Ghana - Public Enterprise and Privatization Technical Assistance Project

Document of The World Bank Report No. T-6901-GH TECHNICAL ANNEX THE REPUBLIC OF GHANA PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT May 13, 1996 Industry and Energy Operations Division West Central Africa Department Africa Region CURRENCY EQUIVALENTS (as of March 26, 1996) Currency Unit = Cedi US$1.00 = Cedi 1,562 Cedi 1 million US$ 640.20 SDR I = US$ 1.4615 GOVERNMENT OF GHANA FISCAL YEAR January I to December 31 ABBREVIATIONS AND ACRONYMS ADMU - Aid and Debt Management Unit CBA - Collective Bargaining Agreement DIC - Divestiture Implementation Committee EDF - European Development Fund ESB - End of service benefit FY - Fiscal Year GCAA - Ghana Civil Aviation Authority GDP - Gross Domestic Product ICB - International Competitive Bidding IDA - International Development Association IFC - International Finance Corporation MESW - Ministry of Employment and Social Welfare MME - Ministry of Mines and Energy MOA - Ministry of Agriculture MOF - Ministry of Finance MOTC - Ministry of Transport and Communications NCB - National Competitive Bidding ODA - British Overseas Development Administration PCU - Project Coordination Unit PETA - Public Enterprise Technical Assistance project PlC - Public Information and Communications PSAC I - First Private Sector Adjustment Credit PSAC 11 - Second Private Sector Adjustment Credit SDR - Special Drawing Rights SEC - State Enterprises Commission SOE - State-owned enterprise GHANA PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT TECHNICAL ANNEX Table of Contents Page No. SECTION A: PROJECT DESCRIPTION I. Project Design I A. Project Objective and Approach I B. Cofinancing I C. Project Risks 2 D. Project Benefits 2 II. Description of Prqject Components 4 A. Public Enterprise Ref'orm Program 4 Background 4 SOE portfolio managcmnt 4 Preparation of SOEs for divestiture 6 Transition to reformed legal framework for SOEs 7 Developing policy and regulatory reform in key sectors 8 Strengthening SEC capacity 9 B. Privatization 9 Background 9 Public information and communications strategy 10 DivCstiture of SOEs 10 Support for labor redundancies 12 Strengthening DIC capacity 13 C. Program coordination 14 SECTION B: PROJECT ADMINISTRATION AND IMPLEMENTATION A. Project InlIementation 15 B. Project Costs and Financing Plan 16 C. ProCUrement 17 D. Disbursements 17 E. Accounts. Audit and Reporting 18 Schedules Schedule 1. Key Project Activities Schedule 2. Training Plan Tables Table 1. Summary of Cost Estimates and Financing Plan Table 2. Key Performance Indicators SECTION A: PROJECT DESCRIPTION I. PROJECT DESIGN A. Project Objective and Approach 1. The objective of the project is to assist the Government of Ghana to implement its public enterprise reform and privatization program. 2. The public enterprise reform program will focus on (a) preparing enterprises for divestiture; (b) monitoring the performance of enterprises, and making information available to the Government and the public; (c) a review of government policy for the public enterprise sector, with an increased focus on the management of the Government's portfolio of equity investments, loans, and guarantees; (d) policy and regulatory reform in a number of key sectors in which SOEs are dominant - aviation, cocoa and petroleum; and (e) building capacity within the Ministry of Finance and State Enterprises Commission (SEC). 3. The privatization program will focus on (a) acceleration of the divestiture program using newly-approved procedures; (b) contracting out the sale of enterprises to private firms; (c) arrangements to address labor redundancies caused by divestiture; (d) arrangements to promote the participation of Ghanaians in the investment opportunities created by divestiture; (e) implementation of a public information and communications strategy, including periodic impact assessments with the participation of key stakeholders; and (f) building capacity within the Divestiture Implementation Committee (DIC). 4. The project design reflects the fact that it is not possible to predict with certainty the implementation of a complex, multi-sectoral program, which impacts upon political and social as well as economic processes, over a five year period. Within the framework of the Government's expressed commitment to the program and the broad public and stakeholder support which exists at present, the project has been designed to provide the flexibility needed to adapt to needs which will vary from sector to sector and circumstances which will change over time. It would also adapt to the outcome of the processes and reviews designed into the project, such as the public information and communications strategy; periodic impact assessments; and policy reviews on how to manage labor redundancies, participation by local investors, the future development of the SOE sector, and the new sector policies in the aviation, cocoa and petroleum sectors. This would give rise to the need for enhanced project supervision. The mid-term review assumes increased importance in this environment, and will be used to review experience in the first two years of implementation and specify at that time, rather than during project preparation, the details of the components of the overall program to be supported during the second half of the project. B. Cofinancing 5. The British ODA is providing technical assistance to the value of $2.6million equivalent to the DIC through the end of 1997. The European Union is expected to provide up to $5.6 million equivalent to assist with retraining as part of a program to address the issue of labor redundancies created by divestiture. The Government will provide around US$ 1.6 million equivalent towards operating costs of the DIC, SEC and the Project Coordination Unit within the 2 Ministry of Finance. Proceeds from the sale of enterprises will be used to finance payments to creditors, workers' redundancy payments, and success fees to private firms appointed by DIC to privatize enterprises. As part of the mid-term review, the Government and IDA would examine whether a revolving fund could be established using a portion of the sale proceeds to finance all of the remunerations of private firms. C. Project Risks 6. The principal risks are a worsening of the macroeconomic environment, a decline in Government commitment and public support for divestiture, and a lack of project management capacity. 7. The macroeconomic situation and Government commitment will be monitored as part of IDA's overall dialogue with the Government. 8. The Government has reaffirmed its commitment to the program in a Letter of Sector Development Policy dated April 29, 1996. Recent progress on the program under the PETA project is consistent with that level of commitment. As disbursements on the privatization component of the project would be closely linked to progress on selling enterprises, any significant reduction in commitment or implementation capacity would have consequences for the remainder of the program, which would be scaled back, and should not negatively impact reforms or privatizations already concluded. 9. Measures to mitigate the more direct project risks include the public communications program, the implementation of more detailed procedures that will provide the public with greater access to information, the contracting out of the sale of enterprises to private firms, and the establishment of a central focal point in the Ministry of Finance to coordinate project management. The project has been designed with the flexibility to accommodate differing needs and approaches across sectors and over time. In this regard. the mid-term review will be particularly important and will provide the opportunity to re-assess project risks and develop appropriate risk mitigation measures. D. Project Benefits 10. The benefits of the program that the project will support are: (a) An improved climate for private sector investment and development, and thus improved prospects for growth of incomes and employment. This would result from the specific investment opportunities offered by divestiture as well as the strong message that divestiture can send about the role envisaged for the private sector; the greater space created for private sector activity by the reduction of the state's involvement in commercial activities, including the promotion of competition through leveling the playing field; and the improvement in the efficiency and effectiveness of services provided by SOEs, lowering business costs. (b) Improvements in the performance of the public sector. Reductions in subventions to SOEs. including the costs of investment, will free up fiscal resources for higher value uses and contribute to macroeconomic stability. The project will help the Government to 3 redefine its role in the public enterprise sector to one which has increased focus on policy and regulatory activities. The Government's financial involvement in the sector will evolve to one of managing its investment portfolio of equity holdings, loans and guarantees. The project will also contribute to greater accountability through its support for building capacity for public reporting on the performance of the SOE sector and on the divestiture process. 4 II. DESCRIPTION OF PROJECT COMPONENTS A. Public Enterprise Reform Program Background 11. As of 1994, the public sector accounted for an estimated 35 percent of GDP, including 40 percent of manufacturing activity and virtually all of the financial sector and utilities. The two hundred or so enterprises remaining in public ownership had approximately 150,000 employees in 1991. Reliable estimates are not available of the values of these enterprises or of their assets. SOE liabilities to the Government exceeded US$1 billion at the end of 1994, while the Government had guaranteed SOE borrowings amounting to approximately US$250 million. 12. The role of the Government in the SOE sector is evolving. As privatization continues, the size of the sector is being reduced. The Government's role is evolving from one of relatively active involvement in the management of enterprises to a more passive role in managing a portfolio of equity investments, loans and guarantees. It is placing increased emphasis on creating an appropriate policy, legal and regulatory framework for strategic sectors. Specifically, it has developed and is implementing policy and regulatory frameworks in the financial, mining and telecommunications sectors designed to liberalize and allow private investment, and, with assistance under this project, proposes to expand these reforms into other sectors that have large SOEs, such as cocoa, petroleum, and aviation. 13. The SEC is the central government body in Ghana for monitoring and assessing the performance of the SOE sector and for providing analyses and other supporting services to reform and strengthen the performance of SOEs. Its functions are intended to be complementary to and supportive of the other main instrument for reform of this sector, namely divestiture. To give focus to divestiture, the DIC was spun off from the SEC in 1989. The operations of the SEC have been supported by IDA through the Public Enterprises Technical Assistance (PETA) project. These operations would continue to be supported under the project, alongside and in coordination with the development of a portfolio management capability in the Ministry of Finance. 14. The project would provide support to the Government's public enterprise reform program in following areas: (a) SOE portfolio management; (b) preparation of SOEs for divestiture; (c) transition to reformed legal framework for SOEs; and (d) developing policy and regulatory reform in key sectors. SOE portfolio management (US$ 4.10 million) 15. With the progressive reduction of the SOE sector through divestitures and the reformed legal framework which moves Government out of the management of SOEs, the Government will be strengthening its capacity to manage its portfolio of loans to and investments in SOEs. A key element of this capability will be to monitor financial performance and implement policies appropriate to its role as owner, creditor and guarantor. 16. The project would support the Ministry of Finance, working with the SEC, to develop a portfolio management capability. The objective would be to allow the Government to coordinate 5 and manage the reduction of the size of the portfolio through divestiture, focus on core financial performance criteria, and address the new financial policy issues created by the privatization program. Specifically, the function would focus on: (a) maintaining complete and reliable information on the portfolio, including names and types of enterprises, form (equity, loan or guarantee) and extent of investment, restrictions associated with the investment (e.g. shareholders' agreements, covenants with financiers), and updated corporate secretarial information; (b) monitoring the financial performance of the portfolio (dividend payments, subventions, repayment of loans, annual audited accounts); (c) advising the Government on financial policy issues (e.g. required returns on investment, capital expenditure prior to privatization, dividend policy, on-lending arrangements, provision of guarantees, risk-sharing with the private sector); and (d) providing information and advice, including impact assessments, to allow the Government to decide on the future direction of and requirements for SOE reform. including the identification, timing and mode of future divestitures. 17. Information and Monitoring. Monitoring and assessing the performance of the SOE sector is a core function of the SEC. Under the PETA project, SEC has been able to develop an inventory and classification of SOEs, which had not existed previously; monitor and assess the performance of key SOEs through the establishment of an annual performance contract and monitoring system; and undertake policy studies on particular aspects of SOE performance. However, a number of important gaps and weaknesses remain in SEC's ability to monitor and assess the performance of the SOE sector. In particular, it is not in a position to track financial and operational trends in the sector as a whole. The coverage of the performance monitoring system is still in the process of being extended. Information on SOE performance resides in various databases in SEC, which are not integrated. These factors hamper SEC's ability to address the underlying weakness in the information it receives from the SOEs themselves. 18. The project would provide consultant, technical, and training services to (a) develop an integrated SOE database that would incorporate key financial and operational performance indicators, including performance on obligations to provide audited accounts, and meet tax, dividend, and debt obligations to the Government; (b) strengthen the operation of the performance contract system facilitated by SEC, in particular the analysis of overall sector performance and constraints (in this regard, a review would be undertaken of the performance monitoring system); and (c) strengthen accountability by providing public dissemination of information on the performance of the SOE sector, including the development of a public annual report on the performance of SOEs. The project would also support a program to publicize more widely audit reports of SOEs. 19. Policy for Future Development of the SOE Sector. The project would support the Government to undertake a review of its policy for the future development of the SOE sector. The review would address the Government's objectives; its role in the areas of policy, legal and regulatory issues; the identification, timing and mode of the privatization program; its role as lender and guarantor to SOEs; the management of SOE's during the period up to privatization; Government's role as minority shareholder, lender and guarantor in previous SOEs which have now been privatized; and the institutional arrangements needed to implement the amended policy. The project would support the implementation of the amended policy, which is expected to include the building of a portfolio management capability within the Ministry of Finance, with support from the SEC. 6 20. Loans and Guarantees. With the transfer of increasing numbers of SOEs into private ownership, the role of the Government as lender and guarantor will diminish. It is expected that future borrowings of divested enterprises will be incurred without recourse to the Government. The current portfolio of loans and guarantees requires attention due to its size (at the end of 1994, outstanding loan balances exceeded $1 billion, while guaranteed balances amounted to $284 million) and because almost 50 percent is estimated by SEC to be non-performing. Improvement in the performance of the portfolio can yield significant improvements for Government revenues. Where SOEs are to be divested with continuing liabilities to, or guaranteed by, the Government, enforcement of rights under loan and guarantee agreements assumes greater importance. In preparing enterprises for divestiture, it will be important to quantify their indebtedness to the Government, including any arrears, and to ensure that these are appropriately dealt with either before (where a financial restructuring may be needed), or as part of, the divestiture process. 21. The Aid and Debt Management Unit (ADMU) of the Ministry of Finance is responsible for the management of both the asset and liability sides of the Government aid and debt portfolio. The asset side is represented by loans to SOEs and other enterprises. Budgetary constraints and the inability to pay competitive remuneration have made it difficult for the Government to recruit and retain the staff needed to effectively manage the portfolio. The Government has already sub-contracted to private banks the collection of small loan amounts. It is prepared to expand this involvement further to supplement the skills and resources of the ADMU. 22. In due course, it may be possible for the Government to divest its loan portfolio to commercial lenders. This would yield revenue (especially where the on-lending terms are commercial and the original donor financing terms are concessional) and contribute to the development of local capital markets. It would also place the enterprises on a more commercial arms-length relationship with lenders and level the playing field between commercial enterprises with access to Government funding and those without. 23. The project would support the appointment of consultants to assist the ADMU to design and implement improved information systems on the loan and guarantee portfolio. It would also support the appointment of private financial institutions, with remuneration linked to performance, to supplement the capacity of the ADMU to manage the portfolio. Preparation of SOEs for Divestiture (US$ 0.37 million) 24. An acceleration and expansion of the divestiture program lies at the core of the Government's efforts to establish a climate conducive to private investment. Under the Government's accelerated divestiture program, I 10 small and medium-sized SOEs placed on the divestiture list will be divested, of which at least 48 are to be completed by March, 1997. In addition, the Government intends to offer for sale at least three large non-bank SOEs, including Ghana Telecom, by that time. The program thereafter has not been defined in detail, but at the intended pace, the bulk of the current SOE sector would be divested over the next five years or so. To enable this program to be defined and implemented, upstream preparatory work of enterprises for divestiture has been undertaken under the auspices of the SEC, largely on a contract basis. 7 25. The roles of DIC and SEC in pre-divestiture work have been clarified. In particular, it has been agreed that in order to avoid duplication of work and gain maximum effectiveness from the pre-divestiture work of SEC, DIC will carefully define the nature of the documentation and preparatory work to be done by SEC before enterprises are "handed over" to DIC for divestiture. SEC will make available its information at hand-over, and thereafter any additional pre- divestiture work will be done by or at the request of DIC. SEC would continue, in collaboration with DIC, to monitor the performance of SOEs up to the point of actual divestiture. 26. The project would provide consultant and technical services to prepare the extension of the divestiture program. It would help the SEC to (a) prepare company profiles and identify issues to be addressed for the remainder of the SOEs to be divested; (b) recommend necessary actions to be taken prior to divestiture of enterprises, including where necessary clearing of accounting arrears, title issues, and environmental and regulatory matters; and (c) identify and address policy issues related to the extension of the program and the preparation of enterprises for divestiture. Transition to Reformed Legal Framework for SOEs (US$ 0.35 million) 27. The operational and financial performance of SOEs to date remains decidedly mixed. A number of enterprises that have not been placed on the divestiture list have been deemed non- viable, and are receiving subventions. Others are imposing costs on the economy, impeding development. The SEC does not have authority to directly supervise enterprises. However, it has undertaken several initiatives designed to improve the framework for improved SOE performance and assist in that process. These include the Conversion to Companies Act (Act 461) of 1993, under which SOEs are to operate under reformed governance structures under the Companies Code. Assisting in the implementation of this framework for SOEs will be an important focus of SEC activity in the coming years. In addition, SEC envisages assisting SOEs in adapting their corporate strategies to the new environment, and organizational restructuring advice as tools to improve sector performance. 28. The conversion of the legal form of SOEs to limited liability companies holds out the potential for achieving significant improvement in SOE performance. However, for these benefits to be realized, implementation of the reformed framework needs to go beyond a change in legal form to encompass effective autonomy from government interference in day to day management and the exposure of the SOE to market competition. It is through the operation of improved incentives for performance that results will be realized. These incentives would be applied through the clearer accountability to the shareholder embodied in the new framework. The framework also permits greater financial autonomy to SOEs through the ability to independently tap private debt and equity markets. 29. The project would provide selective support to these efforts. In particular, it would provide technical and consultant services to SEC to (a) assist SOEs in implementing Act 461 by providing training and assistance in preparing Company Regulations; and (b) develop diagnostic and action plans for subvented SOEs to facilitate their commercialization, in collaboration with the relevant sector Ministry, SOE management, and the Ministry of Finance. 8 Developing Policy and Regulatory Reform in Key Sectors (USS 2.23 million) 30. In a number of sectors dominated by SOEs, policy and regulatory reforms will be required to achieve significant improvements in sector performance and privatization of the enterprises. Comprehensive reform programs are already being supported by IDA operations in the financial, mining and telecommunication sectors. In three sectors, aviation, cocoa and petroleum, the Government has initiated policy and regulatory reviews with a view to implementing reform and encouraging private participation in the coming years. 31. Cocoa. Cocoa is Ghana's most important income-generating crop. However, the sector has suffered from declining output and inadequate investment, while farmers have received only one half of the proceeds of cocoa exports, the other half being used to pay taxes to the Government and to cover the costs of the Cocoa Board. The Government has been moving to liberalize the marketing of cocoa, which has been dominated by the Cocoa Board. In 1992, domestic marketing of cocoa was opened up to private traders. The Government has commissioned a study, with IDA support, to review and develop options regarding the external marketing of cocoa. 32. Petroleum. The Government has embarked on a program of liberalization and reform of the petroleum sector. The importation of oil, which had been the responsibility of Ghana National Petroleum Corporation, is being opened up to competition. Tema Oil Refinery, which is state owned, is on the list of SOEs to be privatized, as is GOIL, the state-owned oil marketing company. The Government is also developing a strategic approach to sector reform. 33. Aviation. The Government has recently taken steps to improve the performance of Ghana Airways and to prepare it for possible privatization. Previously a statutory corporation, it was converted to a limited liability company in 1995. Private sector representatives have been appointed to the board, including as chairman. Speedwing Ltd., a subsidiary of British Airways, has been appointed through a performance-related management contract to fill key management positions, including that of Chief Executive. The Government wishes this program to proceed within a strong policy and regulatory framework, and therefore intends to review existing arrangements in these areas. 34. The project would assist the Government to prepare Ghana Airways for privatization. Initially, this would involve a review of sector policy and regulatory arrangements by the Ministry of Transport and Communications (MOTC). The project would then finance services, such as investment banking, legal and accounting, required to conclude the transaction. The project would also examine ways in which the operations of the Civil Aviation Authority could accommodate private sector participation. IDA would work closely with IFC to ensure a coordinated Bank Group approach to the sector. 35. Reform of the cocoa and petroleum sectors is the subject of dialogue between the Government and IDA in the context of the proposed PSAC II adjustment credit, which is presently under preparation. The extent of the support to be provided under the project for these reforms would be finalized once the scope of the adjustment credit has been concluded later in 1996. Pending this, the project cost estimates include a provision of US$2 million to support implementation of the reforms. Consulting services would be procured by the MOF acting in collaboration with the relevant sector ministry. 9 36. The project would support the development of policy and regulatory reform in these three sectors sectors by financing specialist services and workshops to help the Government undertake policy review and consensus building, develop regulatory capacity, perform upstream preparation of enterprises for privatization, and direct services needed to conclude privatization transactions. Strengthening SEC Capacity (USS0.35 million) 37. Over the coming years, there will be an increasing need to put SEC into a more sustainable position. Although the scale of its activities is expected to shrink towards the end of the proposed project, as the size of the SOE sector and its urgent needs for reform are reduced, ongoing capacity will need to be further developed. The project would, in the context of integrating SEC's work with the development of portfolio management capacity within the Ministry of Finance, support the strengthening of SEC's capacity through the provision of (a) updated office equipment and (b) training of staff. With respect to the latter, the training would be based on an assessment of staff and institutional needs, and use local resources as far as possible. Provision would be made in the terms of reference of technical assistance consultants to transfer relevant skills to SEC staff in a structured fashion. B. Privatization Background 38. The Government is committed to a policy of increasing private sector participation in SOEs. The divestiture of its ownership interest is at the core of the Government's privatization program. Divestiture commenced in 1987. The DIC has statutory responsibility under PNDC law 426 of 1993 for the divestiture, involving the sale or liquidation, of all enterprises owned by the state. 39. Initial progress was slow, and the first sale was concluded in 1990. Since then the pace has increased and by the end of 1995, DIC had signed agreements with buyers or commenced liquidation of around 120 enterprises. 40. The Government decided in 1994 to accelerate the divestiture program. In April 1994, it raised around $350 million from the sale of half of its majority stake in Ashanti Goldfields Corporation and a further $23 million from the sale of its stake in seven manufacturing companies listed on the Ghana Stock Exchange. Divestiture of its controlling stakes in the other state-owned mining companies was substantially completed in 1995. In January 1995, the Government announced that it would sell a further 114 enterprises. It also approved and published new procedures for carrying out divestitures, including arrangements whereby DIC would enhance its capacity by contracting out the sale of enterprises to private firms. In late 1995 and early 1996, the Government successfully floated two state-owned banks on the Stock Exchange and advertized the sale of a strategic stake in Ghana Telecom. It intends to continue the divestiture program once the sale of the 114 enterprises announced in 1995 has been completed. 10 41. IDA is supporting the accelerated program through a series of adjustment and technical assistance operations. As part of the First Private Sector Adjustment Credit (PSAC 1) amounting to US$75 million, the credit agreement for which was signed in July 1995 (Cr. 2418-GH), the Government has committed to divesting not less than 48 small and medium-sized SOEs and to bring at least 3 strategic enterprises to the point of sale. A second adjustment operation (PSAC II) is scheduled for IDA FY97 and will address the cocoa and petroleum sectors. IDA is assisting the Government to privatize state-owned banks (Cr. 23 18-GH), non-bank financial institutions (Cr. 2792-GH), mining (Cr. 192 1-GH) and Ghana Telecom (operation under preparation) as part of wider sector reform programs. This project would continue the support provided under the PETA Project (Cr. 1847-GH) which is scheduled to close on June 30, 1996. 42. The accelerated program is making new demands on DIC. It has primary responsibility for implementing the program, focusing initially on the 114 enterprises announced by the Government in 1995, and subsequently on the remaining SOEs of which there are approximately 100. It will do so using new procedures which were approved and published by the Government in 1995. As the program is implemented, it will give greater attention to openness and public availability of information concerning the divestiture process, building and sustaining public support and investor confidence, addressing the issue of redundant labor, and providing opportunities for Ghanaian investors. The privatization of larger and more complex enterprises will require legal, policy and regulatory initiatives, requiring DIC to work closely with the relevant sector authorities. Public information and communications strategy (US$2.46 million) 43. The project would support the Government and DIC to develop and implement a public information and communications strategy designed to build and sustain public and stakeholder support and investor confidence. International and local consultants have been appointed by DIC, financed under the PETA project, to develop the strategy. The objectives of the strategy are to (a) enhance public support for the divestiture program though greater public awareness; (b) strengthen the effectiveness of the program through targeted communication with potential investors in enterprises to be divested; and (c) increase the impact of the program on private sector development through communication with the broader investor community. The strategy will provide for effective two-way communication. 44. Once the strategy is approved, it is envisaged that a firm would be engaged, with IDA support under the proposed credit, to assist in its implementation. The implementation of the strategy would be coordinated with other public information efforts of the Government related to divestiture, including periodic assessments of the impact of the program. Divestiture of SOEs (US$12.66 million) 45. DIC is focusing initially on the sale of the 114 enterprises announced by the Government in 1995. Around 100 enterprises will then remain in state ownership. The Government has confirmed that it intends to extend the program to include the bulk of the remaining SOEs, and has already commenced preparatory work on the sale of some of these enterprises. Initial work on some additional enterprises has already commenced. The resources made available under the project are based on the assumption that the program will continue. The scope of the continuing program will be defined more precisely during the mid-term review. The extent of IDA support 11 beyond that date will be determined by the results of the review and the feasibility of the proposed revolving fund. 46. The Government approved and published new divestiture procedures in 1995 designed to make the process more effective and to make information more readily available to interested parties. DIC has prepared a comprehensive manual which sets out in detail how the new procedures will be operationalized. The manual deals with the preparation of documentation, advertising, bidding procedures, evaluation criteria and procedures, negotiation and approvals, sale and purchase documentation, and completion and post-completion matters. 47. DIC is putting in place the resources needed to implement an accelerated program by outsourcing the sale of enterprises to private firms. The procedures manual specifies the arrangements for outsourcing. A register of firms has been prepared following public advertisement internationally and within Ghana. It is intended that most future privatizations will be outsourced, at an expected annual average rate of 25 to 35 enterprises, focusing mainly on medium and large enterprises. The process of outsourcing the sale of the first 15 medium enterprises has commenced. Not less than 50 percent of the firms' remuneration will be represented by success fees to be paid from the proceeds of the sale. The proposed credit would finance the retainer fees and reimbursable expenses of the firms. As part of the mid-term review, DIC and IDA would examine whether a revolving fund could be established using a portion of the sale proceeds to finance all of the firms' remuneration. 48. The benefits of outsourcing are that it allows DIC to accelerate the pace of divestiture by utilizing private sector resources and expertise; with the appropriate financial and success fee incentives in place, private sector privatization specialists with hands-on experience in negotiating sale transactions are more likely in certain cases to secure quality investors and increased sales proceeds in a timely manner: openness and access to information concerning the divestiture process is enhanced; and it fosters development of the private services sector in Ghana, through direct use of local consultants, lawyers and financial advisory firms to undertake divestitures, and through the skills transfer arising from associations between local and international firms. 49. Participation by Ghanaian businessmen, managers. employees, institutional and individual investors, and the public at large in the divestiture program has been limited. This is partially due to the absence of a fully functioning capital market in the country. The Government has sought to facilitate local ownership through a system of deferred payments for share or asset sales. However, the system has been implemented on an ad hoc basis and problems have arisen with its administration, in particular in relation to collection of the deferred balances. The project would support the Government and DIC to identify and put in place sustainable arrangements to address this issue. Among the options which will be examined are preferential ownership plans for employees, Employee Share Option Plans, arrangements for management buy-outs, structuring sales of assets or shares in smaller lots to facilitate interest by smaller investors, the use of the Privatization Trust to be established under the Non-Bank Financial Institutions Project, and facilitating local institutional investors. 50. A series of indicators have been identified to measure performance on the divestiture program. These include numbers of enterprises divested (analyzed by small medium and large, and by mode of divestiture); number of divestitures out-sourced; net proceeds on divestiture; 12 level of deferred payments and arrears arising under deferred payments (individual and aggregate); and average time taken to divest enterprises. Support for Labor Redundancies (USS7.14 million) 51. Enterprises have three forms of non-wage liabilities in respect of their employees - termination/severance benefits, end-of-service benefits (ESBs), and social security contributions. Termination benefits are payable when through internal reorganization or change in economic conditions specific classes of workers are no longer required, while severance payments are payable when the company is wound up or a new ownership arrangement results in dismissal of members of the work force. The provisions for termination and severance payments are by convention set out in collective bargaining agreements (CBAs) negotiated between the trade union and the enterprise. ESBs (lump sum retirement or termination benefits payable to retiring workers in lieu of pension) were discontinued in 1991 and all obligations of the Government have since been paid or provided for. Social security payments are payable to the Social Security and National Insurance Trust at a rate of 12.5 percent by all employers, public and private. They are generally up to date, but in some cases there are arrears. 52. Labor issues in recent divestitures have been handled on an ad hoc basis. The entitlements of junior employees are normally recorded in CBAs. Senior employees and management have negotiated similar or more generous agreements, but their standing appears less certain as the agreements are not recognized as CBAs and have effectively been negotiated by senior employees with themselves. While there is no explicit policy and there is some inconsistency in application from enterprise to enterprise, a general pattern has emerged. It shows that payments for junior staff will be in the range of 6 to 15 months, with most in the range of 8 to 10 months, of salary, generally irrespective of the length of service. Similar payments have been made in respect of senior staff, although more generous provisions had sometimes been negotiated. Profitable enterprises pay somewhat higher severance packages than weaker ones, although ability to pay is generally not a factor in negotiating CBAs. Where workers suffer no break of employment, they are not entitled to severance payments. Most payments are ultimately agreed to by the Government rather than management, and these payments are often less than the level negotiated in the CBA. While there have been cases of unions initiating court action, both sides have generally preferred to negotiate a solution. There have been many exceptions to the above general picture however and some recent cases have shown that costs to the Government are increasing. 53. There is no reliable estimate of the potential liability for severance and termination payments arising from the divestiture program. Rough estimates are that up to 40,000 employees may be affected, at a cost of around US$ 40 million. This compares to over 60,000 redundancies from the civil service reform program and around 100,000 in the Cocoa Board in the late 1980s and early 1990s. 54. There is evidence that the behavior of both management and workers changes once the intention to privatize an enterprise is announced. There is therefore a need to take immediate action, even before the sale process commences, in such areas as forbidding the renegotiation of existing CBAs without the Government's approval, instituting a complete freeze on recruitment, ensuring that all social security payments are up to date, identifying the potential level redundancies, and preparing the labor input to the divestiture strategy. 13 55. Despite these difficulties, and the delays which they have caused in the divestiture program, the Government has been sensitive to the issue and has generally succeeded in negotiating down CBA terms to levels which have been accepted by workers and do not generally appear excessive. Discussions with a sample of purchasers do not report any ongoing labor problems. There is also some evidence of success stories, with post-employment levels in some enterprises increasing despite initial redundancies, and wage levels also increasing. 56. The project would support the Government's efforts to manage labor redundancies caused by the divestiture program. The objectives are to ensure that investors are offered a "clean slate" enterprise with all outstanding liabilities to employees resolved or properly provisioned for; the negotiation of equitable, legally defensible and affordable packages for those employees adversely affected by restructuring and divestiture; maintenance of good industrial relations throughout the process; and provision of retraining packages for staff made redundant. 57. Specifically the project would support (a) a participatory review of the Government's policy for dealing with labor redundancies; (b) the preparation of an estimate of the potential number of employees to be made redundant and the associated costs; (c) arrangements to communicate the policy to the public and workers, including at the level of each enterprise; (d) putting in place an appropriate institutional framework and the implementation of an action program to implement the revised policy; (e) an assessment of the impact of the program on workers; and (f) measures to mitigate the potential extent of the problem, such as facilitating where possible the early re-hire of workers by the in-coming buyer, the introduction of voluntary redundancy packages for all SOEs, the introduction of training and redeployment support schemes (building on the experience gained with the civil service and Cocoa Board) and the introduction of a standard workforce communications checklist. 58. The European Development Fund (EDF) would provide funds in support of re-training and redeployment of redundant workers. IDA would support the policy review, institutional arrangements, communications, training, and other impact mitigation measures. Strengthening DIC capacity (US$ 5.43 million) 59. Notwithstanding the decision to increase the participation of private firms in the divestiture transaction process through outsourcing, the scale of DIC's activities will increase. It will have additional responsibility for managing and monitoring a comprehensive outsourcing program and will be required to do so in a timely manner. It will retain its current responsibility for the development and implementation of the overall divestiture program by continuing to review and decide upon all divestiture transactions and by being involved directly in some of the smaller divestiture transactions, albeit on a reduced scale. Finally, it will be responsible for the implementation of an expanded communcations strategy, improved financial and operational information systems, and assisting with the implementation of the labor redundancy program. DIC is expected to be disbanded when the program is complete. 60. The ODA is presently making US$2.6 million equivalent available through to the end of 1997 to support four full-time advisers in DIC with specialist expertise in privatization, as well as short-term consulting support and office equipment. It will consider extending its assistance 14 at that time. DIC will appoint counterpart staff on a contract basis for each of these positions. DIC's operating costs will be financed by budgetary support and a portion of the proceeds from sales. 61. Consultants have been engaged under the PETA project to design and implement comprehensive new financial and operational information systems within DIC. Comprehensive performance indicators have been identified and the systems designed will allow actual performance against these targets to be measured. The project would provide support to DIC to implement these systems. Independent external auditors acceptable to IDA would be appointed to audit DIC's accounts, including the Divestiture Account. The audited accounts would be published. C. Program Coordination 62. Several agencies are involved in the reform and privatization of SOEs. The DIC, reporting to the Office of the President, has statutory responsibility for the sale of all SOEs approved for divestiture. Sector ministries, SEC, and a number of regulatory and other agencies have various responsibilities with respect to SOEs. Shares in SOEs which have been converted to limited liability companies are vested in the Minister of Finance, who also is responsible for all financial policy issues, as well as the large portfolio of government loans and guarantees to the sector. The reform and privatization program affects many other stakeholders, including private investors, workers, creditors, and customers. 63. The scale and complexity of the reform program has increased. The Government approved in 1995 an accelerated divestiture program and new divestiture procedures. The privatization of strategic enterprises necessarily involves an upstream examination of, and possible changes to, the legal, policy and regulatory environment. Good progress has been made on the liberalization and privatization of the mining, banking, and telecommunications sectors. Reforms are also planned in the aviation, cocoa, petroleum, infrastructure, and non-banking financial sectors. IDA is supporting reforms in most of these sectors through a mix of adjustment, investment and technical assistance operations. The need to build and sustain public support and investor confidence, address the issue of redundant workers, and promote opportunties for local investors has added to the complexity of the program. 64. The Government intends to strengthen its capacity to implement the program and to improve coordination among all the agencies involved. It has established a Project Coordination Unit (PCU) and appointed a Project Coordinator within the Ministry of Finance. The PCU would also administer the project. The project would provide support to the PCU amounting to US$1.18 million in the areas of training, consulting services to address and advise on policy issues and assist with implementation, and operating costs. Further details are provided in Section B. 15 SECTION B: PROJECT ADMINISTRATION AND IMPLEMENTATION A. Project Implementation 65. The Ministry of Finance would be responsible for overall program coordination and implementation of the project. The PCU has been established and a Project Coordinator appointed. It would be disbanded on completion of the project. The Coordinator would report to the Director of the International Economic Relations Division in the Ministry of Finance. The PCU would promote communication between the various implementing agencies, administer disbursements, provide advice on procurement, and prepare project progress reports. Training would be provided to the staff of the PCU and other implementing agencies on procurement and disbursements. A detailed Project Implementation Plan has been prepared. The project would be completed in June 2001 and the credit would close on December 31, 2001. 66. The Project Coordinator would be assisted by a project accountant, to be financed from the credit, and support staff. The Government would provide office accommodation. Equipment and a vehicle would be financed from the credit. 67. A mid-term review would take place around two years after effectiveness. It would review progress on implementation of the project and decide what changes, if any, would need to be made for the remainder of the project period. This would include an assessment of the impact of the reform and divestiture program. The Government and IDA would discuss the actions which would need to be taken to mitigate negative impacts. The Government would confirm its plans for the future development of the SOE sector, including for the privatization of the remaining SOEs. The Government and IDA would review the feasibility of establishing a revolving fund which would use a portion of the proceeds from the sale of enterprises to pay all of the fees and expenses of private firms contracted to sell the enterprises. Based on the review of the Government's privatization plans and the feasibility of the revolving fund, a decision would be made on the extent of IDA support required for the remainder of the project. 68. The individual implementing agencies will be responsible for implementing the various project components, as set out in the following table. All of the agencies have previous experience in implementing IDA financed projects. Coordination of project implementation MOF Divestiture DIC, working with sector Ministries on strategic transactions Management of the SOE portfolio MOF and SEC Management of the program to address MESW assisted by DIC labor redundancies Aviation, cocoa and petroleum sectors Sector ministries and MOF 16 69. DIC's capacity to implement the accelerated divestiture program would be strengthened by contracting out the sale of most enterprises to private firms, technical assistance provided by the British ODA, support under the proposed project for training, improved information systems, and a communications strategy. On-going dialogue with stakeholders would be facilitated by the communications strategy and regular assessments of the impact of the program. 70. SEC's implementation capacity has already been established under the PETA project. The project would support the development of a portfolio management capability within the Ministry of Finance, involving the ADMU and in collaboration with the SEC. The capacity of the ADMU will be enhanced by consulting services, training of personnel, and contracting out debt management functions to private financial institutions. 71. The Redeployment Management Secretariat Committee within the Ministry of Employment and Social Welfare, working with DIC, will take the lead in implementing the component to address labor redundancies caused by divestiture. It has experience in dealing with large scale redundancies within the public sector in recent years, in particular within the civil service and cocoa sector. It would form the focal point of support to be provided under the project. 72. Reforms in the aviation, cocoa and petroleum sectors will in general be led by the Ministry of Finance and the relevant sector ministries, with DIC involved as appropriate for privatization of enterprises. More specific implementation arrangements will be specified once the policy direction in each sector has been agreed and an action program prepared for implementation of the agreed policies. Project Costs and Financing Plan 73. The estimated project costs and financing plan are summarized in the following table: Public Enterprise Reform Program 7.40 Privatization Program 27.68 Program Coordination 1.17 Total 36.25 Government 1.64 IDA 26.45 European Development Fund 5.57 British ODA 2.59 Total 36.25 74. A more detailed summary of project costs and financing is set out in Table 1. Detailed schedules in support of the estimates are contained in the Project Implementation Plan. 17 Procurement 75. Consultant services would be procured according to the relevant IDA procedures. Procurement would be carried out by the individual implementing agencies all of whom have prior experience of IDA financed projects, with procurement advice available from the coordination unit within the Ministry of Finance. Draft terms of reference for most of the major consulting contracts to be financed under the Project have already been prepared by the Government. These will be finalized after further discussions with IDA and are available in the project files and in the Project Implementation Plan. IDA's standard forms of consultant contract would be utilized, including a short-form letter for direct contracting of individual consultants for short-term assignments. The procedures and documentation to be employed by DIC in outsourcing the sale of enterprises to private firms have been documented in DICs detailed procedures manual and are consistent with IDA guidelines. Consultant contracts with firms in excess of US$100,000 equivalent and with individuals in excess of US$50,000 equivalent, as well as all contracts subject to sole source procurement, would be subject to IDA's prior review. 76. Goods would be procured as follows: (i) National Competitive Bidding (NCB) for contracts valued at more than US$100,000 and less than US$200,000 (not exceeding US$500,000 in the aggregate), using standard bidding documents approved by IDA; and (ii) for contracts valued at less than US$50,000, through national shopping procedures acceptable to the IDA (not exceeding US$400,000 in the aggregate). It is not anticipated that there will be any contract for goods in excess of US$200,000. In the event that, during project implementation, a contract for goods is expected to exceed US$200,000, ICB will apply, using IDA issued standard bidding documents. Prior review will be mandatory for all ICB and NCB procurement as well as for the first contract through shopping. Disbursements 77. Disbursements will be administered by the PCU. To facilitate project implementation, a Special Account in US dollars would be opened in a commercial bank acceptable to IDA. The authorized allocation would amount to US$500,000 and would cover four months of eligible expenditures. Upon credit effectiveness, US$250,000, representing 50 percent of the authorized allocation, would be deposited into the Special Account. The remaining balance would be made available when needed. The Special Account would be used for all eligible expenditures below US$100,000. 78. A second Special Account would be made available to DIC once new accounting systems have been established to the satisfaction of IDA. The authorized allocation would amount to US$500,000 and would cover four months of eligible expenditures. Upon opening the account, US$250,000, representing 50 percent of the authorized allocation, would be deposited into the Special Account. The remaining balance would be made available when needed. The Special Account would be used for all eligible expenditures below US$100,000. 79. The Special Account(s) would be replenished monthly. Replenishment applications would be fully documented except for: contracts of less than US$100,000 equivalent for goods and consulting services (firms), US$50,000 equivalent for consulting services (individuals), and training and operating costs which may be claimed on the basis of Statements of Expenditure. 18 All supporting documentation would be retained for review by periodic IDA supervision missions and external auditors. 80. Retroactive financing for consulting services and related equipment procured under Bank Guidelines and other expenditure incurred after July 1, 1996 is proposed, up to a limit of US$2.00 million, equivalent to around 10 percent of the proposed amount of the credit. The project is expected to be completed by June 30, 2001. The closing date is December 31, 2001. Accounts, Audit and Reporting 81. The maintenance of records and the preparation of accounts and progress reports will be carried out by the PCU. One full-time official will be responsible for maintenance of records and the preparation of accounts. The project accounts, the special account and the statements of expenditures will be audited each year by independent auditors satisfactory to IDA. The audit report will be provided to IDA within 120 days of the financial year end. Audited financial statements will also be provided to IDA, with auditors acceptable to IDA, by DIC and SEC. Terms of reference for the work of the auditors have been agreed and are available in the project files. 82. In addition to the financial reporting, a full progress report will be prepared and submitted to IDA every quarter. This report will detail all project and related activities, report on progress in relation to agreed schedules, and identify any problems which may have been encountered and which could adversely affect the overall impact of the project. The reports will also provide information against the target performance indicators. Each of the implementing agencies will provide information to the PCU to allow the reports to be prepared in a timely fashion. The format and content of the reports, and the responsibilities of each agency in relation to the report, are detailed in the Project Implementation Plan. 83. The progress reports will monitor progress using a range of performance monitoring indicators. The key indicators are listed in Table 2. For a number of indicators, specific targets have been identified. For others, base line data are not presently available. An early task within the project will be to identify current base lines against which future targets can be determined. 84. Consultants have been engaged under the PETA project to design and implement comprehensive new financial and operational information systems within DIC. The systems designed will allow actual performance against the agreed targets to be measured. The project would provide support to DIC to implement these systems. Independent external auditors acceptable to IDA would be appointed to audit DIC's accounts, include the Divestiture Account. The audited accounts would be published. REPUBLIC OF GHANA PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT KEY PROJECT ACTIVITIES Resp. Target Costs' Main Objective Project Component Expected Output Agency Date (US$'000) Benefits Public Entrpriw Refrm Program Strengthen Determine Government policy Revised Government MOF, with Ql 1997 600 Strengthened monitoring of financial management of for the future development and policy and SEC performance of SOEs in the framework of SOE reform performance of the SOE sector. performance measures clear financial policies would contribute to program. for the future greater accountability and an improved development and basis for decisions by the Government on Develop Assist with the implementation performance of the the future management of the SOE Government of the policy, focusing on SOE sector. portfolio, including the disposition of its capacity to manage financial performance and shares. declining portfolio policy. A portfolio MOF, with On-going 1,048 of loans and management SEC from Q2 investments in capability within 1997 SOEs. MOF, working with SEC, to implement the Policy and revised policy regulatory reform in key sectors. Development of integrated SOE Up to date information SEC Ql 1997 374 Stengthened monitoring and public database to track key on the status and information on SOEs would contribute to operational and financial performance of the improved performance of the public sector performance indicators. SOE portfolio through greater accountability. Improved sector performance, including reductions in subventions and loans to SOEs, would free up scarce fiscal resources for higher Costs include physical and price contingencies, and exclude taxes and duties. CL 1 T P' Resp. Target Costs Main Objective Project Component Expected Output Agency Date (US$'000) Benefits value uses and contribute to macroeconomic stability. Review and improvement of Review of SEC Ql 1997 386 performance contract system. performance contract sYstem. Implementation of From Q2 improved system for 1997 closely monitoring the performance of key enterprises. Public dissemination of Annual report on SOE SEC From Q3 261 information on performance of sector performance. 1996 SOE sector. Publication of audit SOE's reports by SOEs 131 Strengthen information and Installation of SOE MOF Q2 1997 1,297 Improved debt information and collection collections systems for loan and guarantee (ADMU) performance on a portfolio of loans and Government loans and information systems guarantees estimated to exceed $15 guarantees to SOEs in Aid and Debt billion would mobilize resources for the Management Unit in government and place SOEs on a more MOF. commercial footing. Contract out elements MOF From Q2 of the management of (ADMU) 1997 the portfolio to private firms. Consider divestiture MOF Discuss of loan portfolio, as during mid- SOEs are privatized. term review (Q4 1998) Preparation of SOE for Production of business SEC By mid-term 370 Upstream preparation of SOEs for Divestiture profiles of SOEs review (Q4 divestiture would contribute to ability of remaining in 1998) Government to extend the privatization Government program beyond the current list, and to "ai Resp. Target Costs' Main Objective Project Component Expected Output Agency Date (US$'000) Benefits ownership. address possible impediments to divestitures without slowing the overall Identification of pace of privatization. policy issues and impediments to divestiture of SOEs. Recommendations of necessary actions to be taken prior to divestitures, e.g. accounting arrears, title issues, environmental considerations, regulatory issues. Implementation of reformed Training and SEC Annual 348 Conversion of SOEs to limited liability framework for SOEs assistance to SOEs training companies will provide for greater that have converted modules autonomy and accountability during the legal form to limited period they remain under state ownership. liability companies. In conjunction with the strengthened portfolio management capacity, the program would lead to improved financial and operating performance of SOEs. Policy and regulatory reform in Sector policy and MOF, MOA Policy 2,232 This component expands the reform and cocoa, petroleum and aviation regulatory reviews. (Cocoa); reviews privatization program into additional sectors MME complete by strategic sectors, building on the Assistance in (Petroleum) mid-term experience already gained in the financial, implementation of MOTC, review (Q4 mining and telecommunication sectors. It new framework. GCAA 1998). directly supports the implementation of (Aviation), Implemen- reform policies to be agreed between the Assistance to facilitate DIC. tation will Government and IDA under the proposed private participation, commence second Private Sector Adjustment including divestiture. once policy operation planned for IDA FY 1997. reviews are complete. Strengthen SEC capacity Targeted support to SEC From Q3 348 This support will build SEC's capacity to Resp. Target Costs Main Objective Project Component Expected Output Agency Date (US$'000) Benefits SEC in the areas of 1996 implement the components of the project training and for which it is responsible. equipment. Total Cost of Public Fnterprise Reform Program 7,396 Privalpaion Progrum \L,elcratc fcac: ofi Sorc'rigiheli L.Ir-IL it) I [)lt-I0 NILJJ'rIlN II I I I"(-f DI 1ldir 4.128 Remo%al of the s iate from ownership ol privatization, using manage and implement on privatization list to review (Q4 commercial enterprises through improved divestiture program through be divested. 1998) privatization would contribute to an procedures introduction of new divestiture improved climate for private sector procedures, new information Plan for divestiture of Mid-term development by providing greater and financial management majority of remaining review (Q4 opportunities for private investment, systems, staff training, SOEs (approx. 100). 1998) leveling the playing field between public appointment of external and private sectors, and improvement in advisors, and targeted support Divestiture of Project the efficiency and effectiveness of for DIC operations. majority of remaining closing date services, lowering business costs. SOEs. (Q4 2000) Strengthening of DIC's capacity will allow Improved financial Q4 1996 and it to implement the divestiture program, and operational thereafter which is a central part of the information on the Government's PE reform program, using privatization program more efficient and open procedures. for management and Enhanced capacity will also allow DIC to external parties. manage the program of outsourcing the sale of SOEs to private firms. The capacity developed within DIC will be available in the longer term to promote further private sector participation in areas traditionally the preserve of the public sector. Outsource divestitures The majority of new DIC At least 20 12,655 Contracting out would contribute to a two- divestitures, in SOE to three-fold acceleration in the pace of particular medium and divestitures privatization and improvement in the large size enterprises, to be quality of the program through more would be contracted contracted openness using professional and Enhaced apacty wll aso alow IC t extenal artes. anae th proramof otsorcin th saeofSEst piat irs The cpaciy devlope withn DI wil Resp. Target Costs' Main Objective Project Component Expected Output Agency Date (US$'000) Benefits out to private firms. out annually experienced private sector firms, would Disbursements under the project are directly linked to progress on outsourcing. sector capacity in financial and consulting services. Review whether the Mid-term proceeds from the sale review (Q4 By ensuring the not less than 50% of the of enterprises will be 1998) proceeds are based on success fees, sufticient to cover the appropriate incentives are built into the full costs of process to maximize proceeds and outsoureing. minimize the use of scarce IDA resources. Build and sustain Development ard PIC strategy DIC Q3 1996 2,461 An effective public information and public and implementation of two-way communications strategy would strengthen stakeholder support public informnation and Implementation of Ongoing public support for the divestiture program; and investor coimunications (PlC) strategy PIC strategy from Q3, improve the effectiveness of the program confidence. with by reaching relevant investors and particular providing feedback; and leverage the emphasis on impact of the program through the early communications with the broader investor years (1996 community. and 1997) Impact assessment Ongoing (Q4 The periodic participatory impact 1996; Q4 assessments will allow the negative 1998; Q4 impacts of the program to be identified 2000) and remedial action taken. Increase Review of options to promote Consulting study to DIC Q4 1996 Included in Diversification of ownership of divested participation by local involvement, identify options cost of DIC enterprises within Ghana would contribute Ghanaians in support to stronger public support for investment Implementation of selected Implementation of Ongoing privatization, the development of opportunities options, including the use of the identified options to from Q4 Ghanaian financial markets, the created by privatization trust. facilitate 1996 development of the private sector in the divestiture diversification of country, and would mobilize local ownership of investment resources. privatized enterprises.communicationsstra by ~ ~ ~ ~ ~ ~ v recigreeativetr n Resp. Target Costs Main Objective Project Component Expected Output Agency Date (US$'000) Benefits Strengthen Policy review. Quantification of MESW, Q3 1996 7,139 Strengthened and clarified framework for management of dimensions of affected DIC addressing labor issues would contribute issue of labor Development and labor and associated to the acceleration ofprivatization by redundancies implementation of labor liabilities. enabling the Government to plan to meet arising from redundancy program. redundancy costs- providing workers with divestiture Policy statement. Q4 1996 greater confidence that obligations to them will be met; and providing investors with Action plan to put in Q4 1996 confidence that SOEs will be transferred place new with a clean slate in a sound labor institutional relations context. framework. Retraining (including tools) will reduce Implementation, On-going hardship of redundancies and the including retraining from QI economic costs of unemployment (initial and redeployment 1997 rough estimates are that up to 40,000 scheme, building on workers may be affected), increasing the model successfully productivity. used in the cocoa sector. Total Cost of Privatization Program 27,683 ____________________________Program Coordinaan Coordination of the Planning, review and Establishment and MOF From Q2 1,176 [he PCUi would coordinate the overall public monitoring the work of the administration of a 1996 implementation of a complex and wide- enterprise reform multiple agencies involved in Project Coordination ranging reform program which involves and privatization the overall program Unit in the MOF. multiple agencies and coordinate program implementation of the project. It would Monitoring and also provide feedback through regular evaluation of program monitoring and evaluation of the program implementation. to ensure that the objectives are being met. Total Cost of Program Coordination 1,176 Total Project Cost 36,255 rr Con overll pbli montorng te wrk o th entepris refrm ultile aences ivolvd i Schedule 2 Page 1 of 2 REPUBLIC OF GHANA PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT TRAINING PLAN 1. The majority of the training to be supported under the project (US$ 6.7 million out of a total of US$ 7.8 million) would be in support of the redeployment of workers made redundant as a result of privatization. The detailed training plan for this component will be developed following completion of the review of the Government's policy for addressing labor redundancies in the public sector, and the preparation of estimates of the numbers of employees likely to be affected and the associated costs. The periodic impact assessments of the program will include a review of the effectiveness of training provided. 2. The following principles have been adopted in determining the training to be provided to implementing agencies under the proposed project: (a) The program has a finite life. DIC and the PCU are expected to be disbanded at the end of the project, while SEC will have a much smaller role, consistent with the reduced role of the state in commercial activities. (b) There is a strong focus in the project design on utilizing local private sector firms to carry out tasks which have previously been carried out in-house by implementing agencies. Examples of this are the outsourcing of divestiture by DIC, more extensive use of external public relations consultants, and the use of private financial institutions to assist with the management of the SOE loan and guarantee portfolio. (c) Nevertheless, it is important that the implementing agencies carry out their roles effectively over the period, and thus appropriate job-focussed training of key personnel is targetted to be supported under the project. (d) Training for individuals involving extended absence (more than 3 months) from duty will not be supported 3. The PCU will submit to IDA six monthly training plans, setting out details of proposed training during the following six month period within each implementing agency, with details of the individuals, training activity, relevance to work program and the project, timing, and cost. Schedule 2 Page 2 of 2 4. The training program for the implementing agencies is summarized in the following table: DIC 377,000 Annual training for DIC professional personnel (approx. 10) in latest trends and techniques in privatization, with appropriate mix of local and foreign training Ministry of Finance 348,000 Training associated with the establishment of portfolio management capacity; for ADMU staff involved in management of loans and guarantees, and for Project Coordinator SEC 421,000 Annual training of SEC professional personnel (approx. 8) in activities related to SOE policy, trends, and monitoring techniques. Training for managers of SOEs in transition to new governance structure associated with conversion to limited liability companies. Total 1,146,000 1_1 REPUBLIC OF GHANA Public Enterprise and Privatization Technical Assistance Project Summary of Cost Estimates and Financing Plan All amounts in US$ equivalent Estimates include physical and price contingencies and exclude taxes and duties Costs Financing Local Foreign Total GOG IDA EDF ODA Total Public Enterprise Reform Program Management of the SOE Portfolio - review of poticv on SOE sector 140.269 459,547 599.816 0 599,816 0 0 599,816 - implementation of revised policy 359,085 689.341 1,048.426 0 1,048,426 0 0 1,048,426 - monitoring, performance assessment and reporting 701,767 450,167 1,151,934 0 1,151,934 0 0 1.151,934 - support for the management of SOF debt 535,032 761,772 1,296,804 71.194 1,225,610 0 0 1,296,804 - sub-total 1,736,153 2,360,827 4,096,980 71,194 4,025,786 0 0 4,096,980 Preparation for privatization 370,034 0 370,034 0 370,034 0 0 370,034 Framework strengthening and reform of key sectors 764,677 1,815,851 2,580,528 0 2.580,528 0 0 2,580,528 Strengthening of SEC capacity 108.109 239.920 348,029 0 348.029 0 0 348,029 Total 2,978,973 4,416.598 7,395,571 71,194 7,324,377 0 0 7,395,571 Privatization Program Public Information and Communications Strategy 1,607.802 853.052 2.460,854 0 2,460,854 0 0 2,460,854 Privatization of SOFs - outsourcing 4.507.005 8.147.995 12,655,000 201,261 12,453.739 0 0 12,655,000 Support for labor redundancies 962,490 6,176,756 7,139,246 0 1.569.372 5.569.874 0 7,139,246 Strenghtcning DIC capacity - technical assistance 0 2.517.201 2,517,201 0 208,928 0 2,308,273 2,517,201 - consulting studies 248,597 455,425 704,022 0 704,022 0 0 704,022 - taining 91,152 286,267 377,419 0 188,710 0 188,710 377,420 - vehicles and equipment 0 234,140 234,140 0 140,484 0 93,656 234,140 - operating costs 1,595,166 0 1,595,166 1,367,284 227,881 0 0 1,595,165 - sub-total 1,934.915 3,493,033 5,427,948 1,367,284 1,470,025 0 2,590,639 5,427,948 Total 9,012,212 18,670,836 27,683,048 1,568,545 17,953,990 5,569,874 2,590,639 27,683,048 Program Coordination Consulting studies 151,920 119.278 271,198 0 271,198 0 0 271,198 Impact assessment 151,920 178,917 330,837 0 330,837 0 0 330,837 Vehicles and equipment 0 85,052 85,052 0 85,052 0 0 85,052 Training 18,990 44,729 63,719 0 63,719 0 0 63,719 55= Operating costs 425,378 0 425,378 0 425.378 0 0 425,378 Total 748,208 427,976 1,176,184 0 1,176,184 0 0 1,176,184 Grand Total 12,739,393 23,515,410 36,254,803 1,639,739 26,454,551 5,569,874 2,590,639 36,254,803 Table 2 Page 1 of 2 REPUBLIC OF GHANA PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT Key Performance Indicators Project Performance Performance Component Indicator Present Position Target Public Number and percentage Total of around 334 SOEs in 1987 To be determined in Q4 1996 once Enterprise of each type of of which around 100 have deen SEC has prepared an udated SOE Reform enterprise, and number divested. Split between various data base and an updated classified of conversions to types ofenterprises not known. 21 inventory. limited liability enterprises recently converted companies. from corporations to limited liabilitiy companies. Number and percentage Most considered to be liable. 100% of SOEs to be liable to taxation of SOEs liable to although it is possible that some by 1997. taxation. may not be. Level of sUbventions Direct subventions stated to be Confirm that direct subventions are from Government to zero. zero, and continue at that level. SOEs Profitability of SOEs. Monitored for 47 SOEs for which (a) Results of SOEs to be performance contracts exist. aggregated, monitored and published, Dividend payments to However, results not aggregated. commencing 1997. Govt. (b) All SOEs to publish audited accounts, commencing with 1996 accounts. (c) Govt. to establish profitability targets and dividend policy for SOEs as part of portfolio management function in MOF, starting 1997. Arrears on debt Roughly 50% of a $1 billion loan (a) Accounts and management repayments to Govt portfolio estimated by SEC to be information systems on the portfolio non-performing as at end 1994. to be in place by ADMU by Q2 1997. (b) Non-performing loans to be written off or restructured by Q2 1997. (c) Arrears on portfolio to be recorded, published and followed up from Q3 1997. New loans (including Not applicable To be included in management of the on-lending from overall portfolio of loans to SOEs Government) referred to above. Liabilities of SOEs Estimated by SEC to be $284 (a) Existing level of guarantees to be guaranteed by Govt. million at end 1994 confirmed. (b) System for monitoring and enforcing to be developed as part of portfolio management function. System to include all government loans and guarantees, not just those to SOEs. (c) More specific targets to be agreed by Q2 1997. Table 2 Page 2 of 2 Project Performance Performance Component Indicator Present Position Target Audited accounts of Presently monitored by SEC, but (a) All SOEs to be reqUired to SOEs received by aggregate statistics not available. publish annual audit report. Government within 6 Experience appears patchy. commencing with 1996 accounts. months of FY end. (b) Aggregate statistics on perforniance of the SOE sector to be Percentage of audit prepared by SEC annually. s!arting Employment levels Not known To be monitored by SEC. No specific target to be set. Will assist in managing redundant labor program Number of enterprises Around 100 out of 334 SOEs have (a) At least 48 of the 114 to be sol d divested (by small. been divested. A further 14 have by March 1997 of which at least 24 medium and large. and been listed for sale. Government should be medium size. by mode of divestiture) intends to continue with the m At least 3 out of 4 named program once the 114 have been strategic enterprises to be offered for sold. sale by. March 1997. (c) Retnainder of' 114 expected te Le sold by mid-tem r(view (d) Specific target anr remainder of enterprises, amounting to not less than 75% oif the remainder by value. to be agreed during mid-term revieh. No. of divestitures Outsourcing only now getting Expected to be in the range of 25 per outsourced. under way. Selection of first hv annum over the life of the project has commenced. Procedures have with over 75% of edium- and large- been adopted and publish, d sized being disourced. Net proceeds on Existing accounting systems (a) DIC's new accounting systems to divestiture inadequate to record this be operational by Q4 1996. tnformation adequately. (b) DIC to produce quarterly Consultants have been appointed financial and operational reports to to design new accounting and allow this area to be monitored. tnformation systems. (c) Specific targets to be set for DIC each year. commencing 1997. Level of deferred Existing accounting systems (a) To be monitored using new payments, and arrears inadequate to record this accounting systems. arising under deferred information adequately. Arrears (b) Specific targels to be agreed by payment arrangements exist, but extent is unknown, end 1996 once existing situation has been quantified. Average time taken to Not presently monitored Specific target to be agreed by 3 divest enterprises Considered to be to long in 1997. and monitored thereafter. general, with some transactions taking several years. Outsourcing (s expected to improve the situation.   .0 1 z z E- -E-