Niger - Public Enterprise Sector Adjustment Program Project

Document of The World Bank FOR OFFMClAL USE ONLY Rept No. 11366 PROGRAM COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) NOVEMBER 12, 1992 Africa Region Sahel Department Country Operations Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit = CFA Franc (CFAF) US$1.00 = CFAF 272 (1992) CFAF 1 million = US$3,676 ABBREVIATIONS AND ACRONYMS BCEAO - Banque centrale des Etats de l'Afrique de l'Ouest BDRN - Banque de developpement de la Republique du Niger CCCE - Caisse centrale de cooperation economique CNCA - Caisse nationale de credit agricole NIGELEC - Societe nig6rienne d'electricite OPT - Offices des postes et telecommunications OPVN - Office des produits vivriers du Niger ORTN - Office de radio-diffusion et television du Niger PEIDP - Public Enterprise Institutional Development Project PEs - Public Enterprises PESAP - Public Enterprise Sector Adjustment Program PFP - Policy Framework Paper PIP - Public Investment Program RINI - Riz du Niger SAL - Structural Adjustment Operation SFA - Special Facility for Africa SNE - Societe nationale des eaux SNTN - Societe nationale de transport du Niger SONARA - Societe nigerienne d'arachides SONIBANK - Societe nigerienne de banques SONICHAR - Societe nigerienne de charbon SONIFAME - Societe nig6rienne de fabrication m6talliques STB - Soci6te tunisienne de banques UNC - Union nationale des cooperatives UNCC - Union nigerienne de credit et cooperadon FISCAL YEAR January 1 - December 31  FOR OMICIAL USE ONLY THE WORLD BANK WaeNngon, D.C. 20433 U.SA O0Mb. of Dked.or4o.n.al Operdon Evuaud November 12, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THED PRESIDENT SUBJECT: Program Completion Report on Republic of Niger - Public Enterprise Sector Adjustment Program (PESAP) (IDA Credit 133-NIR and African Faciity Credit A-031-NIR) Attached, for information, is a copy of a report entitled 'Program Completion Report on Republic of Niger - Public Enterprise Sector Adjustment Program (PESAP) (IDA Credit 1833-NIR and African Facility Credit A-031-NIR)" prepared by the Africa Regional Office. The PESAP was an extension of the macroeconomic adjustment tiforts being puruod under SAL I, focussed on public resource management and public enterprise reform. Very few of the objectives were achieved, and the overall outcome was clearly unsatisfactory. Many of the condidons were fiufilled on paper only, and were not followed by substandve implementation. Te program eventually deraUed to the point that the Govtrnment refrained from submitting further disbursement request; about 10% of the original credit amount was cancelled. The Government did not comment on Parts I and m of the PCR and did not prepare Part n. While the PCR is fairly comprehensive, one pp in the analysis (as wel as In the Preident's Report) is the inadequate discussion of the impact of neighboring countries, especially Nigeria, or the development of land-locked Niger. The PCR acknowledges that the very poor outcome of this operation was due in part to the fact that preparation and appraisal were hasty and superficial. In order to Increase the effectiveness of Its assistance to Niger in the future, the Bank will have to focus more intensely on a number of issues, including the internalization of adjustmnent programs, the impact of the external environment (Including Nigeria), more realistic phasing of the reforms together with more precise conditionality, and the Impact of liberalization on the development of the informal sector. This being an adjustment operation, it is being audited simultaneously with the audit of Niger SAL I. Attachment l'Thi document hca a rdricted diitibution and my be used by recipient only in the performance of their official duties. Is contest may not otherwiae be diaclobd without World Bnk authorization.   FOR OMCIAL USE ONLY pROGRAM COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE SECTOR AD-IUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) TABLE OF CONTENTS PREFACE .................................... ..............i EVALUATION SUMMARY .................... ................... PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE ............1 A. PROGRAM IDENTITY ....... ....................1.......... B. INTRODUCTION ................ 1 C. A BRIEF LOOK AT NIGER'S ADJUSTMENT PROGRAM: SAL I ... ...... 2 D. PREPARATION AND DESIGN OF PESAP ................. 3 E. PROGRAM RESULTS ......................... 4 F. MACROECONOMIC PERFORMANCE ..... .............. 7 G. IMPLEMENTATION AND MONITORING OF THE PROGRAM .......... 9 H. CONCLUSIONS AND LESSONS ............................... 10 PART II: PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE ... ..... 12 PART III& STATISTICAL DATA ................................... 13 Project Timetable ....................... ..................... 13 Mission Data ....................... ....................... 13 Cumulative Credit Disbursements ...... ............ ................ 14 PESAP Disbursements ......................................... 14 StaffInputs ........................ ....................... IS ANNEXES: 1: Status of Conditions ........................................ 17 2: Staus of Public Enterprise Divestiture Program ....................... 21 3: Studies in Support of Adjustment ...... ............. . 24 This document has a restricted distribution and may be used by recipient only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  I  PROGRAM COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 133-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) PREFACE This is the Program CompiZon Report (PCR) for the Public Enterprise Sector Adjust'nent Program (PESAP) in Niger, for which IDA credit 1833-NIR In the amount of SDR 46 million (US$60 million equivalent) and Special Facility for Africa credit A-031-NIR in the amount of SDR 15.4 million (US$20 million equivalent) were approved on June 25, 1987. The closing date for the credits was September 30, 1990. The credits were not fully disbursed and SDR 5.8 mllion were cancelled on October 5, 1992. The PCR was prepared by the Country Operations Division of the Sahel Department (Preface, Evaluation Summary, Parts I and III). The Borrower was asked to prepare Part II during a supervision mission in December 1991 but no reply has been received. The Borrower was reminded of the responsibility for Part n b' letter dated May 22, 1992, transmitting a copy of this report to the Borrower for comment; to date, no reply has been received. Preparation of this PCR was based, inter alia, on the President's Report, the Development Credit Agreement and Letter of Development Policy, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda and reports.   - ii - PROGRAM COMPLETION REPORI REPUBLIC OF NIGER (IDA CREDIT 133-NIR AND AFRICAN FACILITY CREDff A.031-NIR) EVALUATION SUNMARY Progam Objectiv 1. The Government of Niger undertook an adjustment program from 198S to 1990 supported by the IMP, the Bank and the donor community. TMe program as outlined in utesive Policy Framework Papers (PFP) was meant to address the internal and external imbalances resultig from the coilapse of he uranium market in the early 1980s following a period of overexpansion of the public sector (pam. 4)Y The program aimed to increase the efficiency of resource use, strengthen the country's resouwe base and improve the public finance posidon and balance of payments. As an extension of the macroeconomic adjustment efforts, the main objectives of the PESAP were to: (i) reinforce controls on public expenditure and elaborate sound sectoral strategies to guide future investments; (U) liberalize prices and design incendve policies to encourage private sector development; (iii) enhance public enterprise (PB) autonomy and accountability; (iv) rationalize the parastatal sector through privatdzations, liquidations and restrctring programs; and (v) complete the parastatal sector's financial restructuring through debt settlement and measures to instill financial discipline. The overall macroeconomic progrm was agreed in the context of the PFP. Imlementaio Exorience 2. Preparation of the operation started in 1984 as part of SAL I (para. 3). In order to ieet ihe deadline to qualify for SPA funding which required that an operadon be approved before June 30, 1987, thorough preparation of the program, by allowing Government adequate dme to develop measures fully, was to some extent foregone. As implementation of SAL I was considered reasonably on track at the time, Government was not asked to take many measures up-front, but rather was given te benefit of the doubt on the basis of past performance (para. 13). 3. The PESAP was made effective in January 1988. Implementation of public enterprise policy reform was made difficult, however, because the accompanying macroeconomic measures did not bring about the expected improvement in the overall economic and financial situation of the country. However, tranches were able to be released on the basis of, iner alisa, the liquidation of a number of parasatals, preparation of restructuring plans and performance contracts for a number of PBs, and adoption of measures to grant adequate subsidies to PEs. After third tranche release, there wu serious slippage in the execution of the adjustment program, specifically with regard to: arrears settlement, credit recovery of the bankrupt BDRN and implementation of banidng sector reforms (SONIBANK share capital, para. 28). These problems were compounded by the continued disappointing results from the macroeconomic adjustment measures. Beginning May 1990, the Government refrained from submitting further disbursement requests as it realized that its program had gone off-track. As the closing date approached, M All cross-references are to paragraphs in the main text.  - iv - Governn ent requested extra time to meet agreed performance targets which related to key public enterprise reforms. In addidon, progress was expected in meeting targets agreed under the PFP. Thus the closing date of September 30, 1990, was not extended, but a deadline of December 31, 1990, was agreed at which time the credit would either be closed or the closing date extended retroactively should the program get back on track. The Government, however, turning its attention to dealing with rising polidcal and social disturbances, paid less attention to the program and failed to meet the agreed conditions. The credit account will be closed once the special accounts are recovered. Approximately SDR 5.8 million will be canceled (paras. 21-29). 4. The results of the pubUc enterprise divestiture program were mixed. Of the 54 public enterprises for which diagnostic studes had been undertaken In 1984, by the end of the period covered by the SAL and the PESAP, 24 were privadzed and six were liquidated. Five others were Integrated into Government services, transferred or transformed into cooperadves, or leased to private business. This acdvity took place before or during the SAL, not under the PESAP. The impact on the remaining PEs will be studied in the first quarter of FY93 (under IDA Cr. 1838). Public Enterprise reforms under the PESAP Included the introducton of new legislation for the PE sector, preparation of conta"- rogmme for major PEs, and implementation of a management information system, which, inter alia, facilitates tracling cross-debts between Government and PEs and among PEs (para. 19). 5. Government consisently failed to meet revenue targets (set in the context of the PFP) and thus was unable to pay its bills and meet other financial commitmnents agreed In the contpgamtes. Rather than face up to expenditure management issues, an increase In tax revenues was optimistically assumed would fill future financing gaps. The short-fall in resources perpetuated the global arrears problem (para. 16). 6. Due to the polidcal and social situation, the Government was reluctant to tackle civil service Issues head-on. The wage bill, representing approximately 42% of current expenditures in 1990, was consistently above targets agreed In the PFP. The Government, who undl recently guaranteed employment to unlversity graduatu, has accepted that It can no longer do so due to budgetary implicadons, but has not been successful In implemendng this new policy (para. 17). 7. Improvement of public investment programming begun under SAL I continued during the period covered by the PESAP. Sectoral composition of investments was basically along the lines of the Government's development strategy as outlined In its Letter of Development Policy (para. 5). However, due to unrealistic investment programming beyond the country's implementadon capacity, the rate of implementadon of the PIP showed a downward trend, averaging 54% over 1987-90. The decline was due chiefly to slow Government procurement procedures and lack of counterpart funds (para. 18). 8. Public enterprises' financial discipline began to improve undl mid-1989 when the Government experienced a severe lquidity problem which resulted in the recurrence of cross-debts. Legisladon was passed and statutes adopted giving P&s greater autonomy. However, PEs were never fully responsible for their financial management as they knew Government would be obliged to pay their arrears to ensure PESAP tranche release. There were also successes In the PE sector: OPVN (grain marketing agency) abandoned Its price sabilizadon funcdon, RINI (rice markeedng) was restuctred and SONARA (peanut, cowpeas marketing) was liquldated. Among other reforms, new lgisladon for the PE sector was introduced with a view to ensuring more autonomy for P3s, and X =ntfor major PEs were prepared (para. 19).  . v - 9. Recommendadons of the study on the industrial and trade incendive system regarding the Investment Code have begun to be implemented. A major achievement under the program was the abolidon of the old system of Import licenses. Business establishment Ucenses have also been abolished and replaced by a simpler registration system. Quandtative import restrictions on rice, cement and vegetable oil have been replaced by import tariffs. As for price liberaization, controlled profit margins have been eliminated, as have most official price ceilings (para. 20). Sustainability 10. With regard to the financial management of PEs, strict adherence to the _ adopted under the program wili be needed for sustained results. A management informadon system has been implemented to track cross-debts among PEs and between PEs and Government. Concerning investment programming, better implementadon of earlier measures would help to rationalize the selection process for investment and ensure selection and funding of projects with an acceptable rate of return. As for price liberalization, the Government has successfully implemented a number of important measures including the eliminadon of all controlled profit margins by July 1990 (para. 29). 11. The current macroeconomic situation is, however, grim. Government needs to take urgent measures to address its public finance situation. The emergency program it proposes Is a first step in the right direction but much more will needed. Findings and Lessons Learned 12. The PESAP embodied the economic management reform program over the 1987-90 period, the need for which was clearly recognized at the time by Nigerien decision-makers. Analysis of PESAP implementadon, however, Illustrates the complexity of the economic management issues and the problems which can undermine commitment to adjustment. Commitment is difficult to gauge: the adjustment program had enjoyed the strong support of the Government of President Kountche. In retrospect It appears that measures were taken not because the major actors in the Government were committed but because the President wished it so as performance slowed significantly after his death In November 1987. The ensuing deterioration of the political, economic and social situation made It Increasingly difficult even for those who may have been committed to convince the Nigerien people of the need to continue implementing measures (para. 38). 13. The program was designed to build on previous reforms under what was considered at that time reladvely successful results of SAL I. This next phase of the adjustment program might have been more successful had measures focused at the macroeconomic level, emphasizing, inter alia, institutional development and capacity building, and civil service restructuring. The Government would also have had more time to strengthen its fiscal situation and reduce the deficit to sustainable levels before undertakdng PE reforms. As it turned out, the PESAP was too ambidous given the Government's capacity to implement reforms, especially under difficult political circumstances. The Bank's previous experience in public enterprise reform (including privatizadon) was also limited, and for this reason the magnitude of the complexides involved, both technical and political, was not fully appreciated during program preparation. Moreover, the Bank and Government had deliberately focused on the divestiture half of the equadon with a view to alleviate the PE burden on the budget, with little attendon paid to developing a coherent divestiture strategy. A greater effort to prepare a strong divestiture program might have brought better results although this is by no means certain. Other aspects of the adjustrnent program (containment of scholarships and the wage bill, PE reforms resulting in loss of jobs) met with strong opposition, especially from students, unions and, more recently, opposition parties (para. 38).  - vi - 14. Finally, condtidons for the program as described in the Credit Agreemnents (IDA, SFA) lacked precision with regard to the macroeconomic program. This may have led to differing interpretadons of what constituted satdsfactory performance under the program as the Government looked strictly at conditions cited in the Credit Agreements, while the Bank also focused on the overall macroeconomic environment. Hence, differences in percepion and expectadons of the program between the Government and the Bank emerged at the time of tranche release missions. The Bank also became embroiled at times in the details of sector reforms. When faced with Government resistance to implementation of measures to increase PE autonomy, the Bank found itself micro-managing at the level of the Individual insdtudon through the cont-rrogm= in order to address issues that would have been more efficiently dealt with at the sector level (para. 38). 15. The Government has recently formulated an emergency economic and financial recovery program aimed to lead the country back towards a viable macroeconomic and financial framework. The Bank, in this and other contexts, continues to discuss with the Government the long-term structural and development issues that must be addressed which cowd justify further IDA adjustment support.  pROGRAM COMLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE SECTOR ADlTUSTlUENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND SFA CREDIT A-031-NIR) PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE A. PROGRAM IDENTrIY Program Name: Public Enterprise Sector Adjustment Program Credit No.: IDA Cr. No. 1833-NIR SFA Cr. No. A-31-NIR Effecdveness Date: January 20, 1988 Closing Date: September 30, 1990 IDA Credit: Approved: SDR 46.0 million (US$60.0 milion equivalent) Disbursed: SDR 40.9 million (US$54.6 miUion equivalent) SFA Credit: Approved: SDR 15.4 million (US$20.0 miUion equivalent) Disbursed: SDR 14.7 mUion (US$19.8 million equivalent) Region: Africa Country: Niger B. IaNTRODCTION 1. Two credits in support of Niger's Public Enterprise Sector Adjustment Program (PESAP) were approved by the Execudve Directors on June 25, 1987, and were made effective on January 20, 1988. The Credits were released as planned in three tranches, the first upon effeciveness and the second and third upon fulfillment of tranche release condidons. Shortly after release of the tird tranche, the program was derailed and no further disbursements were made (para. 28). The PESAP was preceded by a first SAL (IDA Cr. 1660-NIR and SFA Cr. A-12-NIR), and an Economic and Financial Management Improvement Project (Cr. 1493-NIR) which supported the Nigerien Government's adjustment program trough trainng, studies, equipment and technical assistance. The PESAP was supported by the ongoing Public Enterprise Istitudonal Development Project (PEIDP, Cr. 1838-NIR, US$5.5 million) approved in July 1987. 2. The structural adjustment program of Niger concentrated on measures to improve public resource management, rehabilitate the parastatal sector, and reform agricultural policy. The first phase of the program was supported by a Structural Adjustment Credit of US$60 million, approved by the Executive Directors in February 1986 and fuily disbursed by the end of 1987. To date, IMP assistance to Niger's adjustment program has included four successive sand-by arrangements and annual arrangements under the Structural Adjustment Facility and the Enhanced Structural Adjutmat Facility. 3. Reform of the public enterprise (PE) sector had been originally foreseen by the Government as part of SAL I and, indeed, a major PE policy reform component was part of the SAL (para. 7). The decision to split off the bulk of parastatal reform from the SAL and create a separate PE projet came in  late 1984 as more dme was needed to study parastatal sector issues (para. 5). This enabled the SAL, whose top priorides were to be public investment and public resource management, to move forward and receive IDA support In early 1986, much sooner than would have been possible for the more comprehensive PE program first envisaged. Preparadon of the PESAP (then referred to as the Public Enterprise Reform Project, PERP) continued concurrently with SAL preparadon. As originally conceived, the PESAP/PERP had both adjustment and investment/technical assistance components. At appraisal, the technical assistance component of the project was developed into a separate operadon (the PEIDP). PESAP effecdveness had been projected for the fall of 1986 so the sector radonalization process initiated under SAL I could be followed up and implemented promptly. Preparadon, however, took more dme than anticipated and the PESAP was made effective in January 1988, seven months after Board approval. C. A BRIEF LOOK AT NIGER'S ADJUSTMENT PROGRAM: SAL I 4. In the late 1970s, with funding from uranium sector receipts, Government embarked on an ambidous development program focused on Increasing public sector investments and public enterprise creation. Unchecked expansion of the public sector became unsustainable, when, in the late 1970s, uranium prices on the world market began to drop dramadcally thus reducing one primary source of government revenues. The Government, however, did not scale back expenditures, relying instead on increased borrowing from commercial banks, in the expectadon of a rebound of uranium prices that never came. In 1983, Government undertook a stabilization program to correct large internal and external imbalances, followed by a structural adjustment program, launched with the Bank's help In 1986. 5. Originally, the idea had been to 'cast our nets widely" in terms of the economic and Insdtudonal policy issues that might be covered by a structural adjustment program, that is, to try to idendfy the critical policy areas which the Government should focus on in a multi-year adjustment program, and then to Idendfy the detaied paciage of reforms which would consdtute SAL 1. The Government's September 1983 letter requesdng IDA assistance linked the need for quick parastatal reform to adjustment in order to re-establish radonal use of government resources. In 1984, public Investment became the main item on the SAL I adjustment agenda as PE issues inidally part of the SAL prov.d more ime-consuming to analyze than andcipated. Moreover, the short-lved SAL (presumably 18 months) would give enough dme to establish a sector framework, Including the role of PBs and the Government's obligadon to them, but follow-up would take longer. Thus, under the SAL, IDA would help prepare the restructuring programs, Improve the sector-wide policy environment and play a catalytic and coordinating role with other donors. In the end, reforms under SAL I focused on (i) pubUlc sector resource management, (U) the parastatal sector, and (iii) agricultural policy. 6. At the beginning of SAL I, significant efforts were made to foster efficient public resource use. The insdtudon of a three-year rolUng investment program Improved medium-term planning, and shifted the emphasis of public expenditure toward rural development and human resources. The budgets adopted In 1985/86 and 1986/87 reflected new expenditure priorities Including containment of the wage bill through hirng and wage caps and increased provisions for materials and supplies and for road maintenance. Measures were taken to reduce subsidies and Improve cost recovery in higher educadon, health, irrigation and water supply. Later, some of these efforts slipped as polidcal, economic and social pressures mounted (para. 31). 7. Under the public enterprise component of the SAL, Government abolished all monopolies and quasi-monopolies (except for petroleum products). Government also liberalized consumer product prices substandally, which had a posidve impact on product availability and prices. A number of enterprises were  privatized, liquidated or integrated into government agencies. Development of a new legal framework was started which would govern the relationship between Government and the PEs. 8. In agricultural policy, the most significant reform was the removal of the official producer price regulation system. Elimination of the food security agency's (OPVN) price stabilization function was started under the SAL (and concluded under the PESAP; see Annex 2). Subsidies for agricultural implements were eliminated while subsidies on other inputs were reduced progressively. 9. SAL I represented the very first stage of adjustment efforts by introducing basic policy reforms. Deepening public sector management reforms fell to the PESAP and the accompanying TA operation while the macroeconomic side of the equation was covered by the program agreed in successive Policy Framework Papers (PFP). As in similar operations, the reforms under the adjustment program, including restructuring PEs and public sector management, go against many vested interests and require strong Government commitment and determination. While this was present under President Kountche who had been the primary proponent of the adjustment program among the country's leadership, performance slowed significantly after his death in November 1987. D. PREPARATION AND DESIGN OF PESAP Program Description and Obiectives: Maior Focus of PESAP 10. The PESAP aimed to extend and deepen the reform process, particularly in the areas of public resource management and parastatal reform. This program focused on: (i) reinforcing controls on public expenditure and elaborating sound sectoral strategies to guide future investments; (ii) price liberalization and incentive policies to encourage private sector development; (iii) enhancing public enterprise autonomy and accountability; (iv) rationalizing the parastatal sector through additional privatizations, liquidations and restructuring programs; and (v) completing the sector's financial restructuring through debt settlement and measures to instill financial discipline. 1l. The growth obiectL projected at the beginning of the PESAP were modest due to Niger's resource constraints. The adjustment program would help Niger to achieve an average of 2.9% p.a. growth, chiefly from the agriculture sector but also, marginally, from the trade and industry sectors.1' Greater financial discipline was to reduce the risk of a recurrence of arrears among public enterprises and between PEs and the Government. The improvement in the overall financial and fiscal situation would be reflected in current account deficit/GDP and overall budget deficit/GDP ratios averaging approximately 2% over the adjustment period, while the gross investment/GDP ratio was projected to reach 12%, up from an estimated 10.3% in 1986 (Annex 1, PESAP PR). 12. To lay the groundwork for the PESAP, IDA and other donors financed numerous studies. Audits were completed for most PEs to prepare for the rehabilitation program. Feasibility studies for questionable investments (e.g., the expansion of the Malbaza cement plant) were undertaken, as well as studies to look into Niger's commercial possibilities and growth prospects, for example through trade with Nigeria. Studies were also undertaken to prepare further adjustment measures (a list of studies appears as Annex 3). The IMF lent assistance in the design of fiscal reforms including measures to increase revenues, to reduce distortionary effects of the tax system and to strengthen tax administration. 1' Without adjustment, it was assumed growth would be even lower.  E. PROGRAM RESULTS 13. The PESAP President's Report states that, following implementation of SAL I, the first phase of adjustment was considered successful: it was thought that the foundations for further adjustment had been set. The only risks were thought to be the vagaries of the weather and Niger's continued vulnerability to declining uranium prices. These risks, however, were said to be minimized by the commitment of Government and the strong private sector response. It was also expected that the PEIDP would strengthen capacity to implement the program. As it turned out, much more was needed in fiscal and civil service reforms, Government commitmnent weakened as it focused on dealing with political and social disturbances, and the private sector response was limited to the agricultural sector whose growth was more likely due to good weather than to policy reforms under the SAL. The PEIDP did, however, do its part through studies and by offering support in key areas which resulted in some successes (para. 29). 14. During the program period (1987-90), developments in the external sector were characterized by a further drop in uranium revenues and competition from Nigeria which successively devalued its currency. Real GDP growth remained closely tied to erratic rainfall patterns, and thus jumped from negative to positive growth from year to year, averaging 1.6% over the period 1987-90. At the same time, the population growth rate ranged from 3.2% to 3.4% p.a., and per capita income continued to decline in real terms from US$300 to US$269 from 1987 to 1990. Contributing factors to low GDP growth include: (i) competition from Nigeria after devaluation of the naira; (ii) decreases in the price of uranium which led to a 25% decline in earnings from 1984-1989 and additional 18% and 7% declines in 1990 and 1991, respectively; (iii) poor fiscal performance; (iv) a very low implementation rate of the public investment program due to slow Government procurement procedures and lack of counterpart funds;z. and (v) an average annual decline in agricultural prices of 0.6% during the program period in response to good harvests and in part reflecting price liberalization measures taken which masked any reflection of this sector's growth in GDP. 15. The PESAP included a total of 32 reform actions in the following main policy areas: public resource management, incentives policies, legal and institutional reforms, financial restructuring and rationalization of the PE sector. While the results of the macroeconomic program were disappointing, progress was made on the PE reform side especially during the first two years of the PESAP. Implementation of these reforms inevitably slowed, when Government was unable to live up to its financial obligations to the PEs as stated in the respective contrats-programmes (para. 19). 16. Resource mobilization: Government failed to meet targets set in the context of the PFP which, in turn, were regularly revised downward given Government's performance (see table below). In fact, tax revenue projections were consistently overestimated: the ratio of tax revenues to GDP declined from 10.5% in 1985 to 7.5% in 1990, and yet figures agreed in the context of the PFP always projected an upward movement. Greater emphasis was placed on taxes filling future finance gaps rather than on expenditure containment. The short-fall in resources perpetuated the global arrears problem whose roots were in the expansion of the parastatal sector (and the burden on the budget that implies) during the uranium boom in the 1970s. 2' The implementation rate of the PIP averaged 54% of the total over 1987-90, largely due to delays in procurement, and dropped to 32% in 1991 due to the extremely difficult political situation. The Government has estimated the rate for 1992 at 42%, reflecting the improvement on the political front, but it will take time for implementation to improve significantly.  - 5 - 17. Public emoployment: Due to the political and social situation, the Government did not show the commitment to tackle civil service issues head-on. The wage bill was consistently above targets set in the PFP. In fact, it increased progressively from about 38% of current expenditures in 1987 to 42% in 1990 and an estimated 54% in 1991. Although the Government has accepted that it can no longer guarantee employment, it has not been successful in implementing an agreed hiring freeze due to political pressure. When the system of pre-recruitrnent of university students was formally abolished, Government employed graduating students by extending the compulsory period of national service. 18. Public investment programming: Improvement in investment programming was reflected in the fact that, unlike in the past, the Government's three-year rolling Public Investment Program (PIP) contained only projects for which funding was obtained or reasonably assured. TAX REVENUES AND WAGE BILL OVER PROGRAM PERIOD (1987-1990) l __________________ (CFAF billion) l I 1987 1988 1989 1990 TAX REVENUES projected 1986 SAF 67.5 74.1 83.1 89.6 revised 1987 SAF 65.1 71.7 78.7 1988 Article IV 61.5 67.7 1990 Article IV 63.6 1990 PFP 62.0 actual 57.9 54.0 55.2 51.3 WAGE BILL projected 1986 SAF 28.2 revised 1987 SAF 29.6 1988 Article IV 32.8 34.9 1990 Article IV 33.7 1990 PFP 35.0 actual 28.0 29.4 33.7 35.5 Source: Niger PER Moreover, sectoral composition was basically along the lines of the Government's development strategy as stated in the Letter of Development Policy, although the human resources sector allocation usually came  - 6 - up short, and, within education, the sub-sectoral allocations still favored university education over primary and secondary education. Despite a reduction of the overall investment envelope in 1989 from about 100 billion to 70 billion CFAF, the rate of implementation of the PIP continued on a downward trend during the period covered by the PESAP due to slow Govermnent procurement procedures. As the Government's revenue situation worsened, lack of counterpart funds became a further impediment to investment (para. 14). 19. Public enterprise sector: A number of PE reforms were implemented including the introduction of new legislation for the PE sector, preparation of contrats-rgrammme for major PEs, continued divestiture of several enterprises, and implementation of a management information system for PEs. Under the new sector framework, financial discipline in the public enterprises had begun to improve until the Government's severe liquidity problem when transfers could no longer be effected and cross debts both between the Government and PEs and among PEs recurred. Progress was made in reducing Government's role through public sector divestiture, although a recent report revealed the need for a more coherent divestiture strategy in Niger.2' A policy of greater autonomy for enterprises remaining in the public portfolio was adopted under the PESAP (i.e., legislation exists) but was not fully implemented. Moreover, during the program period, enterprises realized that they were not completely responsible for their financial management as the Government was obliged to pay their debts in order to ensure tranche releases, which were conditional on settlement of cross-debts. Although the PE sector reforms did not meet all their objectives, their achievements should not be discounted. (For details of the status of the restructuring program for selected public enterprises, see Annex 2 . 20. Trade reforms and price liberalization: A study on the industrial and trade incentive system was undertaken under the Industrial Development Project (Cr. 1225-NIR). Recommendations regarding the Investment Code have begun to be implemented. Quantitative restrictions on imports (e.g., on rice, cement) have been replaced by a system of import tariffs. The old system of import licensing was abolished (except for petroleum products) and business establishment licenses were replaced by a new registration system which is less complicated and restrictive. As for price liberalization, the number of products subject to official price ceilings has been reduced from 27 to 5. The objective of setting tariffs for the three basic public services -- water (SNE), power (NIGELEC) and telecommunications (OPT) - to ensure financial self-sufficiency, defined as the ability to cover operating costs, meet debt service obligations, and contribute a reasonable share toward new investment, has been to a large degree successful: tariffs for NIGELEC and OPT have been set at an adequate level, but not so for SNE. As for Government arrears to the utility companies, the Government has been swapping them against long- term debts owed to Government by NIGELEC and OPT, and thus has used the approximate CFAF 10.2 billion in long-term debt (which in turn is owed to France) to settle its own electricity and telephone bills. This technique, however, has not provided for a permanent solution to the systematic underfunding of Government's electricity and telephone consumption and may have serious implications for NIGELEC's financial management. ' Mbida-Essama, Bonaventure. "Private Sector Development Study", two parts: October 31, 1991, and April 13, 1992. ' The Public Enterprise Institutional Development Project will finance a comprehensive study on the impact of the PESAP restructuring program on PEs. The study should be completed during the first quarter of FY93. Hence the results of the restructuring program are not covered in detail in this report but will be covered in the PCR for the PEIDP.  - 7 - F. MACROECONOMIC PERFORMANCE 21. The credit was to be disbursed in three tranches and was expected to be fully disbursed within 15 months of credit effectiveness. The first tranche of US$30 million equivalent (US$10 million from IDA and US$20 million from the African Facility) was made available upon credit effectiveness in January 1988. The second tranche (US$20 million from IDA) was released following fulfillment of almost aUl conditions in November 1988, six months later than expected (para. 25). Two conditions were slipped to the third tranche (US$30 million from IDA) which was released in December 1989, almost a year later than scheduled. Due to serious problems in the macroeconomic program, Government decided, in May 1990, not to request further disbursements (para. 28). The credit closing date of September 30, 1990, was allowed to lapse with the intent to extend it retroactively should the Government succeed in getting the program back on track. As this did not happen, the Bank will cancel the undisbursed balance of SDR 5.8 million once the special accounts are recovered.5' 22. Effectiveness was originally planned for December 1987. Besides those foreseen under the General Conditions, the following were conditions of effectiveness and first tranche release: the Borrower undertook to: (i) revise the thresholds for procurement; (ii) take appropriate measures to grant adequate subsidies to PEs during FY87/88 and to avoid the recurrence of arrears; (iii) take all necessary actions to initiate the liquidation of Air Niger; and (iv) adopt statutes for SNE. 23. Although in general fulfillment of conditions was slow, the major stumbling block to effectiveness was condition (ii). Government made very low allocations, for example, for payment of its own utility charges and argued that they were adequate due to cost saving measures that were instituted (e.g., air conditioning would not be used, use of telephone would be limited to official business). Agreement was finally reached on budget allocations, however that did not ensure the actual transfer of funds to utilities, and arrears recurred. With regard to SNE, IDA gave no objection to the draft statutes for this PE, and agreed to allow their adoption to be delayed to release of the second tranche. 24. For second tranche release the Borrower undertook to: (i) approve a budget for FY87/88 and a public investment program for the period 87/88 to 89/90; (ii) revise its sector development strategies; (iii) reduce the list of products subject to fixed price controls; (iv) revise the legal statutes of aU PEs to conform with the general legislation on PEs; (v) prepare performance contracts for NIGELEC (electric company), SONICHAR (coal agency) and SNTN (transport agency); (vi) implement a new personnel salary policy in PEs; (vii) complete the liquidation of UNCC (credit union) and SONIFAME (metal production); and (viii/a) prepare restructuring plans for OPVN (food security), RINI (rice marketing) and ORTN (radio, television) and (viii/b) make progress in the implementation of BDRN's (development bank) revised action plan. 25. A first review mission visited Niger in January/February 1988 and concluded that reforms were being implemented albeit behind schedule. Progress in fulfilling the conditions was much slower than anticipated due in part to the transition to a new Government after the death of President Kountche. A major concern was to ensure adequate allocations in the govermnent budget to prevent recurrence of arrears to PEs, especially to OPVN, ORTN, NIGELEC, and OPT. In the course of two further missions, 5' The Government owes SDR 2.3 million (US$3.1 million equivalent) of the IDA credit and SDR 246,000 (US$ 332,100 equivalent) of the SFA credit. By telex of December 11, 1991, the Government was asked to justify the expenditures or reimburse these amounts to IDA. The Resident Mission is following up.  - 8 - remaining issues were resolved or clarified. Six of the conditions for second tranche release were fully met, while action on the two remaining conditions was deemed to have been substantially met: 28 public enterprises had revised their charters and four more were under revision (condition iv); and all measures for the liquidation of UNCC and SONIFAME had been taken (condition vii) except for payment of their outstanding debts which would be settled with the counterpart funds from the second tranche. Initially planned for March 1988, second tranche release was approved in November 1988. 26. For the purpose of third tranche release, the Borrower undertook to: (i) adopt its revised procurement regulations; (ii) make progress in the preparation of an action program on civil service reform; (iii) prepare performance contracts for OPT, OPVN and ORTN; and (iv) make progress in the following: CNCA's (agricultural credit agency) debt recovery, ORTN's reform program, OPVN's restructuring plan, BDRN's revised action plan, and RINI's restructuring program. 27. Missions to review progress towards the release of the third tranche visited Niger in May, September and November 1989. The last mission concluded that conditions had been substantially fulfilled except for agreement on the 1989/90 budget. Upon fulfillment of this condition, the Government was informed in December 1989 of approval by the Executive Directors for the release of the third tranche. 28. During the May 1990 supervision mission some serious slippages in the execution of the adjustment program were observed, specifically with regard to: (i) cross debt/arrears settlement, (ii) credit recovery of the bankrupt BDRN and (iii) implementation of banking sector reforms. The Government, aware that its program was off track, indicated that it would refrain from submitting further disbursement requests. Subsequently at the Annual Meetings in September 1990, the Nigerien delegation failed to produce convincing evidence that the program was back on track. The Delegation asked however that they be given more time to meet performance targets and a deadline of December 31, 1990, was agreed. The Government and the Bank agreed on three major criteria which had to be satisfied for disbursements to resume: (i) cross debt/arrears settlement; (ii) BDRN debt recovery; and (iii) raising the capital of the newly-created SONIBANK with minimum private participation and maximum public sector participation of 30% each. In addition, progress was expected in meeting targets oudined in the PFP and agreed measures with regard to liquidation of agreed PEs and improvement of PE management as foreseen under the PESAP. These condidons were not met. 29. Progrm sustainability. The program has had the following positive results: (a) Financial management of PEs has improved somewhat due to the adoption of contra programmus. Strict adherence to them will be needed if further benefits are to emerge. (b) The ability to clearly idendfy cross-debts is the first step in solving the arrears problem. A management information system has been implemented to do this. (c) Although it remains majority publicly owned, SONIBANK, created after the liquidation of the development bank, BDRN, is functioning fairly well thus far and on fully private sector principles. The sustainability of measures on the macroeconomic level is somewhat less clear. However, some positive points have emerged: (d) Public investment programming has improved as obvious white elephants have been kept out of the investment program, and monitoring has ensured that feasibility studies are done for all projects with due attention given to an acceptable rate of return.  -9 - (e) Liberalization of markets was promoted through the elimination of monopoly marketing with the liquidation of SONARA and OPVN abandoning its price stabilization function. The number of products subject to controlled profit margins was reduced from 200 to 64 in 1986 and gradually to zero by July 1990. G. IMPLEMENTATION AND MONITORING OF THE PROGRAM 30. Borrower performance: Under SAL I, an Interministerial Committee was established to prepare and ensure effective program implementadon. The Committee was chaired by the Minister of Planning and comprised the Minister of Finance and Ministers of the technical ministries involved in the program. This Committee continued to exist under the PESAP to monitor the implementation and impact of the adjustment program, prepare future adjustment measures and work with IDA to review progress. While the SAL had been under the aegis of the Ministry of Finance, a Ministry of Tutelie was created to oversee project implementation of the PESAP as well as directly supervise certain PEs. This may have resulted in a loss of focus on macroeconomic objectives. The Ministry of Tutelle was later dissolved and the responsibility for the PESAP passed to the Ministry of Finance. 31. The National Conference held between July and November 1991 was highly critical of adjustment and the Bank. The content of numerous speeches not only reflected incomprehension regarding adjustment on the part of many opinion leaders and the Government's lack of success in convincing the Nigerien people of the need for adjustment measures, but also the fact that adjustment did not have a visible positive impact for the population. In fact, jobs had been lost as the PE sector shrunk, and competition due to liberalized imports and removal of other trade restrictions contributed to reduce activity in Nigerien industries. As a result, the Government faced heavy political pressure from powerful special interest groups (unions, students) who fought the implementation of measures that would directly affect them. At the same time, the Bank was not aware of the nature of underlying polidcal constraints. The Government was not always transparent, sometimes agreeing to measures it was unable to implement, politically or otherwise, (e.g., cutfing back the wage bill) in order to obtain tranche release. 32. Bank performance: Due to the difficulty in fulfillment of conditions, the PESAP was supervised frequently from HQ and monitored almost daily by the Resident Mission. Besides participants from the country operations division, sector colleagues from the agriculture, industry and energy, and public sector divisions reviewed progress of various components. The Bank became too involved in micro- management (institudonal aspects) at the level of performance contracts rather than focusing on the broader issue of PE financial performance (e.g., decreasing PE dependence on Government so subsidies could be phased out or instilling PEs with responsibility for payment of arrears). This was due chiefly to the Government's uneven implementation of revised legisladon to allow for PE autonomy. Since the issues could not be addressed on the broader, legislation level, the Bank did so on a case by case basis through involvement in the detail of individual PEs' statutes. 33. The Bank was not aware of the extent to which there was lack of cooperation between technical ministries and the Ministries of Plan and Finance, and the Interministerial Committee did not have a positive influence in this regard. Lack of cooperation was an impediment to successful implementation of the program. Technical ministries did not feel they were part of the decisions which had an impact on their functioning and focused on preserving their interests and those of their constituents. The Bank did not expect the loss of focus on and commitment to the adjustment program after the death of President Kountche and as the political and economic situadon worsened.  - 10- 34. A good dialogue helped settle differences between the Bank and other donors, especially with regard to policies or restructuing of PEs (e.g., OPVN's price stabilization function, RINI's pricing policy). Bank staff kept donors informed of progress either by meeting with their representatives in the field during supervision missions or at their headquarters on the way to and from Niger. This practice improved coordination among the donors and kept conflicts to a minimum. Donors usually supported the Bank when it held firm regarding progress toward tranche release. 35. Disbursement and Procurement. The Credit was disbursed against import bills and there were no significant delays in disbursements, once the tranches were released. The BCEAO was responsible for collecting import invoices and preparing disbursement applications and did so with fair accuracy. 36. Reporting and Audiding. The Development Credit Agreement (DCA) provided that the Government and IDA would periodically exchange views on the execution of the program and that, prior to such exchange, the Government would submit a report to IDA. The Directwr des participations filed periodic, in-depth reports which did not necessarily express the official views of the Government but were extremely informative. The Government was not in conformity with audit covenants. The DCA called for yearly financial audits of the Credits. The report of the sole audit performed on the IDA and SFA Credits was drafted during the auditor's mission in January/February 1992 and will shortly be transmitted to IDA. H. CONCLUSIONS AND LESSONS 37. The PESAP program was designed to deepen reforms begun under SAL I and was expected to be a continuation of what was considered at that time a relatively successful operation (para. 13). It eventually became apparent, however, that the SAL had not accomplished all that was hoped, especially as regards sustainability in key areas such as fiscal and civil service reforms. What government commitment there may have been weakened significantly as the political situation deteriorated and, when confronted by students, labor unions and opposition political parties, the Government was pressured to satisfy special interests. 38. With the benefit of hindsight, it appears that the Niger economy would have been better served had the Government pursued adjustment on a broader, macroeconomic level at this time, with emphasis on institutional development and capacity building, civil service restructuring, and banking sector reform. This would have also allowed the Government time to build a stronger fiscal situation and to reduce the deficit to sustainable levels before undertaking PE reforms. Greater progress in the main macroeconomic reforms prior to the start of parastatal reform would have enhanced the chances for success in the financial rehabilitation of the PE sector while ensuring that political opposition to adjustment was dealt with in advance. The problems of the PESAP fall broadly into two categories: the quality and complexity of the program, and political commitment. The PESAP's most important lessons may be summarized as follows: (a) The program was developed and was being carried out during a period when experience in public enterprise reform (including privatization) was still relatively limited, and the Government's capacity to implement reforms either due to their complexity or to political impact (wage bill, scholarships, employment) was weak. (b) The lack of precision in the Credit Agreements with regard to the macroeconomic program may have led to differences in perception and expectations of the program between the Bank and the Borrower. This resulted in disappointment at the time of tranche release missions  - 11 - when it was clear there was slippage in the implementation of the overall macroeconomic program. A more specific statement of expectations would have helped both in the implementation and monitoring of measures. (c) This phase of the adjustment program might have been more successful with a narrower focus on the restructuring of a few key enterprises, thus allowing the Government to give due attention to burning macroeconomic issues (fiscal and civil service reforms, restructuring of uranium sector). (d) Country ownership is key to the adjustment process. In the case of Niger, adjustment was never internalized, especially in public opinion, given the program's minimal positive impact thus far. Implementation of the policies agreed by Government thus became increasingly difficult: the social and political climate became tense and the dialogue between the Government and interest groups extremely difficult as the latter fought the implementation of reforms that would directly affect them, such as the containment and eventual decrease of the wage bill, or the full implementation of reforms reinforcing the PE autonomy. (e) Success depends on communication at all levels: in the case of the PESAP, between the Borrower and the Bank, within Government, and between Government and groups affected by the program. The Government had agreed to a set of measures at the beginning of the program and the PFP was to provide adequate assurance of the macroeconomic framework. And yet, the Bank often appeared to dictate conditions, because the Government tended to see measures as something to be negotiated with a tranche release mission rather than as solutions to structural problems. The Government needed to decide for itself the necessity of measures and seek commitment at all levels. Another manifestation of poor communication was the apparent alienation of the technical ministries which felt they were rarely consulted in advance on measures they were expected to implement (e.g., trade incendve reforms). A third avenue of communication not pursued was more frequent contact between the Bank and the Government, on the one hand, and Nigerien private sector enterprises, on the other, especially when the policies which would affect the private sector were being developed. This would have helped avoid the negadve interpretadon on the part of the enterprises regarding many adjustment measures. 39. Niger is currently going through a difficult democratic process. Given the country's deteriorating economic and financial situadon, certain political groups in attendance at the National Conference demonstrated in their criticisms of the adjustment program their failure to appreciate the gravity of the problems facing Niger. In light of the uncertain transidon in which the country finds itself, resumption of IDA adjustment support depends on a change in policy orientation in light of the economic and financial realities. Since the Conference, the Government has formulated an emergency economic and financial recovery program which aims to lead the country back towards a viable macroeconomic and financial framework.  - 12 - PART II: PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE 40. The Bank has formally requested that the Government of Niger submit a Program Completion Report.@' Y During mission discussions witi Government in December 1991 (see Aide-memoire) and by letter of May 22, 1992.  - 13 - PART III: STATISTICAL DATA PROJECT TIMETABLE First Mention in Files (as independent January 1984 operation) Initiating Memorandum Letter of Development Policy May 28, 1987 Negotiations May 1987 Board Approval June 25, 1987 Signing of Credit Agreement October 23, 1987 Effectiveness January 20, 1988 Second Tranche Release November 17, 1988 Third Tranche Release December 21, 1989 Original Closing September 30, 1989 Actual Closing September 30, 1990 I______________ MISSION DATA- Month/Year No. of No. of l_ __Weeks Persons Appraisal Mar 87 Negotiations May 87 1 5 Supervision I Jan/Feb 88 3 7 Supervision II May/Jun 88 2 6 Supervision III Aug/Sep 88 3 3 Supervision IV Nov 88 2 3 Supervision V Mar 89 2 3 Supervision VI May/Jun 89 4 6 Supervision VII Aug/Sep 89 2 5 Supervision VIII Nov 89 2 5 Supervision IX Apr 90 Supervision X Nov 90 3 4  - 14 - CUMULATIVE CREDIT DISBURSEMIENTS _ _ _ _ _ _ _ _ _ (US$ M ill ) __ ____________ CY88 CY89 CY90 (i) Total Amount of Credits 80.0 (ii) Actual disbursed 46.6 6.0 20.8 (iii) (ii) as % of (i) 58.3 7.6 25.9 (iv) Cumulative amount (%) 58.3 65.9 91.8 PESAP DISBURSEMENTS ______ _____ _____ (U S$ 1 6mili ns _ __ _ _ __ _ _ DATE |_IDA CREDIT | SFA CREDIT CY88 Ql 11,055,208.72 5,304,333.73 Q2 6,851,605.53 5,172,314.42 Q3 3,265,327.44 2,592,957.65 Q4 10,342,338.61 3,028,821.45 TOTAL CY88 31,514,480.30 16,098,427.25 CY89 Q1 9,839,066.62 960,634.83 Q2 - 4,757,987.46 0 Q3 0 0 Q4 0 0 TOTAL CY89 5,081,079.16 960,634.83 CY9O Q1 14,021,712.64 1,792,044.39 Q2 3,973,079.64 961,930.56 TOTAL CY90 17,994,792.28 2,753,974.95 TOTAL CY88-90 54,590,351.74 19,813,037.03  - 15 - -- :-: :; i : j - ; ieeki m '.--:--.:.:.:. ,...,:,-, . ,.,, .-N CU-..,j .. . .., ...,,.jr .. ........ FY85 FY86 FY87 FY88 FY89 FY90 I PY91 I PY92 LENP 50.8 47.0 33.5 | |_l_l_l LENA = = 13.5 = = = LEN 8.5 SPN 0.5 41.1 81.6 54.3 14.0 10.5 PCR 7.0* TOTAL STAFF INPUTS: 362.3 staff weeks * estinate   17 - ~~~~ANNEX 1 - 17 - Page I of 3 STATUS OF CONDITIONS CONDITIONS OF EFFECTIVENESS (Planned for September 1987; Actual date: January 20, 1988 ) a. Increase award colling for July 23. 1987 Decree adopted by whlch current procurement Councll of MinLiters procedures apply. raLming ceillng ftom milllon to 5 mlLlon CFAF. b. Appropriate measures to January 1988 Adequate subsLdLes were grant adequate subsLdLes to made to allow for PE Ln FY87/88 and to effectiveness of PESAP, avold recurrence of arrears, but arrears dld recur. c. Initiation of Alr Nlger's May 7. 1987 Letter to Director liquLdatLon. General of Alr Nlger lnltiatlng lts liquidation. d. Adoptlon of statutes for September 24, Ordonnance creatlng SNE. 1987 SNE. SECOND TRANCHE RELEASE (Planned date: March 1988; Actuals November 17, 1988) a. Adoptlon of 1987/88 budget Budget and Lnvestment and 1987/88-1989/90 public program reflect investment program. prLorltLes and sectoral strategles of Government. b. Updating of sectoral Aprll 1987 Updated in the context strategLes. of Government's Five- Year Plan. c. Reduction of number of Reduced to 5 (from products subject to official original 27 ln 1985) prlce ceilLngs. d. Revision of legal charters September Legal charters of 28 for PEs remaining ln the 1988 PEs revised. sector. May 1989 Remainlng four charters revised for third tranche release.  -18 - ANNX I Page 2 of 3 e. Formulation of performance Performance contracts contracts for NIGELEC, jointly prepared by SONICHAR and SNTN. Government and PZ management. f. Implementation of new PE New performance based salary policy, salary policy introduced. g. Completion of liquidation All steps for of UNCC and SONIFAME. liquidation concluded except for settlement of outstanding debts. Settled with counterpart funds of second tranch-. h. Preparation of restruc- Restructuring plans in turing plans for OPVN, the progress of being RINI and ORTN. implemented. i. Progress in the implemen- Recently concluded tation of BDRN's revised audit will further action plan. progress on BDRN's rehabilitation plan. THIRD TRANCHE RELEASE (Planned for September 1988; Actual: December 21, 1989) a. Revision of procurement April 27, New central procurement regulations 1989 code adopted. b. Progress in preparation of June 1989 Government abolished an action plan for civil system of pre- service reform. recruitment. Redefined roles of Ministries as basis for analysls of civil service. Intensifying 'voluntary departure program. c. Formulation of perfor- June 1989 Performance contracts mance contracts for OPT, migned. Allocations in OPVN, and ORTN. Government budget consistent with financing plan of PEE.  -19 - ANNEX 1 Page 3 of 3 d. Satisfactory progress on CFAF 2,262 million out CNCA's loan recovery of CFAF 9.280 million effortsl collected. Remaining debt irrecoverable. Satisfactory progress in July 1989 ORTN reform plan implementing restructuring finalized in programs for BDRN, RINI, conjunction with ORTN, and OPVN. performance contract. BDRN reduced staff by 200 by Dec 1989. New management team sought. STB became manager of good portion of portfolio from which SONIDANK created. April 1989 RINI restructuring plan finalized. RINI no longer in n-ed of Government subsidies. OPVN manager of food security stock of 80,000 tons. Price stabilization function abandoned.   21- ANN 2 Page 1 of 3 STATUS OF PUBLIC ENTREPRISZ DIVESTITURE PROGRAM1 Name & Actlivty Action taken I Air Nlger Declslon taken to llquidate in 1987. Operations have coased and buyers for airplanes have been found. Airline BDRN Attempt to rehabilltate, begun under SAL, unsuccessful. Only part of development lendLng portfollo recovered. Nat'l dev, bank Industry/trade portfollo of BDRN wlth addltlonal capital. converted to new bank, SONIDANK, under management of TunLsian firm STS. Intent was for mln2imwu 30% prlvate sector and maximum 30% Government partlclpatlon. Public partLcLpation currently above this level. Government stlll committed to reducLng particLpatLon but progross dependent on recoverLng debts of BDRN and freeing up Lnvestors' funds blocked there. CNCA LiquLdated. CFAF 2,262 million out of total outstandLng debts of CFAF 9.280 were collected. The remaLnLng debt ls Agrlcultural consLdered irrecoverable. Government named task force to credit design now agrlcultural credLt system but no results to date. MALBAZA FeasibilLty study done. Results recommendod against expansion of plant and, ln fact. recommended plant closlng. Government Cement plant dld not agree to close Malbaza for fear of closure of Nigerian border (as ln the past) and serlous unemployment that would result. NIGZLZC Contrat-oroaramme approved and partLally implemented. Budgetary transfers not forthcoming and Government not payLng ZlectrLc power lts own electrlclty blIls, however Government has paLd NIGELEC's arrears to the France Arrears to NXIELEC equal recelpts for 8 blling months (contrat-oroaramme provides for 4 months). Regarding procurement, there ls a delay in government process of approxLmately four months for approval of NIGELEC'S blds. StudLis to restructure and streamlLne NIGELEC and energy sector- nderway under Cr. 1880-NIR. OPT CCCE's rehabilLtatLon project underway. It was agraed that tarlffs would be sot to allow for PE's self-sufflclency, Tel*communl- however OPT is stlll ln arrears to lts suppliers due to catLons Government arrears whlch perslst. V Information for this table comes from the reports on prlvatlzatlon of B. )bLda- Zssama dated October 31 and November 23. 1991, and Aprll 13. 1992. and the tranche release memoranda dated September 30. 1988. and December 18. 1989.  ANNEX 2 - 22 - page 2 of 3 Name A Activity Action taken OPVNI Policy reform begun under SAL with follow-up under PZSAP resulted in OPVN's abandoning its explcit price stabilization Security grain function. Now Its sole function is management of food stock security stock (80.000 ton ceiling). A series of legal agreements with the donor community were finalized to ensure that (a) food aid li coordlnated jointly by OPVN and the donors, (b) OPVN's financial situatlon in monitored through regular audlts and review of performance lndlcators and (c) ad hoc food ald dlitributlon li avoided. ORTN New accounting system was introduced and a acil TV and radlo llcence fee was lntroduced, to be levled by NXGZLZC on Radio TV behalf of ORTN. Government does not have resources to effect transfers foreseen ln contrat-nroaramm.e ORTN's deflclt li being flnanced through deficits to OPT and NIGELEC. RINI RINI has been restructured and new accounting system has been put ln place. It has benefltted from higher world market RLs du Nlger prices of rlce and no longer needs Government *ubsldles.Government set an lmport duty of 14% and a tax to offset fluctuatlons ln world market prices (-taxe de parequatlon") the proceeds of which are no longer earmarked for the rice sector but go dlrectly into the Government budget. SICONICER Declson to llquldate taken ln July 1990. Groundnut oLl processing SNCP Fully prlvatlzed. Went bankrupt because lt was requlred to purchase skins at a flxed price, above lts competitors'. Hlde a skins Resultlng liquidity problem was a factor ln lts bankruptcy. agency SNT Marketing activlties prlvatlzed. New owners have not paLd in full for acquliltlon of company. They attrlbute thelr TSl-vlzion inabililty to the failure to Government to respect the marketing commitment to award them a number of service contracts. SNTN SNTN is generally respectlng lts commitments under the contrat-_roaramme. In the past, it was able to make up the Urban & road deficit from its urban transport service from the transport of transport uranium. Wlth the decreased actlvlty in the uranlum sector, SNTN will have to stop lts urban transport service lf Government arrears are not paid.  ANNX 2_ - 23- Page 3 of 3 Name & Activity Action taken SONARA Monopoly on these products abolished in 1986/87. Prlco at which it could buy peanuts set by Governmont while its Marketing board competitors could determine their own purchasing price. for peanuts and SONARA suffered serious losses. Restructurlng plan was cowpeas prepared in 1989 and the decision was taken to privatize wlthin a year or liquidate. Private buyer could not be found and decision to liquidate was taken in June 1990. SONICERAM Decision to liquidate taken in November 1990 after 15 months of efforts to privatize. Sirnce then, former general manager Brick factory has consistently intervened to prevent the sale of some key assets in the hope of finding a foreign partner to resum plant operation. Head of State gave support to this in writing. No detailed accounts of items sold have beon kept by the liquidators. SONICHAR CCCE's rehabilitation project underway. SONICHAR is respecting its obligations under the contrat-orooramme. Coal mining Government has fulfilled its obligations, except for the fact that it imposed personnel recruitments on the enterprise in 1988 and 1989. For the most part, SONICHAR has respected its commitments under the contrat-oroaramme. SONIFAME Liquidated in 1987 as condition of thlrd tranche release. Metal/furniture UNCC Liquidated in 1987 as condition of third tranche release. Figures from Ministry of Finance indicate that subsidies Agricultural continued being paid to UNCC in the amount of 100 million ClAN credit/ in 1989 and 1990 and 50 million CFAF in 1991. input supply  - 24 - MUZ^L3 STUDIES IN SUPPORT OF ADJUSTMENT Agricultural credlt Petroleum product marketing Cost recovery Strategy and polLcies of agrlculture sector Civl2l servic, study Rehabliltation of ORTN FeasLbillty study of cement plant (Malbaza) Procurement system Management lnformation system Program for commerclal expansLon ORTN Preparatlon of accountlng system and plani management audlt Purchase and marketlng procedures of OPVN Executlon and supervision of trainlng program for Government AdmLnLstrators and PEs Industrlal and trade lncentlve system Assessment of private sector development potentlal SONARA's prLcing and marketlng polLcLes Task Force on new system of agrlcultural credlt OPVN OrganlzatLon and structure; personnel requlrements Cross-debts AnalyaLs of PE accounts Reform of agrlcultural credit system Reorlentatlon of agrlcultural research Reform of civll servLce Banklng sector study Evaluatlon of fLrat phase of structural adjustment Soclal impact of adjustment (with UNDP) Recurrent expendlture study Incentlve study