labor force; (b) rise in compensable occupational injuries; (c) wide compensation and limited prevention; (d) deficiencies in information for problem identification, policy formulation and evaluation; and (e) narrow base for policy formulation. The report also identified roles to be performed and a process for policy formulation and coordination, which included a specified role for the Ministry of Health. After consultation among relevant agencies, the Government agreed with the process recommended in the report. The Sixth Malaysia Plan emphasizes occupational health matters and specifies means to address the problem. The project provides support for the strengthening of the role of MOH in improving the Government's capacity to identify occupational health problems and assess the impact of preventive programs. II. THE PROJECT A. Project Origin 2.1 Following the Bank's analysis of issues related to the preparation of the Sixth Malaysia Plan, the Government requested financial assistance from the Bank for health sector development in the context of the Sixth Plan. A Bank mission identified the project in May 1990, and an agreement for a Japan Grant for project preparation was signed in November Project preparation was carried out by the Ministry of Health and the Department of Chemistry (DOC), with support of consultant services funded by the Japan Grant. Following preparation missions in October :990 and April 1991, the project was pre-appraised in October 1991, and appraised in May/June Project costs and items were reviewed during a Bank mission to Malaysia in May 1993.

20 B. Prolect Rationale and Oblectives 2.2 Malaysia's health sector is at the threshold of a major developmental shift and it is appropriate for the Bank to assist Malaysia in responding to new challenges in areas where there is limited experience. While the Asian Development Bank (ADB) has provided significant assistance in the past as the principal external lender to the sector -- concentrating on primary health care, hospital development and health financing policies -- the Bank gave analytical support in identifying and developing strategies to address emerging health concerns during the preparation of the Sixth Malaysia Plan. The proposed project provides an opportunity to continue policy dialogue in these areas, assist in the selection and introduction of new health technologies, support poverty alleviation in underserviced states and institutional strengthening. In order for the Bank's support to have value-added impact, specific strategic areas were identified for intervention and form the individual components of the project design. The design has a strong prevention emphasis which is linked to the introduction of new health technologies, where investments represent a step up in services to meet emerging health challenges. The project will thus support a longstanding orientation of preventive health services in Malaysia, addressing quality improvement and reducing health risks. 2.3 The project addresses selected high priority needs for health sector development under the Sixth Malaysia Plan, including the strengthening of prevention programs to meet emerging environmental and occupational health concerns, improving equitable access to primary health care (PHC), introducing new technologies to improve quality of services and meet newly emerged priority needs, and institutional strengthening of the Ministry of Health. Specifically the project will: (a) increase the capacity of environmental and public health laboratories to provide services for the monitoring of environmental health and disease control; (b) expand and improve PHC services in three states with lower health status; (c) improve the efficacy and safety of blood transfusion services; and(d) strengthen MOH capacities for policy formulation, management, service development, application of new clinical skills in selected specialties, and giving specific attention to occupational health. C. Project DescriRtion 2.4 Project objectives will be accomplished by implementing four components: (a) Environmental Health and Disease Control. The project will provide analytical laboratory services to monitor water and food quality and screening for a range of diseases of major public health importance. (b) Primary Health Care. The project will upgrade and establish new primary care facilities in three states with lower health status. (c) Health Technology. The project will establish a national blood services center and equip major hospitals, to ensure the safety of blood products.

21 -14- (d) Strengthening of MOH. The project will provide fellowships and technical assistance for policy and service development, and upgrading of clinical and management skills. Component A: Environmental Health and Disease Control. (US$68.0 million equinalent, including contingencies) 2.5 Environmental and other public health problems continue to be a major concern in Malaysia. The growing use of fertilizers and pesticides and difficulties in controlling other environmental hazards are an increasing threat to the water supply. En'vironmental degradation and the commercialization of the food chain are adding factors in food contamination. The Ministry of Health has statutory responsibility for the maintenance of water and food health standards, in addition to other public health matters concerned with diagnosis and screening for communicable diseases and non-communicable ones, such as cervical cancer. The Department of Chemistry, in the Ministry of Science, Technology and the Environment, has provided analytical support to the Ministry of Health and other ministries concerned with water and food standards. MOH has limited laboratory capacity dedicated to public health functions in small food quality laboratories, and uses hospital laboratories for much of the public health screening. The food quality laboratories are inadequate and other public health laboratory needs have to compete with patient clinical care for laboratory services in hospitals. Hospital laboratories are often overtaxed and are not organized for public health analytical work. In times of epidemics there is little flexibility to respond to urgent analytical needs. Prevention programs concerned with early detection of cervical cancer have also suffered from the lack of dedicated screening capacity, and there are increasing needs for the screening of people at-risk of HIV and Hepatitis. The present analytical capacity in DOC and MOH is inadequate for present and rapidly growing needs. This component will increase the analytical capacity in DOC and MOH for environmental and public health purposes. 2.6 Department of Chemistry (US$49.2 million equivalent). The project will build, furnish and equip one central environmental laboratory for DOC in Petaling Jaya and four branch ones located in Ipoh, Melaka, Kuching and Kota Kinabalu. Altogether, a gross area of about 31,000 square meters will be provided in the five laboratories. Provision of consultant services for the design and supervision of the new laboratories is included. In addition, the project will provide equipment for the other existing laboratories in Penang, Johor Bahru, Kuantan, Kuala Terengganu and Bintulu. The location of the laboratories is based on population, regional transport and focal urban centers, to provide a network that covers both Peninsular and East Malaysia. The environmental laboratories will carry out (a) analysis of drinking water for a full range of substances such as microbes, trace metals, pesticides and herbicides; (b) testing of food for purity, quality, quantity and composition, as well as contamination by infective agents or potentially toxic materials such as herbicides, pesticides, metals and mycotoxins; (c) analysis of environmental samples such as surface water, air, rain, soil, sediment, industrial wastes for pesticides, herbicides, industrial organics and metals. The project will also add capacity for analytical quality control in DOC. The central laboratory will be concerned with water and food analysis, as well as liquid wastes, marine samples, solid wastes, industrial hygiene and air samples. It will also handle method development, introduction of new technology, in-house training and sample

22 -15- audit. The branch laboratories will carry out water, food, air, toxicology, industrial and forensic analytical work. It is estimated that the added capacity could handle 1,300,000 additional tests annually, an increase of close to 100% over 1992 capacity. 2.7 Ministry of Health (US$18.8 million equivalent). The project will build, furnish and equip one central public health laboratory in Sungai Buloh and two regional ones in Ipoh and Johor Bahru. A gross area of about 11,100 square meters will be provided by the three laboratories. To assist the Department of Public Works (JKR) in the design and supervision of the laboratories, the project will provide consultant services. Consultant services will also be provided for staff training in laboratory practice and management (Annex 1). The location of the laboratories is based on population densities, regional transport patterns, local disease burden and risk factors, and aims to provide a national network in Peninsular and East Malaysia, together with other existing facilities. The new public health laboratories will carry out analytical work related to: (a) su-veillance of communicable diseases and management of outbreaks; (b) screening for early detection of cervical cancer; (c) monitoring of food quality for microbiological and chemical contami.ants; (d) surveillance of water quality, especially during communicable disease outbreaks; (e) screening for viral diseases such as AIDS and Hepatitis and other diseases of public health importance such as typhoid and syphilis; (f) serosurveys for the monitoring of the effectiveness of vaccines and testing of vaccine potency. The planned laboratories will have capacity for a range of microbiology, virology/serology, parasitology, biochemistry and other tests and the examination of pap smears. The central laboratory will have additional functions involving method development, introduction of technology, in-house training, and test audit as part of a quality control and assurance program. It is difficult to estimate the present MOH analytical capacity for the proposed functions of the public health laboratories, at the end of the project it is estimated that capacity to handle 750,000 tests and 60,000 pap smears annually will be available. Component B: Primary Health Care. (US$11.5 million equivalent, including contingencies) 2.8 MOH has followed a programmatic approach in the delivery of primary health care throughout Malaysia, which includes provision of preventive and basic nursing and medical care to both urban and rural health populations, in accordance with standard functions, facilities, equipment and personnel. They have proved highly successful in serving urban and rural populations. Nevertheless, a number of Malaysian states have improved but lag behind in health status, and the services available to rural populations could be upgraded. This component is concerned with improving the quality of basic health care provided in three states with low health status. The selection of the new and upgraded facilities was based on adjusted health status information, which showed the lower health status of the populations to be served.

23 Health Care Facilities. Health indicators show that rural areas in the states of Kelantan and Terengganu and Sarawak lag behind in health status. The project will build, furnish and equip the upgrading of about 7 existing health centers and build 5 new facililies in these three states. The facilities will follow standard functions and designs and equipment adopted by MOH for PHC services, which are documented and acceptable to the Bank. Health care to be provided in the new and upgraded facilities includes the standard range of preventive services including environmental health services, maternal and child health clinics, and basic diagnostic and curative medical services. Component C: Health Technology. (US$19.7 million equivalent, including contingencies) 2.10 The epidemic of accidents has added to the need for blood products for a multitude of other conditions, including those related to child birth. The relatively high prevalence of Hepatitis and growing incidence of AIDS pose major threats to the safety of blood products and the spread of diseases through them. Blood Transfusion Services need to be coordinated and upgraded to provide safe and adequate quantities of blood products to be in line with MOH's effort to provide a quality service and improve health care in the country Blood Transfusion Services. The project will improve the quality of blood products for women during pregnancy, labor and the post-partum period, neonates in need of transfusion, trauma victims as the result of motor vehicle, industrial and other accidents, people suffering from bleeding disorders, and other medical conditions. A national blood service center will be built, furnished and equipped to be responsible for developing policies and practices to ensure the safety of blood products. A gross area of about 7,600 square meters will be made available at the center. In addition, the project will provide equipment for about 12 major hospitals, to improve their ability to collect, process and improve the quality of blood products. To assist JKR in the design and supervision of the national center, the project includes consultant services. Training of staff in blood services and management is also included (Annex 1). The national center will coordinate the collection, production and supply of blood products throughout Malaysia. It will be concerned wich the introduction of technology, training and quality control and assurance. The national center will also supply blood products for Kuala Lumpur and the Klang Valley area. The center will have facilities for blood and plasma collection, production of blood products, blood and blood products screening and laboratory testing, education, training and research, quality control and assurance, support services and administration. The national center will have capacity to handle about 100,000 units of blood annually. Component D: Strengthening of MOH. (US$2.1 million equivalent, including contingencies) 2.12 Major challenges are posed by changes in the nature of health risks and status, growth in the size of the public and private sectors, health technology development and legitimate expectations of increases in efficiency, equity and effectiveness. MOH as the leading health agency in Malaysia needs to strengthen its organization and human skills to take on these challenges.

24 -17- Technical assistance financed by ADB and from other agencies such as the World Health Organization are providing a degree of support to MOH This component will provide: (a) an overseas fellowship training program (US$0.2 million), to be funded by the Government involving about 23 fellowships (details are included in Annex 1); and (b) a technical assistance program of foreign consultant services involving about 40 consultancies amounting to about 87 staff months (US$1.7 million). This will support capacity building for: (i) policy development regarding occupational health, health technology assessment and the structure of health care delivery system; (ii) service development, in such areas as community mental health and day care services; (iii) application of new clinical skills in endoscopy, ophthalmology and other services; and (iv) management skill training (details are provided in Annex 2). Summary of Costs III. PROJECT COSTS AND FINANCING A. Costs 3.1 The total cost of the project is estimated at US$101.3 million equivalent (RM258.2 million), including foreign exchange costs of about US$52.0 million and taxes and duties estimated at about US$3.0 million equivalent. Tables 3.1 and 3.2 summarize the estimated costs by project component and by category of expenditure, respectively. Detailed costs are provided in Annex 3. Basis of Cost Estimates 3.2 Base Costs are expressed in June 1993 prices and were calculated as follows: Civil works: on approved building proposals for the various components with acceptable area allocations and unit rates. Unit rates per square meter for civil works (including all mechanical, electrical and plumbing services) range from US$ for basic primary health care facilities to US$800 for the more sophisticated special facilities and laboratories. Civil works in East Malaysia (Sabah & Sarawak) are estimated to cost 25% over those in Peninsular Malaysia. Furniture: on agreed lists priced for similar items available locally. Equipment and vehicles: on agreed detailed lists priced for similar imported or locally available items.

25 -18- Fellowships (Overseas): on (a) special study programs at about US$25,000 per student-year; and (b) short-term special training at about US$5,000 (for one month training) to US$15,000 (for six mornth training) per candidate. Estimates include travel, housing, subsistence and tuition fees. Building Design and Supervision Fees: on minimum fee scales for architectural, engineering, quantity surveying, and full supervision at about 20% of construction cost for design and supervision of prototype buildings by international consultants to about 14% for other design and supervision services involving repetitive elements. Design accounts for 70% and supervision for 30% of the total fee charged. No professional fees were allowed for other PHC facilities which would be undertaken by JKR. 3.3 Contingency Allowances of US$18.6 million included in total project costs were calculated as follows: (a) physical contingencies of US$8.1 million, representing 10% of base costs were estimated on 11.7% allowance for civil works and 10% allowance for furniture and equipment and vehicles categories. No physical contingency was allowed for overseas training, professional fees and foreign experts; and (b) price contingencies of US$10.5 million, representing 13.0% of base costs, based on the implementation schedule (Annex 4), physical contingencies, and on expected annual price increases of: locai--4.5% for 1994 and thereafter; foreign--2.8% for 1993 and thereafter. 3.4 Foreign Exchange Costs. Direct and indirect foreign exchange costs were estimated at about US$52.0 million equivalent (RM132.6 million) including contingencies. Based on expenditures of similar projects in Malaysia, the foreign exchange component for the major catego-ies was estimated as follows: (a) civil works 35%; (b) furniture 24%; (c) equipment and vehicles 85%; (d) fellowships 100%; (e) professional fees 70%; and (f) technical assistance 100%. 3.5 Taxes and Duties. Identifiable taxes estimated at about RM7.7 million (US$3.0 million equivalent) were based on the current import duties mainly on imported building equipment and materials. Equipment and materials directly imported for the project would be exempt from taxation. Locally procured items directly purchased for the project would also be exempt from taxation.

26 -19- Table 3 J: Summary of Project Costs by Component RM Million USS Million X 2 Compcnent Local Foreign Total Local Foreign Total Foreign Base A. Environmental Health 1. Department of Chemistry Ministry of Health Subtotal A B. Primary Health Care 1. Health Care Facilities C. Health Technclogy 1. Blood Transfusion Service D. Strengthening of MOH Total Base Costs Physical Contingencies Price Contingencies Total Costs ja Note: Figures in this and subsequent tables may not add due to rounding. La Includes US$3.0 million equivalent in identifiable taxes and duties. ThalL 3,2: Summary of Project Costs by Category of Expenditure Caregory of RM Million USS Million Z I Expenditure Local Foreign Total Local Foreign Total Foreign Base A. Civil works B. Furniture C. Equipment and vehicles ' D. Fellowships E. Design/Supervision Technical Assistance Total Baoe Costs Physical contingencies Price contingencies Total Costs ~ ~ ~ ~ - - ~ ~~~~ _ ~~~~~~~~~~~~~~~~~~~~~~

27 -20- B. Financing 3.6 The total project cost of US$101.3 million will be financed through the proposed IBRD loan of US$50.0 million covering 100% of foreign exchange costs (excluding the fellowships program) representing about 51% of the total project cost, net of taxes and duties. The Government will finance the remaining US$51.3 million in local costs and corresponding foreign costs for the fellowships program, including US$3.0 million of estimated taxes and duties, through budgetary appropriations to the Department of Chemistry and the Ministry of Health to cover capital expenditures under their respective project components. To permit DOC to proceed with advanced procurement associated with the equipping of its laboratories, retroactive financing of up to US$1.6 million equivalent will be provided for eligible expenditures incurred prior to loan signing but after May 1, The financing plan is detailed in Table 3.3 as follows: Table 3.3: Financing Plan (US$ million) % Share GOM IBRD Categury of Sub- La Finan- Expenditure DOC MOH t tal IBRD Total cing Civil Works ' Furniture Equipment and vehicles Fellowships L.& Design and Supervision Technical Assistance Total Q Above totals for civil works and furniture include identifiable taxes and duties estimated at US$3.0 million equivalent. /a Total costs including contingencies. a About 51% of project costs net of taxes and duties.

28 Incremental Recurrent ExRenditures are estimated to account for about 25% and 1% of DOC and MOH budgets respectively, when the project becomes fully operational in They have been estimated on the basis of projected increments in personnel and goods and services required. Although the proportion of the increase in DOC appears substantial because of the relatively small size of the Department, it is substantially smaller than the estimated increment in MOH operating expenses in absolute money and personnel terms. Incremental recurrent expenditures from the proposed investments should be comfortably met within the Government's financial capability. Sustainability 3.8 The Government has significantly increased resource allocation for the health sector in the Sixth Malaysia Plan, which indicates strong commitment to sector development the project would support. During project preparation, human and financial resources for the operation and maintenance of the capacity being created by the project were identified and estimated. Relevant training and technical assistance form part of the project to improve skills to deal with new technologies. As indicated below, the project will require RM258.2 million over the five year implementation period. The GOM will provide RM130.7 million in counterpart funds and the Loan will provide the balance of RM127.5 million (US$50.0 million equivalent). Annual breakdown of above requirements by agency are estimated as follows: Table 3.4: Annual Budgetary Requirements for Capital Investments Total RM Million GOM/DOC IBRD Subtotal GOM/MOH IBRD Subtotal , Total GOM (DOC+MOH) Total IBRD Grand Total In addition to the normal planning and implementation considerations, the project was designed to distribute expenditures more evenly throughout the five year implementation program, although the peak expenditure in 1997 could not be avoided without undue postponement of activities.

29 -22- Procurement 3.9 The loan proceeds will be used to finance procurement of the following expenditure categories: (a) Civil Works (US$60.9 million equivalent). Civil works contracts costing US$5 million equivalent or more will be procured under International Competitive Bidding (ICB) procedures in accordance with Bank guidelines. Contracts falling under this category and totalling about US$39.8 million (65% of all civil works) will be the: (i) DOC Central and Branch Laboratories; and (ii) Blood Transfusion Center. Malaysia has a developed construction industry to undertake the remaining 35% of the civil works contracts, which will be less than US$5.0 million each, ranging from US$0.2 to US$4.7 million under Local Competitive Bidding (LCB) in accordance with Treasury procedures, which are acceptable to the Bank. Foreign bidders will be allowed to participate in LCB if interested. (b) Furniture (US$2.8 million equivalent). Furniture under the project comprise traditional items (desks, tables, chairs, beds, storage cabinets, etc.) for Primary Health Care facilities, and similar items for the Laboratories and Special facilities. However, as procurement of furniture will be decentralized for the Primary Health Care component, and the need to coordinate with the construction progress of individual buildings for the other facilities, contracts are expected to be modest (ranging from US$0.02 to US$0.3 million). Consequently, most procurement will be on the basis of LCB in accordance with Treasury procedures, which are acceptable to the Bank. Off-the-shelf items not exceeding US$50,000 equivalent for each package and aggregating to a maximum of US$0.6 million, can be purchased through local shopping on the basis of competitive price quotations from at least three suppliers eligible under Bank guidelines. (c) Equipment and Vehicles (US$27.1 million equivalent). Bid packages costing US$500,000 equivalent or more will be awarded on the basis of ICB in accordance with Bank guidelines. The nature of the equipment lends itself to attractive packaging for ICB which will comprise 64% of the total value of equipment under the project. Local manufacturers will be given a margin of preference in bid comparison of 15% of the c.i.f. price of competing imports or the actual customs duty, whichever is lower. The remaining 36% of equipment comprise items readily available in Malaysia through numerous local agents and at competitive prices. Contracts for this equipment costing less than US$500,000 equivalent each, will be procured through Local Competitive Bidding (LCB) under government procurement procedures acceptable to the Bank and aggregating to a maximum of US$6.0 million. Off-the-shelf items not exceeding US$100,000 equivalent for each package and aggregating to a maximum of US$3.9 million, may be purchased through shopping on the basis of competitive price quotations from at least three suppliers eligible under Bank guidelines.

30 -23- (d) Fellowships (Overseas) (US$1.4 million equivalent). This component will not be financed by the Loan. However, placement of candidates in foreign institutions will be made on the basis of relevance and quality of the programs offered, costs, and prior experience. MOH will manage all project related foreign programs according to an agreed training plan and schedule (Annex 1). (e) Design and Supervision Services for the Civil Works (US$7.3 million equivalent). Foreign and Local Consultants for Architectural Design, Engineering, Quantity Surveying and Full Supervision Services. Foreign consultants for the design and supervision of the specialized facilities, namely, the: (i) DOC Central and four Branch Laboratories; (ii) MOH Central and two Regional Laboratories under the direction of JKR; and (iii) MOH Blood Transfusion Center also under the direction of JKR, will be engaged on the basis of evaluation and comparison of technical proposals invited from a list of at least five internationally known firms with particular expertise and experience in the type of building involved and eligible under the Guidelines. In the case of MOH, these consultants will work closely with JKR who will be the executing agency for the MOH buildings. In the case of DOC, the international consultants will be expected to team up with a local firm, as required under local regulations. The Loan will finance about 69% of the total costs of the private firms engaged. JKR's services will be free. (f) Technical Assistance (US$1.7 million equivalent) will be provided through international consultants hired to assist the MOH in policy and services development, and clinical skills and management training. All procedures for selection and employment of foreign and local consultants will be in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers." 3.10 Procurement procedures to be used for the above categories are indicated in Table Bank Review. The following will be subject to Bank review prior to bid advertisement: (a) Preliminary architectural designs for all prototype facilities under the project; (b) terms of reference, letters of invitation for consulting services (local and foreign consultants); (c) master equipment lists indicating proposed packaging and cost estimates; (d) standard bidding documents for ICB and LCB for civil works and goods; and (e) works contracts estimated to cost more than US$1.0 million equivalent and goods contracts estimated to costs more than US$0.5 million equivalent. On this basis, prior review will cover about 85% of the value and 43% of the estimated number of contracts for civil works, and about 57% of the value and 30% of the estimated number of contracts for goods. Other contracts will be subject to selective post-award reviews. Annex 5 shows procurement, Bank review and withdrawal thresholds for each expenditure category.

31 -24- Table 3.5: Summary of Proposed Procurement Arrangements (US$ million equivalent) Procurement Method Total Project Element ICB LCB Other/c N.B.F Cost /a Works Buildings DOC (11.2) (11.2) MOH (1.9) (6.6) (8.5) Goods Furniture DOC (0.3) (0.0) (0.3) MOH (0.2) (0.1) - (0.3) Equipment and vehicles DOC MOH (4.3) (1.7) (2.2) - (8.2) (10.2) (3.4) (1.1) - (14.7) Consultancies/Services Architectural and Engineering Design and Supervision /b DOC (3.1) (3.1) MOH (2.0) (2.0) Overseas Fellowships (0.0) (0.0) Technical Assistance (1.7) (1.7) Total (27.6) (12.2) (10.2) (0.0) (50.0),a Totals represent total estimated costs per category including physical and price contingencies. /b~ Professional fees for full services including quantity surveying. /c Includes international and local shopping and direct purchase, and consultant services. Note: Figures in parentheses are the respective amounts financed by the Bank. N.B.F.: Not Bank-Financed.

32 Disbursements The proposed Bank loan of US$50.0 million will be disbursed over a period of about six years. Disbursements are expected to be completed by the Closing Date of December 31, 1999, and will be made against the following categories of expenditures covering the selected components and activities to be financed under the proposed loan: (a) civil works--33% of total expenditures; (b) furniture--23% of total expenditures; (c) equipment--(i) 100% of foreign expenditures for directly imported goods; (ii) 100% of local expenditures (exfactory) for locally manufactured goods; and (iii) 75% of local expenditures for other goods procured locally; (d) professional fees--69% of total expenditures; and (e) technical assistance--100% of total expenditures The program and disbursement forecast is feasible considering the degree of advance preparation and the Government's commitment to the proposed investments. Moreover, the proposed forecast closely follows the disbursement profile for the Malaysia Education Sector (Annex 6) Documentation of Expenditures. Withdrawal applications for consulting services, and for goods with a contract value of US$500,000 equivalent or more and for works with a value of US$1,000,000 equivalent or more will be supported by full documentation. Contracts below the above thresholds will be made on the basis of Statements of Expenditure (SOE), for which supporting documents will be maintained by DOC and MOH Project Implementation Units. Each of these Units will be responsible for aggregating the eligible expenditures under each budget and for preparing withdrawal applications for submission to the Bank. To the extent practicable, withdrawal applications will be aggregated in amounts of US$100,000 equivalent or more, prior to submission to the Bank. IV. PROJECT IMPLEMENTATION A. Status of Project PreRaration 4.1 The project has been prepared by DOC and MOH consultants with the support funded of from a Japan Grant, and has involved lengthy technical and and detailed administrative preparation by operational, executives managerial of and DOC senior and MOH, relevant central agencies, and experience foreign experts in the service with areas, and architectural, engineering surveying and skills. quantity Functions and supporting organizational identified arrangements and documented. have been Final design briefs have been international completed by experts for all the specialized facilities the (the Blood Laboratories, Services Center) and which included detailed cost estimates, plans and masterlists preliminary of equipment. Prototype plans for facilities the Primary have Health been Care designed by JKR in consultation with workshops MOH. Orientation on procurement have been organized by the Bank and for core staff agencies. of both line Standard bidding documents and a procurement prepared by plan both have agencies been (DOC and MOH) with the assistance the of Japan consultants Grant. under Implementation phasing of building operations procurement and for equipment and installation has also been prepared. personnel In addition, and the other needs recurrent for costs have been costed and has documented. been assured The that Bank the land for the sites of the facilities in the project are

33 -26- owned by the Government and have been reserved for the identified purposes. The Government provided the Bank, at the time of negotiations, confirmation that it owns all the sites identified for the project. Management Structure and Functions B. Organization and Management 4.2 Ministry of Health will implement the components concerned with primary health care, health technology and strengthening of MOH and the public health laboratories sub-component, while the Department of Chemistry in the Ministry of Science, Technology and the Environment, will implement its subcomponent concerned with the environmental health laboratories. The Economic Planning Unit, in the Prime Minister's Department, and the Federal Treasury will provide overall coordination through their central roles in the allocation of resources, oversight and review of progress in the attainment of the Government's development plans. The organizational structure for project implementation in each executing agency will have two main elements: (a) policy and oversight to be carried out by a Project Implementation Committee; and (b) on-going implementation activities to be undertaken by a Project Implementation Unit. 4.3 Project Implementation Committees. The individual committees in MOH and DOC will be concerned with policy, major resource allocation and quality control, and ensuring that plans and programs are duly executed. These committees will be chaired by the most senior officers in MOH and DOC respectively. Membership will include representatives of the Economic Planning Unit, the Federal Treasury, Public Works and Public Service departments. In each case, MOH/DOC division and state directors, as appropriate, would also have representation on these committees (the organization charts of MOH and DOC are provided in Annex 7 and Annex 8 respectively). The committees would meet twice each year. 4.4 Proiect Implementation Units (PIUs). Under the existing management structure of MOH and DOC, the main responsibilities of the two PIUs will be: (a) provision of support to their respective Project Implementation Committees; (b) coordination with user groups; (c) liaison with the Bank and other involved agencies; (d) administration of centralized procurement under standardized methods and procedures; (e) administration and coordination of technical assistance services; (f) guidance for the design of civil works and overseeing construction activities; (g) accounting, bookkeeping and financial administration of expenditures and loan proceeds; (h) preparation and submission of withdrawal applications to the Bank; (i) arrangement for timely audits of project accounts; and (j) monitoring of progress and preparation of semi-annual reports to MOH, DOC and the Bank. 4.5 In addition, the PIUs will obtain professional services to assist with civil works and equipment procurement. Consultant architects, engineers, quantity surveyors and equipment planners will undertake/assist design, prepare contract documents, assist in the evaluation of bids, and supervise/assist during implementation. They will also assist in the equipment procurement process, involving: (a) assessment of equipment lists and preparation of detailed

34 -27- specifications; (b) procurement planning including packaging of items and phasing; (c) determination of procurement methods, terms and conditions of contracting, and bidding documents; (d) evaluation of bids received; and (e) receipt, testing and installation. Experienced advisers will particularly be needed during the bidding and evaluation process of sophisticated medical and scientific instruments and computers. 4.6 Department of Chemistry. DOC will establish Committee a Project to be Implementation chaired by the Director-General with PIU the will functions also be established oltlined. A in DOC responsible to the implementation Director-General of the for DOC the component. The establishment considerably of the PIU to will the management add capacity of DOC to implement program, its which development at present has no specifically dedicated unit locus will include or resources. a project This coordinator and three small with: function (a) procurement areas dealing (equipment and furniture); (b) finance (c) civil and works accounting; with access and to/or seconded officers coordinator from JKR. will The be PIU responsible to the DOC Director and General coordination for overall of project planning activities (Annex 9). Project The establishment ImDlementation of the Committee and of the PIU. including functions. the will staffing be conditions of key of loan effectiveness. 4.7 MinistrY of Health. MOH will also create Committee a Project to be Implementation chaired by the Secretary-General (who Deputy may be Secretary represented General by the when unable to attend any the meeting). Division of The Planning existing and PIU Development in (DP&D) in MOH, manage which ADB was assisted created projects to will act as the PIU for existing MOH components. capacity will Its be strengthened to reflect the by this additional project. burden The generated areas for specific strengthening administrative will include coordination among the relevant divisions procurement in and MOH, clerical finance, assistance. Additional seven with finance staff will and be accounting, concerned project implementation The and Government procurement will functions. also make adequate budgetary provision enlarged PIU, for for the such support expenses of the as travel and general work maintenance. closely with The JKR PIU that will will oversee the building authority program from under MOH. delegated The functions of the PIU are presented establishment in Annex of the 10. Proiect The Implementation Committee the and staff the of strengthening the existing of PIU will be conditions of loan effectiveness. 4.8 Planning groups with representation from relevant MOH services and divisions were organized during project preparation and have been actively involved in the design of each MOH component/sub-component. They will continue their advisory work during project implementation in close cooperation with the PIU. Particular efforts will be made to ensure that the needs and requirements of end-users are met and that agreed criteria are followed. Advisory groups for each of the following components will provide valuable inputs into project implementation. These groups will operate for the benefit of the: (a) Public Health Laboratories; (b) Primary Health Care facilities; (c) Blood Transfusion Services; and (d) Fellowship and Technical Assistance programs. 4.9 Thesa advisory groups will work closely with the PIU on: (a) Civil Works: ensuring that identified needs are met, facilitating liaison with users, facilitating passage of information to design consultants, and arrangements for

35 -28- final acceptance of buildings; (b) EquiRment and Furniture Procurement: ensuring that identified needs are met and reviewing and revising master lists if necessary; (c) Fellowships: reviewing and revising drafted candidate selection criteria and procedures if necessary, assisting in identifying and selecting candidates and training institutions, and assisting in evaluating the programs; and (d) Technical Assistance: reviewing and revising terms of reference, if necessary, assisting in identifying and selecting experts or institutions to provide technical assistance services, and contributing to their evaluation Accounts and Audits. Separate project accounts will be prepared and maintained by the Project Units in accordance with sound accounting practices. The format of the accounts will be designed to reflect project breakdown as indicated in the project cost tables. Accounts and documentation supporting SOEs will be maintained separately and will be readily available centrally for review by visiting Bank missions. Project Accounts and SOEs for each fiscal year will be prepared and audited in accordance with normal government accounting procedures, which are acceptable to the Bank. Certified copies of the audited accounts for each fiscal year, consolidated to a single auditor's report for each of the implementing agencies (DOC and MOH), will be furnished to the Bank as soon as available, but not later than nine months after the end of each fiscal year (September 30). C. Monitoring and Evaluation 4.11 Project monitoring and evaluation will be carried out at three levels: (a) performance in the implementation of project inputs; (b) project impact on output; and (c) evaluation of overall project outcomes. The first will be carried out by the PIUs, in their normal course of activities in implementing the project. The second will assess project impact by monitoring and evaluating through performance indicators and targets. This will be somewhat limited, as key project inputs would not be in place until the end of the implementation period. The last will essentially be the overall evaluation of the project at completion Monitoring Implementation of Project Inputs. To monitor and compare annual plans, targets, and project estimates, with actual progress, the DOC and MOH PIUs will hold regular reviews. The purpose of these meetings will be to coordinate implementation activities, review project progress, make necessary adjustments to reflect realities and changed situations, and discuss problems and actions needed. Standard reporting formats making use of a computerized management system should be developed to facilitate this review process. The Project Implementation Committees (MOH and DOC) will convene twice a year (June and December) to review the overall project direction and progress. They will also produce a report, which should be incorporated in the PIUs' semi-annual progress reports to be submitted to the Bank in July and January each year. In addition to the regular and semi-annual review meetings, DOC and MOH will organize a project implementation review each year (mid-year) when the budget for the next year is being prepared for submission to the Federal Treasury. The reviews will include representatives of the Economic Planning Unit and Federal Treasury. They should evaluate past performance and agree on the next year's plans and budget requirements. Plans for each component will include a detailed breakdown and scope of proposed inputs, planned procurement and training

36 -29- activities, and arrangements for the provision of technical services. DOC and MOH will also hold a mid-term Project implementat!on review in late Assessing Proiect Impact. In order to assess the impact different of the components of the project, capacity targets have been DOC documented and MOH for Environmental and Public Health Laboratories, and Services the National Center. Blood Measurement of actual output will be used to assess the volume impact of on work done against the established targets. In the Health case Care, of Primary MOH maintains records of attendances/services provided health facility. at each These will be used to assess impact on services local provided populations. to In addition, MOH also compiles indicators related of health to the status services that it provides. These indicators will conjunction be used with in output indicators to form a rore rounded assessment (Annex of 11). impact Overall evaluation of the project will be carried completion. out after project It will involve a comprehensive evaluation of the the implementation project's inputs, of as well as the overall impact in terms of outputs/utilization the from the improved capacity and outcomes in terms status. of health 4.14 Bank Supervision. Bank supervision missions, in addition to reviewing and documenting implementation progress, will also be providing assistance in the process. in this respect, and in view of the multi-faceted nature of thie project, Bank supervision will require resources considerably in excess of those normally allocated. The project involves highly specialized facilities requiring careful review by scientific and medical technology experts for several disciplines. Moreover, the geographical dispersion of the Primary Health Care component adds to the burden of supervision. This wide coverage will require expertise in various fields and, most important, effective coordination. Periodic Bank supervision missions to the field will therefore require the assistance of consultants who are practicing experts in various medical fields and scientists familiar with the state-of-the-art in their fields. In addition, while Bank staff have held workshops on procedures and processes for procurement and loan withdrawa' applications, they will need to continue assistance in these areas since the proposed project will be the first Bank-assisttd project to be implemented by the DOC. The MOH has more project implementation experience through the management of large ADB projects, but it has not dealt with the Bank for some years now and little institutional memory of that experience remains with the present staff. Consequently, a total of 100 staff-weeks will be required for field supervision of the project, comprising missions of 8-12 staff weeks at six-month intervals during the first two years and at 9-month intervals thereafter. A detailed supervision plan is presented in Annex 12. D. Environmental Aspects 4.15 There are no significant environmental issues associated with the project. The design of the environmental and public health laboratories make provision for the appropriate handling of materials and disposal of wastes, which could serve as models for similar future investments. The project will have positive environmental aspects, including supporting development of occupational health and safety policies, improving the capacity for surveillance of environmental health, and enhanced quality of water supply, food and sanitation.