Tunisia - Second Electrical and Mechanical Industries Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15839 PERFORMANCE AUDIT REPORT TUNISIA SECOND ELECTRICAL AND MECHANICAL INDUSTRIES PROJECT (Loan 2554-TUN) June 28, 1996 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents (annual averages) Currencv Unit =Tunisian Dinar (TD) 1987 US$1.00 $0.8287 1988 US$1.00 $0.8578 1989 US$1.00 $0.9493 1990 US$1.00 $0.8783 1991 US$1.00 $0.9246 1992 US$1.00 $0.8844 1993 US$1.00 $1.0037 1994 US$1.00 $1.0116 Abbreviations and Acronyms API Agence de Promotion des Investissements BDET Banque de Développement Economique de Tunisie BTKD Banque Tuniso-Koweitienne de Développement CETIME Centre Technique des Industries Mécaniques et Electriques DEDA Direction de l'évaluation et du développement agricole DEDITS Direction de l'évaluation et du développement industriel, du tourisme et des services DFCs, development finance companies DS Direction du Suivi EFRSL Bank's Economic and Financial Reform Support Loan EMI Electrical and Mechanical Industries Sector ERR economic rate of return FRR financial rate of return INNORPI Institut National de la Normalisation et de la Propriété Industrielle PCR Project Completion Report SAR Staff Appraisal Report SEABG Société Des Emballages Aluminium Et Boissons Gazeuses STEC the Tunisian public electricity company STUSID Société Tuniso-Séoudienne de Développement TI Tunisacier International Fiscal Year Government: July 1 - June 30 FOR OFFICIAL USE ONLY The World Bank Washington, D.C. 20433 U.S.A. OM11ce of the Director-General Operations Evaluation June 28, 1996 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Tunisia Second Electrical and Mechanical Industries Project (EMI-2, Loan 2554-TUN) Attached is the Performance Audit Report (PAR) on the Tunisia Second Electrical and Mechanical Industries Project (EMI-2, Loan 2554-TUN, approved in FY86) prepared by the Operations Evaluation Department. The EMI-2 Project provided a credit line of US$50 million to finance the creation, expansion and modernization of projects in the electrical and mechanical industries through three financial intermediaries. It also had a technical assistance component, amounting to US$4 million, to help in building institutional capacity to promote advice and raise industrial standards in the EMI sector. In addition, the project also had institutional objectives relating to the improvement of the capacity of the participating financial intermediaries in their appraisal and supervision efforts. The utilization of the credit line was low because of poor demand. Soon after the loan became effective, an economic downturn resulted from the fall in oil prices and the efforts of the Tunisian Government to stabilize the economy. The immediate impact of these measures was to reduce overall demand and, specifically, induce a decline within the largely import-substituting EMI sector. Low demand, however, had already been experienced by the previous project (EMI- 1) before approval of EMI-2. In 1988, acting on the request of the Government authorities, the Bank cancelled a US$21.5 million of the credit line. Additional cancellations were made prior to the closing of the loan on June 30, 1993. At closing, only 34 percent (i.e., US$17 million) of the original US$50 million credit line had been utilized for EMI subprojects. In the case of the technical assistance component, disbursements amounted to US$4.2 million, involving US$0.2 million dollars more than was originally allotted. The reallocation was undertaken to pursue the additional requirements of the technical assistance component. A total of 25 subproject loans were made to 21 companies. Ten of the 21 companies financed under the credit line are experiencing financial difficulties, including the largest subproject which received about 20 percent of the total amount of the credit line. The outcome of this project is rated as unsatisfactory, the institutional development impact as substantial, sustainability as unlikely, and Bank performance as unsatisfactory. These ratings do not agree with those of the PCR in two respects: the outcome was rated in the PCR as marginally satisfactory and sustainability as uncertain. The rating of substantial for institutional development impact is kept in view of the relatively successful efforts to establish institutions designed to support the EMI sector, but the institutional impact insofar as improving the capacity of the financial intermediaries was modest. Lessons learned from this operation include the following: restrictive trade and industrial policies should be reformed prior to financing to insure that competitive and efficient industries are established under a line of credit; and projects need to apply lessons learned from previous similar projects. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Contents FOR OFFICIAL USE ONLY Preface..................................................... 3 Basic Data Sheet............................................... 5 Evaluation Summary 1......................................... .. 1. Project Objectives, Design and Relevance............................ 15 Project Objectives and Description .............................. 15 Project Design and Preparation ............................... 16 2. Project Implementation............................................ 18 General Overview ............................ ............ 18 Implementation Performance of DFCs ............................ 20 BDET's Evolution, 1985-1994 ................................. 20 BTKD's Evolution, 1985-1994................................ 23 STUSID's Evolution, 1985-1994 ............................. 25 Performance of Subprojects under the Line of Credit...................... 27 General Overview ........................................... 27 Performance of the Companies ............................... 29 3. Bank and Borrower Performance ................................ 32 Bank Performance.................................... 32 Borrower Performance..................................... . 34 4. Conclusions: Outcome, Sustainability, and Performance ................ 34 5. Lessons of Experience........................................ 35 Annex A -Tables ............................................... . 37 Annex B - Letter from the Borrower .............................. . 41 This report was prepared by Gerardo Sicat (Task Manager) and Ivan Christin (Consultant). Alejandra Sarmiento provided administrative support. The report was issued by the Country Policy, Industry and Finance Division, Manuel Peftalver, Chief, of the Operations Evaluation Department, Francisco Aguirre-Sacasa, Director. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.  3 Preface This is the Performance Audit Report (PAR) on the Tunisia Second Electrical and Mechanical Industries Project (EMI-2, Loan 2554-TUN), which was approved on May 23, 1985 in the amount of US$54 million. In 1988, the Bank cancelled a US$21.5 million of the loan as a result of poor demand. There were several other cancellations and the loan closed on June 30, 1993 with only 39 percent of the original loan amount disbursed. The PAR was prepared by the Operations Evaluation Department (OED). It is based on the President's Report, the loan documents, sector and economic reports, the project files, the summary of the Board discussion, discussions with Bank staff, and on the Project Completion Report (PCR) prepared in June 1994 by the Middle East and North Africa Region. An OED mission visited Tunisia in November, 1995 and discussed the effectiveness of the Bank's assistance with Government officials, officials of the three financial intermediaries and the companies involved with the project. Their kind cooperation and invaluable assistance in the preparation of this report is gratefully acknowledged. The PCR for the EMI-2 Project provided a balanced account of accomplishments and shortcomings of the operation but included limited information on the performance of the sub- projects. The PAR discusses in greater detail the institutional capacity of the involved financial intermediates, and the implementation results of the sub-projects financed. The ratings in this PAR are at variance with the original ratings of the PCR, except for institutional development impact, which was rated as substantial. The PCR rated the outcome as marginally satisfactory, mainly because the ex ante rates of return for the sub-projects were high. While it was not possible to calculate the ex post rates project rates of return because of inadequate information provided by the financial intermediaries and enterprises, secondary evidence indicates that many of the projects had been experiencing financial problems, and about half of the companies benefitting from the credit line had been in serious arrears status, putting their loans in jeopardy with the financial intermediaries. Thus, the PAR rates the outcome of the project as unsatisfactory and sustainability as unlikely, and Bank performance as unsatisfactory. The draft PAR was sent to the Borrower. The letter received from the Banque de D6veloppement Economique de Tunisie is reproduced in Annex B to the PAR. & 5 Basic Data Sheet Table 1. Related Bank Loans Amount Year of Disbursed Loan No. Approval Purpose US$million 1969 1981 Small-Scale Industry Development 30.0 2113 1982 Electrical and Mechanical Industries 30.5 2301 1983 SOFOMECA Foundry Modernization and Expansion 16.8 2522 1985 Export Industries Project 25.7 Source: SAR Table 2. Project Timetable Stage of Project Cycle Original Date Actual Date Identification May 1984 May 1984 Appraisal December 1984 December 1984 Negotiations April 1985 April 1985 Board Approval May 1985 May 1985 Effectiveness November 1985 June 1986 Loan Closing June 1992 June 1993 Source: MIS Table 3. Cumulative Estimated and Actual Disbursements by End of Calendar Year (US $ million) Original Amount Actual Amount 1985 .26 1986 4.84 -- 1987 15.64 1.61 1988 28.60 9.35 1989 39.94 11.82 1990 47.50 17.88 1991 51.82 19.88 1992 54.00 20.76 1993 20.87 Source: MIS 6 Table 4. Selected Project Implementation Indicators Implementing Indicators Expected Actual Comments Agency Date Date The Government Purchase of US$1.9 million of of Tunisia equipment and services for 6/31/92 6/31/93 Purchase of US$ 2.6 millioi expansion and improve-ment of of equipment and services the operations of CETIME Purchase of equipment and services totaling US$2.1 million 6/31/93 6/31/93 Purchase of US$1.9 of for expansion and improve-ment equipment and services of INNORPI's operations BDET Completion of lending US$ 20 6/31/92 6/31/93 Partial Achievement US$ million from Loan proceeds to 7.3 million lent enterprises for export projects BTKD Completion of lending US$ 15 06/31/92 6/31/93 Partial Achievement US$ million from Loan proceeds to 4.5 million lent enterprises for export projects STUSID Completion of lending US$ 15 6/31/92 6/31/92 Partial Achievement US$ million from Loan proceeds to 4.8 million lent enterprises for export projects Source: SAR, supervision reports and MIS Table 5. Project Costs and Financing Original Est. Actual Amount Project Costs and Financing US$ million US$ million Subproject Investment Costs 110.0 66.8 Bank Financing 50.0 16.7 Equipment and services purchased by CETIME 2.0 2.6 Equipment and Services purchased by INNORPI 2.0 1.9 Source: SAR and MIS 7 Table 6. Project Results A. Direct Benefits Estimated at Appraisal Actual Increase in resources for investments in electrical and Achieved but lower demand for financing than mechanical industries. expected. Expansion and improvement of the operation of Achieved. CETIME through the establishment of a mechanics laboratory and greater availability of technical assistance. Expansion and improvement of the operation of Partially achieved. Based on a 1989 report INNORPI INNORPI through the provision of expert services in had only issued 17 certifications. the areas of quality management and the establishment of i) a metrology service and ii) a laboratory for testing EMI products. Source: SAR, LA, PA, and supervision reports B. Indirect Benefits Estimated at Appraisal Actual Increase in output and export earnings generated by Too early to evaluate impact of sub-projects on EMI electrical and mechanical industries and decrease in exports and imports. the share of the country's consumption of EMI goods that is imported. Creation of jobs through investment projects Partially Achieved. Statistics provided by banks as of financed. 1993 year end indicate the creation of only 1106 jobs. Source: Sar and subproject appraisal reports 8 Table 7. Status of Project Covenants-A. Loan Agreement Section Covenant Status Borrower Commitment to objectives and 3.01 responsibilities under the project Compliance 3.02 - 3.03 General conditions for re-lending funds. Compliance Borrower supervision of procurement of goods purchased by CETIME and the INNORPI, through comparison and evaluation of price quotations 3.04 obtained from not less than three reliable suppliers. Compliance Employment of consultants to implement Parts B and C of the project by CETIME and INNORPI; consultants' qualifications, experience and conditions 3.05 of employment being satisfactory to the Bank. Compliance Borrower ensures: i) the maintenance of records and accounts, in accordance with sound practices, by CETIME and INNORPI; ii) that annual audits of CETIME and INNORPI are performed by independent auditors satisfactory to the Bank; and iii) the provision 4.01 of information reasonably requested by the Bank. Compliance Borrower responsibility for the way CETIME and 4.02 INNORPI carry out their operations and affairs. Compliance Non-interference with the Development banks in the execution of responsibilities under the Project 4.03 Agreement. Compliance Completion of a foreign exchange risk study by March Compliance. Results were instrumental in 4.04 31, 1986. defining a scheme adopted under SAL 1. Partial compliance. Delays in compensating Protection of BDET, BTKD and STUSID from losses BDET for losses from exchange rate 4.05 resulting from exchange rate changes. changes. Bank/Borrower review of financial requirements of Compliance. Done in the context of a 4.06 Development Banks by December 31 of each year review of interest rate structure in Tunisia. 4.07 and Implementation of measures to ensure gradual No record of compliance or non compliance Supplemental increases in the competitiveness and efficiency of the in supervision reports with Letter No., as Letter No.4 Borrower's electrical and mechanical industry detailed above. including: i) ensuring that prevailing tariff duties be enforced in a consistent manner with respect to all imports of all EMI capital goods and supplies; ii) limiting duties of the fore-mentioned to a maximum of 18%, with the exception of steel structure and platework products for which a tariff of a maximum 21% would be allowed; and iii) for products already produced in Tunisia which are protected by an import licensing system, ensuring that Tunisian promoters shall not be allowed to charge ex-factory prices greater than 118% of the comparable foreign price on EMI capital goods and supplies (except for steel structure and platework products for which a level of 121% would be acceptable). 9 B. Project Agreement Section Covenant Status Commitment of BDET, BTKD and STUSID 2.01 to project objectives. Compliance. Granting of sub-loans by BDET, BTKD and 2.02 STUSID according to criteria in Schedule 1. General Compliance Partial compliance. Complete Documentation required for presenting sub- documentation not available in the 2.03 loans to the Bank files for all subprojects. Obligation of BDET, BTKD and STUSID to protect the interests of the Bank and the 2.04 Borrower in contracts for sub-loans Compliance. Reporting requirements of BDET, BTKD and Compliance. Audit reports submitted 2.05 STUSID on use of Bank funds with delays up to 6 months. Rules governing the establishment of any 2.06 subsidiaries by BDET, BTKD or STUSID. Compliance. BDET, BTKD and STUSID to perform obligations under its respective Subsidiary 2.07 Financing Agreement Compliance. Requirement for exchange of views between each of the participating banks and the Bank 2.08 on the progress of the project. Compliance BDET, BTKD and STUSID to carry on their Compliance by BDET and STUSID. operation and conduct their affairs in BTKD took at 41% equity stake in an accordance with statutes and Statements of EMI subproject, in breach of its 3.01 Policy. policies. Schedule I Eligibility criteria for investment projects. Compliance. Compliance, except details on project sometimes missing from standard Schedule 2 Appraisal report format. document Table 8: Use of Bank Resources-Staff Time Allocation by Stage of Project Cycle (Staffweeks) Preparation and Negotiations through FY Appraisal Effectiveness Supervision Total 1985 61.3 6.6 1.0 68.9 1986 ---- ---- 10.2 10.8 1987 ---- ---- 10.7 12.4 1988 ---- ---- 5.9 7.2 1989 ---- ---- 11.9 8.3 1990 ---- ---- 11.3 11.4 1991 ---- ---- 12.6 9.3 1992 ---- ---- 3.3 2.8 1993 ---- ---- 0 0 Total 61.3 6.6 63.2 131.1 Source: MIS 10 Table 9: Use of Staff Resources-Major Project Missions Number of Project Rating Activity Date Number of days Persons ID 9/84 12 3 NA APP 11/27-12/15/85 15 6 NA SP 10/8-10/9/85 19 1 NA SPNI 12/2-12/17/85 18 3 2 SPN2 4/14-5/1/86 17 2 NR SPN3 1/19-2/6/87 20 3 3 SPN4 9/17-9/30/87 11 3 NR SPN5 6/26-7/8/88 13 3 NR SPN6 9/3-16/89 14 4 NR SPN7 10/11-24/90 14 5 NR SPN8 11/4-26/91 16 5 NR SPN9 11/4-20/92 17 2 2 Source: Project Files Activities: APP = Appraisal; ID = Identification SP = Supervision Preparation SPN = Supervision NA = Non Applicable NR = Not Reported I/ The total number of days in the field for supervision missions is not a good indication of time spent on the Electrical and Mechanical Industries Project. Most missions actually covered many more than one project, but back-to-office reports did not specify the number of days spent on each project. Evaluation Summary 1. This project is the second to support the development of the Electrical and Mechanical Industries Sector (EMI) in Tunisia. It was identified in May 1984, appraised in December 1984, and approved in May 1985 in the amount of US$54 million. The first project to support the EMI sector (Loan No. 2113-TUN) was approved in 1982 in the amount of US$ 30.5 million, of which US$20.9 million was disbursed, and closed in June 1989. 2. The EMI-2 loan included a credit line of US$50 million to finance industrial projects in the electrical and mechanical industry, made available through three participating development financing companies (DFCs): US$20 million for relending by the Banque de Diveloppement Economique de Tunisie (BDET); and US$15 million each for the Banque Tuniso-Koweitienne de Diveloppement (BTKD) and the Socidtg Tuniso-Sioudienne de Diveloppement (STUSID). The DFCs are government-owned (two of them jointly with other governments). A technical assistance component of US$4 million was set aside to strengthen two government institutions- Centre Technique des Industries Micaniques et Electriques (CETIME) and Institut National de la Normalisation et de la Propridtd Industrielle (INNORPI)-which were to assist in the development of the EMI sector. 3. Eligible projects to be financed consisted of priority industrial projects in the EMI sector, which met the following requirements: (i) be in the private sector; (ii) cost no more than US$20 million equivalent each; (iii) meet the test of minimum financial rate of return (FRR) and economic rate of return (ERR) of 12 percent and 10 percent, respectively; and (iv) have a tariff duty protection not higher than 18 percent (21 percent only in the case of steel structure and platework products). 4. The first phases of the project cycle (from identification to negotiations, board approval, and signing) remained within schedule. Loan effectiveness, however, was delayed by seven months due to delays in approval of legal documents by the National Assembly. 5. The US$50 million line of credit was used very slowly. Upon request of the Government in 1988, the original allocation was reduced to US$28.5 million after the cancellation of US$ 21.5 million as a result of lack of demand. The Bank extended the deadlines for commitments (to June 30,1990) as well as for the closing date (to June 30, 1993), to introduce more flexibility in the use of funds. Nevertheless, further cancellations were requested by the Borrower because anticipated sub-projects failed to materialize and demand for financing in the private sector slowed down. Ultimately, out of the remaining US$ 28.5 million available for the three DFCs, only US$16.6 million was disbursed. Hence, only 34 percent of the original credit of US$50 million was disbursed to finance industrial projects. Commitments and disbursements for CETIME and INNORPI were made on schedule. In fact, the technical assistance agreement was amended to allow for an additional US$0.2 million to be used for the purpose, so that total disbursements for that purpose amounted to US$4.2 million. 6. Shortly after the Project became effective, the Tunisian economy underwent a slowdown, partly because of the fall of oil prices and partly as a result of the measures taken to stabilize the economy, following the adoption of a structural adjustment program by the government. The years 1985-1988 recorded a decline/stagnation of the overall gross fixed 12 capital formation. Favorable trends in electrical industry output began to materialize in 1990, but total investments in the EMI subsector declined further until 1992. But demand for investment in the EMI sector had shown sings of weakness already before project approval. Commitments and disbursements of the previous project (EMI-1) were already running behind schedule by March 1984 when a first postponement of the closing date was requested. A second postponement was requested in November 1984, one month before the appraisal of EMI-2. Yet, EMI-2 was approved in May 1985, for an amount much higher than that of EMI- 1. In retrospect, it is clear that the Bank relied too much upon DFCs' projections of investment demand in the EMIs subsector, in spite of available evidence of weak demand. 7. The rates of return reported in the PCR exceeded the minimum required rates of return for project selection but were ex ante rates. It was not possible to calculate the ex post rates of return since cash flows and other requisite information were not made available either through the DFCs or through company and plant visits. Moreover, Bank supervision apparently overlooked the implementation of the conditions related to the international competitiveness of the projects selected and let the DFCs undertake the selection, but the DFCs were not geared for this type of appraisal and supervision. 8. For the purpose of this PAR, information on the companies which used the credit line was derived from exhaustive audits of the DFCs undertaken as a result of the loan classification exercise done to comply with new central bank regulations supported by the Economic and Financial Reform Support Loan (EFRSL). Of 21 companies that obtained loans through the EMI-2 line, eight companies had worrisome and doubtful loans, and two additional companies had loans which were of an uncertain category. Nearly half of the project funds went to companies in financial trouble with the DFCs. In particular, nearly 20 percent of the amount on- lent went to a company which was in effect owned by two of the DFCs and is in serious financial trouble. Selected plant visits and other discussions on the field tended to confirm the problems being faced by many of the projects financed under the line of credit. 9. Institution building in terms of the two technical agencies designed to assist the EMI firms was relatively more successful than the use of the line of industrial credit. CETIME and INNORPI undertook to build up their services under the project. Of the two institutions, CETIME was able to develop its system of technical services with modern methods of assistance for EMI companies at a faster rate. INNORPI is building a capacity for certification of standards for the EMI sector. With respect to institution building within the DFCs, the loan project did not succeed in strengthening institutional capacity. In fact, the DFCs experienced an increase in accounts with arrears. However, with the provisioning exercises undertaken under the overall adjustment program, the DFCs are under pressure to undertake financial restructuring to strengthen their position. Outcome, Sustainability, and Performance 10. The outcome of this project is rated as unsatisfactory, the institutional development impact as substantial, and sustainability as unlikely. Bank performance is rated as unsatisfactory. The ratings derived from the PCR differ from the above ratings in three respects. The PCR review rated the project outcome as marginally satisfactory and sustainability as uncertain. In both cases, this audit report gives a lower rating. The PCR did not explicitly rate Bank performance. 13 11. The major reason for the change in the outcome rating from marginally satisfactory to unsatisfactory is the poor assessment of demand and, most importantly, poor performance of the subprojects. Before the audit of the project, it was thought that the projects would on balance perform well in view of the estimated economic rates of return presented in subproject appraisal reports. That would have meant improved economic efficiency and competitiveness within the sector. This finding was not sustained by the audit. While it was not feasible to recalculate financial and economic rates of return, and data was insufficient to provide reliable information on border prices for inputs and outputs, the audited loan performance of the companies showed substantial arrears, placing their loans in doubtful category. Visits to subprojects confirmed this review. Most of the projects were import substituting enterprises, and although in a number of instances, the projects supported had succeeded in exporting part of their production, these latter enterprises represented a small minority of the companies financed. The supervision of the subprojects from the standpoint of efficiency criteria, as laid out in the project agreement, was not effectively undertaken by the Bank. 12. The original institutional development rating of substantial is maintained, based principally on the performance of the subcomponents relating to the new technical institutions to support the EMI sector. Institution building of the two technical institutions to help the EMI sector was the more successful component of the loan. The improvement of the institutional capacity within the DFCs was less successful. The financial positions of the financial intermediaries worsened during the life of the loan, with their portfolio showing an increase of arrears. 13. The sustainability of the industrial projects financed under the credit line is far less is rated as unlikely. The electrical and mechanical industrial sector has been less protected than other sectors, but in the context of a highly protected economy that was undergoing gradual reforms under the structural adjustment program, the viability of some companies that have used the credit line appears in doubt without major restructurings. Lessons of Experience 14. Restrictive trade and industrial policies should be reformed to insure internationally competitive and efficient industries prior to financing under a line of credit. 15. Being instruments of financing, industrial lines of credit cannot be expected to serve as tools for the selection of internationally efficient projects. 16. Lessons learned from previous similar projects should be applied in the design of follow- up projects. 17. Importance and feasibility of supervision: supervision should be adequate and project conditionality should be designed in a way that allows for their effective supervision.  15 1. Project Objectives, Design And Relevance Project Objectives and Description 1.1 This project (Loan No. 2554-TUN)-the second to support the development of the Electrical and Mechanical Industries Sector (EMI) in Tunisia-was identified in May 1984, appraised in December 1984 and approved in May 1985 in the amount of US$54 million. The first project to support the EMI sector (Loan No. 2113-TUN) was approved in 1982 in the amount of US$ 30.5 million, of which US$20.9 million was disbursed. When EMI-2 was designed, the amount of the credit line was made more than twice the total disbursements for EMI-1, which was only partially disbursed. This meant that EMI-2 was over-estimated and let to it being less fully utilized than EMI- 1. 1.2 The EMI-2 Project had two main objectives. A credit line of US$50 million was to finance the creation, expansion and modernization of viable enterprises in priority EMI subsectors, to be made available through three participating development financing companies (DFCs): US$20 million for relending by the Banque de Diveloppement Economique de Tunisie (BDET); and US$15 million each for the Banque Tuniso-Koweitienne de Diveloppement (BTKD) and the Socigtj Tuniso-Seoudienne de Diveloppement (STUSID). Of these three DFCs, only BDET had been involved in the previous (EMI- 1) project. Second, a technical assistance component of US$4 million was to assist two government institutions to help in the development of the EMI sector, namely, the Centre Technique des Industries Micaniques et Electriques (CETIME) and the Institut National de la Normalisation et de la Propritd Industrielle (INNORPI). CETIME provided technical assistance services to EMI firms. INNORPI provided certification of industrial standards and quality control. 1.3 The line of credit would finance the foreign exchange needs for goods, works, and services of eligible subprojects (estimated to amount to about 55 percent of total costs). Eligible subprojects were: (i) investments in one of the priority sub-sectors; and (ii) investments in the non-priority sub-sectors provided that new (greenfield) subprojects would export at least 30 percent of their production and that expansion subprojects would export at least 50 percent of their additional production. To assure that were widely distributed and internationally competitive, the eligible subprojects would: (i) be in the private sector;I (ii) cost no more than US$20 million equivalent each; (iii) meet the test of minimum financial rate of return (FRR) and economic rate of return (ERR) of 12 percent and 10 percent, respectively; and (iv) have a tariff duty protection not higher than 18 percent (but 21 percent in the case of steel structure and platework products). 1.4 Interest rates on sub-loans were to be at least 12 percent. The Bank loan proceeds lent to the Government were to be on-lent to the three involved DFCs, in local currency, at the Bank's prevailing interest rate, and the Government would bear the foreign exchange risk. Sub-loans were subject to a maximum loan of: US$ 2 million if the project was financed by only one At the time, private sector firms included enterprises in which the State held (directly or indirectly) up to 50 percent of the equity. 16 development bank and US$ 4 million, if the project was financed by more than one participating DFC. 1.5 The remaining US$ 4 million lent to the Government was to be made available on a grant basis to CETIME and INNORPI for the purchase of technical assistance and equipment. Project Design and Preparation 1.6 The participating DFCs were expected to contribute additional resources and to raise their standards for project appraisal and supervision. The BDET had successfully participated in previous Bank projects, and its continued participation was to ensure continuity. The financial profiles of both BTKD and STUSID were found attractive as additional channels for the credit to provide diversity and stimulate financial deepening. These two DFCs were relatively new and well capitalized and their debt to equity ratios were below 1:1. In this respect, they were better than BDET. 1.7 The three intermediaries for the credit line are development banks owned substantially by the Government of Tunisia. While the DFCs have foreign partners, BDET is substantially owned by the Tunisian government (a 40.93 percent participation). The Government of Saudi Arabia is a principal stockholder of the STUSID and the Government of Kuwait, of the BTKD. Each of these foreign governments contributed half of the equity of the respective financial institution, with the other half controlled by the Tunisian Government. Thus, all three financial institutions are Government-owned development banking institutions. 1.8 The Bank's SAR extensively analyzed the existing structure and performance of financial intermediaries expected to participate in the project. The main conclusions of the Bank's SAR, with respect to BDET, BTKD and STUSID, are summarized as follows: a) Until the early 1980s, BDET was the only DFC assisting industrial development in Tunisia. BDET was adequately managed and staffed. It had recently focused on identifying and promoting new projects through a newly created Promotion Department. Although the Bank did not make any comment concerning BDET's appraisal capabilities, it noticed BDET's weakness in supervision and devised 2 appropriate agreements with BDET in order to overcome this weakness . Following a substantial growth until 1982, BDET's operation slowed down in 1983-1984 as a result of (i) a return to a more normal level of investments in Tunisia and (ii) an increased competition from the new development banks. BDET's financial position was basically sound. However, the Bank noticed three worrying recent developments: the rapid increase in current liabilities, the growth in receivables and the increase in arrears on loans. An agreement was reached with BDET on an action plan aimed at accelerating the collection of arrears and reviewing the provisioning policy. BDET's profitability had deteriorated as a result of both a shrinking spread and substantial Government's delays in meeting its obligation related to the coverage of foreign exchange risk. Again, an agreement was reached with the Government to address these issues. 2 EMI-2, SAR, p. 28, para. 5.04. 17 b) BTKD, founded in 1981, was considered well managed and staffed. Its appraisal standards and procedures were found satisfactory except in the area of economic analysis where strengthening was necessary. The Bank decided to closely monitor BTKD's appraisal and supervision capacity and suggested a program on this issue. BTKD plans were aimed at financing projects with total investment cost above TD 1 million and involving advanced technologies. In addition, the bank's focus was to finance private sector projects and to actively participate in privatization programs. BTKD's loan portfolio was concentrated in industry, transport and services (87 percent), whereas tourism and construction represented only 12 percent. The bank's equity portfolio was distributed over the same sectors with shares of 72 percent and 24 percent respectively. Arrears were at acceptable levels but the provisioning policy was somewhat deficient. Overall, BTKD's financial position was sound. It had adequate capitalization, but profitability was low (the average return on equity was about 8 percent). The bank's lending rate policy needed to be regularly monitored and reviewed. c) STUSID was founded in 1981, like BTKD. Its objectives were to: (i) promote economically and financially viable projects through, specially, the mobilization of foreign capital; (ii) help the development of the capital market, and (iii) participate in export and import finance. STUSID's financial and operational policies were considered satisfactory, with adequate management and staffing. STUSID's appraisal procedures and methods were sound with the exception of the economic assessment of projects which needed serious strengthening. The Bank decided to pay particular attention to this issue and monitor progress in this respect. STUSID's supervision system was considered satisfactory. STUSID's loan portfolio did not suffer from arrears and provisions were adequate. Its financial position was sound, with however a low return on equity (about 6 percent) because a large portion of the bank's overall portfolio was invested in equity participation in newly created companies. 1.9 In comparison with the detailed review of the financial intermediaries for this Project, the Bank's analysis of the potential development of the EMI subsector was mainly based on the priorities set in the Sixth Plan (1982-1986). The Bank's emphasis was on developing Tunisia's comparative advantage as described in the Plan, mainly (i) a labor force with low wages and increasing productivity, (ii) a preferential access to the EEC market, (iii) a proximity to the Middle East and Sub-Saharan Africa markets, and (iv) an investment code favorable to foreign investment would have led to a pipeline of projects which included:4 a) import substituting industries in selected capital and intermediate goods which relied on labor-intensive and relatively simple technologies, goods for which there was a large domestic market. These projects would have included: (i) the foundry subsector, (ii) the steel and platework subsector and (iii) selected mechanical works; 3 It should be noted that the EMI project was approved in 1985, when the Sixth Plan period was close to its final year. Cf. EMI-2, SAR, pp. 15-16. 18 b) production of capital and intermediate goods with a clear export potential (so far constrained by production capacity) such as electrical machinery (motors, transformers and electric meters, water-heaters, switchboards, cables, etc.). 1.10 The past record of implementation of planned investments, together with the existing pipeline approved by the Agence de Promotion des Investissements (API), provided the Bank with some expectation that there was room for further investments. The pipeline of EMI subprojects and projections of related approvals, provided at the time of appraisal, by participating DFCs is summarized in Annex Table 1.5 The value of projected approvals in the manufacturing sector was estimated to grow by 12.6 percent p.a. for each DFC over the 1984- 1988 period. The value of projected approvals in the EMI subsector was estimated to grow, over the same period, by about 8.6 percent p.a. for BDET, 15.25 percent for BTKD and 16 percent for STUSID. 2. Project Implementation General Overview 2.1 Implementation schedule. The first phases of the project cycle (from identification to negotiations, board approval, and signing) remained within schedule. Loan effectiveness however was delayed by seven months (to June 1986) due to delays in approval of legal documents by the National Assembly. 2.2 Commitments and disbursements of US$4 million for CETIME and INNORPI were made on schedule. For the US$50 million credit line, however, upon request from the Tunisian Government in Spring 1988,6 the original allocation was reduced to US$28.5 million after the cancellation of US$ 21.5 million as a result of iack of demand. The Bank extended the deadlines for commitments (to June 30,1990) as well as for the closing date (to June 30 1993), to introduce more flexibility in the use of funds. Further cancellations were requested by BTKD and STUSID in 1989 and 1991 because anticipated subprojects failed to materialize and demand for financing in the private sector slowed down. Ultimately, out of the remaining US$ 28.5 million available for the three DFCs, only US$16.6 million was disbursed (US$ 7.3 million by BDET, US$ 4.5 million by BTKD and US$ 4.8 million by STUSID). Hence, only 34 percent of the original credit of US$50 million was disbursed to finance industrial projects. On the other hand, an additional US$0.2 million was added to the technical assistance component to assist in equipment purchase, therefore disbursing a total of US$4.2 million, after amendment of the agreement. 2.3 Shortly after the Project became effective, the Tunisian economy slowed down, due to the fall in oil prices and the measures taken to stabilize the economy, following the adoption of a structural adjustment program by the government. This development affected the EMI sector, as shown in Annex Table 2 and Fig. 1. The years 1985-1988 recorded a decline/stagnation of the Cf. EMI-2, SAR, Annex 3, Table 2, p.67. 6 This request was, to some extent, the conclusion of discussions held by a supervision mission with the Government less than a year and half after effectiveness (late 1987). 19 overall gross fixed capital formation and a serious reduction in the national investment rate (from 26.3 percent in 1985 to 19.3 percent in 1988). According to the figures published by BDET,7 total investments in EMIs stagnated over 1985-1987. The situation improved somewhat in 1988 (due to higher investments in mechanical industries) but further deteriorated in 1989 (investments in mechanical industries declined by 20 percent). Despite favorable trends in electrical industries which began to materialize in 1990, total investments in the EMI subsector further declined until 1992, following the collapse of the domestic automobile subsector. In 1993, total investments in EMIs resumed growing, a process attributable to the growth of the electrical industries (in 1992, investments in this subsector exceeded those in mechanical industries, a situation which prevailed at least until 1994). In the meantime, investments in tourism (which had followed the general declining trend until 1987) became relatively more attractive in 1988 and successfully attracted more investment funds. With the exception of what happened in the automotive subsector, it is hard to say that the Bank should have anticipated better the investment trends. However, the Bank had relied too much upon the DFCs' projections of growth of approvals in the EMIs subsector, while "sector specific" credit allocations are always subject to unexpected changes in demand. In addition, the Bank also relied too strongly upon its supervision capabilities to cope in advance with difficult situations, such as the possibility of financing investments in highly protected subsectors. As emphasized later on, the Bank's supervision of the project was weak. Figure 1. Trends in Investments in Tourism, Mechanical and Electrical Industries 1985-1994 (Million TD) 10 ~---- hmnnu in Nbohm Ind 25- n awnt,~, s in Be& ri RZd 150 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 -BDET: Annual reports from 1985 to 1994. These annual reports include detailed surveys of economic sectors in Tunisia, with actual figures related to production, value added and investments in the major sectors. 20 Implementation Performance of DFCs 2.4 General considerations. From 1986 until 1991, the three participating DFCs operated within a general framework of banking sector supervision and regulation which was, by and large, inadequate. Things changed dramatically in 1992 when Tunisian authorities introduced, with Bank's support, a modem and comprehensive system of prudential regulations and supervision of banks under the Economic and Financial Reform Support Loan (Loan 3424- TUN). Recent changes in participating DFCs policies and structures largely reflect the impact of this new legislation. During 1986 to 1992, the annual inflation rate was about 6 percent. BDET's Evolution, 1985-1994 2.5 Appraisal capacity. Current criteria used by BDET for subprojects selection and appraisal depend mainly on assessments of the companies profile, creditworthiness, capability to repay the loan and the existence of collateral. Cash flow analysis based on projected revenues and expenditures (including initial capital expenditures) is an infrequent practice and the calculation of ERRs is ignored. As a result, even though BDET had (as other involved DFCs) to follow a specific appraisal reporting format for subprojects financed under the credit line provided by the Bank, this practice was never generalized within BDET. For the Bank supported subprojects, the mission was unable to collect such appraisal reports to make the required checks. In addition, BDET's terminology introduces confusing notions concerning the concept of appraisal (jvaluation). The mission was provided with two notes: one related to the Evaluation des projets industriels, des risques et des provisions9 and one related to the to Evaluation des projets touristiques . These notes refer to ex post assessments of projects, not to ex ante appraisal. 1 2.6 Supervision capacity. Supervision operations in BDET are the task of a specialized Departement: the Dipartement du suivi which is a unit of the Direction du recouvrement et suivi [Directorate of collection and follow-up]. This unit is in charge of the follow-up of operations financed by BDET through credit and/or through equity participations. Field visits are generally organized (i) at the beginning of the project's life, (ii) when 50 percent of the funds have been released, and (iii) when the project becomes operational. In addition, a systematic supervision is 8 EMI-2, SAR, para. 6.11, p.55. The sub-project appraisal report would have included "a detailed study of the financial and economic viability of the project, including the computation of FRR and ERR [where all outputs and tradable inputs (including capital equipment) will be valued at border prices, whereas appropriate conversion factors will be applied to non-tradable imports. Justification will be provided for both border prices and conversion factors]". "Evaluation of industrial projects, risks and provisions". 10 "Evaluation of projects in tourism". The BDET commented further on their evaluation procedures (see Annex B), explaining their criteria for undertaking appraisal and supervision of projects. The field mission looked into their procedures and requested examples of their work especially in relation to projects financed under this credit. As indicated in the text, the field mission was furnished information on their procedures, but were not provided sufficient examples of evaluation work, including estimates of project rates of return (economic and/or financial). BDET also noted that supervision (see para. 2. on supervision capacity) is also undertaken by a second department, the Dipartement Reprisentation pour les Socidtgs Filiales. 21 organized (i) during project implementation, (ii) in the course of both the first and second year of operation (for new projects), (iii) every two years for companies with at least three years of operations without experiencing problems, and (iv) when repayment problems arise. Follow-up notes may be drafted yearly, for every client of the bank, based on information provided by the client according to a specialized questionnaire sent to him, or based on information provided by the most recent financial statement available. Follow-up missions are required for all clients. The above-mentioned notes focus: (a) for industrial projects: * on the value of physical assets: (i) land value is based on assessments made by an independent expert; (ii) the value of constructions is based on the equivalent value of new constructions multiplied by a depreciation rate; (iii) the value of equipment is accounted only for projects in operation; standard equipment is valued at its net book value whereas specific equipment is valued at its estimated selling value (net book value multiplied by a depreciation rate). * on the company's indebtedness: (i) vis i vis BDET (arrears being regarded as short term debts) and (ii) vis ii vis other banks (based on information reported to the Central Bank of Tunisia). * on guarantees provided to BDET, and * on estimates of potential recoveries. (b) for tourism related projects: * on estimates of the actual value of the project [(current cost of one new hotel bed x number of beds) x a discount factor of 4 percent p.a.] 2.7 Follow-up notes provided to the mission included information on the most recent operating account (turnover, gross value added, gross operating surplus, net profit). However, no mention was made concerning the current conditions of economic viability of the project, or of ex post calculation of FRRs and ERRs. 2.8 Operations. During the period under review (1985-1994), BDET's total assets multiplied by a factor of 2.5 (an average annual rate of growth of 10.7 percent). The loan portfolio grew a little less at about 8.4 percent p.a. The equity portfolio, which remained stable during 1985-1986 (at 28.6 million TD on average), expanded at a rate of about 11 percent per year during 1987-1990 (reaching the peak at close to the 43.34 million TD average for 1990-94). Thus, other assets (including receivables) increased more quickly than the core assets of a . . 12 development bank, indicating a worsening position. 2 BDET furnished updated information on operations (see Annex B), and corrected data for inconsistencies, especially for 1994. The data do not alter the conclusions reached in the Audit. Data utilized in the audit were based on information furnished by BDET. 22 2.9 Loan approvals followed a cyclical pattern: (a) a decline during the 1985-1987 period, which was characterized by difficulties to identify new projects, specifically in the industrial sectors; (b) a continuous increase during 1988-1991, almost due to the boom in tourism (1988 and 1989) and to a less extent to improvements in industrial investments (1989-1990); and (c) a decrease of approvals during the 1992-1994, resulting from a reduced demand for industrial investments (1992-1993) and (in 1994) to attempts to control excessive growth of investments in the tourism sector. However, modernization projects and those aimed at increasing production capacities helped to maintain minimal levels of approvals. Loan commitments and loan disbursements followed a similar cyclical pattern although with I or 2 years delay. 2.10 The sectoral distribution of loan approvals illustrates the dramatic reshuffling which characterized BDET's loan portfolio during 1985-1994. Tourism and real estate, for which the approvals remained well below those in industries and services until 1986, became the most attractive sector, with a relative share oscillating between 60 percent and 75 percent. 2.11 Identical trends characterized the equity portfolio. The equity portfolio is highly concentrated in hotels and tourism (50 percent on average for the period 1991-1994). Banking and insurance is ranked second with, on average, a share of 10.3 percent. The third subsector is mechanical industries and metal processing (10.2 percent) and agro-industries is fourth (6.3 percent). Together, these four subsectors represent more than 75 percent of the BDET's equity portfolio. 2.12 During the period under review, BDET remained profitable. Total bank's revenues increased in slightly higher proportions (they have been multiplied by 2.7) than total assets. Revenues related to lending operations (interests from loans) steadily increased in such a way that the average return on loans (interest from loans/loan portfolio), which averaged about 10 percent during 1985-1988, rose to about 13 percent during 1991-1994. Similarly, the average return on the share portfolio (dividends/equity portfolio) which stagnated at a low percentage (0.82 percent) during 1985-1988, substantially increased to an average of 2 percent during 1991- 1994, thus supporting some evidence that companies in which BDET invested were profitable and started to distribute profits. BDET's overall profitability improved and BDET's return on equity (net profits/own-funds) rose from about 6.4 percent during 1985-1988 to about 14.4 percent during 1991-1994. 2.13 In spite of these achievements, BDET still continues to experience problems, of which two deserve mention. The first is that BDET is poorly capitalized. Its long term debt equity ratio oscillated around a mean value of about 7:1 over 1985-1993 rose to 8.44 in 1994. Despite increases in paid-in capital recorded since 1991, these were unsuited to ultimately catch up with the record level of borrowing of 1994 which has brought the long term debt to TD 504.4 million. The second problem is the high level of arrears, an old problem for the bank. New regulations introduced in 1992 made it mandatory to adopt a loan classification system based on arrears 13 (inpays). As of December 31, 1994, the bulk of arrears was concentrated in Class 4 loans . The outstanding value of Class 4 loans amounted to TD 112.6 million or 20.8 percent of the total outstanding value of the loan portfolio. Out of a total amount of arrears of TD 122.9 million (principal plus interest), 73.6 percent was overdue (in principal and interest) for more than 360 days within the Class 4 loans. However, BDET's loans are secured by adequate collaterals and, 13 Such assets are related to problem companies, i.e. with : a deteriorating financial situation; a deteriorating cash flow; managerial, technical, commercial difficulties; arrears (in principal or interest) for more than 360 days. 23 as emphasized it the Auditors' report, BDET's provisions are adequate to cover the related risks. Annex Tables 3 and 4 provide some information on this subject. BTKD's Evolution, 1985-1994 2.14 Appraisal capacity. Within BTKD's Direction Centrale des Projets [Central Directorate for Projects], a specialized department [Direction de l'ivaluation, i.e. Evaluation Directorate], staffed with 11 people [8 cadres plus 3 support staff], is currently in charge of projects' appraisal. The staff comprises 2 engineers, 1 MBA, 3 DEA (the equivalent of a Master's degree) of which I in finance, I in political science and I in agribusiness, and 2 with a Master (Maitrise) in Economy/Finance. The BTKD is adequately staffed to deal with about 30 projects every year. The appraisal procedure follows the banking tradition: * When the bank receives an application for a credit, its main characteristics are reported in a specialized data bank [demandes reques, i.e. applications received]. Every application is described by: (i) a code number, (ii) a description of the purpose of the project, (iii) the promoter's profile, (iv) the project's overall cost, (v) the kind of funding requested (credit or equity participation), (vi) the project's location, (vii) the project's sector of activity, and (vii) the name of the staff in charge. Applications which do not match the bank's activity [e.g., a short term credit] are rejected. * A first assessment concerning the various projects derives from a pre-selection meeting in which the following directorates participate: General directorate, Central Directorate for Projects, Central Directorate for Financing and Legal Directorate. Screened projects are ranked into three categories: (i) pre-selected projects, (ii) projects not yet mature, (iii) projects too risky (to be eliminated). * Pre-selected projects are subjected to further investigations. Items included in the projects' file are analyzed more precisely. * The conclusions of this in-depth study are submitted to a second meeting (generally held 1 and V2 month before the bank's Board meeting) for final selection to be presented to the Board. * After the Board's approval, a final extensive study is implemented. It includes: (i) a feasibility study (program and process of production), (ii) a presentation of major shareholders, (iii) the project's cost and the proposed funding, (iv) a market study, and (v) an estimate of the project's financial profitability. 2.15 As in the case of other Tunisian development banks, no specific mention is made of cash-flow analysis and economic appraisal (including the calculation of ERRs) of projects. Deficiencies pointed out in the Bank's SAR14 still persist. 2.16 Supervision capacity. Another specialized department [Direction du suivi, i.e. Supervision Directorate] of the Direction Centrale des Projets, staffed with 11 people [also 8 14 EM 1-2, SAR, para. 5.26, p. 38. 24 cadres plus 3 support staff], is currently in charge of projects' expost supervision. The cadres comprises 2 engineers, 2 DEAs, 3 Master's in economics and 2 graduate from Ecole des Hautes Etudes Commerciales [HEC, a higher education school specialized in marketing]. Staffing seems to be adequate. Projects' follow-up activities are implemented: * During construction. BTKD's staff verify that construction is effective, on schedule, and does require corresponding disbursements. * During operations. BTKD's representatives attend Board meetings of companies in which the bank has an equity participation. They report to the bank after each Board meeting. For debtor problem companies (those which require for instance debt rescheduling), BTKD's staff conceives restructuring programs and eventually implement them. * For companies in arrears, a repayment committee (comiti de recouvrement) meets periodically. It decides upon the strategy to be adopted: follow-up letters, amounts to be carried forward, debt consolidation, debt restructuring, litigation. Currently, the supervision process seems to be satisfactory. 2.17 Operations. Relevant figures are reported in Annex Table 5. During the period under review, BTKD recorded an impressive expansion: total assets grew at about 12.2 percent p.a. on average. However, outstanding loans and equity participations increased at much lower rates: 4 percent p.a. and 5.3 percent p.a. respectively. The discrepancy is basically explained by the dramatic increase in the volume and value of arrears (delayed repayments are reported under the item: Autres credits ii la clientle i.e. other debtor accounts) which increased by about 64 percent p.a. over the 1986-1989 period and by 17.3 percent p.a. over the 1990-1994 period. 2.18 Loan approvals evolved unevenly during the reviewed period: the trend was moderately positive from 1986 to 1989, essentially because projects in tourism. This trend was reversed in 1990 and due to the invasion of Kuwait in 1991, no approval was made this year. Nevertheless, when the Gulf war ended, approvals resumed, aided by a boom in tourism (approvals in tourism more than doubled from 28.9 million TD in 1992 to 63.3 million TD in 1993) and to a lesser extent by prospects in industry (approvals in industry increased from 7.2 million TD in 1992 to 19.7 million TD in 1993). Despite the continuous appearance of good investment opportunities in tourism in 1994 (93 percent of BTKD's approvals this year), the total amount of approvals declined in 1994 due to an unwillingness of private investors to invest in industry and services. 2.19 The pipeline of projects by BTKD was robust enough to allow the bank to: i) increase steadily its investments and disbursements until 1992; ii) reduce the impact, in 1991-1993, of the dramatic slowdown of approvals recorded in 1990-1991; and iii) substantially increase commitments and disbursements in 1994. Since 1981, BTKD disbursed 4.7 percent of its loanable funds in agriculture and agribusiness, 52.1 percent in industry, services and miscellaneous activities, and 43.2 percent in 25 tourism and real estate. BTKD's portfolio structure thus appears to be more diversified than that of BDET. 2.20 Broadly speaking, the trend characterizing BTKD's equity participation was similar to that of loans. Since 1981, BTKD disbursed TD 69.9 million to purchase companies' stock, or 17 percent of its total disbursements. 2.21 But BTKD's financial condition is troublesome. Its profitability dramatically declined since 1984. The bank's net profits, which amounted to 10.5 million TD in 1986, were reduced to about 6.5 million in 1987-1988, and stabilized below 2 million TD since 1991. A major reason for the poor performance was the provisioning that the bank had to make to cover the loan risks. In spite of apparent profitability, the weak loan portfolio has made it difficult to pay dividends, which have not been paid out since 1988. 2.22 BTKD's portfolio raises serious issues. The most recent auditors' report, provides evidence that about 70 percent of BTKD's loan portfolio is concentrated in Class 4 loans (loans in jeopardy). As of December 3 1, 1994, total arrears (principal plus interest) related to such loans amounted to 83.2 million TD [47.7 percent in principal and 52.3 percent in interests], or 97.6 percent of the overall amount of total arrears. The bulk of these arrears was related to loans to Industry. Transportation and Services [about 82 percent of total arrears of Class 4 loans, with an approximately even distribution between arrears in principal (47.8 percent) and arrears in interests (52.3 percent)]. For Class 4 loans as a whole, 75.6 percent was overdue for more than 360 days. BTKD had to provision, after accounting for the collaterals, about 17.2 million TD during the fiscal year 1994. Despite this effort, the auditors noticed that total provisions should be further increased by 7.7 million TD in order to comply with the required risk coverage ratio. As a result, BTKD's own funds had to be reduced accordingly, to the amount of 134.9 million TD (instead of the posted book value of 140.9 million TD in BTKD's annual report). Notwithstanding such adjustments, BTKD's capitalization remained satisfactory since (i) its own funds amounted to 50.72 percent of weighted classified assets and (ii) its long term debt- equity ratio remained low, at 0.82. STUSID's Evolution, 1985-1994 2.23 Appraisal capacity. The bank's appraisal work is implemented by two teams belonging to two separate directorates. One directorate is specialized in the appraisal of industry, tourism and services [Direction de i'valuation et du ddveloppement industriel, du tourisme et des services: DEDITS]. Another directorate is specialized in the appraisal of agricultural projects [Direction de i'valuation et du diveloppenent agricole: DEDA]. Both directorates are supervised by the General Directorate of the bank. The DEDITS is staffed with 7 people plus 2 support staff and is supervised by a Director. Its work consist in identifying relevant projects, making related sectoral analysis, assessing projects and planning the allocation of the bank's resources. The DEDA is staffed with 4 people plus 2 support staff and is also supervised by a Director. Its work is similar to that of DEDITS, with the exception of resources planning. In Ahmed Manour & Associates (member Deloitte-Touche-Thomatsu): BTKE, Opinion sur les Etas Financiers, May 20, 1995. 16 Ibid. p.6. 26 both DEDITS and DEDA, appraisal methods are based on conventional banking approaches focusing on company profile, creditworthiness, capability to repay the loan and the existence of collateral. The staff seems familiar with financial and economic cash flow analysis (involving the calculation of FRRs and ERRs) but STUSID's management considers that this kind of analysis does not provide the bank with relevant indicators for the selection of projects. As a result, in the area of economic analysis, STUSID did not achieve the progress which was 18 anticipated by the Bank 2.24 Supervision capacity. STUSID's supervision activities are the responsibility of another specialized directorate [the Direction du Suivi (DS) i.e.: Follow-up operations directorate]. Supervised by a director, it comprises 5 staff members plus 2 support staff. This directorate is also accountable to the General directorate of the bank. The DS is responsible for (i) maintaining a data base concerning all bank's sponsored projects, (ii) attending Board and General Assembly meetings of companies in which STUSID participates, (iii) following-up the projects during construction and (iv) supervising the financial health of projects in which the bank is involved and, whenever necessary, undertaking restructuring programs. 2.25 Appraisal staff as well as supervision staff report to three specialized committees which meet periodically under the chairmanship of the bank's General Director: the committee of projects identification, the committee of projects evaluation and the follow-up committee. These committee make the relevant final decisions for which the implementation is left to the concerned directorates. 2.26 Operations. Between 1985 and 1994, STUSID's total assets steadily grew by 9.3 percent p.a. on average. The most important component of this growth has been the amount of loans outstanding which has been multiplied by 3.8 (a 16.08 percent growth p.a. on average) during the reviewed period. STUSID's strategy of equity participation has been less dynamic but the related portfolio still grew by 9.17 percent p.a. As a result, the equity portfolio which amounted to over 75 percent of loan portfolio at the beginning of the surveyed period has steadily declined to about 47.5 percent in 1994. This percentage compares favorably with other Tunisian banks. 2.27 STUSID's approvals strongly increased from 1986 [which was, however, a slack year, with total approvals of 13.3 million TD only,] to 1991 [when STUSID's approvals reached an unprecedented record level of 92.2 million TD].19 Total approvals declined afterwards [TD 17 The mission was provided with a note, drafted by a staff member of DEDITS, and titled: "Note sur les taux de rentabilitd. " (A note concerning the rates of return). But the note, which was almost directly derived from a frequently used textbook, did not provide any evidence that STUSID's staff makes use of the related concepts. In addition, in this note, the concept of ERR is completely ignored. 18 EMI-2, SAR, op. cit.. para. 5.40, p. 43. The Bank also projected to closely monitor, during its supervision activities, further related developments and progress to be achieved by STUSID. 19 Total approvals during 1981-1991 evolved as follows (in million TD): 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Loans 17.2 32.5 35.4 21.0 16.0 9.4 12.1 25.1 24.6 49.6 77.0 Equity 4.4 19.3 16.9 8.1 5.6 3.9 4.1 6.7 7.7 13.5 15.2 Total 21.6 51.8 52.3 29.1 23.6 13.3 16.2 31.8 32.3 63.1 92.2 27 million 58.8 in 1992, 55.1 in 1993 and 22.1 in 1994]. Despite this recent decline, due to a slowdown in industrial investment opportunities, STUSID was able to maintain acceptable levels of disbursements. As indicated in Annex Table 6, STUSID has mainly focused on Industry which currently represents about 50 percent of its portfolio (loans plus equity). During the period 1981-1994, cumulative disbursements were divided among: (i) agriculture and agribusiness (43.6 million TD or 13 percent of total disbursements); (ii) mining and energy (22 million TD or 6.5 percent); (iii) manufacturing (153.8 million TD or 45.7 percent); (iv) tourism (83.7 million TD or 24.9 percent); and (v) real estate and services (33.4 million TD or 9.9 percent). 2.28 During the period under review, STUSID has been profitable but profitability indicators remained at low levels, with a trend towards decline. Total nominal net profits steadily declined since 1986-1987. This trend is partly the result of lower returns on the loan portfolio (on average 10.44 percent for the period 1981-1990, reduced to 9.22 percent in 1994) which have not been offset by increasing returns on the equity portfolio (on average 1.1 percent for the period 1981- 1990 and on average 2.83 during 1992-1994). STUSID's ratio of net profits/own funds which averaged 5.42 percent over the 1985-1990 period has steadily declined to 2.65 percent in 1994 (2.6 percent in 1993). This trend is the result of the substantial proportion of bad loans in STUSID's portfolio which in turn required substantial amounts of provisioning. 2.29 Indeed, nearly 50 percent of STUSID's portfolio comprises loans belonging to Class 3 (4.8 percent) and Class 4 (44.2 percent). STUSID did not provide the mission with additional information allowing a more in-depth analysis (e.g. the distribution of arrears by relevant periods of delay). However, in 1994, among its 197 debtor companies more than 2/3 (69) belonged to Class 4. Such a structure required the provisioning of 27.8 million TD for the coverage of Class 4 loans. Performance of Subprojects under the Line of Credit General Overview 2.30 As noted earlier, only 34 percent of the original loan amount was utilized for project financing. The line of credit was grossly overestimated, and its utilization was unsatisfactory. Still, the question remains whether the projects financed by the line of credit have performed well and whether the projects were internationally competitive, as intended by the project design. 2.31 A total of 25 subproject loans were made to 21 companies under the Bank's line of credit. The appraisal reports on the subprojects submitted by the DFCs for Bank approval were justified on the basis of eante..rates of return. The economic rates of return (ERR) estimates ranged from 19 percent (steel wire making) to 73 percent (lead batteries). The financial rates of return (FRR), likewise, were high, from 14 percent (faucets) to 46 percent (cutting tools). Hence, a priori, the expected rates of return exceeded the minimum rates of 12 percent and 10 percent, respectively for ERR and FRR. 2.32 Ex post, or realized, rates of return were not estimated in the PCR to verify if these expected rates of return were achieved. This PAR did not find it possible to measure them correctly in view of lack of critical information on revenues and costs and had to use alternative measurements (see below). An appropriate calculation of the ERRs ought to take into account allocational distortions, such as those derived from the protection regime. Although the loan 28 agreement required monitoring of ex-factory prices of subprojects and of international prices for competing goods and materials, the Bank left the issue of monitoring these prices to the financial intermediaries, and the files on supervision remained silent on this issue. Also, during the project life, the Bank decided to support Tunisia's structural adjustment program including the liberalization of prices and trade, which was affecting not only the EMI sector, but also the entire 20 economy. In addition, the Bank loan files on the subprojects were not well-organized, as the Bank did not keep separate loan files for the subprojects, and data on income flows (profit and loss statements, for instance) were not kept. Bank supervision paid little attention to the upkeep of information on the subprojects, and focused on the issues concerning the DFCs. And for reasons already discussed in connection with their appraisal and supervision capacity, the DFCs were not effectively monitoring economic performance of the borrowers, which if undertaken would have yielded at least information on revenues and costs. 2.33 The audit mission gathered subproject data from various sources (Bank's files and reports, Tunisian DFCs, Tunisian companies), and found several inconsistencies and/or contradictions. For instance, the FRRs and ERRs which were mentioned in the Bank's PCR did not correspond to those quoted in the appraisal documents available and, in the case of the ERRs the appraisal documents provided only a figure, but no calculations. The information gathered on companies by the mission during its visit in Tunisia was uneven, both in quantity and in quality. Based on the appraisal criteria described for the DFCs, these companies were apparently chosen for their creditworthiness and capacity to repay. The DFCs were unable to adequately monitor the economic performance of the borrowers. The field visits and discussions by the audit mission provided some additional data, but plants and head office business operations were often found in different locations (the business offices were situated often in Tunis and the plants in the outskirts). Finally, the Bank files at headquarters, as already mentioned, contained only information on the companies at appraisal as submitted by the DFCs to the Bank prior to approval. 2.34 A new data source identified by the audit mission was the information on the performance of the companies derived from the loan classification exercise, undertaken by the DFCs (and their auditors) as part of the financial sector reforms under the Bank's Economic and Financial Reform Support Loan (EFRSL). These showed that many of the companies borrowing under the credit line had poor repayment records, and were in financial trouble. Of the 21 companies which obtained subproject loans, eight companies had worrisome or doubtful loans, and two additional companies had loans of uncertain category. Hence, almost a majority of the project loans belonged to companies in financial trouble with the DFCs. The companies with high risk loan classifications (Classes 1 to 4) received 43 percent of the amount disbursed. This table also shows that the DFCs utilized different strategies in assessing the risks arising from the borrowers and made different demands in tenrs of either collateral required or punctuality of loan servicing. It was therefore not surprising that a given company was ranked differently by different external auditors. As far as the Bank's line of credit was concerned, BDET was more conservative and/or more prudent than the other two DFCs in project selection and project supervision. BTKD's and STUSID's sub-portfolio were poorly balanced with more than 50 percent of their sub-portfolio in critical classes of risk (Class 3 or 4). 20 At the closing of the Economic and Financial Reform Support Loan (Loan 3424), the achievements of the adjustment program in terms of trade liberalization were. however, less than complete. Quantitative restrictions were not completely removed even for some EMI sectors, and implementation tariffs were added to the average tariffs applied to the sector. See World Bank, Performance Audit Report on EFRSL (Loan 3424-TUN), 1996. 29 2.35 Additional information on the loan status of some subprojects, which were critical to the loan classification exercise, were used. Also used were recent information on cash flows and equity participation from the DFC in the sub-project whenever obtained. For example, the credit line was designed to finance subprojects in which the private sector controlled at least 50 percent of the equity. But in one case, the two financing institutions-BTKD and STUSID-had a combined participation which exceeded 50 percent of the equity. This violated the intent of the line of credit that only private sector companies be financed. By having a direct interest in the project themselves-through partial ownership of equity-the public financial intermediaries themselves were indirect borrowers to the line of credit. The subproject, which received more than US$3.6 million from the project funds (more than 20 percent of the total), is one glaring instance of this phenomenon, and is also a poor performing project. There were many other projects in which the financial intermediaries had an equity stake in the projects financed. At least nine of the companies financed involved equity participation ranging from 10 percent to 40 percent. Although there was no prohibition to this in the loan agreement, the line of credit was designed to finance projects by enterprises which have no direct ties with banks. In fact, information on the subprojects furnished to the Bank did not explicitly contain a direct statement on the participation share of the financier, although the appraisal documents contained information on the equity structure, including the participation of the DFC. Performance of the Companies 2.36 Of the 21 companies which remain on the books of the DFCs, about half may be considered as performing well. Other companies experience various problems, of diverse nature, from minor financial difficulties to serious economic issues. The following discussion summarizes the performance of the companies that obtained a line of credit from the loan. In order to guarantee the confidentiality of the companies, reference is simply made to their 21 assigned activity. 2.37 Successful, profitable and viable companies are those which operate in expanding markets or in markets benefiting from the implementation of long term governmental plans. a) This packaging company borrowed an amount of US$1,7 million from the project. It specializes in producing and filling packages (plastic bottles and aluminum cans) for gaseous beverages (beer, soft drinks). It has installed a modern, efficient and highly automated factory. In 1994, its turnover was about 13.8 million TD, with a value added of 92.1 percent of the turnover, a gross operating income of 2.4 million TD and a net profit of about 643,000 TD. The company operates with a license from (and pays royalties to) an international beverage company which also supervises the quality of its products. The market niche is very promising, with limited threat from other competitors. It highly benefits from the rent provided by the brand name. The company has still room for further expansion and increased profitability. b) This company borrowed US$635 thousand from the project. It is a mixed company with a capitalization of 1.4 million TD. The State owns 33.93 percent of the share 21 More details are provided in an internal memorandum in OED, undertaken for this report. 30 capital; banks, 44.02 percent22; and various enterprises (including some public enterprises), 22.05 percent. The Tunisian Government has 3 board members (including the CEO). The company is specialized in installing infrastructure equipment for the public network of telecommunications23 and for private users 24 (mostly enterprises). Employment amount to 1,161 people. For 1995, the company's turnover should be around 17 million TD (16.7 in 1994) of which about 36 percent would be related to public transmission/exchanges, about 34 percent to local subscribers networks (also a part of the public utility concerned) and about 30 percent to private networks. The gross value added produced by the company should amount to about 50 percent of its turnover. The gross operating income should remain of the same amount as in 1994 (about 3 million TD) as well as its net profit (before taxes): 1.5 million TD. Due to the existence of a 3-year public planning concerning the development of such equipment in Tunisia, the company operates under a comfortable environment. Based on the current plan, the company is expecting to increase its gross value added from about 8.4 million TD in 1995 to 12.5 million TD in 1997, its gross cash flow from 2.3 million TD (1995) to 4.25 million TD (1997) and its net profit before taxes from 1.5 million TD (1995) to 2.6 million TD in 1997. The company is current on its repayments to the banks. c) This electrical cable manufacturer borrowed US$850 thousand from the project. It specializes in the production and marketing of electrical, telephone and TV cables and wires. It currently employs 290 people. In 1994, its turnover was 16.7 million TD, it produced a value added of 3.6 million TD, generated a gross operating income of 2.1 million TD and a profit (before taxes) of 914,000 TD. The company uses a production process which is simple. The quality of products appears good even though the quality control laboratory is rudimentary. The company is current on its repayments. The company is a major supplier of the Tunisian public electricity company. This situation does not provide a market rent to manufacturing enterprise since the utility company is obligated to submit its procurements to an open international bidding procedure in which the successful bidder is the one with the lowest price. The company has favorable prospects in export markets. 2.38 Problem companies either have financial difficulties or are faced with difficult market prospects. a) This company borrowed more than US$3.6 million from the project. It specializes in the production of drawed wires of low, medium and high carbon content. It was founded in 1984 but production started only in 1989. The plant is located in a small industrial city in central Tunisia. The choice of the production site resulted from various considerations [land price relatively low, various incentives (tax, social, 22 BDET and STUSID are shareholders of the company with 175 000 TD (12.5 percent) and 210 000 TD (17.5 percent) respectively. 23 This covers a wide range of activities: from cabling (with metal cables or optical fiber cables) or installing radio relay systems, to installing telephone exchanges and providing adequate equipment for local networks of subscribers. The company purchases the related equipment from the major producers worldwide (Ericsson, Alcatel, Siemens, NEC etc.) 24 The company installs various kind of modern switchboards, cables in buildings, terminals, etc. 31 etc.)]. Technically, the production process is up to date, the equipment is modem, well operated and well maintained. Material inputs (wire rods) are purchased from well known European companies in accordance with high quality specifications and at competitive prices. The company's quality control process appears satisfactory and the company sees to it that outputs delivered to the clients are of high quality. In 1994, the quantities sold amounted to about 14.2 thousand tons (about 80 percent of the plant's nominal production capacity), i.e. a turnover of about 10 million TD. The value added amounted to 3.2 million TD, the gross operating income to 2.2 million TD but the company posted a net loss of 520,000 TD. Exported production amounted to about 1/3 of total production [major exports go to Algeria (a declining market), Morocco (a promising market), Syria and Egypt (markets difficult to penetrate)]. Production for the domestic market is currently targeted towards the most profitable segments (PC wire, galvanized wire, cold heading wire) even though these segments are very competitive. Nevertheless, the company has been crippled, from the beginning, by huge interests costs incurred during construction: the production starting date occurred five years after the establishment date. In addition, in the meantime, the company suffered from the devaluation of the dinar and from the economic consequences of the political instability. Further, the Gulf crisis did not help. The overall effect on the current financial statements is very simple: the company's assets are overburdened by deferred charges (frais financiers sur acquisition d'immobilisations: 4.7 million TD or 21 percent of total assets in 1994) which, in turn, involve substantial correlated provisions which increase the expenses of the company's income statement (in 1994, 1.7 million TD, or 77 percent of gross operating income). Because depreciation allowances account for another 1.125 million TD (50 percent of gross operating income), the company has accumulated losses for years. Despite several debt restructuring (1992, with a debt conversion of 2.6 million TD), and a possible new debt rescheduling, the company does not anticipate a return to profitability before the end of 1997. It has indeed to give priority to the service of its suppliers credit which will be fully repaid in March 1997. b) This company borrowed US$1 million from the project. It is located in a northern part of Tunisia. It produces and manufactures ga!vanized metal sheets. In fact, the company has two components: (i) an off-shore company, which has 95.8 percent of its capital owned by a European group, a subsidiary of a major European steel maker, and 4.2 percent owned by the company's Tunisian founder and (ii) a Tunisian company with a share capital of 1.8 million TD [55 percent owned by the European group, 45 percent owned by Tunisians (of which BDET has a 20 percent stake and the original Tunisian owner 25 percent)]. The offshore company is specialized in exports, even though about 20 percent of its production is supplied (as an input) to the Tunisian company which specializes in domestic production. The offshore company's production capacity is about 80,000 tons p.a., fully utilized; the Tunisian company's production capacity is about 100,000 tons pa., but it is utilized at 35 percent only. Basic inputs are purchased from Europe, mainly from the parent company at transfer prices which have not been communicated to the mission. Custom duties are set at a rate of 20 percent and value added tax is set at a rate of 17 percent. Although competition is reduced for galvanized sheets, it is tough for manufactured products, with numerous domestic small producers. In addition, the company has suffered the negative impact of competition from neighboring 32 countries with much lower production costs. In 1994, the company's turnover was 12.1 million TD, its gross value added 1.9 million TD, it generated a gross operating income of 1.1 million TD and a profit before tax of 913,000 TD. The company is current on its repayments to BDET. 2.39 The mission did not obtain detailed information concerning the companies in much worse financial position. However there are several such companies (whose borrowings from the credit line are listed parenthetically below), which are rated Class 4 by bank's external auditors: a producer of faucets, which borrowed US$518 thousand; a producer of transmission joints, US$257 thousand; a producer of cutting tools, US$549 thousand; a producer of enameled containers, US$175 thousand; and an aluminum foundry, US$401 thousand. 3. Bank and Borrower Performance Bank Performance 3.1 Project PEaration. The EMI-2 project was initially conceived as a follow-up of the first EMI project which was approved by the Board on March 25,1982 and made effective on December 31, 1982. Problems related to the first project started to emerge by March 1984 when it became clear that the project commitment date (originally December 31, 1984) needed to be postponed by 6 months due to the narrowness of BDET's pipeline. The problems were confirmed in November 1984, when BDET requested the postponement of the original completion date to September 30, 1985, i.e. by nine months. It had become clear that the EMI-1 line of credit could not be fully used in time. Ultimately, of the US$ 14 million planned for EMI-1 industries, about 37 percent was canceled.26 Therefore, with EMI-2 project identification starting in May 1984, a project appraisal completed in December 1984, and negotiations taking place in April 1985, the Bank was in a position to know, before Board Approval (May 1985), that real demand was well below optimistic pipelines submitted by the DFCs. Thus, this report concurs with the statement expressed in the EMI- 1 PPAR that the "second larger EMI-2 project was hastil approved in 1985 to provide BDET with additional funds for EMIs at lower interest rates."2 Such eagerness to proceed was all the more dramatic since the size of the credit line in EMI-2 (US$50 million) was much bigger than the one in EMI- 1. The increased line of credit should have been considered with much more cautiousness. 3.2 The SAR for EMI-2 was under preparation at about the same time that a major policy 28 study of industry and trade policy in Tunisia. This explained in part the emphasis on industrial 25 The World Bank: Tunisia, Electrical and Mechanical Industries Project (Loan 2113-TUN), Project Performance Audit Report, April 9, 1992, p. 12, para. 43. 26 Ibidem, p. 12, para. 45. 27 Ibid, p. viii, para. 7. We have underlined "hastily". 28 The Bank study was headed by Bela Balassa. During the exchanges between the Region and the Economic Vice Presidency (VPERS), suggestions on how to direct the financing to efficient industries focused on making the protection regime more transparent and the reduction of quantitative restrictions. Memo, VPERS (B. Balassa) to Region, dated February 25, 1985. 33 efficiency and comparative advantage issues during the project preparation, an element less present under the EMI-1 project. Concern that financing of highly protected industries in the EMI sector (such as automobiles and steel making) would "aggravate existing inefficiencies in resource allocation"29 led to the adoption of restrictions on the EMI projects that could qualify under the line. As a result, the SAR provided that only projects with expected financial rates of return (FRRs) of at least 12 percent and economic rates of return (ERRs) of at least 10 percent, would qualify under the credit line. However, there was no a priori knowledge accumulated on the efficiency of EMI Tunisian enterprises, since there were no similar efficiency criteria imposed in EMI- 1.30 Further, because the EMI-2 subprojects were not subjected to any kind of pre-appraisal review by the Bank, the task of calculating efficiency indicators was left to inexperienced (and even "reluctant") institutions. A similar remark could be made concerning the condition on the protection rate for supported subprojects that was to ensure that only internationally efficient projects be promoted. The selling prices of the products manufactured by the concerned companies was limited to "118 percent (or 121 percent when applicable) 3 of an international reference price."32 But the Bank already knew, from experience of EMI-1, that Tunisian counterparts argued (somewhat reasonably) that identifying such prices was difficult. Despite last minute agreements, "the EMI-2 project was approved without conditions related to evidence of price competitiveness at the sub-project level." In addition, the mission was able to collect evidence that at least one sub-project was appraised using prices different from international prices, but the prices used were those of its main competitor. 3.3 Project implementation. From a detailed examination of the SAR, a large number of tasks was left to implementation and to Bank's supervision which had, therefore, to be a very important and critical phase in the project cycle. Unfortunately, Bank supervision was weak. The sample of appraisal reports prepared by Tunisian counterparts, and given to the evaluation mission, did not meet the Bank's requirements in some major areas, such as: "detailed study of the financial and economic viability of the (sub)project, detailed study of the cost of imported inputs..." It appeared that the Bank staff requested additional information. However, in several occasions, including the review of the biggest subproject, the projects were approved without receipt of written correspondence that provided all additional information requested by the Bank.34 Ultimately, the actual rates of return on subproject investments which are quoted in the 29 Ibid., para.7. 30 Ibid, pp. 39 sequ. Nowhere, in this report were the concepts of FRR/ERR ever mentioned as performance indicators. 31 See above, para. 1.3. 32 SAR, p.53, para. 6.09. See PPAR, EMI-1 (Loan No. 2113-TUN), p.17, para. 69. For instance, BTKD's request for the disbursement of 3 000 000 TD for MAKLADA includes, by way of "detailed study of the financial and economic viability of the (sub)project": (i) one sentence in the appraisal report : "le taux de rentabilit6 interne du projet, du point de vue de l'investissement, est 6valu6 A 19 percent", and one sentence in the accompanying letter : "le taux de rentabilit6 6conomique escompt6 est de l'ordre de 18.76 percent", without further explanation... 34 PCRs could not be verified because neither the sub-borrowers nor the involved DFCs have maintained, nor had Bank requested, during supervision, the maintenance of adequate data that would allow appropriate ex post calculations. Borrower Performance 3.4 The performance of the Borrower (the Government) was satisfactory except for the protection of BDET from foreign exchange losses. For many years during implementation, the Government delayed its payments to BDET for losses due to exchange rate changes. This had serious effects on BDET profitability. Ultimately an agreement was reached to settle the arrears and to compensate BDET. As a result, the impact on BDET's overall situation should be minimal. 3.5 The implementing agencies, (BDET, BTKD, and STUSID) did not fully comply with the substance of section 2.03 and schedule 2 of the Project Agreement [documentation required for presenting sub-loans to the Bank, and Appraisal report format]. Also, as noted earlier, their improvements in appraisal capacity during the project period were minimal, and their financial performance has been, at best, mixed. 4. Conclusions: Outcome, Sustainability, and Performance 4.1 The outcome of this project is rated as unsatisfactory, and sustainability as unlikely. The institutional development impact, however, is rated as substantial, because of the relatively successful establishment of technical institutions serving the electrical and mechanical industry sector. On balance, Bank performance is rated as unsatisfactory. The ratings derived from the PCR differ from the above ratings in two respects. The PCR rated the project outcome as marginally satisfactory and sustainability as uncertain. In both cases, this audit report gives a lower rating. The PCR did not explicitly rate Bank performance, although, based on the discussion, it appeared to have given it a rating of satisfactory. 4.2 The major reason for the change in the outcome rating from marginally satisfactory to unsatisfactory is the performance of the subprojects. Before the audit of the project, it was thought that the projects financed from the line of credit were on balance performing well in view of the estimated ex-ante economic rates of return and the eligibility criteria for subproject approval. That would have meant improved economic efficiency and competitiveness within the sector. This finding was not sustained by the audit. The evidence on economic rates of return of the projects were unverifiable. It was not feasible to calculate financial and economic rates of return, and data was insufficient to provide reliable information on border prices for inputs and outputs. But based on the loan classifications undertaken for provisioning exercises made for DFCs, it was found that about half of the companies had incurred substantial arrears, placing their loans in doubtful category. Sub-project visits and a review of data collected on a sample of subprojects confirmed these problems. This performance did not support the hypothesis of an improvement of industrial efficiency and competitiveness in the EMI sector as a result of the The PCR quotes actual ERRs comprised between 25 percent to 64 percent and actual FRRs comprised between 14 percent and 46 percent. 35 project. The supervision of the subprojects from the standpoint of efficiency criteria, as laid out in the project agreement, was not effectively undertaken by the Bank. 4.3 The original institutional development rating of substantial was maintained, based principally on the performance of the subcomponents relating to the new technical institutions to support the EMI sector. Although this rating from the PCR is sustained, it should be noted that there was negligible institutional development in the DFCs. The PCR rating was based mainly on the judgment on the institutional development impact in the context of two technical agencies that were created to assist the sector, the CETIME and INNORPI.36 The improvement of the institutional capacity within the DFCs has been much less successful. The financial positions of the financial intermediaries worsened during the life of the loan, with their portfolio showing a worsening with the increase of arrears. Adjustments in policy made in the context of other structural reforms-financial reforms-have, however, strengthened the banks through the process of loan classification and the requirement to provision for bad loans within the banking system. The result was to put pressure on the banks to restructure financially and to make provisions for bad loans. 4.4 The sustainability of the industrial projects financed under the credit line is rated as unlikely. The electrical and mechanical industrial sector has been less protected than other sectors, but in the context of a highly dirigiste and protected economy that was undergoing gradual reforms under the structural adjustment program, the adjustment program brought changes in overall demand that affected adversely the projects at the outset. The industrial lines established added new capacity and in a few cases, brought in new export lines for the country. In spite of the structural adjustment program which opened Tunisian industry to more foreign competition, the slowest sector to adjust towards greater openness in trade is the industrial sector, notably the industries protected by the import substitution policies of the past. 37The export industries promoted by a different trade regime had fared better.38 Of the EMI projects established under the project, there is a limited record of success in exports. In the case of some of the projects with weak financial position, but viable economic possibilities, the prospects of improved viability could only be improved by restructuring. 5. Lessons Of Experience 5.1 Primacy of reform of economic policy regime. Restrictive trade and industrial policies should be reformed prior to financing to insure that internationally competitive and efficient industries are being promoted under a line of credit. Successful financing of industrial 36 The assessment of the performance of these two institutions is based on the evaluation undertaken by the Bank study of the industrial sector which reviewed the influence of CETIME and INNORPI. These two institutions have, on the basis of the evaluation, been providing technical services to companies in the sector. CETIME has developed a capacity to render direct services in providing technical advice in various lines of manufactures. However, INNORPI has been slower in developing a certification capacity to improve standards in the industry. This component has been much more successful than other components of the loan project. See EFRSL PAR, on the trade and industry regime outcome of the adjustment program (forthcoming). 38 Also, this explains the better performance of the Export Credit Line, compared to the EMI line. See PAR on the Export Development Project. 36 projects mirrors the business environment fostered by trade and industrial policy. Although the EMI sector enjoyed relatively lower tariffs than the rest of the sectors in the economy, the relatively slow liberalization of trade and industrial policies made it difficult to establish a conducive business environment for growth, and therefore, for successful utilization of external finance. 5.2 Lines of credit, being used as financing means, cannot be expected to serve as filter for efficient project selection. A corollary of the first lesson is that industrial lines of credit should only be used as instruments offinancing and not as tools for the selection of internationally efficient projects. By requiring that internationally competitive and efficient projects be chosen, the project design required that product prices and competitive inputs be monitored. This was a task that went beyond the financing function. In general, a financing institution is responsible for assuring that a project that it finances be economically viable and efficient, so that the loan financing can be recovered. However, monitoring income flows and material costs-including international prices- is an additional imposition on the implementing agencies. 5.3 Learning from lessons of previous operations of the same type. The lessons from previous projects should be drawn and taken into account before a continuation project is approved The EMI-2 project failed to take into account the already known shortcomings resulting from EMI-1 (that the industrial policy regime was inadequate to stimulate efficient growth of the sector and that, as a result, the line of credit could not be fully availed of). One major-lesson for the project was that it was too narrowly targeted to one industry. A wider line of credit would have provided greater flexibility in generating more demand for it. Another lesson from the first credit was that project design should be realistic and should appropriately adjust to Borrower capacity. Having taken cognizance of the weakness of the participating DFCs in many phases of the project cycle (appraisal, implementation, and supervision), it would have been important to require that a (joint) pre-appraisal phase early in the project cycle be put in place. 5.4 Importance and feasibility of supervision. Adequate attention should be paid to supervision. The project was not properly managed: supervision missions covered, most of the time, more than one project, continuity in staffing was not ensured with the result that problems of transfer of knowledge was not properly handled. Staff file maintenance is important, and this project had suffered from this problem. Also, some of the covenants (i.e., the review by the intermediaries of the protection levels received by subprojects) were not easy to enforce. 37 Annex A Table 1. Second EMI Project-Actual and Estimated Approvals (TD '000) 1980-1983 1984 1985 1986 1987 1988 (average p.a.) (provisional) (projections) BDET Manufacturing 30493 32568 36865 39600 41975 44400 EMIs 10442 11720 13400 14400 15400 16300 BTKD Manufacturing 27026 27380 27500 33000 38500 44000 EMIs 9857 8220 8500 10600 12700 14500 STUSID Manufacturing 26844 22400 25600 29000 32500 36000 EMIs 14750 7170 8500 9900 11400 13000 Source: The World Bank, EMI-2, S.A.R., p. 67 Table 2. Investment Trends in the EMI Sub-Sector, 1985-1994--Selected Indicators (in Million TD) Sub-Sector 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 (1)Metal, Mech. & Electrical Ind. 76 69 51 74 70.3 73.7 74.3 83.2 80.4 84.7 (2) Mechanical Industries. 28.5 24.4 29.4 44.4 36.7 27.1 20.4 14.8 20.2 21.4 (3) Electrical Industries. 6.2 6.7 5.7 4.7 6.4 19.7 11.4 20 33.3 32.5 (4) Total Invest. in EMIs:(2}+{3) 34.7 31.1 35.1 49.1 43.1 46.8 31.8 34.8 53.5 53.9 (5) Investments in Tourism 105 78 65 87 109 121 126.5 243 290 280 (6)Overall GFCF 1820 1685 1620 1680 2157 2635 2892 3645 4233 4238 (7) GFCF/GDP 26.3% 24.0% 20.3% 19.3% 22.5% 24.4% 24.0% 26.6% 28.9% 26.6% Sources: (6) & (7) : IMF, International Financial Statistics, Yearbook 1994 and October 1995. (1)-(5) : BDET, Annual reports from 1985 to 1994. Annex A 38 Table 3. BDET: Profile of Operations, 1985-1994 (Million TD) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Total Assets 299.8 321.3 347.3 359.3 381.4 441.1 508.4 602.6 690.4 748.0 Paid-in Capital 25.0 30.0 30.0 30.0 30.0 30.0 35.0 35.0 37.5 40.0 Own-Funds 25.7 30.8 31.5 31.5 31.8 34.6 43.5 47.0 55.8 59.7 Long term debt 202.9 209.3 219.6 229.1 237.0 221.5 291.9 343.7 382.5 504.4 Loans outstanding 196.9 206.4 215.0 221.1 234.0 227.2 258.7 312.8 387.2 406.4 Equity portfolio 28.5 28.7 30.3 32.4 34.5 43.3 42.2 42.1 45.0 44.1 Total revenues 25.7 28.4 31.9 30.5 34.9 37.0 44.2 55.4 68.8 70.5 Net profits 1.7 2.1 1.6 2.2 5.3 5.9 6.3 7.4 7.7 8.2 Annual approvals * Loans 40.4 30.6 25.3 61.0 109.4 125.2 146.2 129.4 121.0 109.5 * Equity participat. 4.3 1.9 2.5 7.4 14.1 11.5 8.5 6.7 12.8 5.9 Annual commitments * Loans 31.2 30.2 22.6 23.3 48.9 80.4 91.4 122.1 91.7 81.5 * Equity participat. 2.4 1.3 2.9 3.0 6.0 10.0 6.1 6.2 5.4 3.4 Annual disbursements * Loans 37.6 34.1 36.8 29.2 35.9 58.2 79.3 105.1 102.9 86.4 * Equity participat. 3.4 1.6 2.8 2.0 4.7 7.1 6.1 7.0 5.6 4.8 Current ratio 1.30 1.19 1.16 1.17 1.17 0.86 1.01 0.90 0.89 1.23 LT debt/Equity ratio 7.89 6.79 6.98 7.27 7.46 6.40 6.72 7.32 6.85 8.44 Sectoral distribution of approvals Agro-industries 8.9% 17.9% 6.1% 10.7% 11.9% 6.9% 6.7% 1.5% 9.4% Industries, services and misc. 71.7% 43.1% 27.4% 28.8% 31.3% 34.8% 27.2% 23.5% 23.7% Tourism, Real estate 19.4% 39.0% 66.5% 60.5% 56.8% 58.3% 66.1% 75.0% 66.9% Outstanding Provisions(*) Classification of the Loan portfolio as of 12/31/1994 % Class 0 = current loans 288 048 776 53.2% 591 000 Class I = loans to be followed 23 775 740 4.4% 0 Class 2 = uncertain loans 84030333 15.5% 61 500 Class 3 = worrisome loans 32 823 831 6.1% 2 471 268 Class 4 = loans in jeopardy 112630 397 20.8% 37 190 303 Total TD 541309 077.0 100.0% 40314071 Note: (*) The provisioned amounts also account for off-balance sheet items Sources: Data provided by the Banque de D6veloppement Economique de Tunisie 39 Annex A Table 4. BDET's Structure of Arrears as of 12/31/95 (In Percent) Under 90 days 90 to 180 days 180 to 360 days over 360 days Total arrears Principal Other Principal Other Principal Other Principal Other Principal Other Total Class 1 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.00/ 0.2% 0.0% 0.3% Class 2 0.0% 0.0% 0.9% 1.7% 0.0% 0.0% 0.0% 0.0% 0.9% 1.7% 2.7% Class 3 0.5% 0.1% 0.8% 1.1% 1.0% 0.8% 0.0% 0.0% 2.4% 2.0% 4.4% Class 4 1.2% 2.2% 2.5% 3.7% 3.5% 6.1% 32.4% 41.2% 39.5% 53.1% 92.7% Total 2.0% 2.4% 4.2% 6.5% 4.5% 6.9% 32.4% 41.2% 43.1% 56.9% 100.0% Sources: BDET. based on the Rapport des rdviseurs comptables sur les comptes de l'exercice 1994. Table 5. B.T.K.D.: Profile of Operations, 1986-1994 (Million TD) 1986 1987 1988 1989 1990 1991 1993 1994 Total Assets 189.0 194.8 214.4 260.7 292.9 329.7 393.5 410.1 Paid-in Capital 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Own-Funds 117.5 124.5 128.2 134.2 136.2 140.5 139.5 140.9 Long term debt 40.7 40.7 48.3 51.9 57.3 54.4 116.6 114.8 Loans outstanding 128.9 132.3 133.7 141.3 151.4 148.3 164.1 177.7 Share portfolio 32.9 36.9 40.7 41.3 48.4 50.0 50.3 49.8 Other debtor accounts 8.7 16.3 25.5 38.4 45.1 69.8 77.5 85.3 Total revenues 17.8 16.2 16.0 16.5 19.4 18.8 22.7 26.3 Net profits 10.5 6.9 6.1 2.1 4.5 1.2 1.5 1.7 Annual approvals * Loans 15.5 25.4 27.7 48.0 26.8 0.0 79.0 59.0 * Equity participat. 5.0 3.9 4.8 8.1 2.6 0.0 4.3 6.7 Annual commitments * Loans 17.0 16.2 19.6 22.9 30.3 27.4 26.9 52.6 * Equity participat. 5.1 3.6 4.2 7.3 9.6 0.9 1.6 3.5 Annual disbursements * Loans 20.6 20.2 18.5 21.0 25.9 23.3 22.1 47.7 * Equity participat. 5.3 4.9 4.8 5.9 8.0 2.3 2.6 8.5 Long term debt/Equity Ratio 0.35 0.33 0.38 0.39 0.42 0.39 0.84 0.82 Sectoral distribution of disbursements Agriculture and agro-industries 10.0% 14.7% 11.7% 9.9% 5.4% 3.1% 0.1% 0.1% Industries, services and misc. 57.0% 74.8% 38.6% 43.5% 24.3% 21.4% 21.1% 22.6% Tourism, Real estate 33.0% 10.5% 49.7% 46.6% 70.3% 75.5% 78.8% 77.3% Classification of the Loan portfolio as of 12/31/1994 (TD 10) Outstanding % Provisions Class 0 = current loans 13 058 8.8% 0 Class I = loans to be followed 3 063 2.1% 0 Class 2= uncertain loans 20129 13.5% 110 - Class 3 = worrisome loans 8 823 5.9% 323 Class 4 = loans in jeopardy 103 586 69.7% 18878 Total in thousand TD 148 659 100.0% 0 Sources: Data provided by BTKD Annex A 40 Table 6. STUSID: Profile of Operations, 1985-1994 (Million TD) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Total Assets 134.6 149.9 152.8 160.5 180.6 200.7 n.a. 258.5 285.9 298.6 Paid-in Capital 85.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Own-Funds 103.2 125.1 134.1 141.0 148.6 154.2 159.0 162.6 163.3 168.0 Long term debt 35.9 45.4 49.6 Loans outstanding 48.1 56.1 59.3 68.4 79.4 92.1 n.a. n.a. n.a. 184.0 Share portfolio 38.0 43.3 44.0 45.8 49.3 57.8 n.a. 79.9 84.1 83.7 Total revenues 8.6 12.4 12.4 13.6 14.4 15.2 n.a. 21.4 19.8 20.6 Net profits 6.3 8.3 8.9 7.0 7.6 5.6 n.a. 5.7 4.3 4.5 Annual approvals * Loans 16.0 9.4 12.1 25.1 24.6 49.6 77.0 46.5 48.8 17.7 * Equity participat. 5.6 3.9 4.1 6.7 7.7 13.5 15.2 12.3 6.3 4.4 Annual commitments * Loans 10.8 11.5 9.6 11.2 19.6 16.4 34.5 37.7 42.5 17.7 * Equity participat 4.0 5.3 2.9 3.4 6.3 9.7 9.7 17.6 5.9 1.8 Annual disbursements * Loans 14.5 10.5 12.2 15.3 16.7 19.7 36.3 27.5 40.3 25.1 * Equity participat. 4.9 4.9 4.0 5.4 7.1 7.2 7.0 15.2 6.6 4.0 LTDebt/Equity Ratio n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.22 0.28 0.30 Sectoral distribution of approvals Agriculture and agro-industries 34.6% 13.0% 13.5% 25.1% 22.3% 9.9% 12.4% 14.7% 14.9% Mining and industries 52.6% 56.2% 49.7% 61.9% 54.5% 41.4% 23.5% 27.9% 43.9% Tourism, Real estate, Services 12.8% 30.9% 36.8% 13.0% 23.1% 48.7% 64.1% 57.4% 41.2% o.w. Tourism and Real Estate 32.4% 32.7% 28.5% 41.2% Classification of the Loan portfolio as of 12/31/1994 Outstanding % Provisions Class 0 = current loans 71 227 901 38.9% 0 Class I = loans requiring followup 12993421 7.1% 0 Class 2 = uncertain loans 9297477 5.1% 0 Class 3 = worrisome loans 8 736 987 4.8% 160 000 Class 4 = loans in jeopardy 81 014 701 44.2% 27 809 244 Total 183270487 100.0% Sources: Data provided by STUSID. 41 Annex B DATE LE 27.08.1998 EMETTEUR B.D.E.T. DIRECTION EXPLOITATION DESTINATAIRE B. I. R. D. N" TELECOPIEUR :(202) 522-3124 OBJET PROJET DE CREDIT A L'INVESTISSEMENT PRIVE RAPPORT D'EVALUATION ATTENTION MONSIEUR GERARDO SICAT (PRINCIPAL EVALUATION OFFICER) POLITIQUES, ECONOMIQUES, INDUSTRIE ET FINANCE DEPARTEMENT DE L'EVALUATION RETROSPECTIVE DES OPERATIONS OBJET: RAPPORT D'EVALUA TION RETROSPECTIVE DU DEUXIEME PROJET D'INDUSTRIES MECANIQUES ET ELECTRIQUES (PRET 2556-TUN) COMME SUITE A VOTRE FAX DU 21 JUIN 1996 RELATIF AU RAPPORT D'EVALUATION RETROSPECTIVE DU PROJET SUS MENTIONNE, NOUS AVONS L'HONNEUR DE VOUS FAIRE PART DE NOS OBSERVATIONS SUR CERTAINS POINTS: il CAPACITE D'EVALUATION IL EST INDIQUE (PAGE 22 § 2-5) QUE POUR L'EVALUATION DES SOUS- PROJETS " L'ANALYSE DES FLUX DE TRESORERIE BASEE SUR UNE PROJECTION DES RECETTES ET DES DEPENSES (Y COMPRIS LES DEPENSES D'INVESTISSEMENT INITIALES) N'EST PAS D'USAGE COURANT ET LA BDET NE PRATIQUE PAS LE CALCUL DES TAUX DE RENTABILITE " A CET EFFET PERMETTEZ - NOUS DE VOUS SIGNALER QUE DANS TOUT RAPPORT D'EVALUATION D'UN SOUS-PROJET SOLLICITANT UN FINANCEMENT ET SOUMIS A UN ORGANE DE DECISION POUR APPROBATION, LA BDET DANS LE CHAPITRE "ETUDE DE RENTABILITE" ANALYSE LES FLUX DE TRESORERIE PREVISIONNELS ET CALCULE SYSTEMATIQUEMENT LE TAUX DE RENTABILITE FINANCIER ET SENT BY:B. D. E. T ;28- 6-96 ; 14:17 ; B. D. E. T-* 202 522 3124;# Annex B 42 ECONOMIQUE POUR DES PROJETS DE GRANDE TAILLE ET AU CAS OU LA BDET DISPOSE D'INFORMATIONS DE BASE FIABLES. AINSI LA PROCEDURE APPLIQUEE PAR LA BDET POUR SELECTIONNER ET EVALUER DES SOUS-PROJETS SE RESUME COMME SUIT: PHASE I : CRITERES DE PRISE EN CONSIDERATION DES DEMANDES DE FINANCEMENT RECUES : POUR SELECTIONNER LES DEMANDES DE FINANCEMENT RECUES, LA DIRECTION DES ETUDES EXAMINE LES VOLETS SUIVANTS : - L'EVALUATION DU SERIEUX DU PROMOTEUR, SON EXPERIENCE, SON PATRIMOINE, SES REFERENCES BANCAIRES. - L'ANALYSE FINANCIERE EN CAS D'EXTENSION (SUR LA BASE DES BILANS). - L'ANALYSE DU VOLET TECHNIQUE DU PROJET - L'EVALUATION DU COUT ET DU SCHEMA DE FINANCEMENT DU PROJET - LA SITUATION DU MARCHE (OFFRE, DEMANDE, PART DU MARCHE VISEE PAR LA SOCIETE..). - LA RENTABILITE PREVISIONNELLE A PRIX CONSTANTS (PRODUITS, CHARGES, TRESORERIE, TAUX DE RENTABILITE INTERNE...). - L'EVALUATION DES GARANTIES. PHASE Il : CRITERES D'EVALUATION DES PROJETS RETENUS LES CRITERES UTILISES PAR LA BDET POUR L'EVALUATION DES PROJETS SE FONDENT SUR LES RESULTATS DES ANALYSES DES VOLETS INDIQUES CI-DESSUS EN PROCEDANT A L'EXAMEN APPROFONDI DES ASPECTS SUIVANTS: - LA QUALITE DU PROMOTEUR (SERIEUX, EXPERIENCE, APTITUDE A GERER LE PROJET). - LA SITUATION FINANCIERE DE LA SOCIETE DANS LE CAS DES SOCIETES EXISTANTES (SITUATION SAINE OU NON). - LA VIABILITE DU PROJET SUR LE PLAN TECHNIQUE - LA CAPACITE DE L'ENTREPRISE A INTEGRER LE MARCHE VISE. - LA RENTABILITE FINANCIERE DU PROJET (TAUX DE RENTABILITE INTERNE, RATIO DU SERVICE DE LA DETTE, TRESORERIE PREVISIONNELLE...). - LES GARANTIES PROPOSEES. SENT BY:B. D, E. T ;28- 5-95 ; 14:18 ; B. 0. E. T-0 202 522 3124;# 3 43 Annex B AU CAS OU L'EVALUATION EST CONCLUANTE, LA DIRECTION DES ETUDES REDIGE SYSTEMATIQUEMENT UN RAPPORT D'EVALUATION QUI SERA SOUMIS A L'ORGANE DE DECISION POUR APPROBATION. UNE FOIS LA DEMANDE DE FINANCEMENT APPROUVEE, LE DOSSIER EST TRANSMIS A LA DIRECTION DU RECOUVREMENT ET DU SUIVI. C'EST CETTE DERNIERE QUI ASSURE LE SUIVI DU PROJET (SUPERVISION). PAR AILLEURS IL EST INDIQUE DANS LE MEME PARAGRAPHE (P.22 § 2-5) QUE " LA BDET INTRODUIT DES CONFUSIONS SUR LE CONCEPT D'EVALUATION " CONCERNANT CE POINT NOUS ATTIRONS VOTRE ATTENTION SUR LE FAIT QUE L'EVALUATION SE FAIT A DEUX NIVEAUX. - EVALUATION PREALABLE NECESSAIRE POUR UN SOUS PROJET SOLLICITANT UN FINANCEMENT - EVALUATION RETROSPECTIVE EFFECTUER POUR ASSURER LE SUIVI D'UN SOUS-PROJET (SUPERVISION) ET DETERMINER LE RISQUE ENCOURU SUR CELUI-Ci. AINSI LES DEUX NOTES QUI ONT ETE REMISES A LA MISSION PAR LA DIRECTION RECOUVREMENT ET SUIVI, CONCERNENT LA METHODE D'EVALUATION DES GARANTIES ET DES ACTIFS DES EMPRUNTEURS EN VUE DE DETERMINER LE NIVEAU DES PROVISIONS POUR RISQUE. IL S'AGIT DANS CE CAS D'UNE EVALUATION RETROSPECTIVE 2/ CAPACITE DE SUPERVISION P.22 § 2-6: IL S'AGIT DU DEPARTEMENT SUIVI ET NON D'UN SERVICE LA SUPERVISION DES PROJETS EST ASSUREE A LA BDET PAR DEUX DEPARTEMENTS: - DEPARTEMENT SUIVI POUR LES PROJETS BENEFICIANT D'UN CREDIT - DEPARTEMENT REPRESENTATION POUR LES SOCIETES FILIALES. SENT BY B. D. E. T ;28- 6-96 14:19 : 5. D. E. T- 202 522 3124;# Annex B 44 3/ OPERATIONS (PAGE 23 j 2.8) CONCERNANT LE TABLEAU N* 3 RETRACANT L'EVOLUTION DES OPERATIONS DE LA BDET DURANT LA PERIODE 1985-1994, DES RECTIFICATIONS ONT ETE PORTEES AU NIVEAU DES POSTES SUIVANTS: -FONDS PROPRES DES CHIFFRES FIGURANT SUR LE TABLEAU Ne 3 IL A ETE DEDUIT LE MONTANT DU CAPITAL NON LIBERE ET AJOUTE LE MONTANT DE LA DOTATION GOUVERNEMENTALE - ENCOURS DES DETTES A LONG TERME L'ENCOURS DE L'EMPRUNT FOPRODI A ETE AJOUTE AUX CHIFFRES INDIQUES SUR LE TABLEAU N° 3 CAR DANS L'ENCOURS DES PRETS CE FONDS EST INCORPORE. -ENCOURS DES PRETS: A PARTIR DE 1990 LES EMPRUNTS A MOINS D'UN AN ONT ETE REINCORPORES DANS L'ENCOURS DES PRETS, AFIN QUE LA SERIE DEMEURE HOMOGENE. SUITE A CETTE RECTIFICATION LE PORTEFEUILLE PRETS A CRU DURANT LA PERIODE 1985 - 1994 AU MEME RYTHME QUE CELUI DU TOTAL DES ACTIFS SOIT 10,63% PAR AN. VOUS TROUVEREZ CI-JOINT LE TABLEAU N° 3 MODIFIE. MEILLEURES SALUTATIONS B.D.E.T. lDOK LKAID Ta 3. BDE7: Prene efOperalas 1968-199 (UIIa.n10} 1985 1998 1987 19M 1989 1gæ 1091 1992 1993 1994 ruapa 299.8 321.3 347.3 39.3 381.4 441.1 508A e2.6 890.4 740 HCMeM 25.0 30.0 30.0 30.0 30.0 30.0 32-5 35.0 37.5 40.0 28.2 31.3 32.0 32.0 35.0 35.1 41.0 48.8 638 6a2 iurr 203 214.3 224.4 233.4 241.5 226.3 297.2 34.9 38.1 »0.9 a uwasmie 196.9 2M64 215,0 221.1 234,0 292.1 315.2 383.6 447.7 488.3 Mnromroun 28.5 2B.7 30.3 28.4 27.4 32.0 369 383 41.3 44.1 25.7 28.4 31.9 30.5 34.9 37.0 44.2 55.4 8.8 70.5 1.7 2.1 1.6 2.2 5.3 5.9 6.3 7.4 7.7 8.2 town 40.4 30.8 25.3 61.0 109A 125.2 1482 130.5 122.4 110.8 eM nvU oIE 4.3 1.9 2.5 7.4 14.1 11.5 8.5 5.6 11.4 4.5 3nos 31.2 30.2 22. 23.3 4&9 80.4 91.4 122.1 91.7 81.5 sivIUSrxaImo 24 1.3 2.9 3.0 .0 10.0 6.1 &2 5.4 3.4 37.6 34.1 38.8 29.2 35.9 6M2 79.3 105.1 12.9 8.4 EMPymmPm 34 1.6 2.8 2.0 4.7 7.1 f1 7.0 5.6 4.8 uR~rm 1.30 1.19 1.16 1.17 1.17 0.86 1.01 0.90 C.9 1.23 .T cEDrrIMr 75 .&5 7.01 7.29 6.e (45 7.25 7.4 7.21 8.47 ea..o'mss 8,9% 17,9% 8,1% 10.7% 11,9% 8,9% 6,7% 1,5% 9.4% 71,7% 431% 27,4% 2.8% 31,3% 34A% 27.2% 23,5% 23,7% Tau~ 19,4% 39,0% 68,5% s5% 568.% 58,3% ,1% 75,0% 68^9% 2o--s mas smb~ a..-m.i*em.s nt 44% 0 c m Unu. "M~..ss a6 ~ m D4 c5 ..pIpd 1GA0 37 1 110.sy 10iq6493.si ir d1w 0t >340   z (D0 ru o >0 O CO