Mali - Public Enterprise Sector Adjustment Project

Document of TheWorld Bank FOR OFFICULUSE ONLY R q m l No. 11994 PROJECT COMPLETION REPORT MALI PUBLIC ENTERPRISE SECTOR ADJUSTMENT (CREDIT 1937-MLI) Industry and Energy Division Sahelian Department Africa Regional Office 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 Unit = CFA Franc (CFAF) 2 US$l.OO -- CFAF 281 2 CFAF 1 million US$3,559 US$l.OO = Y129.28(JapaneseYen)2' US$I .OO - Y125 (Japanese Yen) US$I .OO = SR3.7505 (Saudi Riyal) US$l.OO = SR3.745 (Saudi Riyal) FISCAL YEAR January 1 to December 31 11 The CFA is tied to the French Fnnc (FF) in the ratio of FP I .O to CFAP 50.0. m e French Fnnc is cumntly floating. - 2/ Exchange ntc of June 30, 1992. -31 Exchange rate of March 3, 1988.  FOR OFFICIAL USE ONLY THE WORLD BANK Wuhlngton, D.C. 20433 U.SA June 14, 1993 pDIRECTORSANDTHEPRFSIDm CUTlVE SUBJECT: Project Completion Report on Mali Attached is the Project CompletionReport on MaliPublicEnterprise Sector Adjustment Credit (Credit 1937-MLl)prepared by the Africa Regional Office, with Part I1contributed by the Borrower. The Public Enterprise Sector Adjustment Credit supportedthe improvement of public enterprise (PE) performance through: (i)reform of public expenditureand economic incentives; (ii) financialsector reforms, especially the restructuring of the statcowned development bank; (iii) institutional and legal reforms affecting relations between the Government and public enterprises; and (iv) public enterprisercst~~cturing and divestiture. Overall, the performance of the opetation is rated as satisfactory. The key policies were instituted, albeit with delays. PE restructuring led to settlement of cross-arrears among them; divestiture (including privatization) of some; and rehabilitation of major PEs dealing in utilitits and inhstructurc smices. Sustaiaability, however, is uncertain. The remaining public enterprises require improved management. Some continue to experience financial deterioration. Institutional capacity remains weak and the social consequenceshave not been fully escertainedor dealt with. The PCRprovides a balanced accountof accomplishments and shortcomings. Part 11is comprehensive and instructive. In commenting on the findings ofPart I, the Borrower emphasizes the uncertain impact on future financial operations of enterprises still un&r government control; the inadequacy of the h c i n g received, the shortcomingsof project accomplishmentswith nspect to privatization; and the social adverse consequences of divestiture. OED intends to carry out an audit of this adjustment operation, focussing on issues related to privatization. Attachment Thir documenth a r rcltrictaddiiiution d m y be ursd by recipie- only inthe pwfonrull~o thcu ofaGtl duties. b ccold.m of may not ohenvim be d i r l o d without World Bank authorization.   FOR OFFICIAL USE ONLY MBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de lSAfriquede 1'Ouest BDM Banque de Dkveloppement du Mali COMANAV Compagnie Malienne de Navigation COMATEX Compagnie Malienne de Textiles EDM Energie du Mali EDIM Editions Imprimerie du Mali EMAB Entreprise Malienne du Bois EMAMA Entreprise Malienne de Maintenance EPA Etablissement Public B Caractere Administratif EPIC Etablissement Public B Caractere Industriel et Commercial HUICOMA Huilerie Cotonnikre du Mali r n M A Industrie Textile du Mali LPM Librairie Populaire du Mali OCmAM Office CinkmatogmphiqueNational du Mali OERHN Office d'Exploitation des Ressources Hydrauliquesdu Haut Niger om Office Nationale des Postes OPT Office des Postes et Tklbmmunications PE Public Enterprise PPM Pharmacie Populaire du Mali RCFN Rkgie des Chemins de Fer du Mali SAT SocikteAfricaine de Transport SCAER Socikte de C&it Agricole et d'Equipement Rural SEBRIMA Socikte de Briqueterie du Mali SEMA Socikted'Equipement du Mali SEPAMA Socikted'Exploitation dea Produits Arachidiers du Mali SEPOM SociM des Produits Oldagineux du Mali SMECMA Socikte Malienne d'Etude et de Constructionde Materiel Agricole SOCAM Socikte dea Consemes Alimentaim du Mali SOCOMA SociM des Consemea du Mali SOCORAMA Sociktede Commercialisation des Radios du Mali SOCIMA Sociktedm Ciments du Mali SOMPEPEC SocikteMalieme de Bktail, de Peau, et de Cuir SOMIEX SocikteMalienned'Importation et d'Exportation SONATAM SociM Nationale des Tabacs et Allumettea du Mali SOMETRA Socikte Nationale d'Entreprise et des Tmvaux Publics SOTELMA Sociktedes TQbmmunications du Mali SONEA SocidteNationale d'Exploitation des Abbatoim TAMALI Socike des Tanneries Mdiemes TIM Tklhmmunications Internationales du Mali UCEMA Usine Ummique du Mali WAMU West Africa Monetary Union This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.   MALI PRQJECT PREFACE .................................................. i EVALUATION SUMMARY ....................................... ii PARTI: mJECT REVIEW FROM B A N9I ( L & l ! E l E l ............. 1 A PROJECT IDENTITY . ................................... 1 B INTRODUCTION . ..................................... 1 C A BRIEF LOOK AT MALI'S ADJUSTMENTPROGRAM . ........... 1 Macroeconomic Environment .............................. 2 Political Environment ................................... 3 D PREPARATION AND DESIGN OF PESAP . ..................... 3 Program development. description and objectives .................. 3 E. THE SECTORALADJUSTMENT PROGRAM: DESCRIPTION AND ACHIEVEMENTS ..................................... 5 F. ACHIEVEMENTS OF THE PESAP .......................... 5 (a) Macroeconomic Policy Reforms .......................... 5 Public Expenditure and Public Investment ................. 5 Incentive Policies ................................ 6 (b) Financial Sector Reforms .............................. 7 Financial Sector Policies............................ 7 Banque de D&loppement du Mali (BDM) ................. 7 Postal Checking ................................. 8 (c) Institutional and Legal Reforms .......................... 8 New Public Enterprise and Personnel Laws ................ 8 Performance Contracts ............................. 9 Staff Compensation and Redeployment ................... 9 (d) Rationalization of the Sector ............................ 9 Settlementof Cross-Arrears .......................... 10 Divestiture ..................................... 10 Enterprise Rehabilitation............................ 12  G IMPLEMENTATION AND MONITORING OF ADJUSTMENT . PROGRAM ......................................... 13 Borrower Performance .................................. 13 BanLPerformance ..................................... 14 Reporting and Auditing .................................. 14 H CONCLUSIONS AND LESSONS LEARNED . ................... 14 PART II W C T REVIEW FROM BORROWER'S PERSPEC- . 1. INTRODUCTION ........................................ 18 2. REVIEW OF HISTORICAL BACKGROUNDTO ADJUSTMENT .......... 18 2.1 Malian public sector .................................. 18 2.2 Need for PESAP and Credit Agreements ...................... 18 2.3 Review of PESAP objectives ............................. 19 2.4 Measures and actions incorporated in PESAP ................... 19 2.5 Bureau of Public Enterprises (BPE): institutionalsupport for implementation of PESAP ............................... 19 3. EVALUATION OF EXECUTION OF PESAP .......................20 3.1 Reform of PE institutional and legal environment ................ 20 3.2 Economic policy reform and investment incentive measures ..........21 3.3 Reinforcement of key economic sectors (banking. energy. telecommunications) .................................. 22 3.4 Drawdown and allocationof funds ......................... 23 3.5 Settlementof PE liabilities .............................. 24 3.6 Rationalization of PE sector: rehabilitation. privatization. liquidation......................................... 25 3.7 Severance and redeployment program ........................ 26 3.8 Non-PESAP actions and initiatives ......................... 27 3.9 Actions in progress ...................................28 4. PASEP IMPLEMENTATION PROBLEMS .........................30 4.1 Problems with drawdown and allocation of PASEP funds ...........30 4.2 Problems with reform of PE institutional and legal environment ....... 30 4.3 Problems with management of social dimensions of PESAP .......... 31 4.4 PESAP shortcomings ..................................31 5. RECOMMENDATIONS FOR IMPROVED IMPLEMENTATION OF PESAP ACTIONS .............................................31 6. CONCLUSION ........................................ 32  PARTIII: Related Bank loans and Credits ................................ 51 Project Timetable .........................................52 Credit Disbursements ....................................... 52 MissionData ............................................ 53 Status of Covenants ........................................ 53 Use of Bank Resources ..................................... 54 Annex I: List of targeted cornmercially+riented public enterprises ............... 55 Attachment 1: Comments from the Borrower on Parts I and 111 .................57   MALI P R O J E C T O N REPORT PREFACE This is the Project Completion Report (PCR) for the Public Enterprise Sector Adjustment project in Mali, for which Credit 1937-MLIin the amount of $40 million was approved on June 24, 1988. The credit closed on June 30, 1992, 1-112 years behind schedule. It was fully disbursed and the last disbursement was on January 9, 1992. The PCR was jointly prepared by the Industry and Energy Division of the Sahelian Department (Preface, Evaluation Summary, Parts I and 111), and the Borrower (Part ll). The Borrower's comments on an earlier version of Parts I and 111are included as Attachment 1. Preparation of this PCR was based, inter alia, on the President's Report, the legal agreements, supervisionreports, progress reviews on the occasion of tranche releases, correspondence between the Bank and the Borrower, and internal Bank memoranda.   MALI PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROJECT (CR. 1937-MLI) PROJECT COMPLETION REPORT EVALUATION SUMMARY 1. m.The Public Enterprise Sector Adjustment Program (PESAP) was conceived as the first phase of a medium term adjustment effort to improve public resource management. The program's principal objectives were to improve the performance of the Public Enterprise (PE) sector and to reduce its burden on public finances. It had four components: (i) reform of key policies regarding public expenditure and economic incentives, including reform of the trade and fiscal regimes; (ii) financial sector reforms, including restructuring of the state-owned development bank --Barque de Dbveloppement du Mali (BDM); (iii) institutional and legal reform of relations between Government and PEs; and (iv) rationalization of the sector through restructuringand divestiture (para. 4.1). 2. Im~lementationExperience. The credit was to be disbursed in three tranches, as implementationof key portions of the program were completed and the conditions of tranche release were met. It was expected to be fully disbursed by December 31, 1990. The first tranche was disbursed on schedule in November 1988, soon after credit effectiveness. The second tranche was disbursed in December 1989, roughly six months behind schedule, and the third tranche in November 1991, one year later than initially planned (para. 7.1). 3. Implementation of the program was plagued by delays in execution of the divestiture component and in the application of performance contracts to key PEs. Execution of PE privatizationwas particularly slow (para. 6.19), in large part because valuable time was lost in a search for potential buyers for companies which were essentially non-viable and because the initial foreign technical assistanceprovided to the bureau in charge of managing the privatizationprocess proved to be ineffective. Unanticipated changes in the institutional arrangements for project implementation, includingthe disappearance of a key Ministry, and resulting difficulties in coordinating the activities of different Government agencies contributed to these delays. Project implementation was further slowed down by political upheavals which resulted in a coup d'etat in March 1991 (paras. 3.8 and 7.3). 4. Results. Despitethe implementation delays, the program met its objectives. Firstly, key economic policy improvements were instituted to reduce public expenditure and to provide economic incentives to public enterprises. (These included: (i) removal of all import monopolies, except for those on essential drugs and tobacco; (ii) abolition of the decree requiring automatic transfer to the Treasury of 90%of PE profits; (iii) deregulation of prices and removal of price control on all commodities; (iv) removal of extra budgetary subsidies for PEs; and (v) preparation of a rolling three-year investment budget based on systematic appraisal of costs, benefits, and financial viability of investment projects.) Secondly, reforms  in the financial sector were implemented as planned. In particular, BDM, the insolvent state- owned development bank, was restructured and privatized in 1989 (para 6.7). Similarly, the postal checking company, Comptes Ck?ques Postaux (CCP), was restructured and privatized in 1991and Government severed all links between the Treasury and the Postal financial system, thus halting the use of postal checking resources to cover the Treasury's financing requirements (6.9). Key financial sector policies were streamlined by eliminatingrigid sectoral credit allocation, and improving banking supervision. Thirdly, a new PE law, which redefined the relations between PEs and Government, was applied to all PEs, and performance contracts were signed between Government and the six large PEs which were slated to remain in Government's portfolio. (The PE law redefined the composition and functions of PE boards of directors, made boards rather than the ministries responsible for appointing managing directors, and separated Government's oversight functions from the management and internal operation of enterprises. In implementing this new law, mixed- capital companies were treated as non-PEs and governed only by the commercial code applicable to private enterprises.) A revision of Mali's labor legislation gave greater autonomy to PE managers in personnel and compensation management. Finally, the PE sector was rationalized through: (i) settlement of cross-arrearsbetween PEs, the Government and the BDM; (ii) divesture (privatization or liquidation)of 29 PEs, rehabilitation and restructuringof six PEs, includingthose responsible for the utilities (electricity, water, telecommunications, postal services), and key infrastructurefacilities (railways, river transport); and (iii) resettlement of the workers laid off as a result of the PE restructuring through a severance pay system and the provision of financial assistanceto ease their entrance into the private sector (paras. 6.15-6.17). . . 5. ~ndingsand Lessons LearneQ. The PESAP's most important lessons can be summarized as follows (para. 8.1-8.4): (a) The Government's capacity to implement some reforms - likereforms to price regulations and other Government regulations - was considerable. Progress in this area proceeded much more rapidly than had been envisaged. (b) The component of the program causing most of the implementation delays was the privatization component. During the life of the project, five of the 14 enterprisesplanned to be privatized were liquidated because they were not viable. The institutionalstructure for privatization was also inadequate and the time frame for privatizing companies was too short. In retrospect, it was learned that: (i) privatization should not be advocated in the case of enterpriseswhich are not viable. Instead, these should be liquidated and their assets sold to other (private) companies; (ii) in the future, more adequate and transparent institutional structures (requiringlittle coordinationamong various units) should be used to implement such complex programs. In particular, implementation of the divestitureprogram might have been simpler if the PEs had been transferred to one agency with full legal authority to negotiate the sale and commit the Government to the privatization;  (iii) a longer and more realistic timetable is needed for implementing divestiture. Given that it is impossibleto predict how long it would take to privatize an enterprise, it was a mistake to make actual privatization a condition of tranche release. "This problem should be addressed through flexible conditionality. Instead of requiring the sale of a particular enterprise by a particular date, the Bank is looking at more general indications of the Government's commitment to privatization".I1 (c) Once it had been decided that a PE would be divested, no attempt was made to improve its performance, and this affected the interest of potential investors. While it is uneconomic to resurrect bankrupt companies for the sole purpose of privatizing them, allowing such companies to deteriorate during the search for buyers, as happened in Mali, only reduces the chances for successful privatization. 11 Suniu Kikeri, John Nellir ud Mary Shirley. Privdzadon TheLSSON - of Erpetfence. World Bank Publication,August 1992.   PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROJECT (CR. 1937-MLI) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPE- A. PROJECT IDENTITY Name Public Enterprise Sector Adjustment Credit Number 1937-MLI RVP Unit Africa Region Country Mali Sector Public Enterprise 2.1 This credit in support of Mali's Public Enterprise Sector Adjustment Program (PESAP) was approved by the Executive Directors on June 24, 1988 and became effective on September 29, 1988. It was released, as planned, in three tranches (the first became available upon effectiveness even though it was disbursed in November 1988 and the second and third upon fulfillment of tranche release conditions), and was fully disbursed in November 1991, one year behind schedule. It closed on June 30, 1992. The credit was supported by the ongoing IDA-financed technical assistance project, the Public Enterprise Institutional Development Project (Cr. 1938-MLI), which was intended to provide the technical and institutional support needed by the Government to extend and deepen its public enterprise (PE) reform efforts, and in particular to carry out actions needed to meet the tranche release conditions of the PESAP. The PESAP was the first phase of a wide-ranging adjustment effort which was outlined in Mali's first medium term Policy Framework Paper (PFP) prepared in 1988 by the Government of Mali (Government) with Bank and IMF support. The adjustment effort over the implementation period of the PESAP was also supported by an IDA Structural Adjustment Credit (Cr. 2188-MLI), IDA-financed sector adjustment programs in the education (Cr. 2054-MLI) and agricultural sectors (Cr. 2163-MLI), an IMF Structural Adjustment Facility (SAF) program, and cofmancing in the context of the Special Program of Assistance for debtdistressed low-income countries. 3.1 In 1982, after a serious economic and financial crisis resulting largely from the inappropriate economic policies followed since independence, Mali launched a series of stabilization and reform programs supported by IMF resources and IDA-financed technical assistance. Under these programs, economic reform measures were introduced with the aim of reducing budgetary deficits, PE operating losses, and public sector arrears. Additional reforms, including market liberalization and improved price incentives, were introduced to increase the efficiency of resource allocation in the country. '  3.2 In late 1986and early 1987, however, the Government failed to implement a number of policy measures that had been previously agreed upon in the context of Bank sector adjustment discussionsand the third IMF Standby. The pace of reform slowed noticeably. The public sector accumulated substantial arrears, and the banking system was seriously threatened by the insolvency of both a state-ownedbank, the Barque de Dt?veloppement du Mali (BDM),with assets equivalentto 60%of total banking assets, and the postal checking system, Comptes Chbques Postaux (CCP), whose CFAF 9 billion (about US$36 million) in deposits had been siphoned off to finance the Treasury. In addition, delays in implementing reforms occasioned a reduction in the amount of external non-project financingmobilized by the Government in 1986-87. The crisisthat developed was exacerbated by the financial impact on Mali of the sharp decline in the price of cotton, Mali's major export, which occurred in late 1985. 3.3 Towards the end of 1987, the Government demonstrated a renewed commitment to reform. Working closely with the Bank and the IMF, it prepared the first Policy Framework Paper (PFP) for 1988-90which set out Mali's medium-term adjustment program. This program emphasized policies aimed at: (i) fostering an environment conducive to promoting private sector activity, savings and investment, and international competitiveness; (ii) improving public resource management, including a strengtheningof the public sector financial position; (iii) developing the human resource base; and (iv) strengtheningthe management of natural resources. The main objectives were to achieve an annual average GDP growth of about 4% in real terms, to stabilize inflation at around 3.5% and to reach a sustainableand viable external sector position by 1992. 3.4 Mali's adjustment efforts have been supported by substantial amounts of development assistance from IDA and bilateral and multilateral donors. As the turnaround of the PE sector finances and efficiency was seen as a key precondition for restoring macroeconomic equilibrium and fostering development, the PESAP led the way in 1988. It was followed closely by IDA credits for Education Sector Adjustment (approved in June 1989), Agricultural Sector Adjustment (approved in July 1990)and Structural Adjustment (SAL I - approved in November 1990). Major reforms were introduced into the cereals and cotton sectors. Steps were taken to improve access to, and the relevance of, education at all levels. Price controls, which had previously covered most products, were restricted to a reduced number of essential products, and pricing policies of major public services - water, electricity, railroad and postal services - were changed to more closely reflect the costs of service. All export monopolies and most import monopolies were abolished. 3.5 These reforms have begun to yield results and have significantlyenhanced the environment at the macro-economic level for private enterprise. A third PFP was negotiated with the Government and approved by the Bank in August 1992. The program deepens the structural reforms aimed at improving private sector incentives, strengtheningpublic resource management, reducing the absorptionof resources by the Government so as to increase the resources available to the private sector, continuing the development of Mali's human resource base and improving its management of natural resources. An Enhanced Structural Adjustment Facility (ESAF) in support of the policies outlined in the third PFP for 1992-95 was also approved by the International Monetary Fund in August 1992. 3.6 Macroeconomic Environment. Mali's economic performance is highly constrainedby a narrow human and physical resource base, variable climate, and the legacy of inappropriatepast policies. Although per capita income has risen slowly over the 1980s' it  remains one of the lowest in the world. Real growth has averaged 3.4% since 1985, but population has absorbed most of this growth. The average GDP growth also masks large annual variations directly linked to climatic conditions and Mali's dependence on agriculture, which generates about half of Mali's GDP. 3.7 The adjustment and stabilizationefforts pursued by the Government since 1982have contributed to major improvements in macroeconomic management. Tight fiscal policies and efforts to strengthen tax administrationand curtail tax evasion contributed to a sharp reduction in the overall fiscal deficit (excluding external grants) from its peak of 13.9% of GDP in 1985to 7.7% in 1990. The current fiscal balance has shown a surplus since 1986. Mali's external accounts have also improved significantlysince the mid-1980s. The current account deficit (excluding official transfers) fell from a peak of 28.5% of GDP in 1985to 13.9% in 1990. Export values have increased by 7.4% per annum, while non-cereal imports have risen by only 2.6% per annum. Capital inflows, largely official development assistance to finance the public investment program, have increased steadily. The debt service ratio rose rapidly from the early 1980s, peaked at 31% in 1986, and subsequentlydeclined to 17% in 1991. External arrears accumulated in the mid-1980s were totally cleared by end-1989, primarily through debt relief from the Paris Club and other bilateral donors. Inflation has been kept at less than 2% on average over the past five years. After more than a decade of consecutivedeficits the balance of payments has recorded surpluses since 1988. 3.8 Political Environment. Pressure for the introduction of a multi-party political system culminated in a coup d'Etat in March 1991and the arrest of the former President of 23 yeats. Given the importance of the support of the Head of State for the successful implementation of the reform program, this raised concerns about the future prospects for the reforms in Mali. The coup was followed by the creation of a Cornit&de 7l-ansitionpour le Salw du Peuple (CTSP), and the nomination of a civilian Prime Minister and transition government. A National Conference was held in August 1991 which paved the way for a referendum on a new constitutionin January 1992, followed by democratic elections in January-April 1992. A new civilian administrationassumed office in June 1992. Throughout the transition period, Mali's economic adjustment program stayed largely on track. The new administration has demonstrated its commitment to the structural and sectoral adjustment programs by agreeing to the third-year PFP which was approved by the Bank and the IMF. 4.1 Program develo~ment.descri~tionand obiectives. Following independence, Mali pursued a deliberate policy of parastatal intervention as the key instrumentto promote economic development. As a result, a large number of PEs were created, particularly in the 1960s and 1970s, in the industrial and commercial sectors. At the outset of the 1980s, the public enterprise sector included 57 non-financial PEsl', more than 20 rural development agencies, several financial institutions, and numerous other parastatals providing public services as financially autonomous agencies.g In 1980, the 57 PEs accounted for some 70% -I1 See Annex I for s list of these enterprises. 21 The 12 most impottant PEe, ia tern of employmentand financial results, wen SOMIEX (impor(cxpott). Air Mali (sir transpost), EDM (electricity and water). COMATEX (textiles), (textiles), PPM @h.rmrceuticals), SEPAMA (groundnutoil proceuing), SEPOM (edible oils and maps). SMXMA (spricultud equipment), SONATAM (cigarettes and mtches), RCPM (railroad),and OPT @art and telecommunicatiom).  of modem industrial output and absorbed 70% of total domestic credit. Due to poor investment choices, an inadequate economic policy framework, management problems, lack of financial disciplineand excessive government interference, most of the PEs were operating well below capacity, accumulating significant losses, and facing severe financial difficulties. In 1981the 12 largest PEs had a combined net operating loss of CFAF 4.0 billion (about US$64 milion). In addition, a web of cross-arrears had developed between the PEs, BDM, and external creditors. In 1982, the Government undertook a diagnostic study of the wide ranging problems of the PE sector to serve as a basis for a comprehensive sectoral reform program. Additional studies identified the enterprises that should be privatized, liquidated or restructured. 4.2 In April 1983the Government asked IDA for financial and technical support to design a program for the rehabilitationof the public enterprisesector. In response to this request, IDA prepared the Economic Management and Training TA (Cr. 1307 - MLI) project, which was approved in December 1982. IDA'S interventionwas seen as complementary to the IMF Standby program, which provided technical and financial assistance for the urgent short-term economic stabilizationprogram, and to the French support to facilitateMali's re- entrance into the West African Monetary Union (WAMU) as of mid-1984. 4.3 The Economic Management and Training TA project provided the technical assistancethat the Government had requested to prepare the PE rehabilitation program. The project was appraised in November 1984. Negotiations took place in Washington in 1986. However, obtaining the Government's approval to the negotiated documents proved to be difficult and painstakingly slow. Progress was hampered by a shift in the balance of power within the Government, in particular by the replacement of the Minister of Plan who had been a strong supporter of the reform program. The President also objected to a key component of the program, namely the proposed liquidation of SOMIEX, the state monopoly for sugar and salt and at the time the largest employer in Mali outside the administration, with almost two thousand one hundred workers. Missions to Mali faced frequent backtracking and a considerable amount of skepticism and outright hostility towards the BankIIMF supported programs. Facing this opposition, in mid-1987 the project team decided to consult with the highest authorities in the country in order to unblock the situation. The team thus met with the Prime Minister, the Secretary General of the presidency and also privately with the President who affirmed his commitment to the project. This helped to lessen some of the oppositionto the project and alleviate the bottlenecks which had been impeding progress. 4.4 As a result of the Government's renewed commitment to a reform program, it was decided to proceed with the proposed credit. However, the Bank remained concerned about Mali's administrativecapacity to carry out full structural adjustment reforms, and it was decided to focus the operation only on the first phase of the implementation of the Government's medium-term policy framework. The project was therefore reappraised as an adjustment operation -the Public Enterprise Sector Adjustment Project (PESAP)- in November 1987. It was negotiated in March 1988and approved by the Board on June 24, 1988, five years after it was initially identified. Given the on-again off-again manner in which this project evolved and the fact that it was appraised and negotiated twice, Bank staff spent 390 staff weeks (more than three times the average of 120staff weeks) between identification in 1983and Board approval in 1988.  E. THE SECTORALADJUSTMENT PROGRAM: DESCRIPTION AND b-s 5.1 The PESAP was conceived and designed as the first phase of Mali's longer term adjustment effort to improve economic management. Its principal objectives were to improve and rationalize the performance of the PE sector, to reduce its burden on the country's economy and public finances, and to eliminatethe cross-arrears between the government and the public enterprises. These objectives were to be achieved by action in four areas: (a) reform of key economic policies (in particular the fiscal and trade regimes), with a view to better management of public resources and establishmentof an appropriatestructure of economic incentives; 1' (b) financial sector reforms, including restructuringof the largest state-owned bank (BDM), and the postal checking system; (c) institutional and legal reforms redefining relations between government and PEs; and (d) rationalization of the PE sector through restructuringand divestiture. 5.2 IDA supported the reform process through the Public Enterprise Sector Adjustment Credit (Cr. 1937-MLI), in the amount of US$4 million equivalent. It was the fust adjustment operation in Mali and was co-financed by an IDA-administered Japanese Grant of US$7.7 million equivalent, a Japanese OECF loan of US$30.9 million equivalent, an African Development Fund Loan of US$45 million equivalent, and a Saudi Fund loan of US$5.9 million equivalent. France also provided budget support as well as parallel financing for the banking sector restructuringsupported by the PESAP. The ongoing PE Institutional Development Project (PDIEP - Cr. 1938-MLI), prepared in parallel with this adjustment operation and approved simultaneouslyby the Board, provided support to the Government for implementation. Non-project funding was also forthcomingfrom Belgium, Canada, Germany, the Netherlands, the U.S., the European Community, and the OPEC Fund. 6.1 Despite some implementation delays, in essence, the PESAP achieved its objectives. The following paragraphs present an evaluation of the achievements. (a) Macroeconomic Policv Reform3 6.2 Public Ex~enditureand Public Investment. The PESAP assisted the Government to improve its utilization of public resources by substantially reducing the burden of the PE sector on public finances. In the area of public resources management, the Government strengthened its budgetary and expenditure control procedures. To do so, and as foreseen under the PESAP, Government consolidated all of its budgets and stopped extra- 11 M l ' r fiscal and trade regimcrinitiatedin the PESAP were deepened in the contextof thopreparation and implement.tion of the ongoingStructunl Adjustment Loan (SAL 1 approvedin November 1990).  budgetary subsidiesof PEs. At the same time, Government introduced improvements with regard to public enterprise management, and dealt with the sources of past imbalances, most importantly by abolishing a decree which had required automatic transfer to the Treasury of 90% of PE profits. In order to more effectively control investment expenditures, in 1988the Government started preparing successive three-year rolling public investment programs and annual public investmentbudgets, and integrated the selection of projects into a comprehensive macroeconomic framework. In addition, and as foreseen under the PESAP, in 1989the public investment budget was incorporated into the overall budget. Both the general and public investment budgets have been regularly reviewed and approved by IDA.1' 6.3 Due to the fact that the major source of past PE sector problems had been investments in non viable activities, with financing often arranged through the Government controlled bank @DM), the Government took action on two fronts to insure that no new PE investment would be undertaken without adequatejustification of its economic and financial viability. First, a fundamental reform of Government controlled banking sector institutions @DM and CCP) was undertaken. The ownership and management of BDM were privatized and CCP was delinked from the Treasury and its management privatized. Second, all PE investments receiving direct financial support from the Government or government guarantees for their financing are now routinely scrutinized on the basis of a systematic appraisal of costs, benefits, and financial viability. All such investments are included in the Government's investment budget and submitted to IDA annually for comment. 6.4 Incentive Policiq. Under the PESAP, Mali's regulatory environment was substantially liberalized. Between 1988and 1992, the Government took actions designed to place greater reliance on market determined prices for the allocation of resources, and to remove distortionsengendered by the fiscal and trade regimes that had existed prior to the institutionof the PESAP. Price controls were abolished and regulatory procedures were improved and simplified. These reforms were implemented more rapidly than originally envisaged. Between January 1988 and January 1991the number of goods and services subject to price controls was reduced from 58 to just one - petroleum products. To complete the price liberalization program, a review of the taxation and pricing mechanism for petroleum products was completed during 1991, under the Structural Adjustment (SAL) project, and a phased program to liberalizepetroleum pricing was adopted. Petroleum prices were completely liberalized in July 1992. 6.5 With regard to the trade regime, the Government liquidated the state trading company (SOMIEX) and abolished import monopolies on sugar, salt, tea and milk. In 1989, it replaced the import and export licensing system with a registrationsystem, abolished import quotas, simplified the formalities related to international trade transactions, and established a one-stop window aichet uniaue) for the completion of administrative requirements. In order to make the procedures more flexible, an evaluation of the one-stop window was undertaken and the procedures were subsequently simplified in October 1990. Additionally, a firm was hired to provide import verification services. 11 It ir clar, however, that further improvemenb are needed, in particularto incmee the efficiencyof resource d i m t i o n , stnnpthenthe monitoring of investmentspendingand mllocatc public expenditurein favor of the locirl =ton and maintenance. Theee imcs are curnntly part of IDA'r dialoguewith the Government.  (b) Financial Sector Reforms 6.6 Financial Sector Policies. Mali's financial policies have been geared towards strengtheningthe Government's fiscal position, settlingthe outstanding liabilitiesof liquidated and privatized enterprises, and reducing Government's liabilitiesto the banking system. These have been complemented by a monetary policy emphasizing expansion of credit to the private sector and reduction in Government borrowing from the banking system, while maintaining the growth of domestic liquidity at a rate consistent with the targets for economic growth, inflation, and the external sector. The PESAP had included plans for the Government to undertake a study of the financial sector to determine additional steps for improving the sector, but this was waived given the reforms being implemented in the context of UMOAIBCEAO since September 1989. The UMOA reforms aimed at replacing the administrativecontrols over money and credit with a more indirect and market-oriented system of monetary instruments. As part of these reforms, preferential discount rates were abolished, commercial banks were given flexibilityin determining their rates on deposits and loans, sectoral credit allocation was discontinued, and banking supervisionwas improved through the establishment of a supranational Bank SupervisionCommission. Monetary management was also facilitated by the restructuringof the state-owned development bank (BDM), and of the postal checking institution (CCP). 6.7 Banaue de DCvelopement du Mali @DM). Until the 1980s, BDM dominated Mali's banking system with about 50% of deposits and about 60%of loans. This was largely due to BDM's role as principal banker to the public sector. By the mid-1980s, however, BDM was confronted with serious problems due to poor performance of its clients. Its loan portfolio, made primarily of loans to PEs, deteriorated and it became insolvent. As a result, BDM resorted to heavy borrowing from BCEAO and local banks, jeopardizing the liquidity of the whole banking system. As foreseen under the PESAP, Government then adopted and implemented a comprehensive restructuringplan for BDM. As part of this plan, the bank was transformed into a joint share company (soci6t6 anonyme) on July 1, 1989with a capital of CFAF 3 billion of which 20% is held by Government, 20% by the BCEAO, 20% by the Banque Ouest Africaine de Dkveloppernent (BOAD), 23.3% by the Malian private sector and 16.7% by the Banque Marocaine de Commerce Exftrieur (BMCE). The BMCE also assumed management of the new bank under a management contract, and has since instituted new management policies, overhauled procedures, sharply curtailed lending and concentrated on improving BDM's operations and mobilizing deposits. As part of BDM's non-performing asset restructuring, estimated at CFAF 62.4 billion in 1989, were removed from the balance sheet and covered by BDM's original capital and reserves (CFAF 11 billion), PESAP counterpart funds (CFAF 14 billion), CCCE's funds (CFAF 8 billion) from the consolidation of CFAF 23.9 billion by the BCEAO, and cancellation of CFAF 5.5 billion owed to the Government. The restructured bank retained a loan portfolio of CFAF 18 billion which was guaranteed by recovery of written-off loans, the potential revaluation of BDM's fixed assets and Government deposits. 6.8 Parallel to the financial restructuring, steps were taken to reduce BDM's operating costs. The frequency and quality of supervision of BDM by the BCEAO was increased; the size of BDM's staff was reduced from about 900 at end-1987 to 296 by end of 1989; three branches were closed and two branches were transformed into local offices of other branches (guichets). To step up and facilitateloan recovery, BDM was given the same legal rights as those of the Treasury in the recovery of loans.  6.9 Postal Checking. In order to facilitate financial transactions and mobilize savings in areas not served directly by the banking system, under the PESAP the Government transferred the postal checking and savings system (CCPICNE) from the postal company to a mixed-capital financial institution, the Sociktk des Comptes CWques Postaux et de la Caisse dBEpargne(SCPCE). SCPCE is owned by the Government (40%), private Malians (40%) and Banque Intenmionale de 1'Afn'quede 1'Ouest (BIAO) (20%). It started operations on April 5, 1991. The new institution, which is being managed under contract by the BIAO, is authorized to take deposits and undertake transfers, but is barred by its statutes from extending credit, its surpluses being placed on the money market of WAMU. The Government also severed all links between the Treasury and the postal financial system, thus halting the use of postal checking resources to cover Treasury financing requirements which had precipitated CCPICNE's liquidity problems in the first place. As part of its restructuring, the frozen deposits of the CCPICNE were reduced through a cancellation of Government deposits, and the balance was reconstituted with resources from counterpart funds from the PESAP (CFAF 5 billion) and the French Caisse Centrule de CoopkrutionEconomique (CFAF 4 billion). (c) Jnstitutional and Leeal Reforms 6.10 New Public Enternrise and Personnel Laws. Prior to the PESAP's effectiveness, revised basic legislation (Law 87-511AN-RM) was adopted to govern the relations between public enterprises and Government. In addition, in June 1989, Government revised the law governing mixed capital companies to limit the Government's rights and obligations in such companies to those of an ordinary shareholder. The PESAP envisaged full application of the new laws, including revision of company charters and appointment of new boards to all PEs, over the program period. The mixed-capital law has been respected by Government since its introduction. The PE law, and the principles enshrined in it (managerial autonomy, improved organization, and Government oversight through properly constituted and autonomous Boards) were applied to eleven public companies by January 1990, and extended to all public enterprises during the rest of 1990. In May 1991, additional improvements were made to the basic PE legislation in consultation with the IDA in order to strengthenPE managerial autonomy, further enhance the efficiency of enterprise management, and increase transparency in the selection and firing process of PE management. These improvements were incorporated into a new Ordonnance No. 911014 and into new decrees covering the rights and responsibilities of board members for PEs, that of their chairpersons and managing directors, and the methods for deciding on their remuneration. Ordonnance No. 911014 was revised again in 1992by the new Government to reduce abuses in selection of PE managers which had become evident in the last months of the transition Government. 6.11 As envisaged, the regulation of personnel management was also streamlined under the PESAP. A new personnel law (Law 89-85lAN-RM of September 30, 1989), which replaced Law 81-1OIAN-RM and governs PE remuneration and personnel management has been fully implemented. In order to further enhance personnel management at the enterprise level, the recruiting monopoly hitherto exercised by lBOflceNational de la Main d'oeuvre et de 1'Emploi(ONMOE) was abolished in November 1990under the PESAP. In May 1991the Code de I).avail was revised, under SAL I, in order to provide greater flexibility in hiring and firing procedures, and to promote investment and job creation. A revised Code de Commerce was also adopted in August 1992.  6.12 Performance Contram. The PESAP included a plan to institute performance contracts for the six companies which were slated to remain in the public sector. A performance contract with one of these enterprises (RCFM - railways)had been adopted prior to Board approval of the PESAP and has since been renewed, and a second contract (EDM - power utility) was approved by the Council of Ministers in November 1989. As part of the restructuringof the power and water sectors under the IDA-financed Power II project, corporate charters were adopted for Energie du Mali (EDM) and W c e dlExploitationdes Ressources Hydrauliques du Haw Niger (OERHN). The electricity generating facilities of OERHN were brought under EDM's management, a separate performance contract was signed between Government and OERHN, and revised water and power codes were adopted. 6.13 A fourth performance contract (OPT - the postal and telecommunications company) was required to be approved prior to release of the second tranche of the PESAP, but had to be postponed until OPT'S postal and telecommunications services were separated. The separation officially took place in January 1990, and performance contracts were signed with the ODce National des Postes (ONP) and Sociktk des Telecommunicationsdu Mali (SOTELMAY. A sixth performance contract, was approved for COMANAV (river transportation), but its implementation is awaiting agreement between the Government and German firms on a program of additional assistance to that company. 6.14 Staff Com~ensationand Redeplovment. In view of the large number of PEs slated for divestitureunder the PESAP, over 3,000 people were expected to lose their jobs. A program of staff compensation and redeployment was instituted as part of the PESAP to deal with the social and economic impact of divestiture. The financing plan for the program included the payment of severance pay to these employees and the establishment of a redeployment fund to facilitate the entry of these laid-off workers into the private sector activity. These measures to compensateworkers terminated under the PESAP and to facilitate their absorption into the private sector were implemented as foreseen. As of September 1991, about 3400 terminated staff from 21 public enterprises had been paid termination grants from the redeployment fund set up under the PESAP for the purpose. About 1800of the terminated workers also benefitted from the reconversion fund to help them start and operate small businesses. As of February 19, 1992, PESAP funds disbursed in severance pay and termination compensation totaled CFAF 4.828 billion. (d) Rationdization of the Sector 6.15 In order to reduce the burden of public enterprises on public finances and the banking system, the Government established a program of restructuring and divestiture. Thirty-fiveenterprises were covered in the first phase of the PE sector reform, and of those, the Government intended to retain majority state ownership of sixg, liquidate another -1 I The Governmentis planningto continueto improvethe managerial capacitiesof SOTELMA IO a8 to eliminatethe existing borrlencclrswith respectto teltcommunicationa,and to upgmdt the portal delivery rervicerof ONP. SOTELMA staff are being trained in various operntionalaspects of telecommunicationrfacilitier .ndnumnagcment. -21 Namely the enterprimesresponsible for power and water (EDM), teltcommunicationa d p o d a c ~ c c (Om, r nil transpod (RCFM), river tmnspod (COMANAV), tobacco and matchel (SONATAM), and managementof the S6liagu6 dam (OERHN).  fifteedl, and privatize the remaining fourteeg. During the first phase of this adjustment program, studies of the remaining 22 other PEs were also carried out. Establishmentof an action plan for these enterprises was a condition for the third tranche release. 6.16 Settlement of Cross-Arrears. Throughout the project's implementation, cross- arrears between the Government, PEs and the development bank (BDM)were settled. In 1989, CFAF 14billion were paid by Government to the BDM as part of its restructuring. In February 1991, the Government approved a definitive account of the end-1989 stock of cross- payments arrears of the 35 enterprises included in the PESAP and a timetable for their settlement. As foreseen under the PESAP, CFAF 3.0 billion were settled through cash payments in 1988, an additional CFAF 12.0billion in 1989, and a further CFAF 10.8 billion in 1990. Between January and December 1991, outstanding Government arrears to public enterpriseswere settled through compensation, whenever possible, and the remainder of the liabilities effectively owed was agreed to be settled on the basis of bilateral accords between the Government and the creditorsconcerned. These accords provide for the issuanceof non- interest-bearing Treasury bonds redeemable in ten years with an option, valid through the end of 1992, to be exchanged for 20% of face value. 6.17 Divestiture. Prior to effectiveness of the PESAP, the Government had dissolved the 15 enterprises identified to be liquidated and had initiated liquidation proceedings to sell their assets and settle their liabilities. The credit agreement required that liquidation be completed for ten of these companies prior to the release of the second tranche of the proposed credit and completed for the remaining five prior to the release of the third tranche. The liquidation of these 15 enterprises proceeded according to plan. 6.18 The privatization program for the remaining 14public enterprises, proceeded with much more difficulty. While detailed timetables for privatization of each of these enterpriseswere submitted to IDA in April 1988, lack of progress in this area delayed disbursement of both the second and third tranches, in large part because valuable time was lost searching for potential buyers for PEs whia were essentially non-viable. As explained below, unanticipated changes in the institutionalset-up for implementing the divestiture program and the resulting coordinationdifficulties also contributed to the delays. 6.19 The Government was fairly flexible in its approach to the privatization of PEs. While its preferred method of divestiturewas to simply open up their capital to outside shareholders, other alternatives were considered. These included: (i) establishmentof a company to buy the assets of the existing company (which would then be liquidated), and (ii) leasing of the assets to a management company. -11 Air Mali, SOMIM (impoddistribution).SHM (hoteUtourism),SAT (mad rranrponnion). SCAER (agricultural equipment), SEBRIMA (brick manufacturing),SOCOMA (food procersing), SOCORAM (ndio menufacturing). SOMBEPEC (livestock products), SONEA (marketing of hides), SONEl'RA @ublicwork), OCINAM (cinema). LPM (books),CMTR (bucking) and EMAB (furniture). -u COMATEX (textiles), EDIM @ ~ t i n g )EMAMA @umps),GRAND H O T U (hotel management),ITEMA(tenilea), , PPM @Lmurceuticaldistribution), SEMA (real estate), SEPAMA (groundnut oil prersing). SEFOM (oil rrfininglpackaging).SMECMA (agricultunlequipment). SOCAM (canning), SOCIMA(cement), TAMALI (unnery) end UCEMA (cenrnica).  6.20 Supervisionreports from November 1989onwards repeatedly commented on the slow progress being made in the privatization process. In December 1989, the Government agreed that progress on this aspect of the program should be more rapid, and decided: (i) to clarify and adhere to the delineation of responsibilitiesbetween the Ministry of Plan and the technical Ministries, and (ii) to establish clear criteria for deciding between offers from potential private partners. Despite this, in June 1990privatization efforts still appeared to be hampered by comdination difficultiesbetween government departments. At this stage it was recommended to entrust the divestiture of some companiesto independent brokers. 6.21 The Government identified four constraintswhich they encountered in achieving the divestiture: (a) the weakness of the Malian private sector.- Given the crisis in the Malian banking system, private Malians had neither the resources nor the management skills to successfully take over the public enterprises; (b) the weak flow of foreign private investment into Mali, caused primarily by Mali's isolation and the over-regulated nature of its internal mark&.- In addition, the coup of March 1991introduced uncertainty about Mali's political future and the destruction of some factories and offices during the riots of end March understandably discouraged potential investors; (c) the poor economic and financial situation in which the public enterprises found themselves.- Many of the PEs resulted non-viable. Consequently did not attract any investors and had to be liquidated; and (d) the difficultyfacing the authorities in determining the appropriateprices at which to sell these enterprises. 6.22 Combining these factors with the very shorttime horizon for the divestiture program resulted in offers which the Government found generally unsatisfactorybecause they were both too low and often accompanied by payment conditionswhich were notably concessional. This put the Government in a difficult position: by selling the enterprises at concessional rates, the administrationrisked being accused of selling off tangible assets of the state to gain favor with the purchasers; by not sellingthem, it risked losing the funds of the IDA credit by not meeting tranche release conditions and decided that it had no option but to liquidate. The final outcome resulted in many enterprises taking this latter route, in line with the sentiments expressed in the initial project brief in April 1984: "It has been argued that without foreign assistancemost of the PEs might go bankrupt within a period of one year. Thereforethe best strategy might be to stop foreign assistance to the sector and let the enterprises go under. However attractivethis solutionmay appear, from a purely financial point of view, it is politically, socially and even economically unworkable, because it would involve ... immeasurable costs in terms of potential political and social turmoil in the country ... our prime objective, easily justified on the economic and financial grounds, should be to help the Government reduce the PE sector, by encouraging measures aimed both at alleviating the political and social cost involved and at improving eficiency of the remaining sector."  In retrospect, the liquidationof lirms turned out to be socially and politically acceptable, since many of the PEs were bankrupt. Similarly, the social impact of the lay~ffswas cushioned by the compensation and redeployment schemes. 6.23 The final outcome of this privatization program is as follows. Majority control of two of the enterprises (ITEMA and SEPOM) were transferred to the private sector prior to effectiveness of the PESAP. Two other enterprises, SOCAM and Grand Hotel, were privatized before the release of the second tranche. SOCAM was liquidated and its assets were sold to another company in which the governmentheld minority shares, and the management of the Grand Hotel was privatized under a contract with a private hotel management chain. In March 1991, a fifth company, EDIM, was liquidated and its assets were sold to a mixed capital company with 10%Government ownership, and 82 of the retail outlets of a sixth company, PPM, were sold to private pharmacies. In 1991, satisfactory progress was made in the privatization of the remaining 8 enterprises to allow disbursement of the third tranche. SOCIMA was sold to a private Malian company, and Government shares in EMAMA and SEMA were sold to private interests. After years of unsuccessful efforts to privatize it, SEPAMA, which had ceased operationssince 1987, was liquidated and its assets were sold to an oil seed company. Two of the four other enterprises, UCEMA and SMECMA, were legally dissolved, and liquidators were appointed to oversee the disposal of their assets. In November 1991it was decided to dissolvetwo of the remaining enterprises, TAMALI and COMATEX, and liquidators were appointed for them. TAMALI has ceased operations and its 79 workers have been laid off, but COMATEX is still operating, while discussionscontinuewith potential investors. 6.24 In order to broaden the scope of the reforms, the Government also adopted a plan of action for restructuring an additional 22 enterprises. Among these, five (SOGEMORK, PETROSTOCK, BETRAM, TIM and SOMITRAM) have been liquidated, two (ORTI and OGHA) have been merged, and three (EMASE, EMACI and CNREXlBTP) have been transformed into public administrativeagencies (EPAs). The Government now holds only a minority interest in two others -SONAM and FRUITEMA. Four enterprises are being privatized (SNED, ULB, PVM, and AFB), and five will be restructured (Operation Puits, SONAREM, ADM, UMPP, and SOLIMA). A detailed timetable will be drawn up for the remaining enterprises in light of the external financing available. 6.25 EnternriseRehabilitation. All of the six enterprises remaining fully in the public sector have undergone rehabilitationand have signed performance contractsredefining their relationshipwith the Government. Bilateral assistancehas been important in supporting these rehabilitations: French and Canadian assistancesupported the rehabilitationof RCFM; Chinese assistancesupported SONATAM; and the German Government has been instrumental in the restructuring of COMANAV. The Government has also signed a document with the German government proposing and describingthe main elements of a more comprehensive restructuring of COMANAV's management which involves German co-management. The restructuring of EDM and OERHN is being supported by the IDA financed Power I1 Project (approved by the Board in March 1989) and by assistancefrom the African Development Bank, the European Investment Bank, France, Canada and Germany. 6.26 Restructuring in the postal and telecommunications sectors involved the transformationof the former W c e des Postes et des Tblbcommwu'cations (OPT) and TblbcommunicationsIntem'onales du Mali (TIM)into the Socibtb des Tblecommunications du Mali (SOTELMA) and the Ofice National des Postes (ONP). Restructuring turned out to  be an arduous task, much more complex than we had expected at inception, and is still ongoing. Both institutionsbegan operations in July 1990. G. JMPLEMENTATIONAND MONITORING OF ADJUSTMENT PROGRAM 7.1 The IDA credit was to be disbursed in three tranches and was expected to be fully disbursed by December 31, 1990. The first tranche of US$15.5 million equivalent, became available in September 1988upon credit effectiveness, and was disbursed by November 1988. The second tranche of US$11.5 million equivalent became available and was disbursed by December 31, 1989. This tranche was roughly six months behind schedule because of a lack of progress with a number of aspects of the program, in particular, the delays with the privatizations, and in applying performance contractsto EDM and OPT. The third tranche of US$13.0 million equivalent was disbursed on November 1991. Delays in disbursementof the third tranche were driven mainly by the political scene which exploded in March 1991 and the delays in achieving the objectives of divestiture. The Credit was fully disbursed although the closing date had to be extended twice in order to meet remnant conditions for tranche releases. 7.2 Borrower Performance. When the project was designed, it was intended that responsibilityfor implementationof the program would lie with an inter-ministerial commission, chaired by the Prime Minister. The Cabinet Director of the Prime Minister's office was to chair a technical committee charged with day-today implementation and coordinationresponsibilities,and special units were created in both the Ministry of Plan and the Ministry of Finance to monitor execution of elements under the control of their respective ministries. In early June 1988, however, the post of Prime Minister was abolished, and responsibility for co-ordination of the program was transferred to the Ministry of Plan. Two inter-ministerial co-ordination commissionswere established, similar to the above commissions, and were chaired by the Planning Minister and the Cabinet Director of the Ministry of Planning. Day-today implementation and co-ordination of the program, however, was carried out by the Bureau des Entreprises Publiques (BEP), which was specificallycreated for this purpose in the Ministry of Planning. 7.3 Throughout the life of the project, implementation was impeded by a lack of clear delineationof responsibilitiesbetween Government Departments and ineffective coordination among them, a problem which the inter-ministerial commissions was unable to resolve. This delayed overall project implementation, in particular the privatization component of the project. The companies to be privatized fell under diverse ministries, and in the absence of cooperation between them, the disappearance of the Prime Minister's office (which was best placed to forge cooperation), significantly worsened Mali's capacity for implementing divestiture under the PESAP. Foreign technical assistance, which had been provided to the BEP under the parallel PE Institutional Development Project, also turned out to be ineffective. A number of attempts were made to overcomethese problems, and while they were never completely resolved, the transfer of the BEP to the Ministry of Fiance helped to resolve some inter-ministerial conflicts and to improve coordination and implementation. It was also discovered that the pace of implementationof the project depended heavily on the characteristicsof the Directeur General of the BEP -and in November 1989when a dependableDirector General was named, the pace of reform picked up considerably. Interestingly, however, the political upheavals in March 1991had a relatively minor impact on the pace of reform. Both the transition and the newly elected  government's commitment to reform were clearly established, and the program continued to be implemented through the BEP. 7.4 Bank Performance. Due to the large number of conditions to be met throughout the life of this project, the PESAP was supervised frequentlyfrom headquarters. Specialistconsultants, (for studies, audits, enterprise valuation, and liquidations)also played a large role in monitoringprogress with the divestiture component. However, project supervision from headquarters suffered from frequent changes in task managers. Between its appraisal and closing, the project was overseen by no less than four task managers, and valuable time was lost in bringing task managers up to speed on Mali and the project. The project was however monitored closely by the Resident Mission which provided the element of continuity in supervision. Donor coordination was excellent in the case of BDM's restructuring, but disagreements arose between the Bank and a major donor in the case of CCP over the best methodology for restructuring this institution. 7.5 Rmortine and Auditing. BEP provided periodic (at least quarterly) reports on progress. Annual audit reports were received normally on time and the audits were satisfactory. The BEP also prepared special reports on particular components of the project, such as the outcome of the reinsertion program, the results of liquidations, and the progress of privatized PEs . H. EARN D 8.1 The PESAP was designed as the first phase of a new effort to address the underlyingproblems restricting Mali's long-term development. The success of the PESAP was critical to the success of the wide-ranging adjustmentprogram the country was embarking on. It attempted to correct some of the most fundamental distortions in the Malian economy which were impeding the development of a healthy private sector. It also set the stage for the wider macro-structural adjustments under the SAL. While it is too early to draw strong conclusions about the success of this reform program, as some of the privatized enterprises are still in difficulties and the process has not yet been completed, the reforms do appear to have significantly enhanced the macro-economic environmentfacingprivate businesses. Since PESAP started, there has been an increase in the number of recent enquiries and negotiations by foreign firmsinterested in pursuing, or at least discussing, investment opportunities in Mali, especially in mining. In addition, recent increases in remittances from Malians abroad into the local banking system have been indicativeof increased confidence by Malians abroad and are resulting in an infusion of much needed liquidity. 8.2 Overall, however, this adjustment operation was difficult and ambitious, and the Bank was overly optimisticat the outset about the time it would take to implement this program, especially the privatizationprocess. The difficultiesfaced in the privatization phase of the program were echoed in the 1991WDR, having been faced in many countries embarking on these sorts of programs. The privatization process proved to be an arduous exercise due to factors including thin markets for domestic capital, the lack of an infrastructurefor privatization -lawyers, accountant, merchant bankers and entrepreneurs - and the fact that Government departments had to be established and appropriately staffed to manage the process. The cost of the staff compensationprogram also proved to be underestimated, so that lack of funds is now hampering effective layoff at the last companies to be divested. Increased sensitivityto these sorts of problems could lead to more realistic  privatizationtime-tables, fewer liquidations, and a medium-term focus on improvingthe performance of the public enterprisesrather than resorting directly to privatization. 8.3 The PESAP's most important lessons can be summarized as follows: (a) The Government's capacity to implement some reforms - likereforms to price regulations and other Government regulations - was considerable. Progress in this area proceeded much more rapidly than had been envisaged. (b) The component of the program causing most of the implementation delays was the privatizationcomponent. During the life of the project, five of the 14 enterprisesplanned to be privatized were liquidated because they were not viable. The institutional structurefor privatization was also inadequate and the time frame for privatizing companies was too short. In retrospect, it was learned that: (1) privatization should not be advocated in the case of enterpriseswhich are not viable. Instead, these should be liquidated and their assets sold to other (private) companies; (2) in future, more adequate and transparent institutional structures (requiring little coordination among various units) should be used to implement such complex programs. In particular, implementation of the divestitureprogram might have been simpler if the PEs have been transferred to one agency with full legal authority to negotiate the sale and commit the Government to the privatization; a longer and more realistictimetable is needed for implementing divestiture. Given that it is impossibleto predict how long it would take to privatize an enterprise, it was a mistake to make actual privatization a condition of tranche release. Putting an end to Government subsidy for the PE, naming a liquidator, or solicitingbids from potential investors might have been better conditions. 8.4 Once it had been decided that a PE would be divested, no attempt was made to improve its performance, and this affected the interest of potential investors. While it is uneconomic to resurrect bankrupt companies for the sole purpose of privatizing them, allowing such companies to deteriorate during the search for buyers, as happened in Mali, only reduces the chances for successful privatization.  PART 11: P J CT V MINISTRY OF ECONOMIC AFFAIRS AND FINANCl$ Bureau of Public Enterpriaee COMPLETION REPORT 0 1988-91 Prepared by the Government of Mali  1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2. REVIEW OF HISTORICAL BACKGROUND TO ADJUSTMENT . . . . . . . . . . . . 18 2.1 Malianpublic sector . . . . . . . . . . . . . . . . . . . . . 18 2.2 Need for PESAP and Credit Agreements . . . . . . . . . . 2.3 Reviewof PESAPobjectives . . . . . .. .. .. . . . . . . . . . . 18 19 2.4 Measures and actions incorporated in PESAP . . . . . . . . . . 19 2.5 Bureau of Public Enterprises (BPE): for implementation of PESAP . . . . .institutional. .support. . . . . . . . . . . 19 3. EVALUATION OF EXECUTION OF PESAP . . . . . . . . . . . . . . . . . . 20 Reform of PE institutional and legal environment . . . . . . . 20 Economic policy reform and investment incentive measures . . . 21 Reinforcement of key economic sectors (banking. energy. telecommunications) . . . . . . . . . . . . . . . . . . . . . .22 Drawdown and allocation of funds Settlement of PE liabilities . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..24 23 Rationalization of PE eector: privatization. liquidation . .rehabilitation.. . . . . . . . . . 25 . . . . . . Severance and redeployment program . . . . . . . . . . . . . . 26 Non-PESAP actions and initiatives . . . . . . . . . . . . . . .27 Actions in progress . . . . . . . . . . . . . . . . . . . . . .28 4. PASEP IMPLEMENTATION PROBLEMS . . . . . . . . . . . . . . . . . . . . 30 4.1 Problems with drawdown and allocation of PASEP funds . . . . . 30 4.2 Problems with reform of PE institutional and legal environment . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.3 Problems with management of social dimensions of PESAP . . . . 31 4.4 PESAP shortcomings . . . . . . . . . . . . . . . . . . . . . .31 5. RECOMMENDATIONS FOR IMPROVED IMPLEMENTATION OF PESAP ACTIONS . . . .31 6. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32  INTRODUCTION This Project Completion Report, in addition to providing an ex- poet evaluation of the public Enterprise Sector Adjustment Program (PESAP), one of the vital links in Mali's general program of structural adjustment, also recounts the difficulties experienced in implementing PESAP and puts forward suggestions for improving similar projects in the future. Prepared for the World Bank and other donors, it follows the guidelines for documents of this type dealing with inveetment and adjustment operations financed by IBRD, IDA and other institutions. The main body of the text consists of: - a review of the historical background to adjustment in Mali; - an ex-poet evaluation of PESAP execution; - an analysis of the problems associated with adjustment; - suggestions for improving the implementation of future projects; - conclusions based on identification of PESAP auccessee and failures. A brief survey of the public sector in Mali will help situate this adjustment process in its historical context, besides providing a summary of its objectives: 2.1 Malian public sector Following independence, Mali pursued a deliberate policy of developing the public sector as the keystone of ite economic policy. After the creation of 10 public enterprises (PEs) in 1961 alone, the number had increased to 24 by 1968. In 1980, or 20 years after independence, the sector boasted some 77 such enterpriees, whereas the private sector had failed to emerge from ite lethargy. From the early 1980s onwards, the public sector wae faced with a serious crisis situation, manifested in major fiecal arrears, exceseive levels of bank debt, overstaffing, bad debts, and mediocre growth and productivity ratee. The Government was forced to provide virtually all PEs - except UNPP, FRUITEMA, SONATAM and ITEMA, which were profitable-with subsidies and tax exemptions to ensure their survival. Emergence and persistence of this crisis in the public sector resulted in the need for adjustment programs and borrowing agreements. As initial adjustment measures taken following the diagnostic study of PEs carried out by Cabinet P.A. in 1981 had proved too mild to effect a recovery in the sector by 1987, the Government, on September 7, 1988, signed a Credit Agreement with the World Bank to secure partial funding for implementation of a Public Enterprise Sector Adjustment Program (PESAP). Financing for PESAP came from the proceeds of the following: - IDA Development Credit Agreement 1937-MLI (PESAP), dated September 7, 1988 (USS40 million).  - Loan Agreement MLI-I with the Overseae Economic Cooperation Fund of Japan, dated February 22, 1989 (USS30.9 million). - Grant Agreement with Japan, dated September 7, 1988 (Y 1 billion, or approximately USS7.7 million). - Loan Agreement F/MAL/PR-SEP/88/25 with the African Developent Fund, dated September 25, 1988 (US$ 45 million). - Loan Agreement with the Saudi Fund for Developnent, dated February 12, 1988 (USS 5.9 million). - IDA Credit Agreement 1938-MLI (Public Enterprise Institutional Development Project), dated September 7, 1988 (SDR 7 million, or approximately USS9.5 million, allocated to PESAP). - In addition, France provided budget subsidies and parallel financing in support of banking reforms (postal checking services). Non-program funds were allocated by the Netherlands, Germany, Canada, Belgium, OPEC, etc. PESAP, one of the key component8 of Mali's general program of structural adjustment to create the preliminary conditions for economic growth, had the following specific objectives: - reduction of the burden placed by the PE sector on the economy and public finances; - improvement of the economic and financial performance of viable or strategic PEE. Over and above theee objectivee, implementation of this sector program was a manifestation of the Government's determination to foster development of a dynamic private eector. Under the terms of the Credit Agreement, the measures and action. instituted as part of the implementation of PESAP were to focus on four areas of intervention: - Economic policy reform to ensure better manag'ement of public resources and provide incentives for private eector invemtmmnt. - Reinforcement of key eectore: banking and postal checking (BDM), energy (EDM), and communications (ONP, SOTELMA). - Institutional and legal reform of Government/PE relations. - Rationalization of the PE eector through liquidation, privatization and rehabilitation. Thirty-five enterprises were to be the target. of rationalization measures. A severance pay and redeployment fund was to be set up to mitigate the social impact of rationalization measures on employees of PES dismissed from their jobs. A second group consisting of 22 PEs was to be the target of rationalization measures under a second phase of the Program. 2.5 ereau B o : inetit fa1 nu~nortfox im~lementationof PESAP  Institutional support for the implementation of PESAP was available from the Bureau of Public Enterpriees, an agency created by Executive Order No. 85007/PRM of May 23, 1985. Initially attached to the Ministry of Planning, it was then transferred to the Ministry of Economic Affairs and Finance after the events of March 26, 1991. BPE worked in conjunction with a PESAP Coordination Committee, which aseisted it in formulating public sector reform strategies. BPE's role in obtaining disbursement of funds, settling the liabilities of government- owned corporations and enterprises, and ensuring effective application of rationalization measures to the 35 PEs targeted by PESAP was eesential. In addition, actions to strengthen the managerial and monitoring capabilities of government-owned corporations were handled by BPE, which organized various training seminars: one for directors of corporations, one for auditors, one on promotion of the private sector, and one on simplification of bureaucratic procedures. BPE also conducted studies to evaluate 14 enterprises identified for privatization, as well as diagnostic studies on 19 of the 22 enterprises not directly targeted by PESAP. In conjunction with certain other government department8 and agencies, BPE initiated and monitored additional PESAP actione: critical appraisal and amendment of Law 87-51 AN-RM of August 10, 1987; replacement of boards of directors of public enterprises; studies on the reorganization of OTER, SUKALA and CNAR (outside the immediate ambit of PESAP); and monitoring of severance payment and redeployment arrangements for personnel dismissed from PEs. In 1988 and 1989, in addition to the assistance of the PESAP Coordinating Committee, BPE had access to on-the-spot technical assietance through Cabinet ICA, which was commissioned to assist BPE in identifying cross-indebtedness and formulating privatization procedures. As thie experiment did not prove conclusive, BPE proposed a new approach to technical assistance, to be obtained from local consultants; since this has given full satisfaction, it ie to be expanded. EVALUATION OF EXECUTION OF PESAP 3.1 Reform of PE inetitutional and leaal environment The first major PESAP reform in the institutional and legal sphere was Law 87-51/AN-RM of August 10, 1987, which laid down basic principal8 for the organization and operation of public industrial and commercial enterprises (EPICs) and state-owned corporations, and in doing so marked a fundamental change in Government/PE relatione. In 1988, it was applied to a group of 12 state-owned corporations and EPICs, and subsequently, in 1990, to a group of 9 such entities. BPE conducted three successive evaluations of this legislation: - The first, 10 months after promulgation, concerned with how consistent the law and its implementing regulations were with other legielative and regulatory instruments, resulted in reduction of the size of boards of directors and the number of their ordinary meetings. - The second, in October 1989, concerned with the law's economic and financial impact on the performance of the PEE, demonstrated that  after two years in force it had led to an overall net Fmprovement in their economic and financial results. - The third, in late 1990, examined the conditions affecting application of the law and its Fmplementing regulations, and the effectiveness of boards of directors, whose terms of office had come to an end. With the accession to power of the transition Government, Law 87- 51/AN-RM was rescinded'and replaced by Order 91-014/P-CTSP of May 18, 1991, which introduced the following modifications: - combination of the functions of chairman of the board of directors and managing director; - elimination of the post of Government commissioner; - changes in the procedure for appointment of the chairman/managing- director; - appointment to one director's seat of the workers' delegate for the EPIC or state-owned corporation. Other legislation was enacted to provide a better definition of the framework within which the bylaws of state-owned corporations and EPICs were to be written. For instance: - ~ a 91-051/AN-RM of February 26, 1991 prescribes the standard form w and content of EPIC bylaws. It defines the nature of this type of enterprise, its organization, corporate purposes, asset structure, tax obligations, staff service rules, other legislation it is subject to, and procedures for its legal dissolution. - Draft legislation prescribing the standard form and content of the bylaws of a state-owned corporation, its corporate purposes, organization, assets structure, staff service rules, and procedures for its legal dissolution. Another PESAP legal and institutional reform affecting EPICs and state-owned corporations was effected through Law 89-85/AN-RM of November 1, 1988, which rescinded and replaced Law 81-1O/AN-RM of March 3, 1981. It governs the staffing of such entities and the employment of Malian personnel by mixed-capital corporations. Its essential purpose is to Fmprove the economic and financial performance of EPICs and state-owned corporations by vesting them with greater autonomy of personnel management. 3.2 Economic ~olicvreform and investment incentive measures Creation of an economic environment conducive to investment was regarded as one incentive measure likely to improve PE economic and financial performance and promote development of the private sector. In order to ensure the success of PESAP, a sectoral program forming part of its broad economic reform movement, the Government took various steps to change the business environment: - Liberalization of imports (elimination of all monopolies). - Elimination of all price controls on petroleum products, and systematic adjustment of domestic prices in step with changes in international prices.  - Introduction in 1988 of a special capital budget covering all government investments in PEs, including loan guarantees, which were to be subject to budgetary appraisal and prioritizing - proceduree. In the fiscal arena, so as to place the PEE on a normal commercial footing; * Decree 138, requiring automatic transfer to the Treasury of 90% of PE profits, was rescinded by Law 87-51, itself then replaced by Order 91-014/P-CTSP; instead, boards of directors of PEE were authorized to propose distribution of profits as dividends or balances carried forward; * PEE were authorized to deduct provisions for depreciation, bad debts and deterioration of inventory from operating income. - The Investment code was amended to encourage the creation of private sector enterpriees by allowing them certain domestic tax advantagee; it also eliminated all exemptions from customs duties. 3.3 o r c w n t of kev economic eectore fbawna. enerw. telecommunicatione). Major eteps were taken in the key economic eectors to consolidate the position of enterprises operating within them. 3.3.1 B e r m and telecomm&ations sector: The credit Agreements supporting PESAP provided for: - creation of a better inetitutional framework for the water and electric power eectors; - creation of a better institutional framework for the postal and telecommunications sectore; - progress with implementation of institutional reform measures in the postal, telecommunications, water and power sectors. Provision was also made for other, specific steps, including: transfer of OERHN personnel to EDM; signature of a management contract between these two corporations; and legal separation of telecormnunications activitiee from postal and financial operations. These various provieions were acted upon, partially if not completely, as follows: - Law 90-10/AN-RM of February 19, 1990 prescribed the organization, etc., of the electric power sector, and Law 90-17/AN-RM of February 27, 1999 that of the water sector. - Although no actual legislation affected the inetitutional organization of the postal and telecommunications eectors, the following agencies were created: Office national dee poetee (ONP), 8ocf6t6 des t6l(lcoannunications du Mali (SOTELMA), and Soci6t6 dee cheques postaux e t de l a caiese dg6pargne (SCPCE). Other, specific measures which may be cited were: - amendment of the articles of incorporation of EDM and signature of a performance contract between it and the Government;  - signature of a management contract between EDM and OERHN in July 1990. 3.3.2 Reor ani a ion s g g p p l : The Credit Agreements underlying PESAP provided for: - reorganization of BDM; - introduction of measures to ensure that postal checking and savings services would be administered and operated according to sound financial management principles; - formulation of a satisfactory action plan for reform of the financial sector. BDM was reorganized in June 1989 along the lines provided for in PESAP, a process which involved its conversion into a corporation with the following shareholding pattern: - BCEAO (Central Bank of West African States) 20% - BOAD (West African Development Bank) 20% - Government of Mali 20% - BMCE (Foreign Trade Bank of Morocco) 17% - Malian private shareholders 23% BDM management was made the responsibility of BMCE. The following steps were taken to place BDM on a sounder financial footing and to ensure its balanced management: - cost-cutting measures (staff layoffs, reduction of overheads); - settlement of CFAF 14 billion of PE debt to BDM; - application of legislation giving priority status to payment of sums outstanding to BDM. Reorganization of the Postal and Telecommunications Service (OPT) involved establishment of a mixed-capital corporation known as SCPCE (SociBtB des cheques postaux et de la caisse dV6pargne), the Government taking a 40% shareholding. Plans to restore liquidity to the postal checking and savings system, at an estimated cost of CFAF 9 billion, were financed as follows: - CFAF 5 billion: PESAP; - CFAF 4 billion: Caisse centrale de coop6ration Bconomique (CCCE). The Government's monetary policy instruments were brought into line with the institutional structure of the West African Monetary Union (WAMU). 3.4 Drawdown and allocation of funds The financing mobilized under the Credit Agreements associated with PESAP totaled CFAF 37.3 billion, although needs were initially estimated in the range CFAF 70-80 billion. Funds were released in three tranches, fully drawn down between September 1988 and February 1992. Annex 10 showe the  proceeds available under the various Credit Agreemento and gives diebureement details in each case. A difference of CFAF 0.2 billion between total funding provided and actual diebursemente was the result of exchange rate fluctuatione. As Section IV of Annex 10 indicates, exchange rate fluctuatione were unfavorable in the case of the AfDF Agreement. On occasion, drawdown of funds was hindered by the difficulty of assembling import invoices from the different local financial institutions. All funds disbursed were utilized in accordance with Credit Agreement provisions. Annexes 11-1 and 11-2 show sources and uses of funde by tranche and by year. Thirty-seven percent of PESAP proceeds were channeled into the reorganization of BDM. Expenditure categories were as follows: - Undertakings re PEs liquidated (of which BDM reorganization approx. 41%) - Government arrears to PEs 18% - Reestablishment of liquidity of postal checking service 16% - Severance and redeployment fund 16% - Settlement of liabilities of PEe privatized (of which BDM reorganization 4%) - Settlement of liabilities of PEs retained in Government portfolio (of which BDM reorganization 0.7%) 1% 3.5 Settlement of PE liabilities The PASEP action program provided for: - settlement of GovernmentIPE cross-debts; - settlement of PE debts to third parties. Approximately 67% of PESAP funds went into the settlement of reciprocal debts and claims. Up until 1989, the procedure followed in settling croes-debts was the following: - BPE prepared an annual statement of outstanding debte and claims for each of the PEs targeted by PESAP; - arrangements for settlement were decided in light of the debtlclaim situation on the one hand and the total allocated for settlements on the other; - execution of the settlement arrangements decided upon. From 1990 this procedure was no longer followed. All expenditure6 in respect of settlement of liabilities were directly decided and handled by the National Directorate of Budget and the Central Accounting Department (Treaeury).  Local funde allocated to settlement of reciprocal debts and claim0 totaled CFAF 21.3 billion, as per the details provided in Annexee 11-1 and 11-2. 3.6 Rationalization of PE eector: rehabilitation. ~rivatization. 1iauidation PESAP rationalization measures affected 35 PEe grouped as follows (V. Annexee 1-8): -- Group A: 6 PEs to be rehabilitated Group B: 14 PEe to be partially or fully privatized - Group C: 15 PEe to be liquidated. 3.6.1 m t a t e d : Rehabilitation of PEE to be retained in the Government'e portfolio reeulted in reorganization of OPT,reorganization of the poetal checking and savings eyetem, settlement of the liabilitiee of certain PEs, and signature of performance contracts between the Government and each of these PEE. OPT (Office des postes et tbl6comunications) was legally diesolved and replaced by ONP (Office national des postes) and SOTELMA (Societ6 des t616communications du Mali). The poetal checking and oavinge eyetem was reorganized as SCPCE (Soci6tb des comptes de ch8que postaux et de la caisse d86pargne), a mixed-capital corporation with a 409 Government shareholding. Over CFAF 5 billion was allocated through PESAP to restore liquidity to the postal checking system, in addition to the CFAF 4 billion provided by CCCE. An approximate total of CFAF 5.6 billion went into payment of the Government's arrears to those enterprisee retained in it6 portfolio and CFAF 0.44 billion to settlement of their liabilities. Prior to the end of 1991, the Government had entered into performance contracts with the following corporations: RCFM, ONP, SOTELMA, EDM, OERHN, COMANAV and SONATAM. Contracts of this type were also entered into with such non-PESAP enterpriees as CMDT and OPAM. 3.6.2 EnterDrises ~rivatized: Fourteen enterprisee were partially or totally privatized (V. Annex 2). By December 1991 the following eight enterprises had been privatized: ITEMA, GRAND HOTEL RENOVE, DEPOM, SOCAM, PPM, SOCIMA, EDIM. During the course of 1992, in view of the failure of attempts to privatize them, the following enterprises were legally dissolved and their assets liquidated: SMECMA, UCEMA, COMATEX, TAMALI. Privatization of SEMA and EMAMA was concluded in early 1992 with the eignature of instruments of transfer to private sector grantees. The privatization strategy followed by the Malian authorities proceeded in three stages: - formulation and announcement of the Government's decieione and actions in each case; - preparation of the enterprises to be privatized; - eelection and implementation, caee by case, of the appropriate privatization procedure. Four types of privatization procedure were experimented with:  - Privatization of management, as in the case of GRAND HOTEL. The Government retains ownership of assets and receives a royalty payment over a 10-year period. - Privatization of a specific function, as in the case of PPM. With transfer of 84 of its dispenearies to private Malian investors, PPM wae relieved of the distribution function. - Privatization by sale of shares, as in the case of corporations - for instance, SEMA and EMAMA. - Privatization through liquidationjcreation of new entity, as in other caees. It remains the preferred procedure, eince a block transfer of aeeets can be made to a new corporation in which the Government ie free to participate or not. Since completion of theee diepooals of shares or assets, eight management and sale contracts have been monitored, namely those entered into with SOCIMA, ITEMA, SEMA, EDIM, SMECMA, EMAMA, UCEMA, and GRAND HOTEL. Partial transfers generated a total of CFAF 1.2 billion (V. Annex 8). These contracts were entered into after settlement of the liabilities of the corporations concerned, for a total of approximately CFAF 2.5 billion. 3.6.3 pnter~riseslicmidated: Fifteen enterprieee were liquidated (V. Annex l), all of them deficit enterprises operating in non- strategic eectore. The liquidation procese coneieted of promulgation of an announcement of legal diesolution, ieeue of a decree prescribing liquidation proceduree, and eetablishment of an interministerial liquidation comnittee, which appointed a liquidator from the private eector after considering advisory opinione. On completion of theee liquidatione, ealee of aseeto had generated a potential CFAF 10.4 billion (of which CFAF 5.4 billion hae been paid), while eettlemente of debts had absorbed CFAF 8.1 billion (leaving CFAF 11.7 billion outstanding). The cloeing balance eheet on liquidations wae ae followe: - Physical aeeete not disposed of and outetanding claime not recovered CFAF 8.7 billion - Debte not settled 10.8 billion - Closing balance 1.9 billion These sale and settlement operations took place after clearance of liabilities amounting to approximately CFAF 12.7 billion. 3.7 Severance and redeplovment Droaram Although IDA Credit Agreement 1937-MLI contained no express prescriptione regarding the severance and redeployment program, the measures lieted below were taken to offeet the eocial consequences of PESAP: (a) Drafting of legislative and regulatory inetruments to govern the program, namely: - Order No. 88-21jP-RM of December 5, 1988 creating a fund to provide eeverance pay for workers laid off by PEE and meet the coete of their redeployment.  - Decree No. 363/PG-RM of December 8, 1988 preecribing t h e organization and operating practice8 and procedures of t h i e meverance and redeployment fund. (b) Formation of an interminiaterial technical committee t o coordinate t h e uee of redeployment funde. (c) Severance payment8 t o s t a f f l a i d off by PEE i n accordance with t h e provieione of t h e Labor Code. (d) Payment of quarterly allocatione and of an amount to finance viable new economic unite, i n accordance with t h e provieions of Decree No. 363/PC3-RM of December 8, 1988. PESAP funde diebureed i n t h e form of severance pay and redeployment coete totaled CFAF 4.828 b i l l i o n ae of February 19, 1992. From 1985 to 1988, a total of 2,853 individual. were l a i d off aa a r e s u l t of PESAP. Severance pay arrangements led to t h e creation of 1,488 economic units, formed by 2,214 individuale. Execution of t h e d i v e s t i t u r e component of PESAP resulted i n severance payments being made t o 3,021 employeem. Out of t h i e number, approximately 1,584 sought other jobs through Program redeployment arrangements, which are still i n effect. 3.8 yon-PESAP actions and i n i t i a t i v e @ Over and above t h e 35 PEe targeted by PESAP, stepe w e r e taken t o reorganize a number of other PEs. 3.8.1 CNAR: Under Law No. 88-54/AN-RM of February 27, 1988, t h e Government authorized opening up of t h e capital structure of CNAR, thereby making poseible i t e own t o t a l or p a r t i a l withdrawal from a non-strategic sector. I n 1990, CFAF 102.7 million of PESAP funds w e r e channeled t o t h i e corporation through eettlement of ite outstanding clahe on t h e PEe d i r e c t l y targeted by t h e Program. A valuation audit and compilation of particulate f o r negotiation of t h e corporation's expanded c a p i t a l etructure, which w e r e completed i n February 1991 with financing from t h e Public Enterprise I n e t i t u t i a n a l Development Project (PEIDP), led t o a recommendation f o r liquidation of CNAR a s it etood and formation of a new corporation with both domeetic and foreign private- sector majority ehareholdere (experienced i n the insurance field and i n trade and commerce), and t h e Government and i t e agenciem ae minority ehareholdere. In July 1991, a technical committee w a s set up t o comment upon t h e valuation audit report and adviee t h e Government regarding t h e option of diveatiture. However, changes a t CNAR executive levels held up t h e committee's work. Ineurere such ae AFRICARE, PFA and PROPARCO indicated t h e i r i n t e r e s t i n taking up eharee i n t h e new corporation. Ae a r e e u l t of letter No. 1949/SP of April 30, 1991 from t h e CCCE Representative i n Mali and t h e October 1991 v i e i t t o France by CNAR'e chairman/ managing director, t h e Minieter of Economic Affaire and Finance requested i n e a r l y 1992 t h a t CCCE finance a coneultante' etudy on CNAR which would pay p a r t i c u l a r attention tor  - a new assessment of CNAR's position, i n l i g h t of t h e most recent data, t h e finding6 of the audit report by Cabinet Garson e t Parts, and the opinions of t h e ad hoc committee set up by t h e Ministry of Economic Affairs and Finance: - preparation of bidding guidelines and the accompanying General Conditions of Bid: - preparation of a social reorganization plan f o r CNAR personnel. A response from CCCE is awaited. 3.8.2 SUKALA: The Government began negotiation6 i n September 1991 with its Chinese partner regarding possible methods of converting SUKALA into a mixed-capital corporation. A s a result, t h e following list of future partners and t h e i r shareholdings was arrived at: - Chinese partner (CLECT) 40% - GovernmentlOffice du Niger 20% - Private investors 30% - SUKALA workers 10% Progress i n negotiations with t h e Chinese partner depends on t h e findings of a study (by SEC DIARRA) t o appraise t h e corporation's assets and t h e r e s u l t s of negotiatione with other potential private partners. 3.8.3 m: A s part of t h e plan of action f o r case-by-case reorganization of t h e ODRs, which was approved by the Government i n 1987, an economic and financial f e a s i b i l i t y study on OTER (Operation des travaux d'dquipement r u r a l ) , financed through PEIDP, was carried out by t h e consulting firm GID. Although the findings of t h i s study became available i n March 1992, t h e Malian authorities have not yet assessed them. The consultants' chief recommendation is t h a t a mixed-capital corporation be s e t up with t h e Government, t h e ODRs and private investors a s shareholders. 3.9 Actions i n proaress Work is still proceeding on three PESAP components: - divestiture by t h e Government; - settlement of t h e l i a b i l i t i e s of PEs liquidated o r privatized; - t h e severance and redeployment program. 3.9.1 Divestiture bv t h e Government: The 35 PEs t o be rationalized during the f i r s t phase of PESAP, through financial reorganization, divestiture and rehabilitation, w e r e classified i n three groups: - Group A: 6 strategic enterprises, t o be rehabilitated and retained f u l l y within t h e Government portfolio. - Group B: 14 enterprises, t o be e i t h e r f u l l y o r p a r t i a l l y privatized. - Group C: 15 enterprises, t o be liquidated. Although operations affecting Groups A and C were completed, action i n respect of three Group B enterprises continues (COMATEX, TAMALI, SEPAMA):  (i) COMATEX (Compagnie Halienne de t e x t i l e s ) : PESAP called for privatization o r liquidation. The corporation was legally dissolved under t h e terms of Order No. 91-025/P-CTSP of June 26, 1991. The liquidator appointed, SEC DIARRA, is responsible f o r appraising t h e value of its assets and transferring them t o a new corporation, COMATEX S.A., now being formed. It8 c a p i t a l (CFAF 1.5 b i l l i o n ) would be held a s follows: - Soci6t6 chinoise de t e x t i l e s 49% - Malian investors and COMATEX workers 31% - Government of Mali 20% The enterprise continues t o operate a t minimum level while t h e new corporation is being set up. A d r a f t Shareholding Protocol was drawn up on t h e basis of t h e minutes of t h e negotiations between t h e Malian and Chinese p a r t i e s which took place on July 17 and 20, 1991. The Chinese have put forward a series of observations t h a t w i l l be taken i n t o account i n t h e f i n a l version of t h e Protocol. COMATEX workers have proposed t h a t they be a l l o t t e d 7-10% of capital, an o f f e r t h a t w i l l need t o be confirmed by t h e i r Economic Intereet Group once it is established. Capital subscriptions from Malian investors are now being solicited, and a d r a f t Order e x i s t s authorizing t h e Government's participation. June 30, 1992 has been set a s t h e deadline d a t e f o r establishment of t h e new corporation. (ii) (Societe des tanneries du Ha1i)t This corporation was legally dissolved under t h e terms of Order No. 91-0023/P-CTSP of June 26, 1991, and its operations have been halted u n t i l a buyer is found. SEC DIARRA, t h e liquidator appointed, has already drawn up t h e General Conditions of Bid covering s a l e of a l l corporate assets. Should t h e c a l l f o r tenders not lead t o t h e emergence of a suitable buyer, t h e corporation is l i k e l y t o be liquidated without further ado. (iii) SEPAMA (SociBtB d'exploitation des produits arachidiers du Hali): A special session of t h e board of directors of SEPAMA recommended its legal dissolution, a decision r a t i f i e d by t h e extraordinary general meeting of stockholders. Arrangements t o liquidate t h e corporation's r e a l e s t a t e and other assets are now going ahead under t h e supervision of SNED, and i n actual f a c t a r e t h e logical sequence t o suspension of its operations i n 1987. 3.9.2 S e t t eme t o privatized: A s insufficient reeources w e r e available under PASEP t o cover a l l financing needs, still unsettled debts t o t a l an estimated CFAF 20.5 billion. 3.9.3 S s : This PASEP component is still incomplete. An agency has now been created t o execute t h e worker redeployment side of t h e program i n place of CARREC, which previously performed t h i s function. A t present, 14 corporations a r e involved: COMATEX, EDM, EMANA, PPM, SEMA, SEPAMA, SMECMAA, SOCAM, SOCIMA, TAMALI, UCEMA, MOTEL, CNAR and SMERT. Funds t o t a l i n g approximately CFAF 7.6 million remain t o be mobilized. In conclusion, two factors can be pointed t o a s t h e principle reasons why c e r t a i n PASEP actions have not yet been completed: ( a ) d i f f i c u l t i e s associated with PE liquidation proceduree;  (b) the need for financing t o cover social costs. 4. EP -TATION PROBLEM Problems encountered i n implementing PESAP can be classified i n four gtoups: 4.1 Eroblems with drwbwn and allocation of PASEP fun& (a) Program funds w e r e not drawn down within the periods set, because of failure t o meet the conditions f o r t h e i r release within the time limits applicable. There w e r e some instances of release before a l l conditions had been m e t ,however. (b) Implementation of fund drawdown procedures did not always allow for the difficulties ammociated with assembly of invoices. (c) Funds w e r e utilized without regard t o the priority ranking of expenditure categories. (d) Funds for settlement of PE l i a b i l i t i e s were not allocated according t o any previously defined criteria. (e) PESAP financing requirements were significantly underestimated. Liabilities still not settled amount t o CFAF 20.5 billion. A part of Program funds was used i n the context of the Government's funds flow account. Their reimbursement was invariably w e l l behind schedule, disrupting execution of certain components (settlement of outstanding claims and debts; personnel severance payments and redeployment). (a) Law 87-51iA.N-RM of August 10, 1987 did not vest the PEE with real autonomy where t h e i r strategic, and even operational, decisions were concerned. Although the degree of management autonomy envisaged has not been achieved, the legal and institutional setting created has led t o a significant improvement i n PE economic and financial performance. (b) The implementing decree t o Law 88-34, authorizing divestiture, was never issued, and the resulting lack of clear privatization procedures has been a serious obstacle t o completion of these operations. Entry into effect of Decree 90-017/PRM of January 23, 1990, which fixed basic monthly compensation scaleta for personnel of EPICS and state-owned corporations, led t o salary reductions f o r certain categories of employees. (c) Execution of early liquidation operations was not always monitored, since it was the direct responsibility of interministerial liquidation comittees. This explains the lack of information on the liquidation history of SOMBEPEC, SONEA, SONETRA and SCAER. (d) There is every indication t h a t disposal of phyoical astaetta and recovery of outstanding claims, and execution of transfers, were matters l e f t t o the Ministry of Budget or the National Recoveriee Cornmisoion, once liquidation balance sheets had been filed. The scale of recoveries i e evidenoe of the ineffectivenees of recovery arrangements. (8) Difficultias encountered by invetatore i n obtaining bank credit were a major obstacle t o privatization, since the financing capacity of the majority of potential bidders wae very limited.  (f) For lack of intensive sensitization of managere and of commitment on their part to the objective6 of privatization, coordination meetinge were difficult to conduct and government supervieory department6 were neglectful. 4.3 problems with manaaement of social dimensions of PESAP (a) Funding requirement6 for the severance pay and redeployment program were estimated at CFAF 3.5 billion, significantly less than the likely real figure of CFAF 8 billion. (b) Although workers dismissed by PEs possese vocational qualifications, these are not sufficient to ensure that alternative projecte will actually be eet up, and then properly managed. Training in rudimentary management techniques is not given for those laid off. PESAP contained no provision for a training plan or the funding it would require. (c) Workers dismissed during the 1985-88 period succeeded in eetting up 1,488 economic units. However, since PESAP included no provieion for monitoring euch units, it ie now impossible to produce any type of balance sheet showing how many have proved viable and how many have failed. (d) The subsidies dismissed workers receive to enable them to mount their own projects are not sufficient to fund continuation of the activities of the PEs dissolved or liquidated, even in caeee where they have indicated willingness to do so. Additional funding for worker purchases or takeover6 of PEs wae not provided. 4.4 PESAP shortcominas (a) Lack of a full-scale Privatization Act and ite implementing decrees and regulatione. Had such legislation existed, it would have reduced the number of coordination meetings and interministerial coneultationm needed to manage privatization procedures. (b) Lack of a line of bank credit for the benefit of potential investors in corporations whose assete or shares were offered for sale. Domeetic banks were not willing to assiet possible inveetore who preeented themselvee in good faith but were otherwise not creditworthy. (c) From the institutional standpoint, adminiatration of the redeployment component of PESAP should have been entrueted to an independent consulting firm, and preferably one specialized in the promotion of projects. (d) The rehabilitation component of PESAP did not go far enough. Corporatione such as EDM and COMANAV remain financially unstable and unprofitable. NCOMMENDATIONS FOR IMPROVED IMPLEMENTATION OF PES- ACTIOU (a) Evaluation at regular intervale of the impact of Order 91-014/B- CTSP of May 18, 1991, which sets the baeic principles governing the organization and operation of etate-owned corporatione and EPICS. Thie evaluation, which should also extend to the hplementing decrees and regulations accompanying the Order, could be expected to lead to ongoing improvement of the legal and institutional environment ae it affects the performance of such entities.  (b) Amendment of t h e provieione of Decree 90-17/PRN of January 23, 1990, s o ae t o create t h e conditione f o r b e t t e r remuneration of t h e pereonnel of state-owned corporatione and EPICe. (c) Eetabliehment of a fund for training and f o r t h e financing of project f e a e i b i l i t y etudiee. Potential bueineee promoters ehould receive allocatione from t h i e fund f r e e of charge. (d) Provieion of supplementary financing f o r r e l a t i v e l y large-ecale projecte. O r , preferably, both t h e Ministry of Economic Affairs and Finance and t h e Minietry of Planning ehould commit themeelvee t o eeeking a etable source of funding f o r continuation of t h e process of public eector reform. (e) The neceeeary etepe ehould be taken to: - prepare legielation, and i t e accompanying implementing decreee and regulatione, t o govern t h e privatization of PEe; - eet up a l i n e of bank credit f o r potential purchaeere of etate- owned corporatione offered for eale. ( f ) B e t t e r management of t h e eocial dimeneione of adjuetment w i l l depend on t h e deeignation of a coneulting firm capable of i n s t i t u t i n g and promoting inveetment projecte and of taking on t h e reeponeibility f o r t h e eocial management of workere who a r e l a i d off. Ex-poet evaluation normally focueee on t h e following aepecte of a project : - probleme encountered i n i t e implementation (deeign, execution, monitoring, controle, etc.); comparison of i t e planned objective6 and i t e actual reeulte; aeeeeement of t h e effecte of t h e project on t h e t a r g e t univeree; leeeone and conclueions t o be drawn from t h e project, and recommendatione applicable t o similar projects. This type of evaluation does not give r e l i a b l e reeulte unless it is conducted after a lapse of time long enough t o give a perspective on the record of t h e project i t e e l f and i t e impact. The evaluation of PESAP provided by t h e Malian authoritiee i n t h i e Report i e regarded by them ae more of a reeponee t o t h e wiehee of donor8 than ae a vehicle f o r full-ecale aeeeeement of PESAP implementation. Although t h e l a t t e r type of evaluation can beet be conducted over t h e next t w o yeare, t h i e ~ e p o r ti e nevertheleee able t o draw attention t o t h e following etrong and weak pointe i n PESAP: (i) PESAP hae produced the following improvemente in the PE sector: - elimination of eyetematic government eubeidiee and unlimited recouree t o t h e banking eyetem; - c l a r i f i c a t i o n of t h e relationehip between t h e Government and t h e eector;  - preparation of the sector for the elimination of all forms of protectionism and for the need to improve its performance in the face of competition from the private sector. (ii) PESAP enabled the Malian authorities to affirm their determination to foster development of the private eector, which had previously been held back. The resulting awakening of the sector has been the occasion for a diagnostic study to identify all measures likely to pave the way for ite expansion. (iii) Adoption by the authorities of new economic policies and the accompanying introduction of investment incentive measures have definitely created a climate of confidence conducive to private investment. The resulting beneficial effects are expected to make themselves felt in the near future. (iv) The immediate outcome of the reorganization of such PEe ae BDM, OPT, RCFM, EDM, etc., and of the reforms made in the financial sector, has been creation of the kind of environment likely to elicit improved performance from them. However, these positive results are still so fragile that it would be advisable to reinforce them by launching a second phase of PESAP, in conjunction with a private sector development project. Weak points (i) The fact that completion of the privatization of certain PEs within fixed periods was a condition for the release of PESAP resources proved in the majority of cases to be an obstacle to successful and profitable disposal of them. (ii) The technical assistance with privatization which the Bureau of Public Enterprises received was not always of the best quality, the reeult being a considerable delay in the process over the 1988-90 period. (iii) Underestimation of PESAP funding requiremente (settlement of liabilities; social costs) led to adjustment of its initial objectives (e.g. settlement of 20% of PE liabilities to third parties). (iv) The real financing requirements of the severance and redeployment fund for workers laid off by PEs were much greater than the resources allocated to it, with the reeult that there is a climate,of social discontent regarding the redeployment measures it has actually been possible to take. If PESAP is to continue into a second phase, these problems will need to be addressed and solved.  List of companies to be liquidated List of companies to be privatized List of companies to be rehabilitated Portfolio of Stateavned companies List of companies outsidePASEP Liquidation schedule: assest performance and debt settlement Scheduleof liquidation closing: non-realized assets and debts to be settled Privatization schedule: assets and transferred stocks Performance evaluationof the Compensation and Rehabilitation Program Financial Performance Evaluationsof the Credit Agreements of PASEP Financing received and utilization of PASEP funds (capsulepresentation) Adjustment Program of PASEP Financing received and cash expenditures 1988-1991  List of State-ownedcompanies to be liquidated (Annex 1) MARCH 1992  PE Sector meritProject Com~letionRegs List of State-owned companiesto be Privatized (Annex2) NB: The privatizationof CNAR is an initiativeof the state and is not part of the conditionalitiesof PASEP. MARCH 1992  PE Sector Adiustment Proiect Com~letionRe~ort List of Stateawned Companies to be Rehabilitated (Annex 3) NB: Theperformance contract exercise has been extendedto include CMDT and OPAM. The EPICSand SEs are governedby the dispositionsof Ordinances91-014 P-CTSP of May 18, 1991 and its applicable texts.  PE S@%mUjatment ecQiectCompletion rep^ Portfolio of State-Owned Companies (Annex 4) 1 COMPANY NAME STATUS STATE CAPITALINPUT C o M M e m S EST. OWNED (INFRANCS) 1 I 100% 1 -- - ( 'EPIC 2.945 Million To be rehab. 1960 I OERHN EPIC I 100% 1 34*Millioi ONP 4 M i n COMANAV 3,246 Million SONATAM 1.748 Million CNAR 100% 50 Million Capital being 1968 opened to private r+z-+ investon PPM 70 Million Retailoutlctr, 1960 privatized SOTELMA Newly createdor 1991 catablished I I SEM 20% I 1,500 Million Divesture 1969 SEMA Divesture 1969 EMANA 311 Million Divcetwe HUICOMA 1,500 Million C d o n Underway EDM SEM I 1 2,500 Million Toberehab. I I COMATEX SA 1,500 Million Formation SEM 20k Underway EDIM SA 150Million SOMACO SA 300 Million = EPIC 100% 2S7 Million To be partklly privatized DAM EPIC 1 100; I 1.081Million - 63 Million privatized ( F'ETROSTOCK EPIC 100% 5,000 Million To be privathd/ 1981 liquidated SE 100% 10,000 M i o n SE 100% 368.5 Million To bc privatized 11975 UMPP SE 100% 2,551 Million SEM 5.16% 2,618 Million  5 w NO. COMPANY NAME STATUS STATE CAPITAL INPUT COMMENTS EST. OWNED (IN PRANCS) SOLIMA SEM 40% $11 Million To be totally 1976 privatized 26 FRUITEMA SEM 10% 75 Million To be 1981 tranefomedl SEM* 27 SNED SA 82.04% 150Million Tobe 1979 tranefomedl SEM* 28 ULB EPIC 100% 1981 29 SUKALA SE 100% 9,994 Million To bepartially privatiztd 30 OTER EPA 100% 99 Million A 36 SCPCE SEM 40% 500 Million 1990 37 GRAND HOTEL ? 100% Management privatized *NB: Newly created companies in which the Stateholds a minority percentage. *SEM: Societe d'Economie Mixte: organizationheld by both the government and private investors.  PE Sector Adiustment Proiect Com~letionRe~ort Liste of com~aniesoutside PASEP (Annex 5.1) I. List of ~ubliccom~aniesof the 2nd Phase of PASEP. 1. Usine Malienne de Produits Pharmaceutiques (UMPP) 2. Aeroports du Mali (ADM) 3. Societe National de Recherches et d'Exploitation Miniere du Mali (SONAREM) 4. Centre Naitonal de Recherche et d1Experimentationpour le Bgtiment et les Travaux Publiques (CNREXIBTP) 5. EntrepBts Maliens au Senegal (EMASE) 6. EntrepBts Maliens en Cote d'Ivoire (EMACI) B.1 Total Privatization 7. Union Laitiere de Bamako (ULB) 8. Societe National d'Etudes pour le Developpement (SNED) 9. Societe Malieme pour la Commercializationdes Fruits et Legumes (FRUrnMA) B.2 Partial Privatization Abattoir Frigorifique de Bamako (AFB) Pharmacie Vetdrnaire du Mali (PVM) Societede Gestion de t'Exploration des Mines d'Or de Kalana (SOGEMORK) Societd Navale du Mali (SONAM) Huilerie Cotonnibre du Mali (HUICOMA) SocieteArabe LiByo-Malieme pour 1'Elevage et 1'Agriculture (SOLIMA) Base pour 1'Equipment des Transports Routiers (BETRAM) Operation Puits (O.P.) 18. Tel~mmuincationsInternationales du Mali (TIM) 19. Office de Gestion de 1'Hotel de 1'Amitie (OGHA) 20. Office des Relais Touristiquesde l1Int6rieur(ORTI) 21. Societt?Malienne d'Ingenierie et de Transports Maritimes (SOMITRAM) 22. Etablissement d'Approvisionnement et de Stockage en Produits Petroliers (PETROSTOCK) II. Other com~aniesoutside PASEP 23. Caisse Nationale d'Assurance et de Rhsurence (CNAR)  - 41- PE Sector Adjustment Proiect Com~letionReport List of Companies "OutsidePASEP" (Annex5-2) (1) Streamliningplanned for 1992: 1-12  - 42 - PE Sector Adiustment Proiect Com~letionR ~ D o ~ LiquidationSchedule: Stock fulfillment and settlement Annex 6 NB The settlements were executed in the scopeof PASEP and on the national budget. AU figurea are in millions of PCA  - 43 - pe Sector AdiustmentProiect Com~letionR-n Schedule of Liquidation Closure: Non-realized assets and Debts to be settled (Annex 7) m:*Informationnot available. ** Converted to FCFA.  PESector Adjustment Proiect Comoletion Rewfl Privatization Schedule: assets and transferred Stock (Annex 8) I I 1 Company Assignee Date Form Value Paid (thous.) 1 SOCIMA SOAKOF/IMACO 7/29/91 IAssets 250,000 100,000.m 2 mMA 6/21/90 stocks 200,000 mockboldtnof (13.396) L ' m I 3 FRUITEMA SOGEFIH SARL 10/16/90 Stocks 24,154 PAID (3450) 4 SEMA Private Malian 1991 Stocks 229.735.6 57,433,910 Citizens (16oo) 5 EDIM M.AUIU 1991 h t s 308,984.8 T O r n A 6 SMECMA CMDTdPrivrtc 11/16/91 Mrlin Citizenr 7 BMAMA SIAEI- 11/91 Stock# 165,000 CONSUUSFIIXU (21880) 8 UCEMA PrivatoM.liaCi 12/91 Assets Chargca .IdEmploy- 9 GRAND SOMATHO 1/19/90 Mgmt. HOTEL (1) (10 yn.1 Assets puri.v OFmCINES Citizens l Di.pmu l1IWM IPrivUrMYul 9190 Y NB: *FRUITEMA: is not part of the 15 companies originally scheduled to be privatized. ** companies undergoing development, Assignment contracts for COMATEX, TAMALI, SEPAMA. (1) GRAND HOTEL: 48 Million X 3 years and (68 Million X 7 years).  - 45 - P _ E e n t Roiect CompletionReoort of Implem (Annex 9) The total amount utilized under the Public Enterprise Sector Adjustment Program (PASEP) to finance lay+ffs and the "Reinsertion" Program amounted to 4.8 billion FCFA. This amount is divided as follows: 1sttranche 2.7 Billion FCFA 2nd tranche 1.2 Billion FCFA 3rd tranche 0.9 Billion FCFA TOTAL 4.8 Billion FCFA For the first two tranches, the payments were made by the Public Treasury, after transfer of funds from the PASEP accounts to the Compensation and "Reinsertation" accounts. The breakdown of payments made under the last tranche are given in the following table: :omDanv 4!uuua (Billions of FCFA) SOCIMA SMERT 0.0087 EDIM MOTEL SMECMA SEPAMA UCEMA COMATEX TOTAL 0.9102  ECONOMY AND FINANCE REPUBLIC OF MALI "UnPeuple Un But Une Foin - - (Annex 10) Sourceof Financing Bxchanee Rate kl!W!!a (in milk^ of FCFA) IDA Credit 29.4 Million DTS 392.71 11545.7 ADF Lmn 35 Billion UCF 376.68 13183.8 J a p p n c r t h 4 Billion Yen 2.16 8640.0 SaudiLoan 22 Million Riyaln 78.43 1725.6 J a m Grant 1 Billion Yen 2.16 2.mQ 37255.1 11. (in Millions FCFA) lilcb&s IDA FAD Jap~neoeL m n Saudi LOM Japanese G m t III. Detail of Disbwemenu (in Millions of FCFA) Saudi J.om TOTAL 1ST TRANCHE 12/89 1/2/90 1/30/90 4/90 1/91 TOTAL 2ND TRANCHE  Datc IDA FAD Ja~anese Saudi Lou Japanese - Loan - Grant 9/24/90 1710.2 8/91 1850.5 844.4 1U10/91 1878.0 593.8 1U20/91 1350.0 1U30191 96.4 313.5 1/10/92 12.6 1/17/92 - - - - 312.5 TOTAL 3337.0 3560.7 1438.2 626 3RD TRANCHE Iv. N$ (in Millions of FCFA) Aereement Ex~enditur~ (2) neoritical G a Amownts(1) (2)- (1) IDA 11545.7 11555.0 +9.3 ADF 13183.7 13066.5 -117.3 Japanese Loan 8640.0 8953.0 +313.0 Saudi Loan 1725.6 1725.6 0.0 Japanese Grant 2160.0 2203.9 +43.9 Rate of Expenditure = 37504 = 100% 37255.1 V. COMMENTS The gaps stem form variations in the exchange rate. All PASEP funds have been disbursed. February 18,1992  - 48 - Financine received and utilizationof PASEP fun& (in Millions of FCFA) Capsule Presentation (Annex 11-1) B) Aneumption of the Dcbtr of liquidated C) Aneumption of the Liilitb of the companitr to be privatizedincluding BDM rtptructu~g D) Anrumption of the Liabiliticr of cornpanice to be rnaintanied in the Statc portfolio including BDM E) Comptnsotionand "Reinsertion"Fundr F) Reliquificationof CCP (1) including 125 Million from FED. February 20, 1992  -49 - MINISTERE DE L'ECONOMIE ET DES FINANCES BUREAU DES ENTREPRISES PUBLIQUES PE SECTOR ADJUSTMENTPROJECT COMPLETIONREPORT FINANCING RECEIWD AND EXPENDITURESPAID IN 1988-1989-1990-1991  GRAND HOTEL d) Assumption of liabilities of other Reimbursement (1) of which 65 Million FCFA spent in February 1992 due to personnel of COMATEX for "allocationsfamiliales" .  PART I11 - STATISTICALINFORMATION 1. Related Bank Loans and Credits and/or Follow-on Adjustment berations LoanICredit Year of Title I%!EQ% A D D ~ O V ~ SUDlS Cr. 1307-ML1 To strengthen management of FY83 Fully disbursed Economic the Malian economy by Management and improving financial and Training T.A. economic policies and public institutions and by training Malian civil servants. Credit 1938-MLI To provide institutionalsupport FY88 Ongoing Public Enterprise needed by the Government to Institutional extend and deepen its P.E. Development reform efforts. Cr. 2054-MLI To assist the Government FY89 Ongoing Education Sector implement an integrated Consolidation package of reforms and (Hybrid) investments aimed at reshaping the education system. Cr. 2163-MLI To support and consolidatean FY90 Ongoing Agricultural evolving Government program Sector Adjustment to ensure agricultural growth (Hybrid) while diversifying production and ensuring the sustainability of the production system. Ongoing Cr. 2188-MLI To support Mali's overall FY91 First Structural adjustment program. It focuses Adjustment Credit on implementation in two key areas: private sector incentives and public resource management.  2. Proiect Timetable 3. Credit DisbursemenQ (US$ '000) Disbursement in US$ in SDR As 96 of Date million million Total First Tranche Dec. 1988 15.53 11.80 38.8% Second Tranche Dec. 1989 11.48 8.8 28.7% Third Tranche Nov. 1991 12.99 8.8 32.5%   6.Use of Bank Resourcq A. Staff InuuQ LENP LENA LENN SPN TOTAL 4.7 4.7 83.3 83.3 41.4 75.9 117.3 31.4 55.7 2.7 89.8 17.2 22 39.2 20.3 10.7 24.1 55.1 43.4 43.4 33.3 33.3 25.8 25.8 17.5 17.5 48.8 120 509.4  ANNEX I LIST OF 57 COMMERCIALLY+RIENTED PUBLIC ENTERPRISES - - NO. P(AME - STATUS A m COMMENTS EST.  EPIC: Induetrial & Commercial P.E. EPA: A d s a t i v e P.E. SEM: (Societe d1EconomieMixte) PE held by both, O M k private investors SE: Government wntrolled.  Attachment 1 Page 1 of 2 MINISTRY OF ECONOMY AFFAIRS AND FINANCE REPUBLIC OF MALI Bureau des Entreprises Publiques COMMENTS ON PARTS I AND In OF PROJECT COMPLETION REPORT PREPARED BY IDA ON THE PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROJECT (CREDIT 1937-MLI) PESAP's Results It is indicated that the PESAP has attained all of its objectives. Such statement is sort of ambiguous. As a matter of fact, the burden of public enterprises over public finances has decreased, but the administration of those public enterprises remaining under the State's domain have not improved in spite of the establishment of a system of performance contracts. For example: The achievementsin the cases of certain public enterprises, i.e., RCFM - SONATAM - EDM, have deteriorated in recent months. These enterprises have not really been rehabilitated. In our view, this component should be revisited. PASEP' s Financing The amount of financing allocated to PASEP has been inadequate to be able to cover all the needs of the program (repayment of liabilities). and Institutional Aspects The legal and institutional reforms introduced through the project agreements have not produced all of the desired results. Indeed, Law No. 87-51IAN-RM of 10 August 1987 determining the basic principles of organization and functioning of state enterprises and EPIC aimed at a great independencein the management of public enterprises. The evaluation of that law has demonstrated that managerial autonomy is relative. Conditions for Release of Tranche funds The World Bank admits the fact that linking the relase of the tranches funds with progress in the privatization process was an error.  A- Page 2 of 2 Results of the Privatization The privatization has not enabled certain enterprises to increase their economic and financial performance. Examples: SEMA and SOMACO, SA. The program for the adjustment of the public enterprise sector (PASEP) has not foreseen follow-up measures for these enterprises. Social Indicators The projects established by the laid off workers are not all successes. Costs to society of the program have not always yielded tangible results.