Madagascar - Second Private Sector Development Project

Docurnent of The World Bank Report No: 20988 MAG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 19 MILLION (US$23.8 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR THE SECOND PRIVATE SECTOR DEVELOPMENT PROJECT AUGUST 1, 2001 Private Sector Unit Country Department 8 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective July 2001) Currency Unit = Malagasy Franc (MGF) MGF 6485 = US$1 US$0.00015 = MGF I FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ACM Aviation Civile de Madagascar - Civil Aviation Authority ADF Airport Development Fund CAS Country Assistance Strategy CFEC Center for Facilitation of Enterprise Creation CP Comite de Privatisation - Interrinisterial Privatization Committee CRC Comite de Reflexion pour la Competitivite - Competitiveness Review Comrnittee EMP Environmental Management Plan FASP Fonds d'Appui atu Secteur Prive - Private Sector Support Fund FDI Foreign Direct Investment FIAS Foreign Investment Advisory Services FMI Financial Management Initiative FSADR Fond Social d'Appui atu Developpement Regional - Social and Regional Development Fund GOTICOM Groupement des Operateurs des Technologies de l'Information et Communication -Private Sector Association of ICT Operations GOM Government of Madagascar HASYMA Hasy Malagasy: Cotton Company ICB International Competitive Bidding ICT Information Communications Technology IFC International Finance Corporation IMS Information Management System IPP Independent Power Producer I-PRSP Interim Poverty Reduction Strategy Paper IVATO International Airport of Antananarivo JIRAMA Jiro Sy Rano Malagasy - Power and Water Company MDSPP Ministere dui Developpement dit Secteur Prive et de la Privatisation - Ministry of Private Sector Development and Privatization NBC National Competitive Bidding OECD Organization of Economic Cooperation and Development ONE Office National de 1'Environnement - National Environment Agency Vice President: Callisto E. Madavo Country Director: Hafez M.H. Ghanem Sector Manager: Demba Ba Task Team Leader: Marie-Ange Saraka-Yao  ONE Office National de l'Environnement - National Environment Agency OMERT Office Malgache pour l'Etude et la Regulation des Thl'communications - Telecoms Regulator OMH Office Malgache des Hydrocarbures - Petroleum Regulator PASERP Programme d'Appui Social et Economique pour la Reinsertion Professionnel le Retraining Program PATESP Private Sector and Capacity Building Project PCU Program Coordination Unit PMR Project Monitoring Reports PNSP Programme National d'Appui au Secteur Prive PTF Privatization Trust Fund SADC Southern Africa Development Community SIRAMA Siramamy Malagasy- Sugar Company SODIP Socite pour le Developpement Industriel des Plantes de Madagascar SOLIMA Solitany Malagasy- National Oil company of Madagascar STP Secretariat Technique d la Privatisation - Privatization Secretariat TELMA Telecom Malagasy - Telecommunications Company TOR Terms of Reference USF Universal Service Fund   MADAGASCAR SECOND PRIVATE SECTOR DEVELOPMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 7 2. Key policy and institutional reforms supported by the project 10 3. Benefits and target population 11 4. Institutional and implementation arrangements 11 D. Project Rationale 1. Project altematives considered and reasons for rejection 13 2. Major related projects financed by the Bank and other development agencies 14 3. Lessons learned and reflected in the project design 15 4. Indications of borrower commitment and ownership 15 5. Value added of Bank support in this project 16 E. Summary Project Analysis 1. Economic 16 2. Financial 16 3. Technical 16 4. Institutional 17 5. Environmental 18 6. Social 18 7. Safeguard Policies 20 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 21 3. Possible controversial aspects 21  G. Main Conditions 1. Effectiveness Condition 22 2. Other 22 H. Readiness for Implementation 22 I. Compliance with Bank Policies 22 Annexes Annex 1: Project Design Summary 23 Annex 2: Detailed Project Description 31 Annex 3: Estimated Project Costs 39 Annex 4: Cost Benefit Analysis Summary or Cost-Effectiveness Analysis Summary 40 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 41 Annex 6: Procurement and Disbursement Arrangements 42 Annex 7: Project Processing Schedule 51 Annex 8: Documents in the Project File 52 Annex 9: Statement of Loans and Credits 53 Annex 10: Country at a Glance 54 Annex 11: List of Companies in the Current Privatization Program 55 MAP(S) IBRD 29607  MADAGASCAR Second Private Sector Development Project Project Appraisal Document Africa Regional Office PFG Date: August 1, 2001 Team Leader: Marie-Ange Saraka-Yao Country Director: Hafez M.H. Ghanem Sector Manager: Demba Ba Project ID: P072160 Sector(s): DV - Privatization Lending Instrument: Specific Investmnent Loan (SIL) Theme(s): Energy; Private Sector; Telecom & Informatics; Transport Poverty Targeted Intervention: N Program Financing Data I j Loan [X] Credit [ ] Grant [ Guarantee [] Other: For Loans/CreditslOthers: Amount (US$m): 23.8 Proposed Terms (IDA): Standard Credit Financing Plan (US$m): Source Local Foreign Total BORROWER 5.84 0.00 5.84 IDA 0.00 23.80 23.80 Total: 5.84 23.80 29.64 Borrower: REPUBLIC OF MADAGASCAR Responsible agency: MINISTRY OF PRIVATE SECTOR DEVELOPMENT AND PRIVATIZATION Address: Ministry of Private Sector Development and Privatization, Antananarivo, Madagascar Contact Person: Secretary General of the Ministry Tel: (261-20) 22-666-67 Fax: (261-20) 22-601-38 Email: magpriv(dts.mg Estimated disbursements ( Bank FYIUS$m): FY 2002 2003 2004 2005 | 2006 Annual 5.30 4.90 5.40 5.20 | 3.00 - Cumulative 5.30 10.20 15.60 20.80 23.80 Project implementation period: 4 Expected effectiveness date: 12/31/2001 Expected closing date: 06/30/2006 CS PD F- R. "dh, NW  A. Project Development Objective 1. Project development objective: (see Annex 1) The objective of the proposed operation is to enable the Government of Madagascar (GOM) to improve access, reliability, and affordability of key utilities, including transport. The proposed project is a follow up to the Private Sector Development and Capacity Building Project (PATESP, Cr. 2956), specifically the market deregulation and divestiture component which has been fully disbursed. The objectives will be achieved by: (i) completing the divestiture of four key state-owned enterprises (SOEs) and 30 small and medium-sized enterprises as well as liberalization reform in corresponding sectors (agro-industry, air transport, energy, finance, and telecommunications), thereby improving efficiency of the companies and creating opportunities for new private entry and investment; and (ii) strengthening the capacity of GOM to regulate sectors in which private participation is sought. 2. Key performance indicators: (see Annex 1) The following key indicators, agreed with the Government, will be monitored throughout the project to assess achievement of the development objectives (for detailed information, see Annex 1): Impact/Outcome indicators * Private investment in the targeted sectors increased by US$ 100 million annually from 2004 to 2007. Telecommunications * The number of telephone lines (fixed line + mobile) per 100 inhabitants (penetration rate) increased from 0.8 percent in 2000 to 1.5 percent in 2004; I lnternet users increased from 10,000 in 2000 to 40,000 in 2004, and 60,000 in 2005; and * Telecom services rates will be reduced by end 2006 in line with the average rate of telecom services of countries in the region facing a level of competition in their telecom sector similar to that of Madagascar. Transport v Cost of international and regional airline tickets reduced in line with published economy and charter fares for competing destinations (such as Reunion) by 2004; and * Ground handling fees will be reduced by 8 to 10% by 2004. Output Indicators Regulatory framework * The regulatory framework for the insurance sector comprising of application decrees mentioned in the insurance code has been adopted in 2003. Capacity Building * The regulatory agencies responsible for civil aviation, petroleum, and telecommunications are fully operational by December 2003 and have established monitoring procedures to ensure compliance with technical and economic regulations, and national environmental norms and World Bank Group (WBG) policies; * The council of insurance and the authority in charge of oversight and monitoring of the insurance sector are fully operational in 2004, have established yearly procedures to ensure compliance of - 2 -  insurance institutions to international standards and are disclosing a yearly statistics report on the sector's activities by December 2004; and * The Center for Facilitation of Enterprise Creation (CFEC) is adequately funded, staffed and fully operational by December 2003. Privatization Privatization transactions are completed in the time-frame below, in compliance with transparency and competition rules acceptable to the WBG: * Telecoms Malagasy (TELMA) completed by 2002; * Sugar Company (SIRAMA) completed by 2002; * International Airport of Antananarivo (IVATO) completed by 2003; * Cotton Company (HASYMA) completed by 2003; * Ten percent of shares of the targeted private enterprises have been transferred to the Privatization Trust Fund (PTF) at the closing of each transaction; and * PTF has offered these shares for sale to local small investors. New PSD activities * New strategies in priority sectors identified by Government adopted by 2003; * The Center for the promotion of micro and small enterprises (OMPE) is fully operational in 2003, adequately staffed and has established adequate procedures to support MSEs; and * Product development and training services provided to ten local start-ups by 2005. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 16249-MAG Date of latest CAS discussion: 02/18/1997 The main objectives of the latest CAS are to reduce significantly poverty through high growth rates coupled with quantum leaps in investment. The recently adopted Government's new interim Poverty Reduction Strategy Paper (I-PRSP) advocates even higher growth rates (est. 6.3 percent per annum) to improve the living conditions of the population. Quality of life is expected to be improved by: (a) improving economic performance to create more opportunities for the poor; and (b) providing key essential services to the poorest. The improvement in economic performance is expected to arise from the completion of the Government's ongoing financial and economic reform program, including implementing legal frameworks promoting clear business rules, foreign direct investment and local enterprise development in sectors with high growth potential (tourism, mining, manufacturing, telecommunications, shrimp), finalizing the privatization program, and expanding and modernizing infrastructure. The proposed project directly supports the goal of improving economic performance. Specifically, the Project will contribute to improved efficiency and expansion of key infrastructure services, identified in the I-PRSP as the main constraints to potential sources of growth. It will do this by: (a) strengthening regulatory capacity, the national financial sector and streamlining business processes to encourage private entry and competition in sectors with key bottlenecks. Competition between charters in air transport will result in lower air fares which will benefit local tourism, a sector targeted for its high growth potential. Improvements in air transport will also facilitate the development of competitive air freight, critical for national and regional trade of perishable agricultural products. The mining and manufacturing sectors will also benefit from - 3 -  provision of reliable, affordable telecommunication services; and (b) promoting increased private investment in I-PRSP targeted sectors in need of rehabilitation and expansion through Government divestiture, foreign direct investment, and implementation of private participation strategies for expanding access to basic services. The expected increase in private investment (as a result of improved transparency, strengthened regulatory capacity and local entrepreneurial support activities included in the proposed project) will create employment for both the urban and rural population. The new services and facilities will significantly improve the access of the population to key utilities, including telecommunications and transport. In addition, the proceeds from privatization and cost savings from reduction of subsidies to public enterprises will enable the Government to upgrade and expand essential public services to the poor. 2. Main sector issues and Government strategy: In 1993, despite the implementation of the 1988-1993 divestiture program of small- and medium-sized companies, public enterprises were still the rule rather than the exception. A review of the 1988 privatization program and private sector surveys detailed in a Bank Private Sector Assessment highlighted key constraints to private sector development: public monopolies and market restrictions limiting private entry as well as an unclear legal framework, significant cumbersome and arbitrary business regulations, lack of business confidence in government program, heavy taxes, and lack of institutional support to local private businesses. In 1996, the GOM embarked on a program to encourage private sector development trough significant changes in the business legal environment, liberalization, and privatization of key monopoly sectors. The privatization program included approximately 50 companies, of which eight of the largest SOEs and two financial institutions were the focus of Bank support. The focus of privatization on key sectors was to visibly disengage the state, signal visible economic opening to turn around investor confidence, unblock private activity by addressing sectors with key bottlenecks and monopolies, and maximize the impact of change thereby making a clean break from previous over regulating and arbitrary policies. From 1996 to present, the two state-controlled banks were privatized and the financial sector was restructured. As of today, the banking sector is sound, and adequately regulated. A privatization law establishing a clear framework for privatization implementation was adopted. Moreover, before the conclusion of privatization transactions, the GOM liberalized the air transport, railway, petroleum distribution, and telecommunication sectors by adopting liberalization laws in 1997 and application decrees and later setting up autonomous regulators. New private operators entered the telecommunications (cellular and internet providers) and air transport (Charter companies) sectors and have contributed to a doubling in the number of telecommunications subscribers and international tourists and a 50 percent reduction in tariffs. Implementation of these reforms is reported to have significantly contributed to putting the economy back on a growth path with real GDP growth of 3.6 percent in 1999 and 5 percent in 2000, outpacing population growth for the first time in a decade. Privatization transactions of roughly 20 small and medium-sized agro-industry companies and the main railway and petroleum distribution companies were also recently completed. These transactions have contributed to a significant increase in the number of private operators and the introduction of meaningful competition. Investments committed by private operators are also expected to be significant. Given the recent closure of these transactions, the impact of privatization in terms of economic efficiency might not be tangibly felt before a three-year period as experienced in other international privatization programs. It is expected that providing a sufficient time lag for implementation will allow positive results to be realized as in the case of telecommunications liberalization and bank privatization, which started four years ago. - 4 -  In the context of a multi-donor-supported effort led by UNDP, in May 2000 the Government adopted a Programme National d'Appui au Secteur Prive (PNSP) which lays out the country's strategic vision for private sector development. A survey conducted by the Foreign Investment Advisory Services (FIAS) on the private sector and the mid-term review (MTR) of the on-going project, PATESP, (see Annex 8: Project files) were carried out and enabled the GOM and WBG teams to identify the remaining key constraints, which, if not adequately addressed, would hinder the growth of the private sector: (a) very recent experience of GOM in regulating sectors where private participation is key to scaling up service delivery and access. With new private entrants as a result of liberalization, there is a need to ensure that existing technical, economic and environmental regulations are complied with. To deal with this issue, GOM has separated policy-making from regulatory functions, which in the past were the combined responsibility of sectoral ministries, and established autonomous regulatory agencies. The GOM now intends to strengthen the capacity of these agencies to effectively perform their oversight functions through technical assistance and twinning arrangements with experienced agencies. (b) the significant presence of major SOEs, utilities, transport, manufacturing and agro-industries, resulting in poor quality of services, low levels of access, high cost of service, and negligible levels of private investment. In two years, the GOM has already implemented the liberalization and privatization of key sectors to start breaking up monopolies. To deepen its efforts in other sectors, the GOM's strategy is to accelerate current efforts to promote new entry in sectors and transfer control of remaining existing assets to private sector operators. In addition, the GOM will strengthen the supervision of policy and regulatory frameworks to maintain incentives for the private sector to invest and help reach targets for access, efficiency and coverage in line with the I-PRSP objectives. (c) wavering commitment of Government to the institutionalframeworkfor divestiture, which can result in poor sequencing between liberalization reforms, privatization and establishment of clear regulatory frameworks and capacity. At program launch, the responsibilities for developing sector reforms and privatization transactions were entrusted with sector line ministries and an independent Privatization Commission. Given the magnitude of measures that still need to be implemented and the need to coordinate and sequence these measures properly, the GOM has appointed a minister in charge of private sector development (PSD) and privatization, thereby signaling its commitment to PSD and the priority it gives to reducing its role in commercial activities. An inter-ministerial privatization committee headed by the PSD minister has been set up and is supported by a secretariat, Secretariat Technique a la Privatisation (STP) which is fully empowered to carry out all technical work and apply all transparency requirements. The inclusion of key sector ministers in the interministerial privatization committee has clearly helped them understand and support the privatization and liberalization reform, improved the sequencing of liberalization reforms and privatization and encouraged coordination of the teams. This institutional setup has been operational for the past year and the mid-term review of privatization carried out since its establishment confirmed its effectiveness. The recent adoption of the PSD strategy is also a testimony of the effectiveness of the new setup. (d) low level of domestic private sector response to the sale of assets as well as to new business opportunities created by the liberalization, particularly in new sectors. The GOM has encouraged the formation of consortium of intemational and local private shareholders to promote the participation of local operators in the divestiture program. Moreover, to broaden local ownership - 5 -  of small shareholders, the GOM will reserve and transfer a percentage of shares of companies to the PTF to be privately managed and empowered to sell shares either directly to small local shareholders or through a mutual fund. (e) cumbersome business proceduresfor private sector entries and exits. To tackle this issue, the GOM sought the assistance of FIAS to review its business procedures and advise on the streamlining of business procedures. On the basis of study findings, the GOM set up the CFEC for private investors. This center, which brings together key services involved in the processing of administrative and business procedures, is responsible for implementing the streamlined procedures, and providing consultation and up-to-date infornation on legislation and initiatives for promoting private investments. The GOM will strengthen the capacity of the center to deliver efficient services. 3. Sector issues to be addressed by the project and strategic choices: The proposed project will focus on two key issues. (a) Improving the transparency of the liberalization and privatization process The project will focus on improving the transparency of the reform process by providing hands-on assistance to strengthen capacity of the regulatory and privatization agencies, the CFEC and the financial sector (in particular the insurance sector and the social security system). In particular the project will assist these agencies in: (i) ensuring successful separation of the policy-making and regulatory functions of public agencies; (ii) building up the regulatory capacity through training (with courses and hands-on advisory services), twinning with overseas agencies, enabling legislation in investigation and enforcement of sector and environmental standards, and providing modem management information systems; (iii) moving toward financial autonomy of the regulatory agencies, and introducing and implementing industry levies; (iv) implementing the liberalization of the insurance sector; (v) improving investor confidence through business facilitation services and streamlined administrative procedures; (vi) strengthening the financial system to allow the development of financial products tailored to the needs of the private sector; and (vii) applying best practices in privatization transaction procedures, incorporating transparent and competitive procedures with the assistance of intemational technical and financial specialists. (b) Broadening local ownership participation The project intends to scale up local private participation in the divestiture program and new business initiatives in priority sectors to be identified by the Government. It would do so by providing advisory services to: (i) complete the privatization transactions in which local investors will be invited to bid in a joint venture with foreign equity and technical partners; (ii) recruit a private fund manager to establish procedures for distributing shares or mutual funds which will contain a stipulated share of each divested firm; (iii) facilitate the expansion of indigenous local firms, in particular micro-enterprises which will be provided start-up services. These activities will be carried out with the support of private industry associations; and (iv) improve the business environment through regulatory reforms designed to ensure market-based competition. In particular, regulatory agencies would deter anti-competitive practices of incumbent and dominant fimns to ensure a level playing field needed to foster the growth of new and small indigenous enterprises. -6 -  C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component 1: Regulatory and Capacity Building The objective of this component is to provide hands-on support to strengthen the regulatory capacity of the three autonomous sector regulators (air transport, petroleum and telecommunications). In particular, it aims to improve their efficiency in undertaking technical and economic regulation, and monitoring environmental hazards in compliance with national legislation, sector standards and WBG policies. In addition, this component will build the in-house capacity of the CFEC and strengthen the financial system, in particular the insurance sector. This support is expected to last for two years, which is the estimated time needed for these autonomous regulators to become self-financing from the fees levied from various activities (licensing, permits, certification, etc.). In the telecommunications sector, consultant services, goods and training will be funded under this sub-component. Following the establishment of the Office Malgache pour l'Etude et la Regulation des Telecommunications (OMERT) and the telecommunications regulatory framework under the PATESP, additional assistance to strengthen the existing regulator is needed. On-the-job training will be financed for OMERT staff on regulation aspects (e.g., interconnection, tariffs, universal service obligations). Following a technical assessment to identify specific equipment needed on spectrum management and monitoring issues, goods will be provided to strengthen the spectrum management system. Consultant services will be provided for the implementation of a rural strategy and a plan to roll-out services in rural and peri-urban areas (including allocation and funding mechanism). In the air transport sector, information system and telecommunications equipment and communication advisory services will be financed to allow the civil aviation regulator, Aviation Civile de Madagascar (ACM), to inform operators on the reform and to monitor sector operations and information in a timely and reliable manner, and adopt the necessary preventive measures. In the petroleum sector, advisory services, works, and goods will be funded under the component to strengthen the regulatory capacity of the Office Malgache des Hydrocarbures (OMH). The monitoring function of the OMH in the petroleum sector would include all downstream activities by the private sector to ensure full compliance with the latest regulations and petroleum products specifications. On the regulatory side, twinning arrangements will be concluded between OMH and an experienced intemational firm for an 18-month period to provide on-the-job training on how to practically implement award licensing procedures developed under the previous project, and monitor technical, quality and safety standards. OMH will also be provided expertise to monitor pricing mechanisms during the three-year transition period to full liberalization of the petroleum sector. In addition, the project will finance an environmental audit of the petroleum sector, originally scheduled to be financed under an energy sector project. The national petroleum company, SOLIMA, was privatized under a previous project. The private operators selected under this privatization have requested that, prior to completion of the privatization transaction, an environmental baseline audit be carried out to identify pre-existing environmental problems, assess potential environmental damages, and agree on risk-sharing and financing arrangements for any mitigation measures identified by the audit. According to the national legislation in Madagascar, the national environmental agency, ONE, is responsible for formulating environmental guidelines and standards while each sector regulator is responsible for monitoring - 7 -  compliance with the guidelines. To allow OMH to fulfill its mandate, as part of the environmental audit, works will include the purchase of equipment to allow the monitoring of products and ensure compliance of operations to environmental standards. Under this sub-component, advisory services will also be provided to enable OMH to ensure that a resettlement action plan involving squatting families near the pipeline in Tamatave will be financed and implemented by the private owners in compliance with international and national guidelines. It is acknowledged by all parties that it is as yet uncertain what the precise scope of the mitigation measures identified by the audit will be. Therefore, no conclusive arrangements for the financing of these measures can be made at the present time. However, in order to give comfort to parties that financing will be available to implement mitigation measures that comply with international standards and Bank policies, once the audit results are available, if requested by the Government, the Association would be willing to work with the Government to consider alternative financing scenarios for these measures. The Centerfor Facilitation of Enterprise Creation: To facilitate entry into the sector, this component will also help in the streamlining of business procedures pertaining to the creation of companies by funding advisory services, goods and operating costs for the implementation of the CFEC. A feasibility study of the center carried out under the PATESP shows that the number of procedures can be easily reduced from 14 to 3. The component aims to strengthen the center's capacity in carrying out streamlined procedures, and providing consultation and up-to-date information on legislation and initiatives affecting private investment. This component will also finance advisors to help streamnline the process, a communications information campaign to widely inform investors about streamlined and simplified procedures as well as purchase technology-based equipment. Strengthening of the Financial System: This component will also contribute to the strengthening of the financial system to better support the Government's on-going economic reforms. Consultant services will be financed to develop the regulatory framework of the insurance sector and implement the reformn of the social security fund (CNaPS). The capacity of regulatory and over-sight agencies (Insurance Council and Oversight Authority) will also be strengthened through training and twinning arrangements with international financial organizations. Component 2: Transaction Implementation Under this component, three main activities will be financed: (i) institutional capacity; (ii) a local ownership development scheme; and (iii) privatization implementation. Under thefirst sub-component, the STP will be strengthened. At the STP, technical assistance will be provided by international advisors, as needed, who will focus on strengthening in-house capacity to ensure successful management of upcoming complex transactions, such as the concessioning of the main airports and the sale of the telecommunications company. Given the experience acquired by the privatization agency in the management of simple transactions, it is not expected that substantive support will be needed to complete privatization of the small and medium-sized companies. It was originally forecast under the PATESP that part of the privatization proceeds will be used as a revolving fund to finance assistance for the privatization of small transactions. However, this arrangement is contrary to the Malagasy legislation which requires that all proceeds be transferred to the Treasury. It was therefore necessary to include in this project an additional allocation to finance assistance for privatization of small and medium sized enterprises. Capacity will be strengthened in the STP for overseeing the environmental screening and audit process of the companies to be privatized. The STP will recruit a local environmental consulting firm. An international environmental expert will be hired and will assist the local firm to build its capacity and assist in the preparation of TORs for audits, the selection of consultants to conduct the audits, review and - 8 -  supervision of their work. The international environmental expert will be responsible for ensuring timely delivery of audit reports prior to divestiture to meet the agreed timetable, and will be assisted by a local consulting firm who will receive practical training to later carry out the activities. The environmental expert at the STP will also liaise with an environmental specialist at the ONE who will be appointed as liaison for overseeing environmental aspects related to the privatization program. Advisory support will also be provided to the team in charge of the retraining scheme, Programme d'Appui Social et Economique pour la Reinsertion Professionnelle (PASERP), to scale up activities in support of retraining. A retraining fund will be financed to cover the cost and financial allocations related to the provision of retraining and placement services. Arbitration mechanism will also be strengthened to allow the fast resolution of disputes arising from the execution of the privatization program and to support private sector growth. Under a local ownership scheme sub-component, expertise will be brought in to manage the process of selling PTF shares to local investors. The component will support financial advisory services to the Fonds de Portage et de Privatisation team to: (a) implement the minimum regulations and safeguards applicable to the FPP; (b) hire a private fund manager to oversee and manage the fund; (c) set up a registry for shares; and (d) explore the feasibility of developing mutual funds. The capacity of local fund managers will be strengthened. To address the issue of insufficient public relation consultations, which was raised during the mid-term review, an intensive communications campaign will be launched, including regular widely publicized communications events and seminars for journalists. The privatization implementation subcomponent will support completion of the remaining key companies and small and medium-sized enterprises of the current privatization program: telecommunications, the main airports, and agro-industrial companies (sugar, cotton). The component will provide funding for advisory services. Specifically, financing will be used to recruit outside consultants to assist in the structuring and closing of the transactions. These consultants include investment banks for the large complex transactions, legal consulting firms, and audit firms. Given changes in the international and national context, advisory services will be provided to update and finalize privatization strategies in particular for the agro-industrial companies. Drawing from the lessons of past transactions, intensified legal advisory support will be provided to resolve land and title issues pertaining to ownership transfer. On the basis of a pre-environmental screening and ranking of all companies being privatized under the component, environmental audits of selected environmentally sensitive companies will be carried out and partial audits will be carried out for the telecommunications, international airport and the cotton company. Component 3: Developing new PSD activities Under this component, two types of activities will be financed: i) support to the operational set up of the OMPE, a center recently created to coordinate activities of micro and small enterprises (MSE) and to provide services to support their efficient development; and (ii) strategies to support the implementation of the I-PRSP will be formulated. Under the first sub-component, advisory services will be provided to develop a strategy to promote MSEs and to develop services through the OMPE to allow MSEs to access market information and technology. Under the second sub-component, the objective is to jump-start the development of priority sectors identified by the Government using pilot projects. The component is expected to assist the Government in developing new PSD strategies. Consultant services will be provided to assist the GOM in articulating its vision and developing Strategies (e.g., elements of an adequate policy and regulatory framework in critical sectors) and Implementation Plans (e.g., specific projects, activities and actions required to implement the strategies; the institutional mechanisms required to coordinate and support the changes proposed). In -9-  addition, under the component, assistance will be provided to new local start-up businesses. As the executing agency for all components, the STP will be responsible for managing one special account and will be strengthened accordingly. Indicative Bank- % Of Component Sector Costs % of financing Bank- (US$M) Total (US$M) financing 1. Regulatory and Capacity Building (a) Petroleum regulator 4.92 16.6 4.00 16.8 (b) Telecoms regulator 5.00 16.9 3.50 14.7 (c) Civil aviation authority 0.28 0.9 0.20 0.8 (d) CFEC 0.64 2.2 0.50 2.1 (e) Strengthening of the financial 0.95 3.2 0.75 3.2 system 2. Privatization Implementation (a) Institutional capacity 7.10 24.0 5.89 24.7 (b) local ownership scheme 0.44 1.5 0.43 1.8 (c) Privatization transactions 8.58 28.9 7.16 30.1 3. Development of New PSD Activities (a) OMPE 0.43 1.5 0.30 1.3 (b) PSD Strategies in support of PRSP 1.30 4.4 1.07 4.5 Total Project Costs 29.64 100.0 23.80 100.0 Front-end fee 0.00 0.0 0.00 0.0 Total Financing Required 29.64 100.0 23.80 100.0 2. Key policy and institutional reforms supported by the project: The proposed project will directly support the implementation of key policy and institutional reforms at the core of the I-PRSP: Promotion ofprivate sector participation in key economic sectors: The proposed project will contribute to the I-PRSP objective of increasing private sector investment in basic infrastructure services and the development of high potential sectors. The project will directly support the completion of current liberalization and divestiture efforts in selected infrastructure sectors and the financial sector. In particular, the proposed project will provide assistance to increase the efficiency of the regulators in promoting entry of new service providers, ensuring compliance with specific targets (investment, geographic coverage, rural population, safety and environmental standards), and improving the quality of monitoring of results. In the area of privatization, the proposed project will assist in maximizing the success of program objectives, i.e., improving availability and quality of services to the whole population at competitive prices, increasing foreign and local investment, and eliminating eventual burdens on fiscal accounts. Improvement of institutional governance: Improved govemance is at the core of private sector development measures. The proposed project will support the building of institutions responsible for effective enforcement of transparent rules of operation. Specifically, the proposed project will help in operationalizing procedures for regular disclosure of information through a public information campaign, compliance with competitive rules, the setting of clear and objective criteria for sector entry, enterprise - 10 -  divestiture, publication of bidding results and monitoring of the performance of service providers. 3. Benefits and target population: The benefits of the program are expected to be significant for the economy as a whole. Benefits will accrue to the population at large as it is expected that competition between operators, more efficient management of activities by the private sector, less Government interference, and capital inflow will result in greater access of the population to affordable infrastructure services. Specific targets to be met by operators in remote areas will also ensure better and cheaper access to basic services by the poor. Increased private sector participation in activities previously carried out by GOM will generate cost savings which can be reinvested by GOM to expand services for the poor. For the local private sector, benefits are expected to be significant as the project focuses on completing reforms in areas which will facilitate the development of local entrepreneurship. The financial sector reform will allow the development of financial products in particular insurance products suited for the financing needs of the local enterprises. By targeting selected sectors such as transport and telecommunications, it is likely that through a multiplier effect, the benefits of improved access and competitive rates will spill over into other sectors, such as manufactuning, tourism, exports and trading of agricultural products. In the telecommunications sector, experience has shown that liberalization and privatization encourage job creation because these reforms facilitate the entry of small local providers as activities are unbundled and out-sourced. In particular, liberalization of access to modem forms of communication generates income and improves export competitiveness, reduces transaction costs and creates better trade and market opportunities. Simplified procedures for enterprise registration, and easier and cheaper access to key business services will result in reduced transaction costs and lower barriers to entry, encouraging efficient private sector activities. The building of a more conducive environment, the strengthening of the financial sector, improvement of the governance of key institutions, and execution of the divestiture program will send powerful signals to the business community and will thus help build confidence in the country and attract tangible investments. 4. Institutional and implementation arrangements: The Program Coordination Unit (PCU) within the Ministry of Privatization and Private Sector Development (MDSPP) will be responsible for overall program orientation and implementation. It will be a lean structure. Key PCU staff will be drawn from the existing staff of the PATESP, in particular, the MDSPP General Secretary, and will be assisted by an executive in charge of project control, monitoring and evaluation and an assistant. The PCU will assure overall project oversight, contract out project audits and interface between IDA and the borrower. The PCU staff will be constituted prior to credit effectiveness. The executing agency for all components will be the STP. This agency will be responsible for carrying out all activities except the management of the environmental audit contract, which will be entrusted to a selected firm. The STP will also ensure: (i) the preparation of its annual work program and the related procurement plan; (ii) the management of disbursement procedures; and (iii) the record-keeping and preparation of financial statements (Project Management Reports) required for the project management and monitoring. The agency should have an agreed organizational structure and qualified staff in financial management and procurement prior to Credit effectiveness. For the environmental audit of the petroleum sector, a management contract acceptable to IDA will be signed between the borrower and a firm selected through a competitive bidding process. This contract will specify the responsibilities of the selected firm - 11 -  and the management fees to be paid for the services rendered. Financial Management During pre-appraisal, an assessment of the financial management of the STP was carried out by a Bank/IDA financial management specialist. This review determined that the current situation, in the STP, does not satisfy the Bank's minimum financial management requirements. To address the issues, the agreements described hereafter were reached regarding financial management arrangements. The STP will maintain the accounts for all transactions related to the project and will produce financial statements in accordance with internationally accepted accounting principles and WBG Guidelines (FARAH Manual and Project Financial Management Manual published by the World Bank and dated January 1995 and February 1999, respectively). For this purpose they will use the accounting software TOMPRO acquired under the first "Private Sector Development and Capacity Building" Project. To strengthen STP financial management system, an agreed action plan by the borrower has been defined. The main measures to be taken include: (i) clear definition of the STP's organizational structure and responsibility assignments; (ii) update and harmonization of the STP's Chart of Accounts to reflect useful categories (project components, activities) detailed in the PAD and to facilitate the consolidation of the project financial statements; (iii) update of the existing accounting manual of procedures to ensure adequate safeguard of assets and timely preparation of reliable information; and (iv) appointment of the key staff for the PCU and the STP (project coordinator, controller, chief accountant, accountant and procurement specialist). The accounting manual of procedures will describe project accounting system as well as internal control procedures to be applied to ensure adequate safeguard of assets and timely preparation of reliable information. Those measures are expected to be completed prior to credit effectiveness. Prior to credit effectiveness, a Bank/IDA Financial Management Specialist will evaluate the progress made by the project (PCU and STP) in the implementation of aforesaid corrective actions to strengthen project financial management system. Project Management Report (PMR) In accordance with Bank policy and procedures, the project needs to adopt a financial management and reporting system in compliance the Financial Management Initiative (ex-LACI). But given the lack of capacity of the accounting software presently used within the context of Private Sector Development and Capacity Building Project and since the accounting staff is not very familiar yet with the Financial Management Initiative procedures, it is more efficient for the project to run, during the first eighteen months of the implementation from the credit negotiation date, with the traditional disbursement methods. The transitional reporting requirements during this interim period are: (i) the basic financial statements; and (ii) on quarterly basis: * Sources and uses of funds; * Procurement Management Report (a Contract Expenditure Report- Goods & Works, a Contract Expenditure Report- Consultants, a Procurement Management Report- Goods & Works and a Procurement Management Report- Consultants). In addition, the PCU in collaboration with the STP and OMPE should comment on progress of important aspects of the project. - 12 -  To strengthen the project capacity to produce PMR, a consulting firm selected on a competitive basis will be recruited during the interim period to design and implement a new computerized system that should in particular facilitate: annual progranuning of activities and project resources, accounting, financial and budgetary management of the project, procurement management, follow-up of project implementation progress, monitoring of key indicators to assess the results and impact of the project, preparation of progress reports and Project Management Reports as required by the Financial Management Initiative. Before the end of this interim period and once the new accounting software is in place, an assessment will be carried out by a Bank/IDA financial management specialist to determine whether the project has in place an adequate financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project (PMR/FinMI) required by the Bank/IDA. PMRs are expected to be prepared with the new software by October 2002 according to the timteable agreed upon and recorded in the minutes of negotiation. Auditing The project financial statements (for all components) will be audited in accordance with international audit standards by independent and experienced auditors acceptable to IDA. The auditors will review and provide opinions on financial statements, the special account and statements of expenditures. The auditors will also be required to carry out a comprehensive review of the internal control procedures and provide a management report outlining any recommendations for their improvement. The auditors' report will be submitted to IDA not later than six months after the end of each fiscal year. The terms of reference of the audit will be reviewed with a WBG financial analyst. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Two alternatives to the proposed project were considered: (a) supplemental financing for PATESP; and (b) strengthening of sector projects. Supplemental financing for the economic policy support component of the PATESP was considered in view of the urgent need for financing to complete ongoing project activities and support the Government's economic reform program. This alternative was rejected for the following reasons: (a) conditions for undertaking supplemental financing per the operational guidelines were not strictly met; and (b) the additional financing necessary to carry out the remainder of project activities, particularly in the area of regulatory capacity building, drafting of environmental guidelines, and legal and transaction advisory services, would be a larger proportion of the original credit than what is normally acceptable for supplemental financing. The second altemative considered was the strengthening of technical ministries through sector projects to carry out the privatization and liberalization program. This approach, which was the one originally adopted in 1997 with the PATESP and other sector projects, was not selected because the MTR findings stressed the practical difficulties experienced in ensuring the coordination of all institutions and the sequencing of reforms and privatization implementation. In 1998, the institutional framework was changed to bring in technical ministers and the privatization minister in an interministerial privatization committee which is the key decision-maker on privatization and where a critical mass of knowledge could be built and centralized. The change of composition of the privatization agency with inclusion of the technical ministries into the committee has allowed the buy-in of these ministries into the process and has made them responsible and accountable to the reform program they have agreed to carry out. This change has allowed the timely - 13-  adoption of the application decrees before the closure of transactions. On the basis of the MTR conclusions, a follow-up project was proposed to capitalize on these existing institutional arrangements and on the critical mass and in-house technical and transaction capacity already achieved within the Secretariat and interministerial privatization agency under the previous project. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision fsSector issue00u; 00; 0 t000 00: t000ac -0Proi4Ett ;ft0t (PSR) Ratings (Bank-fInance proJect; only) Implementation Development Bank-financed Progress (IP) Objective (DO) Most recently completed: Structural Reform SAC I: Cr. 2937 S S Financial Sect. & Private Enter. Dev. APEX: Cr. 2104 S S Financial Institutions Development FINDEP: Cr. 2497 S S Energy Petroleum Sector Project S S Active projects: Structural Adjustment SAC II: Cr. 3218 S S Private Sector Development & PATESP: Cr. 2956 S S Capacity Building Project Transport Transport APL I: Cr. 2364 Energy Energy II: Cr. 2844 S S Mining Cr. 3111 S S Other development agencies French Development Agency Small Enterprise Development French Development Agency Telecommunications investment project French Development Agency Transport Investment project European Union FED Transport Investment project USAID Support to Business Legal Reform IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: IDA has been involved in private sector development activities in Madagascar through four technical assistance projects (Financial Sector, APEX, Mining, and PATESP) and two adjustment operations (SAC-I and SAC-2) between 1996 and 2000 totaling SDR 167.3 million. These operations shared common characteristics, including a slow start-up as a result of inexperience, followed by an acceleration of activities resulting in satisfactory completion of reforms. Several lessons can be drawn from these past projects and applied to private sector development in Madagascar. Strong and firm commitmnent from the highest levels of govermment is crucial to successful project implementation. In the past, once agreement and consensus were reached on institutional arrangements, - 14 -  project activities began and ultimately picked up. The proposed project is building on the successful institutional arrangements in place to carry out its activities. Previous projects were designed on the premise that the private sector project would focus on the transaction side while sector projects would accompany the program with sector reforms. This design significantly hampered project implementation because of timing and sequencing of reform execution and privatization. Privatization was also hindered by the slow pace of reform by line ministries and later, by the implementation difficulties of sector-related projects which were canceled or delayed. As a result, it is proposed to transfer the execution of sector and regulatory measures deemed critical to ensure proper minimum safeguards to the new project under the leadership of the interministerial privatization agency. Medium-term sector policy development will be left under the responsibility of the line ministry. The inclusion of social mitigating measures and participatory schemes to allow the participation of nationals in the privatization program have been critical ingredients of success of the previous projects in ensuring Government willingness to tackle these difficult reforms and in gaining the support of the population. The proposed project will support local participation through the operationalization of specific distribution mechanisms to transfer PTF shares to local shareholders. Finally, past experience has shown that an intensive public information campaign should be sustained throughout the life of the project to ensure continued support of the stakeholders for reform. In the proposed project, focus will be placed on delivering regular communications to the local communities. 4. Indications of borrower commitment and ownership: Over the past two years, the GOM has expressed its continued commitment to the promotion of private sector participation by delivering successful results. In the area of privatization, it has divested itself from the entire banking sector, the petroleum sector, the railways and other SMEs in agro-industry. In the area of business promotion, in response to private sector surveys led by the FIAS, the GOM created the CFEC which, once in operation, could reduce the number of administrative procedures from 14 to 3 and processing time to 24 hours. In addition, the GOM developed a consistent and frequent dialogue with the private sector through the Competitiveness Review Committee (CRC) launched under the PATESP to consult on reforms likely to impact the private sector, such as tax reforn and decentralization. Recently, the GOM reaffirmed its commitment to the unfinished agenda for increased private sector development in the I-PRSP and in adopting the PNSP. 5. Value added of Bank support in this project: Through various credits to Madagascar, in particular through the execution of the Financial Sector Project and the PATESP, IDA has developed an extensive knowledge of the cross-sectoral issues affecting the private sector in Madagascar. The WBG has taken the lead in most regions, and in particular in the Africa region, in assisting the execution of such programs. It has developed first-hand practical knowledge of the issues faced by the local private sector, in particular given the low level of savings and financial intermediation. The WBG has also acted as a pioneer in designing programs with a unique blend of foreign direct investment and local investments. Its leadership role in privatization efforts in Latin America in the 1980s has produced significant lessons which can be integrated into the design of new programs. In the infrastructure sectors, in particular in the air transport, power, and telecommunications sectors, IDA - 15-  holds a recognized knowledge advantage on reformn issues. It has a unique experience in helping country clients design and implement reforms in these sectors. Its involvement in the sub-region, notably with SADC, will allow Madagascar to harmonize its sector policies in line with its neighbors and potential strategic business partners. Moreover, the importance of the IDA portfolio currently being carried out has brought about invaluable benefits in addressing cross-sectoral issues affecting private sector development. Finally, the composition of the team, which draws from the cross-country experience and expertise of staff corning from regional departments and global practices, including IFC, uniquely places IDA in a position to respond to the GOM's request for assistance with a pool of staff which can be flexibly deployed. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): o Cost benefit NPV=US$ million; ERR = % (see Annex 4) O Cost effectiveness * Other (specify) The proposed operation aims at supporting the development of an environment conducive to private participation and competition in key sectors targeted under the interim PRSP. The proposed liberalization and privatization reforms are expected to result in improvement in access, reliability and affordability of key services (utilities, transport) which in turn will impact the productivity of other economic sectors such as agriculture, tourism. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Not Applicable Fiscal Impact: Not Applicable 3. Technical: The proposed key performance indicators detailed in Annex 1, have been developed on the basis of Government sector objectives and on the basis of coverage targets set in the draft licenses and sales contracts to be issued during the tender calls for private sector participation. Depending on the investors market general outlook and appetite in particular vis a vis the currently volatile air transport market, private operators actual bid proposals and final negotiations, these targets may have to be revised during the course of the project to reflect final contractual arrangements reached between the Government and private operators. 4. Institutional: 4.1 Executing agencies: The executing agency is STP for all components. 4.2 Project management: The PCU within the MDSPP will be responsible for overall program orientation and implementation. 4.3 Procurement issues: A Country Procurement Assessment Review (CPAR) for Madagascar carried out in 1995, found that - 16-  national procurement regulations are generally satisfactory to the Bank with the exception of: (i) the double envelope system of bid opening; and (ii) the use of the merit point system for bid evaluation for works. However, Bank Standard Bidding Documents are widely used and have helped ensuring that these unacceptable features do not affect Bank-financed procurement. Another area of concern is that the Government's approval process for contract signing is cumbersome and involves an excessive number of bureaucratic steps causing unnecessary delays. In addition, insufficient programming and procurement planning contribute to delays in project implementation with a resulting slow disbursement. The Madagascar procurement reform underway with Bank support will certainly address the above shortcomings. In the meantime, to mitigate the risks for the proposed project, proper pre-requisites for the use of National Competitive Bidding procedures (NCB) have been reflected in the PAD for further discussion with the Government at negotiations. In addition the use of Bank SBDs and Standard evaluation reports will be made a requirement for NCB. It is expected that advance contracting will be used to cover advisory services for which a first phase was financed under PATESP and which need to be continued and to cover the petroleurn sector baseline audit. Also based on the capacity assessmnent carried out during appraisal, an action plan was agreed to address areas where the implementing agencies need to be strengthened to meet good performance criteria for procurement. The action plan (see capacity assessment in Annex 6) includes: (i) the setting up of a procurement unit composed of a procurement officer and an assistant under the STP prior to effectiveness; (ii) technical assistance in procurement and contract management as necessary; (iii) a specific section on procurement in the Project Implementation Manual to be finalized before effectiveness; (iv) the reorganization of the filing of procurement-related documents; (v) procurement training sessions for Project staff; and (vi) the financing of independent procurement audits to be carried out on a regular basis. 4.4 Financial management issues: An IDA financial management specialist assessed, during pre-appraisal, the project financial management system. An agreed action plan by the borrower was proposed following this assessment to address identified weaknesses and strengthen project financial management system. The main measures to be taken include: (i) clear definition of the STP's organizational structure and responsibility assignments; (ii) update and harrnonization of the STP s Chart of Accounts to reflect useful categories (project components, activities) detailed in the PAD and to facilitate the consolidation of the project financial statements; (iii) elaboration and implementation of an accounting manual of procedures to facilitate adequate record-keeping and to encourage consistent application of control procedures; (iv) appointment of the key staff for the PCU and the STP (coordinator, a specialist responsible for monitoring and evaluation, a chief accountant, an accountant and a specialist in procurement); and (v) the recruitment of auditors acceptable to IDA to carry out the audit of the project's accounts. All those measures are expected to be completed prior to credit effectiveness. Additional measures will be also taken and assistance provided to ensure an orderly transition to FinMI (Financial Management Initiative: ex-LACI). Assessment of the project's financial management for adequacy and readiness for PMR-based disbursements will be carried out within 18 months of the date of effectiveness of the project, in order to evaluate the transition effectiveness to the new enhanced disbursement mode. During this interim period, disbursements under the credit will be made in accordance with the approach based on statements of expenditures (SOE). Independent auditors acceptable to IDA will annually audit the project accounts. The audit report will be submitted to IDA no later than six months after the end of each fiscal year. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatmnent emerging from this analysis. - 17 -  With technical assistance from the proposed project, the Bank will actively assist the GOM in its effort to privatize key public enterprises (PEs) and small and medium-sized enterprises. An environmental pre-audit was conducted for the listed privatization candidates with comprehensive consultation with beneficiaries. The report has determined the number of enterprises that will need full (2), partial (3), or no audit prior to divestiture. These environmental audits will need to be undertaken and other safeguard policy requirements to be met to ensure compliance with Malagasy regulations. Thus, the recommendation of the report to build the requisite capacity which will ensure compliance with the national regulation and Bank policy is provided. An intemational environmental expert will be housed at the privatization agency to assist in the preparation of TORs for audits, selection of consultants to conduct the audits, review and supervision of their work, and building capacity of a local environment firm. The intemational environmental expert will be responsible for ensuring the timely delivery of audits reports prior to divestiture to meet agreed timetable. He will be seconded by a local consulting firm who will receive practical training to later carry out the activities. Provisions will also be made for Bank environmental specialist supervision of the action plans.An environmental specialist at the national agency, responsible for environment, will be trained and appointed as liaison for the monitoring of environmental aspects related to the privatization program. In addition to financing technical assistance needed for the privatization of aforementioned enterprises, the proposed project will finance an environmental baseline audit for the state national petroleum company, SOLIMA, which has already been privatized in Madagascar in June 2000 under another project. It was also determined that the immediate area on and along the existing pipeline between the refinery and the port is being occupied by squatting families. The new owners reached an agreement with the Government to carry out the planning and the implementation of a resettlement plan. The World Bank involvement in this endeavor is to provide advice to ensure compliance with national and international requirements and Bank's guidelines on involuntary Resettlement OD 4.30. 5.2 What are the main features of the EMP and are they adequate? The main features of the EMP are: (i) a catalog of the identified environmental liabilities and a plan of action to remediate these liabilities; (ii) the cost of remediation or clean-up of the liabilities; (iii) institutional responsibilities and arrangements for implementation of the remediation action plan; and (iv) an appropriately costed monitoring plan with institutional capacity building arrangements for ensuring compliance and enforcement of the national requirements as well as the World Bank safeguard policies. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: November 2000 For a category B project, disclosure and consultation are required as part of the scooping process at the earliest stages of preparation. The environmental pre-audit was completed on November 13, 2000. The privatization of SOLIMA was completed in Madagascar in June 2000. An environmental audit is under preparation. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed enviromnent management plan? Describe mechanisms of consultation that were used and which groups were consulted? To prepare the pre-audit report for the 5 companies to be privatized with technical assistance funded by the project, an extensive public consultation has been carried out. The mechanism of consultation and the groups consulted have been documented in the final report. Reports have been disclosed in country in a meaningful form through the media (radio, television) allowing for sufficient time to give feedback. In particular, local communities have been adequately informed of any past contamination, ongoing pollution loads that may affect them as well as steps that are recommended to improve the situation. To prepare the terms of reference (TORs) for the baseline audit of SOLIMA's activities, key stakeholders - 18 -  have been consulted and their input sought in finalization of the draft TORs. Stakeholders were also consulted at the screening stages to help determine the level of study that needs to be carried out. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Measurable performance indicators will be developed by the liaison person at the national agency responsible for environmental oversight with technical assistance funded by the project. In addition, an environmental international expert, soon to be appointed at the Technical Secretariat, will ensure the smooth preparation and execution of environmental audits conducted by outside consultants. He will in particular ensure proper sequencing of audits and the closing of transactions. He will in collaboration with the national office of the environment and the regulator agency, ensure regular monitoring compliance and enforcement of the national and international requirements. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project objective is to improve the access of the population to basic social services. The goal will be achieved by completing the divestiture program and promoting private investment through liberalization. To facilitate the transition process, the project also finances a retraining scheme to help displaced workers. Redundancy packages are being financed under the second adjustment credit. One of the social outcomes of the project is increased access to basic services, with emphasis on rural areas, and the potential of employment growth as a result of private sector investment in expansion programs. 6.2 Participatory Approach: How are key stakeholders participating in the project? The key stakeholders participating in the project are the management and employees of the enterprises, customers, and the local communities. Upon reaching critical decision stages, consultations under the leadership of the privatization agency will be held to present alternatives under consideration and discuss recommended option. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Consultations were held with NGOs and civil society to disseminate information on the environmental programs related to the privatization program. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Regulatory agencies and the national environmental agency in charge of monitoring technical, safety and environmental standards will be strengthened to effectively monitor the compliance of operators in meeting investments and coverage targets, technical and safety standards. 6.5 How will the project monitor performance in terms of social development outcomes? The project will monitor outcomes through involvement of stakeholders at key decision points and through consultative processes in collaboration with civil society and NGOs. - 19-  7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * No Forestry (OP 4.36, GP 4.36) 0 Yes 0 No Pest Management (OP 4.09) O Yes 0 No Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) 0 Yes 0 No Involuntary Resettlement (OD 4.30) 0 Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. There are three main provisions built in the project to ensure compliance: (i) preparation of environmental partial and full audits for the listed candidates; (ii) capacity building of the privatization agency and the national environmental agency; and (iii) public involvement through comprehensive consultations and communications campaign. F. Sustainability and Risks 1. Sustainability: The proposed project involves substantial risks despite inclusion in the project design of stakeholder feedback and the findings of the MTR of the ongoing project. These risks relate to the implementation of the liberalization and privatization program. The most significant risk in the area of privatization relates to political pressure from various stakeholders resulting in weakening Government commitment. In particular, resistance of some powerful private operators to competition in some sectors, and fear of domination from foreign firms and local private groups with vested interests, could slow down the pace of reform and reduce transparency of transactions. In addition, Government's lack of experience increases the risk of discretionary process. These risks are being mitigated by upfront adoption and implementation of clear regulatory frameworks, precise procedures with objective and clear selection and evaluation criteria, requirement for public disclosure of evaluation results, acceleration in the implementation of the privatization trust fund, and intensification of public awareness campaign. - 20 -  2. Critical Risks (reflecting the failure of critical assumptions found in the fourth coluni of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Wavering GOM commitment for H Upfront agreement on key actions of divestiture privatization and introduction of and liberalization program. Upfront agreement competition. and publication of PE divestiture process guidelines. Resistance of specific local groups to S Continuing public awareness campaign. liberalization. Major capacity building efforts to strengthen regulatory functions of regulators and ascertain means of independence. Adoption of pro-competitive regulatory framework. From Components to Outputs Collaboration of ministries involved in the M Upfront agreement on key actions to ensure implementation of the CFEC. commitment.Participatory approach to design and decision making on the CFEC. Insufficient response of local small M Acceleration in the implementation of the trust investors to participate in collective distribution mechanisms. schemes. Launch of PTF and public relations campaign to build consensus and support. Participation of local private sector in design of investment scheme. Concentration of shares in the hands of S Transparent rules for shares distribution, set up local privileged elites. of basic prudential financial system, public disclosure requirements. Implementation risk: weak technical S Sustained upfront effort to strengthen capacity. capacity of agencies involved in program Upfront agreement on sharing of responsibilities executing. within each agency and on organizational structure. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: - 21 -  G. Main Credit Conditions 1. Effectiveness Condition * Implement satisfactory financial management and accounting systems for the STP; * Recruit in a manner satisfactory to IDA a project coordinator, a controller for project supervision and monitoring and an assistant for the PCU; and a procurement specialist, a Chief accountant and an accountant for the STP; * Update project implementation manual and administrative, accounting and financial manual with specific detailed procurement section for STP in a manner satisfactory to IDA; * Provide divestiture operational guidelines and organizational structure of STP detailing responsibilities acceptable to IDA; * Select an independent auditor acceptable to IDA; and * The Project Account has been duly opened and the amount of the initial advance deposited. 2. Other [classify according to covenant types used in the Legal Agreements.] 3 Provide to the Association a six month audit report of progress achieved in the carrying out of the project. H. Readiness for Implementation El 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 3 1. b) Not applicable. X 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. X 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. El 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies O 1. This project complies with all applicable Bank policies. 1 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Although OP/BP 10.02 requires that the audit be budgeted and financed under the incremental operating costs category, based on prevailing practice and client request, the annual audit is included under the consultants category. OnXo1Ru 1, AcOi Sect. Mgr. Weghen, Acting C. Mari -Yao Oemiba Hafez M.H. Ghanem Team Leader S Manager N Country Director - 22 -  Annex 1: Project Design Summary MADAGASCAR: Second Private Sector Development Project Key Performance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Reduce widespread poverty Increased share of private Country statistics. Macroeconomic and political through private sector led sector investment in GDP. conditions are stable and growth. attractive to private operators Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: Improve access to reliable and 1. Increased private Sector survey and statistics. Government shows continued affordable services in investments in the targeted Supervision reports. political commitment to transport and key utility sectors by US$ 100 million promote new entry and sectors critical to achieving annually from 2004 to 2007. competition. higher growth. Annual regulator reports. 2. Improved access to Annual monitoring of reliable, affordable, and contract commitments. quality services for each sector: Telecoms: Government undertakes * Access to telephone lines CFEC statistics. public relations campaign on increased from 0.8% in Trade statistics. a regular basis to gain 2000 to 1.5% in 2004 support and credibility from * Internet users increased Supervision reports. private sector and from 10,000 in 2000 to Sales contracts. stakeholder. 40,000 in 2004 and 60,000 in 2005; Sector surveys. * Average rates on telecom Household surveys. Autonomy of regulatory services in line with agencies in charge of average rates of regional Benchmark studies. protecting consumer interests countries facing a level is respected by Government. of competition in their telecom sector similar to that of Madagascar by end 2006. Transport: Government continued * Cost of international and Sector surveys commitment to accelerate domestic air tickets Regulator reports new entry in these sectors reduced in line with Supervision reports with the support of sector published economy and projects charter fares for Benchmarking studies competing destinations by 2004; * Groundhandling fees reduced by 8 to 10%. - 23 -  Key Perifrtl ce Montoring4 A Hierrchy of Objectives In diiator EvaWlution Criticl AssumptIQ;i Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Strengthened regulatory capacity of civil aviation and utilities regulators. Government continued 1. For each regulator: Supervision Reports. commitment to open entry and (a) Fully operational regulators * Core team of trained qualified Regulator reports. tariff reform implementation. with practical experience gained individuals in place; in regulatory activities. * Established procedures for monitoring and enforcing in- Continued effectiveness of the house technical, safety and inter-ministerial privatization economic regulation in line committee in ensuring with best practices; coordination of all institutions * Established procedures to involved and in sequencing of monitor environmental liberalization and divestiture hazards in accordance with process. broader national legislation; * Competitive tariff structure and clearly defined revision mechanisms applicable to all operators in effect; Regulator monitoring reports. * New licenses awarded to Supervision reports. (i) telecoms regulator with private investors following Audit reports. capacity for effective regulatory transparent and competitive oversigh: procedures. by mid-term review: * Established modem frequency management system (procedures, information system, trained staff); * Number of regulatory missions Private sector interest will be following internationally encouraged by clear and precise accepted procedures to regulations and application monitor adequate tariffs, procedures. interconnection, service quality regimes. Upfront key procedures will be by closinz date: detailed and clarified before * Number of new licenses award launch. awarded to private investors following transparent and competitive procedures; * Number of customers complaints handled following new standards; * Established rural telecom policy and funding mechanisms for rural telecom service per region. -24 -  (ii) petroleum regulator with in by mid-term review: house capacity to monitor * Open access system in place Interim audit reports. technical, safety and and adhered to by operators; Environmental audits. environmental standards: * Technical norms in accordance to international industry Regulator reports. standards in place; * Established procedures to Environmental decrees. monitor tariffs, logistics system in accordance to best practices; * New licenses awarded following transparent award mechanism * Completed environmental audit; * Environmental guidelines and regulations in effect in accordance to WB guidelines. by closing date: * Remediation action plan in Supervision Reports. effect in compliance with Regulator reports. WBG policies; * Enactment and institutionalization of Supervision Reports. environmental rules for the (iii) civil aviation regulator with sector; capacity to monitor and enforce * liberalized tariff regime and technical and economic revision mechanism in effect regulations: linked to international markets. by mid-term review: * Core team of professionals trained in internationally accepted procedures for charter licensing, aircraft certification; * Technical and economic regulations for open sky implementation in place; * Number of new charter licenses awarded following internationally accepted award procedures; * Communications campaign regularly publicized to inform operators about the new reform. - 25 -  (b) Fully operational CFEC with by mid-term review: adequately funded and staffed. * Core team of professionals in Annual report from CFEC. place trained to handle streamlined procedures; Benchmarking. * Established and publicized streamlined business procedures; * Processing time reduced to 4 days; Commitment of all public * Number of enterprises created departments involved in business following new standards. procedures. by closing date: * Processing time reduced to 24 hours; * Number of enterprises created following new standards. (c) The Insurance council and by mid-term review: the regulatory authority with * The regulatory framework and capacity to monitor sector corresponding application operations in accordance with decrees have been adopted by established standards. 2003. by closing date: * Core team of professionals in Legislation and decrees place trained to ensure compliance to regulations and oversight procedures in line Regulator report with international standards; Supervision reports * Established yearly control procedures and statistics report. Assessment of privatization 2. Transaction Implementation program as reflected in Increase in the number of targeted relevant local and (a) Completion of privatization key SOEs transferred to the private international publications. program following acceptable sector according to agreed transparent and competitive timetable and following transparent procedures. procedures. Supervision reports. by mid-term review: Regular communication * Completed environmental bulletins. audit of SIRAMA by end Pre-environmental audit 2002; report. * Signature of sales contracts of Environmental audit report. TELMA, International airport, and SIRAMA by 2003; * Completed partial or full environmental audits of selected enterprises prior to closure of their privatization; * 10% of shares of targeted PEs sold are transferred to the PTF. by closing date: * signature of sales contracts for HASYMA; * 10% of shares of targeted PEs sold are transferred to the PTF; * PTF shares offered to small investors. - 26 -  (b) Institutional capacity in place by mid-term review: with fully operational institutions * STP team trained to handle supporting the privatization complex transactions in a program. transparent manner; * Qualified professionals trained to oversee environmental audits process; * At ONE, liaison person trained to ensure compliance of environmental screening process of privatization companies; * Completion of transactions following new procedures increased; * The PASERP team is adequately staffed and trained * The retraining program is in place according to procedures in line with best practices; * Quarterly communication campaigns are in effect for employees of enterprises to be privatized. by closing date: * Completion of transactions within agreed time frame increased; * retraining workshops and professional projects have increased. (c) Local ownership scheme by mid-term review implemented. * for PTF, private fund manager recruited through competitive bid in place in 2001; * quarterly communication programs to promote local participation in effect; * independent registry operational. by closing date * completion of shares transfer to local shareholders; * strategy for development of mutual funds is adopted in collaboration with private sector. - 27 -  3. Strategies for new PSD activities adopted (a) OPME with capacity to assist by mid-term review: adequately micro-and small * OPME is adequately staffed enterprises. and adequate procedures are in effect; * Strategies adopted priority sectors identified by GOM; (b) strategies in support of * Feasibility study for business sources of growth are adoptedand incubators completed by 2002. incubators are in place to support by closing date: implementation. * Completion of pilot projects; * 10 local operators received start up services by 2005. -28 -  Key Performance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Project Components I Sub- Inputs: (budget for each Project reports: (from Components to components: component) Outputs) 1. Regulatory and capacity US$11.79 million Supervision reports building Petroleum: US$4.92 million Adequate empowerment of (i) twining arrangements with regulators to effectively carry experienced international out their duties. regulator for implementing technical and economic regulation (ii) building of environmental monitoring capacity; (iii) environmental audit; and (iv) installation of equipment and devices for monitoring technical, economic and environmental norms. Telecom: US$5.0 million Strong local counterpart team to (i) technical assistance to absorb technical assistance and OMERT regulatory agency to draw lessons for future work. strengthen its regulatory capacity (training and advisory assistance); (ii) acquisition of frequency spectrum management equipment; and (iii) advisory services to design a rural telecom policy and funding mechanism Supervision Reports. Strong local counterpart team to Air transport. US$.28 million absorb technical assistance and (i) technical assistance for draw lessons for future work. designing and implementing an information management system to improve the monitoring / regulatory capacity; and (ii) training for the utilization of the IMS and enhancement of the regulatory capability of the personnel. - 29 -  Center for facilitating enterprise US$0.64 million Strong local counterpart team to creation: absorb technical assistance and (i) advisory services for training draw lessons for future work. of staff; (ii purchases of equipment for center set up. Strengthening the financial US$ 0.95 million system: 2. Transaction Implementation US$16.12 million Supervision Reports. Project implementation arrangements remain in place (a) Privatization capacity US$7.1 million and are effective building: Strong local counterpart team to absorb technical assistance and (i) TA for streamlining draw lessons for future work. procedures of PA capacity building to carry out complex transactions; (ii) TA for legal assistance; (iii) international environmental expert for in the field training at STP; and (iv) liaison environmental expert at ONE. (b) Local ownership development US$0.44 million scheme (PTF): ( i) TA for PTF operational set up; (ii) recruitment of private fund manager; and (iii) TA for executing a large communications campaign. (c) Transaction implementation: (i) TELMA advisory services (investment banks, legal advisors, financial auditors, pre- environmental auditors, technical advisors) SIRAMA advisory services HASYMA advisory services main airports (IVATO and capital of provinces); and (ii) environmental audits of SIRAMA. 3. Developing new PSD US$1.73 million activities: (a) OPME is operational US$0.43 million (b) Strategies to support PRSP US$ 1.3 million and incubators in place - 30 -  Annex 2: Detailed Project Description MADAGASCAR: Second Private Sector Development Project The proposed project is a follow up to the market deregulation and divestiture component (Part A) of the Private Sector Development and Capacity Building Project PATESP (Cr. 2956-MAG). The PATESP project is due to close in December 2002; however, Part A has been fully disbursed. The proposed project will support the Government's objective of improving access to reliable and affordable services in key sectors deemed critical in achieving high growth. This goal will be achieved by: (a) completing the divestiture of the remaining key companies and small and medium-sized enterprises of the current program, operating in agro-industries, transport, telecommunication sectors; and (b) strengthening autonomous regulatory and privatization agencies responsible for facilitating new entry of operators following competitive procedures and ensuring compliance of these operators to investment and service targets. The main objectives of the latest CAS are to reduce significantly poverty through high growth rates coupled with quantum leaps in investment. The recently adopted Government's new interim Poverty Reduction Strategy Paper (I-PRSP) advocates even higher growth rates (Est. 6.3 percent per annum) to improve the living conditions of the population. Quality of life is expected to be improved by: (a) improving economic performance to create more opportunities for the poor; and (b) providing key essential services to the poorest. The improvement in economic performance is expected to arise from the completion of the Government's ongoing financial and economic reform program, including implementing legal frameworks promoting clear business rules, foreign direct investment and local enterprise development in sectors with high growth potential (tourism, mining, manufacturing, telecommunications, shrimp), finalizing the privatization program, expanding and modemizing infrastructure. The proposed project would directly support the goal of improving economic performance to create more opportunities for the poor. Specifically, the Project would contribute to expansion and improved efficiency of key infrastructure services identified in the I-PRSP as the main constraints to potential sources of growth. It would do this by: (a) strengthening regulatory capacity and streamlining business processes to encourage private entry and competition in sectors with key bottlenecks. Competition between charters in air transport will result in lower air fares which will benefit local tourism, a sector targeted for its high growth potential. Improvements in air transport will also facilitate the development of competitive air freight, critical for national and regional trade of perishable agricultural products. The mining and manufacturing sectors will also benefit from provision of reliable, affordable telecom services; and (b) promoting increased private investment in I-PRSP targeted sectors in need of rehabilitation and expansion through Govemment divestiture, the strengthening of the financial system, foreign direct investment, and implementation of private participation strategies for expanding access to basic services. The expected increase in private investment (as a result of improved transparency, strengthened regulatory capacity and local entrepreneurial support activities included in the proposed project) will create employment for both the urban and rural population. The new services and facilities will significantly improve the access of the population to key utilities, including telecom and transport. In addition, the proceeds from privatization and cost savings from reduction of subsidies to public enterprises will enable the Govemnment to upgrade and - 31 -  expand essential public services to the poor. The scope of the initial economic reform program In 1993, despite the implementation of the 1988-1993 divestiture program of small- and medium-sized companies, public enterprises were still the rule rather than the exception. A review of the 1988 privatization program and private sector surveys detailed in a Bank Private Sector Assessment highlighted key constraints to private sector development: public monopolies and market restrictions limiting private entry, as well as an unclear legal framework, significant cumbersome and arbitrary business regulations, lack of business confidence in government program, heavy taxes, and lack of institutional support to local private businesses. In 1996, the GOM embarked on a program to encourage private sector development through significant changes in the business legal environment, liberalization, and privatization of key monopoly sectors. The privatization program included approximately 50 companies, of which eight of the largest SOEs and two financial institutions were the focus of Bank support. The focus of privatization on key sectors was to visibly disengage the state, signal visible economic opening to turn around investor confidence, unblock private activity by addressing sectors with key bottlenecks and monopolies, and maximize the impact of change thereby making a clean break from past overregulating and arbitrary policies. From 1996 to the present, the privatization of two major banks has taken place and the financial sector restructuring has been completed. In addition, new regulatory reforms (enactment of laws and decrees) were adopted to facilitate private entry and development of new services in the following key infrastructure sectors: petroleum, air transport, and telecommunications. Three regulators were set up as individual institutions with financial and administrative autonomy. Their board of directors is composed of representatives of private operators working in these sectors as well as public officials. These agencies are staffed with a core group of professionals. They were provided with start-up assistance under the PATESP. New private operators have entered the telecommunications sector (cellular and Intemet providers) and air transport sector (a charter company) and have contributed to a doubling of the number of telecommunications subscribers and intemational tourists and a 50 percent reduction in tariffs. In terms of the divestiture program, a privatization committee (CP) was set up under Law No. 96-011, which was modified by Law No. 98-014. It is headed by the minister of MDSPP and composed of four permanent Government members (Minister of Finance; MDSPP; Minister of Justice; and Minister of Amenagement du Territoire), two representatives of the private sector and one temporary Government member (the line minister of the enterprise to be privatized). The CP oversees a technical secretariat (STP) which regroups local private and financial sector experts in charge of supervising the execution of the privatization program. The preparation and execution of transactions is delegated to private intemational and local consulting firms which are hired through a competitive tender process. The Law also outlines the basis for the setup of three additional institutions: the Commission d'Arbitrage for dispute resolution, the PTF to allow for the progressive transfer of shares to local shareholders, and a social and regional development fund (FSADR) which is the recipient of part of the privatization receipts to be channeled into regional and social development projects. In setting up the above-mentioned institutions, the focus was initially on ensuring that the structures in charge of executing the program, namely the STP, the CP and the retraining fund (PASERP), were set up, staffed and organized. The focus of intensive technical assistance was then placed on: - 32 -  (a) developing operational procedures to manage the whole program and ensure the transparency of the procedures applied for all enterprises. Standard operational procedures for managing the program and preparing the privatization of large and small and medium-sized (SMEs) were developed. Procedures to ensure the transparency of the whole process were also detailed, in particular those related to the organization of tenders to recruit consultants and invite bids from private operators, and the evaluation and negotiation of offers; and (b) preparing and executing privatization strategies for the large PEs which are the focus of the adjustment operation. Two large enterprises (the oil monopoly and the railway) and several small and medium-sized economic (including the coastal shipping company) and agro-industrial companies were privatized and resulted in the closure of 56 transactions. The airline transaction is expected to be closed at the beginning of the first quarter of 2001. In addition, the privatization strategies for four of the remaining large companies (airports, telecommunications, cotton and sugar) of the program were developed. Current status of the program With multi-donor assistance led by UNDP, the Government adopted in May 2000 a PNSP which sets out a strategic vision for private sector development. In this context, the PATESP MTR was conducted in October 2000 and brought to the fore the remaining constraints and unfinished agenda, as described below. (a) weak regulatory capacity of recently set up regulators (air transport, petroleum and telecommunications). The MTR highlighted the fragility of the gains achieved so far. While the introduction of competition is the most tangible result of the program, the introduction of various private operators has brought to the forefront the practical difficulties facing the recently established regulators in: (i) applying consistently transparent regulatory procedures across the board; (ii) adequately overseeing operators to prevent collusive behaviors; (iii) monitoring adequately on the ground the planned commitments; and (iv) maintaining autonomy vis-d-vis Govemment intervention during the transition period until the regulators reach financial independence. For these regulators, the challenge now is to become quickly operational as new private operators have already entered their sectors and these regulators do not yet have the practical experience to monitor activities and comply with new industry standards under development. In particular, the petroleum regulator will have to assume full responsibility for applying detailed monitoring procedures, and monitoring compliance with new technical and environmental procedures and rules. In the telecommunications sector, intense activity of new cellular and Intemet providers that currently have profits higher than TELMA calls for the development of transparent regulatory framework and efficient frequency spectrum management. (b) continued dominance of SOEs resulting in very low penetration rates, poor quality of services, high cost of services, and negligible levels of private investment. In two years, the GOM has already implemented the liberalization and privatization of key sectors to start breaking up monopolies. To deepen its efforts in other sectors, the GOM's strategy is to accelerate current efforts to promote new entry in sectors and transfer control of remaining existing assets to private sector operators. In addition, the GOM will strengthen the supervision of policy and regulatory frameworks to maintain incentives for the private sector to invest and help reach targets for access, efficiency and coverage in line with the I-PRSP objectives. - 33 -  (c) wavering Government commitment to the initial institutional setup for divestiture which resulted in sequencing problems between liberalization and privatization. The GOM's response was to set up the MDSPP and change the composition of the committee to incorporate key Government players, such as the ministers of finance and privatization and the line minister overseeing the company being privatized. This change has resulted in full commitment of the GOM in the execution of the program and proven successful, particularly in the learning phase of the program (the first 18 months) in building consensus among key players in the design of strategies for complex infrastructure companies and in getting them to focus on tackling sensitive issues. In addition, to further avoid sequencing problems and compensate for the closing of various sector projects, the preparation and financing of minimum regulatory safeguards was transferred to the privatization agency to ensure that these rules would be in place by the time of entry of private operators. (d) low level of domestic response and participation in the divestiture program, as well as business opportunities arising from liberalization efforts. To tackle this issue and facilitate local ownership, the PTF was incorporated with the principal mandate of keeping in trust minority shares of the states and organizing their transfer to local shareholders. A board composed of private sector representatives and public officials was appointed. In 1999, with the help of an international consulting firm, a strategy was developed to organize the placement and trading of shares within the PTF and to put in place minimum safeguards in accordance with capital market rules and safety regulations. With the effective privatization of several enterprises, the Government now intends to accelerate the implementation of the above-mentioned operational procedures to allow the transfer of shares of these enterprises to employees and local shareholders. The new program The proposed project will focus on the following: (a) improving the transparency of the liberalization and privatization reform process by strengthening the institutions in charge; and (b) broadening local participation by accelerating the implementation of distribution and transfer mechanisms of shares to local small shareholders. The project will also support a mechanism for local participation in new sectors selected for their high growth potential in the I-PRSP. The project will be comprised of three components: 1. Regulatory and capacity building a. strengthening of regulators; and b. the CFEC c. strengthening of the financial system 2. Privatization implementation a. institutional capacity b. local ownership scheme c. privatization transactions 3. Developing new PSD activities a. OMPE b. Support to the development of strategies in sectors identified by GOM - 34 -  By Component: Project Component I - US$11.79 million Component 1: Regulatory and Capacity Building The objective of this component is to provide hands-on support to strengthen the regulatory capacity of the three autonomous sector regulators (air transport, petroleum and telecommunications). In particular, it aims to improve their efficiency in undertaking technical and economic regulation, and monitoring environmental hazards in compliance with national legislation, sector standards and WBG policies. In addition, this component will build the in-house capacity at the CFEC and strengthen the financial system in particular the insurance sector. This support is expected to last for two years, which is the estimated time needed for these autonomous regulators to become self-financing from the fees levied from various activities (licensing, permits, certification, etc.). In the telecommunications sector, consultant services, goods and training will be funded under this sub-component. Following the establishment of the Office Malgache pour l'Etude et [a Regulation des Telecommunications (OMERT) and the telecommunications regulatory framework under the PATESP, additional assistance to strengthen the existing regulator is needed. On-the-job training will be financed for OMERT staff on regulation aspects (e.g., interconnection, tariffs, universal service obligations). Following a technical assessment to identify specific equipment needed on spectrum management and monitoring issues, goods will be provided to strengthen the actual spectrum management system. Consultant services will be provided for the implementation of a rural strategy and a plan to roll-out services in rural and peri-urban areas (including allocation and funding mechanism). In the air transport sector, information system and telecommunications equipment and communication advisory services will be financed to allow the civil aviation regulator, Aviation Civile de Madagascar (ACM), to inform operators on the reform and to monitor sector operations and information in a timely and reliable manner, and adopt the necessary preventive measures. In the petroleum sector, advisory services, works, and goods will be funded under the component to strengthen the regulatory capacity of the Office Malgache des Hydrocarbures (OMH). The monitoring function of the OMH in the petroleum sector would include all downstream activities by the private sector to ensure full compliance with the latest regulations and petroleum products specifications. On the regulatory side, twining arrangements will be concluded between OMH and an experienced intemational firm for an 18-month period to provide on-the-job training on how to practically implement award licensing procedures developed under the previous project, and monitor technical, quality and safety standards. OMH will also be provided expertise to monitor pricing mechanisms during the three-year transition period to full liberalization of the petroleum sector. In addition, the project will finance an environmental audit of the petroleum sector, originally scheduled to be financed under an energy sector project. The national petroleum company, SOLIMA, was privatized under a previous project. The private operators selected under this privatization have requested that, prior to completion of the privatization transaction, an environmental baseline audit be carried out to identify pre-existing environmental problems, assess potential environmental damages, and agree on risk-sharing and financing arrangements for any mitigation measures identified by the audit. According to the national legislation in Madagascar, the National Environmental Agency (ONE) is responsible for formulating environmental guidelines and standards while each sector regulator is responsible for monitoring - 35 -  compliance to the guidelines. To allow OMH to fulfill its mandate, as part of the environmental audit, works will include the purchase of equipment to allow the monitoring of products and ensure compliance of operations to environmental standards. Under this sub-component, advisory services will also be provided to enable OMH to ensure that a resettlement action plan for squatting families near the pipeline in Tamatave will be financed and implemented by the private owners in compliance with international and national guidelines. It is acknowledged by all parties that it is as yet uncertain what the precise scope of the mitigation measures identified by the audit will be. Therefore, no conclusive arrangements for the financing of these measures can be made at the present time. However, in order to give comfort to parties that financing will be available to implement mitigation measures that comply with international standards and Bank policies, once the audit results are available, if requested by the Government, the Association would be willing to work with the Government to consider alternative financing scenarios for these measures. The Center for Facilitation of Enterprise Creation: To facilitate entry into the sector, this component will also help in the streamlining of business procedures pertaining to the creation of companies by funding advisory services, goods and operating costs for the implementation of the CFEC. A feasibility study of the center carried out under the PATESP shows that procedures can be easily reduced from 14 to 3. The component aims to strengthen the center's capacity in carrying out streamlined procedures, and providing consultation and up-to-date information on legislation and initiatives affecting private investment. This component will finance advisors to help streamline the process, a communications information campaign to widely inform investors about streamlined and simplified procedures, as well as provide for the purchase of technology-based equipment. Strengthening of the Financial System: This component will also contribute to the strengthening of the financial system to better support the Government's on-going economic reforms. Consultant services will be fmanced to develop the regulatory framework of the insurance sector and implement the reform of the social security fund (CNaPS). The capacity of regulatory and over-sight agencies (insurance Council and oversight authority) will also be strengthened through training and twining arrangements with international financial organizations. Project Component 2 - US$16.12 million Privatization Implementation 2.1. Institutional capacity Under the first sub-component, the STP will be strengthened. At the STP, technical assistance will be provided by international advisors, as needed, who will focus on strengthening in-house capacity to ensure successful management of upcoming complex transactions, such as the concessioning of the main airports and the sale of the telecommunications company. Given the experience acquired by the privatization agency in the management of simple transactions, it is not expected that substantive support will be needed to complete privatization of the small and medium-sized companies. It was originally forecast under the PATESP that part of the privatization proceeds will be used as a revolving fund to finance assistance for the privatization of small transactions. However, this arrangement is contrary to the Malagasy legislation which requires that all proceeds be transferred to the Treasury. It was therefore necessary to include in this project an additional allocation to finance assistance for small and medium-sized enterprises. Capacity will be strengthened in the STP for overseeing the environmental screening and audit process of the companies to be privatized. The STP will recruit a local environmental consulting firm. An international environmental expert will be hired and will assist the local firm to build its capacity and assist in the - 36 -  preparation of TORs for audits, the selection of consultants to conduct the audits, review and supervision of their work. The international enviromnental expert will be responsible for ensuring timely delivery of audit reports prior to divestiture to meet the agreed timetable, and will be assisted by a local consulting firm who will receive practical training to later carry out the activities. The environmental expert at the STP will also liaise with an environmental specialist at the ONE who will be appointed as liaison for overseeing environmental aspects related to the privatization program. Advisory support will also be provided to the team in charge of the retraining scheme, Programme d'Appui Social et Economique pour la Reinsertion Professionnelle (PASERP), to scale up activities in support of retraining. A retraining fund will be financed to cover the cost and financial allocations related to the provision of retraining and placement services. Arbitration mechanism will also be strengthened to allow the fast resolution of disputes arising from the execution of the privatization program and to support private sector growth. 2.2 Local ownership scheme Under a local ownership scheme sub-component, expertise will be brought in to manage the process of selling PTF shares to local investors. The component will support financial advisory services to the Fonds de Portage team to: (a) implement the minimum capital market regulations and safeguards; (b) hire a private fund manager to oversee and manage the fund; (c) set up a registry for shares; and (d) explore the feasibility of developing mutual funds. The capacity of local fund managers will be strengthened. To address the issue of insufficient public relation consultations, which was raised during the mid-term review, an intensive communications campaign will be launched, including regular widely publicized communications events and seminars for journalists. 2.3. Privatization implementation This component will support the acceleration of the completion of the remaining key companies and small and medium-sized enterprises of the current privatization program: telecommunications, the main airports, and agro-industrial companies (sugar, cotton). In particular, the component will provide funding for transaction advisory services: investment banks will be consulted for the large complex transactions; consulting firms and legal advisory services to clear the issues of titling transfer, regularization of assets, and financial audits. Drawing from the lessons of the past transactions, intensified legal advisory support will be provided to resolve issues pertaining to ownership transfer. On the basis of a pre-environmental screening and ranking of all companies being privatized under the component, environmental audits of selected environmentally sensitive companies will be carried out and partial audits will be carried out for the telecommunications, international airport and the cotton company. Project Component 3 - US$ 1.73 million Developing new PSD activities Under this component, two types of activities will be financed: (i) support to the operational set up of the OMPE, a center recently created to coordinate activities of micro and small enterprises (MSE) and to provide services to support their efficient development; and (ii) strategies to support the implementation of the I-PRSP will be formulated. Under the first sub-component, advisory services will be provided to develop a strategy to promote MSEs and to develop services through the OMPE to allow MSEs to access market information, technology - 37 -  Under the second sub-component, the objective is to jump-start the development of priority sectors identified by the Government using pilot projects. The component is expected to assist the Government in developing new PSD strategies. Consultant services will be provided to assist the GOM in articulating its vision and developing Strategies (e.g., elements of an adequate policy and regulatory framework in critical sectors) and Implementation Plans (e.g., specific projects, activities and actions required to implement the strategies; the institutional mechanisms required to coordinate and support the changes proposed). In addition, under the component, assistance will be provided to develop business incubators, providing qualifying new local start-up businesses with a set of facilities -- physical space, shared services, business and legal advice, and financial inputs - to facilitate their creation and assist them until "graduation", when they have the capacity to "survive" in the outside competitive environment. In developing countries, there are several examples of business incubators. Most of them have been created in the framework of technology parks or universities, with considerable investments from the public sector, and often with the support of international banks or organizations. Business incubators would facilitate the development of local participation in new businesses by allowing companies in a centralized location to share communication facilities, technical support, and modem training center facilities. Implementation will be carried out with the financial assistance of other financial institutions, possibly involving the International Finance Corporation (IFC). The project will finance consultant services to conduct a feasibility study to help define the incubator model to be established and identify best practices, e.g., incubator to be managed as an entrepreneurial business operation. This task will be coordinated jointly with professional associations. Following the conclusion of the feasibility study, the project will fund the following activities for the incubator: (i) set up of telecommunication structures, applications and related facilities; (ii) technical assistance including provision of legal, financial, management, and marketing; and (iii) provision of other expertise and know-how, blueprints, guidance and monitoring. As the executing agency for all components, the STP will be responsible for managing one special account and will be strengthened accordingly. - 38 -  Annex 3: Estimated Project Costs MADAGASCAR: Second Private Sector Development Project Local Foreign Total Project Cost By Component US $million US $million US $mi,1ion l. Regulatory and Capacity Building 0.00 0.00 0.00 (a) Petroleum regulator 0.92 4.00 4.92 (b) Telecom regulator 1.50 3.50 5.00 (c) Civil Aviation Authority 0.08 0.20 0.28 (d) CFEC 0.14 0.50 0.64 (e) Strenthening financial system 0.20 0.75 0.95 2. Privatization Implementation 0.00 0.00 0.00 (a) Institutional capacity 1.21 5.89 7.10 (b) Local ownership scheme 0.01 0.43 0.44 (c) Privatization transactions 1.42 7.16 8.58 3. Developing New PSD Activities 0.00 0.00 0.00 (a) OMPE/PSD strategies in support of PRSP 0.36 1.00 1.36 Total Baseline Cost 5.84 23.43 29.27 Physical Contingencies 0.24 0.24 Price Contingencies 0.00 0.13 0.13 Total Project Costs 5.84 23.80 29.64 Total Financing Required 5.84 23.80 29.64 Identifiable taxes and duties are 0 (US$m) and the total project cost, net oftaxes, is 29.64 (US$m). Therefore, the project cost sharing ratio is 80.3% of total project cost net of taxes. - 39 -  Annex 4: Cost Benefit Analysis MADAGASCAR: Second Private Sector Development Project The proposed project is intended to support the second phase of a reform process initiated under a first Private Sector Capacity Building Project (PATESP). The project will provide technical assistance to capitalize on the gains resulting from the first phase and deepen the reform impact to improve access, reliability and affordability of services throughout the island for both urban and rural population, as targeted in the key performance indicators (presented in Annex 1). The support provided under the project will serve as a catalyst to create an environment sufficiently conducive to attract first class management and technology know-how, significant capital investments. These investrnents are expected to bring considerable economic benefits which could be measured in terns of: (i) increased output from new entrants and privatized entities; (ii) factor cost savings resulting from competition between operators and better managed companies; (iii) additional income from net job creation; and (iv) consumer surplus. As the project support is considered catalytic, the above-mentioned benefits are not considered direct result of the project. A cost benefit analysis was therefore not undertaken. - 40 -  Annex 5: Financial Summary MADAGASCAR: Second Private Sector Development Project Years Ending IMPLEIMENT0TIO PW~IOD Year 1 | Year 2 | Year 3 Y Year 4 Year 5 | Year 6 | Year 7 Total Financing Required Project Costs Investment Costs 10.5 6.0 6.1 5.9 0.0 0.0 0.0 Recurrent Costs 0.1 0.1 0.5 0.4 0.0 0.0 0.0 Total Project Costs 10.6 6.1 6.6 6.3 0.0 0.0 0.0 Total Financing 10.6 6.1 6.6 6.3 0.0 0.0 0.0 Financing IBRDIIDA 8.3 4.9 5.4 5.2 0.0 0.0 0.0 Government 2.3 1.2 1.2 1.1 0.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others Total Project Financing 10.6 6.1 6.6 6.3 0.0 0.0 0.0 Main assumptions: -41 -  Annex 6: Procurement and Disbursement Arrangements MADAGASCAR: Second Private Sector Development Project Procurement General A Country Procurement Assessment Review (CPAR) for Madagascar was carried out in 1995, which found that in general national procedures for the procurement of works, goods and services are acceptable with the following exceptions: (i) a double envelope system of bid opening for works and goods; and (ii) the use of the point system for bid evaluation for works. Bank standard documents are widely used and have helped ensuring that the above unacceptable features do not affect Bank financed procurement. So far the findings of the CPAR remain valid. No special exceptions, permits or licenses need to be specified in the Credit documents for International Competitive Bidding (ICB), since Madagascar's procurement practices allow IDA procedures to take precedence over any contrary provisions and local regulations. National Competitive Bidding (NCB), advertised locally, would be carried out in accordance with Madagascar's procurement laws and regulations acceptable to IDA, provided that they assure economy, efficiency, transparency, and broad consistency with key objectives of the Bank Guidelines. For NCB procedures, the Government has given assurance during negotiations that the following principles will be adhered to: (i) any bidder is given adequate response time (four weeks) for preparation and submission of bids; (ii) bid evaluation and bidder qualification criteria are clearly specified in bidding/ pre-qualification documents and not be applied arbitrarily; (iii) eligible firms are not precluded from participation; (iv) award is made to the lowest evaluated bidder; (v) no preference margin is granted to domestic contractors and suppliers; (vi) award will be made to the lowest evaluated bidder in accordance with pre-determined and transparent methods; and (vii) bid evaluation reports will clearly state the reasons to reject any non-responsive bid. Use of Bank Guidelines Procurement of civil works and goods financed by IDA will be carried out in accordance with the Guidelines: Procurement for IBRD Loans and IDA Credits (January 1995, revised in January and August 1996, September 1997 and January 1999). The Bank's Standard Bidding Documents for Goods and Works, and Standard Bid Evaluation Forms will be used for both ICB and NCB. Consultant services contracts financed by IDA will be procured in accordance with the Bank Guidelines for the Selection and Employment of Consultants by World Bank Borrowers, (January 1997, revised September 1997 and January 1999. The Standard Request for Proposals as developed by the Bank will be used for the selection of consulting firms. Simplified contracts will be used for short term assignments, i.e. those not exceeding six months. The Government has been briefed during about the features of the new consultants Guidelines, in particular with respect to advertisement, bid opening and the various steps of IDA reviews. Advertising A General Procurement Notice (GPN) has been published in the United Nations Development Business (UNDB) in December 2000 to advertise for any ICB for works and goods, and for major consulting assignments (above US$200,000 equivalent). It will be updated annually for any outstanding procurement. Specific procurement notices for goods and works will be advertised in the national press of wide distribution and internationally for ICB contracts. - 42 -  Procurement Methods Works contracts financed by IDA are estimated at US$1.53 million. They will include: (i) the set up of a laboratory to analyze samples from industrial and utilities companies and check their compliance to environmental standards; and (ii) the rehabilitation of telecom and OMH offices. Civil works contracts will be bulked where feasible into packages valued at U$200,000 equivalent or more and procured through International competitive bidding (1CB). Contracts for works estimated to cost less than US$200,000 per contract up to an aggregate amount of US$500,000 million will be procured through National competitive bidding (NCB) procedures acceptable to IDA. Goods financed by IDA are estimated at US$4.13 million. They include equipment for telecommunications frequency management systems, office furniture, vehicles and other supplies. To the extent practicable, these contracts shall be grouped into bid packages estimated to cost the equivalent of US$100,000 or more and will be procured through International Competitive Bidding (ICB). Procurement of office furniture and supplies available locally estimated to cost less than US$100,000 equivalent per contract, up to an aggregate amount of US$500, 000, will be procured through NCB procedures acceptable to IDA. The project will also require the purchase of relatively small, mainly consumable items such as office supplies which would be difficult and impractical to package and procure following NCB procedures. These goods are estimated to cost less than US$30,000 equivalent per contract and, up to an aggregate of US$0.1 million, may be procured through national shopping on the basis of quotations obtained in writing from at least three qualified local suppliers. The above aggregate values for NCB or other non-ICB procurement methods for goods and works represent ceilings which cannot be exceeded without the prior no-objection of the Bank. The procurement unit responsible for the project (STP) will maintain a tracking system to monitor such procurement in order to alert the Bank timely when this may occur. Consultant Services, financed by IDA are estimated to cost US$12.66 million. These contracts would be for. (i) long-term assistance in the field in the form of twining arrangements with international regulators for capacity building in sector reform, environmental assessments supervision, communications campaign and legal advisory services; (ii) preparation and execution of enterprises privatization, communications campaign tools, legal assistance, accounting and financial management, financial and environmental audits and irnpact analysis; and (iii) short-term consultancies on specific technical matters, such as procurement, financial managemnent, international privatization expertise, economics and statistics, and the design of training courses and study tours to assess various regulatory regimes in place in Latin America and Asia. Consultants will be hired through competition among qualified short-listed firms in which the selection will be based on Quality and Cost Based Selection (QCBS) by evaluating the quality of the proposal before comparing the cost of the services to be provided. The Least-Cost Selection (LCS) will be used for financial audits contracts costing less than US$100,000 equivalent -- the firm with the lowest price will be selected, provided its technical proposal received the minimum mark. Training and small Consultants assignments estimated to cost less than US$100,000 per contract for which the need for preparing and evaluating competitive proposals is not justified, will be awarded through the Consultants' Qualifications (CQ) method in accordance with para. 3.7 of the Guidelines. Services for small studies and short term assignments meeting the requirements of section V of the Consultants Guidelines, will be procured from Individual Consultants (IC) selected through comparison of qualifications (resumes) of at least three qualified individuals among those expressing interest. To ensure that priority is given to the identification of suitable and qualified national consultants, short-lists -43 -  for contracts estimated under US$50,000 or equivalent may be comprised entirely of national consultants (in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines), provided that a sufficient number of qualified firms (at least three) are available at competitive costs. However, if foreign firms have expressed interest, they will not be excluded from consideration. The Standard Request for Proposal (RFP) as developed by the Bank will be used for requesting proposals, and for selection and appointment of consultants. Simplified contracts will be used for short-term assignments-simple missions of standard nature (i.e. those not exceeding six months) carried out by individual consultants or firms. Under the PATESP, consultants services were contracted to carry privatization transactions in two phases: the formulation of privatization strategies and implementation of transactions. For a list of contracts, services related to the first phase: privatization strategies were executed under the PATESP and the execution phases remain to be executed. These contracts for which continuation (i.e. execution of transactions) is essential will be financed by the credit following the advance contracting. These contracts covering services for the execution of the privatization of the two main agroindustries, telecoms and air transport are estimated to cost US$2.14 million and have been approved by the Bank. The contracts were awarded following Bank procurement procedures. The selection procedures, including advertisement, was in accordance with these Guidelines, and the Bank's normal review process was followed. In addition, the selection process to recruit an intemational consulting firm to undertake the environmental audit of the petroleum sector was launched in January 2001 and a contract is expected to be awarded by the end of July. The Borrower undertook such advance contracting at its own risk, and any "no objection" issued by the Bank with regard to the procedures, documentation, or proposal for award does not commit the Bank to make a credit for the project in question. The program elements by disbursement category, their estimated costs, and procurement methods are summarized in Table A below. Consultant selection methods and thresholds for procurement methods and prior review are summarized in Tables Al and B below. IDA Reviews IDA financed contracts for works and goods above the threshold value of US$ 100,000 equivalent will be subject to IDA's prior review procedures in accordance with appendix 1 of the Guidelines. The use of IDA's standard bidding documents would considerably expedite the prior review process, as IDA review would primarily focus on invitations to bid, bid data sheets, contract data, technical specifications, bill of quantities/schedule of requirement, and other contract specific items. Selective post review of contracts awarded below the threshold levels will apply to one in four contracts. For consultant services, prior review will include the review of budgets, short-lists, selections procedures, terms of reference, letters of invitation, proposals, evaluation reports, and draft contracts. Prior IDA review will not apply to contracts for the recruitment of consulting firms and individuals estimated to cost less than US$100,000 and US$50,000 equivalent respectively. However, IDA prior review will apply to the terms of reference of such contracts, regardless of value, to single-source hiring, to assigmuents of a critical nature as determined by IDA (such as the recruitment of Project Unit staff, financial and procurement audits, etc.), or to amendments of contracts raising the contract value above the prior review threshold. For consultant contracts estimated above the US$100,000 threshold, opening the financial envelopes will not take place prior to receiving the Banks no-objection to the technical evaluation. For contracts estimated to cost less than US$ 100,000 and more than US$50,000, the borrower will notify IDA of the results of the technical evaluation prior to opening the financial proposals. Documents related to procurement below the prior review thresholds will be maintained by the borrower for ex-post review by auditors and by IDA supervision missions. The Project Unit will be required to maintain all relevant - 44 -  procurement documentation for subsequent review by IDA. The Project Unit will submit to IDA periodic procurement schedules detailing each procurement package in progress and completed as part of the normal project reporting exercise. For training and study tours, prior review will include the approved annual training program, including the number of participants and cost estimates, organization of training, terms of reference and short list of firms. Training in excess of US$100,000 and all out of country long term training which is over 3 months will be subject to IDA prior review. All thresholds stated in this section shall be reviewed by the Borrower and IDA on an annual basis. Modifications may be agreed upon, based on performances and actual values of procurement implemented. Amendments to the Credit Agreement may be prepared as necessary. Procurement Implementation Arrangements The STP will handle procurement for the project two components (Regulation and Privatization). Its tasks will include: (a) preparation of terms of reference (TORs), bid packages and request for proposals (RFP); (b) maintaining a register of all interested bidders and a roster of consultants; (c) maintaining a detailed list of technical specifications of goods and services financed by the project; (d) updating the procurement plan and calendar; (e) bid evaluation and preparation of evaluation reports; (f) contract approval process; (g) receipt of goods and services and dispatching; and (h) processing intemational and local price quotations. Procurement tasks for PSD strategies and activities in support of PRSP shall be carried out by FASP. Procurement for works estimated at US$2.4 million needed for samples analyses from industrial and utilities companies will be carried out, under the STP supervision, by a Consultant recruited to conduct environmental audits." Procurement Capacity Assessment A procurement capacity assessment of the Privatization Agency (STP) has been carried out during appraisal and has been discussed with the Government during negotiations. As a result, an action plan was agreed to address areas where the existing structures still need to be strengthened to meet performance criteria for PMR-based disbursement. The summary of the results of this assessment are available in the project file (Annex 8). Overall, the risk assessment is rated average. In order to manage this risk, a procurement officer and an assistant will be appointed under the STP, prior to effectiveness. Furthermore, provision will be made under the Credit for the financing of technical assistance in procurement and contract management as necessary and independent procurement audits. Procurement plan The procurement plan for the first year has been prepared during pre-appraisal and will be finalized before effectiveness. During 2001, the detailed procurement plans for the following years will be developed and submitted to IDA for review and approval. The plan will include relevant infornation on goods, works, and consulting services under the project as well as the timing of each milestone in the procurement process. The procurement schedule will be updated semi-annually for the first eighteen months, and quarterly thereafter for PMR based disbursements. These plans will be reviewed by IDA supervision missions. - 45 -  Project Implementation Manual: Procurement As a condition for effectiveness, the Government will submit to IDA: (a) an updated Project Implementation Manual with a specific section on procurement detailing: (i) procedures for planning; (ii) calling for bids; (iii) selecting contractors, suppliers and consultants; and (b) a Project Implementation Plan and an updated procurement plan for the first year of operations. The Government provided assurances at negotiations that it will: (a) use the Project Implementation Manual and Project Implementation Plan for Project Implementation; (b) use Bank standard bidding documents for NCB; and (c) apply the procurement procedures and arrangements outlined in the above documents. The Government also provided assurance that it will take the necessary measures to ensure that procurement phases do not exceed the following target periods. Procurement Phases Maximum Time Frame Preparation of bidding document 4 weeks (3 weeks for small contracts) Preparation of bids by bidders 6-8 weeks (4 weeks for small contracts) Bid evaluation 4 weeks (2 weeks for small contracts) Signature of contracts 2 weeks Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Expenditure Category ICB Procurement Method N.B.F. Total Cost NCB Other 1. Works 2.10 0.20 0.00 0.00 2.30 (1.40) (0.13) (0.00) (0.00) (1.53) 2. Goods 5.50 0.57 0.10 0.00 6.17 (3.55) (0.50) (0.08) (0.00) (4.13) 3. Services 0.00 0.00 15.23 0.00 15.23 (0.00) (0.00) (12.66) (0.00) (12.66) 4. Training and study tours 0.00 0.00 1.78 0.00 1.78 (0.00) (0.00) (1.78) (0.00) (1.78) 5. Retraining Fund under 0.00 0.00 1.79 0.00 1.79 Part B.4 of the Project (0.00) (0.00) (1.79) (0.00) (1.79) 6. Operating costs 0.00 0.00 2.00 0.00 2.00 (0.00) (0.00) (1.54) 7. Unallocated 0.00 0.00 0.37 0.00 0.37 (0.00) (0.00) (0.37) (0.00) (0.37) Total 7.60 0.77 20.90 0.00 29.64 (4.95) (0.63) (18.22) (0.00) (23.80) -46 -  Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant Services Setection Method Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total Cost' A. Firms 11.40 0.00 0.00 0.40 2.50 0.00 0.00 14.30 (9.01) (0.00) (0.00) (0.35) (2.40) (0.00) (0.00) (11.76) B. Individuals 0.00 0.00 0.00 0.00 0.00 1.00 0.00 1.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.90) (0.00) (0.90) Total 11.40 0.00 0.00 0.40 2.50 1.00 0.00 15.30 (9.01) (0.00) (0.00) (0.35) (2.40) (0.90) (0.00) (12.66) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS Quality-based Selection SFB Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. Prior review thresholds (Table B) - 47 -  Table B: Thresholds for Procurement Methods and Prior Review r ; 0005000 00:: 0:Conract Value Contracts Subject toX0 Threshold ~Procurement PirfeI Expenliture Category (US$) 0t$ 0 0 H ; p Method ($ 1. Works Over 200,000 ICB PR: 1.50 >100,000 <200,000 NCB <100,000 NCB Post Review Under 30,000 3 quotations Post Review 2. Goods Over 100,000 ICB PR: 3.70 between 100,000 and NCB PR: The first three 30,000 contracts under 30,000 National Shopping Post Review 3. Services a. firms >100,000 QCBS PR: 13.00 <100,000 QCBS; Post Review LCS for standard financial PR for audits audits b. individuals >50,000 IC (Section V) <50,000 IC (Section V) PR: 0.80 Post Review 4. Training <100,000 CQ (for firms) TORs Section V for IC 5. Miscellaneous SOE None 6. Miscellaneous SOE None Total value of contracts subject to prior review: US$19.00 million Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 3 months (includes special procurement supervision for post-review/audits) Post Review will apply to one (1) contract out of four (4) not subject to prior review. -48 -  Disbursement Allocation of credit proceeds (Table C) Disbursements will be in accordance with guidelines set out in the Disbursement Handbook. The project is expected to be completed over a 4-year period, by December 31, 2005, and the Credit is expected to be closed by June 2006. The proposed allocation of the IDA Credit is shown in Table C below. The Project Coordination Unit (PCU) will be responsible for preparing withdrawal applications and SOEs to be submitted to IDA, and will indicate on the SOEs the nature and origin of any goods and the payment date. These will be retained along with all other supporting documentation for review by Bank supervision rnissions and independent auditors. Table C indicates the disbursement schedule, the amounts (in US$ m) for each expenditure category and the disbursement percentage applicable to each. The disbursement percentages have been calculated on a tax-inclusive basis, so when applied to invoices denominated in local currency, the percentage not financed by the Bank should be sufficient to cover Government counterpart contributions and eliminate any Bank financing of local taxes and duties. Table C: Allocation of Credit Proceeds Expenditure Category Amount in USSmiliion Financing Percentage Civil Works 1.53 100% for foreign expenditures and 80% for local expenditures Goods 4.13 100% for foreign expenditures and 80% for local expenditures Consultant Services including audits 12.66 100% for foreign expenditures and 83% for local expenditures Training 1.78 100% Retraining Fund 1.79 100% Operating Costs 1.54 90% Unallocated 0.37 Total Project Costs 23.80 Total 23.80 -49 -  Use of statements of expenditures (SOEs): The Project will use SOE procedures in which expenditures are summarized by category. The documentation for withdrawals of SOEs would be retained by each executing agency for review by IDA staff during supervision missions and for annual audits. SOEs will be used for payments of contracts of less than US$100,000 for goods and works and consultant contracts of less than US$50,000 for firms and individuals respectively. SOEs will likewise be utilized for training contracts costing less than US$100,000 excluding out of the country long-term training over 3 months, and all operating costs. To ensure that funds will be available when needed, one Special Account in US dollars will be established in local commercial banks under conditions satisfactory to IDA. Fifty percent of the special account amount will be withdrawn on the Credit account after effectiveness; the remainder will be withdrawn as and when dictated by project activities. Special account: The Special Account (SA) in US dollars in the name of the PCU will be opened in the amount of US$1.5 million. Fifty percent of this amount will be withdrawn on the Credit account after effectiveness; the remainder will be withdrawn as and when dictated by project activities. The amount has been estimated to cover about four months of expenditures, and would be withdrawn from the Credit account after effectiveness. The PCU would have the right to draw directly on this account for project expenditures without prior approval by the Ministry of Finance. The Special Account would be replenished on the basis of documentary evidence, provided to IDA by the PCU, of payments made from the account for goods and services required for the project that are eligible for financing under the Credit. All SOE supporting documentation will be retained by the executing agencies, and made available for review by periodic WBG supervision missions and extemal auditors. - 50 -  Annex 7: Project Processing Schedule MADAGASCAR: Second Private Sector Development Project Project Schedule Planned Actual Time taken to prepare the project (months) _ First Bank mission (identification) 06/18/2000 07/06/2000 Appraisal mission departure 10/11/2000 11/27/2000 Negotiations 06/18/2001 06/27/2001 Planned Date of Effectiveness 12/27/2001 Prepared by: Govermment of Madagascar Preparation assistance: Bank staff who worked on the project included: Name Speciality Marie-Ange Saraka-Yao Task Team Leader, Privatization & Infrastructure finance Javier Burgos Transport Olivier Fremond Capital Markets Development Chad Leechor PSD anchor for Indian Ocean countries Ying Liang Telecommunications and ICT Maryanne Sharp Operations Analyst Sylvain Rambeloson Procurement Gervais Rakotoarimanana Financial Management Cecile Wodon Project Documentation Edgar Saravia Peer reviewer, Lead PSD Specialist, Regulation Simon Gray Peer Reviewer Judite Fernandes Project Documentation Omar Fye Environment Mourad Belguedj Oil & Gas Amy Champion Program Assistant Kristin Ivarsdotter Social Specialist Yann Burtin Teleconununications and ICT Paul Noumba Telecommunications and ICT Onno Ruhl Lead PSD Specialist Raj Soopramanien Legal Counsel Michael Fowler Disbursement Officer - 51 -  Annex 8: Documents in the Project File* MADAGASCAR: Second Private Sector Development Project A. Project Implementation Plan * PIP B. Bank Staff Assessments * Country procurement assessment report. * PATESP mid-term review assessment. C. Other o Privatization laws and decrees. * Privatization trust fund strategy. * Telecom, petroleum, and air transport laws. * TORs for environmental audit of petroleum sector. * TORs for privatization of telecom. * TORs for privatization of airports. * TORs for privatization of sugar. * TORs for privatization of cotton. * TORs for privatization of power company * TORs for strengthening OMH. * TORs for strengthening OMERT. *Including electronic files - 52 -  Annex 9: Statement of Loans and Credits MADAGASCAR: Second Private Sector Development Project May-2001 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Revd P055166 2001 COMMUNITY DEVELOPMENT PROJECT 0.00 110.00 0.00 0.00 107.51 0.00 0.00 P051741 2000 Second Health Sector Support Project 0.00 40.00 0.00 0.00 34.91 5.65 0.00 P062628 2000 Regional Development 0.00 4.60 0.00 0.00 4.33 2.52 0.00 P052208 2000 Transport Sector Reform and Rehabilitat. 0.00 65.00 0.00 0.00 56.35 -3.07 0.00 P052186 1999 MICROFINANCE 0.00 16.40 0.00 0.00 11.13 3.41 0.00 P057378 1999 SAC II 0.00 100.00 0.00 0.00 110.56 64.82 0.00 P064305 1999 SOCIAL FUND III 0.00 15.00 0.00 0.00 11.64 -9.71 0.00 P056487 1998 MINING PROJECT 0.00 5.00 0.00 0.00 1.97 2.01 0.96 P001568 1996 NUTRITION II 0.00 27.60 0.00 0.00 18.05 5.65 0.00 P001564 1998 RURAL WATER SEC.PILO 0.00 17.30 0.00 0.00 12.08 12.44 0.00 P001559 1998 EDUCATION SECTOR DEV 0.00 65.00 0.00 0.00 54.45 37.71 0.00 P040019 1997 CAPACITY BUILDING 0.00 13.80 0.00 0.00 1.15 1.92 0.00 P040596 1997 ENVIRONMENT II 0.00 0.00 8.10 0.00 6.85 1.66 0.00 P001555 1997 PRIV SECT DEV & C.E. 0.00 23.60 0.00 0.00 4.22 5.31 -1.74 P001537 1997 ENVIRON. II 0.00 30.00 20.80 0.00 5.00 -1.06 0.00 P048697 1997 URBAN INFRASTRUCTURE 0.00 35.00 0.00 0.00 23.44 24.83 0.00 P001533 1996 ENERGY SECTOR DEVELOPMENT PROJECT 0.00 46.00 0.00 0.00 15.76 17.65 0.00 Total: 0.00 614.50 28.90 0.00 479.39 171.72 -0.78 - 53 -  MADAGASCAR STATEMENT OF IFC's Held and Disbursed Portfolio May-2001 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990/91 AEF FIARO 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1997 AEF GHM 0.78 0.00 0.00 0.00 0.78 0.00 0.00 0.00 1995 AEF Karibotel 0.24 0.00 0.00 0.00 0.24 0.00 0.00 0.00 1992/93/95 AQUALMA 1.14 0.00 0.00 0.00 1.14 0.00 0.00 0.00 1991 BNI 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 BOA-M 0.00 0.82 0,53 0.00 0.00 0.82 0.00 0.00 1983/89 Nossi-Be 0.00 0.14 0.00 0.00 0.00 0.14 0.00 0.00 Total Portfolio: 2.16 3.76 0.53 0.00 2.16 3.76 0.00 0.00 Approvals Pending Com,itment FY Approval Company Loan Equity Quasi Partic 1999 AEF Bora Hotel 0.35 0.00 0.00 0.00 1999 AEF Manerinerina 0.15 0.00 0.00 0.00 2000 AEF Somaqua 0.70 0.00 0.00 0.00 1998 AEF Tani 0.98 0.00 0.00 0.00 Total Pending Commitment: 2.17 0.00 0.00 0.00 -54 -  Annex 10: Country at a Glance MADAGASCAR: Second Private Sector Development Project Sub- POVERTY and SOCIAL Saharan Low- Madacuacar Africa inceme Developmenl diamond' 1999 Pndatinon mid-eaAr (milttonst 1S 1 647 2 417 Life expectancy GNP nor cacita (Atlas method. USSI 250 so0 410 G1NP (Allax mrthcd USS hiltofl .t 3 7 371 9R8 A~agao. annual orowth. 1993-99 Ponutation (%t 30 26 19 X I ahnr Mira ft) 9n 211 2 3 GNP Gross Mott rec*nt estimate flatest veer avallabi.. 1993-891 per primry capita A. emila-nt Pnvartv (% of ooDuletion below national oovertv linrl 70 Urban nonubtion (% of total oooulationt 29 34 31 I if o xnectan,,v at hirth (viatrst SRa 511 f1i Intant mortAlutv (oor 1.000 live births) 92 92 77 Child malnrtritinn (1% of children undekr 51 40 32 43 Access to safe water Access to tmoroved watnr source f% of oooulatlonl 29 43 64 lllitmrirv/%o 1 ofoulation aoe 15*1 34 3- a3a Gross orimarv enrollment (X of schco-aaoe ooculetonl 192 71 96 M8dagascar Mati r7 Al Ie7 ---21-1- Low-income group Female 91 71 86 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 19S9 1998 1999 - Economic ratios' Gf)P (USS billions) 25 3 7 36 Gross domestic investment/GOP 13.4 12 5 123 Fxrnors nf nnnod and x.rvirAs(nnP 1A 4 71 A 24 1 Trade Gros% domestic savinos/GCP 9.R 4.6 4.f Gross national savinos/GDP 10.4 5.0 6.9 Current account balanc/lGOP .3.0 -7.5 -s.8 Domestic a Intirest navmentlti fnP 411 7 1 1 Vomesc Investment TotaldebtiGDP 13862 11813 122?f avigs Toll deht nervi.*laxnerts. 44 4 111 7 li 1 Pretstt valttA of debtlGOP 87.5 Pr^sent val,,e of rdnhtleort 9fi4 11 Indebtedness 1979-89 1989-99 199S 1999 1999-03 (everaoe ennuaf orowthM GOP 2.3 1.4 3.9 4.7 5.7 Medgaacar GNP oer cmoht, -1.5 -0. 9 1.5 2.4 2 7 Low-income group ExnortR nf ooods and services -4 2 3.1 2.1 20 9 117 STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of investment and GOP (%) f% of GDPI 15 Anrimi,lt-re 72. R 32 9 31 fi 30 1 T Industrv 17.2 14.8 13.6 13.8 Manufacturino 12.9 -. Services 53.1 52.3 55.8 56.2 5 a9/ ss 55 97 95 99 Privaie consurmntion 81.4 87.9 17.6 -8 s General oovernment consumotion 8. 7.5 7.9 -GD1 -'GDP Imnnrts oil nnds And sArviceA 22 0 29 3 37 7 _ 1979-e9 1989-99 1998 1999 Growth of exports and Imports f%) feveraae annual orowthl Anri-lt-re 7 2 1 2 1 63 4 20 Industrv -0.6 1.6 5.3 4.3 Man.,faht,trinn 7 S 0 lo _ Services -0 5 1.7 6.1 5.6 Private consumotion -1.2 1.9 3.4 3.8 D 94 596 s7 95 99 General oovernment consumotion 1.5 a1.2 2.1 4.2 Gross domestic investment 13.5 -0.1 9.0 3.5 sE1 imoorts of ooods and services -8.5 4.2 1.6 16.5 -Exports In,port mrnAs national nrndi,.t 1 11 1 q 4 S 6 6 Note: 1999 data are preliminary estimates. The diamonds show four kev indicators in the country tin boldl comoared with its income-oroun averaae. If data are missino the diamond will he incrmnltete. - 55 -  Madagascar PRICES and GOVERNMENT FINANCE 1979 1989 19s8 1999 | nlto % Domestic prices Inflation (% change) 6{ Consumer prices 9.0 6.2 9.7 4 Implicit GDP deflator 1 2.0 8.4 9.8 Government finance 2 (% of GDP, includes current grants) Current revenue 12.7 10.9 12.1 94 95 96 97 98 99 Current budget balance 2.7 0.4 3.1 GDP deflator r CPI Overall surplus/deficit -6.8 -7.8 -4.1 TRADE (tUS$ millions) 1979 1989 1998 1999 Export and import levels (US$ mill.) Total exports (fob) 358 519 594 1.000 Coffee 77 40 30 Other food 42 16 27 750 Manufactures 109 405 450 Total imports (cif) 372 791 885 s*0 Food 38 54 45 _iiM I* Fuel and energy 35 102 124 Capital goods 120 149 154 93 94 95 D6 97 FPnnot nrir.. inrfile 11995=100) Ai 8il 69 Imoort orice index 1995=100) 81 84 88 | E.ports *irmports T.rms nf tr-nd (1995=100) inn in2 C15 fALANCE of PAYMENTS /USS millions) 1979 19t9 1998 1999 Current account balance to GDP I%) Exports of goods and services 488 461 801 921 0 m Imports of goods and services 928 550 1,097 1,216 Resource balance -440 -89 -296 -294 Net income -189 -85 -54 :1111111 Net current transfers 203 100 142 -6 I Current account balance -75 -281 -206 Financing items (net) 108 165 260 Changes in net reserves .. -33 116 -54 72 Memo: Reserves includino oold fUSS millions) .. 20 169 226 rConvnrsrinn ratA IDEC. IocallUSSI 212.7 1.603.4 5,341.0 6199.0 EXTERNAL DEBT and RESOURCE FLOWS 1979 *989 1998 1999 rUSS millionsl Composition of 1998 debt (US$ mill.) Total debt outstanding and disbursed 779 3,452 4,421 4,371 IBRD 29 27 1 p G: 230 A: 1 IDA 97 670 1,317 1,361 F 41 Total debt service - 244 167 169 _ i,317 IBRD 3 5 2 1 IDA 1 7 22 25 Composition of net resource flows Official grants 33 142 354 141 Official creditors 138 164 122 93 E: 2,28d Private creditors 166 -17 -2 -2 Foreign direct investment -7 13 16 58 490 Portfolio equity 0 World Bank program Commitments 49 25 115 132 A-IBRD E- Bite.rtl Disbursements 15 73 69 83 8 - IOA D - Olher ullilateral F - Privats Principal repayments 1 5 13 16 C - IMP G - Sh.rt-tir- Net flows 15 68 56 67 Interest payments 3 7 9 10 Net transfers 12 61 47 57 Development Economics 8/28/00 - 56 -  Additional Annex 11 List of Companies in the Current Privatization Program 1. Solitany Malagasy (SOLIMA) 2. Siramamy Malagasy (SIRAMA) 3. Fitaterana Malagasy (FIMA) 4. Aeroport de Madagascar (ADEMA) 5. Societe d'Etudes, de Construction et de Reparation Navale (SECREN) 6. Societe d'Interet National des Produits Agricoles (SINPA) 7. Compagnie Aerienne AIR MADAGASCAR (AIR MAD) 8. Kafe Malagasy (KAFEMA) 9. Famokarana Mahabibo Malagasy (FAMAMA) 10. Societe d'Exploitation de la Viande a Madagascar (SEVIMA) 11. Societe d'Andapa Mamokatra (SOAMA) 12. Femme d'Etat Vohimasina (FEV) 13. Femme d'Etat de la Sakay (FESA) 14. Femme d'Etat Bree-Kay 15. Societe Rizicole de Marovoay (SORIMA) 16. Societe Malagasy pour le Palmier a Huile (SOMAPALM) 17. Abattoir National de Morondava (ANM) 18. Abattoir Frigorifique de Majunga 19. Langouste du Sud (LANSU) 20. Societe Sambava Voanio (SOAVOANIO) 21. Fikambanana Fampandrosoana ny Lemak'i Betsiboka (FIFABE) 22. Hasy Malagasy (HASYMA) 23. Projet Palmeraie d'Antalaha 24. Antoka Asa Ambanivohitra (AAA) 25. Bureau Central Laitier (BCL) 26. Tranombarotra ROSO (ROSO) 27. Societe Industrielle et Commerciale de l'Emyrne (SICE) 28. Maxime Darrieux (DARRIEUX) 29. Societe Malgache de Collecte et de Distribution (SOMACODIS) 30. Groupe Comptoir de Commerce et de Representation pour l'Ocean Indien (COROI) 31. Societe Promotion pour les Produits Agricoles d'Exportation (SOPRAEX) 32. Societe pour le Developpement Industriel des Plantes Madagascar (SODIP) 33. Cabinet RINDRA 34. Societe d'Etude et de Realisation pour le Developpement Industriel (SERDI) 35. Societe de Construction de Mecanique Industrielle (SOCOMI) 36. Societe Torginol Madagascar (TORGINOL) 37. Societe Industrielle du Bois (STB) 38. Forage Essai Travaux (FORESTRAX) 39. TOLY 40. Societe Malgache d'Exploitation des Mines et Carrieres (SOMADEX) 41. Societe d'Exploitation de Valorisation des Marbres (SEVMACAM) 42. Marbre et Granite de Madagascar (MAGRAMA) 43. Societe Malgache de Transports Maritimes (SMTM) 44. Compagnie Malgache de Navigation (CMN) - 57 -  45. Air Route Service (ARS) 46. Reseau National de Chernin de Fer Malgache (RNCFM) 47. Societe Financiere pour le Developpement des Transports et du Tourisme 48. Telecommunications Malgache (TELMA) 49. JIRAMA - 58 -  MAP SECTION   IBRD 29/i07 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 .~~~~~~~V s S:.' b-A ANT IR NAN '-<~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~' ;~~~~~~A-VOE k MA'HAJD NGtioiy(>* Odamn :.:.a rfI J't );