Niger - Public Enterprise Institutional Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15128 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (CREDIT 1838-NIR) NOVERMER 29, 1995 Industry and Energy Division West Central Africa Deportment Africa Region 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 EQUIVALENTS Currency unit = CFA franc' US$ 1 = CFAF 4882 WEIGHTS AND MEASURES Metric system FISCAL YEAR OF BORROWER January 1 - December 31 ABBREVIATIONS AND ACRONYMS CNPG Centre Nigerien de Perfectionnement en Gestion CNSS Caisse Nationale de S6curitd Sociale COPRO NIGER Societe Nigerienne de Commercialisation DP Direction des Participations (Ministry of Finance) FIPMEN Fonds d'Intervention des Petites et Moyennes Entreprises Nigeriennes ICR Implementation Completion Report LEYMA Societe Nigerienne des Assurances Leyma MSE Ministry of State Enterprises NIGELEC Societe Nigerienne d'Electricite NITRA Societe Nig&rienne de Transit OFEDES Office des Eaux du Sous-Sol OLANI Office du Lait du Niger ONPPC Office National Des Produits Pharmaceutiques et Chimiques OPT Office des Postes et Telecommunications OPVN Office deS Produits Vivriers du Niger ORTN Office de Radio-Diffusion et Te1lvision du Niger PE Public Enterprise PEIDP Public Enterprise Institutional Development Project PESAP Public Enterprise Sector Adjustment Program RINI Riz du Niger SNC Societe Nigerienne de Cimenterie SNE Soci6t6 Nationale des Eaux SNTN Societe Nationale de Transport du Niger SONHOTEL Societe Nigtrienne d'Hotellerie SONICHAR Societe Nigerienne de Charbon SONIDEP Soci6td Nigerienne de Produits Petroliers SONITEXTIL Societe Nigerienne des Textiles SPCN Societe des produits chimiques du Niger SPEHG Soci&t6 proprietaire et d'exploitation de l'hotel Gaweye The CFA franc is tied to the French franc (FF) in the ratio of FF I to CFAF 100. The French franc is currently floating. 2 CFA franc rate as of May 30, 1995.  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Page No. Preface Evaluation Summary ..................................i Part I: Program Implementation Assessment ..................................1 L Background .............................1 IL Project Objectives and Description .2 Im Achievement of Project Objectives .3 IV. Major Factors Affecting the Project .7 V. Project Sustainability .7 VL Bank Performance .7 VIL Borrower Performance .8 VIII. Assessment of Outcome .8 LX. Future Operations .8 xY Key Lessons Learned .9 Part n: Statistical Annexes Table 1 Summary of Assessments Table 2 Related Bank Loans/Credits Table 3 Project Timetable Table 4 Credit Disbursements - Cumulative Estimated and Actual Table 5 Key Indicators for Project Operation Table 6 Key Indicators for Project Implementation Table 7 Studies Included in the Program Table 8A Project Cost Table 8B Project Financing Table 9 Status of Legal Covenants Table 10 Bank Resources - Staff Inputs Table 11 Bank Resources - Staff Missions Appendices: 1 Observations of the Borrower on the ICR 2. Borrower's Evaluation 3. The Public Enterprise Sector as of End-December 1994 4. Status of Privatizations and Liquidations 5. Government Arrears to Public Enterprises Map IBRD 19400 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (Credit 1838-NIR) PREFACE This is the Implementation Completion Report (ICR) for the Public Enterprise Institutional Development Project in the Republic of Niger, for which Credit 1838-NIR in the amount of SDR4.3 million (approximately US$5.5 million) was approved on June 25, 1987 and made effective on March 16, 1988. The credit was closed on June 30, 1995, three years later than the original closing date. Final disbursement took place on October 16, 1995, at which time a balance of SDR246,274 (approximately US$367,7221 equivalent) was canceled. The ICR was prepared by Ms. Marilyn S. Manalo, Operations Officer, and Mr. Jean-Pierre Thibaut, Consultant, Industry and Energy Division, West Central Africa Department of the Africa Region and reviewed by Mrs. Mary Oakes Smith, Division Chief, and Mr. Franz Kaps, Operations Adviser. Preparation of this ICR began during the Bank's completion mission in May 1995. It is based on material in the project file, reports on public enterprises, and discussions with World Bank staff and government officials currently or formerly charged with project implementation. The Borrower contributed to this report by commenting on the draft ICR and evaluating the project's preparation and execution (Appendices 1-2). 1 At the exchange rate prevailing on November 16, 1995   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (Credit 1838-NIR) EVALUATION SUMMARY Introduction 1. Starting in 1985 Niger commenced a structural adjustment program to address internal and external imbalances resulting from the collapse of the uranium market in the early 1980s and a period of rapid expansion in public sector employment. The first Structural Adjustment Credit (SAC) in 1986 supported the Government's efforts to establish a new broad public enterprise sector policy framework, carry out institutional and legal changes required to increase the efficiency of the sector, improve the general policy environment and incentive system, and start a divestiture program. 2. A second project, the Public Enterprise Sector Adjustment Program (PESAP), effective in 1987, aimed at extending and deepening the reform process and focused on (i) reinforcing controls on public expenditure and elaborating sound sectoral strategies to guide future investments; (ii) liberalizing prices and developing incentive policies to encourage private sector development; (ii) enhancing public enterprise (PE) autonomy and accountability; (iv) rationalizing the parastatal sector through additional privatizations, liquidations, and restructuring programs; and (v) completing the sector's financial restructuring through debt settlement and measures to instill financial discipline. The Ministry of State Enterprises (MSE), charged with implementing the PE reform program, was weak and required institutional development and capacity building support; the third project, Public Enterprise Institutional Development Project (PEIDP), was designed to provide this support. Objectives and Description 3. The PEIDP was designed to strengthen the Government's ability to devise and implement PE reforms, monitor the sector's progress and manage its development. It financed the following components: (a) support for the MSE to strengthen its oversight and control responsibilities in formulating and implementing the reform program; (b) a general sector reform program which included (i) the formulation and implementation of detailed divestiture programs for selected public enterprises; (ii) evaluation of the PE legislation and review of public enterprise statutes in accordance with this legislation; (iii) overall evaluation of the performance of the financial restructuring plan of the sector; (iv) review of the impact of privatization and other reforms of the program; (v) studies of the basic constraints of the parapublic sector particularly relating to staff remuneration, financial control mechanisms, auditing and accounting norms, management, information systems, oversight and control responsibilities to enable the Government to overcome these constraints; and (vi) assistance to develop and implement tools to improve PE management  -ii- (performance evaluation system, performance contracts, audits); (c) support for the improvement of procurement procedures for the public sector, including PEs; (d) a comprehensive training program for the personnel of both the Government and PEs; (e) advisory services to restructure Office de Radio-Diffusion et T6l6vision du Niger (ORTN); and (f) other technical assistance defined during project implementation which included quality circles, preparation of audit and evaluation of Office du Lait du Niger (OLANI) and Societ6 Nig6rienne de Produits P6troliers (SONIDEP), and studies for Societ6 Nigerienne d'Electricite (NIGELEC). 4. The Project's objectives to support the PE reform agenda as described above were justified given that the changes pursed under PESAP were comprehensive, wide ranging, and the available resources and expertise were limited quantitatively and qualitatively. However, the project was hastily prepared, incorporated too many components, and failed to include safeguards and alternative strategies to deal with the pre-identified risks of slow and poor project implementation. Project implementation problems resulted from weak Government commitment to the PE reform program and limited private sector response. It also did not include qualitative and quantitative criteria with which the impact and objectives of the project could be measured. Implementation Experience and Results 5. Since PEIDP was conceived to support PESAP, PESAP's accomplishments have a bearing on the assessment of the PEIDP's achievements. Like PESAP wherein achievements were weak particularly in fiscal and civil service reforms, PEIDP's objectives were only partially met and in varying degrees. 6. While the objective of strengthening the technical capacities of the MSE was partially achieved, weak Government commitment prevented it from playing a strategic role in the process of designing and implementing reforms of the parastatal sector. The implementing unit was marginalized and implementation of divestiture strategies for target enterprises were either not carried out or delayed. A review of legislation on public enterprises resulted in the amendment of the laws and update of the by-laws for the PEs. The evaluation of the financial adjustment plan for the parastatal sector enabled the Government to settle a portion of its debts and recapitalize certain PEs. However, its arrears to some PEs re-emerged and continue to grow. Measures to reduce state consumption or procedures for realistic budget allocations were not defined. Also, a remuneration study was carried out but the recommendations were not adopted leading to a general increase in salaries with no improvement in the productivity of the enterprises. The management information system at the implementing unit is operational but its capabilities are limited. Although audits were conducted for the PEs and the quality of accounting information improved, many PEs continue to provide late annual financial reports to which auditors have difficulties providing unqualified opinions. For ORTN, an accounting system was introduced and a performance contract is being implemented. Other complementary activities including rehabilitation plans for various enterprises, privatization plans, quality circles were all implemented but with little or undetermined impact.  -iii- 7. The major factors that contributed to the weak implementation and final outcome of the project include: (i) a difficult socio-economic environment; (ii) lack of political commitment; (iii) flaws in the conception, design and implementation of the program; (iv) inadequate project supervision efforts; and (v) an unfavorable business environment. 8. As was the case with PESAP, the project was designed to build on previous reforms successfully implemented under SAC. The project designers were over-ambitious and included many project components without the benefit of careful assessment of the background, experience and qualifications of the Government and Bank staff on privatization matters. Project design was theoretical and mechanisms were not built into the project to counter the identified risk of slow project implementation resulting from increases in bureaucratic interests among ministries and public enterprises, weak fiscal and civil service reforms, poor Government commitment, and limited private sector response. 9. The supervision efforts of the Bank focused on ensuring that the individual project components were implemented without a full appreciation of the state of the privatization program as a whole. As a result, although much time and resources were allocated to support the necessary technical work and recommendations therein, little was accomplished in the public sector reform efforts prior to and after two extensions of the project closing date in the absence of either project restructuring or suspension until PE reform measures were taken or a change in political will occurred. 10. Following political and social events, successive governments beginning in 1990 were unable to persuade public opinion in support of the PE reform program. The project management unit, itself marginalized and unable to carry out its management role, failed to make any real impact on the process of reforming the parastatal sector. In the absence of any political commitment to implement PE reforms, the country had very little return on its investment under this project. 11. The limited capacity building achievements under the PEIDP project are unsustainable unless changes that are supportive to the PE reform efforts occur in the political, economic and social environment, the Government fully commits to the privatization program, and a business environment conducive to private sector participation is developed. 12. Based on the fact that: (i) the institutional development objective of the project was marginally achieved; (ii) the activities planned, although largely carried out, did not produce the anticipated results, particularly in terms of the "facilitation" and success of PESAP; and (iii) the sustainability of the achievements of the project is very uncertain, the project's outcome is rated unsatisfactory. Summary of Findings, Future Operations and Key Lessons Learned 13. Given the continued (since 1990) deterioration of the public enterprise sector as evidenced by high revenue losses, large cross debts, and a bigger but ineffective work force, the Government will need a divestiture program grounded in legal and political legitimacy. A mechanism that provides clear guidelines, accountability, an adequate decision making process, and incentives should be developed to support this program.  -iv- 14. The following lessons can be drawn from the implementation of the PEIDP as a project providing institutional capacity building support in the divestiture program: (i) to be effective, the project should be executed in a proper macro- and socio-economic environment; (ii) a genuine and continuous commitment from the Government to a carefully and thoroughly analyzed and planned program is a pre-requisite for support; (iii) an open and on-going dialogue between the Government, interested and affected parties and the private sector should be established; (iv) a good monitoring and evaluation mechanism is necessary to collect relevant data and information for the assessment of the program and design of future ones; (v) technical expertise should be made available to provide strategic support in project management particularly when the reform processes are new and/or difficult; and (vi) the closing date of a project should not be extended when realization of its objectives are remote.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (CREDIT 1838-NIR) PART I: PROGRAM IMPLEMENTATION ASSESSMENT L. BACKGROUND 1. The uranium boom years of the 1970s saw Niger's public ownership of economic activities grow at a fast pace. During this period, public sector enterprises were one of the main instruments used by the Government to establish or strengthen productive sectors, to produce essential goods and services, to control prices, and to promote employment opportunities. In 1985, the public enterprise (PE) sector, excluding the two majority foreign owned uranium mining companies, employed about 50 percent of the combined labor force of the private and parastatal sectors. It accounted for 28 percent of production, 35 percent of value added, 31 percent of the outstanding domestic debt, and almost 50 percent of Niger's foreign debt. Following the downswing in the uranium market in the early 1980s, Niger's exports and tax revenues decreased. The performance of the PE sector deteriorated following investment mistakes, unclear and conflicting objectives, inappropriate policies and regulations, deficiencies in the legal and institutional framework and poor management resulting in a serious drain on the country's economy and public finances. 2. To redress the situation, the Government adopted in 1985 a comprehensive reform program as part of its structural adjustment effort. Under the first Structural Adjustment Credit (SAC) in 1986, the Government took measures to establish a new broad PE sector policy framework and carry out institutional and legal changes required to increase the efficiency of the sector, improve the general policy environment and incentive system, and start a program of divestiture development. The second phase of the reform program was supported under the Public Enterprise Sector Adjustment Program (PESAP). Effective in 1987, the project aimed to extend and deepen the reform process, particularly resource management and parastatal reform. Its focus was on (i) reinforcing controls on public expenditure and elaborating sound sectoral strategies to guide future investments; (ii) liberalizing prices and developing incentive policies to encourage private sector development; (ii) enhancing public enterprise autonomy and accountability; (iv) rationalizing the parastatal sector through additional privatizations, liquidations, and restructuring programs; and (v) completing the sector's financial restructuring through debt settlement and measures to instill financial discipline. 3. The Ministry of State Enterprises (MSE), created in 1984, led the reform program and served as the focal point for coordinating and implementing the first phase and for designing the second phase of the PE reform program (PESAP). The Ministry,  -2- however, was weak and required institutional support to extend and deepen the reform efforts envisaged under PESAP. This Public Enterprise and Institutional Development Project (PEIDP) was designed to provide the institutional development and capacity building support. II. PROJECT OBJECTIVES AND DESCRIPTION 4. The objectives of PEIDP were to address the long-term question of strengthening the Government's ability to devise and implement PE reforms, to monitor the sector's progress and manage its development; and to strengthen the comprehension and capability of the PE managers to implement the divestiture program. 5. PEIDP financed the following project components: (a) support for the MSE to strengthen its oversight and control responsibilities in respect of the formulation and implementation of the reform program (consultancy services of a resident advisor, vehicles, and equipment) and to prepare annual project audits; (b) a general sector reform program which included: (i) the formulation and implementation of detailed divestiture programs for selected public enterprises; (ii) evaluation of the PE legislation and review of public enterprise statutes in accordance with this legislation; (iii) overall evaluation of the performance of the financial restructuring plan of the sector; (iv) review of the impact of privatization and other reforms of the program; (v) studies of the basic constraints of the parapublic sector particularly relating to staff remuneration, financial control mechanisms, auditing and accounting norms, management, information systems, oversight and control responsibilities to enable the Government to overcome these constraints; and, (vi) assistance to develop and implement tools to improve PE management (performance evaluation system, performance contracts, audits); (c) support for the improvement of procurement procedures for the public sector, including PEs; (d) a comprehensive training program for the personnel of both the Government and PEs; (e) advisory services to restructure Office de Radio-Diffusion et Television du Niger (ORTN); and (f) other technical assistance defined during project implementation which included quality circles, preparation of audit and evaluation of Office du Lait du Niger (OLANI) and Societe Nigerienne de Produits Petroliers (SONIDEP), and studies for Soci&e Nigerienne d'Electricite (NIGELEC). 6. The Project, as designed, was fully justified given the reforms being pursued under PESAP were comprehensive, wide ranging, involved several ministries and PEs, and the available resources were quantitatively and qualitatively limited. However, possibly influenced by some successes in the reform program under SAC, the designers were overly ambitious and included too many project components. Also, while the risk of slow project implementation resulting from increases in bureaucratic interests and the reform effects on institutional relationships and relative powers among ministries and public enterprises were correctly identified, safeguards and alternative strategies were not identified to reassess either the form or the recipients of support when problems including insufficient fiscal and civil service reforms, weak Government commitment, and limited private sector response arose. The inclusion of qualitative and quantitative criteria to  -3- measure the performance of the project and the Direction des Participations (DP, Ministry of Finance), the management unit of the PEIDP project, would have been a useful tool to measure the impact of the project and to serve as an educational instrument to win public confidence. III. ACHIEVEMENT OF PROJECT OBJECTIVES 7. The achievement of the project objectives will have to be evaluated in the broader context of the divestiture program and the fulfillment of PESAP's objectives. The PE reform objectives under PESAP were partially achieved as the Government's commitment waned significantly when the political situation deteriorated and it was pressured to satisfy special interests. As summarized below, PEIDP's objectives also were only partially attained and with varying degrees of success. Part A: Support of the MSE 8. The objective of strengthening the Ministry's capacity was to enable it to play a strategic role in the process of designing and implementing reforms in the parastatal sector. While considerable support in terms of technical assistance, training and material inputs was provided, the Ministry played only a modest role and has had a limited impact on the PE reform process. Since about 1990/1991 the DP has become an administrative manager of the government portfolio and its role in assisting the Government in preparing and introducing PE sector reforms increasingly has become marginalized. This de facto situation was largely the result of a weakening of the political will to implement the sector adjustment program as originally designed. 9. During project implementation, continued support for the DP was justified on the grounds that there was technical work to be done before any political decision concerning the PEs could be taken. From a medium term perspective, however, the objective of maintaining these technical capacities is likely to be compromised if the DP remains marginalized. The technical skills acquired through the project could gradually disappear following a significant turnover of officials and staff demotivation stemming from the lack of appreciation and support for reform work by the political authorities. Part B: Sector Reform Program 10. This component had six sub-components which were carried out with varying degrees of success. The objective of the first sub-component was to develop and introduce divestiture strategies and procedures for target enterprises following a diagnostic review of 54 PEs conducted in 1984. At that time, it was recommended that 25 of these enterprises would undergo total or partial privatization or liquidation; four would be liquidated; and the state would reduce its ownership in nine other enterprises. Under PEIDP, the necessary technical studies were conducted but implementation of the recommendations suffered from numerous setbacks because: (i) the National Conference formally opposed the reform measures; (ii) under pressure from the labor unions, there  -4- was no political will to carry through with the reforms; and (iii) there was little interest from potential buyers in the private sector. In mid-1995, the Government portfolio included 62 enterprises: 20 autonomous government agencies (EPAs), 19 industrial/commercial enterprises (EPICs), 4 state corporations (SEs) and 19 mixed enterprises (SEMs) (Appendix 3). The creation of a new category of PEs, the EPAs, contributed to an increase in the number of PEs. Appendix 4 summarizes the status of the privatization and liquidation operations. 11. The second sub-component covering a review of the PE statutes and an evaluation of the PE legislation was carried out. Following completion of the review and based on the recommendations therein, the laws were amended and the bylaws of EPAs, EPICs, SEMs and SNs were updated. 12. Under the third sub-component, an evaluation of the financial restructuring plan of the sector was carried out. The impact of its implementation was limited because budget allocations were unrealistic and government expenditure controls were unsustainable. Under PESAP, the Government settled a portion of its debts and partially recapitalized certain PEs. However, at present, the Government again has large arrears with NIGELEC, Societe Nationale des Eaux (SNE) and Office des Postes et Tlelcommunications (OPT). Appendix 5 provides the status of reciprocal debts between the principal PEs and the Government. 13. The fourth sub-component, a study of the impact of privatization and other reform measures, was conducted. The study enabled the Government to appreciate the complexity of the privatization process particularly with regard to appropriate methods of evaluating enterprises and selecting buyers and to draw lessons on the factors contributing to the failure or success of certain rehabilitation or privatization operations. The full benefits of this work can be realized only after continued implementation of a realistic program supporting state divestiture policies. 14. The fifth sub-component, designed to address the basic constraints of the parapublic sector, had mixed results. First, a staff remuneration study to define the possibilities and conditions for introducing a system of incentive payments within the PEs, based on individual performance, was carried out. The recommendations, however, were not introduced in a rational manner and led instead to a massive increase in salaries and staff with no improvement in the productivity of the enterprises. Second, a study on the responsibility for overseeing and monitoring PEs was conducted and led to the abolition in December 1989 of the MSE and the transfer of its functions to the DP under the Ministry of Finance. Third, other studies including the financial auditing mechanisms for PEs, accounting and auditing principles for PEs, and management information systems (MIS) were not implemented given weak support by the managers of the PEs. 15. The sixth sub-component aimed to strengthen the capability of the MSE and selected public enterprises by introducing an effective MIS, preparing performance contracts for selected PEs, and carrying out annual audits of selected PEs. The MIS was introduced and is operational but is limited in coverage and capability. Covering only  -5- a sample of 20 PEs, it does not serve as a useful decision-making tool. Information is insufficient and untimely making it difficult to determine the financial flows between the state and the PEs and to evaluate the burden they place on public finances. 16. Although performance contracts were "negotiated" and established with the following PEs, NIGELEC, Societe Nigerienne de Charbon (SONICHAR), OPT, Office des Produits Vivriers du Niger (OPVN), ORTN, Soci6t6 Nationale de Transport du Niger (SNTN) and SNE, they were not rigorously prepared nor effectively monitored in spite of the establishment of ad hoc committees. In addition, the state was unable to meet its financial obligations to the PEs (NIGELEC, OPT, SNE). 17. Support for the preparation of annual audited accounts resulted in numerous audits of the accounts and finances of the principal PEs being conducted by local and international firms and in the improvement in the quality of the accounting information. The impact of this work is, however, limited as numerous PEs continue to provide annual financial statements that are very late and receive qualified opinions from auditors and recommendations from auditors are very often not implemented by the PEs. Part C: Procurement 18. The objective of this component was to achieve greater transparency in procurement mechanisms and to lower acquisition costs through the free play of competition. A new code for government contracts was officially implemented but the absence of accompanying procedures, incentives and an understanding of the procedures by the administrators prevents it from being systematically enforced. Part D: Training 19. This component was to support the training of PE and Ministry officials in enterprise management methods and in accounting, finance, performance monitoring, strategy, human resource management, purchases, inventory control, etc. Many benefited from the program which undeniably resulted in the quantitative and qualitative development of local skills in the area of enterprise management. The impact of the training activities, however, was relatively modest because human resource management was weak, staff turnover was frequent, and PEs resisted adopting some new or improved management methods. Part E: Restructuring of ORTN 20. The objective of the technical assistance to ORTN was to: (i) design and introduce an accounting system and (ii) prepare a performance contract. These were implemented.  -6- Part F: Other Projects 21. Under this component, the Government defined, in agreement with the Bank, other activities which had not been identified during the project design phase but were likely to contribute to the success of the PESAP and the reform program. Relevant reorganization or rehabilitation plans were prepared for Caisse Nationale de Securite Sociale (CNSS), SNE and NIGELEC. Implementation of the recommended restructuring measures for these organizations, however, was limited by the financial constraints brought about by non-payment of government arrears. Also, studies were conducted to prepare a plan of action for the total or partial privatization of the following enterprises, COPRO-NIGER, Societe Nigerienne des Assurances Leyma (LEYMA), Fonds d'Intervention des Petites et Moyennes Entreprises Nigeriennes (FIPMEN), Societe Nigerienne de Transit (NITRA), Societ6 Nig6rienne des Textiles (SONITEXTIL), Abattoirs de Niamey and OLANI. COPRO-NIGER is being liquidated, state exposure in LEYMA and NITRA was reduced, and OLANI was evaluated for eventual privatization. In addition, the process of liberalizing certain sectors (pharmaceutical products, importation of oil-based products) controlled by monopolies (Office National Des Produits Pharmaceutiques et Chimiques (ONPPC), SONIDEP) commenced but remains stalled following the Government's indecision on these matters. 22. Another activity, the formation of "Quality Circles," was an initiative agreed upon between the Bank and the Government in 1992 to improve the performance of PEs. Based on encouraging results obtained in Burkina Faso, the DP, Centre Nig6rien de Perfectionnement en Gestion (CNPG), several enterprises, including Societe Nig6rienne de Cimenterie (SNC), Riz du Niger (RINI), Soci6td des produits chimiques du Niger (SPCN), SONICHAR and OLANI, decided to adopt this management method and benefited from technical assistance. However, training was provided only intermittently making it difficult for the full implementation of the quality circles process to take place. Despite this, quality circles are still functioning at OLANI, SPCN, RINI and SONICHAR and with reported improvements in staff behavior. 23. The credit was closed on June 30, 1995, three years later than the original closing date generally to allow more time to carry out technical work and support the recommendations therein. The Government and the Bank agreed to extend the closing date for the first time to conduct a retrospective study of PESAP and to elaborate the next phase of the PE sector rationalization and privatization program based on its recommendations. The second extension was to: allow the concept of quality control circles to be extended to interested public and private enterprises; and finance the audit of the Caisse Nationale de Securite Sociale (CNSS) and the establishment of an MIS for the DP. The third extension was to provide financing for the audit of OLANI and SONIDEP. Total support for this project amounted to SDR4. 1 million. A total SDR246,274 was canceled following final disbursement on October 16, 1995.  -7- IV. MAJOR FACTORS AFFECTING THE PROJECT 24. Overall, as discussed below, the factors that contributed to the generally weak implementation performance under PEIDP are: (i) lack of Government commitment; (ii) a difficult socio-economic environment; (iii) flaws in the conception, design and implementation of the program; (iv) inadequate project supervision efforts; and (v) an unfavorable business environment. 25. The PESAP/PEIDP-supported privatization program took place at a time when the Government, faced by a serious economic crisis, was implementing deep structural changes and taking stabilization and liberalization measures. After a promising start under SAC, social and political difficulties resulting from the adoption of the reform program put a strain on the Government's commitment for PESAP and PEIDP beginning in 1989. Also, while financial discipline in the PEs began to improve, the Government's severe liquidity problems resulted in the recurrence of cross debts between the Government and PEs and among PEs. As the PE sector shrunk and activities of industries decreased following the liberalization of trade, the National Conference of 1991 was vely critical of the reform program reflecting an incomprehension on the part of opinion leaders and a lack of success on the Government's part to convince the Nigeriens on the need for reform measures. 26. Facing an economic and fiscal crisis, Government shifted its interest to accessing external financing rather than maintaining a commitment to the adjustment and privatization process. Because the PESAP was not designed to link satisfactory implementation of the privatization component to tranche releases, the Government and the Bank neglected the privatization program. As a result, the DP's leverage in implementing PEIDP and PE reforms was greatly reduced. Political appointees who headed the PEs did not feel compelled to implement reforrn measures and the acquired technical skills of newly trained personnel were not fully appreciated following the high staff turnover rates in the enterprises and the DP. The poor performance of the divestiture program coupled with inadequate incentives by the Government to establish a good business environment contributed to the lack of success in the privatization program. V. PROJECT SUSTAINABILITY 27. The limited capacity building achievements under the PEIDP project are unsustainable unless there are changes to the political, economic and social environment, the Government is fully committed to the privatization program, and the business environment is conducive to private sector development. VI. BANK PERFORMANCE 28. The Bank's project preparation work was insufficient. As was the case under PESAP, the PEIDP was inadequately prepared. Also, possibly influenced by some successes in the reform program under SAC, the designers were overly ambitious and  -8- included many project components without the benefit of careful assessment of the background, experience and qualifications of the Government and Bank staff on privatization matters. The project design was theoretical and grounded on the assumption that a sound methodological approach and substantial technical assistance would suffice to eliminate risks and ensure the MSE's leadership in a difficult reform process. In addition, mechanisms were not built into the project to counter the identified risk of slow project implementation resulting from difficult social and political circumstances, increases in bureaucratic interests among ministries and public enterprises, weak execution of reforms, poor Government commitment, and limited private sector response. 29. The supervision efforts of the Bank focused narrowly on the mechanics of project implementation without a full appreciation of the state of the privatization program as a whole. Once it became clear that the Government was not interested in fulfilling its commitments and the final tranche of PESAP was canceled, little was accomplished in the public sector reform efforts when the Bank extended the project closing date twice without either restructuring the project or suspending it until PE reform measures were taken or a change in political will occurred. VI1. BORROWER PERFORMANCE 30. After a promising start, the project was soon hindered by political and social events. Themselves unconvinced, successive governments beginning in 1990 were unable to persuade public opinion (labor unions, management, personnel) of the necessity and advantages of the reform process. In spite of numerous efforts to carry out virtually all the activities, the project management unit, itself marginalized and unable to carry out its management role, failed to make any real impact on the process of reforming the parastatal sector. Under this technical assistance project, in the absence of any political commitment to implement PE reforms, the country had very little return on its investment. V1:[. ASSESSMENT OF OUTCOME 31. Based on the fact that (i) the institutional development objective of the project was achieved only marginally; (ii) the activities planned, although largely carried out, did not produce the anticipated results, particularly in terms of the "facilitation" and success of PESAP; and, (iii) the sustainability of the achievements of the project is uncertain, the project's outcome is rated unsatisfactory. IX. FUTURE OPERATIONS 32. Given the continued (since 1990) deterioration of the public enterprise sector as reflected by high revenue losses, large cross debts, and a bigger but ineffective work force, the Government will need a divestiture program grounded in legal and political acceptance. Before the state disengages itself from productive and commercial sectors (particularly in the areas of energy and transportation) and allows the private sector to take over these activities based on open competition, a rapid (re)formulation and  -9- implementation of its policy reforms will be required after broad-based political support is obtained. A mechanism that provides clear guidelines, accountability, an adequate decision making process, and incentives should support this program. The guidelines should cover the criteria, sequencing, procedures (diagnosis of economic, sectoral, financial, legal, technical, social issues of selected companies, preparation for sale, evaluation of bids), and instruments for divestiture and selection of buyers. 33. As a first step the Government should develop an inventory of its cross debt and payments arrears position with all PEs. For the remaining enterprises in the Government's portfolio which require restructuring, the Government will need to define clearly the objectives to be attained in each individual case and the specific strategies and inputs required. This implies that the (i) constraints on public utilities (services or rates) have to be clearly defined; (ii) subsidies have to be calculated (financial forecasts); and (iii) financial management (cost reduction and working capital requirement) of these enterprises have to improve. 34. In addition, mechanisms for contractual obligations (performance contracts), with financial incentives for directors and salaried employees when successful results are obtained, should be considered. Also, to provide new impetus to the reform process, the Government will need to have open communications and a realistic dialogue with its social partners in order to (i) develop awareness that the situation has become financially untenable for the Government and (ii) achieve a consensus among all the political and social parties involved regarding the strategy and mechanisms for recovery. Following additional preparation and analytical work, the privatization (already accepted in principle) of SNC, Office des Eaux du Sous Sol (OFEDES), Societe Proprietaire et d'Exploitation de l'H6tel Gaweye (SPEHG), LEYMA, NITRA, SONITEXTIL and Abattoir de Niamey could be carried out. Also, the liquidation of COPRO-NIGER, FIPMEN and Societe Nigerienne d'Hotellerie (SONHOTEL) could be completed. X. KEY LESSONS LEARNED 35. The following lessons can be drawn from the implementation of the PEIDP as a project providing institutional capacity building support in the divestiture program: (i) to be effective, this type of project should be executed in a proper macro- and socio- economic environment; (ii) a genuine and continuous commitment from the Government to a carefully and thoroughly analyzed and planned program is a pre-requisite for support; (iii) an open and on-going dialogue between the Government, interested and affected parties and the private sector should be established; (iv) a good monitoring and evaluation mechanism is necessary to collect relevant data and information for the assessment of the program and design of future ones; (v) technical expertise should be made available to provide strategic support to the management particularly when the reform processes are new and/or difficult; and (vi) the closing date of a project should not be extended when realization of its objectives are remote.  -10- 7 PART H: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievements of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies _ Sector policies / Financial objectives ./ Institutional development Physical objectives Poverty reduction Gender concerns Other social objectives _/ Environmental objectives / Public sector management ____X_ Private sector development _= / Other (specify) . | B. Project Sustainability Likey Unlikely Uncertain C. Bank Perforrnance | Highly Satisfactory | Satisfactory Deficient Identification Preparation assistance _ _ _l Appraisal Supervision f D. Borrower Performance Highly Satisfactory | Satisfactory J Deficient Preparation Implementation _ Covenant compliance Operation (if applicable) _ | E. Assessment of Outcome Highly Satisfactory Satisfactory J Unsatisfactory _____I i iI  -11- Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Approval Status Preceding Operations Structural Adjustment Credit Establish a broad public enterprise sector 1986 Completed (Cr. 1660-NIG) policy framework; develop reforms to increase efficiency in the sector; improve the general policy environment and incentive system; start a divestiture program Public Enterprise Sector Reinforce controls on public expenditure; 1987 Completed Adjustment Credit develop sound strategies to guide future (Cr. 1833-NIG) investments; liberalize prices; develop incentive policies to encourage private sector development; enhance PE accountability and autonomy; rationalize the parastatal sector; complete the PE financial restructuring process Succeeding Operations Economic Recovery Project Support the Government's program and its 1994 Completed (Cr. 2581-NIG) efforts to minimize the negative social impact of the devaluation; provide financial assistance to support further structural and sectoral reforms Table 3: Project Timetable Steps in Program Cycle | Date Planned I Date Actual Identification February 1985 Preparation Appraisal March 1987 Negotiations Board approval February 23, 1988 Signing March 18, 1988 Effectiveness September 1987 July 1, 1988 Project completion December31, 1991 June30, 1995 Loan closing June 30, 1992 June 30, 1995  -12- Table 4: Credit Disbursements - Cumulative Estimated and Actual (US$ million) Fiscal Years 1988 1989 1990 1991 1992 1993 1994 1995 Appraisal Estimate 1.0 0.7 0.9 1.0 0.9 0.6 0.3 0 Actual 0.89 1.38 0.94 0.89 0.6 0.5 0.14 0.11 Actual as % of estimate 0.89 1.97 1.04 0.89 0.66 0.83 0.47 0 Date of final disbursement: October 16, 1995 Table 5: Key Indicators for Project Operation Activities Timetable Status Project Management (a) Creation of the PE Reform Unit (PERU) November 1986 Done (b) Appointment of the Director of PERU May 1987 Done (c) Adoption of a multi-year work program of the May 1987 Done Ministry of State Enterprise (MSE)  -13- Table 6: Key Indicators for Project Implementation Activities Timetable Status Legal Framework (a) Study to define respective roles of Ministries of State September 1987 Done Enterprises and Finance and technical ministries (b) Study to formulate the strategy for phasing-out overtime of December 1987 Done PERU (c) Establishment of WIS September 1987 Done (d) Performance evaluation of PEs 1987-1996 Done (e) Adoption of a three-year contract-program: - by NIGELEC, SONICHAR, SNTN End-1987 Done end-1988 - by OPVN, OPT, ORTN June 1988 Done in 1989 (f) Adoption of revised individual charters for all PEs End-1987 Done Procurement (a) Review the existing procurement laws September 1987 Done (b) Prepare a procurement manual and standard procurement September 1987-end Done document 1988 (c) Conduct a seminar on procurement for government officials and September 1987-end Partially PE managers 1987 completed Rationalization of the Sector (a) Feasibility studies for VETOPHAR and SICONIGER (to be September 1987 Done privatized) (b) Privatization strategy study for OLANI (to be privatized) September 1987 Done in 1995 (c) Study of the impact of the PE rationalization program Start in September 1987 Done (d) Continue the divestiture program (CNCA, Air Niger, etc.) End-1988 Done Restructuring of ORTN and other Key PEs (a) Adopt a detailed restructuring plan for ORTN December 1987 Done (b) Implement the above plan 1987-1989 Done (c) Follow-up of PE rehabilitation (BORN), NIGELEC, OPT, RINI, 1987-1989 Done except OPVN, ONAHA, SONICHAR) OPT Financial Restructuring (a) Adopt a financial restructuring plan for the PE sector May 1987 Done (b) Implement the above financial restructuring plan 1987-1989 Partially .______________________ Completed Audits (a) Financial audits of OLANI, SONERAN, ONPCC, ONE, RINI, 1987-1996 Done ORTN, OPYN, Credit du Niger Training Implement the agreed training program 1987-1991 Done Studies and Development of Additional Measures Financial control of PEs MIS needs in PEs End-1987 Not executed Audits and accounting standards March 1988 Not executed Performance of the basic ordinances (January 1986) March 1988 Not executed I End-1988 Not executed  -14- Table 7: Studies Included in the Program List of Studies Impact Staff wages OSEN Negative (wages increased without any improvement in productivity) Study on Vetophar Positive (liquidation) Computerized audit of ONPPC Positive Computerized management system Little impact; information is unreliable Contracting of Public Works Weak (not utilized) Audit of slaughterhouse No impact Study on SICONIGER Positive (liquidation) Assistance to ORTN Accounting system available Operation System ORTN Operation Audit Financial Management Study Technical Assistance OPVN Poor quality of the study; limited use as a management OPVN Bidding System tool. Expenditure Study Audit of Congressional Palace No impact Feasibility Study SNC Malbaza Negative: liquidation (recommendations not accepted by government) Study of NACHEFER SNC Not available Subsidy Study Weak Study on the Impact of PASEP No real impact due to non-commitment of Government to the reform program Improvement of Sig Sig Trimestrial No impact Assistance to ORTN for re-purchase of Niger Ociale debt Not available Operation Audit Poor impact due to financial problems of CNSS OLANI Audit Positive: privatization possible after evaluation SONIDEP Audit Positive: privatization possible after audit  -15- Table 8A: Project Costs (US$) Appraisal Estimate Actual l____________________ Local Foreign Total Local Foreign Total Vehicles, furniture, equipment 89 89 140 140 Training 1,714 1,714 1,859 1,859 Consultants 2,162 2,162 2,393 2,393 Operating Costs 166 166 442 442 Goods, services and other activities 256 256 85 85 PPF Refund 742 742 820 820 Unallocated 371 371 I TOTAL __ __166 5,334 5,500 442 5,297 5,739 Table 8B: Project Financing (US$) Appraisal Estimate Actual Local Foreign Total Local Foreign Total Government 0.2 0.0 0.2 0.3 0.3 IDA 0.5 5.0 5.5 0.2 5.3 5.5 TOTAL 0.7 5.0 5.7 0.5 5.3 5.8  -16- Table 9: Status of Legal Covenants Credit l__ Agreement Covenant Present' Description of Covenant Comments Section Type Status __. DCA 2.02b Accounts C Open and maintain in CFA Francs a special Fulfilled account in BDRN (Banque de Developpement de la Republique du Niger) on terms and conditions satisfactory to IDA; make deposits into, and payments out of, the Special Account in accordance with the provisions of Schedule 4 to the DCA. DCA Financial C Pay to IDA semiannually on February 15 and Fulfilled 2.04/2.06 August 15 in each year a commitment charge of 0.5% on the principal amount of the Credit not withdrawn. DCA Financial C Pay to IDA semiannually on February 15 and Fulfilled 2.05/2.06 August 15 in each year a service charge of 0.5% on the principal amount of the Credit not withdrawn DCA 3.02 Procurement C Ensure that procurement of the goods, works and Fulfilled consultants' services required for the Project and to be financed out of the proceeds of the Credit is governed by the provisions of Schedule 3. DCA 3.03a General C Establish a Public Enterprise Reform Unit at MSE Fulfilled conditions (Ministry of State Enterprises) to assist in the implementation of the Project. DCA 3.03b General C Appoint a Chief of the Unit and five local staff, and Fulfilled conditions employ a resident public enterprise advisor. DCA 3.03c General C Consult with IDA, not later than June 30, 1991 on Fulfilled conditions the opportunity of the integration of the Unit within DED (Direction des Etudes et de la Documentation of MSE). DCA 3.04 General CD Undertake a review in consultation with IDA not Fulfilled conditions later than September 30, 1989 on the overall PE legislation. l Present status: C = complied with CD = complied with after delay. CP = complied with partially. NC not complied with.  -17- Table 9: Status of Legal Covenants (continued) Credit Covenant Type Present | Description of Covenant Comments Agreement status l Section Project CD Furnish to IDA not later than December 3 1 of Fulfilled DCA 3.05 Implementation each year during the execution of the Project annual work programs of the Unit and its budget, and consult with IDA prior to makinig any changes tlhereto . DCA 3.06 Financial C Submit to IDA for approval proposals for Fulfilled financing of specific Sub-projects witlhin the objectives of the Project with a detailed analysis of the costs of said Sub-projects. DCA 3.07 Project CD Submit to IDA not later thaln December 31, 1987 Fulfilled implementation ORTN's (Office de Radiodiffusion et Tdldvisioni du Niger) detailed restnicturing program. DCA 4.01a Accounts C Maintain records and accounts adequate to Fulfilled Audits reflect the operations, resources and expenditures in respect of the Project. DCA 4.0lb(i) Accounts C Have the records and accounts including those Fulfilled Audits for the Special Account for each Fiscal Year audited by independent auditors acceptable to IDA. DCA 4.0 lb(ii) Accounts C Furnislh to IDA, not later than six months after Fulfilled Audits the end of each year, a certified copy of the report of suci audit. DCA 4.01b(iii) Accounts C Furnislh to IDA such otfher information Fulfilled Audits concerning said records, accounts and the audit thereof as IDA shall reasonably request. DCA 4.01c(i) Accounts C Maintaini records and accounts adequate to Fulfilled Audits reflect all expenditures with respect to which withdrawals from the Credit Account wvere made on the basis of statements of expenditure. DCA 4.01c(ii) Accounts C Retain, until at least one year after IDA has Fulfilled Audits received the audit for the Fiscal Year in which the last withdrawal from the Credit Account was made, all records evidencing such expenditures. _ _ DCA 4.01c(iii) Accounts C Enable IDA's representatives to examine such Fulfilled Audits records. DCA 4.0 1c(iv) Accounts C Ensure that stuchl records and accounts are Fulfilled Audits included in the annual audit aid that the report of such audit containis a separate opinion as to whether the statements of expenditure can be relied upoll to support the related withdrawals.  -18- Table 9: Status of Legal Covenants (continued) Credit Covenant Present Agreement Type Status Description of Covenant Comments Section Project CD Prepare a revised training program Fulfilled DCA 6.0 lb implementation satisfactory to IDA DCA 6.O le Financial CP Make budgetary allocations satisfactory Fulfilled to IDA in the budget for Fiscal Year _____________ ._____________ 1987-88 for the operations of the Unit Table 10: Bank Resources - Staff Inputs (Staff Weeks) Stage of Proect cle Planned Revised Actual Through appraisal (Preparation, preappraisal) N.A. N.A. 35.8 Appraisal-+ Board (Negotiation) N.A. N.A. 4.4 Board -+ Effectiveness N.A. N.A. 8.8 Supervision N.A. N.A. 105.0 Completion N.A. N.A. 9.0 Total _ 163.0 N.A. = Not available.  -19- Table 11: Bank Resources - Staff Missions Stage of Month Number of Days in Specialized Performance rating b/ Types of Project Cycle Year Persons Field a/ staff skills Implementation Development Problems represented Appraisal - 03/87 Board Board e Effectiveness Supervision 01/88 1 14 PE Specialist 11/88 1 8 PE Specialist 05/89 1 11 PE Specialist 09/90 1 14 PE Specialist 03/91 1 12 PE Specialist 2 2 Little progress in PE sector legal reform 10/91 I 10 PE Specialist 2 2 Political instability Fin. Analyst 07/92 1 7 PE Specialist 2 2 Political instability 11/92 1 5 PE Specialist 2 2 Political situation 09/93 1 13 PE Specialist 2 2 Extension of closing date, implementation delays 08/94 1 12 PE Specialist S S Completion 07/95 1 12 PE Specialist a/ Some supervision work conducted in conjunction with PESAP. b/ Ratings: I - Insignificant problems. 2 - Moderate problems. 3 - Major problems; appropriate actions being taken. 4 - Major problems; not being addressed adequately. S - Satisfactory. U - Unsatisfactory   APPENDICES 1 Observations of the Borrower on the ICR 2. Borrower's Evaluation 3. The Public Enterprise Sector as of End-December 1994 4. Status of Privatizations and Liquidations 5. Government Arrears to Public Enterprises  Appendix I REPUBLIQUE DU NIGER Niamey, le * m wo MINISTERE DES FINANCES ET DU PLAN DIRECTION DES ENTREPRISES PUBLIQUES Le Directeur des Participations ET DES PARTICIPATIONS et des Entreprises Publiques O 0 0 7 7/MF/P/DEPP Monsieur le Representant Resident de la Banque Mondiale. NIAMEY. Obiet : Rapport d'achevement du PDIEP (CR 1838 NIR) R U le 2 4 AOUT 1995 R6f : V/L N