Malawi - Privatization and Utility Reform Project

Document of The World Bank Report No: 20485-MAI PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 21.8 MILLION (US$28.9 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FORA PRIVATIZATION AND UTILITY REFORM PROJECT June 1, 2000 Private Sector and Finance Unit Country Department AFC03 Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective Effective April 30, 2000) Currency Unit = Malawi Kwacha 1 Malawi Kwacha = US$ 0.021075 US$ 1 = 47.4498 Kwacha FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS ADMARC Agricultural Development and Marketing Corporation CAS Country Assistance Strategy CBM Commercial Bank of Malawi DANIDA Danish International Development Agency DSP Divestiture Sequence Plan EA Environmental Assessment EC Electricity Council ESCOM Electricity Supply Corporation of Malawi Limited IDA International Development Association IDF Institutional Development Fund GOM Govermment of Malawi LACIIFMI Loan Administration Change Initiative/Financial Management Initiative MACRA Malawi Communications Regulatory Agency MOF Ministry of Finance and Economic Planning MPC Malawi Posts Corporation MPTC Malawi Posts & Telecommunications Corporation MSR Multi Sectoral Regulator MTL Malawi Telecom Limited NBM National Bank of Malawi PC Privatisation Commission PE Public Enterprise PMR Project Management Reports PPF Project Preparation Facility PPLAF Public/Private Infrastructure Advisory Facility PSD Private Sector Development PSP Private Sector Participation USAID United States Agency for International Development Vice President: Callisto Madavo Country Manager/Director Barbara Kafka Sector Manager/Director: Demba Ba Task Team Leader/Task Manager: Gaiv Tata  MALAWI PRIVATIZATION AND UTILITY REFORM PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 5 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 9 4. Institutional and implementation arrangements 9 D. Project Rationale 1. Project alternatives considered and reasons for rejection 10 2. Major related projects financed by the Bank and other development agencies 11 3. Lessons learned and reflected in proposed project design 11 4. Indications of borrower commitment and ownership 12 5. Value added of Bank support in this project 12 E. Summary Project Analysis 1. Economic 12 2. Financial 13 3. Technical 13 4. Institutional 13 5. Social 14 6. Environment 14 7. Participatory Approach 15 F. Sustainability and Risks 1. Sustainability 15 2. Critical risks 16 3. Possible controversial aspects 16  G. Main Credit Conditions 1. Effectiveness Condition 17 2. Other 17 H. Readiness for Implementation 17 I. Compliance with Bank Policies 17 Annexes Annex 1: Project Design Summary 18 Annex 2: Project Description 22 Annex 3: Estimated Project Costs 32 Annex 4: Cost Benefit Analysis 33 Annex 5: Financial Summary 34 Annex 6: Procurement and Disbursement Arrangements 35 Annex 7: Project Processing Schedule 46 Annex 8: Documents in the Project File 47 Annex 9: Statement of Loans and Credits 48 Annex 10: Country at a Glance 49 Annex 11: Environmental Action Plan 51 MAP(S)  MALAWI Privatization and Utility Reformn Project Project Appraisal Document Africa Regional Office AFTPS Date: June 1, 2000 Team Leader: Gaiv M. Tata Country Manager/Director: Barbara Kafka Sector Manager/Director: Demba Ba Project ID: P063095 Sector(s): BP - Privatization, CC - Telecommunications & Informatics Lending Instrument: Technical Assistance Loan (TAL) Theme(s): Poverty Targeted Intervention: N Project Financing Data FI Loan Z Credit [l Grant 3 Guarantee D Other (Specify) For Loans/Credits/Others: Amount (US$m): 28.9 Proposed Terms: Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5% Service charge: 0.75% GOVERNMENT 3.00 0.30 3.30 IDA 3.60 25.30 28.90 Total: 6.60 25.60 32.20 Borrower: Responsible agency: PRIVATISATION COMMISSION Address: CDL House, 5 Independence Drive, PO Box 937, Blantyre, Malawi Contact Person: Mr. Dye Mawindo, Executive Director Tel: (265) 623.655 Fax: (265) 621.248 Email: privatisation@malawi.net Other Agency(ies): Ministry of Finance and Economic Planning, National Electricity Council, Malawi Communications Regulatory Authority, Malawi Posts Corporation, Malawi Telecommunications Limited and Electricty Supply Corporation of Malawi Limited Estimated disbursements ( Bank FY/US$M): Annual 4.6 9.4 7.3 5.2 2.4 Cumulative 4.6 14.0 21.3 26.5 28.9 Project implementation period: 4 years Expected effectiveness date: 10/01/2000 Expected closing date: 12/31/2004 OCS PAD F- m: Rw. - h20  A. Project Development Objective 1. Project development objective: (see Annex 1) The project's objective is to improve quality of and access to economic and physical infrastructure for private sector development. 2. Key performance indicators: (see Annex 1) The achievement of the objective would be measured by: (a) improvements in sectoral indicators for major utility sectors restructured (i.e. telecommunications, power and water). Specifically, based on the sector policy statements, the number of working telephone lines are expected to increase from 40,000 lines to 150,000 by December 2004 and the access to grid-based electricity is expected to increase from 4 percent to 6 percent by December 2004. No specific indicators have been identified for the water sector since the privatization transactions are expected to occur close to the end of the project and there would not be sufficient changes in sectoral indicators by the end of the project; (b) improvements in postal sector indicators. Specifically, (i) that mail which is posted from one city for delivery in another city is delivered by the third day of posting would improve from the current level of 65 percent to 80 percent by the end of the project; and (ii) the indicator for the number of letters handled per staff per annum increase from the current level of 45,610 to 62,903 by the end of the project. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 18349-MAI Date of latest CAS discussion: 08/04/98 The objective of the Bank's Malawi Country Assistance Strategy (CAS) is poverty alleviation. In a country where a majority of the population is living on less than US $2 per day, a key element of this strategy is to engender broad-based growth. The growth of the private sector firms witiin the economy, especially those focusing on export-led growth, is impacted by poor quality of infrastructure service delivery. Improving these services through increased private participation in ownership and management is a key focus under the project. Hence, there is a close linkage between the project's development objectives and the CAS goal of broad-based growth. 2. Main sector issues and Government strategy: The deterioration of Malawi's infrastructure and the resulting low and unreliable service coverage has been identified as one of the principal constraints to private sector development (PSD) in a survey of the private sector conducted for the 1997 World Development Report. Since 1997, the Government of Malawi (GOM) began the process of reforms in key infrastructure sectors through four sets of actions: (i) liberalization of the sector structure in market segments where competition is feasible; (ii) privatization of public enterprises (PEs) in the context of the new sector structure and the entry of new market participants, where applicable; (iii) establishment/strengthening of regulatory institutions to monitor compliance with the implementation of the new sector policies and the licenses issued; and (iv) addressing issues of access to services especially by the rural population and prices of services especially with regard to subsidies currently being provided. Specific status of actions in each sector are discussed below. -2 -  Privatization program PEs (which accounted for around 20 percent of GDP at the start of the privatization program) have a significant influence in the formal economy because of the oligopolistic market structure and inter-locking relationships between them. The reform process commenced in 1994 with the establishment of the Privatisation Commission (PC). Extensive consultations followed and in late 1995, cabinet approved the Privatisation Policy Statement. This was followed by the passage of the Public Enterprises (Privatisation) Act in April 1996. The Secretariat for the PC, which manages the technical aspects of the privatization work program, was established thereafter. Divestiture Sequence Plan (DSP) consisting of a list of 100 PEs was approved by the Cabinet Committee on the Economy in August 1997, and this is the document from which PC derives its authority to privatize a particular enterprise. GOM has also been funding the operating expenditures of the privatization program from its own budget and from sale proceeds. Implementation of the reform agenda has been an ongoing process, and as of December 1999, 35 out of 100 PEs on the DSP were privatized. The remaining balance of PEs will be privatized in a phased manner by 2004. The remaining agenda is for the divestiture of the balance of enterprises in the DSP. PEs in the three utility sectors discussed earlier (telecommunications, power and water) are part of DSP. Therefore, the Privatisation Commission has been closely involved in the sector reform agenda, which will ensure integration of the sector reform and privatization processes. Telecommunications and postal sectors Basic telephone and postal services are provided by the Malawi Posts and Telecommunications Corporation (MPTC). Mobile voice services are provided by Telekom Networks Limited (a company in which MPTC has a minority interest) and a newly- licensed second cellular operator. Intemet services are provided by Malawi Net (a wholly owned subsidiary of MPTC). MPTC reports to the Ministry of Information, Broadcasting, Posts and Telecommunications, which is responsible for setting sector policy. Telecommunications service coverage is poor (3 lines per 1000 persons), unreliable and expensive. Postal services are limited to delivery of mail to private letter boxes; there is a considerable waiting list for this service (17,955 as compared to 51,11 1 installed boxes). Over time, the volume of mail has declined overall and especially in the lucrative market segments due to competition. The basic stamp rate of 60 tambala (approximately 1.3 US cents at the current exchange rate) and of box rentals of 45 kwacha per annum (approximately US $1) resulted in tariffs well below costs and the services had to be funded through a considerable subsidy from the telephone services. During 1997 and 1998, GOM reviewed the sector development strategy through a process of wide spread. consultation with various stakeholders. This resulted in the Communications Sector Policy statement of August 1998 and in the Communications Act of November 1998. The Communications Sector Policy states the goals of the reform agenda for the telecommunications sector as increasing the number of working lines to not less than 150,000 by the end of 2003, improving service quality and reducing prices. The sector policy identifies the following key activities in the reform agenda: (i) separation of postal and telecommunication activities into two separate entities - Malawi Telecommunications Limited (MTL) and Malawi Postal Corporation (MPC); (ii) separation of regulatory functions and establishment of the Malawi Communications Regulatory Authority (MACRA); and (iii) immediate liberalization of all services other than basic voice telephony - where an initial period of exclusivity of five years will be provided to the incumbent MTL. MTL is to be privatized immediately. A plan to bring MPC into self-sufficiency during the medium-term was to be defined and Government subsidy would be provided during the transitional period to MPC. -3 -  Implementation of the reformn agenda has commenced - transaction advisors have been appointed in October 1999 for the sale of MTL; activities supporting the separation of MTL and MPC are well underway; MACRA has been established; and separate Boards and management for MTL and MPC have been appointed. The advisor for telecommunications privatization is expected to provide several reports, including the marketing strategy, to PC by the end of May 2000. The reports are expected to be considered by PC in consultation with the Telecommunications Task Force and a decision made on the appropriate privatization approach. One month after receiving PC's decision, the advisor is expected to provide the Information Memorandum inviting bids for the sale of MTL. The Communications Sector Policy Statement provides a five year period of exclusivity for basic services to MTL from the date of its incorporation. Given the impact that this might have on the development of the sector and, furthermore, given that the exclusivity could potentially constitute an anti-competitive trade practice in terms of the Competition and Fair Trading Act No. 43 of 1998 (which is awaiting implementation), GOM plans to immediately revisit this issue. This review would be completed and a final decision reached prior to the issuance of the Information Memorandum for the sale of MTL. A Business Plan for MPC has been prepared. Based on this plan, MACRA approved a rate increase effective April 1, 2000 of the basic stamp rate to 2 kwacha (approximately 5 US cents) and for the private boxes in a range between 100-2500 kwacha per annum (approximately US$2-55 depending on box size, location (urban vs. rural) and nature of usage (individuals vs. companies). Further, based on the business plan, the Ministry of Finance and Economic Planing (MOF) will allocate in its FY2001 budget a provision of subsidy for postal services. The remaining agenda for completion consists of the following: (i) establishment of the new MPC and MTL; (ii) issuance of licenses; (iii) completion of the privatization transaction; (iv) implementation of the MPC Business Plan; and (v) strengthening of MACRA. Power sector reform The main entity in the power sector consists of the Electricity Supply Corporation of Malawi Limited (ESCOM). Currently ESCOM has installed capacity of 200 megawatts (which will increase to around 260 megawatts by June 2000), and annually supplies 700 GWH of electricity. The government's implicit strategy of holding electricity tariffs artificially low is retarding system development and increased access to electricity. This is because ESCOM is unable to generate adequate funds for system maintenance and required investments. This problem is further exacerbated by ESCOM's poor operating and financial performance. The impacts is threefold. First, access to electricity is among the lowest in the world. Less than 55,000 households of the total 1.6 million households in Malawi have access to grid supplied electricity. Second, lack of reliable power services and a limited distribution network lead to substantial losses in the real sector (especially industry), which is further burdened by the need for self-generation of electricity at high costs. Third, there has been a significant impact on the government budget. In 1999, a subsidy of some US$16 million was provided by converting debt owed by ESCOM to the government into equity while the government continued to service the original debt; an additional debt to equity conversion of US$7.4 million is required in 2000. The reform process started in 1998 and initially resulted in the revised Electricity Act, of that year. Implementation of the reform agenda has commenced with: (i) the establishment of the Electricity Council (EC) in January 1999; (ii) the incorporation of ESCOM in July 1998 into a limited liability company wholly owned, for the time being, by the Government; (iii) the transfer of all assets, liabilities, property and staff of the old ESCOM to the new ESCOM Limited; and (iv) commencement of a commercialization program for ESCOM. In addition, a task force was appointed to oversee the commercialization program as -4 -  well as formulate a power sector policy statement. This has since resulted in the draft Power Sector Policy Statement of July, 1999, which is still awaiting cabinet approval, and the draft revised Electricity Bill, 2000, which had been published for consideration by Parliament. The key elements of the sector policy statement were the separation of ESCOM into generation, transmission and distribution units and commencement of privatization of distribution immediately with subsequent privatization of generation. However, the Bill had been withdrawn from consideration by Parliament since there were concerns within government regarding the proposed unbundling of ESCOM into several units. The Task Force was, therefore, reconvened in early May 2000, and begun the process of reviewing the sector in light of these concerns. This review indicated that the proposed sector structure was fundamentally sound but that some fine-tuning of the structure and further clarifications, on how this would assist in fulfilling the objective of introducing competition into the sector, would need to be provided. The next steps are for the sector policy to be revised and submitted to Cabinet in July-August 2000 and for the Bill to be sent to Parliament in October 2000. The remaining agenda for completion consists of improving the effectiveness of Electricity Counsel (EC) and implementing the divestiture transactions with distribution and generation. Water sector reform Over the past 20 years, the urban water boards in Malawi have received support with institutional and infrastructure development under several projects funded by the Development Bank of Southern Africa, the African Development Bank, the European Investment Bank and the Nordic Development Fund and by IDA, including through the ongoing IDA-funded National Water Development and Third Lilongwe Water Supply Projects. In 1994, the government also defined its sector strategy in the National Water Resources Management Policy and Strategies. With support from donor funded projects, the urban water boards have expanded facilities, extended service coverage and have introduced some measures to improve efficiency. However, the financial condition of the Boards has deteriorated in recent years despite tariff increases. The involvement of the private sector is considered essential in order to establish autonomy and appropriate incentive structures so that improvements made under previous and ongoing projects can be sustained, the poor can be better served, and the growing demand for water can be met. A study of Private Sector Participation (PSP) options will commence shortly to identify options for involving the private sector in provision of water supply service in the two primary urban centers in Malawi - Blantyre and Lilongwe - as a first step toward extending coverage to the urban poor at affordable prices, meeting future demand, improving efficiency and service levels and providing for sustainability. 3. Sector issues to be addressed by the project and strategic choices: Sector issues on privatization The support provided under this project to the privatization program is taking place in the context of well established institutional arrangements. The key implementing agency (the Privatisation Commission) has a small complement of competent professional staff (around five including a full-time advisor who is well integrated into the work program of PC) who manage the contracting out of the majority of the transaction advisory work. Since this approach (in effect, privatizing the privatization process) has been demonstrated elsewhere to be an optimal way to proceed, the first strategic choice made was to support the existing program and institutional arrangements and to minimize additional requirements imposed as a result of an IDA credit. The second strategic choice made with regard to the non-utility transactions, was to accept the DSP as the document defining the universe of transactions for the privatization component and to allocate funds for twelve transactions slated to occur over the next four years. The entities to be privatized were identified during appraisal and are: Agriculture Development and Marketing Corporation (ADMARC); Commercial -5-  Bank of Malawi, Air Malawi, Malawi Telecom, Malawi Rural Finance Corporation, ESCOM Distribution; ESCOM Generation; Blantyre Water Board; Lilongwe Water Board; Tourism Development and Investment Corporation; Malawi Housing Corporation; and Malawi Savings Bank. Five additional transactions, which are currently not scheduled were identified (National Bank of Malawi, David Whitehead and Sons, Shire Bus Line, airports privatization and Indebank/Fund); it is was agreed that these enterprises could be substituted if any of the twelve identified transactions should not be achievable. The first year's work program for the entire privatization program (July 2000 - June 2001) was appraised and this process is expected to continue throughout the project with an annual review of the work program at which time, the replacement of the identified transactions with unscheduled transactions would also be agreed between PC and IDA. The third strategic choice made was with regard to excluding financing for retrenchment payments from the project. This was based on the assessment that in the past such payments were financed from the privatization proceeds and discussions with the government did not identify this as a major constraint to the program. However, in order to ensure that this matter is handled equitably in the future, GOM and IDA agreed during appraisal to the following principles, which would be employed for the retrenchment of workers in relation to the privatization program. * Retrenchment benefits would be paid on the basis of the higher of four weeks of pay for every year of service or as specified in the terms of employment in the individual PE. Once the Employment Act (which was passed by Parliament in March 2000 and is awaiting assent) would come into force, the retrenchment benefits would be paid in line with the provisions of that Act. v Retrenchment benefits would be paid to all staff, if as a result of privatization, new enterprise(s) are created, except as otherwise specified by law (i.e. the case of posts and telecommunications). Benefits will be paid only to redundant staff, if as a result of privatization, there is only a change in the ownership structure of the enterprise. - Counseling would be offered to all employees to be retrenched prior to retrenchment and would be fmanced by the relevant PE or by PC. i Financing of retrenchment costs will be provided in the following order of priority: from the proceeds of sale of the relevant PE; from the Privatization Revenue Account; and from the national budget. e PC would prepare, before the beginning of each fiscal year and update every six months thereafter, a budget estimate showing: the anticipated counseling and retrenchment costs by PE; and the proposed financing plan for these. Sector issues on utility reform/regulatory support GOM plans to undertake a comprehensive evaluation of the benefits and disadvantages of establishing a single multi-sector regulator (MSR) for all utilities and public services. If the findings of the evaluation are favorable, the government would then proceed with the establishment of MSR. The project would, hence, assist GOM in three phases. The first phase, which would be completed by December 31, 2001, would consist of a study which would review existing regulatory arrangements and establish the benefits/costs of establishing a MSR. If the recommendations of this study are to establish MSR, then in the second phase, a time-bound action plan for the design and establishment of MSR and the drafting and approval of relevant legislation would be developed by December 31, 2002. In the third phase, the plan would be implemented, which could be expected to include the merging of existing regulatory bodies and staffing and training of staff of the newly established MSR. For the initial study of assessing the appropriateness of establishing MSR, the government plans to seek grant financing from the Public/Private Infrastructure Advisory Facility (PPIAF); if such funding is not forthcoming, the work would be funded under the project. The second and third phases, which would be completed by the end of the project, would consist of the design - 6 -  and implementation of this plan which could be expected to include the merging of existing regulatory bodies and staffmg and training of staff of the newly established MSR. During the phases of deciding on the need for MSR and designing MSR, the project would provide support to EC and MACRA - which are candidate institutions for merger into MSR. The strategic choice that was made was to continue to provide support to the separate regulatory institutions, since the areas covered by the project support capacity-building in sectoral and technical activities which would continue to be required in the multi-sectoral regulator. Further, once the plan has been defined, the project would support the establishment of MSR and the transitional arrangements for combining several agencies into one. Sector Issues on Telecommunications/Posts, Power and Water In general, the strategic choice has been to prepare the project under the assumption that it will assist in the implementation of sector reform agendas, which would have been agreed between the government and IDA. Project funding would be utilized in building consensus during the process of finalizing sector policy statements, definition of privatization options, in pre-privatization activities, in supporting the privatization transaction and in initial support to new regulatory entities. The sector reform dialogue is at different stages for the three sectors and, hence, the timing of support from the project will vary accordingly, although for all the sectors transactions are expected to be completed during the project period. In the telecommunications and postal sector reform, there is an agreed policy and a law. Hence, support under the project has been accelerated through a Project Preparation Facility (PPF), which has been used to fund both, the pre-privatization assistance and the transaction advisors. An additional strategic choice made in the case of telecommunications was that since DANIDA has been the lead donor in the sector in Malawi and has committed to providing substantial resources for the development of rural telecommunications over the next three years, it is not currently necessary for IDA to make incremental investments. Similarly, IDA support for the new regulatory agency, MACRA will complement existing DANIDA grant financing for that entity. An additional strategic choice made in order to ensure that the postal sector - which will remain in the public sector - will become self-sustaining, was to provide some resources under the project to improve its operational capacity. Transitional support was required since this service would no longer receive cross-subsidies from the telecom sector for operating costs and the government has committed to providing a subsidy for two years in order to allow the postal service some time to become sustainable. While sustainability could be achieved by increasing revenues in the medium-term, this would only be possible if service delivery improved and if the effects of chronic underfunding of major physical and human assets in the postal service were addressed. The upfront investments needed to ensure improvements in service delivery will require IDA funding since no other alternative sources of financing are available. In the power sector reforn, given that there have been recent difficulties in government-wide consensus on the power sector reform strategy which revolve around the unbundling of ESCOM, the project would support consensus-building in order to assist in the finalization of the sector strategy, pre-privatization assistance and support to the privatization process. In the water sector reforn, the initial study of private sector participation options is yet to be undertaken and, hence, support from the project would occur probably during the second year of project imnplementation. -7 -  C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project would consist of four components: (1) Privatization component. This component would support the development of divestiture options and/or the implementation of the chosen divestiture methods for utility divestitures including: MTL, electricity distribution and transmission, and water. Initial funding for the MTL transaction advisors has been provided through PPF. In addition, the component would fund consultancy services associated with at least seven identified non-utility divestitures included in the DSP. (2) Support to regulatory institutions. This component would enhance the operations of the Malawi Communications Regulatory Authority for postal and telecommunications regulation and the Electricity Council for power regulation. Further, this component would also assist the government in evaluating the benefits of and, if appropriate, in the establishment of a multi-sectoral regulatory agency. Financing for the telecommunications regulatory agency (MACRA) is already being provided by DANIDA under parallel financing. (3) Postal sector support. This component would support the three year business plan of MPC in order to help the postal service progress towards full cost recovery after its separation from MTL. The support provided would be through funding of consultancy for management support and training (possibly through a twinning arrangement with another postal administration), postal and office equipment, and vehicles. The government would provide a subvention over the project period to meet the interim financing gap arising from tariffs not increasing sufficiently to meet operating costs of MPC. (4) Pre-privatization Assistance. This component would support restructuring activities: (a) in ESCOM - including the conducting of a tariff study, establishing a financial management system and separating the financial statements of the Strategic Business Units and the purchase of high voltage metering equipment; and (b) in MTL - ensuring that Year 2000 compliance is achieved. The latter activity was financed under PPF and has been completed. 1. Privatization Privatization 15.20 47.2 15.00 51.9 2. Regulatory Reformn Institutional 5.30 16.5 5.30 18.3 Development 3. Postal Sector Support Public Enterprise 9.60 29.8 6.50 22.5 Reform 4. Pre-Privatization Assistance Privatization 2.10 6.5 2.10 7.3 Total Project Costs 32.20 100.0 28.90 100.0 Total Financing Required 32.20 100.0 28.90 100.0 -8 -  2. Key policy and institutional reforms supported by the project: The project will support: 1. Existing policies and institutional arrangements for the privatization program. 2. Policies and institutional arrangements for the multi-sectoral regulator which the government may decide to establish during the project period. 3. Existing policies and institutional reforms in telecommunications and post sectors. 4. Proposed policies and institutional reforms in the power and water sectors. 5. Privatization of other entities in the Divestiture Sequence Plan in the context of reform programs which are being defined for the relevant sectors. 3. Benefits and target population: Three broad target groups will benefit: (i) Private sector. The primary beneficiaries are the business sector as the sector reform and associated liberalization and privatization will provide strong incentives for improving service delivery in the utility sectors which is currently one of the major constraints to private sector development. (ii) Local population. The local population, in particular individual customers utilizing utility services, will also gain from improved access, quantity and quality of services resulting from improvements in operational efficiency and network extension. (iii) Government. The indirect effects will arise from the reduction of public investments in the utility sectors and increased tax revenue from privatized entities. The resultant impact will be that the project will free up scarce public resources for investment in social programs and other priority activities, which are likely to accrue to the poorer parts of the population who are larger beneficiaries of government social sector spending. 4. Institutional and implementation arrangements: The institutional framework, within which the project will provide assistance, is governed by two considerations. First, the institutional framework for the privatization program will govern activities under the privatization component. Second, the institutional framework for specific sectors will govern activities under the regulatory, postal and pre-privatization assistance components. Project Coordination. PC would act as the unit coordinating project implementation and would be responsible for accounting and disbursement for all components. PC would prepare and distribute consolidated quarterly reports (Progress Reports) reflecting the status of implementation progress, problems encountered and corrective actions needed, current costs of each project component and estimated costs of completion. Financial ManagementArrangements. Since PC has been the beneficiary of an IDF grant, it has familiarity with IDA procedures. However, given the substantially larger amount of funds to be provided under the project, IDA staff conducted a financial management assessment and found a level of compliance with IDA requirements sufficient to utilize traditional IDA procedures at project effectiveness, and agreed to an Action Plan, which would allow for disbursement based on Project Management Reports (PMR) after June 2001. From project effectiveness until June 2001, the accounting system will produce a summary of 9-  the Statement of Expenditures and an adjoining expenditure detail, statement of withdrawal, a balance sheet as required, Special Account statement and notes to the accounts. During this period, the Action Plan for improving fnancial management would be implemented; its key elements are expansion of the existing chart of accounts to incorporate project expenditures and recruitment of an additional person. After July 2001, when an integrated project management system, which brings together project financial management, disbursement, procurement, contract management and output monitoring reports is in place, the project will start disbursing funds using PMRs. Every quarter, PC will produce: (a) Financial Statements showing a summary of sources and uses of funds, uses by project activity, cash forecast for the next quarter, cash withdrawal and a special account statement; (b) Output monitoring reports which shall detail progress and indicators achieved for that quarter; and (c) Procurement management reports which shall detail procurement management status for consultants, contract expenditures for the same and incurred for goods. These reports will be submitted to IDA and the Project Steering Committee within forty five days of the end of the quarter for review and act as a basis for the next quarterly disbursement. The accounts will be prepared on a cash basis and will follow International Accounting Standards. The accounts will be audited within six months after the end of the financial year. Procurement. The privatization component would be implemented by PC; the regulatory reform component would be implemented by EC and MACRA; postal sector support component would be implemented by MPC and the pre-privatization assistance the component by MTL and ESCOM. The overall procurement plan for the project and a detailed procurement plan for the first year were reviewed during appraisal and assessed to be of satisfactory quality. The procurement assessments have been completed for all implementing entities. PC, MTL and ESCOM have been assessed to have sufficient capacity to implement relevant procurement activities. For MPC and MACRA, action plans have been agreed which will include short-term support through procurement consultants, and procurement training on IDA procedures for some staff members. EC has limited procurement capabilities but these are judged to be sufficient for the procurement activities it is expected to undertake. D. Project Rationale 1. Project alternatives considered and reasons for rejection: The sector reform dialogue has been ongoing for the last few years within the context of ongoing sectoral projects and structural adjustment credits. The main objective of the government in seeking a separate IDA credit was to acquire a readily-available source of fnancing for transaction advisory services for large transactions, which could not be financed from existing government sources. This decision was reached by the government after it was unable to identify additional sources of grant funding from other donors for financing transaction advisory services. It should be noted that the government continues to receive funding for other pre-privatization activities in the telecommunications sector, including for the regulatory agency (MACRA), from DANIDA and limited support for the Privatisation Commission from USAID. Support for regulatory bodies has been included since utility regulation is a relatively new area in Malawi and requires some initial start-up support. Financing will only be provided for targeted activities with ongoing fnancing for the regulatory bodies expected to come either from licensing fees or subventions from the government. The alternative of providing support to regulatory bodies under sectoral operations was not considered since existing sectoral projects are approaching completion and additional IDA support is not envisaged except in the water sector. Support for the postal sector program was included in order to ensure that the separation from telecommunications and that the subsequent end to cross-subsidization did not lead to a reduction in service - 10-  levels especially in rural areas. Financing will only be provided for upfront investments and management support with financing of operating costs expected to come from postal tariffs and an initial subvention from the government after which MPC is expected to become self-financing. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). .Latest Superision Sector Issue Project (PSR) Ratings .____ ____ ____ ____ ____ ____ ____________ __ (Bank4nanced projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Support to privatization IDF Grant 28278 S S Private sector development FRDP I (MW-PE- 1648) S S Private sector development - FRDP II S S privatization, telecommunications and power Private sector development - Proposed FRDP III privatization, telecommunications and power Other development agencies Telecommunications DANIDA telecom reform and rehabilitation project Telecommunications AfDB telecom investment project Privatization USAID Support to the Privatisation Commission IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: There have been no prior IDA privatization projects in Malawi. Limited assistance has been provided through an IDF grant in support of privatization. Implementation of this grant indicates the following. First, that there has been local ownership of the privatization process. With capacity built in the Privatisation Commission, the GOM has some capacity required to initiate and follow-up on future work in privatization. - 11 -  International and regional experience on privatization and sector reform indicate the following "best practice" features: * Government commitment to and leadership of the privatization and sector reform programs are essential to success. The project would support implementation of programs that have been developed with broad stakeholder consultation and where the agreements are contained in sector policy statements and laws. * Leadership and strong privatization agency, with skilled staff and empowered with appropriate authority to carry out the reform. The privatization component will be implemented by the Privatisation Commission, which already has adequate experience and capacity to implement the reforms (i.e., competent and appropriately remunerated group of staff with adequate advisory support). * Availability of resources to address the social cost of reform by funding severance packages for redundant employees from privatization proceeds. * Consistent approach across sector reform and privatization processes. The government has ensured that sector reform task forces consisting of all key stakeholders are involved in the reform and privatization processes; on the Bank's side, sectoral staff are an integral part of the project team. 4. Indications of borrower commitment and ownership: Government commitment has been demonstrated through: (a) the enactment of the Public Enterprises (Privatisation) Act of April 1996, setting up and funding from its own sources the administrative secretariat of PC; (b) at a sectoral level, in telecommunications, government has already approved policies and Parliament has approved the enabling legislation; and (c) government is in the process of considering a Power Sector Policy Statement and Act. 5. Value added of Bank support in this project: The privatization and utility reform programs have both been a significant part of the government's structural adjustment program which the Bank has supported through the First and Second Fiscal Restructuring and Deregulation Projects. The Bank has also been previously involved in supporting GOM' s privatization program through an IDF grant. The key issue has been that in the past there has been a limited requirement for financing technical assistance. However, with the larger transactions and the larger fees for utility privatization and the Technical Assistance requirements for new regulatory institutions, the government decided to consolidate these requirements under the proposed project. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=US$ million; ERR = % (see Annex 4) O Cost effectiveness * Other (specify) The proposed operation is a technical assistance project which aims at supporting the privatization and utility reform process and building capacity for regulation. The sector reform will result in increased service access and quality. Therefore, the operational indicators for the project focus on improvements in these areas (Annex 1). There will, however, also be a number of indirect economic benefits which are not measured including (i) productivity gains; (ii) increased output resulting from additional capital investment - 12 -  by privatized firms; (iii) additional income from the net creation of jobs in the private sector; (iv) factor cost savings from the reduction of average production costs of utility companies; and (v) consumer surplus from improved access and quality of utility services provided. 2. Financial (see Annex 5): NPV=US$ million; FRR= % (see Annex 4) Not applicable Fiscal Impact: The direct fiscal impact of the project will occur through a counterpart funding requirement of approximately US$3 million. This will be met through government subvention to the postal sector, paying for a proportion of transaction advisory services from the proceeds of sale and 10 percent contribution for local expenditures in the operating cost and equipment categories. The privatization transactions supported through the project will have differential fiscal impacts on a case-by-case basis, which can only be realistically assessed when the chosen privatization option is identified. For example, the immediate fiscal impact would be influenced by: (a) funds onlent by the government to the particular PE and the need to write-off such loans in order to complete the sale of the enterprise; (b) whether the government would still need to honor its own loan obligations; (c) offsetting sale proceeds resulting from the privatization. Moreover, to the extent that such PEs were defaulting on loan payments and the government was servicing its own loan obligations anyway, there would be no differential fiscal impact. Similarly, future fiscal impact can only be modeled if there are specific license obligations regarding service delivery, which in turn would lead to gains in corporate and other taxes; once again, this would be possible to determine closer to the point of sale of PEs. 3. Technical: The operational indicators for monitoring improved access and service delivery were agreed during appraisal for the telecommunications, power and postal sectors together with benchmark indicators for improved regulation; no indicators were identified for the water sector since the transactions are expected to occur close to the end of the project and there would not be sufficient changes to these indicators by project end. The indicators are presented in Annex 1. The indicators are currently based on the targets that the government has set in its sector policy statements. While the indicators will form the basis for the licenses that the government will issue, it is reasonable to expect that the actual targets agreed by the investors/strategic partners may vary from those that the government wishes to achieve. Hence, it may be necessary to review the indicators as privatization transactions occur and to formalize any revisions to these indicators at the mid-term review of the project. 4. Institutional: a. Executing agencies: The implementation arrangements will consist of a Project Steering Committee which will be chaired by the Ministry of Finance and which will include representatives from the implementing agencies i.e. Privatisation Commission, Electricity Council, Malawi Communications Regulatory Authority, Malawi Telecommunications Limited, Malawi Posts Limited, ESCOM. The Project Steering Committee would co-ordinate with sectoral task forces established for telecommunications and electricity reform as needed. -13-  b. Project management: Project Coordination: PC would act as the unit coordinating project implementation and would be responsible for accounting and disbursement for all components. PC has been assessed as being a suitable lead implementing agency; it has a small, competent and appropriately remunerated group of staff with adequate advisory support. Financial Management: Since the PC has been the beneficiary of an IDF grant, it had familiarity with IDA procedures which it has built upon in the process of managing the funds disbursed under PPF. Given the substantially larger amount of funds to be provided under the project, IDA staff have conducted a fnancial management assessment, found a level of compliance with IDA requirements sufficient to implement traditional IDA disbursements commencing from project effectiveness, and agreed to an Action Plan which would allow for PMR based disbursements to commence after June 2001. Procurement: PC would be responsible for procurement coordination and taking the lead in preparing project-wide procurement documentation. Specifically, PC has coordinated the preparation of an Overall Procurement Plan (OPP), which has been finalized at appraisal together with a Detailed Procurement Plan (DPP) for the first year of the project. The procurement assessments of all implementing agencies have been completed and the Action Plan for strengthening procurement agreed to prior to Board presentation. 5. Social: The project will improve service delivery in the utility sectors thereby reducing a major constraint to private sector development. Further, by introducing competition - wherever feasible - into the utility sectors, it would introduce strong incentives to increase efficiency and reduce costs. Finally, by reducing the public investment in the utility sectors and increasing tax revenue from privatized entities, it will free up scarce public resources for investment in social programs and other priority activities. The project is not financing retrenchment costs. However, in order to ensure that this matter is handled equitably in the future, the government and IDA agreed during appraisal to the principles outlined in section B3 above which would be employed for retrenchment of workers in relation to the privatization program. 6. Environmental assessment: Environment Category: B (Partial Assessment) No major environmental impact is envisaged. The privatization process will involve some PEs that might be the source of pollution or other enviromnental problems related to on-going and future practices (e.g. PEs operating in power generation). Gaps in environmental laws in relation to environmental problems in sectors planned for privatization would be identified and analyzed. This is important in overall country sector strategies for privatization, as well as in individual sectoral or large-scale privatization projects. If the environmental aspects are appropriately addressed, the proposed reforms may produce positive enviromnental effects, such as, increased efficiency in the use of natural resources and more rapid adoption of cleaner technologies. The opportunities for enhancing the positive synergy between environmental protection and privatization would be explored and maximized during Environmental Assessment (EA) process, and also, as part of the policy dialogue, rather than treated as mutually exclusive. The approach adopted has been to agree on a specific set of guidelines for conducting EA but to defer conducting the EAs closer to when the privatization transaction would occur. The government with funding - 14 -  from IDA PPF hired a private consultant to carry out an environmental audit of MTL, which is in the process of being privatized. The report evaluated the existing environmental problems resulting from activities while under public sector ownership and developed an Audit Action Plan which will assist MTL to take necessary and appropriate measures to clean up existing environmental damage, protect and manage the environrent in a manner consistent with the requirements of the Environmental Management Act, 1996 and the World Bank's safeguard policies in particular OP/BP/GP 4.01. Details of the findings and the recommendations of the EA report and the Action Plan are in Annex 11. In accordance with the safeguard policies, a pre-screening of privatization candidates to be funded under the project was undertaken and the list of privatization candidates for which environmental audits and/or assessments would be undertaken was agreed and is included in Annex 11. When such audits/assessments are undertaken prior to transactions, they will be reviewed and cleared by the Bank. 7. Participatory Approach (key stakeholders, how involved, and what they have influenced or may influence; if participatory approach not used, describe why not applicable): a. Primary beneficiaries and other affected groups: Consultations have been taking place at several levels. PC has membership from a variety of stakeholders including as ex-officio members: the Secretary to the Treasury, the Governor of the Reserve Bank of Malawi, the Solicitor General and Secretary for Justice, representatives from all three major political parties, a representative from the Malawi Congress of Trade Unions, the General Manager of the Malawi Investment Promotion Agency and the Executive Director, Malawi Chamber of Commerce and Industry. At the level of the project itself, PEs and regulatory agencies are members of the project steering committee and design team. b. Other key stakeholders: Each sector reform Task Force (telecommunications, power and water) has included membership from a variety of stakeholders specifically impacted by the sector reform program. Further, IDA preparation missions have consulted with all concerned donors in the country and will continue consultations during project supervision. F. Sustainability and Risks 1. Sustainability: This project provides technical assistance for a well defined, timebound process of enterprise divestiture under the privatization component and pre-privatization assistance to get PEs to the point of divestiture under the pre-privatization assistance component. Once the transactions are completed, there should be no need for continuing assistance in this regard. Similarly, the postal sector support component has been designed so that IDA funding is utilized for financing upfront investment and start-up management support for the new MPC. Subsidy requirements for the frst two years are to be met from the government budget and thereafter increased tariffs, volume of business and cost efficiencies should lead to break-even operation. Finally, under the regulatory component, initial support is being provided for strengthening regulatory functions in recent reformed sectors. The key sustainability issue relates to ensuring that sufficient skills are developed in regulation and sufficient financing is available for the new created regulatory agencies. - 15 -  2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk0 RiskX 0Rat:ing I ^Risk MiniMiai Meaur From Outputs to Objective Reduced political commitment to S The sector reform/privatization agenda has been liberalization/privatization process. at the center of the dialogue on the structural adjustment program. This risk is mitigated by having close linkage between actions financed through the project and adjustment program. Political commitment to reduce subsidies S The impact of subsidies on the fiscal position of to population groups currently benefiting the government would be highlighted and from subsidies provided by PEs is not addressed through the Public Expenditure continued. Review process. Investor interest in bidding for privatized S Professional extemal advisors with close links to entities is not adequate. the potential investment community are to be funded under the project. Improving macro economic situation should also send positive signals to potential investors. Government does not maintain M Initial tariff increases approved as of April 1, subventions to Malawi Posts Corporation 2000. Subvention has been included as legal and MACRA does not approve further obligation under the credit. rate increases required for cost recovery. From Components to Outputs Power sector policy statement allowing S Timetable for approval of Sector policy for divestiture transactions to occur needs statement, which will allow for restructuring and to be approved by govermment. associated legislation was agreed during appraisal. Water sector policy statement which is M Private sector participation options study to be still to be formulated may not allow undertaken in the second half of 2000. adequately for private sector participation. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: None - 16 -  G. Main Credit Conditions 1. Effectiveness Condition Final Project Implementation Plan. 2. Other [classify according to covenant types used in the Legal Agreements.] Covenants: * Government to provide subvention to Malawi Posts Corporation in line with the MPC Business Plan up to a maximum amount of US$3 million over the project period; * Government to decide on approach to and implementation plan for multi-sectoral regulatory body by December 31, 2001; * Government taking adequate steps, satisfactory to IDA, to bring to point of sale, in accordance with the schedule and modalities in PIM, twelve PEs for which TA services are to be financed out of the proceeds of the credit. H. Readiness for Implementation U 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. X 1. b) Not applicable. Z 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. L 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. LD1 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies X 1. This project complies with all applicable Bank policies. D 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Gaiv M. Tata ibemba Ba Barbara Kafkla() Team Leader Sector Manager/Director Country Manager/Director - 17-  Annex 1: Project Design Summary MALAWI: Privatization and Utility Reform Project Sector-related CAS Goal: Sector Indicators- Sector/ country reports: (from Goal to Bank Mission) Creating broad-based labor Improvements in employment Private sector led growth is intensive growth indicators and per capita necessary given resource income indicators constrained situation of the public sector Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: To improve quality of and 1. Increase in the number of Annual report from the Removal of infrastructure access to economic and working telephone lines from regulatory agencies constraints to PSD will allow physical infrastructure for 40,000 to 150,000 by economy to grow at a faster private sector development December 31, 2004. pace (PSD). 2. Increase in percentage of Annual report of the Macro-economic conditions population with grid-based Privatisation Commission will be conducive to private electricity from 4 percent to sector entities implementing 6percent by December 31, investment/expansion 2004. programs 3. Improvements in postal sector indicators: mail posted from one city for delivery in another city is delivered by the third day of posting will increase from 65 percent to 80 percent by December 31, 2004. 4. Increase in the number of letters handled per staff per annum from 45,610 to 62,903 by December 31, 2004. - 18 -  Output from each Output Indicators: Project reports: (fo upts to Objective) component: A. Divestiture of Government 1. Sale of controlling interest 1. Sale agreements Cotne olitical ownership in in Malawi Telecom to commitment to telecommunications, power, strategic investor by June 30, 2. Periodic reporting from liberalization/privatization water and other identified PEs 2001. Privatisation Commission process 2. Divestiture of generation and distribution per ( to be agreed) power sector policy statement by June 30, 2002. 3. Divestiture of water boards per sector policy statement to be prepared after PSP options study by June 30, 2004. 4. Sale/divestiture of 7 identified PEs by December 31, 2004. B1. Review of need for and, if 1. Review need for 1. Completion of study Continued political appropriate, establishment of establishment of MSR by commitment to make multi-sectoral regulator for December 31, 2001. transparent and reduce utilities and public services subsidies to population groups 2. If appropriate, legislation to 2. Legislation establish MSR enacted by December 31, 2002. 3. If appropriate, MSR 3. Assessments by supervision established and operational missions (regulations in place, Board members appointed and key staff recruited as per staffing plan) by December 31, 2003. B2. Strengthening of 1. Strengthening of MACRA 1. Assessments by supervision Parallel financing from regulatory functions in operations. missions. DANIDA for Telecom telecommunications, posts, regulation power and railways. 2. Strengthening of EC operations. 3. Strengthening of railways regulation in Ministry of Transport. - 19 -  C. Completion of postal 1. Improvements in postal 1. Annual reports by MPC Sufficient investors interest in investment program. sector indicators: mail posted bidding for privatized entities from one city for delivery in 2. GOM Annual Budget another city is delivered by the document third day of posting will increase from 65 percent to 80 percent by December 31, 2004. 2. Increase in the number of letters handled per staff per annum from 45,610 to 62,903 by December 31, 2004. 3. Elimination of subsidy requirements by June 30, 2004. DI. Pre-privatization 1. Completion of agreed 1. Assessments by supervision Agreed tariff increases are assistance to ESCOM pre-privatization program missions allowed for postal rates and consistent with divestiture government provides agreed timetable. subventions for postal sector D2. Pre-privatization 1. Achievement of Year 2000 1. Assessments by supervision assistance to MTL compliance by MTL missions - 20 -  Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1. Privatization component US$ 15.2 million Project quarterly reports Agreed sector policy statements allowing for 2. Regulatory component US$5.3 million divestiture transactions to occur and for regulatory 3. Postal sector support US$9.6 million functions to be implemented by appropriate agencies 4. Pre-privatization assistance US$2.1 million -21 -  Annex 2: Project Description MALAWI: Privatization and Utility Reform Project By Component: Project Component I - US$15.20 million Privatization Component. This component would finance consultancy services for privatization transactions associated with three utility sectors (telecommunications, power and water) and seven other identified non-utility transactions as described below. A. Utility Sector Privatization Malawi Telecommunications Ltd A substantial sector reform agenda preceded the commencement of the privatization of telecommunications and is described in the Communications Sector Policy statement of August, 1998 and in the Communications Act of December, 1998. The key goals established in the sector policy are: * to increase the number of working telephone lines to not less than 150,000 by the end of year 2003; * to raise quality of service to intemational standards; - to stimulate the provision of new services within Malawi; - to reduce the price of telecommunication services in real terms; to extend access to modem telecommunication services throughout the country according to a defned program covering rural areas; * to open up the provision of telecommunication services to the private sector. The key elements of the reform agenda consist of: i separation of postal and telecommunication activities into two separate entities - Malawi Telecommunications and Malawi Postal Corporation; 9 separation of regulatory functions and establishment of the Malawi Communications Regulatory Authority (MACRA) and immediate liberalization of all services other than basic voice telephone - which is to be subject to an initial period of exclusivity of five years for the incumbent MTL - which is to be privatized; 3 the establishment of a plan to bring MPC into self-sufficiency with government subsidy during the first two years of its operation. Implementation of the reform agenda has commenced with MACRA, MTL and MPC having been established. The transaction advisory services (investment banking and legal advisors) for the privatization of Malawi Telecommunications Limited are being financed under the project. Given the urgency of meeting the second tranche release conditions under the FRDP II project (i.e. appointment of the transaction advisors), the government undertook a consultancy selection process between March to September 1999. As a result the selected consultants came on board in October 1999 and a contract in the amount of US$1,263,980 was signed. In order to finance these services, a first tranche of PPF amounting to US$650,000 was approved by IDA and the funds utilized to make initial payments to the consultants. Further, under DANIDA financing, additional consultancies are underway to assist in the separation of the telecommunications and posts businesses within MPTC and to MACRA for the preparation of licenses. The transaction advisory consultants are currently working with the objective of producing a privatization options report by late May 2000. Within one month of the government indicating its preferred option, the consultants would produce the information memorandum for sale. -22 -  The Communications Sector Policy Statement provides a five year period of exclusivity for basic services to MTL from the date of its incorporation. Given the irnpact that this might have on the development of the sector and further given that the exclusivity could potentially constitute an anti-competitive trade practice in terms of the Competition and Fair Trading Act No 43 of 1998 (which is awaiting implementation), the government plans to immediately revisit this issue. This review would be completed and a final decision reached prior to the issuance of the Information Memorandum for the sale of MTL. Electricity The reform process started in 1998 and initially resulted in the revised Electricity Act, 1998. Implementation of the reform agenda has commenced with: (i) the establishment of the Electricity Council (EC) in January 1999; (ii) the incorporation of ESCOM in July 1998 into a limited liability company wholly owned, for the time being, by the government; (iii) the transfer of all assets, liabilities, property and staff of the old ESCOM to the new ESCOM Limited; and (iv) commencement of a commercialization program for ESCOM. In addition, a Task Force was appointed to oversee the commercialization program as well as to formulate a power sector policy statement. This has since resulted in the draft Power Sector Policy Statement of July, 1999 which is still awaiting cabinet approval and the draft revised Electricity Bill, 2000, which had been published for consideration by Parliament. The key elements of the sector policy statement were the separation of ESCOM into generation, transmission and distribution units and commencement of privatization of distribution immediately with subsequent privatization of generation. However, the Bill had been withdrawn from consideration by Parliarnent since there were concems within government regarding the proposed unbundling of ESCOM into several units. The Task Force was therefore reconvened in early May 2000 and begun the process of reviewing the sector in light of these concerns. This review indicated that the proposed sector structure was fundamentally sound but that some fine tuning of the structure and further clarifications on how this would assist in fulfilling the objective of introducing competition into the sector would need to be provided. The next steps are for the sector policy to be revised and submitted to cabinet in July-August 2000 and for the Bill to be sent to Parliament in October 2000. In order to improve the financial viability of the sector, the proposed approach in the sector policy statement is to privatize the distribution assets first. Within six months of the approval of the policy, an adviser would be appointed by PC to recommend on the privatization of distribution and to oversee the implementation of the transaction. Further, within 18 months of the approval of the policy, PC would be expected to complete the transaction for privatization of distribution. With regard to generation, steps will be undertaken after policy approval to set up ESCOM generation as a separate entity and to undertake a study to establish the feasibility of splitting ESCOM's existing generation assets into commercially viable competing companies and privatizing some or all of those units. The privatization of generation would be undertaken within 18 months after the privatization of distribution is completed. An amount of US$2 million has been budgeted for each of the transactions for the privatization of distribution and generation. This is in addition to the amounts being allocated directly to ESCOM to cover pre-privatization assistance. -23 -  Water Over the past 20 years, the urban water boards in Malawi have received support with institutional and infrastructure development under several projects funded by the Development Bank of Southern Africa, the African Development Bank, the European Investment Bank, the Nordic Development Fund and IDA including through the ongoing IDA funded National Water Development and Third Lilongwe Water Supply Projects. With support from these projects, the urban water boards have expanded facilities, extended service coverage and have introduced some measures to improve efficiency. However, the financial condition of the Boards has deteriorated in recent years despite tariff increases. Therefore, the involvement of the private sector is considered essential in order to establish autonomy and appropriate incentive structures so that improvements made under previous and ongoing projects can be sustained, the poor can be better served, and the growing demand for water can be met. A consultant will be engaged from alternative grant funding to evaluate options for PSP in the water sector and assist the Ministry of Water Development and Water Boards to identify a preferred option based on an assessment of the current situation in Malawi as well as best practice, particularly in Africa. Options to be considered will include: (i) whether there is sufficient technical and fnancial capacity in Malawi to implement some sort of local PSP option, (ii) whether it will be necessary and feasible to attract an International Private Partner, or (iii) how, in the absence of interest and capacity of either local or international partners, an arms length contractual relationship can be developed to accomplish the objectives of sustainability, reliability and affordability. The preferred option will be identified through consultation with representatives of the two urban water boards currently responsible for water supply in Blantyre and Lilongwe, the Ministry of Water Development, PC, municipal authorities, consumer groups and other interested parties. Workshops will be held to elicit views and concerns of stakeholders and to build consensus. The PSP Options study will be performed in conjunction with development of a Cost Recovery Strategy. Through an iterative process a preferred PSP option will be identified that can provide for sustainability by considering both the affordability of service and the financial viability of the service provider(s). On the basis of this work, it is expected that particular types of divestiture would be identified. The advisory services associated with implementing the chosen divestiture/privatization transaction would be financed under the project. An amount of US$1.5 million has been provided for in the project to cover the cost of the study and the privatization of the two Water Boards. B. Non-Utility Privatization Additional identified and unscheduled transactions. As noted earlier, there is an ongoing privatization program with a government approved Divestiture Sequence Plan consisting of at least sixty five PEs (out of the original list of hundred), which still need to be completed. Some of the divestitures will require fairly significant resources for transaction advisory services. Seven entities to be privatized were identified during appraisal. In addition to telecommunications, water and power distribution and generation, these are: Agriculture Development and Marketing Corporation (ADMARC); Commercial Bank of Malawi, Air Malawi; Malawi Rural Finance Corporation; Tourism Development and Investment Corporation; Malawi Housing Corporation; and Malawi Savings Bank. Five additional transactions, which are currently not scheduled, were identified (National Bank of Malawi, David Whitehead and Sons, Shire Bus Line, airports privatization and Indebank/Fund) and it is expected that a minimum of two of these would be funded through the project. The first year's work program for the entire privatization program (July 2000 - June 2001) was appraised and this process is expected to continue throughout the project with an annual review of the work program at which time, the unscheduled transactions to be funded would also be agreed between PC and IDA. Further details on the non-utility privatization transactions are provided below. -24 -  Financial Sector The restructuring of Malawi's financial sector began eleven years ago with the passage of the Banking Act, 1989. Despite progress made in the last four years, Malawi's financial services sector remains shallow, with the asset side concentrated in government securities, the liabilities in bank deposits, the bulk of its revenues through investments in treasury bills and other govermment paper, and more income from investment income rather than its lending activity. Further, the sector is dominated by two banks, both of whom are partially owned by the government. The securities market is growing, but slowly. There is little activity in the secondary debt markets due to the captive nature of the main holders of government securities. The are several key issues constraining financial sector growth: (i) interlocking shareholding, which ensures that connected lending and inevitably reduces the effectiveness of prudential lending limits; (ii) ADMARC and MDC are both owners and major borrowers from major commercial banks which has the tendency of crowding out the private sector; (iii) the incumbent position of the two major banks ( National Bank of Malawi - NBM and Commercial Bank of Malawi - CBM) reduces the effectiveness of competition in the market, resulting in a limitation of the quality and quantity of services available. To address these inhibitions the government proposes to accelerate the reform process by increased sector liberalization, regulation, restructuring and privatization. Two studies, funded from FRDP II, which looked at rationalizing the regulatory framework across the whole sector and reviewing privatization options have recently been concluded. With regard to privatization, 75 percent of Fincom was recently disposed of to Nedbank of South Africa, with the remaining 25 percent to be disposed of to the public within five years. Work is in progress to list NBM on the Malawi Stock Exchange in conjunction with an offering of seven percent of the bank to the general public. CBM was listed on the Malawi Stock Exchange in 1998, when 12 percent of the bank was offered to the public. Subject to the agreement of the government, it is proposed to dispose of up to 51 percent of CBM to a strategic investor. In a similar manner, it is proposed that a strategic partner be found for the NBM. PC, in conjunction with Lonrho, is also in the process of disposing of a controlling interest in the New Building Society; this transaction is being funded by USAID. The Malawi Rural Finance Corporation, which is wholly owned by the government, will also be examined with a view to privatizing the company once it has been put on a sound commercial basis. It is planned that a consultant will be appointed first to recommend the steps needed to put the company on a proper commercial footing, and then to help implement the changes required. Privatization of the Corporation would then follow. A similar process is proposed for the Malawi Savings Bank, although it is likely that the whole process will take longer than in the case of the Malawi Rural Finance Corporation given the banks close and problematic ties to MPTC. An amount of US$150,000 has been provided for each of the searches for strategic partners for the two main commercial banks. For Malawi Rural Finance a sum of US$500,000 has been allowed for the complete restructuring and privatization process. Given the greater problems with the Malawi Savings Bank, US$750,000 has been provided for its restructuring and privatization. Agriculture Since its establishment, ADMARC has been the public sector's principal marketing channel for non-perishable agricultural inputs and agricultural produce in Malawi. However, due to liberalization and the advent of private trading, ADMARC's purchases of maize and other crops from primary producers in Malawi have declined substantially in recent years. The government is committed to turning over the cereals market and other markets to private traders, wholesalers and retailers, with the ultimate objective to withdrawing altogether from agricultural marketing. The government is mindful - 25 -  that the operation of the cereals markets has implications for food security. Consequently it plans to effect the transition to private ownership and trade in a way that causes the least disruption and adverse impact on the incomes and food security of the poorest. The government is ,therefore, in the process of developing a framework for the reform of agricultural marketing in Malawi in a way that: balances the concerns inherent in improving the efficiency of ADMARC's constituent enterprises; spreads ownership and control of marketing resources among the population; and maintains the access of smallholders to key marketing services. A program for the commercialization and progressive privatization of ADMARC, covering a period of approximately three years, has been prepared and will be implemented on its approval by the government. A sum of US$300,000 has been provided in the project to cover this process. Tourism Development and Investment Company of Malawi Ltd (TDIC) TDIC is wholly owned by Malawi Development Corporation (MDC). It is the majority shareholder of the chain of eight hotels commonly known as Malawi Hotels. TDIC is included on the Divestiture Sequence Plan and was originally scheduled to be privatized in 1999. A considerable amount of discussion had already taken place as to whether the chain should be sold as a single unit or split up into individual hotels prior to sale. However, in 1999, in an effort to raise funds for its own use, MDC pledged its shares in TDIC. This precluded any further work on the privatization of TDIC in the short term. It is hoped that the shares in TDIC will no longer be encumbered by 2003 and work on the privatization of the company will again be able to commence. Utnsckeduled Transactions Five transactions which are like to occur during the term of the project and which are large enough to warrant IDA funding have been identified. These transactions include finding a strategic partner for NBC and privatizing David Whitehead and Sons, Shire Bus Line (previously Stagecoach), airports, and IndebankWFund. It was agreed that these transactions could be substituted for the non-utility transactions or that up to two such transactions could be funded in addition to the seven non-utility divestitures with specific agreement between IDA and PC at the time that these transactions are to be funded from the project. To cover the possibility that these transactions would be additional, funding of US$0.6 million has been included under the privatization component. C. Other Privatization Support Long Term Advisor Since February 1997 the PC has had a long term advisor to assist it in its work. However, the current contract for the advisor finishes in October 2000 and future funding may not be available. To continue to provide PC with the assistance of an advisor with international experience, particularly during the project period when a number of major transactions are expected to be undertaken, the Privatization Component includes financing to cover the cost of one long-term advisor at an annual cost of US$300,000 -26 -  Participation by Malawians There are political, social and economical reasons for encouraging participation by the population at large in the privatization program. Politically, such participation offers a means to gain support for privatization. In many African countries, the population, uncertain of the potential consequences of privatization, has opposed privatization or at least has not actively supported it. By ensuring that citizens receive some direct benefit, the government stands a chance to win support for the privatization programs. Socially, participation offers a way of providing more equitable distribution of wealth in the country, as well as avoiding a perception that the privatization program benefits only foreigners, wealthy individuals, or certain groups in society. Economically, participation benefits the country by providing a means to expand and deepen capital markets, and to improve the efficiency of the country's industries. For these reasons, as noted in the background section, one of the four specified objectives of the Malawian privatization program is to "promote participation by the Malawian public in enterprises." PC has pursued this objective in a number of ways: (i) the regulations to the Privatisation Act allow Malawian investors to purchase enterprises on deferred payment terms; (ii) the Commission is in the process of establishing a collective investment scheme which will allow Malawians to purchase shares in a range of enterprises which they would otherwise not be able to participate in; (iii) a loan scheme, managed by Indebank and funded by the EIB, allows Malawian entrepreneurs to borrow funds specifically for the purpose of purchasing a controlling interest in an enterprise being privatized; (iv) a number of profitable PEs have been listed on the Malawi Stock Exchange following an initial public offering and through this process about 10,000 Malawian shareholders have been created; and finally (v), a Special Fund has been established to assist individual Malawians to purchase shares of public enterprises being listed on the Malawi Stock Exchange. While IDA is unable to fmance the purchase of existing assets and, therefore, cannot provide funds for Malawian participation in the privatization program, given the importance of Malawi Participation to the progress of the whole privatization program, a portion of funds may be utilized to fund a study into alternative methods of promoting participation. If an appropriate program can be devised within the constraints of IDA's articles of association and which could be demonstrated to have additionally with regard to current arrangements, it would be considered for financing under the Private Sector Development Project which is currently under preparation. Task Force Operating Expenses As part of the privatization process for larger enterprises a task force comprising the major stakeholders involved with the enterprise is usually established. These task forces meet as required to coordinate and expedite the work of the various parties involved in the restructuring and privatization. To date task forces have been set up to oversee the restructuring work being undertaken by MTL, MPC and ESCOM. The task forces typically include, as a minimum, the enterprise itself, the Treasury, the line ministry involved, PC and the regulatory authority. It is envisioned that further task forces will need to be established as privatization work extends into other utilities. To meet the operating costs of these various task forces a sum of US$200,000 has been included in the project. -27 -  Communication Campaign There are still concerns from a variety of stakeholders including labor, which is concerned about possible redundancies, and consumers who are concerned about increases in prices of services. It is therefore necessary to continue with the process of disseminating information regarding the positive welfare gains produced by privatization as evidenced by positive experiences elsewhere and in Malawi. To achieve that goal, PC would intensify its campaigns via print, electronic and other forms of publicity; employ, on a retainer basis, a Public Relations firm to assist with this task; and periodically cany out opinion polls. An amount of US$27,000 per annum has been budgeted for this function. Training Staff of PC will receive some training through seminars and short courses to keep abreast of latest developments For this purpose, a modest amount of US$40,000 for the entire duration of the project, has been set aside. This will also cover the cost of some initial training in World Bank procurement and accounting procedures for the additional staff member PC intends to employ with Project funding to assist with the management of the project. Project Component 2 - US$5.30 million Support to regulatory institutions. This component would help in enhancing the operations of the Malawi Communications Regulatory Authority for postal and telecommunications regulation, the Electricity Council for power regulation and the railways regulatory activities in the Ministry of Transport. Further, this component would also assist the Ministry of Finance in establishing a multi-sectoral regulator once a decision has been taken in this regard. Malawi Communications Regulatory Authority MACRA was established after the passage of the Communications Act, 1998 but has become fully operational only in early 2000 with financing assistance provided by DANIDA and initial fees that it has begun to collect for licenses. It has only five staff but is in the process of further recruitment, especially in the postal area. The main areas of support would relate to technical assistance (TA), training and equipment for frequency/spectrum monitoring. TA would consist of approximately four person years of consultants to fund one long-term resident advisors each for posts and for telecommunications for a period of one year. These individuals would be in place during the critical start-up period during the first year of the licenses being issued to MPC and the privatized MTL. In addition to the on-the-job training being provided by the long-term advisors, some limited training on specific topics would also be provided to MACRA staff. Thereafter, an additional two person years of short-term consultants over the life of the project. The frequency monitoring equipment would constitute the major assistance to MACRA since it is expected to cost around US$3 million; the project would fund around US$2.5 million of this investment. There is, however, a sufficient business case for acquiring the equipment since revenues can be generated from the charges resulting therefrom. The expected strategy is for an investment of around US$1 .5-2 million to be made in the first phase, which would generate additional revenue streams from charging telecommunication and broadcasting operators for the actual use that is made of the frequency spectrum. This should allow for the investments to be recovered in around three years. Consequently, in the second phase of equipment acquisition (during the final year of the project), the project would finance only 2/3 of the additional investment costs. The government would ensure that the additional revenue streams arising from the first phase of equipment acquisition will be made available to partially finance the second phase of equipment acquisition. - 28 -  Electricity Council The council was established pursuant to the Electricity Act, 1998 and has been operational since early 1999. It currently has five staff. The main areas of support to be provided to EC relate to the provision of limited short-term technical assistance of around two months per year, short courses for training especially in economic regulation, vehicles and computing equipment and testing equipment for safety monitoring. Railways regulation In order to provide comfort to the new franchisee, the Ministry of Transport has appointed one of its staff as, de facto, the regulator. There is need to provide TA to this new regulator in establishing an appropriate work program and implementing the first year of this work program. The government is expecting to receive grant funding from USAID for this activity; the project would only finance activities which are not otherwise financed by USAID or other donors. Multi-Sectoral Regulator (MSR) GOM plans to undertake a comprehensive evaluation of the benefits and disadvantages of establishing a single MSR for all utilities and public services. If the findings of this evaluation are favorable, the government would then proceed with the establishment of MSR. The project would, hence, assist the GOM in three phases. The first phase, which would be completed by December 31, 2001, would consist of a study which would review existing regulatory arrangements and establish the benefits/costs of establishing MSR. If the recommendations of this study are to establish MSR, then in the second phase, a time-bound action plan for the design and establishment of MSR and the drafting and approval of relevant legislation would be developed by December 31, 2002. In the third phase, the plan would be implemented, which could be expected to include the merging of existing regulatory bodies and staffing and training of staff of the newly established MSR. For the initial study of assessing the appropriateness of establishing MSR, the government plans to seek grant financing from the Public/Private Infrastructure Advisory Facility; if such funding is not forthcoming, the work would be funded under the project. The second and third phases, which would be completed by the end of the project, would consist of the design and implementation of this plan which could be expected to include the merging of existing regulatory bodies and staffing and training of staff of the newly established MSR. During the phases of deciding on the need for MSR and designing MSR, the project would provide support to EC and MACRA - which are candidate institutions for merger into MSR - since the areas covered by the project support capacity building in sectoral and technical activities would continue to be required in the multi-sectoral regulator. Further, once the plan has been defned, the project would support the establishment of the multi-sectoral regulator and the transitional arrangements for combining several agencies into one. Project Component 3 - US$ 9.60 million Postal sector support. Postal services are limited to delivery of mail to private letter boxes. There is a considerable waiting list for this service (17,955 as compared to 51,111 installed boxes). Over time, the volume of mail has declined overall and especially in the lucrative market segments due to competition. The basic stamp rate of 60 tambala (approximately 1.3 US cents at the current exchange rate) and of box rentals of 45 kwacha per annum (approximately US$1 had resulted in tariffs well below costs. Consequently, the services had to be funded through a considerable subsidy from the telephone services. There has been a lack of capital investment in MPC; for example, more than 75 percent of the mail delivery fleet is more than three years old with a considerable portion of it being much older. Basic infrastructure required for handling letters and parcels (e.g. conveyor belts, postal counter equipment, date stamps) are - 29 -  not available even in the large post offices. Further, extremely limited funds are available for basic maintenance of buildings and equipment. A Business Plan for MPC has been prepared and based on this plan, MACRA approved a rate increase effective April 1, 2000 of the basic stamp rate to 2 kwacha (approximately 5 US cents) and for the private boxes in a range between 100-2500 kwacha per annum (approximately US$2-55 depending on box size, location (urban vs. rural) and nature of usage (individuals vs. companies). The revenues earned since the rate increases in the month of April 2000 indicate a substantial increase in total revenues as compared to previous periods. It is, however, difficult to assess whether there will be a significant impact on volumes handled due to the price increases. Based on the business plan, the Ministry of Finance will allocate in its FY2001 budget a provision of subsidy for postal services. In conjunction with the rate increases and the government subvention, the project would support a substantial investment program in improving the operational infrastructure of MPC. This would focus primarily on: * Modernizing the vehicle fleet of MPC, given that it is old and difficult to maintain and a significant proportion is grounded. The vehicles would be largely purchased up front and consist of heavy and light mail vans, twin cab pickup trucks, motorcycles and bicycles. * Increasing the satellite delivery units, post office boxes and street pillar boxes. Given the recent substantial increases in post office box rental rates (from US$1 to between US$2-5 5 per annum), there may be some impact on the waiting list. The investment program is, however, phased evenly over the first three years of the project and this would allow for adjustments to be made to the level of procurement if the demand for the boxes should reduce as a result of the higher tariffs. * Improvements in information systems/information technology in business and administrative systems. A two stage approach in this area is envisaged. In the first phase, the initial investment would be largely in the area of standalone computers at postal headquarters - given the very low level of technology in use, there is urgent need for this procurement. At the same time, MPC would hire consultancy support for the design and installation of a local area network at MPC headquarters which would allow for greater impact from the technology. It would also begin the process of purchasing off-the-shelf applications for its financial management/management information systems - which need to be acquired since the financial management systems currently in use would be kept by MTL and would no longer be available for MPC's usage. MPC would also review its critical business systems (e.g. counters) and define a program for improving information systems/technology in these systems. In the second phase, MPC would install the local area network at its headquarters, complete installation of its financial management systems and begin the process of implementing improvements to its business systems. Given the limited information systems/technology skills within MPC, this would be a key area of support provided by its twinning partner, as discussed below. The investment program needs to be accompanied by significant improvements in the human resources in MPC. The process has commenced with the hiring of some key senior staff from outside MPC in order to build the nucleus of a commercially oriented management team. However, this needs to be supplemented quickly by expertise in postal management - which can best be transferred from another postal administration or associated postal services consulting entities. Hence, the project would finance MPC entering into a twinning relationship with another organization. It is envisaged that the support to MPC will be in reviewing business systems and improving effectiveness and efficiency through: improving management and business processes and enhancing use of Information systems/technology; and developing - 30 -  a human resource development plan and associated training plan. The twinning partner would also assist in implementing part of the MIPC training plan including through provision of in-country on-the-job and classroom training to MPC staff as well as organizing exchange/secondment of MPC staff to the twinning partner's own country. Project Component4 - US$2.10 million Pre-prtvatization Assistance. This component would support restructuring activities in ESCOM and Year 2000 compliance activities in MTL. Malawi Telecom Limited. The main assistance is with regard to the Year 2000 compliance. Given the urgency of reaching compliance prior to December 1999, IDA provided a second tranche of PPF to assist MTL in ordering hardware and software "fixes" required to achieve compliance. ESCOM. ESCOM has identified several key activities which are required in order for privatization to proceed smoothly. Key among these are advisory services for a tariff rebalancing study, preparing separate accounts for the new Strategic Business Units as well as high voltage metering equipment which is required in order to separate the billing of generation, transmission and distribution. -31 -  Annex 3: Estimated Project Costs MALAWI: Privatization and Utility Reform Project 4 - Privatization Program 2.65 10.67 13.32 Regulatory Reform 0.00 4.82 4.82 Postal Sector Support 3.03 6.01 9.04 Pre-Privatization Assistance 0.00 2.00 2.00 Total Baseline Cost 5.68 23.50 29.18 Physical Contingencies 0.14 1.12 1.26 Price Contingencies 0.78 0.98 1.76 Total Project Costs 6.60 25.60 32.20 Total Financing Required 6.60 25.60 32.20 - 32 -  Annex 4 MALAWI: Privatization and Utility Reform Project Cost Benefit Analysis 1. The project's primary focus is on the provision of Technical Assistance in support of the privatization and utility reform process and towards building regulatory capacity. This support will be catalytic in utility sector reform which in turn is expected to lead to increasing service access and quality; the key performance indicators for the project (which are contained in Annex I) focus on improvements in service access and quality as the measures of the projecfs development impact. There will also be a number of economic benefits including (i) productivity gains; (ii) increased output resulting from additional capital investment by privatized firms; (iii) additional income from the net creation of jobs in the private sector, (iv) factor cost savings from the reduction of average production costs of utility companies; and (v) consumer surplus from improved access and quality of utility services provided. However, the support provided under the project will constitute only a small proportion of the overall investment leading to these economic benefits and it was, hence, not considered appropriate to attribute these to the project. Consequently, a cost benefit analysis was not undertaken. - 33 -  Annex 5: Financial Summary MALAWI: Privatization and Utility Reform Project Years Ending June Year 1 I Year 2 Year 3 | Year 4 | Year 5 | Year 6| Year 7 Total Financing Required Project Costs Investment Costs 4.7 9.2 7.3 5.2 2.4 0.0 0.0 Recurrent Costs 2.3 1.0 0.1 0.0 0.0 0.0 0.0 Total Project Costs 7.0 10.2 7.4 5.2 2.4 0.0 0.0 Total Financing 7.0 10.2 7.4 5.2 2.4 0.0 0.0 Financing IBRDIIDA 4.6 9.4 7.3 5.2 2.4 0.0 0.0 Govemment 2.4 0.8 0.1 0.0 0.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User Fees/Beneficiares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 7.0 10.2 7.4 5.2 2.4 0.0 0.0 Main assumptions: -34 -  Annex 6: Procurement and Disbursement Arrangements MALAWI: Privatization and Utility Reform Project Procurement 1. Procurement of goods will be done in accordance with World Bank Guidelines: Procurement under the IBRD Loans and IDA Credits (issued in January 1995, revised January and August 1996, September 1997, and January 1999). Consulting Services, technical assistance and training will be procured in accordance with the Guidelines - Selection and Employment of consultants by World Bank Borrowers, January 1997, revised September 1997 and January 1999. The Bank's Standard Bidding Documents, Request for Proposals and Forms of Consultants' Contract will be used. 2. Goods and Equipment. For goods procurement packages estimated to cost US$100,000 or more each, the International Competitive Bidding (ICB) procedure will be used. National Competitive Bidding will be used for goods estimated to cost more than US$30,000 but less than US$100,000 equivalent per contract, maybe procured under contracts awarded in accordance with provisions of paragraphs 3.3 and 3.4 of the Guidelines. For goods estimated to cost up to US$30,000 each, National or International Shopping will be applied, based on comparison of quotations obtained from at least three suppliers. For the purchase of goods to be awarded through ICB, the Borrower may grant a margin of preference of 15 percent or the amount of applicable customs duties, whichever is lower, to qualified domestic manufacturers of goods in accordance with the Guidelines referred to above. The aggregate for each procurement method is given in the footnotes under Table A. 3. Consultants' Services. Consultants' services estimated to cost more than US$200,000 per contract will be selected through the Quality and Cost Based Selection (QCBS) procedure. Such contracts will be advertised in the Development Business and a national newspaper for expression of interest from which a shortlist will be drawn. Individual experts will be selected in accordance with Part V of the consultant guidelines. Selection based on consultants' qualification will be conducted for the training contracts, in accordance with paragraph 3.7 of the consultants guidelines. For the aggregates, see the footnotes under Table A. 4. All contracts for goods exceeding US$100,000 or more will be subject to prior review by the Bank. With respect to Services, prior Bank review will be required of all terms of reference, irrespective of the contract value. For each contract estimated to cost US$200,000 or more, after the technical proposal has been evaluated, the technical evaluation report will be submitted to the Bank for its review prior to the opening of the financial proposals. For contracts estimated to cost US$100,000 or more the Bank will be notified of the results of the technical evaluation prior to the opening of the financial proposals. For contracts with firns estimated to cost less than US$100,000 the Bank will review and provide its No Objection to the terms of reference; the rest of the procurement process will be subject to ex-post1Statement of Expenditures (SOE) review by the Bank during supervision. For contracts with individual consultants costing US$50,000 or more the qualifications, experience, terms of reference and terms of employment shall be furnished to the Bank for its review and approval prior to contract signature. All other contracts will be subject to ex-post review by the Bank. 5. In the section below, specific procurement responsibilities are defined and the application of the above guidelines to specific activities at the component level are discussed in detail. -35 -  Procurement activities and responsibilities 6. The Privatisation Commission would be responsible for procurement co-ordination and taking the lead in preparing project-wide procurement documentation. The Privatisation Commission has co-ordinated the preparation of an Overall Procurement Plan (OPP) which has been appraised and assessed to be of satisfactory quality. A Detailed Procurement Plan (DPP) for the first year of the project, showing the procurement method and processing time for each contract has also been prepared and agreed with IDA. The paragraphs below provide more detailed information on how procurement responsibilities would be aligned with component level implementation responsibilities of relevant implementing agencies. 7. The privatization component would be implemented by the Privatisation Commission. Procurement would primarily consist of acquisition of services from consultancy firms to act as transaction advisors or to conduct studies associated with sector restructuring/ privatization options. The services would be acquired primarily through Quality- and Cost Based Selection (QCBS) procedures. Further, given that the value of most contracts would exceed US$200,000 it is expected that the majority of shortlists for consultancy contracts under this component would be drawn up after the issuance of Specific Procurement Notices inviting expressions of interest from consultants in the Development Business and at least one local newspaper of wide circulation. A procurement assessment has been conducted for the Privatisation Commission which has been assessed to have satisfactory procurement procedures. The contract for the current Privatization Advisor which is due for renewal in October 2000 may, with the approval of IDA, be extended on the basis of single sourcing. 8. The regulatory reform component would be implemented by the Ministry of Finance, MACRA, EC and the railways regulatory staff in the Ministry of Transport. The Ministry of Finance will take the lead in initiating the study to establish a multi-sectoral regulator; the Government plans to seek financing from PPIAF but if this funding is not forthcoming would utilize project resources. Assistance would continue to be provided to individual regulatory agencies during the interim period in functional and sectoral specialization through long- and short-term consultants providing Technical Assistance, staff training on short courses or through study tours/attachments with other regulatory entities and acquisition of office and/or monitoring equipment. Long-term advisors (in MACRA) and other short-term consultants would be individuals hired under procedures specified under Section V of the consultancy guidelines with most contracts being less than 2 months in duration. Given the small number of regulatory staff and the specialized nature of the training courses, the only viable option will be for short courses with internationally reputed institutions; agreement will be reached with IDA staff on the course content prior to identifying alternative institutions where trainees would be sent. Finally, MACRA is likely to acquire frequency monitoring equipment which will be of substantial value and, hence, subject to Intemational Competitive Bidding. The Electricity Council will acquire testing equipment of US$10,000 which will be acquired through international shopping. Procurement assessments have been completed for MACRA and the Electricity Council. MACRA would hire short-term procurement consultancy support especially in preparation of the bidding documents for frequency monitoring equipment and would send one or two staff members for procurement training in IDA procedures. The Electricity Council would primarily procure goods through local/international shopping and has been assessed to have sufficient capacity for this purpose. - 36 -  9. The postal sector support component would be implemented by the Malawi Posts Corporation. There are two sub-components - one consisting of IDA funded investments and the other consisting of an annual subvention from the Government to MPC for the first two years of the project. IDA will be funding consultants in support of management, training, acquisition of postal and office equipment. The consultants and training will be packaged into one contract - a twinning arrangement with a reputed postal administration/postal firm. The selection process for this contract will either be based on QCBS or under SFB (Selection under a fixed budget); this matter will be resolved with MPC after the Terms of Reference are finalized. The postal and office equipment will be acquired largely through International Competitive Bidding; since this will be the component acquiring the most equipment under the project, careful attention will be given to consolidating the International Competitive Bidding (1CB) goods acquisition under this component with those to be acquired under other components. Finally, the subvention from the Government also does not have any procurement implications but does have accounting verification issues. The procurement assessment for MPC - which is a newly established entity but which will inherit the systems from MPTC - has been completed. The procurement action plan for MPC includes hiring of short-term procurement consultants especially in preparation of the bidding documents for vehicles and postal equipment and sending one or two staff members for procurement training in IDA procedures. 10. The pre-privatization assistance component would be implemented by ESCOM and MTL. The pre-privatization assistance to ESCOM relates to consultancy support for tariff reform, establishing the new accounting systems and initial financial statements for the Strategic Business Units and for the acquisition of high voltage meters which will allow for appropriate demarcation of revenue streams between generation, transmission and distribution and subsequently - after privatization - between the separated entities. ESCOM has been assessed to have sufficient capacity for procurement. The pre-privatization assistance to MTL focused primarily on the Year 2000 compliance activities; these funds were provided on a priority basis by IDA as a separate tranche from the Project Preparation Facility. The bulk of the equipment has been purchased through direct contracting given that hardware and software remediation measures could be provided only by the vendors which supplied the original hardware or software. - 37 -  Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 7.83 0.00 1.00 0.00 8.83 (7.83) (0.00) (1.00) (0.00) (8.83) 3. Services 0.00 0.00 20.03 0.00 20.03 (0.00) (0.00) (19.79) (0.00) (19.79) 4. Operating Costs 0.00 0.00 3.34 0.00 3.34 (0.00.00) (0.28) (0.00) (0.28) Total 7.83 0.00 24.37 0.00 32.20 (7.83) (0.00) (21.07) (0.00) (28.90) " Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies 21Includes goods to be procured through national and international shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs incurred on account of project implementation, management and monitoring, including office supplies, vehicles and equipment operation and supervision costs but excluding salaries of officials of the Borrower. 3/ Figures in parenthesis includes amounts financed from the PPF. - 38 -  Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) A. Firms 16.68 0.00 0.00 0.00 0.00 0.00 0.00 16..68 (16.41) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (16.41) B. Individuals 0.00 0.00 0.00 0.00 0.00 2.77 0.00 2.77 (0.00) (0.00) (0.00) (0.00) (0.00) (2.77) (0 .00) (2 .77) Total 16.68 0.00 0.00 0.00 0.00 2.77 0.00 19.45 1 (16.41) (0.00) (0.00) (0.00) (0.00) (2.77) (0.00) (19.18) I\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. -39 -  Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' ~~~~~~~~~~~~~* a 1.Works NA NA 2. Goods >100 ICB All >30<100 NCB <30 Shopping 3. Services - firms >200 QCBS All <200 Least Cost Selection >100 - i n d iv i d u a ls Training CQ - individuals ~~~>50 INDVIUAL All <50 INDIVIDUAL No Threshold Single Source All Total value of contracts subject to prior review: 26.9 million Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) In addition to the procurement supervision missions, the procurement analyst in the Malawi Country Office will provide ongoing support to project implementing entities on an as needed basis. IThresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. -40 -  Disbursement Allocation of credit proceeds (Table C) While the first year's disbursements will be made through the traditional method, it is expected that thereafter the project will disburse through the Loan Administration Change Initiative/Financial Management Initiative (LACI/FMI). In this method, disbursements will take place based on the submission to the World Bank of Quarterly Project Monitoring Reports (PMRs). For PMR -based disbursements, it must be certified that the project has in place an adequate accounting and reporting system, including procurement/contract management system that can provide the appropriate data on major procurement, and contracts as well as full financial and out put monitoring indicators produced quarterly as required by the Bank under the LACI/FMI initiative. Because it may take time to configure the output monitoring reports and integrate them into the accounting system the project may not be immediately eligible for PMR disbursements by loan effectiveness .The traditional disbursement procedures of Statement of Expenditures (SOE) and Special Account (SA) replenishment based on documentation submitted will be used until the project is ready for PMR disbursements. The readiness for PMR disbursements however, will continue to be monitored in the interim period and before declaring the credit effective, and plan of action to achieve readiness or conversion will be used, discussed and elaborated during negotiations. Submission of contracts for the Banks No Objection will take place for contract values above US$100,000 for goods, works and consulting firns and US$50,000 for individual consultants would be presented with full documentation for prior review and disbursement. The project will be implemented over a four year period, will be completed by June 30, 2004 and will close on December 31, 2004. An IDA credit of US$28.9 million will finance 90 percent of the total project costs, including up to US$0.5 million of retroactive financing for costs incurred after June 1, 2000. GOM will finance the remaining 10 percent in the form of the following contributions: (a) proposed subvention to the Malawi Posts Corporation in the amount of US$3 million allowing MPC a transitional period within which it would improve its efficiency and tariffs to fully recover its costs; (b) paying for the success fee (25 percent of the cost of the telecommunications transaction advisory services) by foregoing this amount from the proceeds of the sale US$0.3 million); and (c) 10 percent contribution to the local costs of goods, training and incremental operating expenditures purchased under the Credit. Funds provided under the credit, which relate to the postal sector support component, are also governed by a related project agreement between IDA and MPC and by a subsidiary grant agreement between GOM and MPC. - 41 -  Table C: Allocation of Credit Proceeds Consultants and Training 18.24 100% - Part A ($13.34 million) - Part B ( $2.29 million) - Part C ($1.59 million) - Part D ($1.02 million) Vehicles and Equipment 7.77 100% for foreign expenditures and 90% - Part A ($0.09 million) for local expenditures - Part B ($2.74 million) - Part C ($4.59 million) - Part D ($0.35 million) Operating Costs under Part A of the 0.26 100% for foreign expenditures and project 90% for local expenditures Refunding of Project Preparation 1.33 Amount due pursuant to Advance Section 2.02 (c) Unallocated 1.30 Total Project Costs 28.90 Total 28.90 Use of statements of expenditures (SOEs): During the first year disbursements for contracts not governed by prior review will be made on the basis of Statement of Expenditures (SOEs). Specifically, this will result in disbursements for goods and consultancy contracts (with firms) less than US$100,000 consultancy contracts (with individuals) less than US$50,000 and all training activities and operating costs being made on the basis of SOEs. Assurances were received during appraisal that supporting documentation would be maintained by the project at the PC and be made available for review by the Bank supervision missions. The usage of SOEs would be phased out when the project is converted to PMR based disbursement after the end of June 2001. Special account: PC will open one Special Account (SA) through the Reserve Bank of Malawi with a reputed international bank in New York with a corresponding local Bank account with any one of the local commercial Banks under terms and conditions satisfactory to IDA. IDA would be informed of the account opened by the Reserve Bank of Malawi and would deposit funds into this account after the effectiveness conditions under the legal agreements have been fulfilled. The initial disbursement for the Special Account will be US$1 million which is based on a forecast of the first six month's expenditures. Replenishments by IDA will remain at this level until the aggregate amount of withdrawals from the Credit Account plus the total amount of all outstanding special commitments shall exceed the US$ equivalent of SDR 2.6 million. Thereafter, replenishments by IDA will be increased to allow the funds in the Special Account to reach the authorized allocation of US$2 million. When the project will be considered LACI/EM compliant and ready for PMR based disbursements, the special account will be replenished based on the PMR submitted by the project after certification by the financial management and procurement specialists, the disbursement -42 -  officer and the Task Team Leader. Disbursement requests will originate from the PC and be endorsed by the Ministry of Finance- Claims Unit prior to a withdrawal being made from the SA for payments to suppliers. Small payments will be paid through the local account and all related documentation will have to be kept by the Commission for review by the Bank missions from time to time. Replenishments of the SA would follow Bank procedures. It will be audited by an independent auditor acceptable to IDA which would be appointed prior to credit effectiveness based on an audit scope as contained in terms of reference acceptable to IDA. The audited accounts would be submitted to the Bank six months after the end of each fiscal year for review. Financial Management Assessment 1. Overall Assessment. In summary, the project will operate in a low to medium risk environment in terms of financial management standards and capacity. The financial laws and regulations in Malawi are adequate and accounting and auditing standards could be considered at par with International standards. There is a professional association of accountants (the Society of Accountants in Malawi or SOCAM) and Malawi is a member of both International Federation of Accountants and Eastern, Central and Southern African Federation of Accountants. The accounting profession is well developed especially in the private sector though the number of qualified accountants is still very small; the public sector's accounting capacity is inadequate mainly owing to low pay. GOM's budgeting system is to make budgetary allocations for the following year at Ministerial and Departmental of expenditures based on levels of expenditure in prior year. The budgets are consolidated by the Ministry of Finance and approved by Parliament. The Principal Secretary of each Ministry, who is a controlling officer, is responsible for executing the budget. There is no management accounting techniques used in the execution of such budgets such as analyzing the accounting data availed to the Treasury and using it to make decisions. However, there is a requirement to submit an expenditure return at the end of each month which is used for some analysis and forms the basis for release of funds for the following month. External audit for all governmental institutions which includes PEs is required by statute. The Ministry of Finance also sends out its internal auditors once a year whenever possible to check compliance with the prescribed systems of internal control. However, there is no system of following up implementation of recommendations made both from the external and internal auditors. SOCAM also provides quality assurance in the private sector and to a small extent in the public sector. 2. Institutional and Implementation arrangements The lead implementing agency for the project, PC, is located in Blantyre as are most of the other implementing agencies i.e. ESCOM, MACRA, the EC, MPC and MTL. The financial management capacity of PC which will manage the Special Account and the overall accounting function of the project has been assessed. There are currently two people working in the Accounts Department headed by the Accountant. The Accountant who is professionally qualified and her staff are very competent in their responsibilities as evidenced by the quality of the reports they produce and lack of substantive points in previous management letters issued by the auditors. However, this number of staff is inadequate. It has been agreed to employ one more member of staff who will be involved with replenishments, updating of books of accounts, processing of transactions and coordinating procurement plans and their implementation. The responsibilities of the Commission vis a vis reporting with regard to fnancial management have been determined and discussed. Under the leadership of the Executive Director of PC, the Accountant would develop accounting codes within PC's accounting system which will reflect expenditures incurred under the project from the IDA Credit and from the Government's counterpart contributions in full compliance with -43 -  International accounting standards and Bank requirements for accounting, auditing and reporting. This chart of accounts would provide a linkage between the cost elements to outputs as well as monitoring indicators. The system would provide complete, accurate and timely informnation regarding project resources provided by the Bank and expenditures arising therefrom. In addition to the Project Steering Committee which will have representatives of all the above stakeholders to monitor project implementation, the finance committee of the Board of the Privatization Commission will be responsible for reviewing all financial management matters of the project on a quarterly basis. Apart from producing quarterly PMRs, the Accountant will also be responsible for coordinating and facilitating the audit of the project at the end of every fiscal year and ensuring that it is submitted to the Bank six months after the end of the fiscal year. Description of such reports will be included in the final version of PIP. 3. Budgetary and Accounting Systems Guidance for budgeting of Government entities is governed by the Finance and Audit Act Chapter 37:01 which also stipulates accounting and audit requirements. The Act is supplemented by Treasury Instructions. Supplementary Circulars are issued to change accounting operational procedures from time to time as demanded. The Treasury Instructions define responsibilities and level of authority within each Ministry. The same Instructions require that ministries, Government departments and all subvented organizations which include PEs like the PC submit expenditure returns at the end of each month outlining expenditures incurred and cash balances. Before the end of each fiscal year, the Accountant of PC reviews expenditures incurred on each line item to provide guidance on what steps need to be included in the following years budget. A list of activities projected for the following year are outlined by the Executive Director with his management team for costing and eventual inclusion in the PC's budget. Estimates for salaries, projected capital expenditure are made thereafter. A base cost for such activities is derived after which the figures are adjusted for projected inflation. The Executive Director and the Director of Finance review the budget before submitting it to the Board for approval. The approved numbers are then given to the Ministry of Finance for inclusion in the National Budget. At the end of every month, accounts are prepared and a variance analysis report is developed with explanations given for the variations. Once submitted to the Executive Director and management, decisions are taken for correcting the deviations. The only deviation that is difficult to correct is the under funding from Government for the PC's operations. The PC's accounting system currently in use and proposed to be used for accounting for the World Bank funds to be disbursed for the project, has been reviewed for internal controls and its ability to produce timely, relevant, reliable and adequate financial reporting. As is the case with all small organizations which are small, the level of segregation of duties is not elaborate as would happen in a large institution. While all outstanding invoices are booked in the accounting system at the end of the month, there is no interim record in which such outstanding invoices are recorded. PC is not able to produce accounting statements and reports from the current accounting software. A trial balance from the accounting software is exported to a spreadsheet application which then produces the accounts. The systems do not stipulate the need to seek the authority of the Finance Director in writing to introduce a new code in the accounting system as will happen for World Bank project expenditures. Whilst reconciliation are done every month by the Accounting Department, these are counter checked only in a limited manner. PC does not have an internal audit function but the assessment was that this may not currently be needed. A Financial Procedures Manual is in place which will be updated and finalized to take into account the specific requirements of the project. 4. Agreed Financial Reporting Formats Owing to preparatory work to integrate reporting formats into the existing software system, the project will disburse funds through the traditional method for the first twelve months. During this time, the accounting system will produce a summary of the Statement of Expenditures and an adjoining expenditure detail, -44 -  statement of withdrawal schedule, a balance sheet if deemed necessary, special account statement and notes to the accounts. Once an integrated project monitoring system which brings together project financial management, disbursement, procurement, contract management and output monitoring reports is in place, the project will start disbursing funds using Project Monitoring Reports (PMRs). Every quarter the PC will produce: (a) Financial statements showing a summary of sources and uses of funds, uses by project activity, cash forecast for the next quarter, cash withdrawal and a Special Account statement; (b) Output monitoring report which shall detail progress and indicators achieved for that quarter; and (c) Procurement management reports which shall detail procurement management status for consultants, contract expenditures for the samne and incurred on goods. These reports will be submitted to the World Bank and the Project Steering Committee forty five days after the end of every quarter for review and act as a basis for the next quarterly disbursement. The accounts will be prepared on a cash basis and shall follow International accounting standards. The accounts for the first and subsequent years will be audited and submitted to the World Bank six months after year end. 5. Audit Arrangements Audit of companies in Malawi, inclusive of PEs is a statutory requirement required by company law. Government ministries and departments are audited as required by the Finance and Audit Act. Companies and almost all PEs are audited by private audit firms. Out of the big five worldwide frms, four are represented in Malawi. These follow International Standards on Auditing when conducting their audits. Quality checks are done annually through peer reviews by counter parts from the Republic of South Africa. Audit of the project will be done by an independent and qualified audit firm who are also the auditors of the Commission. Subject to annual performance satisfactory to the Bank, a contract for the first two years for the audit of the project will be concluded between the Privatization Commission and the auditors after the negotiations of the credit prior to credit effectiveness. Terms of Reference for the annual audit will be included in the Project Implementation Manual and will ensure that the audit will assess whether: (i) the information is fairly presented for the specified period and cumulatively for the project with regard to project accounts and statements of sources and applications of funds; and (ii) reported disbursements were made in accordance with loan agreements and the Project appraisal document. Further, Statements of Expenditure (SOE) would also be audited and the auditors will be required to ascertain that individual expenditures which comprise SOE totals are fully supported by documentation retained in the borrowers files, properly authorized and eligible under the Development Credit Agreement (DCA) and appropriately accounted for. For Special Accounts (SA), the auditors will be required to verify that the SA statements are fairly presented and that disbursements from the special account are proper and in accordance with the DCA. The terms of reference for the auditors will also cover the review of internal controls, whether there are meaningful linkages between expenditure and monitoring indicators-to assure, inter-alia, the reliability of the PMRs when in use. Audit reports which shall consist of auditors opinions and management letter will be submitted within six months following the end of each fiscal year. -45 -  Annex 7: Project Processing Schedule MALAWI: Privatization and Utility Reforin Project Time taken to prepare the project (months) 6 24 First Bank mission (identificatdon) 06/28/98 06/28/98 Appraisal mission departure 09/15/98 05/02/2000 Negotiations 11/05/98 05/18/2000 Planned Date of Effectiveness 01/01/99 10/01/2000 Prepared by: Government of Malawi Project Preparation Task Force: Ministry of Finance and Economic Planning (Chair) Privatisation Commission Malawi Posts Corporation MACRA Electricity Council Malawi Telecom Limited ESCOM Limited Preparation assistance: IDA PPF - Two tranches for a total of US$ 1.25 million Bank staff who worked on the project Included: Gaiv M. Tata Team Leader Edgar Saravia Privatization Lucy Fye Privatization Paul Noumba Um Telecommunications Paivi Koljonen Power Moffat Chitimbe Infrastructure Officer Kumar Ranganathan Posts Donald Mphande Financial Management Elizabeth Otubea Adu Country Legal Counsel David Satola Telecommunications Legal Counsel Rogati Kayani Procurement George T. Sikazwe Procurement Robert Roche Water Sector Serigne Omar Fye Environmental Assessment Yash Pal Kedia Railways Gareth Locksley Telecommunications Watipaso Mkandawire Economist Marie-Ange Saraka-Yao Peer Reviewer Yeshareg Dagne Task Team Assistant Agata E. Pawlowska Privatization Irene Chacon Program Assistant -46 -  Annex 8: Documents in the Project File* MALAWI: Privatization and Utility Reform Project A. Project Implementation Plan Draft Final Project Implementation Plan B. Bank Staff Assessments 1. Project Information Document 2. Identification Mission Aide-Memoire and Back To Office Report 3. Minutes of the PCD Review Meeting 4. Pre-Appraisal Aide-Memoire and Back To Office Report 5. Preparation Mission Aide Memoire and Back To Office Report 6. Appraisal Mission Aide Memoire 7. Procurement Assessment 8. Financial Management Assessment C. Other 1. Public Enterprises (Privatization) Act No. 7 of 1996 2. Telecommunications and Posts Sector Policy Statement, 1998 3. Communications Act, 1998 4. Electricity Act, 1998 5. Draft Power Sector Policy Statement, July 1999 6. Electricity Bill, 2000 7. Employment Act, 2000 8. Competition and Fair Trading Act No. 43 of 1998 9. Consultancy Services for Assessing and Validating Actions Regarding Year 2000 related problems at Malawi Posts and Telecommunications Corporation 10. Privatization Commission Annual Report 1998 11. Inception Report, Telecommunications Transaction Advisors, 1999 12. Malawi Posts Corporation Business Plan 2000-2003 13. MACRA Approved Budget for FY2000/01 *Including electronic files -47 -  Annex 9: Statement of Loans and Credits MALAWI: Privatization and Utility Reform Project Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Revd P001664 1997 Malawi ENV. MANAGEMENT 0.00 12.40 0.00 8.39 1.24 0.00 P001648 1996 Malawi FISCAL RESTR&DERE 0.00 112.20 0.00 0.57 -2.45 3.17 P001658 1991 Malawi FISHERIES DEV. 0 00 8.80 0