site sanitation facilities to poor households. All payments to local builders constructing the sites (as well as to non-government agencies implementing the scheme) are withheld until after site construction, with some financing held back until after a period of monitoring usage for several years, to ensure sustainability in construction and demand.

Within the procurement process itself, there is scope for interventions covering e- procurement, financial management information systems, transparency and third-party (NGO or external professional) oversight rules that are applicable across sectors. Companies that have previously broken laws, that do not have an internal system of controls in place, or that have been selected in non-competitive bids might be subject to additional oversight by an independent inspector acting as an integrity monitor, with access to internal documents and deliberations on a confidential basis. The World Bank’s Paraguay Road Maintenance project combined a number of features to improve governance and reduce corruption at both the sector and project level (See Box 12).

## **<u>Box 12: The Paraguay Road Maintenance Project</u>**

<mark>The Paraguay Road Maintenance Project used two workshops held by the Ministry of Public Works to discuss sector governance weaknesses –these provided input into sector reform proposals and project design. Results elements adopted included a framework of monitorable output indicators to be tracked, but also baseline and follow-up surveys to provide evidence of socio-economic project impact. Transparency measures included an active program of dissemination prior to and during the project, as well as electronic publication of procurements, contract award and implementation progress, complaints procedures and other project and sector-related documents and policies. Participatory processes were used in the design of the local (unpaved) roads component of the project, which also involved local cost-sharing. Local universities will also be involved in monitoring physical quality of outputs for output-based project components.</mark> <mark>Combined with World Bank led fiduciary assessments, the consultation process also prompted the development of a number of mitigation measures regarding project fiduciary arrangements, including new financial management systems and improved audits, and an enhanced supervision process involving the monitoring of ‘red flags’ such as price variance in bids and procurement delays, laid out in an annex to the</mark> <u><mark>project documents.</mark></u><sup>28</sup>

# **Implications for Infrastructure Investment**

Governance plays a key role in determining the development impact of investment operations in infrastructure. Even projects that are chosen on the grounds of strong demand and that are well built and corruption-free, will have considerably reduced macroeconomic impact if sector governance is weak. Furthermore, as global anticorruption efforts involving the UN, the OECD and multilateral development banks ramp up, there is a growing fear that countries which are perceived to be corrupt will lose access to the international skills, knowledge and finance of firms unwilling to face the risk of global sanctions (Box 13). Given this, sectoral analysis of governance and sectorlevel responses in terms of institutional capacity building should have an increased importance.

> 28 Available here:

> http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&m enuPK=228424&Projectid=P082026

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