Turkmenistan - Technical Assistance

 ICRR 11986 Report Number : ICRR11986 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 01/27/2005 PROJ ID : P034092 Appraisal Actual Project Name : Technical Assistance Project Costs 26.00 11.65 US$M ) (US$M) Country : Turkmenistan Loan/ US$M ) 25.00 Loan /Credit (US$M) 10.65 Sector (s): Board: PS - Central Cofinancing 1.00 1.00 government administration US$M ) (US$M) (48%), Payment systems securities clearance and settleme (32%), Oil and gas (9%), Banking (6%), Law and justice (5%) L/C Number : L3791 Board Approval 95 FY ) (FY) Partners involved : Closing Date 06/30/1998 12/31/2003 Prepared by : Reviewed by : Group Manager : Group : Pierre M. De Raet Laurie Effron Kyle Peters OEDCR 2. Project Objectives and Components a. Objectives There were two objectives: 1) to provide support to the Government in the policy formulation process by helping to overcome the critical human resource gap that was slowing the preparation of a reform program and to develop policy options for implementing and managing reforms, including strategies for removing energy sector constraints; and 2) to provide support for institutional building and strengthen domestic capacity to ensure that Turkmenistan had the capability to implement and sustain reforms over the medium term . b. Components Technical assistance was to be provided under six components, : 1) Privatization and private sector development (PSD): (i) planning and policy work for privatization and PSD, and development of implementation plans; and (ii) formulation and enforcement of enterprise reform policies to improve governance and restructuring of enterprises, and training of managers; 2) Financial sector: (i) development of a payments system; (ii) development of commercial bank accounting and auditing guidelines, and training; (iii) strengthening of central bank supervision capability and prudential regulations; and (iv) training for professional staff of banks; 3) Institutional support and development : (i) development of a legal framework for PSD and strengthening implementation capacity; (ii) development of public investment project analysis and training; and (iii) feasibility studies of priority investment projects in industry, infrastructure, and agriculture; 4) Social sector: (i) conducting a Living Standards Measurement Survey (LSMS) as the basis for designing social protection policies; and (ii) developing a policy framework for designing a national and contributory pension scheme; 5) Energy sector: (i) design of a regulatory framework and development of policies and institutional strengthening for supervision of petroleum operations; and (ii) transfer of technology and training for staff in the Oil and Gas Ministry; and 6) Project implementation: support to a PMU and training. c. Comments on Project Cost, Financing and Dates From the outset, the project was plagued by fraud, corruption and mis -procurement leading to suspension of all Bank disbursements in March 1998 and to the cancellation in 1999 of US$19.38 million of the Loan, of which US$15 million (60 percent) at the request of the Government . After a 15 month-hiatus in disbursement, the Bank lifted the country-wide suspension in August 1999, and, in late 1999, the Government requested a reactivation of the project focusing only on the modernization of the treasury, a reinstatement of a portion of the cancelled funds (US$9.2 million) and a postponement of the closing date to 12/31/2001. The Bank agreed to such a request in June 2000. The closing date was extended twice more, to 12/31/2002 and to 12/31/2003 to implement the modernization of the treasury. Delays, poor decision-making and non-compliance with agreed benchmarks led the Bank to decline a request for a fourth extension to 12/31/2004, leaving the sole remaining component incomplete by Loan closing . Eventually, disbursements amounted to US$ 10.7 million. 3. Achievement of Relevant Objectives: The objectives were not met because of a total lack of commitment on the part of the authorities and the absence of a reform program agreed between the Government and the Bank . There was minimal implementation of some sub-components (treasury modernization, LSMS, and pensions ) with no lasting impact. 4. Significant Outcomes/Impacts: The only output is the establishment of a banking school, taken over subsequently by the EU . 5. Significant Shortcomings (including non-compliance with safeguard policies): 1) None of the sub-components was fully achieved . 2) The Government did not cooperate with investigations of fraud and corruption . 3) The procurement expert recruited under the project failed to monitor procurement processes . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Unsatisfactory Highly Unsatisfactory Institutional Dev .: Negligible Negligible Sustainability : Highly Unlikely Highly Unlikely Bank Performance : Unsatisfactory Highly Unsatisfactory The Bank failed in several respects : (i) at preparation/appraisal, it misjudged considerably the commitment and the implementation capacity of the Government; (ii) the project was much too broad and too complex for a country barely emerging from a command economy; (iii) it overlooked the fact that kickbacks were already reported before effectiveness; and (iv) given the experience gained over the first five years of the project, the Bank management made a crucial mistake in 2000, in accepting a redesign of the project and the reinstatement of funds, thereby sending an inappropriate signal to the borrower. Borrower Perf .: Highly Unsatisfactory Highly Unsatisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1) In cases of fraud, corruption or mis -procurement, the Bank should act quickly and decisively . The Turkmenistan case reflects badly on the Bank and on the policies it promotes . 2) TA projects for countries initiating a transition to a market economy should be designed with the borrower, be simple and well focused on a few priority areas . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The ICR is well written. Table 4 is very useful.