Invitation to bid for Project Funded by CFC

United Nations Office for Project Services (UNOPS)

Implementation of the Trade Finance Component and Related Activities of the Cotton and Coffee Warehouse Receipts Projects Financed by the Common Fund for Commodities in Eastern and Southern Africa.

Terms of Reference — Price Risk Management

For the introduction, at a pilot level, of market-based price risk management instruments for commodities in selected countries in East and/or West Africa.

United Nations Office for Project Services (UNOPS)

Implementation of the Trade Finance Component and Related Activities of the Cotton and Coffee Warehouse Receipts Projects Financed by the Common Fund for Commodities in Eastern and Southern Africa.

Background Information

The United Nations Office for Project Services (UNOPS) invites bids from experienced companies to carry out specified activities of the projects

Improvement of Cotton Marketing Systems in Eastern and Southern Africa (implemented in Tanzania and Uganda), and

Coffee Market Development and Trade Promotion in Eastern and Southern Africa (implemented in Tanzania, Uganda and Zimbabwe).

The projects aim at introducing structured finance systems for production and trade based on warehouse receipts for cotton and coffee sectors as the principle commodities.

The company selected shall be the sub-contractor for the execution of the main technical components of the projects in collaboration with national counterparts in each country. The projects, for which UNOPS is the Project Executing Agency (PEA), are financed by the Common Fund for Commodities. In accordance with the Common Fund’s policy of preferred procurement of goods and services from its member countries, the sub-contract will preferably be awarded to a bidder from a member country.  Prospective bidders are advised to take note of the list of member countries of the Common Fund and also visit the CFC website for the Appraisal Reports and the Mid-term Evaluation Report. Furthermore, it is to be noted that preference will be given to companies that can make it convincingly clear not to be involved in commercial activities relating to commodity trade, collateral management, or banking which would cause a conflict of interest.

Main Activities to be performed by the sub-contractor

• Development of a system of commodity trade finance based on inventory collateralization and warehouse receipt system; and testing the system through pilot trade financing. The warehouse receipts would initially be non-negotiable.

• Assist the PEA in making (i) a basic market information system, and (ii) a quality assurance and certification system, which are already developed in the projects, self-sustainable. The sub-contractor will further be involved, with the PEA, in the dissemination of  project results to  other interested countries and market players at the end of the projects.

The projects may also cover additional suitable commodities for pilot testing purposes, however, the emphasis will be on cotton and coffee.

Specific Terms of Reference

Activities to be undertaken in the period of 21 months

A. Engagement of banks

Based on the intended design of the warehouse receipts system (WRS) including the description of the envisaged involvement of each party, discuss with the banks their actual interest to participate in a pilot programme at a national level. Detail the requirements/conditions set by the banks and adapt the WRS and its operational mechanisms/requirements accordingly.

In consultation with the bank(s) develop and implement appropriate training programmes for bank staff to be involved in the pilot programme.

B. Selection and inspection of warehouses for different commodities

Identify, inspect and select warehouses to issue warehouse receipts, in accordance with the rules and criteria acceptable to other participants of the project, namely to the banks and insurance companies as applicable. This inter alia includes:

• Review of the existing situation with warehouse inspection, and identify existing inspecting entities, which would and could participate in the project.

• Identify an appropriate agency or office to conduct inspections (optional).

• Determine and introduce applicable warehouse inspection procedures.

• Select participating warehouses in collaboration with the inspection/ supervision agency/office for initial incorporation in a pilot WR system. Provide advice on accounting and tally system, price information system, technical storage issues, etc.

• Prepare, as appropriate, legal documentation defining the mutual obligations of an inspection agency/office and the licensed warehouse. The rights and mutual obligations of the parties directly involved in the issuance of warehouse receipts would be formalised, as agreements between project participants, in accordance with the existing legislation.

• Identify requirements and procedures for bonding and indemnification of participating warehouses.

• Training of warehouse operators and staff as required.

C. Selection of collateral managers (if and as required by participating banks)

Based on the intended design of the WRS discuss with the banks requirements of engaging collateral managers for WRS. Detail the requirements of the banks and specify operational mechanisms and requirements for collateral managers accordingly.

In consultation with the collateral managers develop and implement training programmes for bank and collateral management staff to be involved in the pilot programme.

D. Establish and Launch a System of Warehouse Receipts

To establish the required warehouse receipts system and review the required supportive systems to be in place such as:

Quality control system: Evaluate the reliability of available quality control schemes and formulate the standards for commodities for the participation in the pilot project.

Issuance of warehouse receipts: The development of standardised procedures for the issue, registration and verification of warehouse receipts by warehouse operators. Helping warehouse operators in linking with the banks, collateral managers, insurance companies (stock insurance and fidelity risk).

Development of collateralized financing against warehouse receipts: To create the acceptance of warehouse receipts by banks as collateral for loans. The participating banks would be expected to develop the procedures for lending against the warehouse receipts.  The activities envisaged, inter alia, will include

• The development of standard procedures for accepting warehouse receipts as collateral for bank financing. Participating banks would undertake to develop, in co-ordination with each other, the internal procedures for acceptance, reconciliation and redemption of warehouse receipts as collateral for lending.

• The development of legal procedures and the signing of correspondent documents in respect of mutual guarantees on transactions with warehouse receipts. In the absence of the security status, agreements would need to be concluded between the parties issuing and accepting warehouse receipts to guarantee the property rights conferred by the warehouse receipts. The agreements would need to be standardised, so that the legal mechanisms embedded in them would be applicable on as wide a basis as possible.

• Selection and training of bank personnel on the warehouse receipts.

E. Related activities in Market Information and Quality Assurance System which will be implemented by the PEA in collaboration with the LMUs.

F. Cost evaluation of the proposed scheme

Development of a business plan, and costing of services.

Management Structure

UNOPS is the Project Executing Agency of the Project. In each country the project activities are co-ordinated by the National Project Co-ordinator, supported by a small technical and administrative staff (collectively referred to as the Local Management Unit (LMU)). The bid should clearly specify the roles and responsibilities of the LMUs (if any) and that of the sub-contractor. It should also elaborate on the possible management structure to be put in place for conduct of the sub-contractors activities. The LMUs are provided with essential office infrastructure such as vehicles, computers, fax machines, etc. for discharge of functions performed by them.

Qualifications of Company

The company should have demonstrated experience in commodities, commodity trade financing, as well as project management. The company is expected to have a thorough understanding of collateral management and the interests and expectations of different stakeholders in inventory credit systems, and the commodities concerned.

Proposed Time Frame

The interested companies should submit their detailed technical and financial offers in writing by 7 May 2004 at the address given below. The offer should at least contain the following:

• Profile of the company; explaining and documenting the experience of the company in implementing projects in the field of setting up operational warehouse receipts systems, warehouse management, structured trade finance, etc.;

• A proposed strategy; reflecting the company’s understanding of the tasks to be performed. It should elaborate how the contractor envisages to ensure the sustainability of the proposed WRS in the national economies;

• A detailed programme of work; elaborating the activities to be undertaken with their interlinkages, supported by a graphical presentation of the activities over time (bar chart, gantt chart or similar);

• A clear management/staffing structure; highlighting the contractors proposed management, technical and support staff inputs and their position within the organisational framework of the project. CV’s of the key staff;

• A detailed budget enabling the identification of  main categories of inputs for the activities, with a level of detail that enables assessment of quantities and item costs for the proposed input.

Bids should be sealed and clearly marked “Tender for the implementation of Trade Finance Component” and should be addressed to:

United Nations Office for Project Services(UNOPS)
Nairobi Office
Attention: Senior Portfolio Manager
United Nations Complex, Block A- Room 235
United Nations Avenue
P.O. Box 39981,00623
Nairobi, Kenya

Telephone: 254.20.623454/623412/623370/623366
Fax: 254.20.623540

Email: AbdirazakA@unops.org

This list can be found in Annex X of the Fund’s Manual for Project Preparation (5th edition, 1st revision, July 2003) on the Fund’s web site www.common-fund.org.

Terms of Reference — Price Risk Management

For the introduction, at a pilot level, of market-based price risk management instruments for commodities in selected countries in East and/or West Africa.

I Background

The Executive Board of the Common Fund for Commodities has approved the financing of projects in the field of commodity price risk management. The overall objective of the projects is to develop means to reduce the exposure of smallholder farmers in developing countries to short term fluctuations in the world market prices, thus better securing stable incomes from their production. The practical aim of the projects is to test the feasibility of the use of market based price risk-management instruments by groups of farmers in developing commodity-producing countries and to establish the preconditions for the use of price risk management tools in the countries concerned. Cocoa, coffee and cotton, which are all subject to frequent price fluctuations, have been identified as agricultural crops which lend themselves to testing of these instruments due to them being traded at recognised international commodity exchanges. The countries to be targeted are located in West and Eastern Africa.

The approved projects are:

The objectives of these projects are to:

The projects have been analysed by independent consultants for the following:

The consultants generally concluded that pilot trials can be conducted.  The Common Fund therefore invites detailed proposals for implementation of a pilot project.

II Expected outputs of the pilot programme

Identify: Suitable price risk management instruments, providers in industrialized countries and takers of the selected instruments in the countries concerned.

Develop and structure transactions: Develop and structure transaction(s) in consultation with local banks, traders, co-operatives and/or other parties, after a full review and assessment of price risk exposures and optimal price floor requirements over a season.

Training and support: Define, elaborate and implement training programmes for the different stakeholders. Provide for continuous on-the-job training during implementation for the staff of participating banks, cooperatives and other parties as applicable.

Implement Transactions: Make a test run of the chosen instrument(s) for a number of transactions. Transactions to be repeated over different seasons to test the efficacy,  applicability and cost effectiveness of the instrument(s). Evaluate performance, and sustained interest.

Analysis: Analyse experiences and results of the test cases and discuss these with the Common Fund, the relevant (national and international) commodity organizations and key stakeholders from the public and private sector in the country involved.

Dissemination: Disseminate the results of the project to other stakeholders in the region. Dissemination activities and materials should be in English (and French as applicable) and easily accessible for the target groups. Organize an interregional seminar to present and discuss the findings and experiences of the pilot project. Subject to successful results disseminate and replicate the program to other interested stakeholders including introducing progressively more operators into the system to make it self-reliant and self-financing.

The proposal shall reflect the bidder’s assessment of specific conditions necessary for successful implementation of a pilot programme, including in relation to the legal, policy and regulatory framework influencing the introduction of the price risk management instruments in the countries concerned. The choice of the inclusion of one or more commodities in the pilot programme and the choice for one or more countries shall be well elaborated.

The proposal shall specify the key players to be involved in each country and describe their roles in a pilot programme including specific requirements (in terms of organizational structure, technical capacity, legal status, etc) for each such party. The proposal shall provide details of existing linkages with the banking sector and other relevant entities in the country proposed.

The proposal shall contain a detailed operational description of the instruments proposed for use in the pilot programme. This will include description of the technical, financial and institutional requirements, as well as an assessment of risks, costs and minimum and maximum parameters which determine the ultimate efficiency and cost effectiveness and feasibility of the proposed instruments.

Based on a transparent Logical Framework, the proposal shall contain a detailed  project implementation plan, specifying the activities to be undertaken including identification by whom and how they will be implemented. Activities to be undertaken will be described with their interlinkages, supported by a graphical presentation of the activities over time (bar chart, gantt chart or similar); Outputs to be delivered shall be described in both qualitative and quantitative terms. The proposal shall contain a detailed budget specifying the costs of the programme, with detailed breakdown of costs for categories of expenditure (staff time, training, travel, equipment, operational costs, etc).  

The management structure of the project shall be clearly elaborated.

In the implementation plan, due attention shall be given to sustainability of the introduced mechanisms.

V General issues to be noted by the prospective Project Executing Agency (PEA)

VI Other information

A proposal for implementation of the project for one or more of the commodities listed, in one or more of the countries mentioned in each project, should be submitted. The expected duration of the pilot project should be based on the operational activities proposed but should not exceed three years.

The proposals received will be evaluated by the Common Fund, in consultation with the International Commodity Bodies for the specific commodities. The Common Fund reserves the right to not award the contract if none of the proposals is deemed to meet the requirements of these Terms of Reference.

The Common Fund is exempted from direct taxation and import duties on goods and services for its official use in its member states. The financial proposals should reflect this status.

In accordance with the Common Fund’s policy of preferred procurement of goods and services from its member countries, the contract will preferably be awarded to a submitting party from a member country. Prospective bidders are advised to take note of the list of member countries of the Common Fund.

In case there is the possibility of a conflict of interest in the sense that the project would advance the commercial interest of the submitting party in the fields of banking, commodity trading or other, the submitting party should elaborate how it intends to mitigate such conflicts.

VII Submission of proposals

The interested companies should submit their detailed technical and financial proposals in writing by 15 May 2004 at the address given below.

The Managing Director
The Common Fund for Commodities
P.O. Box 74656
1070 BR Amsterdam
The Netherlands