Rwanda - Public Enterprise Reform Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16406 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF RWANDA PUBLIC ENTERPRISE REFORM PROJECT (Credit 2113-RW) MARCH 26, 1997 Private Sector and Finance Technical Group Africa Region 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 Currency Unit Rwanda Franc (RwF) US$1.00 RwF 298.6233 (July 15, 1996) SDR 1 US$ 1.44358 ANNUAL AVERAGE Year USS1= 1988 RwF 77 1989 RwF 80 1990 RwF 83 1991 RwF 125 1992 RwF 132 1993 RwF 144 1994 RwF 134 1995 RwF 260 SYSTEM OF WEIGHTS AND MEASURES Metric US Equivalent I meter (m) 3.28 feet (ft) I hectare (ha) 2.47 acres (a) FISCAL YEAR OF BORROWER January I - December 31 ABBREVIATIONS AND ACRONYMS AMIRWANDA Agence Maritime Internationale au Rwanda BACAR Banque Continentale Africaine du Rwanda BCR Boucherie-Charcuterie du Rwanda BNR Banque Nationale du Rwanda BRALIWA Brasseries et Limonaderies du Rwanda BRD Banque Rwandaise de Developpement BUNEP Bureau National d'Etudes de Projets CCO Centrale Comptable et Organisation CIC Comite Interministeriel de Coordination CID Credit Intercommunal de Developpement CIMERWA Ciments du Rwanda aVice President :Callisto kladavo Director :Nils Tchevani Maniager :Thomas Allen Staff Menmber :Henmlinia NMartinez  FOR OFFICIAL USE ONLY CRHT Compagnie Rwandaise d'H6tellerie et du Tourisme CSR Caisse Sociale du Rwanda EEC European Economic Community ELECTROGAZ Etablissement Public de Production de Transport et de Distribution de l'Eau, d'Electricite et de Gaz ETIRU Etablissement Industriel du Rwanda FSG Fonds Special Garantie Bancaire IDA International Development Association IMF International Monetary Fund INR Imprimerie Nationale du Rwanda ISAR Institute of Agricultural Research ISFP Institut Superieur des Finances Publiques LABOPHAR Laboratoire Pharmaceutique du Rwanda MAGERWA Magasins Generaux du Rwanda OCIR-CAFE Office des Cultures Industrielles du Rwanda-Cafe OCIR-THE Office des Cultures Industrielles du Rwanda-The ONATRACOM Office National des Transports en Commun OPROVIA Office de Developpement et Commercialisation des Produits Vivriers et Animaux OPYRWA Office du Pyrethre du Rwanda ORTPN Office Rwandais du Tourisme et des Parcs Nationaux OVAPAM Office de la Valorisation Pastorale et Agricole du Mutara OVIBAR Office de Valorisation Industrielle des Bananeraies du Rwanda PE Public Enterprise PETRORWANDA Societe Rwandaise d'Entreposage et de Distribution de Produits Petroliers REDEMI Regie des Mines du Rwanda RWANDATEL Rwanda Telecommunications RWANTEXCP Rwandese Textile Company SN Societe Nationale SOMIRWA Societe Miniere du Rwanda SONARWA Societe Nationale d'Assurance du Rwanda SONAFRUITS Societe Nationale de Traitement de Fruits SONATUBES Societe Nationale des Tubes SOPAB Soci6te de Productions d'Aliments pour Betail SORWAL Societe Rwandaise des Allumettes SORWATHE Societe Rwandaise pour la Production et Commercialisation du The STIR Societe des Transports Internationaux du Rwanda ZAIRE-NIL Projet Crete Zaire-Nil (minoterie, menuiserie) 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.  CSR Caisse Sociale du Rwanda EEC European Economic Community ELECTROGAZ Etablissement Public de Production de Transport et de Distribution de l'Eau, d'Electricite et de Gaz ETIRU Etablissement Industriel du Rwanda FSG Fonds Special Garantie Bancaire IDA International Development Association IMF International Monetary Fund INR Imprimerie Nationale du Rwanda ISAR Institute of Agricultural Research ISFP Institut Superieur des Finances Publiques LABOPHAR Laboratoire Pharmaceutique du Rwanda MAGERWA Magasins Generaux du Rwanda OCIR-CAFE Office des Cultures Industrielles du Rwanda-Cafe OCIR-THE Office des Cultures Industrielles du Rwanda-The ONATRACOM Office National des Transports en Commun OPROVIA Office de Developpement et Commercialisation des Produits Vivriers et Animaux OPYRWA Office du Pyrethre du R. .'anda ORTPN Office Rwandais du Tourisme et des Parcs Nationaux OVAPAM Office de la Valorisation Pastorale et Agricole du Mutara OVIBAR Office de Valorisation Industrielle des Bananeraies du Rwanda PE Public Enterprise PETRORWANDA Societe Rwandaise d'Entreposage et de Distribution de Produits Petroliers REDEMI Regie des Mines du Rwanda RWANDATEL Rwanda Telecommunications RWANTEXCP Rwandese Textile Company SN Societe Nationale SOMIRWA Societe Miniere du Rwanda SONARWA Societe Nationale d'Assurance du Rwanda SONAFRUITS Societe Nationale de Traitement de Fruits SONATUBES Societe Nationale des Tubes SOPAB Societe de Productions d'Aliments pour Betail SORWAL Societe Rwandaise des Allumettes SORWATHE Societe Rwandaise pour la Production et Commercialisation du ThM STIR Societe des Transports Internationaux du Rwanda ZAIRE-NIL Projet Crete Zaire-Nil (minoterie, menuiserie)  IMPLEMENTATION COMPLETION REPORT RWANDA PUBLIC ENTERPRISE REFORM PROJECT (Credit 2113-RW) TABLE OF CONTENTS Page No. Preface Evaluation Summary ....................................... i-v Part I - Projet Implementation Assessment ........................................1 Introduction ........................................1 1. Project Objectives and Design ........................................2 2. Achievement of Project Objectives ........................................3 Institutional and Legal Framework ........................................3 The PE Reform Program ........................................4 Support to the Directorate of Public Enterprises ........................................5 3. Major Factors Affecting the Project ........................................5 4. Project Sustainability ........................................6 5. Bank Performance .........................................7 6. Borrower Performance .........................................7 7. Assessment of Outcome .........................................8 8. Future Operations .........................................8 9. Key Lessons Learned .........................................9 Part II - Statistical Annexes Table 1: Summary of Assessments Table 2: Related Bank Credits Table 3: Project Timetable Table 4: Credit Disbursements Table 5: Key Indicators for Project Implementation Table 6: Studies Included in Project Table 7A: Project Costs Table 7B: Project Financing Table 8: Status of Legal Covenants Table 9: Compliance with Opeational Manual Statements Table 10 Bank Resources: Staff Inputs Table 11: Bank Resources: Missions Appendix: Borrower's Contribution: Ministry of Finance   IMPLEMENTATION COMPLETION REPORT RWANDA PUBLIC ENTERPRISE REFORM PROJECT (Credit 2113-RW) PREFACE This is the Implementation Completion Report (ICR) for the Public Enterprise Reform Project in Rwanda, for which Credit 2113-RW in the amount of SDR 3.4 million (US$4.9 million equivalent) was approved on March 27, 1990, and made effective on February 28, 1991. The Credit was closed on April 15, 1996, 15 months and a half after the original closing date. Final disbursement took place on July 26, 1996, and a balance of SDR 1,620,963 (US$2,327,103 equivalent) remained in the account and was canceled on December 30, 1996. IDA and the Government were the sole financiers of the project. Given the civil war and related social and economic unrest, it was in fact impossible for the project to succeed; it has succeeded, however, in putting the reform agenda on the front burner and the reconstructed data base is a very useful instrument for future privatization work. The Borrower's contribution to the ICR is in the appendix of this report, together with an unofficial summary in English. The ICR was prepared by Chau Duong of the Africa Private Sector and Finance Technical Group (AFTPI). It was reviewed by Herminia Martinez, Principal Operations Officer (AFTP1) and by P. Hari Prasad, Lead Specialist (AFTS2). Preparation of this ICR was started in July 1996. It is based on existing material in the project file and discussions with the last Task Manager of the project (Mr. Yves Terracol).   IMPLEMENTATION COMPLETION REPORT RWANDA PUBLIC ENTERPRISE REFORM PROJECT (Credit 2113-RW) EVALUATION SUMMARY 1. Background. In 1988, the poor performance of Rwanda's large public sector and its heavy drain on public finances was recognized as one of the main factors contributing to the Government's budgetary problem. Other problems affecting the economy included a combination of weakening coffee prices, the impact of oil price hikes and inappropriate macroeconomic policies. The Public Enterprise Reform Project (PERP) (US$4.9 million) was approved by IDA's Board on March 27, 1990, declared effective on February 28, 1991, and closed on April 15, 1996. The project was directed toward a rationalization and restructuring of public enterprises in an effort to stimulate economic growth. The project's components aimed to: (a) formulate a policy reform package (including reforms in the institutional and legal framework) covering the whole public enterprise (PE) sector; (b) increase the sector's efficiency through rehabilitation of viable enterprises, divestiture of those which could be privatized and liquidation of non- viable ones; and (c) develop the national capacity to design, implement and monitor PE reforms. 2. Evaluation of Objectives. The project's objectives were appropriate given the state of the country's deteriorating economy in 1990 and the Government's desire to restore it to its pre-1980s competitiveness. Improving the efficiency of resource use by the PE sector was a key element of financial equilibrium and growth. The operation was part of Government's approach of addressing sectoral adjustment issues, while seeking to reach consensus on structural macroeconomic adjustment. It was timely in addressing issues facing public enterprises before the latter reached crisis proportion. Rehabilitation, as opposed to divestiture, of the enterprises that constituted the heaviest drain on the Government's budget was the dominant objective of the project and the prevailing theme at the time. 3. Implementation, however, proved to be excessively slow and the Directorate of Public Enterprises (DEP, the project executing unit in the Finance Ministry) staff were not up to the task at hand. The adoption of a new legal framework for PEs and the approval by the Government of a detailed privatization strategy suffered significant technical delays. The initial study completed during preparation turned out to be incomplete and not fully accurate. The poor management of PEs and their deficient accounting systems made the initial analysis difficult. The project technical assistance  - ii - team undertook an exhaustive review and came up with a situation more dismal than expected: half of the enterprises in the portfolio were losing money, while the other half were badly managed. The PE managers, threatened by impending reforms and emboldened by delays in the passing of the PE law and the adoption of a privatization strategy, resisted restructuring/privatization initiatives. 4. Recognizing that PE restructuring under those circumstances was doomed to failure, the Government agreed in July 1993 to restructure the project. After the mid-term review, PERP's objectives were thus redirected with primary emphasis put on privatization and the scope of intervention expanded (86 PEs as opposed to 62). These objectives remained unchanged until project closing. Key actions, however, were rescheduled on several occasions to take changing conditions into account: (a) implementation was interrupted for almost a year due to the civil war of 1994; (b) PEs had been damaged or destroyed; (c) a majority of the labor force had been killed or had fled the country; (d) the technical team lost all its members except the national coordinator; and (e) the PE and privatization laws that were to serve as basis for the reform program could not be passed and adopted. 5. Achievement of Objectives. Sector policy and institutional development objectives were modest. The project was aimed at supporting the design and adoption of legislation on public enterprises and a general privatization strategy. The PE law prepared by the project team in conjunction with DEP staff was approved by the Council of Government in July 1993, over two years behind schedule, but was rejected by the Constitutional Court in December 1993 because some minor clauses did not conform with the Arusha Peace Accord of August 1993. The PE law, subsequently amended, had not been resubmitted to the National Assembly when the project closed in April 1996. On the other hand, the privatization law which evolved from the original concept of a privatization strategy, was passed in March 1996. The Bank found the text of the law ill- conceived and non-supportive of the reform process. It did not define the basic principles underlying the privatization process, nor the institutional and legal framework for privatization. Institutional arrangements were awkward and could lead to internal inconsistency and confusion. Overall sector administration and management of PEs remained weak and uncoordinated throughout the life of the project. An inventory of tangible achievements yields little; the one liquidation and four privatizations of small enterprises without statutes have had practically no social or economic impact on the Rwandese economy. 6. Major Factors Affecting the Project. Several factors contributed to the lack of success in project implementation. The most important one is rooted in politics and caused by pervasive ethnic tension that divided the country and wrought havoc in all areas of activity. Other factors that interfered in PERP implementation were technical. First, the real status of the PE portfolio was not fully known during project preparation, which led to incomplete information and initial emphasis on restructuring. Second, because of scarce national expertise, the project spent substantial time at start-up on staffing and training. Third, there was a lack of understanding of the need and objectives  - iii - of the reform program by the public. Fourth, the project was placed under the purview of the Minister of Finance but was constrained by lack of incentives, equipment, expertise and autonomy. It might have been more effective had it been given more authority. In the context of an explosive political situation, low national capacity, opposition by affected PE managers and workers, the project did not benefit from an environment that could bring it to successful completion. 7. Project Sustainability. Achievements under the project are modest and their sustainability is unlikely. The work completed by the project team can be found in the data base on most PEs in the portfolio, progress reports, notes on meetings and encounters with officials and PE managers, and some modest training to the national technical assistance on the techniques of privatization. In using primarily local TA, the project could have contributed to human resource development and expanding local technical expertise, at least within the country, if not the administration; the progress would therefore be modestly sustainable in relation to the resources used. Unfortunately, most of the trained staff have either died or left the country. The data base on the target PEs, however, still provides a good resource for any follow-up project. This is particularly useful as Rwanda's public and private sectors lost most of their pre-1994 records after the upheaval. 8. Bank's Performance. The Bank provided adequate financial and technical support in preparing the project. It had accurately assessed the needs the project would provide the Government. However, it could have been more flexible early on in the privatization process when difficulties became already apparent As such, Bank staff were in a position which they could do little to improve given the highly unfavorable political events throughout implementation. The problem lay in reducing the risk incurred by the Government to a politically acceptable level, while leaving it in a position to achieve a successful privatization program, a difficult undertaking in the volatile Rwandese context. Bank staff pulled together resources to help the Government during the critical post-war time when all members of the project team had either been killed or fled the country except one, and all project files destroyed. It was urgent to quickly reconstitute the team and provide them with necessary tools to resume the work program. In that respect, the project team worked painstakingly to complete a minimum action plan in a limited timeframe. To help Govermnent officials make informed decisions on privatizations, Bank staff organized in May 1996 a seminar to acquaint them with the objectives of a privatization program and the benefits its successful implementation could bring. 9. Borrower's Performance. The Government's performance was satisfactory during preparation in 1989 and 1990. Its decision to form three working groups to analyze the legal and institutional framework, assess the economic and financial viability of target enterprises, and analyze the impact of policies on the performance of PEs indicated its commitment to reforms. Performance during implementation, however, turned out to be poor. DEP staff's capacity and commitment did not come up to expectations. Counterpart funds were not released on time. The Special Account was misused resulting in temporary suspension and reimbursements. The Arusha Accord of  - iv- 1993 made it difficult for the PE law to be passed because of some minor inconsistencies and thus, the reform program focusing on PE rehabilitation could not be implemented. Outside the project, second tranche conditionality on the SAC relating to PE reform was not met. The growing resistance to structural adjustment spilled over into the PE sector. From mid-term review in May 1993 to project closing, the Government's initial commitment to the PERP waned. The passing of a privatization law that was fundamentally unsatisfactory in fact led the Bank to conclude that no purpose would be served by extending the closing date. 10. Assessment of Outcome. Most of the agenda is still unfinished, as regards PE reform, divestiture and training with a strategic focus. Based on the fact that: (a) the institutional development objective of the project was only marginally achieved; and (b) the activities planned, although largely carried out (financial and operational studies of PEs, preparation of legal statutes for each enterprise depending on recommended actions), did not succeed in cleaning up the portfolio, the project's outcome is rated unsatisfactory. It must be recognized, however, that the project had made two important contributions: (a) it had brought the PE issue to the forefront of the reform agenda, especially through the May 1996 dissemination effort; and (b) it left behind a data base of information on PEs, a non-negligible accomplishment given the country's devastation. 11. Summary of Findings, Future Operations and Key Lessons Learned. The key lesson derived from the PERP is that the decision to reform the public enterprise sector is first and fundamentally political, regardless of the economic and financial pressure that may have prompted consideration of the move. The 1994 war and the political unrest that preceded and followed it, and resistance by interest groups in both the public and private sectors, constituted the main reasons for project failure. This might have been mitigated, had the passing and adoption of the PE law been required as an upfront action, if not feasible under the PERP, then under the 1990 SAC, to show the Government's commitment. The PERP's experience also highlights the fact that a successful reform program depends heavily on the broader political economic context within which it is carried out. To be effective, the project should have been executed in a proper macro- and socio-economic environment and should have received widespread political and social support. 12. The PERP's experience gives some other lessons that can be found in projects of the same nature. It highlights the need for preparing Government officials and national key decision-makers involved in the PE reform process, and sensitizing the public at large. Without this public information campaign and the widespread support, success is improbable. The experience also indicates that for a project to be effective, a team must be specifically established to deal with details of the various processes (restructuring, privatization, liquidation); ministries are not normally geared to do so. Civil servants are unable to devote their entire energies to the job. Finally, Government officials need to receive adequate training in privatization to help them select consultants, supervise the reform process and make appropriate decisions.  . v - 13. In conclusion, despite efforts from some motivated Government officials, the project technical team, and Bank staff involved in the project, the PERP has to be rated unsatisfactory and indeed, in the circumstances, any other outcome was most unlikely. However, achievements under the project can help underpin future reforms. The Government is now aware of the issues it must address, and all the difficulties it must face to implement a PE reform program. A data base on the portfolio has been established that will help Government officials continue PERP's efforts, whether with the assistance of the Bank or another donor. Successful PE reforms in Rwanda depend largely on the active pursuit of a policy of national reconciliation and peace.  I I .  IMPLEMENTATION COMPLETION REPORT RWANDA PUBLIC ENTERPRISE REFORM PROJECT (Credit 2113-RW) PART I: PROJECT IMPLEMENTATION ASSESSMENT Introduction 1. Rwanda is a small, resource-poor and landlocked country in Central Africa which has suffered ethnic conflict for many years. Its population has been growing at an average of 3 percent per annum since 1980, and its GDP per capita was estimated at US$200 in 1993, among the lowest of the continent. Half of GDP comes from the agricultural sector; coffee and tea make up 80-90 per cent of total exports. However, the amount of fertile land is limited. The industrial sector is small, contributing only 17 per cent to GPD. Manufacturing focuses mainly on the processing of agricultural products. The Rwandese economy remains dependent on coffee/tea exports and foreign assistance. In the 1960s and 1970s, Rwanda achieved sustained growth in per capita income thanks to prudent economic management, increased agricultural output and generous external assistance. Weak international prices since 1986 caused the economy to contract and per capita GDP to decline. The time had come for the Government to face the issue of what to do with the inefficient public enterprise sector to reduce its burden on the budget and promote economic efficiency. 2. In 1988, the Government officially requested assistance from IDA to undertake a reform program in the PE sector but stressed that it was still seeking internal consensus on macroeconomic adjustment. The PERP was a credit of US$4.9 million granted to this effect in March 1990. It was envisaged that it would become effective in June of the same year. However, effectiveness came about eight months later as a result of delays in expected measures that were to be put in place. The project adopted a comprehensive approach to improve the institutional and legal framework affecting all public enterprises and sought to strengthen measures being taken by other IDA projects to improve the operations of key public enterprises in various sectors such as education, energy, infrastructure, and telecommunications. 3. At about the same time, the Government embarked on a reform program supported by an IDA structural adjustment credit (SAC), approved in FY91, and a Structural Adjustment Facility arrangement with the IMF. The Government implemented most of the agreed structural reforms, but the macroeconomic framework was thrown off course due to civil conflict in 1991, causing unsustainable fiscal deficits occasioned by increased military outlays. The Arusha Peace Accord in August 1993 temporarily ended  Rwanda Public Enterprise Reform Proiect - 2 - Implementation Completion Report most of the fighting, but the civil war of April 1994 was devastating and severely affected short-term economic prospects, although the new Government continued to endorse the reform program. 1. PROJECT OBJECTIVES AND DESIGN 4. As stated in the SAR, the project aimed at helping the Government to: (a) redefine its role in the PE sector and formulate principles for future interventions in new enterprises; (b) improve the institutional and legal framework for PEs; (c) increase the efficiency of the sector through rehabilitation of those enterprises that could be made economically viable, divestiture of those which could be privatized, and liquidation of non-viable ones; and (d) develop national capacity to design, implement and monitor PE reforms. These objectives were relevant as the PERP was seen as an instrument for improving resource allocation within the economy through a program of restructuring and privatization. The goals of the PERP were expressed in specific monitorable measures linked to a timetable. The prevailing mood within the Government and the Bank was to restructure enterprises within the public sector. 5. The PERP financed the following components: (a) technical assistance and equipment to: (i) revise public enterprise legislation; (ii) help develop and implement restructuring plans for viable enterprises; (iii) assist in the liquidation of non-viable enterprises and in the design and implementation of the Government's privatization strategy; (iv) strengthen the Finance Ministry which is responsible for overall supervision of PE performance; and (b) training of PE managers, Finance Ministry staff and other ministries' staff involved in PE reform. 6. The project, as designed, appeared justified. However, slow project implementation from the beginning pointed to some shortcomings. First, the two preconditions for effective and comprehensive PE reform: (a) the adoption of a new legal framework for PEs and (b) the approval by the Government of a detailed privatization strategy suffered significant technical delays. Second, because the monitoring of PEs was weak, it was not possible to obtain sufficient detailed knowledge of their management, financial and technical state during preparation. This led to the establishment of an action plan that was not easily implementable. Third, in the absence of a widespread information campaign that would point out the advantages of reforming the PEs as a solution to some of the pressing financial problems of the country, there was little way to mitigate resistance from public and private interest groups. 7. In early 1993, three years after Board approval, the institutional and legal framework had not been put in place. At that time, the Bank considered cancellation of the credit because of this fundamental stumbling block. It eventually opted instead for a reorientation of the project. The reasons underlying this decision were as follows: since 1990, the Government had instituted a structural adjustment program and had brought about fundamental changes in its development strategy, which included promoting the  Rwanda Public Enterprise Reform Proiect - 3 - Implementation Completion Report private sector and disengagement. It was therefore agreed with the Government that the project would maintain its original objectives but would be reoriented to reflect the emphasis on privatization, as opposed to restructuring, taking into account the shortage of public funds and current national priorities. An exhaustive study accounted for 86 PEs (compared to 62 during project preparation), 60 of which were recommended for privatization or liquidation within five years. The project objectives became even more relevant after April 1994, because in the aftermath of the war, many PEs had stopped their activities. Restarting them would have required substantial funds which were not available. 2. ACHIEVEMENT OF PROJECT OBJECTIVES 8. Major objectives of the PERP have not been achieved. At project closing, the role of the Government in the public enterprise sector had not been clearly established. The PE law had not been passed, while the privatization law was found to be ill-conceived and non-supportive of the reform process. The portfolio had further deteriorated without any meaningful reorganization. Training for DEP staff and PE managers was largely neglected. 9. Two reasons explain the slow progress. First and most importantly, the Government's political readiness for privatization was weak, which led to slippage in the passing and adoption of the two basic laws. Second, before as after the 1994 events, there existed strong opposition from interest groups, while supporters of reforms were in a minority. Institutional and Legal Framework 10. The draft PE law, prepared by the project team, was discussed extensively and eventually passed by the National Development Council in July 1993. It was, however, rejected by the Constitutional Court in December 1993 for lack of consistency of some minor clauses with the Arusha Peace Accord of August 1993. It was the Accord that regulated legislation during the transitional period. The clause in the PE law on the nomination of managers of PEs and its council of administration was found inconsistent with the Arusha Accord and required amendment. It was simply a minor amendment that did not affect in any way the substance of the law. However, at project closing, the amended law had not yet been submitted to the transitional National Assembly. Adoption of this basic legal text was key to project progress. 11. The privatization strategy, also prepared by the project team before the war of 1994 and adjusted in February 1995 to reflect the post-war conditions, had been discussed in the Council of Government. The strategy clearly defined the decision of the Government to withdraw from the business sphere, identified the institutions that would be responsible for implementing the privatization process, and described the mechanisms to be used. The Government had wished to make it a law which would govern all  Rwanda Public Enterprise Reform Project - 4 - Implementation Completion Report privatization transactions. The transitional National Assembly had shortened and amended the proposed law and passed it in December 1995. The text, which was modified without consultation with the project team, was approved by the Constitutional Court and promulgated in March 1996. 12. The Bank found the privatization law ill-suited to the reform process. It did not define the basic principles underlying the privatization process nor the institutional and legal framework for privatization and was inconsistent in its institutional arrangements. While the Finance Ministry was in charge of PE privatization, it would not maintain its financial supervisory role. The law created a National Privatization Committee to be established by Presidential Decree, but did not determine its scope of action. The Bank, which had not been consulted on the text of the amended law, had advised the Government to supplement it with a Policy on National Privatization. This document would clearly identify the agencies to be responsible for the privatization process, for studies, and for implementation. It would also specify the acceptable forms of privatization (complete or partial divestiture, management contracting, leasing, or concession), procedures on selection of bids, control measures and reporting requirements for the above agencies. Adoption of an appropriate privatization law is essential to start the privatization process and the law must be clear and detailed enough to avoid misunderstandings. The PE Reform Program 13. At the start of implementation, there was no clear direction on how to approach the portfolio, either by complexity of cases or by size of enterprise. It was proposed that the project team would address as a priority, cases of enterprises with few problems and where only simple legal adjustments were required, that is, enterprises where the Government held an equity share and could easily withdraw by simple ministerial decree to sell its shares. PEs were evaluated and classified for either liquidation, partial or complete divestiture, management contracting, or restructuring. An action plan was then proposed for each PE that was to be implemented by DEP staff with the assistance of the project team. 14. On the eve of the April 1994 events, major achievements of the project were as follows: divestiture of Sonatubes in December 1992 (sale of Government shares); financial rehabilitation and divestiture of Trafipro (subsequently finalized in early 1995); ongoing complete divestiture of Perimetre rizicole de Butare; sale of a portion of the assets of Imprimerie Nationale and Papeteries du Rwanda; start of the process of reimbursing depositors at Caisse d'Epargne du Rwanda; and start of the process of sale of Government's share of equity in Magerwa, Rwantexco, Petrowanda, Stir, Boucherie de Kigali, C.R.H.T., Sonarwa, and Rwandex. 15. In the aftermath of the 1994 events, those among the above activities that had not been finalized had to be included in a new action plan. Enterprises required updating of their financial and operational status due to the destruction in material and human  Rwanda Public Enterprise Reform Project - 5 - Implementation Completion Report resources. A large numnber of enterprises had not resumed normal operations, or could not justify their existence under current circumstances. In any case, an important loss of human resources and the desolate state of public finances did not allow the Government to consider any important restructuring. Successive supervision missions in 1995 realistically established a minimum program to suit the prevailing conditions and identified enterprises that could be liquidated or privatized in a short time, that is by simple ministerial decrees. As a result of the work of the reconstituted dynamic team of experts, a total of 81 PEs had been reassessed at project closing with a recommended plan of action for each. Concrete achievements were, however, modest: divestiture of Trafipro finalized in early 1995; partial divestiture of OVAPAM in June 1995; privatization of Projet Chaux in April 1996; and liquidation of Rwanda Travel Services which had not resumed its operations after April 1994. Support to the Directorate of Public Enterprises 16. Project support to the Directorate of Public Enterprises did not achieve its intended objective. It was planned that foreign and local technical assistance would strengthen DEP staff technical capacity in implementing the policy changes and enterprise restructuring program. The DEP was staffed with a Director, two division chiefs and six technicians. It was quickly recognized that results did not materialize as anticipated for the following reasons: (a) Government officials could not devote all their time and energies to the project; (b) they were not motivated due to large discrepancies between their salaries and those of members in the project team; and (c) the DEP did not have direct access to the Minister of Finance, which delayed actions. Following the mid- term review, DEP staff was reduced to one division chief and four technicians and their responsibilities limited to restructuring public offices and national companies, monitoring their financial status, keeping statistics and supervising the implementation of performance contracts. As three-quarters of the portfolio had been slated for privatization or liquidation, the lion's share of the work would be done by the project team of experts. DEP was further marginalized after the war of 1994 when the priority of the project team was to rehabilitate the portfolio as quickly as possible. 17. It was intended that a training program be set up for DEP staff and PE managers to help them implement and monitor efficiently reforms in the PE sector. One such program was indeed submitted to the Bank in June 1993 for approval. However, it was never implemented due to heavy loss of DEP staff as a result of the 1994 war. Whatever training done (organization, computer use, accounting and auditing, privatization techniques) was on-the-job and informal for the benefit of national project staff only. 3. MAJOR FACTORS AFFECTING THE PROJECT 18. The main obstacle to implementing the PE reform program was political. The PE and privatization laws were held up by protracted debates in the National Assembly. Both pre- and post-1994 governments were seriously constrained by political  Rwanda Public Enterprise Reform Project - 6 - Implementation Completion Report considerations. The privatization and liquidation of enterprises without clear statute was slow to materialize. Delays in implementing key PE reforms were caused foremost by the debilitating interplay of power and interests. The anti-reform movement was further fueled by the failure of the Government to meet most conditionality for the SAC's second tranche release. 19. A second cause for poor project progress was the limited capacity of DEP staff (para. 16) which proved to be weaker than evaluated at appraisal. The issue had been correctly addressed and the problem solved when their role was reduced at mid-term review and the project placed closer to the Finance Minister, and the project team was authorized to have direct access to the latter. 20. Other factors that affected PERP's implementation were technical. First, project effectiveness had been delayed by the slowness in staffing the DEP with qualified people, which pushed back actual implementation by 8 months. Second, incomplete information on the PE portfolio led to the adoption of an inappropriate action plan for many enterprises. This was remedied two years later by a redirection of the project. The third reason related to the problem of scarce national expertise: the project team had not been adequately staffed until early 1994. The war in the spring of the same year caused team breakdown due to either death or departure from the country. A new team was constituted and mandated to complete priority action plans in response to the distressed state of Government finances but this team which was energetic and efficient could only complete the privatization or closing of a few small enterprises. 4. PROJECT SUSTAINABILITY 21. The project as completed represents the beginning of the reorganization of the PE sector. A PE law had been drafted and ready for adoption; an appropriate draft privatization law had been submitted to Government; a data base on 85 percent of existing PEs had been handed over to the Finance Ministry as well as working notes and records of communications between the project team and each PE. This information can be of use in future PE reform projects. In addition, specialized skills in auditing, financial analysis, marketing, and law in the area of privatization have been transferred to the national experts in the project team. In that small respect, the project helped build qualified national capacity with privatization skills that can be useful in future privatization efforts. 5. BANK PERFORMANCE 22. Bank's performance in terms of support to the Borrower under this project was satisfactory. During preparation stage, the Bank had made an accurate assessment of the technical, financial, and institutional needs for the country. Design was standard for similar kinds of projects elsewhere. It had accurately assessed the risks involved, namely  Rwanda Public Enterprise Reform Project - 7 - Implementation Completion Report resistance from interest groups within the Government and affected enterprises, and slow project progress due to inability of the Government to carry out the policy reform package. Its evaluation of the political risks had been correct but underestimated. In the volatile context of Rwanda, the risks that the Government ran in implementing the reform program were high. The courageous actions of a few Government officials were not enough to remove the hurdles that were placed on the project's path. Were the project team given more authority, it could have managed the difficult task. In retrospect, two alternate actions could have steered the project on a more successful course. First, to avoid all the delays prompted by the political powerplay, the Bank could have made the adoption of the PE law a condition under the SAC which should have moved ahead of the PERP. Second, were the project more suitably designed and the Bank more flexible in the early stage of project implementation, the privatization program could have avoided a lot of resistance and won over national support. 23. There were 7 PERP supervision missions to Rwanda from project effectiveness in February 1991 to project closing in April 1996, two assessment missions in 1994 by a staff other than the Task Manager and one consultant following the war of 1994, and a privatization seminar conducted by Bank staff in May 1996. The frequency and number of supervision missions was under the norm of one mission every six months. The scarcity of supervision missions, especially in 1991 and 1992, was due to a number of reasons, among which were the volatile political events and the transfer of the project to a new task manager. Although there were few field missions during that period, the project continued to be supervised from headquarters with the undertaking of critical studies, the hiring of key consultants and discussions on PE reform with Rwandese officials who were in Washington for the SAC. The civil war in early 1994 resulted understandably in no missions that year. 6. BORROWER PERFORMANCE 24. During preparation, the Government's performance was satisfactory. It indicated its firm decision to initiate the PE reform program by establishing three working groups to examine the impact of macroeconomic policies on the financial and economic performance of the PE sector, to propose improvements in the legal and institutional framework governing PEs and to conduct diagnostic studies on selected PEs which suggest potential rehabilitation or privatization plans. The pre-1994 government supported the PE reform program through a number of actions: (a) the SAC; (b) the policy of private sector development; (c) the strategy for development of the agricultural sector; and (d) the decision to privatize management of some important PEs, such as Rwandatel and Electrogaz. 25. Implementation, however, was highly unsatisfactory. This was due to political difficulties, repercussions from the armed internal conflict in 1993, procrastination in making key decisions, poor project management, insufficient dedication to the project by officials at the DEP, slow and cumbersome procurement procedures, and misuse of  Rwanda Public Enterprise Reform Project - 8 - Implementation Completion Report special account funds caused either by delays in releasing counterpart funds or by violation of Bank disbursement procedures. The inability of the Government to meet second tranche conditionalities of the SAC in 1993 and the outbreak of the civil war in April 1994 further compromised project implementation. By 1994, out of four covenants agreed in the legal documents, only two had been fulfilled, yet either with delays (audits) or unsatisfactorily (privatization law). The Government's main weakness was failure to mobilize political and popular support for PE reforms. The Project Team 26. Initially, the core project team was staffed by an expatriate financial analyst/economist who also acted as advisor to the Director of the DEP, an expatriate expert in privatization, an economist, a training expert, a lawyer and an accountant. At mid-tern review, when the project shifted focus to privatization and liquidation, the above consultant resources were found to be no longer sufficient to undertake the expert- intensive work program. The number of consultants in the team thus increased from six to ten, seven of whom were national experts. The new positions were the national coordinator, an additional lawyer, a second financial analyst, and an archivist. The team worked effectively for less than a year when the war broke out. In the aftermath of the war, another team had to be quickly constituted with the only surviving member of the former team of national experts and new members. It undertook the painstaking task of rebuilding the project files after they were destroyed and completed a minimum work program. 7. ASSESSMENT OF OUTCOME 27. Measured against the project's stated objectives, the outcome of PERP is rated as unsatisfactory. Although there was an apparent will to reform the PE sector, key Rwandese decision-makers did not seem to be able to move decisively past the stage of decision to implementation of actual actions. The institutional development impact is rated as modest. No sustainability is expected. Two major reasons are advanced for the unsatisfactory rating. First, the institutional and legal framework outcome fell short of initial program objectives. Second, the restructuring of PERP turned out to be short-lived due to the outbreak of the civil war. 8. FUTURE OPERATIONS 28. Given the continued poor financial performance of the PE sector, the Government will need a divestiture program grounded in legal and political acceptance. Before the state withdraws from productive and commercial sectors (particularly in the areas of energy, transportation and telecommunications) and allows the private sector to take over these activities, a reformulation of its policy and regulations will be required after broad- based political support is obtained. A mechanism that provides clear guidelines,  Rwanda Public Enterprise Reform Project - 9 - Implementation Completion Report transparency, accountability, an adequate decision-making process, and incentives should support this program. 29. As a first step, the Government should pass an appropriate PE law and adopt a clear privatization strategy. The recommended action plans prepared for each enterprise will then serve as basis for the next stage, either liquidation, privatization (of equity or management) or restructuring. Following negotiations, financial restructuring and management privatization or a concession of such enterprises as Electrogaz and Rwandatel could be completed. 30. With respect to follow-up to the PERP, the key issue is the need for the Government to achieve an enabling political environment for reform and obtain a consensus within the country. Any Bank assistance to reform the sector will be difficult to implement if those conditions were not present. 9. KEY LESSONS LEARNED 31. From the PERP's shortcomings, the following lessons can be learned: (a) The key lesson is that the decision to embark on a PE reform program is based as much on political factors as on financial and economic considerations. In the Rwanda case, the political issue totally dominated the picture. Government commitment is necessary, but political consensus is an even more important element. Thus, even if he had been able to do it, the Minister of Finance did not want to invoke the emergency procedure of a Presidential Decree to approve the two PE legal texts in 1996. He indicated that only a clear mandate given by the National Assembly could enable him to carry out the divestiture process quickly and successfully. The adoption of an appropriate PE law should have preceded the operation. (b) Implementation of the PERP clearly demonstrates that for a PE reform program to be successful, it is necessary to mobilize support early on from Government officials and the public. Seminars can be organized for the benefit of the former and an information campaign for the latter. A full understanding of what is involved in privatization will take time on the part of Government officials, but the effort will be repaid if it enables the process to go smoothly later. On the other hand, the general public should be informed of the government's PE reform plans as soon as they are reasonably well formulated. (c) The PERP's experience highlights the need for a special high-caliber team to be in charge of the various PE reform processes (liquidation, privatization, restructuring). The team should be staffed by qualified  Rwanda Public Enterprise Reform Project - 10 - Implementation Completion Report personnel experienced in privatization and remain independent in its technical dealings with concerned technical ministries and PEs. (d) Special training is needed for the PE reform program to be implemented successfully. Privatization is not just a matter of offering a PE for sale; it involves questions such as valuation, preparation of the offering, decisions on who should be allowed to bid, and negotiation for final disposal. A special training program should be therefore prepared and made a point of priority in project implementation.  PART II. STATISTICAL ANNEXES Table 1: Summary of Assessments Table 2: Related Bank Credits Table 3: Project Timetable Table 4: Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Studies Included in Project Table 7A: Project Costs Table 7B: Project Financing Table 8: Status of Legal Covenants Table 9: Compliance with Operational Manual Statements Table 10: Bank Resources: Staff Inputs Table 11: Bank Resources: Missions APPENDIX: A. Borrower contribution to the ICR  Table 1: Summary of Assessments A. Achievement of obiectives Substantial Partial Negligible Not applicable Macro policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environment objectives X Public sector management X Private sector development X Other X B. Proiect sustainability Likely Unlikely Uncertain x C. Bank performance Highly Satisfactory Satisfactorv Deficient Identification X Preparation assistance X Appraisal X Supervision X D. Borrower performance Highly Satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X E. Assessment of outcome Highly Highly Satisfactory Satisfactory Unsatisfactory Unsatisfactory x  Table 2: Related Bank Credits Credit Title Purpose Year of Status Approval Preceding Operations Technical Assistance for Reinforce controls over public finance by 1985 Completed the Improvement of Public improving procedures for budget preparation Finance Management and execution (including financial Project management of the parastatal sector) and (Cr. 1565-RW) strengthening Government capabilities for economic policy making. Third Education Project Improve the quality and efficiency of the 1986 Completed (Cr. 1683-RW) primary and post-primary education system by funding long-term technical assistance and supplies. Following Operations Transport Sector Project Streamline the regulatory environment, ensure 1990 Active (Cr. 2136-RW) regular financing of sector expenditures, reclassify the road network, and improve institutional arrangements and responsibilities in the sector. First Structural Adjustment Stabilize the economy, improve its 1991 Completed Credit competitiveness, create an incentive (Cr. 2271 -RW) framework for the efficient allocation of resources, lay the foundation for export-led growth. Second Communications Support government efforts to restructure the 1991 Active Project sector through (a) the creation of two (Cr. 2189-RW) autonomous institutions for the telecommunication and postal sectors; and (b) financing of priority investments. Energy Sector Promote rational energy policies, strengthen 1993 Active Rehabilitation Project the institutional regulatory and policy (Cr. 2456-RW) environment, including restructuring of the Rwandese utility company to permit contracting out its operations to a private operator and establish the basis for efficient utilization of Rwanda's energy resources, while minimizing adverse environmental implications. Emergency Recovery Support the Government in restoring key 1995 Active Credit economic and social services, rebuilding the (Cr. 2678-RW) institutional capacity necessary for sustainable economic recovery and designing a coherent economic policy framework.  Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual Identification November 1987 November 1987 Preparation June 1989 Appraisal June 12, 1989 June 16 - July 7, 1989 Negotiations February 7, 1990 February 7 - 13, 1990 Board approval March 27, 1990 March 27, 1990 Signing May 7, 1990 Effectiveness June 30, 1990 February 28, 1991 Project completion report December 1996 December 31, 1996 Credit closing December 31, 1994 April 15, 1996 Table 4: Credit Disbursements: Cumulative Estimated and Actual (US$ million) | FY91 FY92 FY93 FY94 FY95 FY96 Appraisal Estimate 1.07 2.30 3.36 4.31 4.40 4.40 Actual 0.10 0.44 1.11 1.54 2.24 2.62 Actual as % of Estimate 9.34% 19.13% 33.03% 35.73% 50.9% 59.5% Date of Final Disbursement ..___I -_ _ I_ I _ _ _ 07/26/1996 Table 5: Key Indicators for Project Implementation 1. Key implementation indicators in SAR Estimated Actual 1. Legal and institutional framework: Revision of March 31, 1991 Approved in July 1993 legislation on public enterprises by the National Development Council, rejected by the Constitutional Court in December 1993 because some minor clauses did not conform with the Arusha agreement of August 1993. Amended draft law has not been submitted to the National Assembly as of end April 1996. 2. General privatization strategy March 31, 1991 The proposed strategy as prepared by the PERP technical team had been shortened, modified and passed by the National Assembly  in December 1995, approved by the Constitutional Court and promulgated in March 1996. However, its content was not acceptable to IDA. 3. Rwandese Republic's divestiture: June 30, 1991 Focus and timetable of - Imprimerie Nationale du Rwanda action plan for PEs - STIR were modified at mid- - RWANTEXCO term review (May - Forge Gouvemementale 1993), and twice after - Perimetres rizicoles the war of April 1994 - Papeteries du Rwanda (in July 1995 and - ORTPN (Hotel activity) November 1995). - OVAPAM June 1995 - SONATUBES December 1992 4. Rehabilitation and/or restructuring of: - Maiserie de Mukamira October 31, 1991 - OVIBAR - ORTPN (Tourism and National Parks activities) - Regie des Aeroports - BUNEP - Electrogaz - Caisse Sociale du Rwanda - Sucrerie Rwandaise 5. Diagnostic studies for: - Caisse hypothecaire du Rwanda June 30, 1992 - Air Rwanda - REDEMI - ONATRACOM - OCIR-The - OCIR-Cafe - OPROVIA - TRAFIPRO - SONARWA - SOMITRAP - SONAFRUITS - OPYRWA - Regie de l'imprimerie scolaire - MAGERWA - SODEPARAL - SORWAL - Caisse d'epargne du Rwanda - Regie apicole - Cimenterie - Laiteries - Petrorwanda - RWANDEX  - BRD 6. Contract-plans for enterprises to be rehabilitated among those listed in para 5. above May 31, 1993 7. Privatization or liquidation strategies for enterprises to be privatized or liquidated among those listed in para. 5 above. January 31, 1993 II. Modified indicators introduced at mid-term Diagnostic studies and review (July 1993) action plans for targeted enterprise were being 1. Rwandese Republic's divestiture: prepared when the war - Forge gouvernementale August 1993 of April 1994 erupted. - Papeteries du Rwanda July 1993 - Pecherie de Kamembe October 1993 - Pecherie d'Hiema October 1993 - Pecherie du Kivu October 1993 - Cie Rwandaise d'h6tels et tourisme CRHT February 1994 - Rwanda Travel Services February 1994 - Caisse d'epargne du Rwanda September 1994 - Societe de promotion h6teliere SOPROTEL December 1994 After April 1994 - Societe des transports internationaux June 1994 routiers STIR - Boucherie charcuterie de Kigali March 1994 - Office de valorisation de la Banande du December 1994 Rwanda - Perimetre Rizicole de Butare February 1995 - Air Rwanda March 1995 - SOPAB April 1995 - BACAR May 1994 - Banque de Kigali May 1994 - Banque Commerciale du Rwanda May 1994 - TRAFIPRO July 1994 - SORWAL April 1994 - Imprimerie Nationale du Rwanda June 1994 - RWANDATEL August 1994 - BUNEP September 1994 - Office des Pyretres du Rwanda October 1994 - RWANTEXCO May 1994 - Regie Sucrerie de Kabuye February 1995 - Magasins generaux du Rwanda November 1994 - Petrorwanda February 1995 - ETIRU March 1995 - Laiterie de Gishwati June 1995 - Laiterie de Nyabisindu June 1995 - OCIR March 1997 - REDEMI October 1995 - OCIR Cafe January 1998 - Abattoirs de Kigali January 1996 - APNI August 1995 - Couvoir National October 1995 2. Privatization of management:  - ORTPN (Societe nationale) July 1994 - Electrogaz (Societe nationale) March 1995 - Regie des aeroports (Societe nationale) December 1994 - Onatracom (Societe nationale) March 1995 - Imprimerie scolaire (Societe nationale) June 1995 - Office pharmaceutique (Societe nationale) June 1995 - OCIR The (ASBL) March 1997 - Fonds special de garantie (Societe September 1995 nationale) December 1995 - Te1lvision du Rwanda (Societe nationale) October 1995 - Fonds forestier national (Societe nationale) November 1995 - Caisse sociale du Rwanda (Societe January 1996 nationale) 3. Privatizations to be started after 1995 - Bibliotheque nationale - Fond de garantie des assurances - Institut des sciences agronomiques - Office national des posocietes - Office produits animaux vivriers - Alirwanda - Amirwanda - Banque regionale de developpement - Bralirwa - CID - Caisse hypothecaire du Rwanda - Chillington - Cimerwa - Ingoboka - Labophar - Maiserie - Office du tourisme - Oprovia - Ovapam - Projet riz Bugarama - Rwandex - Sodeparal - Sonafruit - Sonarwa - Soproriz - Sorwathe - Tabarwanda - Zaire Nil 111. Modified indicators introduced in July 1995 As certainty for the 1. Privatization of equity or of management: success of program - Electrogaz Before end December implementation faded, - Rwandatel 1995 indicators were - Perimetre rizicole de Butare modified at each Bank - Regie sucriere de Kigali supervision mission to adjust to reality. 2. Liquidation: - Caisse d'epargne du Rwanda  - Papeteries du Rwanda - Ranch de Gako - Centre national du petit elevage - Pecherie de Kigembe - Pcherie du lac Kivu - Forge gouvernementale de Nyabisindu 3. Government of Rwanda's divestiture or liquidation: - Rwanda travel services Liquidated - Cooperative Trafipro Divested in early 1995 - Alirwanda - Rwantexco - Sonarwa - C.R.H.T. - Magerwa - Petrorwanda - Boucherie charcuterie de Kigali IV. Modified indicators introduced in November 1995 1. Liquidation of enterprises without legal statute: Before end December Not started at project - Ranch de Gako 1995 closing. - Centre national du petit elevage - Pecheries de Kigembe - Pecherie du Lac Kivu 2. Clear position of the Government stated on: Before end December Contracting of - Electrogaz 1995 management not - Rwandatel finalized yet at project - Regie sucriere de Kigali closing in April 1996. - Boucherie charcuterie de Kigali - Cimenterie du Rwanda - Air Rwanda - Caisse d'epargne du Rwanda - Papeteries du Rwanda - STIR - Imprimerie nationale - Petrorwanda - Fonds special de garantie - Caisse hypothecaire du Rwanda - BUNEP * C.I.D. *Except where stated, proposed action plan for each enterprise was not implemented.  Table 6: Studies Included in Project Study Purpose Status Impact of Study PE Law To define the legal Completed Approved by Council of Ministers framework for PEs' in July 1993 and submitted to operations. Parliament. CER Operational and Completed Recommended for liquidation financial audit Privatization Strategy To design a general Completed Submitted to Parliament who strategy for shortened and modified it. New privatization text was unacceptable. Mid-Term Review Project evaluation Completed Led to restructuring of project in report July 1993. Electrogaz Viability study and Completed Recommended for privatization of preparation of bidding management documents for the privatization of management _ 1991, 1992, 1993, Audit reports Completed Financial covenants fulfilled. 1994, 1995 Project Audits INR Diagnostic study Completed Recommended for liquidation. RAR Diagnostic study Completed Recommended for change in statute (national society) Rwandatel Diagnostic study Completed Recommended for privatization of management. Fonds routier national Diagnostic study Completed Recommended for privatization of _______________ _management. FOSOC Diagnostic study Completed Recommended for restructuring STIR Financial and Completed Recommended for liquidation organizational audit Rice sector Diagnostic study Completed Recommended for privatization BRD Operational study Completed Recommended for divestiture INR 1989 and 1990 audits Incomplete Auditing firm went bankrupt. Recommended for liquidation. FORGE Valuation study Completed Recommended for liquidation PRB Diagnostic study Completed Recommended for divestiture SORWAL Valuation study Not started as of April 1994 REDEMI Valuation study Consultant selection ongoing in April 1994 FGA Audit report Same as above DEP Training Training program for Completed Implementation interrupted by war staff of the Directorate of 1994. of Public Enterprises ORTPN Valuation study TORs submitted to officials for approval in April 1994  RSK Financial audit Financed by CFD ORINFOR Marketing study Not started as of April 1994 PETRORWANDA Valuation study Ongoing as of April 1994 STIR Valuation study Same as above OCIR Cafe Diagnostic study Same as above SONAFRUITS Diagnostic study Not started as of April 1994 Fonds Forestier Restructuring study Ongoing as of National April 1994 Laboratoires Diagnostic study Same as above Veterinaires Ponts et Chaussdes Restructuring study Same as above IHEMA Privatization study Not started as of April 1994 The above studies were either completed, ongoing or not yet started as of April 1994. Those completed were updated by the reconstituted project team from May 1995 to April 1996, while diagnostic studies on remaining PEs were completed, constituting a data base on 81 PEs. Table 7A: Project Costs Appraisal estimate Actual/latest estimate (US$ thousand) (US$ thousand) Local Foreign Total Local Foreign Total costs costs costs costs Long-term consulting services 790 1,260 2,050 - 1,567 1,567 Equipment - 90 90 10 292 302 Operating costs 300 240 540 138 15 153 Short-term consulting services 255 730 985 - 578 578 Training 185 90 275 - 15 15 Refinancing of PPF 60 440 500 - I I Contingencies 170 320 490 - Total 1,760 3,170 4,930 148 2,468 2,616 Table 7B: Project Financing Appraisal estimate '(US$ thousand) Actual/latest estimate (US$ thousand) Source Local costs Foreign Total Local costs Foreign Total costs costs IDA 432 4,008 4,440 138 2,462 2,600 Government 250 240 490 15 I ] 6 Total 682 4,248 4,930 153 2,463 2,616 1US$ estimate at appraisal. 2 Actual costs in US$.  Table 8: Status of Legal Covenants Agree- Section Cove- Present Original Description of covenant Comments ment nant type status fulfillment date Credit 3.04 Manage- Not 07/31/95 Borrower to bring to the point The Government did not take ment Complied of sale or to the point of position on the situation of the aspects with executing management main PEs. contracts respectively at least 25 enterprises from amongst those listed in paragraph a) of Schedule 6 and 5 enterprises from amongst listed in paragraph b) of Schedule 6. Credit 4.01(b) Accounts Complied 06/30/93 Borrower to have the project Fulfilled. Completed at end /Audits with after 06/30/94 accounts, including April 1996 due to the fact that delay 06/30/95 disbursements against most project files had been 06/30/96 statements of expenditure destroyed by the war. (SOEs) and the special account, audited annually by an independent auditor acceptable to IDA, no later than six months after the end of the fiscal year. Credit Sched- Manage- Not 03/31/91 Borrower to adopt legislation The PE law was passed by the ule 5 ment complied on public enterprises. The National Assembly in July aspects with 1993. but was not ratified by the Constitutional Court in December 1993 due to minor inconsistencies with the Arusha Agreement of August 1993. The amended law was not submitted to The National Assembly as of project closing. Credit Sched- Manage- Complied 02/28/91 Borrower to have the Council The privatization strategy ule 5 ment with after of Government adopt the passed by The National aspects delay general privatization strategy. Assembly in December 1995, ratified by the Constitutional Court and promulgated in March 1996 was not satisfactory to the Bank.  Table 9: Compliance with Operational Manual Statements Statement Number and Title Describe and comment on lack of compliance OP 12.20 In conformity with OP 12.20, para. 7 "The Bank may Use of Special Account withhold replenishment of the SA if ineligible expenditures are financed from the SA or if the SA audit is overdue." Because of delays in payment of counterpart funds to the project account in 1993, the project team had to use funds from the special account to cover this portion. The practice was not acceptable to the Bank and resulted in a temporary suspension of this account until the ineligible amounts had been reimbursed. 10: Bank Resources - Staff Inputs Stage of Project Cycle Actual Weeks US$ Preparation to appraisal 4.27 8,919 Appraisal to Board 30.03 55,003 Supervision 52.85 113,881 Completion 7.10 12,500 Total 94.25 190,303  Table 11: Bank Resources - Staff Missions Performance Rating Stage of Month/ No. of Days Specialized Imple- Deve- Types of Project Cycle Year Persons in Staff Skills ment- lopme Problems Field Represented ation nt Appraisal - 06/89 4 70 Sr. Operations Board Officer Private Sector Development Specialist Lawyer Consultant Board -+ 03/90- - Effectiveness 02/91 Supervision 11/91 1 * Industrial * * Economist 07/92 1 * Industrial 2 2 Economist 05/93 2 14 Lawyer 2 2 Ineffectiveness Industrial of the Economist Directorate of Public l ______________ __________ ________ ________ Enterprises. 10/93 3 6 Industrial 2 2 Delays in Economist adopting the PE Financial law and the Analyst privatization Transport strategy i _____________I Specialist 02/95 3 8 Economist U U Project Financial implementa- Analyst tion was PE Specialist interrupted by the civil war of April 1994. 06/95 1 16 Economist U U 11/95 1 7 Economist U S Progress was impeded by the inability of Government to have the PE law passed and an appropriate privatization strategy * Data not available Ratings: I - Insignificant problems. 2 - Moderate problems. 3 - Major problems; appropriate actions being taken. 4 - Major problems; not being addressed adequately. S - Satisfactory. U - Unsatisfactory.   APPENDIX BORROWER'S CONTRIBUTION   Republic of Rwanda Kigali, September 24, 1996 Public Enterprise Reform Project Marc Rugenera Ministry of Finance Minister of Finance (Cr. 21 13-RW) Unofficial Summary of Borrower's Contribution Background 1. On May 7, 1990, the Government of Rwanda entered into a credit agreement with IDA with the objective of having its technical and administrative capacity strengthened to implement the country's reform program of public enterprises. The related project consists of two parts: the first (Part A) devoted to institutional strengthening of the Division of Public Enterprises within the Ministry of Finance which was responsible for design, implementation and monitoring of the public enterprise reform Program; and the second (Part B) aimed at revising legislation on public enterprises, formulating a privatization strategy and an action plan for Government's divestiture, preparing contract-plans with specific efficiency targets for some public enterprises, carrying out diagnostic studies to assess the technical, economic and financial viability of some others, and formulating a strategy for privatization or liquidation of some others. Project Implementation 2. Part A: The Division of Public Enterprises which was mandated to carry out the project did not succeed because it was ill-equipped, both in terms of human and material resources. In fact, the four officials assigned to the Division were given other responsibilities within the Ministry of Finance. In the absence of incentives, they were hardly motivated to devote their time to project work. However, the objectives assigned to the Division were met indirectly by a technical team created in 1992 and supervised by the Minister of Finance. The team, which was staffed by qualified national and expatriate experts and given the necessary equipment, successfully completed studies demonstrating the appropriate role of the public sector in the national economy (divestiture from productive activities, promotion, and social activities). 3. Part B: The project did not succeed in revising the legislation on public enterprises. However, it did prepare the draft law on the statute of public enterprises and national organizations. The law would reorganize those public enterprises that keep their statutes and create a new kind of public enterprises (societes nationales du patrimoine) that would be managed along the line of private business concerns. Unfortunately, the draft law has not been approved yet. 4. With the assistance of a foreign consulting firm, the project developed a privatization strategy which remains a useful source of reference for any future privatization program. 5. Based on an inventory of 89 enterprises, both of public and mixed ownership, the project had classified them into those that had ceased activities and must be liquidated, those that could only survive if privatized because the Government lacked funds to invest in them,  - 2 - those that were unable to compete with the private sector, and those public enterprises that would remain in the Government's portfolio but required restructuring. 6. Some preliminary work was done on the remaining items in the action plan: preparing contract-plans with specific efficiency targets for some enterprises, carrying out diagnostic studies to assess the technical, economic and financial viability of others, and formulating a strategy for privatization or liquidation of some others. On the whole, the agenda remained unfinished. Assessment of IDA's and the Government of Rwanda's Performance 7. IDA's performance was satisfactory. Credit funds were available when requested. There were regular missions following which relevant recommendations were made and accepted by the Government. It was, however, deplorable that such missions did not take place in 1991 and 1992, when the project most needed IDA's advice for its start up. 8. The Government's performance was less satisfactory. Counterpart funds were disbursed late. However, this did not impact on project progress. On the other hand, there was a recognized lack of readiness and commitment. The revised legislation on public enterprises had not been approved at project closing, though there had been some progress since last August. Difficulties stemmed from the slow workings of bureaucracy and divided public opinion on privatization. It should be noted though that the Government acted under most unfavorable conditions (volatile political situation and civil war since 1990). 9. Despite the unpropitious circumstances, the project achieved some minor results, such as the privatization of SONATUBES, Project rizicole de BUTARE, Imprimerie Nationale, Forge Gouvemmentale de Nyanza, and divestiture from TRAFIPRO. On the other hand, a major achievement of the project was an extensive analytical study of the financial and operational situation of each of the more than 80 public enterprises completed by the technical team during the last phase (May 1995-April 1996). Overall, project implementation was satisfactory (see Audit report of April 1996). Conclusion 10. Cooperation between IDA and the Government was good during project preparation and implementation. They made the necessary changes when needed, and did their best but were undermined by adverse circumstances beyond their control. They had underestimated the main constraints to the project: the political situation was more volatile and the list of target enterprises too long while the implementation schedule was too tight, which inevitably resulted in poor performance and few results. The ultimate lesson was that the environment in which the project is to be implemented plays an important part in its success or lack thereof. Another lesson is that certain prerequisites must be met before the project starts, namely there must be enough qualified staff and these must be adequately equipped to do their tasks.  1 8 OCT. 9610 REPUBLIQUE RWANDAISE Kigali, le 17 OCt 1996 MINISTERE DES FINANCES N4J6 /FIN. 10.05/C B.P. 158 KIGALI Monsieur Eugen Scanterie Directeur p.i des op6rations pour 1e Rwanda, R6gion d'Afrique Banque Mondiale WASHINGTON D.C. Fax N (202) 477-6391 bie : Rapport d'Achdvement du PAREP version corrig&e Monsieur le Directeur, Quelques erreurs de frappe s' tant.gliss6es dans le texte du rapport d'AchOvement du Projet de Reforme des Entreprises Publiques vous transmis par ma lettre no 13Z5/Fin.01.05/C du 14 courant, j'ai 1'honneur de vous faire parvenir la version corrig6e. Veuillez agr4er, Monsieur le Directeur, 1'expression de ma haute consid6ration. Le Ministre des Finances Marc RUGNNRI ' S 04  2 ~~~~~~~/ 31'10tO ! REPUBLIQUE RWANDAISE Kigali, la MINISTERE DES FINANCES Projet de Reforme dos Entreprises Publiques B.P. 158 XIGALI Fax 77581 Rapport da'aohvement di Prolit d'Assainissement et de Restrugt P&tton des Zntreprises Publignues (AREP. Cr IDA 2113) I. Introduction Le rapport d'achavement de ce projet comprend trois parties dont la lere et la 3eme sont r6dig&es par la Banque Mondiale, tandis que la 2Ame est r6dig6e par l'Emprunteur et pr6sQnte l'analyce.des principaux problAmes relatife au projet, ainsi qu'une evaluation r6trospective de son ex6cution du point do vue de l'Emprunteur. Selon l'opinion de la-Banque, "La r6daction de cette deuxi&me partie du-rapport offre & l'emprunt.ur loccasion de proc4der A une analyse ind6pendante des enseignements de 1'op6ration et de r6fl6chir sur la prestation de la Banque et de tous ceux qui ont pris part & la preparation et & :'execution du Projet". xI. iastoriaue Le projet a vu le jour & la suite de l'Accord de crfdit de D4veloppement (Cr.NO2113/Rw) conclu & Washington entre is gouvernement Rwandais et l'Association Internationale de D6veloppement, le 07 Mai 1990. Los objectifs du gouvernement, en concluant cet accord, 6taient de rentorcer les capacit#s techniques et administratives pour Gtre & mime d'executer son programme de rAforme des entreprises publiques rendue n6cessaire par la situation d4plorable de ces dernidres. Le projet comprenait des lore doux parties telles que decrites dans Ilannexe 2 & l'Accord de credit.  2 2/dUFI .A : Renforcoment Instituttonnel du NinistAre ago - . J~inances pars 1. La Cr4ation dans la Direetion de l'Inspeation G6n6rale des Entreprises Publiquos (DGIGF), d'une Direction des Entreprises Publiques charg6es d'4laborer le programme de r&forme des entreprises publiques, de le mottre en oeuvre et d'en assurer le suivi. 2. La fourniture de moyens mat6riels et humains au Ministare des Finances aux fins de : a) red6finir le r6le du secteur public dans 1 ' conomie nationale. b) clarifier les rapports entre le gouvernement Rwandais et les entreprises publiques. c) formuler un cadre d6finissant les interventions futures dans le secteur'des entreprises publiques. d) constituer un systame de suivi pour la supervision des entreprises publiques. flSZfl.B : Ztudes. Plans et L6caslation (Annexes) Cette deuxiAme partie pr&voyait 1. La rfvision de la lfgislation sur leg entreprises Publiques avec un calendrier fort pr6cis. 2. L'Alaboration d'une strategie g6n6rale de privatisation des entreprises publiques. 3. Le Formulation de plan d'action en vue du d6sengagement de l'Etat des entreprises publiques &num&r&es A I'Annexe 5, C). 4. La formulation de contrats plan donnant des objectifs d'efficacite prfcis pour les entreprises publiques identifi6es. 5. L'ex6cution d'6tudes diagnostiques visant & determiner la viabilit6 technique, fconomique et rinanci6re des entreprises publiques (Annexe 5, paraphe E). 6. La formulation de contrats plan donnant des objectifsad'efficacit6 precis pour les entreprises publiques reprises au paragraphe F de l'annexe 5.  3 7. L' hlaboration de stratfgie de privatisatioon ou de liquidation pour lee entreprises publiques pr6cis6es au paragraph. G de l'annexe 5. IXX. ActivitA du Proipt En d6finitive, la r6daction du rapport donnant l'analyse des principaux probl&mes relatifs au projet, ainai que l'4valuation r6trospective de son execution, revient, pour l"'Emprunteur", A voir si les objectifs ci-dessus, inscrits dans 1'Adcord de cr4dit, ant 6t6 atteints totalement, partiellement, ou pas du tout at, dans ccs deux derniers cas, A identifier les causes de cette carence. C'est ce que nous allons faire dans les pages qui viennent. I.Crfation d'une Direction des ZntreDrises Publiuses au sein de la DQGFI mu Minigt4z. Gus Finances, La Direction des Entreprises publiques, devenues une Division suite a la r6forme de I'organigramme des services de l'Administration centrale, aurait pu effectivement aider l'emprunteur A atteindre lea objectifs du Projet. Malheureusement, tel ne fut pas la cas parce que les initiateurs de ce dernier ont, en quelque sorte, mis la charrue avant les boeufs. En effet, au moment ot l'on assignait A cette DEP, une sArie d'actions, on constate qu'on avait oubli6 de lui donner les moyens de son action. Son manque quantitatit et qualitatif de ressources humaines et de moyens materiels fut la cause de son inadaptation par rapport aux objectifs recherch6s. De plus, lea quelque quatre agents affect6s A cette Division des Entreprises Publiques avaient d'autres charges dans 1Q cadre de l'organigramme du Ministbre des Finances et 9i lon y ajoute qu'ils n'6taient pas int6ress6a A gs d6penser pour le Projet en l'absence d'avantages incitatifs, on comprendra aisAment pour quoi cette DEP n'est pas parvenu. a 61aborer le programme de r6forme des entreprises publiques. Par cons6quent, la charge de 1e inettro en oeuvre et d'.n assurer le suivi devenait sans objet. L'Objectif de renforcement institutionnel du Minifin, par la cr6ation de la DEP, n'a donc pas 6tG atteint Par contre, les objectifs repris au point 2 de la partie A, ci-dessus ont &t6 relativement atteints, mais indirectement, & la suite de la cr6ation, en 1992, de la cellule technique supervis6e par le Minifin.  4 En effet, la fourniture de.moyens mat6riels et humains*& cette cellule Gtait.effective en 1993. Ainsi dot6e de moyenslogistiques performants et d'expertu qualifihs tant naalionaux qu'expatri6s, la-cellule Technique a pu r6aliser des tU4.. umo'tr" as o~~e dot *tve dZa6.aAi S 1 Vale du *u.taur public dans 1'6conomui nationale (as d4sengager des activit4s marchandes pour ne jouer quo le r6le promotionnel et se charger des activitAs sociales et de sauverainet6). Il faut, n6anmoins, r-gr-tter qu'& la cleture du projet la cellule n'4tait encore parvenue ni & "formuler un cadre d6finissant les interventions futures dans 1e secteur des entreprises publiques ni & constituer un syst4me de suivi pour. la supervision des entreprises publiquesn.  5 Parti B: Studes. Plang et lhgislation. 1. g6vision de la l1fislation sur los entreRrises RubliaueO Ld. Proj.t n's pan pu ftare cett@ r6vyiion. Xais il a fait un travail relativement i-mportant d'elaboration du projet de loi portant "Statut des Etablissements Publics et des soci6t&s Nationales" Qui permettrait de r6organiser les 6tablissements publics devant garder lour statut tout en rendant possible l'apparition d'une nouvelle catggorie d'entrsprises publiques, & savoir les sociftfs nationales du Patriioine qui seront g6r6.s suivant le modele de gestion commerciale. Malheureusement, ce texte n'est t0ujours qu'un projet et l'on no peux dire quand il deviendra une loi, alors que son existence est une condition n6cessaire pour pas mal d'actions en aval. 2. Elaboration d'uns mtratGaie g6n6rale do zrivatisation Ici, le Projet, avec le concours d'un cabinet de consultants international, a pu rialiser une 6tude ayant abouti a cette "1strat6gie g6n6rale de privatization". Elle garde toujours sa valeurs et tous ceux qui seront appel6s A poursuivre la mise en ex6cution du programme de privatisation auront avantage a y recourir de temps en temps. 3. Formulateur de plan d'action en vue du d6senaaQement de 1'Etat des entretrises fnum6r6es A l'annexe 5.C. Le Projet a propos6 une approche qui peut Atre consid6r6e comme une 4bauche d'un plan d'action en vue du disengagement de l'Etat, des 89 entreprises publics et mixtes recens4es . Cs plan d'action est indiquA en 7 points ci-apr6s. 1. Entreprises publiques devant dtre liquidGes car n'ayant pas repris ou ne puvant pas reprendre d'activit6 depuis 1994. 2. Entreprises publiques devant atre privatis6es n'ayant pas pu reprendre leur activitA compl6tement depuis 1994 car ne pouvant pas investir ou 6tant trop endett4es, et l'Etat ne pouvant y subvenir. 3. Entreprises publiques devant atre privatis6es, n'ayant pas la vocation et les moyens d'exercer leur activit6 et se trouvant dans un secteur concurrentiel dans lequel elles doivent dtre mieux g6r6es. 4. Entreprises publiques devant rester dans le portefeuille de 1'Etat apr&s restructuration. 5. SociOt6s mixtes dans lesquelles 1'Etat d6tient des parts et qui doivent Gtre liquid6es parcequ'elles n'ont pas repris leur activit5s et ne les reprendront pas.  6 6. .Soci6tes mixtes dans lesquelles l'.Etat detient des parts et qui doivent Otro liquid6es, parcequtelles sont en faillite constat6e et irr6versible. 7.96ol4-dt mixt-s dans lee quells 't'tet 46t