Argentina - Public Enterprise Reform Execution Loan Project (PEREL)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16036 IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) OCTOBER 1, 1996 Public Sector Management and Private Sector Development Division Country Department I Latin America and the Caribbean Region 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.  CURRENCY EOUIVALENTS Currency Unit = 1 Peso Exchanee Rate I US Dollar I Peso (Since April 1, 1991, the exchange rate has been established by law) GOVERNMENT OF ARGENTINA FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ATAM Metropolitan Area Transport Authority CNT Comision Nacional de Telecomunicaciones ENARGAS Gas Regulatory Agency ENTEL Empresa Nacional de Telecomunicaciones FA Ferrocarriles Argentinos GdE Gas del Estado GUTA Gas Utilization & Technical Assistance Project ICR Implementation Completion Report IDB Inter American Development Bank MEC Ministry of Economy PE Public Enterprise PERAL Public Enterprise Reform Adjustment Loan PEREL Public Enterprise Reform Execution Loan TU Technical Unit UNDP United Nations Development Program YPF Yacimientos Petroliferos Fiscales  FOR OFFICLAL USE ONLY ii IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) Table of Contents Page No. Preface ............................................................ iii Evaluation Summary ............................................................. i . - x PART I PROJECT ILEMENTATION ASSESSMENT A. Background .......................................................1 B. Project Objectives ...................................................... 2 C. Implementation Record and Major Factors Affecting the Project ............... 4 D. Assessment of Outcome and Key Lessons Learned ................................ 16 PART II STATISTICAL ANNEX Table 1: Summary of Assessments .18 Table 2: Related Bank Loans/Credits .19 Table 3: Project Timetable .20 Table 4: Loan Disbursements: Cumulative Estimated and Actual .20 Table 5: Key Indicators for Project Implementation .21 Table 6A: Project Costs ..30 Table 6B: Project Financing ..30 Table 7: Status of Legal Covenants.31 Table 8: Bank Resources: Staff Inputs .32 Table 9: Mssions .32 APPENDIX: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE This document has a restricted disuibution and may be used by recipients only in the performance of their |official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.   iii IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) Preface 1. This is the Implementation Completion Report (ICR) for the Public Enterprise Reform Execution Project (PEREL) in Argentina, for which Loan 3292-AR in the amount of US$23 million equivalent was approved on February 12, 1991 and became effective on June 21, 1991. 2. The PEREL was closed on December 31, 1995, six months later than the original closing date in the Loan Agreement. The final disbursement took place on December 26, 1995, and at that time a balance of US$14,630.38 remained uncommitted and was canceled. 3. The ICR was prepared by the Public Sector Modernization and Private Sector Development Division of the Latin American Region.' The responsible Division Chief is Paul Meo. The prime Task Manager was Alfredo Dammert. 4. Preparation of this ICR was begun during a Bank mission that took place in April 1996. It is based on material in the project file and on perspectives gained by the Division in its continued involvement in technical assistance projects and its support of numerous privatization operations. The borrower contributed to the preparation of the ICR by commenting on the draft ICR and by preparing its own evaluation of the Project's execution, which has been reproduced (unedited) as the Appendix. 1 The author of this report is Mr. Claudio Pardo (Consultant).  I  IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) EVALUATION SUMMARY A. Introduction 1. This US$23 million Public Enterprise Reform Execution Loan (PEREL) financed technical assistance to accompany the Public Enterprise Reform Adjustment Loan (PERAL), a US$300-million-equivalent adjustment operation that supported the privatization and restructuring of bulky, inefficient and ineffective public enterprises operating in the telecommunications, railways and oil and gas sectors of the Argentine economy. Further, PEREL was aimed at strengthening the Government's administrative and technical capabilities to carry out its Public Enterprise (PE) reform. It provided long- term financing for the provision of consulting services, training and goods. R Project Objectives 2. The project objectives as stated in the President's Report were to support: (a) the total or partial privatization of four major PEs in Argentina as well as improvement of the financial viability and service quality of non-privatized business units; (b) the preparation of further privatization programs; and (c) the strengthening of the institutional and regulatory framework for the sectors in which PEs operate. Another objective was to engender competition within the private sector which had thrived financially under the protective shield of government regulations, which had encouraged PE inefficiency. 3. These general project objectives provided the basis for the definition of five components under which the list of tasks, expected to be financed under PEREL, were grouped: (a) the PE Reform Framework component dealt with issues that had an across- the-board relevance and that were the responsibility of the Ministry of Economy (MEC), the moving force behind the PE reform process; (b) the Telecommunications Sector Reform component supported the sale of ENTel and the establishment of the National Telecommunications Commission; (c) the Railways Sector Reform was designed to facilitate the privatization of "Ferrrocarriles Argentinos" (FA) and the establishment of the  ii railways industry's regulatory framework; (d) the Oil and Gas Sector Reform component supported the process of privatization/restructuring of "Yacimientos Petroliferos Fiscales" (YPF) and of the pipelines and distribution networks of "Gas del Estado" (GdE) plus the strengthening of the Government's regulatory capabilities in the hydrocarbon sector; and (e) the Other Assistance component included funding to prepare and carry out privatization and restructuring activities in seven well identified PEs, plus some generic funding for the same purpose. 4. The Bank and the borrower understood from the outset that, to make the process of restructuring and privatization of PEs possible, the Government required massive outside support from foreign and local experts, such as technical specialists, investment bankers, auditors and attorneys, which could not be provided by the Government's own pool of human resources. Also, crucial information systems had to be created or improved and financing for the necessary equipment identified. 5. The PE reform took place in a charged atmosphere of an economic crisis but against the background of a strong political will and a consensus behind actions that could address macroeconomic instability swiftly and effectively. A deep reform of the public sector, including a thorough program of privatization of public services and enterprises, was seen by the Government as central to these efforts. The Bank, on the other hand, had accumulated a wealth of knowledge and information in prior years during unsuccessful efforts to convince the Alfonsin Administration to carry out substantial PE reform. The needs for technical assistance were also well documented at the Bank. However, the reality remained that the accelerated process of PE reform started by the Menem Administration begun without a detailed or even a complete blueprint. This was understandable, given the urgent need for a speedy implementation and the inexperience in reforms of such magnitude. Furthermore, from the Government's perspective, it was important to take advantage of the window of opportunity for PE reform that had opened up on the political front. 6. In this context and with today's hindsight, PEREL's detailed list of tasks and their timetable was, perhaps, too ambitious as it tried to identify beforehand the use of practically every dollar budgeted. At the end, the actual matrix of tasks supported by the Project looked quite different from the one originally proposed (see Tables 5 and 6A in the Statistical Annex). A higher degree of flexibility in the structuring of the Project could have facilitated the procurement of goods and services associated with it, particularly given the complexity and dynamic nature of privatizations. All this added extra work and some delays to the implementation stage. During project preparation, however, the Bank memories of earlier disappointments with PE privatization and restructuring--and loose definitions of technical asisstance loans--were still quite fresh and, understandably, the strategy of maximum level of task identification was followed. It was indeed the merit of the Government's execution capabilities combined with the Bank's prompt authorizations of change that allowed this project to achieve its stated objectives and provide solid support to the PE privatization effort, which reached well beyond its original goals.  iii C Implementation Experience and Results 7. It was well recognized from the outset by the Government and the Bank that the former did not have in place the capabilities to administer properly the implementation of the technical assistance supported by PEREL. To create the necessary conditions for project implementation, the Loan Agreement included provisions for the borrower to: (a) maintain at MEC a Project Coordinating Unit; (b) maintain Technical Units in all Executing Agencies; and (c) enter into a contractual arrangement, satisfactory to the Bank, with a procurement agent for the Project. 8. The specially created Coordinating Unit had a highly satisfactory performance and was crucial for the effective and efficient implementation of the Project. Its organizational chart was agreed in the context of the Loan Agreement. It had a Director that provided the necessary political connection to the Government's economic team and a full-time Deputy Director in charge of the day-to-day operation. This Unit took care of all the necessary administrative arrangements for the hiring of consultants and the procurement of goods. Also, it reviewed reports and the work of consultants and made sure to get feedback from the Government and the various Executing Agencies associated with PEREL. Furthermore, it provided a very useful direct link to the Government for the Bank staff, which facilitated overall project execution and supervision. 9. Another factor in the successful implementation of the Project was the establishment of a Technical Unit in FA and the use of an experienced unit that existed already in YPF. Besides the Ministry of Economy (MEC) these were the two principal Executing Agencies for PEREL. The units at Ferrocarrices Argentinos (FA) and Yacimientos Petroliferos Fiscales (YPF) were in charge of identifying, contracting and monitoring the activities required for the restructuring and privatization in the railways and hydrocarbon sectors, respectively. Both Technical Units were ably directed and active, although the one at YPF spent none of the allocated project funds for YPF as it used its own resources, grant money and funding from a previous technical assistance Bank loan (the 1985 Gas Utilization and Technical Assisstance Project (GUTA), Loan 2592-AR) to secure the technical support required for the privatization and restructuring of YPF. Its contribution to PEREL was in the execution of technical assistance for the privatization of Gas del Estado (GdE) and the development of the regulatory commission created to supervise the newly privatized gas sector. On the other hand, the impact of PEREL's funding on the work of the Technical Unit (TU) at FA was quite significant. Most of the work carried out by this well-managed Unit was paid for by PEREL, making the railways component by far the largest recipient of funds among the project's components. 10. The Government relied on the services of United Nations Development Program (UNDP) to provide the procurement services required by the Project. This requirement of a dedicated procurement agent had more to it than the recognition of a lack of experience by the Executing Agencies with the Bank's procurement practices. The purchase of goods and the hiring of consultants required to execute a technical assistance project such as PEREL, normally ran into serious problems in Argentina. Besides a variety of budgetary difficulties encountered when trying to hire outside experts at market rates,  iv there was the issue of staging timely and efficient bidding processes without getting caught in a myriad of legal disputes. To this day the Argentine Government has not resolved the tax, administrative and legal issues that impedes it to carry out effectively its own procurement in connection with Bank loans. Thus, the solution traditionally has been the use of a procurement agent which allowed a higher degree of hiring freedom and immunity from frivolous legal actions. 11. Although the use of an outside procurement agent does not appear as having been a major factor affecting the implementation of the Project, there is a general feeling among participants that adding another layer of decision making not only increased the cost but also delayed the contracting process. The point about the cost of using an outside procurement agent is not trivial, as illustrated by the fact that US$1.13 million were spent in the provision of these services for PEREL or 4.9% of the loan. Originally, the Bank Loan did not explicitly budget funding to cover procurement services, but during implementation the Bank agreed to include them when it became apparent that it would be difficult to secure the needed funds from other sources. 12. As already explained, the most active component of PEREL was the Railways Sector Reform, a component that followed closely the original work program, although this was expanded during implementation as the Government decided to add to the program the privatization of the metropolitan passenger services. At the end, some US$1 million of PEREL funds were spent in the restructuring and privatization of the metropolitan railways lines. The extension of the privatization drive beyond FA made it necessary also to concentrate additional funding for technical assistance required for the setting up of a broader regulatory framework for the sector. 13. PEREL reviews and anlysis were crucial to define the Government's strategic plan followed in the privatization of railway services. It was based on a program of concessions of cargo lines and of the urban passenger services in Greater Buenos Aires. PEREL support was quite successful, although there were two areas which used significant amounts of the Project's resources, where results have been slow in coming. One was the program to divest the Government of FA's vast real estate assets. Here the Government decided to change strategy and centralize the process of disposing of residual assets originating from all privatized PEs in a specialized office at MEC. The other delayed program is the putting in place of a fully operational authority to regulate the sector and administer the Government subsidies still going to the Buenos Aires metropolitan transportation services. The problem here is basically of a political nature. In fact, the new Metropolitan Area Transport Authority (ATAM) was created by decree as part of PERAL conditionality, but Congress's approval of a Law turned out to be elusive. As an interim measure, however, the TU at FA has taken over and is carrying out the day-to-day supervisory and regulatory responsibilities connected with metropolitan transportation services. 14. In the case of the PE Reform Framework component there were significant changes during the implementation of the Project. These came as a result of a change in the Government's own strategy towards a more direct handling of some of the central and  v most sensitive issues of the PR reform, such as strategic PE privatization planning and the fiscal impact and human resources implications. 15. The Telecommunications Sector Reform component had two tasks, one of which was quite challenging: the achievement of full operational efficiency of the CNT, the regulatory agency of the newly privatized telecommunications sector. Although significant progress was achieved in initiating this regulatory agency, even today CNT has yet to reach full operational efficiency. Important regulatory issues remain unresolved, while the information system to assess the performance of licencees requires significant upgrade. 16. As already explained, the resources allocated to the Oil and Gas Sector component were used on tasks related to the gas industry. In this case, able management and the strong support of YPF, and prior as well as ongoing technical assistance financed by the Bank, had more regulatory impact and today ENARGAS, the regulatory entity for the sector, is a reality. The contribution of PEREL plus a strong body of earlier Bank work on the sector, which also relied on the prior technical assistance components of the GUTA project, greatly helped to shape the design of the regulatory environment and of the industry as well. 17. A list of tasks added during project implementation was for the benefit of the privatization of enterprises under the umbrella of the Ministry of Defense. This was related to conditionality associated with PERAL II, the second sectoral adjustment loan targeted at defense-related public enterprise reform. Six tasks were included in this new component of US$1.2 million, of which the bulk went to cover the retainer fees of the financial advisors involved in the privatization of two petrochemical plants: Bahia Blanca and General Mosconi. 18. Practically nothing was disbursed in connection with the privatization or restructuring of the seven enterprises included in the original Other Assistance component of the Project. In part this was because PEREL was used as a residual source of funding, although it was not designed originally for this purpose. In practice, however, due to the massive nature of the privatization effort, several other funding sources were required, some of which were more timely and lent themselves more easily to support the restructuring/privatization of PEs originally included in PEREL's list of tasks. 19. One component that merits some special comments was developed ex-post to project preparation. This component allowed MEC to update the hardware and software required to develop a computerized on-line information system at this Ministry. About US$2.5 million from PEREL went to purchase the computing and related equipment and the necessary software to develop two programs: (a) an electronic central filing system for documentation maintained at MEC, including that related to residual PEs; and (b) an information system for MEC with on-line connections to a central server. 20. Originally PEREL budgeted US$800,000 for the purchasing of goods, mostly computer equipment for the Buenos Aires metropolitan railway lines and the two regulatory agencies foreseen to be needed for the railways sector. However, no  vi equipment was actually purchased for these purposes. This funding plus some other originally budgeted for consulting services and the repayment of the Project Preparation Facility advance were reallocated to the programs being developed at MEC. These programs were carried out late in the implementation stage, when the demand for technical assistance from other components had subsided. 21. To some extent the equipment authorizations that followed were consistent with the objective of providing the Government with tools to adequately assess and monitor the fiscal and other implications of the PE reform program. However, in the case of the on- line information system installed at MEC it is difficult to justify the expenditure solely on the basis of the project objectives as stated in the Loan Agreement. Independently of the merits of the system installed, which in any event appears to be quite successful and very cost-effective, the Bank probably would have been better served by trying to broaden first the objectives of the Project to include among them the general improvement in the effectiveness and productivity of MEC. As it stands, a substantial portion of the equipment purchased by MEC with PEREL funding only partially and indirectly contributed to the achievement of the objectives of the Project. 22. In summary, had it not been for the some of the issues raised in connection with the computing equipment purchased by MEC, the implementation record on balance could have been described as highly satisfactory. From the perspective of the borrower, although there were some delays in getting the project moving, in the end the technical assistance provided by PEREL was quite effective in supporting a broader and deeper privatization program than the one that originally seemed possible. 23. Bank Performance: PEREL's own success was very dependent on the success of PERAL. Judged from a historical perspective, a sectoral adjustment operation supporting PE privatization and restructuring in Argentina was highly risky for the Bank. This had been tried in the past and the effort had been unsuccessful. Besides, there was little experience in Argentina when it came to the privatization of public enterprises. There was, then, a double risk for PEREL, that of PERAL plus its own intrinsic risks as a technical assistance operation. 24. Although the success of PERAL gave no assurances on the outcome of PEREL, the fact that the Government was able to move forcefully with its PE reform program no doubt was a great plus towards the success of PEREL, whose fate was intertwined with that of PERAL. However, it was because of PEREL's achievement in meeting its goals, its flexibility in adapting to changing circumstances and its effectiveness in supporting the process of PE reform that qualifies the overall Bank performance as satisfactory. Furthermore, it could be said that the successful outcome of PERAL, particularly in connection with the restructuring and privatization of the railways sector, also relied on the effective support provided by PEREL. 25. As in the case of PERAL, the identification of PEREL benefited greatly from the large amount of sector work done by the Bank and associated consultants in years prior to the preparation of the Project. This proved valuable for the Government in its efforts to  vii define the specific goals and details of its PE reform program and those of the accompanying technical assistance program. From this perspective, the identification work done by the Bank in connection with PEREL was highly satisfactory. 26. During preparation the Bank concentrated on defining a detailed work plan for the long list of tasks expected to be carried out during project implementation. Many were singled out for inclusion in an Implementation Program, which included specific start and completion dates and that became part of the Loan Agreement (Schedule 5). From today's perspective, this effort was mostly wasted since this Implementation Program became out of touch with the speed and dynamics of the privatization process soon after the project started to be implemented. Perhaps a more fruitful effort during project preparation by the Bank would have been to concentrate on an intermediate stage, that of translating the main project objectives into a clearer and more detailed list of goals to be achieved. This could have been reinforced with the definition of a flexible work plan, which included only the principal tasks identified plus a set of procedures for further task selection. Other specific tasks, then, could have been agreed with the borrower during implementation and added to the work program as needed. Although the approach taken at the time of preparation is understandable from the perspective of early experience with privatization in Argentina, this certainly caused the implementation process to lose clarity and the supervision work to become more difficult to follow. 27. On the other hand, project implementation was greatly facilitated by the decision of the Bank to insist on putting in place from the beginning a well though out administrative structure for project execution. This was a merit of the Bank's project preparation process. 28. During implementation, there were two areas in which Bank decision making should have been more forcefully applied. Rather than canceling non-committed funds, the Bank decided to accept requests made by the borrower to purchase computing equipment to carry out a program only marginally related to the original objectives of PEREL. Secondly, the Bank did not insist with the Government to maintain records on the counterpart funds it contributed to the Project, which were substantial in some cases, such as those of the privatizations that took place in the oil and gas industries. 29. Borrower Performance: One of the merits of the Menem Administration at the time of project preparation was to have had an economic team not only willing to take strong measures to alleviate the public sector crisis but to be ready to move forcefully and decisively ahead once a political decision was made. The PE reform program benefited from this. Also, there was an unusual degree of continuity in the Government's economic team which executed the project, which certainly helped with the preparation and implementation of PEREL. Furthermore, it was very useful that the Director and Deputy Director of the Project Coordinating Unit were involved from the initial stages of the project. 30. Although implementation of PEREL started with a few months' delay, once the Project became operational the solid performance of the Coordinating Unit at MEC and  viii the Technical Units in the Executing Agencies soon started to show the advantages of the framework chosen for administering project implementation. During the almost five years the Coordinating Unit worked for the Project, some 55 contracts were signed with consulting firms and 68 with individual consultants. Today the Coordinating Unit continues to operate under the same Deputy Director providing support for other Bank projects. 31. All seven covenants in the Legal Agreement that imposed some specific responsibilities during implementation were fulfilled by the borrower, although some with delays and in two cases with modifications agreed with the Bank. The list and record of compliance is included in Table 7 of the Statistical Annex. 32. On the broader implementation issues the most striking feature is the much slower than anticipated process of institution-building in connection with the regulatory entities of the important telecommunications and urban transport sector. However, this can be only partially blamed on deficiencies in the project implementation process. Rather, the difficulties had a great deal more to do with the delaying impact of the political and legal turmoil that developed among competing pressure groups following the privatization of these two sectors. Although far from justifying the Argentine case, the experience in other places of the world shows that the process of building new regulatory institutions is one of the most difficult to accomplish, particularly when there is no tradition and a tight schedule to follow, as it was the case for these two regulatory agencies. D. Summary of Findings, Future Operations and Key Lessons Learned 33. The overall assessment of the outcome of the Project is satisfactory, particularly because the broader project objectives were achieved. This was a high-risk project that required on the part of the borrower a great deal of political commitment for an ambitious and difficult public enterprise reform program. By its very nature the PE privatization process was a one-time big historic event, for which it is impossible to find enough experience. Thus, this was a demanding project from the perspective of its goals as well as its implementation. Furthermore, it required a joint and well coordinated effort on the part of the PERAL and PEREL teams, plus a high degree of responsiveness on the part of the Bank to accommodate the project to the changes that took place in the borrower's circumstances and priorities during the project implementation. Had the Bank staff not shown flexibility during implementation, the Project would undoubtedly have been less effective in providing support to the impressive transformation of the Argentine economy brought about by the profound changes in its PE sector. 34. One general lesson of this technical assistance project is that it pays to concentrate during project preparation on the design of a sound administrative structure for this type of project. However, more thought should be given in the future to the high transactions costs faced by the borrower in the delivery of the technical assistance to the final user. The loan size for this type of operation is normally quite small by Bank standards, so its administration can easily absorb a high portion of the funds committed by the Bank. In the case of Argentina the problem is aggravated because of the numerous difficulties that exist  ix to solve the issue of procurement satisfactorily. Special efforts should continue to solve the legal, tax and budgetary issues that impede the adoption of more cost-effective procurement formulas in Argentina. Clearly, the use of procurement agents is not cost- effective. Moreover, another related lesson of PEREL is that a special effort should be made during project preparation to estimate more thoroughly the direct costs of administering the technical assistance by the borrower, whether the associated Bank loan finances them or not. In the case of PEREL such evaluation was only partially done and then, when the issue of the cost of the procurement agent and the external auditors arose, funds had to be reallocated from other components of the Project because other sources of funding could not be found. 35. The implementation of most technical assistance projects requires the hiring of consulting services. PEREL was not different in this respect since 86% of the disbursed funds went to pay for such services. The experience with the Project was that consulting firms as a norm are quite reliable and efficient but that their services have a unitary cost (consultant/month) considerably higher than that of individual consultants. These, on the other hand, showed a much higher variance in terms of their reliability and quality of work. Thus, considerably more time and effort was spent on their selection. The contracting process for individual consultants also is more time-consuming simply because of the larger number of contracts. These are some of the same reasons why the Bank prefers that borrowers hire consulting firms. Supervision also is facilitated with this strategy. It should be highlighted, however, that in the case of PEREL there was a satisfactory experience with individual consultants in the case of FA, particularly when consulting services were required for prolonged periods of time. It would have been very expensive to have had the same steady flow of technical support had consulting firms been hired to do the job. FA had a limited amount of resources to do a huge privatization job, so the point was quite relevant. Indeed, the privatization of railway services does appear to have been on the low side when compared with the privatization of other PEs supported by PEREL. However, it should be kept in mind that the management team at the Technical Unit of FA was unusually able, which facilitated the task of coordinating a large contingent of individual consultants, perhaps making the experience hard to replicate under more standard circumstances. 36. Another lesson confirmed by PEREL is that, as a general rule, there is a tendency by borrowers to overestimate their capacity to absorb technical assistance. PEREL shows that even in the context of a successful adjustment program and a sound project management team such capacity is limited. Moreover, once the loan amount is set the borrower does tend to see it as a disbursement goal rather than as a ceiling. On the other hand, the Bank staff finds it difficult to say no to authorization requests coming out of good executing agencies. Authorization of redundant funds for tasks marginally related to a project's objectives easily becomes a way to reward good performance. Although it is difficult to say what the rule should be, a special effort should be made during the preparation stage of a technical assistance operation to assess the absorptive capacity of the executing agencies, ideally based on some parameters derived from the Bank's experience. Also, there should be an agreed timetable with the borrower, to be coordinated with the supervision schedule, to exchange views over the projected  x commitment profile and the actions that should follow if the size of the loan, the closing date or both merit a revision. 37. Finally, there is one lesson that has to do more with PERAL. A technical assistance operation, however effective, cannot by itself achieve results in matters that require decisive political action or complex decisions. This is clearly a job more attuned to adjustment operations. The incomplete jobs in the case of the regulatory agencies for the telecommunications and the urban transport sectors is a good example. In both cases it would have been productive if the sectoral adjustment program could have continued beyond the privatization of ENTel and FA and included conditionality associated with further operational progress of the regulatory entities. The technical aspects of regulation for these two sectors were reasonably covered by PEREL, and it would have been ideal to have been able to count on, say, an additional tranche of PERAL to tie down solid progress on the regulatory front of the PE reform.  IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LoAN 3292-AR) I. PROJECT IPLEMENTATION ASSESSMENT A Background 1. PEREL was the technical assistance loan for the equivalent of US$23 million made to the Argentine Republic to accompany the Public Enterprise Reform Adjustment Loan (PERAL). This latter loan of US$300 equivalent supported one of the policy centerpieces of the first Menem Administration: the reform of a bulky, inefficient and ineffective public enterprise sector. The main objectives of this reform were to: (a) reduce the role of the state; (b) increase production and improve quality of service; and (c) promote private sector investment. In practice, the Government tried to achieve these objectives by the adoption of policies directed at: (i) privatizing PEs whenever possible; (ii) strengthening the Government's oversight as a shareholder and restructuring those PEs which could not be privatized; (iii) setting clear rules of the game and transparency of control by establishing regulatory processes and agencies; and (iv) rationalizing labor management by reducing employment commensurate with efficient operations, eliminating antiproductivity provisions in contracts and practices, and limiting the role of labor unions in PE management. 2. In this context, PEREL was seen as a further pillar to strengthen the Government's administrative and technical capabilities to carry out its PE reform program. PEREL was a vehicle to provide financing for the contracting out of services and equipment necessary for the implementation of the reform, mainly for the achievement of PERAL objectives but not limited to them. 3. Originally, PEREL was going to be one more component of PERAL, an idea that was abandoned when it became clear that effective technical assistance support for the PE reform program required a special focus, separate management and a longer execution period than the timetable advisable for the policy components of PERAL, which was designed as a relatively quick-disbursing balance-of-payments support operation linked to privatizations in the telecommunications, railways and oil and gas sectors. As explained in  2 detail in the PERAL Project Completion Report (No. 13457), the great majority of the disbursement conditions were fully met in a timely manner, with disbursements of the Railway and Hydrocarbon Tranches in December 1992 and February 1993, respectively, which led to an earlier closing of this policy operation in March of 1993. PEREL did go beyond the specific privatization objectives of PERAL, and part of the financing it provided was targeted to support future extensions of the PE reform program. Ba Project Objectives 4. The project objectives as stated in the President's Report were to support: (a) the total or partial privatization of four major PEs in Argentina as well as improvement of the financial viability and service quality in non-privatized business units; (b) the preparation of further privatization programs; and (c) the strengthening of the institutional and regulatory framework for the sectors in which PEs operate. Another objective was to engender competition within a large segment of the private sector, which had thrived financially under the protective shield of government regulations that encouraged PE inefficiency. 5. The generality of the project objectives was converted into a detailed list of tasks budgeted for financing under PEREL. Indeed, the identified list was quite long and specific, as it grouped the tasks to be financed into five main project components: a) PE Reform Framework, the component which included tasks of across-the-board relevance in the privatization effort and that were the responsibility of the Ministry of Economy (MEC), the moving force behind the PE reform process; b) Telecommunications Sector Reform, the component set to support the sale of ENTel and the regulatory development of the National Telecommunications Commission; c) Railways Sector Reform, the component with the biggest budget (some 31% of the Bank Loan) and with the longest list of identified items, which was designed to facilitate the privatization of FA facilities and the establishment of the railways industry's regulatory framework; d) Oil and Gas Sector Reforrn, a component that supported the process of privatization/restructuring of YPF and of the pipelines and distribution networks of GdE plus the strengthening of the Government's regulatory capabilities in the hydrocarbon sector; and e) Other Assistance, a component that included funding to prepare and carry out privatization and restructuring activities in seven other well identified PEs, together with generic budgeting for the same purpose but without the singling out of the recipient PEs (although the Bank's hope was that these funds could be used to facilitate the privatization of enterprises in the Defense Complex, as actually occurred). 6. The need to provide technical assistance for the privatization effort was clear from the outset of the reform process, and the Bank gave a strong signal of support by helping to secure substantial funding for project preparation from several sources. It was understood that to make privatization possible, the Government required continued massive outside support from foreign and domestic experts, such as sectoral specialists, investment bankers, auditors and attomeys, which could not be provided in the scale required by the Government's own pool of human resources. Also, crucial information  3 systems had to be created or exiting ones had to be improved, which required of additional financing. 7. Within this framework, PEREL was clearly focused on making these necessary inputs available to the process of PE privatization. However, the detailed design of the Project was perhaps too ambitious, as it tried to identify beforehand the use of practically every dollar budgeted, which during implementation ended up causing delays in the approval and procurement process. This imposed additional work during implementation, when rapidly changing conditions in the privatization arena meant that significant changes and additions had to be made to the various tasks of PEREL. As a consequence, there was quite a difference between the original detailed task matrix and the actuals after implementation (as is clearly illustrated by the breakdown in Table 6A of the Statistical Appendix). 8. It has to be kept in mind that PEREL was part of a much larger package of financial support provided by the Bank to assist the massive public sector reform program of the first Menem Administration. Such reform took place in a charged atmosphere of a confidence crisis but against the background of a strong political will and a consensus behind actions that could address macroeconomic instability swiftly and effectively. A deep reform of the public sector, including a thorough program of privatization of public services and enterprises, was seen by the Government as central to these efforts. The Bank had already tried, although unsuccessfully, to convince the prior Alfonsin Administration to carry out substantial PE reform. Thus, there was a great deal of accumulated knowledge on the necessary reforms and the needs for technical assistance on the part of the Bank staff. However, the reality remained that the accelerated process of reform started by the Menem Administration began without a detailed or even a complete blueprint. This was understandable, given the urgent need for a speedy implementation and the inexperience in reforms of such magnitude. Furthermore, from the Government's perspective, it was important to take advantage of the window of opportunity for PE reform that had opened up on the political front. 9. With today's hindsight, it could be argued that the design of PEREL should have taken a more pragmatic route, introducing from the beginning a higher degree of flexibility in the detailed list of tasks eligible for financing, so that this technical assistance project could have more easily adapted to the changes taking place in an exceedingly dynamic process, as it was the simultaneous privatization of so many publicly-held enterprises. However, the Bank clearly favored at appraisal a maximum level of task identification. Perhaps determining factors were earlier disappointments with PE reform in Argentina and with the implementation of prior technical assistance programs, which strongly advised in favor of a much more detailed design and a tighter legal agreement for PEREL. At the end, it was the merit of the Government's implementation record combined with the prompt change-authorizations provided by the Bank during implementation that allowed this project to achieve its stated objectives in a substantive way. Indeed, PEREL was able to provide solid support to the PE privatization effort which reached well beyond its original goals.  4 C. Implementation Record and Major Factors Affecting the Project 10. Several factors influenced project implementation. The most determining one was the dynamics of the privatization process itself, which at the end went much further and reached a faster pace than most anticipated. The major risks seen at the time of the President's Report were that..." key activities may not be implemented as originally planned due to technical difficulties, political opposition, and pressures from private parties." However, none of these risks actually prevented project implementation. On the contrary, the political momentum of the PE reform accelerated rapidly during project execution, when one of the major risks became the possible lack of technical ability on the part of the Government to keep up with the desired pace of change. Here, PEREL became an important player and part of the reform process, particularly in the area of railway reform. As commented on before, there was a need during implementation to constantly adapt the detailed lists of tasks to cover the new needs arising from the unfolding of the privatization process. In this context, the good rapport that existed throughout project implementation between the Bank, the Coordinating Unit at MEC and the Technical Units of the principal Executing Agencies was an essential ingredient in the results acheived. 11. It was well recognized from the outset by the Government and the Bank that the former did not have in place the capabilities to administer properly the implementation of the technical assistance supported by PEREL. To create the necessary conditions for project implementation, the Loan Agreement included provisions for the borrower to: a) maintain in MEC a Project Coordinating Unit with functions and responsibilities during project execution satisfactory to the Bank; b) maintain qualified staff in adequate numbers as counterparts of the consultants employed under the project in all Executing Agencies; and c) enter into a contractual arrangement, satisfactory to the Bank, with a procurement agent for the Project. 12. The specially created Coordinating Unit had a highly satisfactory performance, and was crucial for the effective and efficient implementation of the Project. Its organizational chart, agreed in the context of the Loan Agreement, had a Secretary or Sub-secretary of MEC as its head --which provided the necessary political connection to the Government's economic team-- and a full-time Deputy Director in charge of the day-to-day operation of the Unit. This Coordinating Unit took care of all the necessary administrative arrangements for the hiring of consultants and the procurement of goods. Also, it reviewed reports and the work of consultants and made sure to get feedback from the Government and the various Executing Agencies associated with PEREL. Furthermore, it provided a very useful direct link to the Government for the Bank staff, which facilitated overall project execution and supervision. 13. Another important factor in the successful implementation of the Project was the establishment of a Technical Unit in FA and the use of an experienced unit that already existed in YPF. Besides MEC, these were the two principal Executing Agencies for PEREL. The units at FA and YPF were in charge of identifying, contracting and monitoring the activities required for the restructuring and privatization in the railways and  5 hydrocarbon sectors, respectively. The Technical Unit at FA was by far the most active in the use of PEREL funds, since it was involved in the execution of some US$8 million financed by this loan, or about US$900,000 more than originally estimated. The Technical Unit at YPF worked very actively also, but it spent none of the allocated project funds for YPF as it used its own resources, grant money and funding from the GUTA loan to secure the technical assistance required for the privatization and restructuring of YPF. The contribution of YPF's Technical Unit to PEREL was in the execution of technical assistance for some US$2.7 million required for the privatization of GdE and the development of ENARGAS, the regulatory commission created to supervise the newly privatized gas sector. 14. The need for an outside procurement agent had its origin in part in the initial lack of expertise of MEC with the procurement norms of the Bank. The issue however was more complex, since even after that expertise was acquired by the Coordinating and Technical Units, the Government still preferred to rely on the services of an international agency to do the job of procurement agent for PEREL. This problem is a recurring one and to this day the Government still needs to resolve the tax, administrative and budgetary issues that make it undesirable for it to handle procurement. For tax and legal immunity reasons, these traditionally have been contracted out to UNDP. 15. Although the use of an outside procurement agent does not appear as having been a major factor affecting the implementation of the Project, participants considered that adding another layer of decision making not only added to the cost but that inexorably delays did tend to occur in the contracting process. The point about the cost of using an outside procurement agent is not trivial, as illustrated by the fact that US$1.13 million (4.9% of the loan) were spent in the provision of these services for PEREL. This figure puts an upper limit in this case to the fiscal cost associated with the non-resolution of the procurement issue by the Government, a service which technically speaking could easily be handled in-house, say for example by the Coordinating Unit itself --most likely at a fraction of the current cost. 16. PEREL originally did not budget funding to cover procurement services. This could have caused project delays had the Bank not accepted ex-post to include these expenditures as part of the Project. There was a dated covenant that required the borrower to hire a procurement agent by early 1991, and at the time it would have been quite difficult on short notice to secure resources for this purpose from the Government's general budget. The same could be said of the payments made to PEREL's external auditors (US$193,222), whose services were eventually paid out of PEREL funds, even though they were not included in the originally negotiated budget of the Project. All told, these outside transactional costs accounted for 5.7% of the total amount disbursed under PEREL. 17. As the case above shows, the detailed list of tasks to be financed by PEREL changed during implementation. A description of the enlarged list of various tasks actually financed is given in Table 5 of the Statistical Appendix. By far the most active component was the Railways Sector Reform which followed closely the original work  6 program. Nonetheless, some of the programmed tasks were abandoned once the generalized privatization of railway services made them unnecessary, while new ones were added when the franchising to private parties of FA and metropolitan transportation services made it necessary to concentrate efforts on setting up the regulatory framework for the sector. At the time of approval of PEREL the railways reform was considering only the privatization of cargo services, but not of the metropolitan passenger services. Some US$1 million from PEREL was spent by the TU at FA in technical assistance to support the restructuring and privatization of the metropolitan railways system. Reviews financed by PEREL were crucial to define the strategic plan, and resulted in perhaps the largest privatization of railways in such a short period of time in world history. Today, FA is going through a liquidation process and it is out of the transportation business altogether. On the other hand, the newly-privatized metropolitan passenger system transports today over 400 million paying passengers a year, of which about two-thirds are explained by increased demand. Better quality of service and management of the system as well as increased demand from the general public have made it possible to have huge gains in labor productivity. Services continue to be provided at a similar price than before their concession to the private sector. Furthermore, the public sector has been able to save hundreds of millions of pesos per year now that most of the railway system is operated privately. 18. Two areas on which a significant amount of PEREL resources were used, and where results have been slow in coming, are: a) the divestiture by the Government of FA's vast real estate assets; and b) the putting in place of a fully operational authority to regulate the sector and administer the Government subsidies still going to the Buenos Aires metropolitan transportation services. In the case of the FA's real estate, the Government decided to centralize the process of disposing of residual assets originating from all privatized PEs in a specialized office at MEC. The unexpected complexity and the magnitude of the task that resulted from the across-the-board privatization of PE's led the Government to change its original strategy. The divestiture of FA real estate assets, then, became part of a larger problem which was outside the scope of PEREL. The second problem is basically of a political nature. In fact, the new Metropolitan Area Transport Authority (ATAM) was created by decree as part of PERAL conditionality, but Congress's approval of a Law turned out to be elusive. However, it should be pointed out that from a practical viewpoint the Technical Unit at FA is currently acting de facto as the metropolitan railways authority. They have now a technical staff that controls and supervises more than 4,000 daily train departures in Greater Buenos Aires. Furthermore, they are playing the role of active counterpart to private concessionaires, which are legally committed to an investment program in the sector of some US$1,500 million during the next few years. Of that amount, there are some US$500 million under execution already. 19. In the case of the PE Reform Framework component, the final figure spent was US$2 million or about half the amount originally budgeted. But these numbers are actually deceiving, since most of the new tasks added during implementation and carried out by the then newly-created Privatization Secretariat and the Finance Secretariat -both part of MEC-- addressed issues similar to those included in the original work program under the PE Reform Framework component. What took place was a change in the  7 Government's strategy towards a more direct handling of some of the central and most sensitive issues, such as strategic PE privatization planning and the fiscal impact and human resources implications of the privatization drive. This, plus the need of the policy- making Secretariats at MEC to be fully informed, made it advisable to transfer the responsibility of implementing some of these tasks closer to them. All told, the original PE Reform Framework component plus the two new ones executed by the Secretariats at MEC explain some US$4.9 million or about 21% of the total funds disbursed under PEREL (computer equipment not included). 20. The Telecommunications Sector Reform component had two tasks, one of which was quite challenging: the initiation of full operational efficiency of the CNT, the regulatory agency of the newly privatized telecommunications sector. In 1990 the Government had awarded the telecommunications system to two private consortia to operate in the southern and northern regions of the country, respectively. At the time PEREL became effective in June of 1991 there was a clear need for the full implementation of the new regulatory agency for the sector, since there were many complex technical issues that could only be settled adequately and equitably by the issuance of Government regulations. The support to CNT by PEREL started early in 1992 and continued only until the third quarter of 1993, when consulting work on its medium-term strategic plan was completed. Although significant progress was achieved, even today CNT has yet to reach full operational efficiency. Important issues such as the imbalance between the local and- long-distance tariff structure, the norms for interconnection of providers and some pending issues related to cellular telephony remain to be resolved by the regulatory agency. Furthermore, CNT still has to put in place an effective information system regarding the performance of the licensees it is supposed to supervise. 21. In this light, PEREL was not able to achieve the main objective of its telecommunications component. This was certainly not caused by a shortage of funding, since only US$1.9 million were actually spent of the US$3 million original budgeted for this task under PEREL. Some participants in the process attribute part of the problem to the fact that CNT was created by decree and, thus, it lacked the solid legal foundations that an organic law could have given it. However, at the core the problem is more likely to have been a continued political predominance by the highest levels of govenment. CNT also lacked the continuity and presence of a sound and independent management team, problems which were compounded by poor staffing decisions. This resulted in an inability of CNT to utilize fully the resources available to it under PEREL, which could have helped to solve urgent needs of the agency in the accounting, legal, financial and technical areas. Also unfortunate is the fact that the recurrent management crises in the agency have resulted in a lack of institutional memory which has prevented it from taking proper advantage even of the technical assistance earlier received under PEREL. 22. As already explained, the resources allocated to the Oil and Gas Sector component were used on two tasks related to the gas industry: the privatization of natural gas pipelines and the distribution networks of GdE, and the strengthening of the Government's regulatory capabilities of the industry. Some US$2.7 million was disbursed  8 from PEREL for these two purposes out of the US$3.5 million originally allocated to the whole component. In the case of the first task, PEREL funding went solely to pay for legal services required in connection with the privatization of GdE, a process that was orchestrated, managed and financed mostly by YPF, whose President was also in charge of GdE. The successful privatization of GdE in ten separate units (two of transmission and eight dedicated to the distribution of gas) has created basic conditions for a more competitive and efficient industry and for the sustainability of market prices closer to international levels, a major concern of the Bank from the outset. The second task financed under this component also should contribute to the endurance of these gain, and at the same time protect the mass of consumers from the dangers of oligopolistic practices on the part of the new private operators in the gas industry. Today ENARGAS is a reality and the contribution of PEREL and earlier Bank work on the sector greatly helped to shape the design of the regulatory environment and of the industry as well. 23. A list of tasks added during implementation was for the benefit of the privatization of PEs under the Ministry of Defense. Some US$1.2 million of PEREL was spent on six tasks, which were related to conditionality associated with PERAL II, the second sectoral adjustment loan targeted at public enterprise reform. The new tasks added to PEREL were well within the original project objectives, and could be accommodated by simply using the residual funding budgeted in the original Other Assistance component of the Project. About 61% of the total disbursed for these new tasks went to pay for the retainer fees of the investment banks that acted as financial advisors for the Government in the privatization of two petrochemical plants, Bahia Banca and General Mosconi. Some PEREL funding also was used to pay for consulting work in connection with the privatization of SOMISA, a steel producing company. The Bank Loan also covered the cost for the environmental assessment studies, and the cleaning up plans, for two iron-ore processing plants (HIPASAM and METEOR) that were closed because of their heavy environmental liabilities. The rest of the funding (some US$333,700) provided by the Project to the Defense Complex went to conduct a study on the social impact of public sector adjustment and privatization on employment, and for the drafting of legislation to enhance consumer protection and competition in production as part of new antitrust legislation agreed to be sent to Congress under PERAL II. 24. With the exception of the tasks just described for the benefit of privatization of enterprises in the Defense Complex, little else was disbursed from the US$5.3 million originally budgeted for the Other Assistance component. Some US$4.3 million of the total had been earmarked for the privatization, restructuring or liquidation of seven PEs, but at the end only a minor fraction was spent of the agreed budgeted amount. In part this was due to the availability of funding sources, some of which lent themselves more easily to support the restructuring/privatization of PEs originally included in PEREL's list of tasks. Also, the faster than expected privatization process left some of these PEs out of the reach of PEREL funding, which became effective only later. All seven public enterprises included in the original Other Assistance component were finally either privatized or liquidated.  9 25. One component that merits some special comments developed after the project had been prepared. This component financed by PEREL allowed MEC to update the hardware and software required to develop a computerized on-line information system at this Ministry. While a small amount of PEREL was spent in consulting services to assess the computing systems and evaluate additional needs at MEC and PEs, the bulk of the funds went to purchase the computing equipment and the necessary software to operate it. This equipment was targeted basically at two main programs: a) an electronic central filing system for documentation maintained at MEC, including that related to residual PEs; and b) an information system for MEC with on-line connections to a central server. On final count, roughly US$2.5 million were spent on computing and other related office equipment for MEC. 26. Originally PEREL budgeted US$800,000 for the purchasing of goods, mostly computer equipment estimated to be required by the Buenos Aires metropolitan lines once they were restructured and for the two regulatory agencies foreseen to be needed for the railways sector. However, metropolitan transportation services in Buenos Aires were privatized and little or no equipment was actually purchased with PEREL funds. The money allocated to the purchase of goods was then directed to the programs being developed at MEC (all told, some US$2.62 million was spent in goods under the Project). 27. The first "no-objection" for computing equipment for MEC was approved in September 1992 for the "Purchase of Computing Systems to Upgrade Management Information Systems (MS) on Public Enterprises at the Ministry of Economy". This equipment was sought to complement previously installed equipment in the following areas of MEC: a) Department of Public Enterprises for Residual PEs in Liquidation; b) fiscal team following up concessions; and c) to increase capacity of the computer system of the Finance Secretariat. The justification for this expenditure in the context of the Project was that the equipment would improve the quantity and quality of the information available at MEC on the residual PEs and the new concessions to the private sector. After reviewing a report done by outside consultants on how the new equipment was going to be integrated into the existing central system at MEC, the Bank authorized disbursements from PEREL for about US$262,000. All this was within the spirit and the original budget of the project, which emphasized the development of new management systems as part of the PE reform framework. 28. The second request for computing equipment of the Finance Secretariat was authorized by the Bank in October 1993. Its justification was the need to develop systems to store and analyze documentation and information on residual entities and concessions resulting from the privatization of public enterprises. The equipment requested included: a) a system of personal computers and other equipment required to complete the network at the Residual Entities Archive, the Fiscal Analysis Group and the Public Enterprises Directorate; b) camera and video equipment to instruct personnel in the storing and interpreting of archives for residual entities; and c) a multi-user system (hardware and software) composed of a data base server, image server and other equipment required to create an archive of residual entities with easy access and data manipulation capacity. Actually, the filing system purchased on this occasion had the characteristics only of a  10 pilot system aimed at testing the merits of this technology in the real world of growing filing problems faced by MEC. Most of the purchased equipment, however, went to complete the on-line information system that the Information Directorate at MEC had designed for the whole Ministry. Following an ICB procurement process, about US$675,000 was disbursed from the Bank Loan for this purpose. To some extent this authorization was consistent with the objective of providing the Government with tools to adequately assess and monitor the fiscal and other implications of the PE reform program. However, in the case of the information system financed for MEC it is difficult to justify the expenditure solely on the basis of the project objectives as stated in the Loan Agreement. Independently of the merits of the system installed, which in any event appears to be quite successful and very cost-effective, the Bank probably would have been better served by trying to broaden the objectives of the Project first to include among them the general improvement in the effectiveness and productivity of MEC. As it stands, a substantial portion of the equipment purchased by MEC with PEREL funding only partially and indirectly contributed to the achievement of the project objectives. 29. Then came a third and larger request for computing equipment from the Finance Secretariat. Since there were no longer any funds available for the purchase of goods, first the borrower sought a modification of Schedule 1 of the Loan Agreement whereby the Bank authorized in May 1994 an increase to US$2.67 million in the amount of the Bank Loan that could be spent on goods. This reallocation of funds was accomplished by a reduction in the allocation for "Consultants' services and training" and by the reallocation of the unspent remainder in the "Refunding of PPF" category. These amendments were cleared with LEGLA and LOAEL. 30. Initially the Bank was reluctant to authorize this last equipment order, save for a few items that were needed to back-up equipment procured earlier under PEREL. Most of the items, however, were not seen as having a clear relationship with the original objectives of the Project, so further justification was requested from MEC prior to any authorization. The purpose of the new equipment as stated by the Finance Secretariat was to make a full implementation of the "Document Management System Based on the Processing of Images". Since the previously purchased equipment was categorized only as a "pilot program," the new equipment was needed to fully complete the computerized filing system. Apparently, the Secretariat felt that by having been authorized to procure the equipment for the "pilot program" they were justified to seek an authorization to complete the filing system. Finally, after some further explanation by MEC on the purpose behind the new equipment they wanted to acquire, in July 1994 the Bank gave its "no- objection" to a US$1.16 million disbursement from PEREL for this purpose. 31. The new electronic filling system has allowed MEC to establish a Document Management Center, where electronic files are being kept of documentation and data being generated by residual PEs and of information on assets and liabilities left as remnants in public hands following the privatization of PEs. While this storing activity is within the boundaries of the project objectives, it remains to be seen whether the chosen solution for the storing system will end up being cost-effective vis-a-vis other systems, such as, for example, the much cheaper and better known technique of micro-fiche. However,  11 preliminary indications are that the new filing system is succeeding in its stated goals. It should be kept in mind that the workload for the filing team is quite considerable since all kinds of real estate, goods and even large numbers of employees have been left in the hands of the Central Government as a by-product of the privatization process. Also, the Government is facing thousands of legal claims in court and it is constantly being requested to review and produce new legal documentation. All told, although much progress has been made on the filing and recording processes as well as in account keeping, it appears that significant work remains to be done as most of the documentation generated prior to the installation of the equipment purchased under PEREL, which is substantial, remains to be recorded in the new electronic archive. 32. In summary, had it not been for the some of the issues raised in connection with the computing equipment purchased by MEC, the implementation record on balance could have been described as highly satisfactory. From the perspective of the borrower, although there were some delays in getting the project moving, in the end the technical assistance provided by PEREL was quite effective in supporting a broader and deeper privatization program than the one that originally seemed possible. Thus, the implementation record shows that the objectives of the project were met and that most of them were achieved on time. The actual amount disbursed was very close to the total available, although the composition by category of expenditure was somewhat different from the original budget of the Project. More detailed information on this and on the breakdown of consulting services is provided by the Table below:  12 PEREL: Expenditures by Category (US$ thousand) Amount Allocated in Schedule 1 of Loan Actual Amount Category Agreement Disbursed I. Consultants' services 450.00 19.780.46 and training (excl. PPF) Of which, incl. PPF: 20,349.49 Consulting firms 16,199.94 Individual consultants 3,089.79 - Domestic 2,855.05 - Foreign 234.74 Travel expenses 396.68 Training 9.77 Other 653.31 II. Goods (excl. PPF) 800.00 2.623.25 III. Refunding of PPF 750.00 581.66 Of which: Consultants' services and training 569.03 Goods 12.63 TOTAL 23,000.00 22,985. 37 Source: Coordinating Unit at MEC. Includes fees of procurement agent and external auditors. 33. Bank Performance: Independently of the Bank performance in the design and execution of PEREL, this was a companion operation to PERAL and in this respect PEREL was dependent on the success of the former. In fact, a successful PERAL was a pre-condition to carry out PEREL. PEREL could become effective only once conditions precedent for the effectiveness of PERAL were met. Judged from a historical perspective, a sectoral adjustment operation supporting PE privatization and restructuring in Argentina was highly risky for the Bank. This had been tried in the recent past and the effort had been unsuccessful. Besides, there was little experience in Argentina when it came to the privatization of public enterprises. There was, then, a double risk for PEREL, that of PERAL plus its own intrinsic risks as a technical assistance operation. The latter also made the Project quite risky, if seen in the light of the Bank's worldwide experience with technical assistance loans.  13 34. The fact that the Government was able to move ahead forcefully with its program of PE reform supported by PERAL was no doubt a great plus towards the success of PEREL. This was sort of a pre-condition, but gave no assurances on the success of this operation. PEREL was a project with a long list of tasks and many of them were seen as crucial for the achievement of the specific goals set out by the Government in the area of privatization and PE reform. The fact that most of the components of PEREL succeeded in achieving their goals and that the project was flexible enough to adapt to changing circumstances and effectively support the process of PE reform is reason enough to qualify the Bank performance as satisfactory. Furthermore, it could be said that the successful outcome of PERAL, particularly in connection with the restructuring and privatization of the railways sector, also relied on the effective support provided by PEREL. 35. As in the case of PERAL, the identification of PEREL benefited greatly from the large amount of sector work done by the Bank and associated consultants in years prior to the preparation of the Project. Identification and project preparation of the two companion operations was carried out simultaneously until quite late in the preparation stage, when the Bank decided in favor of having two separate operations. The identification work done by the Bank proved valuable for the Government in its efforts to define the specific goals and details of its PE reform program. Also, the Bank work made it much easier for the Government to structure the details of the technical assistance program required to facilitate the implementation of the PE reform. From this perspective, the identification work done by the Bank in connection with PEREL was highly satisfactory. 36. Project preparation was financially supported by the Bank through a Project Preparation Facility. The Bank was also instrumental in securing major financing needed for the extensive preparatory work and the meeting of pre-conditions associated with PERAL. Once the main components of the Project had been identified, the Bank concentrated on defining a detailed list of tasks. Eventually, many of them were singled out for inclusion in Schedule 5 of the Loan Agreement, which included an Implementation Program with specific start and completion dates for each task. From today's perspective, this effort on the part of the Bank during project preparation was mostly wasted since this Implementation Program was bound to become in touch with the realities and dynamics of the privatization process soon after the Project started to be implemented. Thus, the Bank authorized appropriate changes during project implementation. Perhaps a more fruitful effort during project preparation by the Bank would have been to concentrate on an intermediate stage, that of translating the main Project objectives into a clearer and more detailed list of goals to be achieved. This could have been reinforced with the definition of a flexible work plan, which included only the principal tasks identified plus a set of procedures for further task selection. Other specific tasks, then, could have been agreed with the borrower during implementation and added to the work program as needed. Although the approach taken at the time of preparation is understandable from the perspective of early experience with privatization in Argentina, this certainly caused the implementation process to lose clarity and the supervision work to become more difficult to follow.  14 37. On the other hand, project implementation was greatly facilitated by the decision of the Bank to insist on putting in place from the beginning a well thought out administrative structure for project execution. This was a merit of the Bank's project preparation process. Later on, reality showed that a great amount of day-to-day supervision and administrative work was required to move the Project forward. Bank staff had to process a constant flow of funding requests, inquiries and requests for changes in the task list. Also, the Project demanded a great deal of coordination with Task Managers of other projects contributing to the public sector reform. Fortunately, the Project was able to count on continuity of supervision in the first couple of years, an advantage that was lost towards the end when a succession of different Tasks Managers took over PEREL. However, by that time the Project had developed its own momentum and, thanks to the execution capabilities on the borrower's side, was able to sail through satisfactorily. 38. There were, however, two areas in which Bank decision-making should have been more forcefully applied. One of them had to do with the loan size. The approved loan amount of US$23 million was quite in line with the financing requirements of the original list of project components. However, by 1994 and with the Closing Date approaching fast, it appeared that there were going to be some non-committed funds left unused. The Bank, rather than canceling these redundant funds, decided to accept the request of the borrower and allowed that they be used to carry out tasks marginally related to the original objectives of PEREL. 39. A second point has to do with the accounting of counterpart financing. As with all Bank loans, a detailed budget was included in the President's Report with estimates of counterpart funds and man-months that were expected to be required to execute each task to be financed. Today only casual information exists on the matter, since reliable records on counterpart contributions were not maintained by the Government and the Bank never provided reminders. In a way this is regrettable since such contributions in some cases were substantial, for example in the case of the privatization of the gas industry, with YPF alone financing from its own resources over US$15 million in transaction costs associated with the restructuring of GdE and the sale of the resulting companies. 40. Borrower Performance: One of the merits of the Menem Administration at the time of project preparation was to have had an economic team not only willing to take strong measures to alleviate the public sector crisis but to be ready to move forcefully and decisively ahead once a political decision was made. This was the case with the PE reform program, which was prepared drawing heavily on the wealth of sectoral diagnostic and prescriptive information accumulated by the Bank since the days of the Alfonsin Administration. Also, there was an unusual degree of continuity in the Government's economic team which carried out the Project, which certainly helped with the preparation and implementation of PEREL. Furthermore, it was very useful that the Director and Deputy Director of the Project Coordinating Unit were involved since the initial stages of the Project.  15 41. Implementation of PEREL started with a few months' delay. The Coordinating Unit was established in April 1991 rather than by February 1991. Also, the procurement agent was in place later than agreed, so the project got off to a real start only in mid- 1991. Once the project became operational, however, the Coordinating Unit at MEC and the Technical Units in the Executing Agencies soon started to show the advantages of the framework chosen for administering project implementation. As already pointed out, their performance was highly satisfactory. 42. In the course of its day-to-day administration of the Project, the Coordinating Unit had to negotiate: a) 55 contracts with consulting firms, with an average contract value of some US$276,100; and b) 68 contracts with individual consultants (62 hired locally and the rest abroad), with an average value of some US$33,000. The Coordinating Unit itself spent in salaries, equipment and general office expenditures a total of some US$1.31 million (Unit figures), or about 5.7% of the Bank Loan, during the almost five years of coordinating and administering the technical assistance program financed by PEREL. During that period the Coordinating Unit also had responsibility for the execution of two different Japanese grants plus a long list of other tasks related to other Bank operations. Today the Coordinating Unit is still fully operational and continues, under the same Deputy Director, to provide its support to other Bank projects. 43. There were some legal covenants in the Loan Agreement that imposed some specific responsibility on the borrower during project implementation. A list of them, with their degree of fulfillment and some comments, is included in Table 7 of the Statistical Annex. All seven of these covenants were fulfilled by the borrower, although some with delays and in two cases with modifications agreed with the Bank. The borrower through the Coordinating Unit regularly submitted to the Bank the agreed set of progress and audited financial reports (although the latter were presented consistently late to the Bank). The only problem worth mentioning was the qualified statement of the external auditors in connection with the 1991 financial statements of the Project, which was brought about by the denial of the procurement agent to allow them access to its accounting records for that year. This was corrected for the following years. 44. On the broader implementation issues perhaps the most striking feature is the much slower than anticipated process of institutional building in connection with the regulatory entities that were supported by PEREL. The five-year time horizon of the Project turned out clearly not long enough for the regulatory bodies in the important telecommunications and urban transport industries to be fully operational. This can be only partially blamed on project implementation ineffectiveness since most of the technical work required to establish these regulatory agencies and make them operational, and for which PEREL provided support, was accomplished largely as planned. Rather, the difficulties had a great deal more to do with the delaying impact of political and legal turmoil that developed among competing pressure groups following the privatization of these two sectors. Although far from justifying the Argentine case, the experience in other places of the world shows that the process of building new regulatory institutions is one of the most difficult to accomplish, particularly when there is no tradition and a tight schedule to follow, as it was the case for these two regulatory agencies.  16 D. Assessment of Outcome and Key Lessons Learned 45. The overall assessment of the outcome of the Project is satisfactory, particularly because the broader project objectives were by and large achieved and can be considered sustainable because privatizations are unlikely to be reversed anytime soon. This was a high risk project that required on the part of the borrower a great deal of political commitment for an ambitious and difficult public enterprise reform program. By its very nature the PE privatization process was a one time big event, for which it is impossible to find enough experience. Thus, this was a demanding project both from the perspective of its goals as well as its implementation. It benefitted also from a joint and well-coordinated effort with the Bank PERAL and PEREL teams, plus a high degree of responsiveness on the part of the Bank to accommodate the Project to the changes that took place in the borrower's circumstances and priorities during the Project implementation. Had the Bank staff not shown flexibility during implementation, the Project could very well have failed in providing support to the impressive transformation of the Argentine economy brought about by the profound changes in its PE sector. 46. One general lesson of this technical assistance project is that it pays to concentrate during project preparation on the design of a sound administrative structure for this type of project. The experience of PEREL is a good one in this respect. However, more thought should be given in the future to the high transactions costs faced by the borrower in the delivery of the technical assistance to the final user. The loan size for this type of operations is normally quite small by Bank standards, so the administrative process faced by the borrower can easily absorb a high proportion of the funds committed by the Bank. In the case of Argentina the problem is aggravated because of difficulties to solve the issue of procurement satisfactorily. A review of more cost-effective procurement formulas in Argentina is underway following the recent completion of the country procurement assessment. Moreover, another related lesson of PEREL is that a special effort should be made during project preparation to estimate the direct costs of administering the technical assistance by the borrower, whether the associated Bank loan finances them or not. In the case of PEREL such evaluation was only partially done and then, when the issue of the cost of the procurement agent and the external auditors arose, funds had to be reallocated from other components of the Project because other sources of funding could not be found. 47. The implementation of most technical assistance projects requires the hiring of consulting services. PEREL was not different in this respect since 86% of the disbursed funds went to pay for such services. The experience of PEREL was quite rich since there was a wide spectrum of firms and individuals, foreign and nationals, hired to provide these services. Again, the existence of an effective Coordinating Unit was important. Their experience with the Project was that consulting firms are generally quite reliable and efficient but that their services have a unitary cost (consultant/month) considerably higher than that of individual consultants. These, on the other hand, showed a much higher variance in terms of their reliability and quality of work. Thus, considerably more time and effort was spent on their selection. The contracting process for individual consultants also is more time-consuming simply because a larger number of contracts is needed to  17 cover any given task. In the case of PEREL the average contract signed with a consulting firm was over eight times the size of that entered into with the average individual consultant. So far the story is not different from that of the broader Bank experience, and that is why the Bank often prefers that borrowers hire consulting firms. Supervision also is facilitated with this strategy. It should be highlighted, however, that in the case of PEREL there was a satisfactory experience with individual consultants in the case of FA, particularly when consulting services were required for prolonged periods of time. It would have been very expensive to have had the same steady flow of technical support had consulting firms been hired to do the job. This was a very cost-effective solution for FA (estimated at I to 4 in favor of individual consultants by the Coordinating Unit). This PE had a limnited amount of resources to do a huge privatization job, so the point was quite relevant. Indeed, the privatization of railway services does appear to have been on the low side when compared with the privatization of other PEs supported by PEREL. However, it should be kept in mind that the management team at the Technical Unit of FA was unusually able, which facilitated the task of coordinating a large contingent of individual consultants, perhaps making the experience hard to replicate under more standard circumstances. 48. In the initial stages of identification of PEREL the Government had requested considerably more funds that the amount finally approved by the Board. As a general rule, there is a tendency by borrowers to overestimate their capacity to absorb technical assistance. The lesson of PEREL is that even in the context of a successful adjustment program and a sound project management team such capacity is limited. In addition, once the loan amount is set the borrower does tend to see it as a disbursement goal rather than as a ceiling. The Bank staff, on the other hand, finds it difficult to say no to authorization requests coming from good executing agencies. Authorization of redundant funds for tasks marginally related to the objectives easily becomes a way to reward good performance. Although it is difficult to say what the rule should be, a special effort should be made during the preparation stage of a technical assistance operation to assess the absorptive capacity of the executing agencies, ideally based on some parameters derived from the Bank's experience. Also, there should be an agreed timetable with the borrower, to be coordinated with the supervision schedule, to exchange views over the projected commitment profile and the actions that should follow if the size of the loan, the closing date or both merit a revision. 49. Finally, there is one lesson that has to do more with PERAL. A technical assistance operation, however effective, cannot by itself achieve results in matters that require decisive political action or complex decisions. This is clearly a job more attuned to adjustment operations. The incomplete jobs in the case of the regulatory agencies for the telecommunications and the urban transport sectors provide a good example. In both cases it would have been productive if the sectoral adjustment program could have continued beyond the privatization of ENTel and FA and included conditionality associated with further operational progress of the regulatory entities. The technical aspects of regulation for these two sectors were reasonably covered by PEREL, and it would have been ideal to rely on, say, an additional tranche of PERAL to tie down solid progress on the regulatory front of the PE reform.  18 IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) H. STATISTICAL TABLES Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not applicable Macro policies '4 Sector policies l Financial objectives ' Institutional development 4 Physical objectives '4 Poverty reduction '4 Gender issues '4 Other social objectives l Environmental objectives i Public sector management l Private sector developmet 4 Other (specify) B. Proiect sustainability Likel | Unlikely Uncertain C. Bank performance Highly Satisfactory Deficient satisfactory Identification '4 Preparation assistance '4 Appraisal 4 Supervision 4  19 D. Borrower performance Highly Satisfactory Deficient satisfactory Preparation l Implementation 4 Covenant compliance 4 E. Assesment of outcome Highly Satisfactory Unsatisfactory Highly satisfactory unsatisfactory Table 2: Related Bank Loans/Credits Loan Purpose Amount Year of Status (US$ million) Approval (04/30/96) 1. Public Enterprise Reform I & Privatization of public 300 1991 Disbursed II (Lns. 3291 and 3556) enterprises 300 1993 Disbursed 2. Gas Utilization and TA (Ln Rehabilitation of the 180 1985 Disbursed 2592) Gas Sector 3. Public Sector Reform I Fiscal revenues and 325 1991 Disbursed (Ln 3394) expenditures, and l BCRA 4. T.A. Public Sector Reform Improvement of public 23 1991 Undisbursed (Ln 3362) sector performance $ .OM  20 Table 3: Project Timetable Steps in Project Cycle Date Planned Actual Date/or Duration Identification (Initial Executive September 23, 1987 Project Summary) Preparation 3 years, intially part of PERAL Appraisal June 1990 Negotiations December 10 -14, 1990 Board Presentation October 1990 February 12, 1991 Signing April 8, 1991 Effectiveness February 1991 June 21, 1991 Loan Closing June 30, 1995 December 31, 1995 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ million) FY91 FY92 FY93 FY94 FY95 FY96 Appraisal estimate 1.9 7.3 12.8 18.8 23.0 0 Actual 0 4.6 10.5 21.0 22.3 23.0 Actual as % of estimate 0% 63% 82% 118% 97% 100% Date of final disbursement: December 26, 1995  21 Table 5: Key Indicators for Project Implementation I. Key Implementation Indicators in Estimated Actual President's Report Part A: PE Reform Framework A. 1 Establish Project Coordinating Unit in February 1991 April 1991 MEC A.2 (a) Present strategic plans and *Strategic plans and performance evaluation Although work was initiated, it was discontinued when PEs were perfonnance evaluation systems for 4 PEs systems for 4 PEs: Fourth Quarter 1991 privatized, following a deepening in the Government's privatization drive (YPF, AyEE, Hidronor and the Buenos Aires Metropolitan Railways). *Semiannual reports: Second and Fourth Quarter 1992 *Present strategic plans/performance evaluation systems for the PEs included in TOR: Second Quarter 1993 (b) Upgrade SIGEP's Management *Diagnostic of existing MIS: Third Quarter This component was not implemented. The Government decided to put in Information System (MIS) 1991 place a new auditing system for PEs. For this purpose, a law was passed creating the new system and dissolving SIGEP. *Programi for upgrading MIS: First Quarter 1992 *Report on accomplishment of MIS upgrading: Second Quarter 1992_ A.3 (a) Development of labor management *Preliminary assessment of excess labor and The preliminary assessment was done on time. Consultants were hired strategy for PEs retirement proposals for FA, YPF and GdE: using funding from PEREL-associated PPF. However, in part due to December 1990 problems with the preliminary assessment done by consultants, the Government decided that each PE had to complete the task of assessing *Report completed: Second Quarter 1991 work force redundancies by itself. In the case of FA, it had the support of its Technical Unit financed by PEREL. (b) Extend the life of Labor Task Force in *Initl report reflecting accomplishments of This task force was discontinued by the Govermment, following the MEC task under TOR for Loan 2712-AR: First acceleration in the privatization drive mentioned above. No funding from Quarter 1991 PEREL was used for this purpose. *Final report: Second Quarter 1991  22 I. Key Implementation Indicators in Estimated Actual President's Report (c) Renegotiation of company-specific *Mid-term report on advances in Consiutants hired by the Government, and paid by PEREL, prepared collective labor agreements and monitoring of negotiations: Third Quarter 1991 monthly progress reports on the subject. There was a change in strategy, retirement programs *Quarterly reports on negotiations based on however, since this component was implemented directly by the Central agreed format Government, which relied on support from the PEs, their TUs and *Final report on negotiations according to PEREL's central Coordinating Unit. TOR: First Quarter 1992 A.4 Strengthening the Government's *Action plan addressing main negative Consulting services financed under PEREL started in July 1992 and ended capabilities to monitor and reduce adverse environmental effects in the hydrocarbon and in Fourth Quarter 1993. In part based on conclusions of studies done, the environmental effects of activities of public and transport sectors: First Quarter 1992 Government decided to address environmental issues through a more private enterprises, particularly in the comprehensive project, financed partially by an IDB loan and which is hydrocarbon and transport sectors *Recommendations for institutional set-up currently under way, targeted at solving identified environmental issues and legislation: First Quarter 1993 and problems. Part B: Telecommunications Sector Reform B. I Sale of ENTel to qualified private *Definition of framework for privatization of Privatization of ENTel was on target. PEREL financed a portion of the operators ENTel, issuing of bidding documents and retainer's fees paid to the Financial Agent for the Govermnent during the actual transfer to winning bidders: November privatization process. The bulk of this cost was covered under the PPF of 1990 PERAL, the adjustment loan for which PEREL provided the technical assistance support. B.2 Establishment of CNT followed by full *Presentation of start-up and implementation Consulting work to support the establishment of the CNT started in First operational efficiency program: Second Quarter 1991 Quarter 1992. Support under PEREL continued until Third Quarter 1993, when consulting work on the medium-term strategic plan was completed. *Semi-annual reports reflecting progress CNT is now established. However, although significant progress has been made and future steps achieved, CNT has yet to reach full operational efficiency. Part C: Railwavs Sector Reform C. I Establishment of a Technical Unit in FA *Quarterly reports and semiannual Reporting requirements were satisfactorily met. The Technical Unit to manage the sector restructuring program supervision review missions started its work in Second Quarter 1991 and continued to be financed by PEREL until Second Quarter 1995. This Unit was instrumental in the successful transfer to the private sector of activities previously carried out by FA.  23 I. Key Implementation Indicators in Estimated Actual President's Report C.2 Analysis and refinement of future cargo *Bidding documents for Roca Line: Fourth Bidding documents for both lines were prepared within schedule. The concession options and identification of likely Quarter 1991 cargo concession for the Roca Line was granted to a private company in networks and privatization problems 1992. However, in the case of the Belgrano Line, after two attempts and in *Bidding documents for Belgrano Line: absence of suitable offers by private companies, it remains in public hands, Second Quarter 1992 although as a separate state-owned corporation, independent of FA. C.3 Analysis of options to restructure inter- *Cost study of current inter-urban passenger a) Cost studies were completed in July 1992. That month the Government urban passenger services operations and definition of alternative made the decision to abandon all interurban passenger services (Decree operating techniques and prototype contract #1168), except for the Buenos Aires-Mar del Plata Line. agreements to grant concessions to private operators: Second Quarter 1991 *Action Plan for franchising the Buenos b) Technical information necessary to franchise the BA-Mar del Plata Line Aires-Mar del Plata Line: Second Quarter was ready by the Second Quarter 1992. Since then this franchise has been 1991 taken over by the Province of Buenos Aires. C.4 Identification of other privatizable FA *Identification of possible concessions: First No funding from PEREL was used for this purpose. FA does not operate activities and facilities and development of Quarter 1992 rail services any longer, although still has some assets related to the privatization options operation of the business, such as spare parts, rolling stock (mostly convoys *Bidding documents for at least one for passenger services), train yards, etc., which it expects to dispose of concession each quarter beginning Third gradually over time. Quarter 1992 C.5 Identification of FA rolling stock for *Definition of concessionable rolling stock: No funding from PEREL was used for this purpose. The Government possible concession and development of First Quarter 1992 decided to grant concessions that included both the right to use the tracks parameters to be used for implementation *Financial analysis: Second Quarter 1992 and the existing rolling stock. *Prototype agreement: Third Quarter 1992 C.6 Establishment of an excess asset *Adoption of guidelines for the excess asset Due to the unexpected complexity and magnitude of the task that resulted management unit in FA and identification of management function: Fourth Quarter 1991 from the across-the-board massive privatization of PEs, the Government those excess assets that are to be released decided to carry out the sale of all excess Government assets through a during FA restructuring *Semi-annual progress reports starting First specialized office at the MEC. However, in the case of FA, there were two Quarter 1992 failed attempts to transfer to the private sector the management of FA real estate properties (4Q92 and 4Q93). C.7 Establishment of a railway employee *Initiate retirement plan: January 1991 Although the unit was never created, the number of railway employees management unit within FA and development was reduced sharply, surpassing by a wide margin initial projections for job of procedures to handle excess personnel *Semi-annual progress reports starting Third reductions. Separations were financed indirectly and partially with PERAL l ________________________________________ Quarter 1991 resources.  24 I. Key Implementation Indicators in Estimated Actual President's Report C.8 Restructuring of FA's metropolitan *Progress report: First Quarter 1992 In March 1991, the Government created FEMESA, a separate corporation, passenger railway services, including the administratively and operationally independent from FA, and in charge of establshment of an independent suburban rail *Final report: Third Quarter 1992 operations of all metropolitan rail services, including the subway system. passenger company responsible for aUl suburban Later, the Government went several steps further and transferred in services concession to the private sector the operafion of the metropoUtan railway lines and the subway of Buenos Aires. C.9 Development of accounting and insurance *Final report by Third Quarter 1991 These tasks were not carried out since the privatization of all railway systems for the new railway organization serces made the development of the new systems unnecessary. The only tasks in this regard financed by PEREL were the development of the administrative and accointing systems of the newly created FEMESA. Related consulting services started in August 1991 and ended in December 1991. C. 10 Development of new safety and operating *Final report by Fourth Quarter 1991 These tasks were carried with some modifications. The franchising to rules and practices for railway activities third parties of all rail services provided by FA made it preferable to concentrate efforts on setting up the regulatory framework for the newly privatized railway sector. Resources from PEREL were used for that purpose (including the development of safety and operating practices incorporated into the bidding documents used for franchising FA facilities). C. 11 (a) Establishment of a national railway *Proposals for new organizational structures: This condition was satisfactorily met (as prescribed in the Loan Agreement authority to ensure fair competition and December 1991 for PERAL) when the Government issued Decree # 2339 in December efficient services 1992. However, the main contribution of PEREL was in the financing of *New Authority operating: Fourth Quarter consulting services, carried out between February 1993 and April 1994, 1992 that resulted in the definition of the organizational structure, job descriptions, strategic plans and staffing of the newly created Authority as weU as the training of its staff. (b) Establishment of a Buenos Aires passenger *Proposals for the new organizational This condition was satisfactorily met when the Government established the authority to regulate/fund passenger services structure: March 1992 metropolitan railway authority by Decree #1143, which included the duties within Buenos Aires and powers prescribed in PERAL for such authority. A law to create a new *New authority operating: Fourth Quarter inter-jurisdictional entity was not passed, and has been withdrawn. 1992 Currently, the formal responsibility to regulate the sector is in the hands of the Transport Secretariat at the MEC. However, in the interim and prior to the enactment of the law, the Technical Unit at the FA originally financed by and created to implement PEREL, has been acting de facto as the metropolitan railways authority.  25 1. Key Implementation Indicators in Estimated Actual President's Report Part D: Oil and Gas Sector Reform D. I Development of a strategic plan for the *Strategic plan presented: March 30, 1992 As with other project activities originally agreed on for the Oil sub-sector, new YPF this specific task was not financed with resources from PEREL, so it was not supervised under PEREL. Activities related to the privatization of YPF were financed directly by YPF's own cash flow and funds from other Bank loans. D.2 Implementation of new business units for *Proposal for organizing the new business For the reasons explained above in point D. 1, this task was not financed YPF units: Second Quarter 1992 with resources from PEREL * Detailed proposals for management processes and systems for each unit: Fourth Quarter 1992 D.3 Divestiture of selected YPF operations *Every six months starting Fourth Quarter For the reasons explained above in point D. 1, this task was not financed 1991 significant proposals for with resources from PEREL privatization/joint ventures are to be presented in accordance with conditions under PERAL D4 Assistance to the Government and GdE in *Privatization proposals in agreement with The privatization effort in the gas industry went much further than the the privatization of natural gas pipelines and conditions under PERAL: Fourth Quarter agreements reached in the context of PERAL. By the end of 1992, the distribution networks 1991 entire system operated by GdE was in private hands. PEREL resources were targeted on the financing of the legal advice required for the *Additional proposals developed by Second implementation of the privatization of GdE. The cost of other consulting and Fourth Quarters 1992 work related to the privatization of this PE was covered directly by YPF. D.5 Strengthening of the Government's *Proposal of regulations: Third Quarter 1991 The efforts of the Government in connection with this component were regulatory capabilities in the hydrocarbon concentrated on the development of its regulatory capabilities of the newly sector *Evaluation of Government capabilities to privatized gas industry. PEREL resources were used to finance about one- regulate the sector: Fourth Quarter 1992 third of the consulting work that provided the specific recommendations on the implementation of ENARGAS. The consulting services financed by PEREL covered the period May-August 1992 and ENARGAS officially started functioning as the regulatory entity of the gas industry in April 1993.  26 IL New Implementation Indicators Added Estimated Actual during Project Execution Part E: Privatization of PEs under the Although this component was not part of the original conception of Ministry of Defense PEREL, a portion of this loan was reserved for "Other assistance" to provide support for future privatizations, such as the ones carried out in the Defense Complex . The tasks listed below were agreed upon in the context of the PERAL II, which supported additional privatization of PEs by the Government. Since PERAL II did not include a technical assistance component, funds were secured for this purpose from the Japanese Government and the Bank's existing PEREL. E. I Drafting of Antitrust Law PEREL financed consulting services to support Government efforts to improve legislation geared to enhance competition in production and consumer protection. In particular, it provided support for the preparation of Antitrust legislation that the Goverrnent was required to send to Congress as part of the conditionality of PERAL II. E.2 Social impact of public reforms on labor PEREL provided the funding to conduct a study on the social impact of the public sector adjustment and privatization on employment. Companies in the Defense Complex, many of them located in isolated surroundings were more vulnerable to a lack of employment alternatives. E.3 Envirornmental control study Preliminary environmental assessments were done for two PEs within the Defense portfolio (the iron ore-processing plants HIPASAM and METEOR). These facilities were to be closed down because of their economic and financial non-viability. Also, the two sites, particularly METEOR, were known to be heavily polluted. The environmental assessments done showed how bad the problem was at the two sites and how the clean-up could be accomplished. E.4 Privatization of Petroquimica Bahia Funds from PEREL were used to pay the retainer fees of the investment Blanca bank selected as Financial Agent for the Government in the implementation of the privatization of this state-owned company. E. 5 Privatization of Petroquimica General Funds from PEREL were used to pay the retainer fees of the investment Moscoso bank selected as Financial Agent for the Government in the implementation of the privatization of this state-owned company.  27 IL. New Implementation Indicators Added Estimated r Actual dunng Project Execution E.6 Restructuring /Privatization of SOMISA PEREL funding was used to cover the fees of the management consulting group in charge of restructuring of this steel-producing company prior to its privatization. The original idea of financing the retainer fees of the Financial Agent in the sale of SOMISA was abandoned because the contractual arrangements with the chosen investment bank were finalized prior to the request for PEREL funding. Part F: Pnvatization Secretarat at MEC The Privatization Secretariat did not exist at the time of the negotiation of PEREL, but when it was created it took on several of the responsibilities related to the implementation of the privatization program for PEs. This was the main objective of the PE Reform Framework component (Part A above). PEREL financed a variety of consulting services that gave the Secretariat the ability to plan, coordinate and follow up the process of implementation of the program of privatization of PEs. The Finance Secretariat at MEC was the other leading office in the implementation of this component. F. I Strategic Planning group The work done allowed the Secretariat to carry out several different tasks, including the assessment of alternative strategic privatization options, the evaluation of procedures for the selection of bidders and analysis of sale-related contracts, and the establishment of a system to manage the Government minority interests in privatized companies. F.2 Seminars There were four seminars/meetings on different privatization issues, mostly related to FA's concession program, financed by PEREL. Part G: Finance Secretariat at MEC Given the acceleration in the privatization process, the Government decided to hire outside consulting services in order to carry out key related tasks thoroughly and in a timely manner. PEREL funding was used for this purpose. The participation of this Secretariat in the implementation of the privatization drive was crucial, particularly since it was in charge of assessing and monitoring the fiscal implications of the program and, through the Project Coordinating Unit, was in charge of the day-to-day business of implementing PEREL.  28 ILL New Implementation Indicators Added Estimated Actual during Project Execution G. 1 Budgeting and Monitoring Group Consultants financed by PEREL carried out tasks such as: (i) design, development and implementation of financial and accounting information systemns, budgeting and other management needs related to residual assets and liabilities left in Government hands after privatization of the core business of PEs; (ii) short and medium-term projections for PEs in the process of being privatized and of residual companies; and (iii) monitoring of staff reductions in PEs and of other key financial and economic variables to keep Government decision- makers informed on privatization issues. G.2 Assessment of fiscal impact of sale of PEs Consulting services were provided to: (i) estimate the net worth of PEs in the process of being privatized, (ii) project the evolution of prices of goods and services of PEs once they are under private control, and (iii) assess the fiscal impact of each privatization. G.3 Sale of disposable public fixed assets Consulting services were retained to: (i) identify disposable fixed assets in the hands of PEs and the Government, (ii) define norms and regulations to assess the value of the goods, (iii) set the legal procedures to sell assets, (iv) establish procedures to supervise the actual sales, and (v) coordinate the work of real estate consortia. Part H: Computine systems for MEC PEREL provided funding to update the hardware and software required by the new information system developed by the MEC. In addition, a small amount of related consulting services was financed by PEREL. H. 1 Assessment of computing systems Consulting services were retained with PEREL funding to: (i) assess the available in MEC and PEs state of the computing realities in PEs and in MEC, (ii) make proposals to establish an Information Unit in MEC, and (iii) recommend a single set of norms in order to facilitate interconnections and standardize procedures in MEC and in PEs. H.2 Procurement of computing equipment and The equipment purchased with PEREL funding was targeted basically to software for MEC two main programs: (i) an electronic central filing system for documentation required by MEC, including that related to PEs, and (ii) an information system for MEC with on-line connections to a central server.  29 IL New Implementation Indicators Added Estimated Actual during Project Execution Part 1: Procurement agent and external The Loan Agreement required the hiring of a procurement agent auditors for PEREL (Section 3.02 (a)) and of independent auditors (Section 4.01 (b.i)), but no provisions were made originaUy to finance their services with PEREL funds. This was rectified later on, when these transaction costs were covered by PEREL. 1.1 The hinng of a procurement agent As agreed with the Bank, the Government secured the services of a procurement agent (UNDP/OPS) to handle contracting of consultants, the procurement of goods and for arranging training activities under the project. UNDP/OPS was involved in the procurement of most goods and services financed by PEREL. The exception were the funds allocated to activities in the hydrocarbon sector, which were procured directly by YPF, an entity with experience in Bank procurement. 1.2 The hiring of independent auditors The Coordinating Unit secured the services of independent auditors acceptable to the Bank to audit the Project's annual financial statements. These services were financed with PEREL funds. Part J: Other related assistance PEREL resources were also used to fund the consulting services required for three other components related to the privatization drive in which the Government has been involved in recent years. J. I Assessment of "Banco de la Provincia de Even though this is a provincial bank, the Government decided to hire Catamarca" an expert to: (i) evaluate the options available to restructure this bank, (ii) assess its additional capital requirements, and (iii) evaluate merging options with private or public financial institutions. J.2 Analysis of the "Compre Argentino" PERAL financed a study to review the legal aspects of procurement legislation procedures followed by PEs. Its main purpose was to review the changes introduced by the Government on the matter in order to determine whether they had been sufficient to meet the conditionality agreed upon l___________________________ with the Bank in the context of PERAL. J.3 Support for SEGBA One of the general conditions of PERAL for subsequent tranche reform disbursement was that the Government approved plans acceptable to the Bank to privatize and/or restructure SEGBA. Consulting services financed by PEREL supported the privatization of this electric utility.  30 Table 6A: Project Costs (US$ million) Item Appraisal Actual Estimate A. PE Reform Framework 4.0 2.0 B. Telecommunications Sector Reform 3.1 1.9 C. Railways Sector Reform 7.1 8.0 D. Oil & Gas Sector Reform 3.5 2.7 E. Privatization of PEs under the Ministry of Defense 1.2 F. Privatization Secretariat at MEC 1.0 G. Finance Secretariat at MEC 1.9 H. Computing Systems for MEC 2.5 l. Procurement Agent & External Auditors for PEREL 1.3 J. Other Related Assistance 5.3 0.07 Total 23.0 22.9 Table 6B: Project Financing (US$ million) Appraisal estimate Actual Source Local Foreign Total Local Foreign Total costs costs costs costs IBRD 3.2 19.8 23.0 22.7 0.2 22.9 Govermment 9.9 9.9 n.r. n.r. n.r. Total 13.1 19.8 32.9 22.7 0.2 22.9 n.r.= there are no records available  31 Table 7: Status of Legal Covenants Agreement Covenant Condition Present Fulfillment Comments Section Type Status Date 3.01 (b-c) Project Satisfactory staffing of C April 1991 Project Coordination Unit is still implementation Project Coordinating Unit operating, supporting the arrangements implementation of other related Bank financed projects. 3.01 (d) & Project Timetable for Projed C, with Several dates, as See Table S for details in Schedule 5 implementation implementation of selected modifications indicated in Implementation Indicators. arrangements components as agreed Sched. 5 with the Bank 3.02 (a) Procurement Contractual arrangements to C June 1991 hire a procurement agent not later than April 30, 1991 3.03 (b) & Project List of Project components C, with Schedule 2 implementation modifications arrangements as agreed with the Bank 3.04 Monitoring/reviews Semi-annual progress C Each March 31 & reports, starting not later September 30 than September30, 1991 4.01 (a-b) Accounts/audits Submit not later tlan April C The statement of the external 30 ofeach year records and auditors for 1991 is qualified, account in accordance with since they could not audit the appropriate auditing records of the procurement agent principles consistently (UNDP/OPS). Otherwise, the applied by independent Borrower has presented to the auditors acceptable to the Bank all the required externally Bank audited financial statements., although nornally with delays. 6.01 (b) Cro conditionality All th conitionsprecedent C June 21, 1991 Planned date of effectiveness in for effectiveness to the effectiveness of the President's Report was PERAL have been fulfilled February 1991.  32 Table 8: Bank Resources: Staff Inputs '' Stage of Actual project cycle Weeks US$'000 Through Appraisal 3 4 5.1 Appraisal-Board 35.1 72.6 | Board-Effectiveness 12.7 32 Supervision 60.4 204.1 Completion 7.0 17.5 TOTAL 118.6 331.3 Table 9: Missions Number Days Specialized Stage of Month/ of in staff Perforrnanc: ratng Types Project cycle year persons field" skils Implementation Develop of Tepresented 2' Status ment problems Through appraisal"/ September 1988 ,8 1,d,e,ij October 1988 2 7 c November 1988 13 19 ac,de,ij April 1989 1 8 I August 1989 1 10 d October 1989 8 17 a,c,ej Appraisal through June 1990 1 9 1 Board approval October 1990 1 5 a,b,g,i January 1991 2 2 g,k Board approval February 1991 3 3 g,h through effectiveness Supervision March 1991 7 a,b,c,d,e 2 July 1991 2 4 a,b I I November 1991 1 7 a I 1 March 1992 1 4 a I October 1992 1 5 a 1 1 March 1993 1 10 a 1 I Completion April 1996 1 10 f 1/ Refers to TM/Mission Leader. 2/ Key to specialization: f Consultant a. Task Manager g Division Chief b. Task Manager, PERAL (Ln 3291-AR) j. Financial Analyst c. Advisor, Hydrocarbons h. Economist d. Advisor, Railways k. Country Departennt Director e. Advisor, Telecomnmunications i. Industrial Specialist 3/ Jointly with PERAL  IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC ENTERPRISE REFORM EXECUTION LOAN (PEREL) (LOAN 3292-AR) APPENDIX Appendix A: Contribution of the Borrower to the ICR   IMPLEMENTATION COMPLETION REPORT A R G E N T I N A PUBLIC ENTERPRISE REFORM EXECUTION LOAN (P E R E L) (Loan 3292-AR) PART III: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE PROGRAMA DE REFORMNIAS DE EMNIPRESAS PUBLICAS - PRESTAMO BIRF 3292-AR INFORNIE DE TERNIINACION A. INTRODUCCION 1.1 El Programa de Reforma de las Empresas Piblicas se inici6 bajo una clara conciencia de que el deficit que las mismas producian afectaba seriamente el equilibrio fiscal amen de bfindar una inadecuada provisi6n de bienes y prestacion de servicios. 1.2 Consciente de la magnitud del problema enunciado el gobierno planific6 un ambicioso programa que permitiera incrementar la eficiencia y la calidad de los servicios proponiendo un plan de privatizaci6n de Empresas Publicas tan amplio como fuera posible y de reestructuraci6n de aquellas que no fuera posible privatizar, asegurando ademas claras reglas de juego. 1.3 A los fines de ejecutar e instrumentar lo mas arriba expuesto el Gobierno Nacional deline6 los principios basicos de la reforma. los que se consumaron en los mensajes presidenciales a la Asamblea Legislativa del 8 de julio de 1989 y el 10 de mayo de 1990. 1.4 Estos lineamientos politicos sustentan el programa de reforma que implementan las leyes 23.696 de Reforma del Estado v 23.697 de Politicas Sociales comunitarias y su decreto reglamentario 584/90; Lev 23.771 (Regimen Penal Tributario); Decreto 1225/89 modificada por la Ley 23.697; Decreto 4335/90 de profundizaci6n del programa de estabilizaci6n y reforma del Estado; Decreto 479/90 de detenninaci6n del ambito de los distintos Ministerios y Subsecretaria, y demas normas vinculadas. 1.5 Estas normas, y las dictadas en su consecuencia, brindaron al Gobierno Nacional el marco adecuado para iniciar la ejecuci6n concreta de su prop6sito de desvincular al Estado de las actividades productivas y de servicios a cargo de las Empresas Publicas, y de dotar de la necesaria eficiencia a aquellas que por su caracter debian permanecer en la 6rbita estatal. 1.6 Tal deterrninaci6n implic6 la necesidad de privatizar, o bien de dar en concesi6n y/o reestructurar un importante numero de Empresas Piblicas. 1.7 Para la debida satisfacci6n de los requerimientos financieros de este Programa el Gobierno Nacional acudi6 inicialmente al Banco Mundial requiriendole su apoyo. En tales terminos, entre los dias 10 y 17 de diciembre de 1990 una delegaci6n bajo la Jefatura del Dr. Luis Prol, Subsecretario de Empresas Publicas inici6 negzociaciones con funcionarios del BIRF. La delegaci6n mencionada discuti6 las acciones comprometidas, un borrador de una carta politica con el detalle de aquello que el Gobierno se proponia ejecutar asi como compromisos de reducci6n del personal de las empresas puiblicas, especialmente en el sector ferrocarriles y el cumplimiento de una deternninada politica de precios para el sector hidrocarburos.  1.8 La Delegaci6n Arsgentina mostr6 pasos ya ejecutados tal como la privatizaci6n de la mayor linea de carga conocida bajo el nombre de "Linea de Carga Rosario - Bahia Blanca", como principio de ejecuci6n del prourama, asi como avances claros y decididos en el area de las telecomunicaciones. 1.9 En las negociaciones mencionadas se discutieron cuatro tipos de acciones que el Gobierno Argentino se comprometia a ejecutar bajo el Acuerdo de Prestamo PERAL y que recibiera apovo a traves de la Asistencia Tecnica brindada a traves del Proyecto PEREL. En rigor, se trataba de dos Acuerdos de Prestamo, el primero consistente en un Proerama de Ajuste y el segundo en un Programa de Asistencia Tecnica, ambos para la Reforma de las Empresas Publicas. Las acciones comprometidas por el Gobierno fueron: 1. Acciones comprometidas en el campo de las empresas publicas 2. Acciones comprometidas en el sector hidrocarburos 3. Acciones comprometidas en el sector ferroviario 4. Cartas complementarias por las cuales se asumieron compromisos en materia de reducci6n del personal de empresas publicas, politicas de precios y programa de politica econ6mica a ser ejecutado 1.10 La Delegaci6n Argentina adopto el criterio de avanzar en las negociaciones y alcanzar el objetivo de consumar el apoyo del Banco Mundial e iniciar activamente el programa de transformaci6n. Se prioriz6 en consecuencia la idea de poner en marcha el proceso de privatizaci6n contando con la cooperaci6n tecnica y financiera del Banco Mundial. El tiempo diria que la estrategia utilizada y a la luz de la firmeza en las decisiones politicas adoptadas, seria la mas conveniente. La amplitud de los logros obtenidos son prueba elocuente de cuanto hemos expuesto. B. PERFORMANCE DEL BANCO 1.11 Racionalidad del Provecto: El Proyecto fue encarado por el Banco con suma racionalidad proveyendo en todo momento el apoyo oportuno y adecuado para el logro eficaz de los objetivos trazados. 1.12 Disefio. administraci6n y gesti6n: Tanto el disefno de realizacion de un proyecto de la magnitud del que fue encarado, como su administracion y gesti6n constituy6 un exito que debe atribuirse tanto a la experiencia demostrada por el Banco en la materia como en el hecho de haber permanecido estable el staff del Banco a cargo de la gesti6n y administraci6n del prestamo, lo que favoreci6 las acciones operativa comprometidas por las partes y el proceso de los resultados. 1.13 Las metas alcanzadas dentro de las acciones comprometidas por el Gobierno Argentino fueron correctamente evaluadas mereciendo siempre los comentarios ajustados y criteriosos de los fincionarios del Banco, actitud que involucr6 inclusive aquellas recomendaciones que implicaban la toma de acciones correctivas o los comentarios relacionados a avances del Gobiemo mas alla de las acciones comprometidas. 2  1. 14 El Banco breg6 permanentemente por el respeto de las Normas de Contratacion de Consultores, hecho que coadvuv6 tanto a la correcta utilizaci6n de los mismos como a la adecuada asignaci6n de los fondos del PEREL. 1.15 El Staff del Banco realiz6 un permanente y directo monitoreo del provecto a lo largo del mismo v de cuya frecuencia y continuidad dan cuenta los "Aide Memoire" realizados al culminar cada misi6n a los que se sumaron el dialogo cotidiano mantenido via telefonica durante la marcha del trabajo con fincionarios del Banco. 1.16 La Unidad de Coordinaci6n, nexo permanente y obligado entre el Banco y Funcionarios del Gobierno, cont6 con la consideracion permanente de las partes. Todo ello coadyuv6 al desarrollo de un "feed back" dinamico y permanente que permitio el enriquecimiento y consenso en la toma de decisiones. C. PERFORMANCE DEL GOBIERNO 1.17 Conducci6n. coordinaci6n y gesti6n: El Gobierno evalua que los resultados alcanzados en este programa fuieron ampliarnente exitosos, habiendose dado cumplimiento a las metas previstas y a las condicionalidades acordadas con el Banco dentro de los plazos originalmente previstos. Implementaci6n del vrovecto - Resultados 1.18. Los objetivos del Proyecto y la gran mayoria de sus componentes fueron alcanzados a su debido tiempo. Los Sectores 1.19. I. Marco de Reforma de las Empresas Puiblicas 'No hubo variaciones criticas entre las acciones planificadas y las implementaciones Ilevadas a cabo - La Unidad de Coordinaci6n se estableci6 en el tiempo debido Su presupuesto fue definido en la suma de U$S 1.200.000 con una implementaci6n en el tiempo de ahios. Sin embargo estuvo en actividad desde el 10 de enero de 1991 al 31 de diciembre de 1995, dos anios mas de lo presupuestado y con un costo real de U$S 1.3 12.538 Ademas de las actividades relacionadas at PERAL y at PEREL la Unidad de Coordinaci6n implement6 el Japanese Grant Facility (Decreto 1903/92) y el Japanese Grant Agreement for Industrial Modernization and Reestructuring Project (Decreto N