Algeria - Telecommunications And Postal Sector Reform Project

 ICRR 12743 Report Number : ICRR12743 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 08/10/2007 PROJ ID : P070308 Appraisal Actual Project Name : Telecommunications Project Costs (US$M): US$M ): 9.00 7.64 And Postal Sector Reform Project Country : Algeria Loan/ US$M): Loan /Credit (US$M): 9.00 7.64 Sector Board : GIC US$M): Cofinancing (US$M ): Sector (s): Central government administration (62%) Law and justice (24%) Postal services (14%) Theme (s): State enterprise/bank restructuring and privatization (23% - P) Legal institutions for a market economy (22% - P) Law reform (22% - P) Administrative and civil service reform (22% - P) Regulation and competition policy (11% - S) L/C Number : L7027 Board Approval Date : 06/27/2000 Partners involved : Closing Date : 06/30/2004 12/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Peter Nigel Freeman Roy Gilbert Alain A. Barbu IEGSG 2. Project Objectives and Components: a. Objectives: The overall objective was to create an enabling environment to improve access to efficient and affordable communications services by opening the telecommunications and postal sectors to competition and private participation. Specific objectives were: To establish a new legal, regulatory and institutional framework; To implement gradual liberalization of all market segments in the sector; To privatize the main telecommunications operator through a transparent and competitive bidding process; To elaborate a comprehensive postal development strategy towards ensuring the financial viability of the postal operator. b.Were the project objectives/key associated outcome targets revised during implementation? No c. Components (or Key Conditions in the case of DPLs, as appropriate): 1. Establish a new legal and regulatory framework . Financing international consultants to assist the Government of Algeria (GoA) to establish a regulatory framework, enact secondary legislation and design and establish a regulatory authority. (Appraisal cost US$2.13 million; actual; US$0.55 million). 2. Implement a liberalization policy. Design and implementation of a transaction strategy for one mobile licence . (Appraisal US$0.69 million; actual US$2.25 million). 3. Restructure the Ministry of Posts and Telecommunications (MPT). Consultancy advice, workshops and study tours to support the restructuring of the MPT into four entities - each with a new mission and organization [telecommunications operator, postal operator, post and telecommunications regulator and the Ministry ]. (Appraisal US$2.92 million; actual US$1.87 million). 4. Privatize telecommunications entity . Financing of the design and implementation of a privatization strategy for the telecommunications operator . (Appraisal US$1.88 million; actual US$1.39 million). 5. Elaborate postal development strategy . Financing consultants to design a postal development strategy focusing on long term competitiveness, modernization of the postal network, improving quality of service, market orientation and new product development . (Appraisal US$1.29 million; actual US$0.89 million). 6. Strengthen communication strategy and capacity building . The preparation and implementation of a communication strategy vis a vis foreign investors and the public as well as capacity building for the project management unit (PMU). (Appraisal US$1.00 million [originally to have been funded entirely by the GoA ]; actual US$0.60 million). d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: This project was fully financed by IBRD and included an up -front fee of US$0.09 million. The project closing date was extended three times - on the first occasion by 12 months because of delays in the output of various consultants, restructuring of the new telecommunications operator, Algerie Telecom (AT), and training for key stakeholders. A second 12 month extension then became necessary because some of these activities still remained outstanding, and finally a further 6 month extension was required to provide technical assistance for the AT privatization transaction which had been stalled due to weak political commitment due to lack of ownership by a succession of ministers. Uncommitted funds of US$0.28 million were eventually cancelled. 3. Relevance of Objectives & Design: The project was in line with the continuing strategy of the GoA to shift away from a socialist to a more market -based economy. In this regard it is in line with both the 1996 CAS and the draft 1998 CAS, which emphasize the opening -up of the economy to private sector investment and privatization, with an ongoing focus on both infrastructure and the expansion of the information society . Information and communication technology (ICT) is also key to improving the investment climate, a crucial element of GoA policy and a strategic objective in the current CAS . The overall objective was sound . A PPIAF grant, mobilized to assist the GoA to draft a new telecommunications sector policy provided a good foundation for work to proceed . The introduction of a public relations campaign at the outset was also a good move given the controversial nature of privatization and liberalization in some circles in the country. The establishment of a PIU was essential in this case because of the project's complexity, and the fact that the agency was unfamiliar with managing projects funded either by the Bank or by other financiers . Overall the time frame for the project was over-ambitious resulting in three extensions and an additional elapsed period of 18 months. 4. Achievement of Objectives (Efficacy): Overall objective: to create an enabling environment to improve access to efficient and affordable communications services by opening the telecommunications and postal sectors to competition and private participation . (Substantial) All institutional objectives (except the privatization of Algerie Telecom and the preparation of a postal development strategy) were met by 2004, and all sector development outcome results significantly exceeded original targets . In the telecommunications sector access was greatly improved with teledensity increasing from 5.6 lines per 100 inhabitants (at the end of 2000) to 60 lines per 100 inhabitants by the end of 2004. Overall an enabling environment was created albeit with the couple of gaps outstanding mentioned above . To establish a new legal, regulatory and institutional framework; (Substantial) A Post and Telecom Regulatory Authority was set up in 2001 and shortly afterwards two state -owned enterprises, Algerie Poste and Algerie Telecom were established after the enabling legislation was enacted . The MPT was effectively reorganized by September 2003 into the Ministry of Posts and Information and Communication Technologies. The Postal and Telecommunications Law of 2000, however, still needs updating . To implement gradual liberalization of all market segments in the sector; (Substantial) Two new mobile licences were awarded through a transparent and competitive bidding process to private operators (Orascom for US$737 million and Wataniya for US$421 million). High speed internet access was also rolled out more quickly than initially forecast by the project . Over the life of the project some US$ 4 billion in foreign direct investment for telecommunications was attracted to Algeria . Beyond the benefits of increased access the competitive environment has led to more choices of providers, improved quality of service, and re -balanced cost-based tariffs. Algerie Poste was modernized and the regulatory framework updated to prepare for greater sector liberalization . To privatize the main telecommunications operator through a transparent and competitive bidding process; (Modest) Preparatory steps have been taken such as restructuring, the preparation of opening balance sheets . an international audit of statement accounts, and the hiring of privatization advisors . However, the final step to privatization has not yet been made due to lagging political commitment ahead of parliamentary elections . To elaborate a comprehensive postal development strategy towards ensuring the financial viability of the postal operator. (Modest) Although the GoA effectively updated the postal regulatory framework, it did not produce an overall strategy that would have provided for a broader view of the government's actions and objectives . This would have helped to attract potential private sector investors and business partners . Nevertheless there was a significant investment in the postal sector including the construction and renovation of post offices and the augmentation of the transportation fleet. 5. Efficiency (not applicable to DPLs): A US$9 million loan together with a rapidly improving investment climate led to institutional reforms that resulted in US$4 billion in foreign direct investment and an additional US$ billion in local investment, so in this sense the project was very efficient. The consumer surplus due to the expanded mobile access and lower costs due to competitive service provision was estimated at a saving of US$ 1 billion per annum. In the postal sector there has been some progress due to quality of service and productivity improvements . However, no ERR or FRR was calculated, as is normal practice. ERR )/Financial Rate of Return (FRR) a. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: Taking relevance, efficacy and efficiency into account with the individual development objective ratings the outcome is rated moderately satisfactory . The reasons why a full satisfactory was not given are that the main telecommunications operator has still not been privatized and the postal development strategy has not been done . a. Outcome Rating : Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating: Despite the momentum created by the reform process, the risk to development outcome still exists until the GoA has actually taken the step of privatizing Algerie Telecom and fully updates and aligns itself with a new sector strategy and an updated Postal and Telecommunications Law . a. Risk to Development Outcome Rating : Moderate 8. Assessment of Bank Performance: Bank performance in ensuring quality at entry was satisfactory overall . The project design was clear, the appraisal was sound and the strategic relevance judged correctly based on experience of other successful developing countries such as Jordan and Morocco . Minor shortcomings in the design were the insufficient emphasis on basic access for all citizens and not addressing the potential for employment creation . Supervision was generally satisfactory except for some inattention in the procurement area which was overcome later through the appointment of a consultant specializing in procurement issues . at -Entry :Satisfactory a. Ensuring Quality -at- b. Quality of Supervision :Moderately Satisfactory c. Overall Bank Performance :Satisfactory  9. Assessment of Borrower Performance: The project initially had strong support when actively championed by the incumbent Minister at the time of appraisal. However, this commitment weakened through a succession of three subsequent Ministers and there was a decrease in the level of support for Algerie Telecom's privatization and a lack of commitment to policy formulation in the postal sector . This situation might have been worse had it not been for the consistent efforts of the General Secretary of the MPT. A dedicated management team in the implementing agency resolved most issues that arose, but implementation arrangements and capacity were stretched thin during most phases of the implementation process leading to delays and the need for recurrent extensions of project closing . a. Government Performance :Moderately Satisfactory b. Implementing Agency Performance :Moderately Satisfactory c. Overall Borrower Performance :Moderately Satisfactory 10. M&E Design, Implementation, & Utilization: Indicators used to monitor progress towards the development objectives were adequate overall . For the telecommunications sector the internationally standard indicators of teledensity and number of internet subscribers were used together with the price of leased lines to measure affordability . For the postal sector the productivity indicator used was relevant to the tracking of mail volume (a proxy for the impact of increased competition and improved performance). A further design feature was a comparison with the postal sectors in other countries in the region. But while this was a laudable idea, it was difficult to interpret as each country was in practice at a different stage of sectoral development and reform . Although in the last year of the project market intelligence provided by the regulator showed an increased number of competitors in the sector, there was no means of comparing access or efficiency with that of other countries in the region . Despite a few delays, the required data were mostly collected successfully in respect of telecommunications . Although no specific tool was developed to monitor the implementation of the postal sector component, the government is currently setting up a statistical observatory for the telecommunications, postal and IT sector (funded by the EU), which will go a long way towards improving overall sector monitoring . The GoA has realized that it is important to have a sound M&E system . It used what data were available to inform its decisions, but it recognized the need for better information and thus its support to the statistical observatory was an important step forward. a. M&E Quality Rating : Modest 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The fiduciary aspects were handled well . There were no safeguards issues . An unintended impact was the interest the project engendered in opening -up the banking sector in a similar way . 12. Ratings : 12. ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Full privatization of Algerie Telecom Satisfactory and the development of a postal strategy are not yet achieved . Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately There was a weakening of commitment Satisfactory to the reform process (see section 9). Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate . 13. Lessons: Telecommunication sector liberalization can have a significant demonstration effect and pave the way for other sector reforms; the GoA is now working on opening -up its banking sector. Consistent and strong political support is critical in a project that aims to introduce more private sector participation in the postal and telecommunications sector, especially in an economy that has long been driven by government intervention. An empowered government person to champion the project is also important . In supporting telecommunication sector liberalization, an up -front solid institutional communication strategy is needed to convey to all stakeholders (and especially trade unions ) the strategic objectives of the reform and the nature of the project. 14. Assessment Recommended? Yes No Why? This would be a useful case study for the proposed IEG telecommunications evaluation . 15. Comments on Quality of ICR: The ICR quality is generally satisfactory, although there is a tendency to downplay aspects of objectives that were not achieved. Risk to development outcome is rated "low" in the text, but "moderate" in the basic information sheet. While the summary of the borrower's report was useful, the full report should also have been attached to the ICR . a.Quality of ICR Rating : Satisfactory