Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00006576 IMPLEMENTATION COMPLETION AND RESULTS REPORT P160796 ON A CREDIT IN THE AMOUNT OF SDR 13.8 MILLION (US$20 MILLION EQUIVALENT) AND AN ADDITIONAL FINANCING CREDIT IN THE AMOUNT IN THE AMOUNT OF SDR 7 MILLION (US$10 MILLION EQUIVALENT) TO THE REPUBLIC OF CABO VERDE FOR A STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT April 1, 2024 Governance Global Practice Western And Central Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective {March 14, 2024}) Currency Unit = SDR SDR 0.749988 = US$1 US$ 1.3333554 = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Ousmane Diagana Country Director: Keiko Miwa Regional Director: Abebe Adugna Dadi Practice Manager: Gael J. R. F. Raballand Task Team Leader(s): Yousif Mubarak Elmahdi ICR Main Contributor: Marc-Anton Pruefer ABBREVIATIONS AND ACRONYMS AF Additional Financing AfDB African Development Bank ASA Airport Security Administration (Agência de Segurança Aeroportuária) CECV Caixa Economica de Cabo Verde (bank) CEM Country Economic Memorandum COVID-19 Corona Virus Disease 2019 CPF Country Partnership Framework CPS Country Partnership Strategy CPT Social Housing Program for all (Casa Para Todos) CRC Claim Resolution Company CVA Cabo Verde Airlines (previously TACV) CVE Cabe Verde Escudos CV Handling Cabo Verde Handling (logistics) DA Designated Account DLI Disbursement-Linked Indicator DNP National Directorate of Planning (Direção Nacional do Plano) DPF Development Policy Financing ECA Europe and Central Asia EDP Electricity of Portugal (Electricidade de Portugal) EEP Eligible Expenditure Program EFA Economic and Financial Analysis ELECTRA Public Water and Electricity Company (Empresa de Electricidade e Água) ENAPOR National Port Authority (Empresa Nacional de Administração dos Portos) EU European Union FNH National Housing Fund (Fundo Nacional de Habitação) GDP Gross Domestic Product GoCV Government of Cabo Verde GPN General Procurement Notice IFH Real Estate, Land and Habitat (Imobiliária, Fundiária e Habitat) IFR Interim Financial Report IMF International Monetary Fund IPE-ADP Water of Portugal (Aguas de Portugal S.A) IPF Investment Project Financing M&E Monitoring and Evaluation MENA Middle East and North Africa MIOTH Ministry of Infrastructure, Spatial Planning and Housing (Ministério das Infraestrutura, Ordenamento do Território e Habitação) MoF Ministry of Finance and Business Development (Ministério das Finanças e do Fomento Empresarial) NPF New Procurement Framework NPV Net Present Value OECD The Organization for Economic Cooperation and Development PBC Performance Based Condition PDO Project Development Objective PFM Public Financial Management PIM Project Implementation Manual PIU Project Implementation Unit PP Procurement Plan PPP Public-Private Partnership PPPP Public-Private Partnerships and Privatization PPSD Project Procurement Strategy for Development PSC Project Steering Committee PSIA Poverty and Social Impact Analysis PSOs Public Service Obligations SCD Systematic Country Diagnostic SDR Special Drawing Rights SOE State-Owned Enterprise SPN Specific Procurement Notice ToC Theory of Change ToR Terms of Reference TACV Cabo Verde Airlines (Transportes Aéreos de Cabo Verde) UASE State Commercial Sector Oversight Unit (Unidade de Acompanhamento do Sector Empresarial do Estado) UGPE Special Projects Management Unit (Unidade de Gestão de Projetos Especiais) TABLE OF CONTENTS DATA SHEET ........................................................................................................................... I EXECUTIVE SUMMARY ........................................................................................................... V I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 1 A. CONTEXT AT APPRAISAL .........................................................................................................1 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................4 II. OUTCOME ...................................................................................................................... 6 A. RELEVANCE OF PDOs ..............................................................................................................6 B. ACHIEVEMENT OF PDOs (EFFICACY) ........................................................................................7 C. EFFICIENCY ........................................................................................................................... 11 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 12 E. OTHER OUTCOMES AND IMPACT........................................................................................... 12 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 13 A. KEY FACTORS DURING PREPARATION ................................................................................... 13 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 13 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 14 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 14 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 15 C. BANK PERFORMANCE ........................................................................................................... 15 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 16 V. LESSONS AND RECOMMENDATIONS ............................................................................. 16 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 19 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 31 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 34 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 35 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 38 ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name STATE OWNED ENTERPRISES RELATED FISCAL P160796 MANAGEMENT PROJECT Country Financing Instrument Cabo Verde Investment Project Financing Original EA Category Revised EA Category Not Required (C) Not Required (C) Organizations Borrower Implementing Agency Ministry of Finance, Special Projects Management Unit, REPUBLIC OF CABO VERDE Ministry of Finance, State Commercial Sector Oversight Unit (UASE), Ministry of Finance Project Development Objective (PDO) Original PDO The Project Development Objective is to strengthen SOE related fiscal management. i The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 20,000,000 20,000,000 18,623,764 IDA-62510 10,000,000 3,813,653 3,079,930 IDA-69240 Total 30,000,000 23,813,653 21,703,694 Non-World Bank Financing 0 0 0 Total 0 0 0 Total Project Cost 30,000,000 23,813,653 21,703,694 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 04-Jun-2018 22-Oct-2018 12-Sep-2022 31-Jul-2023 30-Sep-2023 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 14-Jun-2023 21.61 Change in Components and Cost Reallocation between Disbursement Categories Other Change(s) 29-Sep-2023 22.37 Change in Components and Cost Change in Loan Closing Date(s) Cancellation of Financing Reallocation between Disbursement Categories KEY RATINGS Outcome Bank Performance M&E Quality Moderately Unsatisfactory Moderately Unsatisfactory Modest ii The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 28-Nov-2018 Satisfactory Satisfactory .04 02 03-Jun-2019 Satisfactory Satisfactory 10.64 03 13-Dec-2019 Satisfactory Satisfactory 10.68 04 16-Jun-2020 Satisfactory Satisfactory 14.43 05 22-Dec-2020 Satisfactory Satisfactory 15.58 06 29-Jun-2021 Moderately Satisfactory Moderately Satisfactory 16.24 Moderately 07 03-Jan-2022 Moderately Unsatisfactory 16.76 Unsatisfactory 08 05-Nov-2022 Unsatisfactory Moderately Unsatisfactory 19.05 09 11-May-2023 Unsatisfactory Moderately Unsatisfactory 21.61 10 29-Sep-2023 Unsatisfactory Moderately Unsatisfactory 22.37 SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 100 Other Public Administration 100 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Economic Policy 20 Fiscal Policy 20 Fiscal sustainability 20 Private Sector Development 20 Public Private Partnerships 20 iii The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Public Sector Management 100 Public Administration 100 State-owned Enterprise Reform and 100 Privatization ADM STAFF Role At Approval At ICR Regional Vice President: Makhtar Diop Ousmane Diagana Country Director: Louise J. Cord Keiko Miwa Director: Deborah L. Wetzel Abebe Adugna Dadi Practice Manager: Alexandre Arrobbio Gael J. R. F. Raballand Task Team Leader(s): Kjetil Hansen, Rohan Longmore Yousif Mubarak Elmahdi ICR Contributing Author: Marc-Anton Wilhelm Pruefer iv The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) EXECUTIVE SUMMARY i. The Cabo Verde State-Owned Enterprises (SOE)-Related Fiscal Management Project (P160796) was approved on June 4, 2018, in the amount of US$20 million and became effective on October 22, 2018, with the Project Development Objective (PDO) “to strengthen SOE-related fiscal management”. An Additional Financing (AF) (P172528) and first restructuring was approved on June 18, 2021, in the amount of US$10 million, increasing the total commitment to US$30 million. It maintained the PDO, scaled up and expanded original activities, introduced a new component and two subcomponents, and extended the closing date. A second restructuring was processed on June 14, 2023, to formalize retroactive funds reallocation. A third restructuring was processed on September 29, 2023, to allow for early cancellation on September 30, 2023, given that progress on several key indicators stalled, largely due to external factors, especially COVID-19 pandemic impacts. ii. The project was designed as a combination of Results-Based Financing and Technical Assistance (TA) aimed at strengthening SOE fiscal management by improving the SOE legal and regulatory framework, enhancing SOE ownership, oversight, and reporting, and supporting SOE restructurings. At the time of appraisal Cabo Verde had a total of 32 SOEs, and the State was the sole owner of 17 companies, a majority shareholder in seven, and a minority shareholder in eight. These entities provided many essential services in critical areas, such as transport, water and electricity. The 5 largest SOEs represented 80 percent of state-owned capital, and assets equivalent to 40 percent of GDP. SOE performance was characterized by continuous losses and debt increase, which obligated the Government of Cabo Verde (GoCV) to assist through loans, recapitalization, or guarantees – chief among the underperforming SOEs was Cabo Verde airlines (Transportes Aéreos de Cabo Verde - TACV), which was specifically targeted by this project. In this context, SOE fiscal management was becoming ever more critical, while SOE ownership, oversight, and reporting capacity were lacking, including because the recently created SOE oversight unit within the Ministry of Finance and Business Sector Development (MoF) still displayed important capacity constraints. iii. The overall outcome rating is Moderately Unsatisfactory, reflecting High Relevance of the PDO, Modest Efficacy and Modest Efficiency. The relevance of the PDO is rated High given the project was highly relevant to country strategy and WBG objectives, in particular the GoCV’s goal to improve monitoring of SOEs, and fiscal consolidation, including rationalization of public investments and entities, laid out in its Strategic Plan for Sustainable Development (PEDS) 2017– 2021, and the WBG FY15-FY17 Country Partnership Strategy (CPS) pillars on: (i) enhancing macro-fiscal stability and setting the foundations for growth; and (ii) improving competitiveness and private sector development, and the subsequent FY20-25 Country Partnership Framework (CPF) Results Area II: Strengthening the environment for a more diversified economy, covering both macro-fiscal resilience and private sector development. These objectives remain intact beyond the project’s closure. Modest Efficacy is reflective of the project partially achieving its expected outcomes, together with the substance of these achievements, including the TACV rightsizing, the strengthening of the SOE legal and regulatory framework, the enhancement of SOE ownership and oversight capacity, and improved monitoring and reporting, as well as the laying of foundations for future sector reform. Modest Efficiency is reflective of modest economic and financial benefits in terms of reduced public financing and increased public revenues from SOEs – which were also muted by exogenous shocks, as well as the reasonable operational costs involved in achieving these benefits, as compared to other operations and recognized norms (“value for money”). iv. The project’s Risk to Development Outcome is rated as Substantial. This reflects a discontinued project within a context of somewhat unclear reform direction accentuated by COVID-19 pandemic impacts and other exogenous factors. Moving forward, SOE sector reform is threatened by macroeconomic and other factors, including: (i) potential continued reform delays and further financial support to SOEs; (ii) competition from other West African countries to become hub economies; (iii) limited interest by internal and external investors given market size; (iv) political economy challenges, including resistance to change by vested interests; and (v); climate-related shocks, among others. v The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) v. Project experience surfaced several lessons that should be considered for future SOE-related engagements in Cabo Verde and beyond. A key lesson is that SOE reforms must balance measures linked to fiscal sustainability and privatization with service delivery and political economy aspects. As denoted by its name, and reflected in the results framework, the project prioritized macro-fiscal aspects of SOE reform, although the full rationale for it also included considerations of service delivery and national sovereignty. SOE reforms are rarely informed by just macro-fiscal considerations – less so in small island states. This should be factored into project selection and design. Another important related lesson is that higher-level objectives related to overall sector health should not themselves be chosen as PDO indicators, because they are prone to multi-dimensional variables and exogenous shocks that might mask underlying achievements. The experience of this project clearly demonstrates this. vi The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. The State-Owned Enterprises (SOE)-Related Fiscal Management Project (P160796) was approved on June 4, 2018, in the amount of US$20 million (IDA 62510) and became effective on October 22, 2018. The original project aimed at strengthening targeted SOEs fiscal management performance by improving monitoring and oversight, enhancing sectoral governance, and supporting SOEs repositioning. An Additional Financing (AF) (P172528) and first restructuring, which maintained the same Project Development Objective (PDO), was approved on June 18, 2021 (IDA 69240), in the amount of US$10 million, increasing the total commitment to US$30 million. The AF scaled up and expanded the original activities, introduced a new component and two subcomponents, as well as new intermediary results indicators (IRIs), and extended the closing date. A second restructuring was processed on June 14, 2023, to formalize retroactive funds reallocation. A third restructuring was processed on September 29, 2023, to allow for early cancellation on September 30, 2023. Country Context 2. At project appraisal, in 2018, Cabo Verde displayed one of the highest Country Policy and Institutional Assessments (CPIA) scores among IDA countries in the Africa Region, reflecting strong political institutions. The country also witnessed a sustained decline in the number of poor and high human capital achievements. The incidence of poverty fell from 58 percent in 2001 to 35 percent in 2015, while extreme poverty dropped from 30 percent to 10 percent during this period. Cabo Verde outperformed its peers on most non-monetary dimensions of poverty including life expectancy, maternal mortality, net primary school enrolment, and access to an improved water source. At 73, life expectancy at birth was—together with Mauritius and Seychelles—the highest in Sub-Saharan Africa. Solid performance had been demonstrated for different health indicators (infant mortality rate, proportion of births attended by skilled health staff). Performance in education, and electricity network coverage also attained robust results. 3. Despite these human capital improvements, growth had collapsed since 2008 as the economy was hit hard by the global financial and sovereign debt crises, and the associated fiscal response. Despite a pickup in growth in 2016 and 2017 (3.8 and 3.9 percent respectively), the economy struggled to reach an average growth of 1.5 percent per year between 2009 and 2016. The deceleration since 2008 was primarily attributed to lower private investments, even as capital spending by the Government of Cabo Verde (GoCV) increased for the first five years after the crisis. There was also a marked decline in the efficiency of investments. Taking advantage of available concessional financing, the GoCV decided to increase public investments to create jobs, address infrastructure bottlenecks, and lay the foundations for future growth. In this context, total public-sector debt increased from 68 percent of GDP in 2008 to approximately 126 percent of GDP in 2016 (International Monetary Fund (IMF), Article IV). Sector Context 4. At the time of appraisal Cabo Verde had a total of 32 SOEs, and the State was the sole owner of 17 companies, a majority shareholder in seven, and a minority shareholder in eight. These entities operate under the commercial code, their founding legislation, and the 2016 framework SOE Law (Law 47/VII/2009) and are tasked with providing many essential services, including in economically strategic areas, such as transport, water and electricity. The largest SOEs by assets and turnover were the Water and Electricity Company (Empresa de Electricidade e Água, ELECTRA) (utility), Airport Security Administration (ASA) (airports management), Cabo Verde Airlines (Transportes Aéreos de Cabo Verde, TACV), National Port Authority (Empresa Nacional de Administração dos Portos, ENAPOR), and Imobiliária, Fundiária e Habitat (IFH) (housing). The State’s prominent role as owner of SOEs, and essential services provision in key sectors constituted Page 1 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) a two-pronged challenge: (i) how to ensure effective delivery of services; and (ii) how to relieve the State of the fiscal and economic burden related to SOEs. 5. SOE-related fiscal management was becoming ever more critical, while SOE oversight, and monitoring and reporting capacity were lacking. The five largest SOEs represented 80 percent of the state-owned capital, and assets equivalent to 40 percent of GDP at the time of appraisal. SOE performance was characterized by continuous losses and debt increase mainly attributable to IFH, ELECTRA, and TACV, which represented a total debt stock of 32 percent of GDP, almost equivalent to the value of their assets. SOE’s limited capability to ensure debt outgoings obligated the GoCV to assist through loans, recapitalization, or guarantees. Moreover, in 2016 TACV and IFH had become insolvent and required GoCV intervention for handling their operational costs. In this context, the urgency for the GoCV to gain control of the situation and undertake reforms became decisive, which was also supported by relevant analytical work.1 At the same time, the recently created SOE oversight unit, UASE (Unidade de Acompanhamento do Sector Empresarial do Estado) within the Ministry of Finance and Business Sector Development (MoF) displayed a lack of appropriate monitoring instruments and experienced staff.2 6. The GoCV’s restructuring of TACV was informed by more than macro-fiscal considerations. A 2016 report on contingent liabilities by Cabo Verde’s Treasury department identified TACV as a priority target, based on operational and financial performance. Moreover, among the largest SOEs contributing to public debt, TACV posed the highest risk in the short term. It was therefore urgent for the GoCV to put in place measures to reduce direct financial support to TACV to relieve this increasingly unsustainable fiscal burden. The decision to restructure and privatize TACV with WBG support was highly complex and informed by more than macro-fiscal considerations. In 2016, the WBG prepared an internal assessment and commissioned a study that both recommended a partial liquidation, and controlled winding down of TACV operations. The GoCV ultimately decided on restructuring and partially privatizing TACV in a partnership with Loftleidir Icelandic. Despite operational and financial deficiencies, TACV was ultimately of strategic importance for sovereignty and service delivery because it served as a link between the remote archipelago, its diaspora, and the rest of the world. The GoCV also decided to keep the airline operational under partially private ownership with the goal of further developing its tourism sector, and a vision of transforming Cabo Verde into a transport hub in the Atlantic. Rationale for World Bank Group Support 7. The SOE-Related Fiscal Management Project complemented a long-standing WBG engagement on SOE reform in Cabo Verde. Importantly, the operation was framed in the context of political renewal with a stated commitment to sectoral reforms. A new administration had taken office in 2016 and had displayed an increased appetite for reforms that the WBG was already supporting with ongoing operations. The Poverty Reduction Support Credit series (FY2005-17) had provided continuous financing for overall sector reform, which was complemented with targeted Technical Assistance (TA) under the Privatization and Regulatory Capacity Building Project (P055467). The Recovery and Reform of the Electricity Sector Project (P115464), which had just closed in March 2018, and the ongoing AF of the Transport Sector Reform Project (P161248) targeted specific sectors and SOEs, including ELECTRA, ENAPOR, and TACV. At appraisal of the SOE-Related Fiscal Management Project, the situation of TACV had deteriorated to the point where the GoCV felt the pressure to put in place a sweeping plan consisting of: (i) TACV’s withdrawal from the domestic and regional market; (ii) restructuring and privatization of its international business; and (iii) restructuring of its debt. The project was thus designed to complement and reinforce WBG engagements and build on existing experience that placed the WBG in a 1 World Bank Group (WBG) analytical work pointed to a need for strengthening SOE-related fiscal management, including curtailing SOE debt to reduce the fiscal burden and manage risks related to SOEs. Similarly, the IMF Article IV report identified SOE reform as a key priority due to the fiscal risk that emanated from the sector. 2 The then ongoing Cabo Verde Transport Sector Reform Project (P161248) was supporting UASE to strengthen its capacity and monitoring systems, at the time of project appraisal. Page 2 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) solid position to support the GoCV on its SOE reform program, including by directly supporting the implementation of the GoCV’s reform plan for TACV. 8. The project was designed in line with the WBG FY15-FY17 Country Partnership Strategy (CPS) and the GoCV’s Strategic Plan for Sustainable Development (PEDS) 2017-2021. The common thread of both documents was the need to undertake SOE reform efforts to decrease fiscal risks and improve SOE performance. The project was aligned with the FY15-FY17 CPS pillars, including those related to: (i) enhancing macro-fiscal stability and setting the foundations for renewed growth; and (ii) improving competitiveness and private sector development. The operation supported the objectives of Pillar 1 through specific targets on reducing the GoCV’s lending to SOEs and increasing accountability for results in select SOEs, by supporting the restructuring and/or privatization of selected SOEs as well as the enhancement of the legal framework to improve governance and increase transparency. The project responded to the strategic objectives of PEDS 2017-2021, which centered on achieving economic stability and supporting greater efficiency in public spending, including the privatization of SOEs. Finally, the project was framed within the new WBG Country Partnership Framework FY20-FY25, which echoed GoCV's priorities as set out in the PEDS and proposed the promotion of an environment that would allow for economic diversification, especially through the privatization of SOEs, which in turn would contribute to improved fiscal management and reduced debt. Theory of Change (Results Chain) 9. Given that the Bank guidelines and procedures did not require it at the time of appraisal, the original Project Appraisal Document (PAD) did not include a Theory of Change (ToC), but one was added under the AF (see Annex 6). Several key activities were focused on supporting the restructuring and privatization of the TACV, which posed the greatest immediate risk to macro-fiscal sustainability. This was combined with an array of Technical Assistance (TA) activities to support the overall SOE reform agenda, with a focus on strengthening the SOE legal and regulatory framework, enhancing SOE ownership and oversight, and improving SOE monitoring and reporting. Accordingly, this was intended to contribute to decreased public financing to SOEs, increased revenues from the sector, and specifically to improve TACV’s operational efficiency. Ultimately, SOE-related fiscal management would thus be strengthened. Project Development Objectives (PDOs) 10. The PDO “to strengthen SOE-related fiscal management” remained unchanged over the project lifecycle. The project underwent one AF and three restructurings, the PDO and PDO indicators remained the same. Key Expected Outcomes and Outcome Indicators 11. The key expected outcome was to strengthen fiscal management of SOEs in Cabo Verde. Table 1 below shows the PDO, PDO indicators and the associated measurements. Table 1: Expected outcomes and indicators PDO outcome PDO indicators Measurement Annual transfers from the Government budget to SOEs for their Reduced public financing to SOEs - operations, including subsidies, capital injections, loans, arrears, including transfer from the budget and any payments made on behalf of SOEs to creditors, and and capitalization (% of GDP) government guarantees for loans contracted by SOEs Strengthen SOE- Improved operating margin of TACV Annual operational costs as a percentage of operating revenues related fiscal (Percentage) as reported in audited annual financial statements by TACV management Annual public revenues from SOEs Annual transfers and payments from SOE related activities to the (in tax payments, dividends government, such as taxes and dividends, and proceeds from sale concession payments, and or divestment of SOE shares or concession payments by private divestment proceeds) (in USD) operators in areas previously controlled by SOEs (ports, airports) Page 3 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Components 12. Project activities were organized around three original components: • Component 1: Results-Based Financing (US$16 million equivalent). This component aimed to support critical reforms in TACV to prepare the company for privatization, and to support the central SOE oversight unit (UASE) to improve the SOEs monitoring. This would be pursued by: (i) ensuring regular fiscal risk assessment and monitoring; (ii) ensuring TACV human resources reconfiguration; (iii) preparing TACV staff retrenchment plan; and (iv) decreasing public financing. The main actions for TACV repositioning were associated to Disbursement- linked indicators (DLIs) to incentivize and help finance the necessary reforms. • Component 2: Technical Assistance (US$3.5 million equivalent). This component aimed to strengthen the GoCV’s capacity as an active and informed owner of SOEs by: (i) supporting the implementation of the SOE reform program; (ii) strengthening GoCV capacity for macro-fiscal and SOEs monitoring, to better manage fiscal risks associated to SOEs; and (iii) improving corporate governance of SOEs. • Component 3: Project Management Support (US$0.5 million equivalent). This component aimed to support project coordination, procurement, financial management, audit, legal and monitoring and evaluation (M&E), including an independent verification agent (IVA). B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 13. Neither the PDO nor the outcome targets changed over the course of the project. Revised PDO Indicators 14. There were no changes to the formulation of the three PDO indicators, although one PDO indicator target was revised. While the 2021 AF and first restructuring introduced several changes (see Table 3), it did not reformulate any of the PDO indicators, because it was deemed that they adequately captured both the original and additional activities. The only revision to the PDO indicators was related to the target for PDO indicator 3 on the Annual public revenues from SOEs, which was increased by US$10 million per year, given an increase in the number of SOE to be restructured or privatized was expected to generate additional taxes, dividends, and divestment proceeds for the GoCV. Revised Components 15. The project benefited from an AF in June 2021 after three years of implementation. The AF granted US$10 million equivalent in additional funding, increasing the total project financing commitment to US$30 million. As shown in Table 2 and 3 below, the AF aimed to further strengthen SOE oversight via additional TA activities under subcomponent 2.1, as well as by incorporating two new subcomponents under Component 2, including Sub-component 2.3 (i.e., support investment promotion for further divestment [US$1.5 million equivalent]) and Sub-component 2.4 (i.e., regulatory capacity building and fiscal risk monitoring of concession contracts and PPP’s [US$1.5 million equivalent]). To further expand parent project interventions, a new component 4 related to IFH and Social Housing Reform was incorporated. IFH managed the social housing program “Casa Para Todos” (CPT) and held the responsibility for the largest loan with bilateral creditors. Despite technical and financial challenges IFH had successfully met its debt obligations up to the Corona-Virus Disease 2019 (COVID-19) pandemic which impacted the real estate sector, and therefore, IFH’s capacity to repay the loan. This further compromised its financial situation thus necessitating the support foreseen under the AF. The incorporation of new activities also involved the inclusion of new Intermediate Results Indicators (IRI) to capture AF results, as well as monitor corporate commitments on gender, climate co-benefits, and citizen engagement (see Table 3). Page 4 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Other Changes 16. A second and third restructuring were processed to provide fund reallocations, and to process cancellation of unused funds and early project closure, respectively. Two level II restructurings were conducted during the last year of implementation, on June 14 and September 29, 2023. The second restructuring processed a reallocation of funds across expenditure categories. The third and final restructuring processed cancellation of undisbursed funds and brought forward the project closing date from December 31, 2025, to September 30, 2023. Table 2: Reallocation of funds among components (US$ million equivalent) Original AF + First Second Third Component Financing restructuring restructuring restructuring Component 1: Results-Based Financing 16 16 16.77 16.77 Component 2: Technical Assistance 3.5 10.50 10.50 6.60 Component 3: Project Management 0.5 0.5 0.50 0.5 Component 4: IFH and housing sector reform 3.00 2.23 0.20 Cancellation (US$ million) 5.93 Total (US$ million) 20 30 30 30 Source: PAD, AF, and Restructuring Papers Rationale for Changes and Their Implication on the Original Theory of Change 17. The stated rationale for the AF and first restructuring was to consolidate, scale-up and broaden ongoing support to the SOE reform and privatization agenda in response to the COVID-19 pandemic context. The COVID-19 pandemic significantly impacted the Cabo Verdean economy, and especially the SOE sector, the ripple effects of which called for a boosting of the GoCV’s SOE-related fiscal management and SOE oversight capacity, while initiating asset and business valuations for restructuring and privatization of select additional SOEs, as related contingent liabilities risked further deteriorating fiscal sustainability. Specific changes included activities for strengthening the GoCV’s capacity to design, implement and monitor Public-Private Partnership (PPP) concessions and Foreign Direct Investment (FDI) promotion. 18. The impact on the original ToC was not substantial. As mentioned above, changes to the project did not include the PDO statement, which remained unchanged. Similarly, two of the three existing PDO indicators were expected to adequately capture results associated with newly introduced component and subcomponents, and new activities were considered to align with expected short- and long-term outcomes. Table 3 below offers a summary of the main changes. The ToC differentiating original and new components and activities can be found in Annex 6. 19. The second restructuring processed a reallocation of funds across expenditure categories. This was required to facilitate reimbursement of unmet balances related to PBCs associated with the settlement of severance packages for TACV and production of annual SOE reports by UASE. Fund reallocation was financed through expected savings with, at the time, a mutual decision of the GoCV and WBG having already been made to close the project early and cancel its undisbursed balance by September 30, 2023, due to prolonged problem status and recognition that its PDO, and accordingly, its ToC, would ultimately not be met. Cancellation and early closure were processed through the third and final restructuring. Ultimately, COVID-19 pandemic related constraints and contextual and policy shifts, alongside design shortcomings, particularly in M&E, derailed the project’s intent and the ambition of its AF. Conceptually, the project intended to directly help reduce SOE related fiscal risks, through the restructuring of major SOEs, substantially reducing SOE-related financing needs for the general Government and lower debt accumulation. However, in a context of COVID- 19 pandemic, SOE reform had become de-emphasized (in some cases reversed) with the GoCV also being required to provide more public services. As a result, public financing to SOEs had instead increased. Page 5 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) 20. To reduce the impact on the ToC, an early project closing date was set accounting for a built-in transition plan. The plan prioritized completion of well-performing contracts of strategic and foundational importance to the SOE sector and to the GoCV ahead of project cancellation, and the carry-over of follow-on (reform) stages to relevant WBG sectoral operations, i.e., the existing Renewable Energy and Improved Utility Performance Project (P170236) and new Improving Connectivity and Urban Infrastructure Project (P178644), to which cancelled funds would be channeled. To better guide a context appropriate approach to overall SOE reform, the GoCV and the WBG are currently jointly undertaking an integrated SOE Framework (iSOEF) assessment. This will serve to update knowledge on the sector’s financial and service delivery performance, while also looking at competitiveness, fiscal impacts, and corporate governance aspects. Table 3: Main changes during implementation Type of Date Key changes introduced revision -Additional financing of US$10 million (totaling US$30 million in project commitments. - Enhanced TA under sub-component 2.1 Improved SOE related fiscal management: - more detailed capacity building program and targeted SOE’s - alignment with First Sustainable, Equitable, and Green Recovery DPF (P174754) - complement ongoing WBG Investment-Enabling Environment in Africa, Caribbean, and Pacific Countries (IEE-ACP) TA program - TAs to support climate co-benefit, gender targets, and SOE board capacity AF + 18 June 2021 - Introduction of new (sub) components: Restructuring - Sub-Component 2.3.: Support Investment Promotion for Further Divestment - Sub-Component 2.4: Regulatory Capacity Building and Fiscal Risk Monitoring of Concession Contracts and PPPs - Component 4: IFH and Social Housing Reform - Introduction of 8 new IRIs: on number of SOE restructured, board capacity building, transparency and accountability, gender, climate Co-Benefits, and social housing - Extension of Project closing date from July 31, 2023, to December 31, 2025 - Retroactive formalization of fund reallocations across DLI-related disbursement categories reflecting actual expenditure Second 14 June 2023 - Utilization of undisbursed AF funds (IDA Credit No. 69240) – due to early project Restructuring cancellation, to address financing gaps on DLI proceeds under the parent project (IDA Credit No. 62510), because of sharp depreciation of SDR relative to the USD Third 29 September 2023 - Early cancellation, with closing date of September 30, 2023 Restructuring T II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 21. The relevance of the PDO is rated High given that the project was highly relevant to country strategy and WBG objectives. The project was highly relevant to the GoCV’s goal to improve monitoring of SOEs, and fiscal consolidation and rationalization of public investments and entities, including through divesture, PPPs, and concession arrangements, laid out in its PEDS 2017–2021, as well as the WBG FY15-FY17 Country CPS pillars on: (i) enhancing macro-fiscal stability and setting the foundations for growth; and (ii) improving competitiveness and private sector development, and the subsequent FY20-25 CPF Results Area II: Strengthening the environment for a more diversified economy, covering both Page 6 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) macro-fiscal resilience and private sector development. Moreover, it aimed to contribute to the achievement of the goals of the AFW strategic framework 2021-2025.3 22. At closure, the project remained relevant to GoCV engagements and the orientations of the Performance and Learning Review (PLR) of the FY20-25 CPF.4 The GoCV’s recently launched PEDS II 2022-2026, builds on PEDS I objectives and maintains a strong focus on macroeconomic stability, including in the SOE sector. Similarly, the 2024 PLR of the FY20- 25 CPF highlights the continued importance of SOE fiscal management. It also ensures that over the remainder of the CPF period, WBG support to the SOE agenda will continue through Development Policy Financing (DPF), and sectoral Investment Project Financing (IPF) operations. This is further testament to the relevance of the PDO. B. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 23. The ICR assesses the expected outcome captured in the PDO statement: to “strengthen SOE-related fiscal management.” To substantiate the assessment, it retraces the achievement of PDO indicators, Performance Based Conditions (PBCs), and IRIs at closing. No split rating approach is applied to determine the overall outcome rating. The 2021 AF and Restructuring revised PDO indicator targets to reflect the extended closing date and scope, and introduced additional IRIs, expanding ambition, while not modifying the PDO statement, or substance of any PDO indicators. Outcome: Strengthen SOE-related fiscal management 24. The project achieved all PBCs but fell short of PDO indicator targets at early closure. The project comprised four (4) PBCs aimed at the retrenchment of TACV staff with a view to restructuring the company (PBCs 1, 2 and 3), and improved annual aggregate reports prepared by the SOE oversight entity UASE (PBC 4). All PBCs were met and, in turn, expected to facilitate the achievement of three PDO indicators: PDO #1: Reduced public financing to SOEs (incl. transfers from the budget and capitalization); PDO #2: Improved operating margin of TACV (operational costs vs. operating revenues); and PDO #3: Annual public revenues from SOEs (tax payments, dividends, concession payments, and divestment proceeds). Despite promising initial performance leading up to the 2021 AF and Restructuring – PDO 1 and 3 indicator targets had been handily achieved in 2019, and only narrowly missed in 2020,5 none of the PDO indicator targets were ultimately met at early closure. Progress was substantially undermined by external shocks that particularly affected the SOE sector,6 which most notably in the context of this project led to the GoCV’s reversal in July 2021 of the partial privatization of TACV to manage risks that could trigger loan guarantees. The challenging situation in the SOE sector and renationalization of TACV effectively placed all PDO indicator targets out of reach beyond the AF closing date and informed the decision to cancel the project at the end of September 2023. 25. Performance on core IRIs was solid; IRIs introduced under the AF were mostly not measured. The project had a total of fourteen IRIs, between the original six, as well as eight new IRIs added under the 2021 AF and Restructuring. A set of original core IRIs aimed at strengthening the SOE legal and regulatory framework, via the adoption of: (i) a legal framework for debt management, with a greater focus on contingent liabilities (IRI 3); (ii) a new SOE reform agenda for 2022-2026 (IRI 4); and (iii) a comprehensive SOE policy, including performance targets and transparency obligations (IRI 3 By supporting three of four transformational goals: (i) removing bottlenecks that prevent firms from creating more and better jobs; (ii) strengthening human capital and empowering women; and (iii) boosting climate resilience. 4 Report No. 185581-CV 5 PDO Indicator 1: 7 percent vis-à-vis 9 percent in 2019, and 8.6 percent vis-à-vis 8 percent in 2020; PDO Indicator 3: US$22.5 million vis-à-vis US$6 million in 2019; $6.2 million vis-à-vis US$7 million in 2020. 6 In 2020, Cabo Verde saw its largest GDP contraction on record (20.8 percent). COVID-19 crisis impacts on the SOE sector led the GoCV to extend loan guarantees to financially distressed SOEs, mainly in transport and energy sectors, with marked fiscal impacts. Capitalization of SOEs still amounted to US$20 million in 2022, with CVA being the largest recipient. The effects of Russia’s invasion of Ukraine on global energy, raw materials and food prices further exacerbated the situation in the SOE sector and beyond. Page 7 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) 1). The former two were successfully adopted in 2022,7 but the latter stalled.8 Targets for the progress on the 2022- 2026 SOE reform, in terms of SOE restructuring and privatization (IRI 7 – introduced under AF), and citizen feedback on the reform process (IRI 6), were not met at project closing, but had had little time to materialize. A third subset of core IRIs aimed at enhancing SOE ownership and oversight and improving SOE transparency and reporting via: (i) the implementation and utilization of a web-based SOE database (IRI 2); (ii) annual SOE aggregate reports (PBC 4); (iii) published portfolio fiscal risk monitoring reports (IRI 5); and (iv) publication of audited SOE financial reports (IRI 8). The first three were achieved and the last one was on-track at project closing. There was a final subset of indicators (IRIs 9- 14) that were introduced under the AF and targeted the housing sector and SOE board capacity, for which progress was mostly not measured.9 Some associated activities were, however, completed.10 Table 4: PDO indicators, PBCs, and IRIs Indicators Unit of Status at Target at End target (as of 2021 AF and Baseline (2018) Achievement measure closing* closing* (2025) Restructuring) Outcome: Strengthen SOE-related fiscal management PDO #1: Reduced public financing to Percent SOEs (incl. transfer from the budget 10.9 10.5 7.0 6.0 Not met (of GDP) and capitalization) PDO #2: Improved operating margin of TACV (operational costs vs. Percent 144 258 80.0 80.0 Not met operating revenues) PDO #3: Annual public revenues from SOEs (tax payments, USD 5 15.0 20.0 20.0 Not Met dividends, concession payments, and divestment proceeds) PBC 1: TACV has adopted and announced a Retrenchment Plan Yes/No No Yes Yes Yes Met acceptable to the Bank PBC 2: TACV has established Grievance mechanism acceptable to Yes/No No Yes Yes Yes Met the Bank PBC 3: Staff targeted by the Retrenchment Plan has been Number 0 330 207 207 Met retrenched PBC 4: Detailed annual SOE reports Number 0 5 5 5 Met prepared by UASE 2016 SOE law IRI 1: Comprehensive SOE policy outlining general rules adopted (incl. performance targets Yes/No No Yes Yes Not met for SOE corporate and transparency obligations) governance IRI 2: Implementation and Excel sheet with basic utilization of SOE financial database Yes/No Yes Yes Yes Met aggregated (web-based, partly public) 7 Legal framework for debt management adopted via: Resolution nº75/2022 of June 30, 2022; Regulatory Decree nº5/2021 of October 29, 2022; and Regulatory Decree nº 40/2022 of July 14, 2022. 8 The revision of the 2016 State Enterprise Sector Law continues under the Fiscal Space and Sustainable Growth DPF series. 9 Except for IRI 11 on the project GRM, which was successfully created but did not receive any complaints. 10 TA was provided to IFH for the development of the Housing Information System (Sistema de Informação de Habitação, SIH), the National Housing Fund (Fundo Nacional de Habitação, FNH), and for the implementation of actions foreseen in the Evaluation Consulting Report of the Usability Indices of the Land Management Information and Transaction System, integrating climate data. Page 8 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) information on six (6) largest SOEs IRI 3: Strengthened legal framework Fragmented debt for debt management with a Yes/No management Yes Yes Yes Met greater emphasis on contingent legislative framework liabilities Select reviews (as part IRI 4: Review of SOE Portfolio (and Yes/No of performance Yes Yes Yes Met adoption of reform agenda) agreements) Annual report on IRI 5: Fiscal risk monitoring reports Yes/No contingent liabilities Yes Yes Yes Met on SOE portfolio published of six (6) largest SOEs IRI 6: Citizen Feedback on SOE Reform Process, with gender- Yes/No No No Yes Yes Not met disaggregated data (survey) IRI 7: SOEs restructured or Number 0 1 3 8 Not met privatized (through project support) IRI 8: Improved SOE financial accountability and transparency Percent 0 83.3 60.0 100.0 On-track (audited financial reports published) IRI 9: Improved capacity of SOE’s Percent 0 0 70.0 100.0 Not measured Board members including women IRI 9.1: Female SOE Board Percent 0 0 70.0 100.0 Not measured members trained IRI 10: Enhance climate co-benefits of SOE’ investments (screened Percent 0 0 60.0 100.0 Not measured based on co-benefits analysis procedures) IRI 11: Grievances received and Met (none addressed through project GRM Percent 0 0 100.0 100.0 received) within specified timeframe IRI 12: Improved social housing Percent n/a - 70.0 90.0 Not measured (class A) rent collection IRI 13: IFH business plan informed by institutional, organizational, and Yes/No No No Yes Yes Not measured business review adopted IRI 14: Increase satisfaction of class Percent n/a - 30.0 50.0 Not measured A housing beneficiaries IRI 14.1: Satisfaction rate of Percent n/a - 30.0 50.0 Not measured female beneficiaries *Most recent available data and corresponding targets, otherwise 2022 data and targets are used Justification of Overall Efficacy Rating 26. The project’s Overall Efficacy is rated as Modest. The project achieved its four (4) PBCs but fell short of its three (3) PDO indicator targets, despite promising initial progress. It achieved five (5) out of fourteen (14) IRIs. The PDO indicator targets being missed is owed in large part to external factors beyond the project’s control, most notably the impacts of the COVID-19 pandemic on the Cape Verdean SOE sector, and especially TACV – in retrospect, this might speak more to the choice of the PDO indicators than to the merits of the project. The decision for early cancellation of the project based on the unattainability of the PDO indicator targets by the regular closing date, in turn, cut short the Page 9 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) time for achieving the IRIs. While four (4) of the six (6) original IRIs were achieved, only one (1) of the eight (8) IRIs of the AF were. Given the operation partly achieved its objectives, Overall Efficacy is judged to be Modest, especially given the substance of its principal achievements (see below). 27. Project support to the restructuring of TACV was effective, despite the airline’s renationalization. The project successfully supported the GoCV in politically sensitive TACV restructuring actions, including Human Resource (HR) reconfiguration and staff rightsizing. Between May 2019 and April 2022, 330 TACV employees were retrenched in a socially responsible manner based on an agreed retrenchment plan and an accompanying Grievance Redress Mechanism (GRM) supported by the project. In 2019, the newly privatized company11 displayed a 67 percent increase in revenue, 32 percent increase in operational cost efficiency, and a 136 percent increase in passengers. These promising operational results were later undermined by the COVID-19 pandemic, and the renationalization of TACV in July 2021 rendered the directly linked PDO indicator 2 obsolete. However, it should be highlighted that the airline was one of the most prominent public sector employers in the country, with an excessive number of staff for an airline of its size. Any attempt to shut down or downsize the company ran the risk of facing strong political and social opposition. With the project’s support, severance packages were offered to retrenched staff as compensation for early retirement or layoff. To mitigate social risks of the process, the retrenched staff were offered workforce reintegration training and a credit line was established on the workers' behalf for them to access funds to start a new business or pursue further education. 28. The project achieved critical results with a view to strengthening the SOE legal and regulatory framework, enhancing SOE ownership and oversight, and improving monitoring and reporting. The project boasts several crucial achievements in terms of: (i) strengthening the legal and regulatory framework for SOE debt management with a greater emphasis on contingent liabilities, as well as supporting the preparation and adoption of a new SOE reform agenda for 2022-2026; (ii) enhancing the mandate and capacity of the SOE oversight unit UASE, through the passage of legal texts, etc.; and (iii) improving SOE monitoring and reporting, through annual aggregate SOE portfolio reports and targeted analyses, and the partially-public web-based “SOE Manager” platform. Prior to the project, these foundational elements were almost nonexistent. Their achievement means the groundwork for more robust reforms in the sector was established. The detailed annual reports, along with the automated platform for performance and financial monitoring, increased the government’s capacity to make decisions as informed shareholder of SOEs. UASE’s predecessor was understaffed and lacked proper guidance to effectively play the role of an authoritative and informed representative of the state as a shareholder. Reporting by SOEs was sporadic, infrequent, and often incomplete. The unit lacked essential monitoring instruments, as well as the capacity and authority to reprimand SOE managers. Ultimately, SOEs had stronger technical and business knowledge than the government staff in charge of their oversight. The fact that these tools are now in place, with the support of the project, has strongly enhanced the GoCV’s abilities for SOE monitoring and fiscal management. UASE has continued to be fully operational beyond the closure of the project, which is a key objective for sustainable institutional reforms. 29. The operationalization of UASE as a centralized SOE ownership entity significantly strengthened transparency and disclosure, for which Cabo Verde has become a pioneer in the region and beyond. The publication of annual SOE aggregate portfolio reports on its website (https://www.mf.gov.cv/web/mf/uase-page) is a key tangible achievement of the project. This places Cabo Verde in a small group of countries that has succeeded in introducing a digital SOE performance monitoring system, its “SOE Manager” platform (https://www.mf.gov.cv/soemanager/index.html). The system captures and aggregates SOE performance data and generates automatic graphs and performance dashboards, which can serve as the foundation for SOE performance management.12 Together with the above-mentioned cross- 11 In March 2019, the Government sold 51 percent of CVA equity to its strategic partner Loftleidir Icelandic, 10 percent of CVA shares were sold to the diaspora and employees of the airline. 12 Going forward, a key priority will be to ensure effective implementation and use of the system, enforcing comprehensive and timely submission of data by SOEs and analyzing and utilizing it for proactive SOE performance management and decision-making. Page 10 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) cutting SOE corporate governance reforms, these improvements have brought Cabo Verde in line with internationally recognized good practice recommended by the WBG iSOEF and Organization for Economic Cooperation and Development (OECD) SOE Corporate Governance Guidelines. This also represents a significant achievement from a comparative international perspective. Cabo Verde is one of the few countries in Sub-Saharan Africa that has managed to institutionalize these good SOE corporate governance practices. More broadly, most Middle East and North Africa (MENA) and several Europe and Central Asia (ECA) countries (including some OECD and European Union accession candidates) have yet to introduce similar arrangements, indicating the significance and complexity of such reforms. 30. The project enabled the GoCV to make key decisions regarding further SOE restructuring. The project financed several crucial activities, including market soundings, the preparation of business plans and tender documents, and transaction advisory services related to SOE privatization, PPPs, and concession arrangements. Although some of these processes were delayed, several important steps were successfully completed. This enabled the GoCV to conclude the signing of the ASA (airport management) concession contract with a private operator (Vinci, France), and launch the currently ongoing tender processes for the privatization of CECV (bank), partial privatization of CV Handling (logistics) and sub-concession of ENAPOR (ports operator) – the latter two continue to receive support under the new Improving Connectivity and Urban Infrastructure in Cabo Verde Project (P178644). The project also supported foundational activities for the forthcoming privatization of ELECTRA – this process receives continued support under the Renewable Energy and Improved Utility Performance Project (P170236), as well as of EMPROFAC and INPHARMA. As such, the project has effectively helped the GoCV complete the first phase, of what might prove to be further transformational SOE reforms in several sectors of key importance for the economy and for service delivery. C. EFFICIENCY Assessment of Efficiency and Rating 31. Project Efficiency is rated Modest. At appraisal, the Economic and Financial Analysis (EFA) focused on savings to the GoCV State budget (public financing) through the retrenchment of TACV staff. Costs covered by the project for retrenchment were expected to amount to US$13.2 million. The internal return rate of return (IRR) was calculated at 12 percent with the company generating a net benefit of US$10 million over 10 years. Using a discount rate of 3 percent, the Net Present Value (NPV) was projected to be US$6.6 million. The AF Project Paper cited further economic benefits to be derived from increased revenues to the State budget from the sector in terms of dividends, taxes, and divestment proceeds. It was stipulated that based on a five-year forecast by the MoF, a minimum of US$80 million revenues from the SOE sector would flow into the national budget. This would contribute to the reduction of the widened fiscal deficit due to public policy measures to mitigate the impact of the COVID-19 pandemic, and open the fiscal space to implement the public investments needed for COVID-19 economic and social recovery. An improved operational and financial performance of the SOE sector would reduce the GoCV’s exposure to debt and other fiscal risks. The impacts of the re- nationalization of TACV, the COVID-19 pandemic distorted some of these expected benefits. 32. The EFA of the project is based on PDO 1: Reduced public financing to SOEs and PDO 3: Annual public revenues from SOEs, factoring in external shocks13 (Annex 4). Without the corrections for external shocks (Russia’s invasion of Ukraine and the COVID-19 pandemic), economic and financial results are modest, with an NPV of US$28.14 million at the end of the project and the IRR at just 2 percent for PDO 1. For PDO 3, without the correction for the COVID-19 pandemic, the NPV stands at US$31.28 million and the IRR at 55 percent. When accounting for the external shocks, the benefits of the project are far more tangible. For PDO 1, the NPV now stands at US$207.0 million, and the IRR is 315 13 The relevance of PDO 2 was limited by the Project’s lack of direct leverage on TACV’s revenue and by the airline’s re-nationalization in 2021. Moreover, incomplete data was captured for this indicator in WBG ISRs. Page 11 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) percent. For PDO 3, the NPV stands at US$42.07 million and the IRR at 67 percent. Despite significantly better economic and financial results when controlling for external shocks, results are considered modest overall. 33. The costs involved in achieving the operation’s objectives were reasonable in comparison with its benefits and recognized norms (“value for money”). The IPF with PBCs turned out overall to be an efficient lending instrument, albeit the project performed better on the PBCs than on the TA activities. Project management costs are considered reasonable in relation to country and regional project averages. The project management budget was not increased as part of the US$10 million AF. Implementation spanned five years compared to the cumulative seven-year duration planned when the AF was processed, albeit planned activities, particularly related to the AF were delayed and finally curtailed by early closure, and therefore not completed. The project’s final disbursement rate reached 80 percent (US$24 million), of which US$0.5 million was committed to Project Management (2 percent). D. JUSTIFICATION OF OVERALL OUTCOME RATING 34. The overall outcome rating of the project is rated as Moderately Unsatisfactory. This reflects High Relevance of the PDO, as well as Modest Efficacy and Modest Efficiency of the project. According to the ICR Guidelines, these combined ratings lead to an overall outcome rating of Moderately Unsatisfactory. E. OTHER OUTCOMES AND IMPACT Gender 35. No specific impact can be attributed in this area. The project was not gender-tagged at appraisal, but the AF added a related focus by revising IRI 6: Citizen Feedback on SOE Reform Process to add a gender-disaggregation, as well as by adding two new gender-disaggregated IRIs, i.e., Female SOE Board members trained (IRI 9.1), and Satisfaction rate of female (class A housing) beneficiaries (IRI 14.1). However, given that IRI 6 was not met, and IRI 9.1 and IRI 14.1 were not measured at closure, it can be inferred that the project had no, or minimal, attributable impact in this area. Institutional Strengthening 36. The project contributed significantly to institutional strengthening. By enhancing UASE’s technical capacity and accompanying institutional reforms that saw its mandate expanded in 2021, the project directly enhanced the MoF‘s capacity for macro-fiscal management and SOE oversight and monitoring. This significantly strengthened the GoCV’s capacity to act as an active and informed owner of SOEs – through an improved ability to independently analyze and assess SOE activities, operational and financial performance, business plans, audits, and to prepare comprehensive and in-depth analytical reports on the SOE portfolio. Moreover, through public access to UASE reports on the MoF website and its new web-based “SOE Manager” platform public accountability and transparency was also strengthened. Mobilizing Private Sector Financing 37. Mobilizing private sector financing was a core tenet of the project, but results are mixed. The project aimed at strengthening the GoCV’s capacity to be an active and informed owner of SOEs, with the ability to, inter alia, attract private sector participation in the SOE sector. Expected medium-term results included a greater volume of FDI, and an improved foreign investor satisfaction rate. Project support to the retrenchment of TACV staff helped lay the foundation for the partial privatization of the SOE in 2019. Although initial financial results were promising, TACV was renationalized by the GoCV just over two years later, in July 2021, in the context of the COVID-19 pandemic. Other SOE restructurings were also delayed in the pandemic context and most ongoing restructurings have not yet concluded. Page 12 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Poverty Reduction and Shared Prosperity 38. Contributions to poverty reduction and shared prosperity were undermined by external shocks, but SOE fiscal risk management and service delivery are more important than ever. Prior to 2020, Cabo Verde was among the Sub- Saharan African (SSA) champions for economic growth and poverty reduction, with poverty declining from 19.3 to 16.1 percent from 2015 to 2019. The COVID-19 pandemic wiped out most of these gains, with poverty increasing to 21.5 percent in 2020. Although, by 2022, the rate had fallen to 19.3 percent, driven by growth in the tourism sector, this reduction was significantly dampened by increased inflation driven by global fuel and food prices and a reliance on imports for 80 percent of consumption products, which affected the poor disproportionately. While these external shocks significantly undermined the achievement of project objectives in the short term – placing the PDO indicator targets out of reach by project closure, SOE fiscal risk management and service delivery are now ever more important. Achievements of the project in terms of strengthening the legal and regulatory framework for SOE debt management and enhancing the mandate and capacity of the SOE oversight unit UASE could have a positive impact in this area. Other Unintended Outcomes and Impacts 39. No other outcomes or impacts are attributed to the project at closure. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 40. The PDO was overly broad, and the project lacked a robust M&E conceptualization. Despite responding directly to critical sectoral challenges, the PDO, which remained unchanged throughout implementation, effectively lacked some necessary focus, which became clear later in the implementation process. After progress on several project activities introduced under the AF had stalled, the Mid-Term Review (MTR) mission assessed subcomponent 2.3 and component 4 as not properly aligned with the PDO, and recommended they be reviewed. As described in detail in the M&E assessment section, a more focused PDO could have helped ensure greater selectivity and been conducive to project performance. 41. Institutional arrangements for donor project management in Cabo Verde follow a dual model, established shortly before the start of the project. Both UASE and the Special Projects Management Unit (Unidade de Gestão de Projetos Especiais, UGPE) were impacted by the reorganization of the MoF in 2016. UASE was created in late 2016 from the merger of the PPP Unit and the SOE monitoring unit, formerly housed within the Directorate of Treasury. It had the mandate to lead SOE reform and was in a position do to so at appraisal, given that the former PPP unit already had the fiduciary systems in place. Around the same time, UGPE was transformed into a “super” PIU for all donor projects. While UASE ultimately acted as implementing agency, responsible for day-to-day project management, technical leadership, internal and external coordination, UGPE was responsible for fiduciary aspects and regular reporting to the WBG. This approach, while the norm in Cabo Verde, can dilute reform ownership and misplace responsibility for sector M&E. B. KEY FACTORS DURING IMPLEMENTATION Factors subject to the control of government and/or implementing entities 42. UASE experienced a pronounced staff turnover. The assessment of UASE’s capacity was essentially based on arrangements in place in the PPP Unit, which had experience implementing donor programs. This was also one of the reasons fiduciary risks were rated moderate during preparation. However, there was higher than expected staff turnover in UASE, beyond what related risk mitigation measures (i.e., staff training) foresaw – due to the PPP and SOE Page 13 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) monitoring unit merger initiated in 2016 that significantly changed working conditions and roles of many staff. By project negotiation, many staff had left, and others left shortly after, resulting in a loss of knowledge and experience. Remaining staff and new recruits had to upskill in a short period of time after effectiveness. At the leadership level UASE also experienced high turnover with the appointment of three different coordinators over the course of the project. Factors subject to World Bank control 43. TTL turnover was high, and supervision ultimately lacked some proactivity. TTL turnover was high with a total of five TTLs. This might have had some impact on implementation, as evidenced by the absence of a proactive response to long-term pending concerns around the finalization and adoption of the new SOE policy, and completion of the UASE database upgrade critical for providing timely SOE reports. Importantly, the Bank failed to demonstrate proactivity in addressing a suboptimal M&E framework, even as exogenous factors and policy reversal caused the project’s Results Framework to trend negatively or lose relevance. Factors outside the control of government and/or implementing entities 44. The COVID-19 pandemic and Russia’s invasion of Ukraine impacted Cabo Verde’s economy and especially the SOE sector, as well as project execution. Like other Small Island Development States (SIDS), Cabo Verde’s economy, and especially the SOE sector, were strongly affected by the impacts of the COVID-19 pandemic. Among the affected SOEs, TACV was arguably the most affected, due to combination of restricted/reduced international travel and rising fuel costs. This significantly undermined the achievements of the project. Moreover, the COVID-19 pandemic impacts also led to delayed procurements and/or delivery of contracted services. This came at a time of an ongoing cycle of legislative, presidential, and municipal elections from the end of 2020 to the beginning of 2022, where due to electoral law several consultancies and tender processes were already put on hold. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 45. M&E design did not provide a clear ToC, nor did it identify indicators within the results framework to fully measure project contributions. The broadly worded PDO to “strengthen SOE-related fiscal management” did not capture individual outputs related to this outcome, and the large number of IRIs (14) made project supervision somewhat difficult. Similarly, the design of project components and related project activities did not support an entirely clear ToC between project activities, outputs, and outcomes. In this regard, while outputs contained reference to the TACV retrenchment plan, GRM, and annual reports by UASE, as well as an updated SOE policy, SOE database, legal framework for debt management, fiscal monitoring reports, and citizen feedback mechanisms, the PDO was worded in a broad manner whereby IRIs and PDO level indicators did not clearly match stated objectives. This led to a situation where some key project achievements are not fully reflected or obscured within PDO achievement reporting. Moreover, project activities focusing on concessions or PPPs did not fully factor into the PDO, nor did indicators track the intended impact on TACV’s operating margin following its renationalization (PDO 2). Also, an unclear definition of the calculation for PDO indicators and unclear verification procedures undermined the overall M&E design of the operation. M&E Implementation 46. M&E implementation was constrained by data limitations – data was not always collected and analyzed in a methodologically sound manner. While project supervision was sufficient, with a total of 10 ISRs being produced, on a semi-annual frequency, there were significant shortcomings in other aspects of M&E implementation. While data was Page 14 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) produced for these semi-annual ISRs, a delay in hiring a dedicated M&E specialist hindered accurate reporting of project results. Once hired, the M&E specialist was required to manage more than 10 projects in the GoCV’s development portfolio, which significantly undermined the attention paid to this project. This contributed in a significant disconnect between data presented in UGPE M&E reports and that presented in World Bank ISRs. This inconsistency was due in large part to inadequate verification of project outputs during supervision, as well as poor monitoring of project results, including several IRIs for which data was never produced. Data to measure progress toward the achievement of PDOs indicators was not shared with the Independent Verification Agent (IVA) and the project financial auditor for verification, while only data for disbursement-linked indicators was independently verified. These issues were further complicated by the lack of a project M&E manual, as well as weaknesses in the TOM2PRO software. M&E Utilization 47. M&E data on performance and results progress were not systematically used to inform project management and decision making. Although a project MTR was conducted, providing direct recommendations related to reforming M&E and restructuring several aspects of the project, MTR recommendations were superseded shortly after (ahead of their implementation) by the decision to cancel the project. Justification of Overall Rating of Quality of M&E 48. Project M&E is rated as Modest. This is due to the noted shortcomings in the design, implementation, and utilization of M&E that made it somewhat difficult to assess the achievement of the stated objectives and test the links in the results chain, including weaknesses in the use and impact of the M&E system. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 49. With respect to Environmental and Social Framework (ESF) compliance, the project was classified as category C with no WBG safeguards policies triggered. During the project preparation, a Poverty and Social Impact Analysis (PSIA) was prepared to assess the social, economic, and distributional impacts of the TACV’s restructuring and retrenchment. In this context, no significant issues were triggered. While the project established a GRM, no complaints were received. A specific GRM was also established for the TACV retrenchment and received two international and five domestic employee complaints that were pending resolution at the time of project closure. 50. In terms of fiduciary compliance, there were modest issues that arose. Among other issues noted, there were some delays in the implementation of key activities and procurement processes (e.g., 9 red flags out of 24 processes in STEP). As noted in ISR reports, US$983,327 was overcommitted under IDA credit 6251 (Parent Project). In addition, there were some instances of utilization of resources from one category or component for the purpose of another (e.g., funds allocated to DLI 4 used to cover for DLI 3 cost overruns) that were addressed by the second restructuring. The share of single source contracts was relatively high with one fourth of contracts (6 out of 24) processed through direct selection method, but in line with standards for WBG-financed operations in Cabo Verde, a small market with relatively fewer providers as compared to other larger markets. C. BANK PERFORMANCE Quality at Entry 51. Quality at Entry of the project is rated as Moderately Unsatisfactory. Original project design benefited from complementarity with and building on a long-standing WBG engagement on SOE reform in Cabo Verde. It also benefited from analytical underpinning, including two studies prepared in 2016 on TACV, albeit project design decisions with respect to TACV prioritized political economy considerations. The main design shortcoming related to M&E. As noted above, the ToC did not fully capture project outcomes, and the subsequent AF had significant shortcomings, including Page 15 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) no formal revision to the broadly worded PDO. In particular, the quality at entry and subsequent restructuring exhibited: (i) an unclear calculation formula of PDO indicators and means of verification; (ii) absence of the project’s direct leverage on TACV’s operating margin, especially following the privatization reversal (PDO 2); and (iii) a relatively unclear link of the targeted restructurings to the PDO statement. Quality of Supervision 52. Quality of Supervision is also rated as Moderately Unsatisfactory, primarily due to lack of action in addressing M&E deficiencies, and the decision to proceed with AF and its relatively misaligned design. No effort was made during supervision to address suboptimal PDO indicators, even as these trended downwards or lost relevance. In fact, M&E design was further worsened by the AF which failed to update the PDO or PDO indicators despite the addition of significant unrelated activities, whilst more than doubling and complexifying project IRIs. In terms of M&E implementation, a candor gap emerged during supervision with respect to the ISR rating based on GoCV reporting and World Bank ISRs. Data inconsistencies contributed to this – importantly, data to measure progress towards the achievement of PDO indicators was not shared with the IVA and the project financial auditor for timely verification. Meanwhile, the decision to move forward with the AF proved unproductive. This should have been better anticipated given an unsupportive context – i.e., the onset of the COVID-19 pandemic, which was already showing serious adverse impacts. Suboptimal AF implementation was also resultant of a relatively misaligned design, i.e., the addition of activities, such as in the social housing sector, only peripherally related to the core of the original operation. Justification of Overall Rating of Bank Performance 53. Given the noted shortcomings in Quality at Entry and Quality of Supervision, Overall Bank Performance is rated as Moderately Unsatisfactory. D. RISK TO DEVELOPMENT OUTCOME 54. The project’s Risk to Development Outcome is rated as Substantial. This reflects a discontinued project within a context of somewhat unclear reform direction accentuated by the COVID-19 pandemic and other exogenous factors. Moving forward, SOE sector reform is threatened by macroeconomic and other factors, including: (i) potential continued reform delays and further financial support to SOEs; (ii) competition from other West African countries to become hub economies; (iii) limited interest by internal and external investors given market size; (iv) political economy challenges, including resistance to change by vested interests; and (v); climate-related shocks, among others. 55. While these risks will prove testing, SOE reform remains high on the agenda of the GoCV, and accordingly, the Bank’s present and future support to Cabo Verde. The GoCV’s new PEDS II 2022-2026 (March 2023) maintains a strong focus on macroeconomic stability, including in the SOE sector while the 2024 PLR highlights the continued importance of SOE fiscal management, and ensures that over the remainder of the CPF period, WBG support to the SOE agenda will continue, albeit through a different non-centralized, single project approach. Importantly, in closing the State-Owned Enterprises Related Fiscal Management Project, GoCV and the WBG agreed on a transition plan that integrates into sectoral WBG operations well-advancing SOE project contracts of strategic importance to the SOE sector and foundational to future reform decisions, primarily in the energy and connectivity sectors. The Fiscal Space and Sustainable Growth DPF series will continue to support a revision of the 2016 SOE Law. An ongoing iSOEF will help update knowledge and guide potential engagement oriented towards overall SOE sector governance and performance. V. LESSONS AND RECOMMENDATIONS 56. SOE reform agendas must better balance measures linked to fiscal sustainability and privatization, as well as comparative service delivery and political economy aspects. As denoted by its name, this project prioritized the fiscal Page 16 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) aspects of SOE reform. Following the closure of the project and upon completion of the PLR of the FY20-25 Cabo Verde CPF, it was concluded that support to the SOE agenda should go beyond fiscal considerations and be embedded at the sectoral level, leveraging relevant Global Practice competencies and policy dialogue. The WBG is preparing an SOE- focused Public Finance Review (PFR) and iSOEF assessment, jointly with UASE, to deepen the reform dialogue and inform future generations of SOE-related WBG engagements. Such potential future engagement would benefit from a stronger focus on SOE public service obligations (PSOs). SOEs often perform a combination of commercial and social activities, a phenomenon, which can be particularly pronounced in small island states with a need for ensuring a minimum level of connectivity and service delivery across the entire territory. The case of TACV is an important example. Analytical underpinning recommended a partial liquidation, as well as a controlled winding down of operations, and doing so may have ultimately led to a stronger project efficacy and efficiency. However, this discounted political economy and social dynamics, service delivery and tourism impacts, and the sense of national pride around the national carrier in a small island state country. While the privatization of the airline was perhaps a necessary measure at the time, given the loss- making condition of the company, it left a vacuum on the aviation sector in Cabo Verde, the effects of which are still being felt by citizens today. Prior to privatization, TACV was able to coordinate domestic and international flights. It was responsible for various public services provisions including ensuring inter-island connectivity, evacuation of sick people, as well as cargo and postal transportation. The domestic partner after privatization ultimately displayed market power behavior, undermining public provision requirements, which became untenable for the country, before ultimately discontinuing operations (partly due to the COVID-19 pandemic). 57. A more incremental reform approach, anchored in results-based financing, could have been more appropriate for this nature of operation. Given the prior WBG experience in the sector and reversibility of reforms observed in the past, a more focused intervention on the restructuring and privatization of TACV, while concomitantly supporting select legal and regulatory framework reform elements, may have resulted in a better structured and more realistic approach. While the project achieved several crucial results with regards to SOE reform – as described in the outcome section, it also initiated activities that may have been overly ambitious in terms of scope or timeline, or not properly sequenced. A more incremental approach, and more prudent judgment around the adoption of additional activities under the AF that were less directly linked to the core of the operation, could have ultimately led to better project performance. Meanwhile, the type of reforms sought could have been better anchored in results-based financing, as demonstrated by the strong performance of PBCs, which incentivized key results, relative to TA elements of the operation. While TA remains a pre- requisite to inform SOE reform decisions, the use of country systems and cross-sectoral government collaboration associated with the Program-for-Results (PforR)14 instrument and its grounding in a well-defined and owned government program, could have improved the performance of TA implementation. A PforR could also have facilitated an expansion of PBCs towards further critical expected results that may not be achieved through TA inputs alone. 58. Higher-level objectives should not be chosen as PDO indicators for SOE projects, while such projects should build data collection and use into design. PDO indicator 1 on Reduced public financing to SOEs was largely based on the FY15-17 Cabo Verde CPS Outcome 2 indicator on Reduction of GoCV lending to SOEs. While potentially appropriate for a CPS, higher-level objectives related to overall sector health, and prone to multi-dimensional variables and exogenous shocks, should not form the basis of SOE project outcomes. Instead, SOE projects should build a ToC that translates directly from its specific contribution and attribution. That this project lacked this, meant that several key achievements, including the strengthened legal and regulatory framework for SOE debt management with a greater emphasis on contingent liabilities, the preparation and adoption of a new SOE reform agenda for 2022-2026, and the enhanced mandate and capacity of the SOE oversight unit UASE, did not as fully factor into the project’s efficacy, and accordingly, its outcome rating. Moreover, PDO indicator 3 on Annual public revenues from SOEs was effectively the opposite side of 14The State-Owned Enterprises-Related Fiscal Management Project was initially considered as a PforR, but an IPF with PBCs was ultimately considered given the lack of familiarity of authorities with the instrument at the time of appraisal. Page 17 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) the same coin, essentially bound to be achieved or missed alongside PDO indicator 1. Such PDO indicators should be avoided. Given the paramount role data plays in SOE operations, adequate systems should be built-into project design. In this regard, the lateness of implementation of UASE’s SOE database constitutes a missed opportunity, contributing to suboptimal data collection and discrepancies in reporting. 59. Early closure or cancellation should proactively be considered to better channel scarce development resources. Task teams, in concert with Bank Management, should not shrink from approaching country authorities to discuss early closure or cancellation of underperforming operations. Although uncommon, the joint decision of the GoCV and Bank to proceed with the cancellation of the project, reflecting operational realities on the ground, served to reduce operating costs, generated savings, and ultimately enabled a more optimal use of development resources. It has also opened the door for re-thinking the Bank’s SOE engagement and working closely with the GoCV to forge an updated, more strategic and context sensitive approach that accentuates sectoral linkage and expertise and prioritizes analytical underpinning. The task team can be commended for processing a cancellation only two years after processing an AF – because circumstances rapidly and fundamentally changed, irreparably undermining project performance. . Page 18 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Strengthen SOE related fiscal management Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduced public financing to Percentage 10.90 6.00 6.00 11.40 SOEs - including transfers from the budget and 29-Dec-2017 31-Mar-2022 31-Dec-2025 16-Sep-2022 capitalization (% of GDP) Comments (achievements against targets): According to WBG (ISR) data, public financing to SOEs decreased from 9.57 percent in 2018 to 7 percent in 2019 before increasing to 11.4 percent in 2022. There is a disconnect between ISR data and reports from UGPE according to which, between 2018 and 2019, public financing to SOEs increased from 9.68 percent to 10.13 percent. COVID-19 and the re-nationalization of TACV in July 2021 have directly contributed to this trend line. The situation is expected to further deteriorate in 2022-2024, with the announced Government support to TACV in the amount of 3 billion escudos (Euro 27.3 million euros); 1 billion escudos annually (Euro 13.65 million) until 2024. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 19 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Improved operating margin Percentage 144.00 80.00 80.00 408.00 of CVA 29-Dec-2017 31-Mar-2022 31-Dec-2025 16-Sep-2022 Comments (achievements against targets): TACV’s operating margin stood at 408 percent in 2022 against a Project target of 80 percent. The indicator’s relevance was limited by the Project’s lack of direct leverage on TACV’s revenue and by the airline’s eventual re-nationalization in 2021. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Annual public revenues from Amount(USD) 5.00 10.00 20.00 22.20 SOEs (Millions USD - in tax payments, dividends, 31-Dec-2017 31-Mar-2022 31-Dec-2025 16-Sep-2022 concession payments, divestment proceeds) Comments (achievements against targets): Annual revenue stood at US$14.07 million in 2022, below the Project target of US$20 million. There is a disconnect between ISR data and reports from UGPE for the period 2019-2021. ISR data, on the one hand, shows 2019 (US$22.5 million) and 2021 (US$22.21) revenues as surpassing annual targets (of US$7 million and US$19 million, respectively), and 2020 revenue (US$6.2 million) as below target (US$8 million). While above the target in each, UGPE data, on the other hand, shows a continuous decline of revenue from US$47.88 million in 2019 to US$30.53 million in 2020 and US$22.21 million in 2022. Page 20 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) A.2 Intermediate Results Indicators Component: Component 2: Technical Assistance Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI1: Comprehensive SOE Text Current (2016) SOE The government Not achieved policy adopted framework law adopts a policy on (delayed) outlines general rules SOEs including clear for corporate performance targets governance of SOEs and transparency and government obligations of SOEs oversight and reporting 29-Dec-2017 31-Mar-2022 16-Sep-2022 Comments (achievements against targets): While SOE policy has been developed, its formal adoption (enactment) remains delayed. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI2: Implementation and Text UASE operates general Database with Achieved Achieved utilization of the SOE excel sheet with basic complete financial and financial database aggregated operational information on six (6) performance largest SOEs information on the Page 21 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) entire SOE portfolio 29-Dec-2017 31-Mar-2022 01-May-2023 01-May-2023 Comments (achievements against targets): Delivery of the solution in October 2022 and user acceptance tests performed in November 2022 and demo, in January 2023, i.e. development and launch completed. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI3: Strengthened legal Text Fragmented debt A clear legal Achieved framework for debt management framework that is management with a greater legislative framework respected by SOEs and emphasis on contingent Government liabilities 29-Dec-2017 31-Mar-2022 16-Sep-2022 Comments (achievements against targets): Legal framework adopted in July 2022: Legal framework adopted and published in the Official Journal in July 2022 (Resolution nº75/2022 of June30, 2022, Regulatory Decree nº5/2021 of October 29, 2022, and Regulatory Decree nº 40/2022 of July 14, 2022. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI4: Review of SOE Portfolio Text Some individual Greater clarity on Achieved and structuring performance reviews SOEs that need to be Page 22 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) oversight/holding of SOEs carried out as part of restructured, sold or performance partially privatized agreement preparations 29-Dec-2017 31-Mar-2022 01-May-2023 Comments (achievements against targets): The Government put forward a new SOE reform agenda for 2022-2026, which calls for various degrees of privatization of 11 SOEs. This agenda was adopted by the Council of Ministers on 16 November 2022. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI5: Fiscal risk monitoring Text Annual report on Comprehensive Achieved reports on SOE portfolio contingent liabilities reports on all SOEs published from 6 largest SOE published on MoF’s web site including analysis of financial and operational performance (including, benchmarking) and all financial transfers with the state (including all transfers, arrears, implicit subsidies, etc.) Page 23 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) 31-Dec-2017 31-Dec-2022 01-May-2023 Comments (achievements against targets): 2018, 2019, 2020 and 2021 fiscal risk monitoring report on SOE portfolio published on the MoF’s website. 2021 report published in November 2022. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI6: Citizen Feedback on SOE Text No information on Information available Not measured (not yet Reform Process with sex citizen opinion on citizens' opinion on due) disaggregated data how well government has planned for, communicated and implemented SOE sector reforms. The information is also gender disaggregated 31-Dec-2017 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Planned in 2023. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 24 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) IRI 7: SOE restructured or Number 0.00 8.00 1.00 privatized 30-Apr-2021 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Not on track. The signing of the ASA concession contract with the private operator had been postponed due to the COVID-19 pandemic as well as legislative (April 2021) and presidential (October 2021) on July 8, 2022. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IR 8: Improved SOE financial Percentage 0.00 100.00 48.48 accountability and transparency 30-Apr-2021 31-Dec-2025 16-Sep-2022 Comments (achievements against targets): New indicator introduced during the AF. Not on track. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI9 Improved capacity of Percentage 0.00 100.00 0.00 SOE’s Board members including women 30-Apr-2021 31-Dec-2025 01-May-2023 Female SOE Board Percentage 0.00 100.00 0.00 Page 25 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) members trained 30-Apr-2021 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Planned in 2023. Not measured. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI10 Enhance co climate Percentage 0.00 100.00 0.00 benefits of SOE’s investment 30-Apr-2021 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Not measured. This indicator, in its current formulation, has been identified as difficult to measure. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI 11 Grievances received Percentage 0.00 100.00 0.00 and addressed through the project GRM within the 31-May-2021 31-Dec-2025 01-May-2023 specified timeframe Comments (achievements against targets): New indicator introduced during the AF. Not measured. No complaints received to date. Page 26 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Component: Component 4: IFH and housing sector reform Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI 12: Improved social Text na 90.00 Not measured housing (class A) rent collection 30-Apr-2021 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Activity has not started. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IRI 13 IFH business plan Yes/No No Yes No informed by the institutional, organizational, and business 30-Apr-2021 31-Dec-2025 01-May-2023 review adopted Comments (achievements against targets): New indicator introduced during the AF. Activity has not started. Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 27 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Target Completion IRI 14 Increase the Text na 50 percent increase in Not measured satisfaction of class A overall level of housing beneficiaries satisfaction and by gender 30-Apr-2021 31-Dec-2025 01-May-2023 Satisfaction rate from Text na 50 percent increase Not measured female beneficiaries 30-Apr-2021 31-Dec-2025 01-May-2023 Comments (achievements against targets): New indicator introduced during the AF. Activity has not started. Page 28 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Strengthen SOE related fiscal management 1. Reduced public financing to SOEs - including transfers from the budget and capitalization Outcome Indicators 2. Improved operating margin of CVA 3. Annual public revenues from SOEs (tax payments, dividends, concession payments, divestment proceeds) 1. Comprehensive SOE policy adopted 2. Implementation and utilization of the SOE financial database 3. Strengthened legal framework for debt management with a greater emphasis on contingent liabilities 4. Review of SOE Portfolio and structuring oversight/holding of SOEs 5. Fiscal risk monitoring reports on SOE portfolio published 6. Citizen Feedback on SOE Reform Process with sex disaggregated data 7. SOE restructured or privatized 8. Improved SOE financial accountability and transparency Intermediate Results Indicators 9. Improved capacity of SOE’s Board members including women 9.1. Female SOE Board members trained 10. Enhance co climate benefits of SOE’s investment 11. Grievances received and addressed through the project GRM within the specified timeframe 12. Improved social housing (class A) rent collection 13. IFH business plan informed by the institutional, organizational, and business review adopted 14. Increase the satisfaction of class A housing beneficiaries 14.1. Satisfaction rate from female beneficiaries Component 1: Result Based financing - Staff Retrenchment 1. CVA staff retrenched Key Outputs by Component Component 2: Technical Assistance (linked to the achievement of 1. Comprehensive SOE policy adopted the Objective/Outcome 1) 2. Operational SOE database established 3. Strengthened legal framework for debt management with a greater emphasis on contingent liabilities 4. SOE portfolio and structuring oversight/holding of SOEs reviewed Page 29 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) 5. Fiscal risk monitoring reports on SOE portfolio published 6. Citizen feedback on SOE reform process with gender disaggregated data 7. Performance contracts signed with the main corporatized SOEs 8. Investors after care program and system operationalized. Investors outreach events organized 9. Skills transferred to Regulatory Agency and MoF staff in concession contract and PPP fiscal risk management and SOE oversight 10. Capacity f SOE’s Board members including women strengthened 11. SOEs’ investment climate co-benefits screening procedures developed 12. SOE audited financial statement published 13. SOE restructured or privatized Component 4: IFH and housing sector reform 1. Level of satisfaction of Class A household increased 2. IFH business plan informed by the Institutional, organizational, and business review adopted 3. Social housing (class A) rent paid timely 4. Improved MIOTH and the participating municipalities capacity to execute key aspects of the National Housing Plan enhanced 5. Unified information management system for monitoring the performance of the CPT established Page 30 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Kjetil Hansen, Rohan Longmore Task Team Leader(s) Mamata Tiendrebeogo, Mamadou Mansour Mbaye Procurement Specialist(s) Hugues Agossou Financial Management Specialist Maimouna Mbow Fam Financial Management Specialist Sofia De Abreu Ferreira Counsel Yoko Kagawa Team Member Medou Lo Environmental Specialist Fanny Weiner Peer Reviewer Henri Fortin Peer Reviewer Andre Herzog Team Member Roland N. Clarke Peer Reviewer Mbaye Mbengue Faye Social Specialist Cheikh A. T. Sagna Social Specialist Charles E. Schlumberger Team Member Herimpamonjy Mavoarisoa Ranaivoarivelo Team Member Alexandra C. Bezeredi Social Specialist Daniel P. Owen Social Specialist Supervision/ICR Yousif Mubarak Elmahdi Task Team Leader(s) Ndeye Fatou Mbacke, Laurent Mehdi Brito Procurement Specialist(s) Page 31 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Seynabou Sarr Financial Management Specialist Julia Baena De Mesquita Team Member Jandira Monteiro Dos Santos Team Member Diana Cristina Tello Medina Team Member Sandro Roberto Ramos Semedo De Brito Team Member Fabienne Anne Claire Prost Environmental Specialist Daniela Gomez Altamirano Team Member Camilla Gandini Social Specialist Faly Diallo Team Member Matthieu Louis Bonvoisin Counsel Philippe Neves Team Member Bailo Diallo Team Member Fatou Fall Samba Team Member Immanuel Frank Steinhilper Team Member Vincent Vesin Team Member Jose Daniel Reyes Team Member Nikolai Alexei Sviedrys Wittich Procurement Team Anta Tall Diallo Procurement Team Charles E. Schlumberger Team Member Christopher J. De Serio Team Member Daniel P. Owen Social Specialist Marc-Anton Wilhelm Pruefer ICR author Michael Christopher Jelenic ICR co-author Sonia Sanchez Moreno ICR co-author Page 32 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY17 28.873 247,872.15 FY18 24.414 193,689.20 FY19 5.650 38,202.59 FY23 0 18,296.45 FY24 0 5,011.71 Total 58.94 503,072.10 Supervision/ICR FY18 .500 2,423.21 FY19 3.985 45,727.47 FY20 8.100 68,109.59 FY21 13.900 82,503.43 FY22 15.425 124,059.69 FY23 38.365 255,993.16 FY24 31.906 183,414.84 Total 112.18 762,231.39 Page 33 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage Components (US$M) Closing (US$M) of Approval Component 1: Results-Based 16.0 16.77 104.8 Financing Component 2: Technical 10.5 6.60 62.85 Assistance Component 3: Project 0.5 0.50 100.0 Management Component 4: IFH and 3.0 0.20 6.67 housing sector reform Total 30.00 24.07 80.02 Page 34 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 4. EFFICIENCY ANALYSIS Economic and Financial Analysis (EFA) for Cabo Verde State Owned Enterprises-Related Fiscal Management Project (P160796) Table 1: PDO Indicators’ evolution Unit of ICR measure Baseline ICR Date 2018 2019 2020 2021 2022 2023 2/16/2024 PDO 1: Reduced public financing Percent to SOEs (incl. transfer from the (of GDP) budget and capitalization) 10.9% 7.0% 7.0% 7.0% 11.4% 11.4% 10.5% PDO1 without the impact of Russia’s invasion of Ukraine 10.9% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% PDO 2: Improved operating margin of TACV (operational Percent costs vs. operating revenues) 144.0% 219.0% 219.0% 193.0% 408.0% 408.0% 258.0% PDO 3: Annual public revenues from SOEs (tax payments, USD dividends, concession payments, and divestment proceeds) 5.0 22.0 22.0 6.2 22.2 22.2 15.0 PDO 3 without the COVID 19 USD pandemic impact 5.0 22.0 22.0 22.0 22.2 22.2 15.0 Source: From various ISR Table 2: Some macroeconomic indicators for Cabo Verde 2018 2019 2020 2021 2022 2023 2024 Real GDP annual growth 3.7 6.9 -19.3 6.4 17 4.4 4.5 consumer price index (annual average) 1.3 1.1 0.6 1.9 7.9 5.2 2 GDP (US$ million) 1,962.8 1,982.3 1,871.8 2,090.1 2,328.4 2,616.0 2,799.4 GDP (Millions of Euros) 1,666 1,770 1,647 1,768 2,215 2,418 2,578 Exchange rate US$ /Euro 0.85 0.89 0.88 0.85 0.95 0.92 0.92 Source: IMF various reports Due to data limitation, the analysis is based only on PDO#1 and PDO#3. For PDO#2, numerators and denominators are not known, and therefore it is not possible to quantify the impact. Main assumptions • A discount rate of 10% has been used for the calculations of the Net Present Value (NPV) For PDO#1: • The reduction of public transfers to SOEs constitute a net gain for the GoCV that can invest the savings to other public goods. When analyzing the trend of the ratio of public transfers to GDP, after a reduction of the ratio in the early years of implementation of the project, the ratio rose again in 2022 to its level at baseline, and our assumption is that this is due to the consequences of Russia’s invasion of Ukraine in 2022. Two scenarios have been estimated, a first one using actual data, and a second one suppressing the external shock, i.e., assuming that the level reached by the ratio in 2021 should have remained the same. Page 35 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) • Knowing the level of GDP, the amount of public transfers has been estimated for each year and for each scenario. • For the first scenario, the difference between the baseline (it is assumed that the level reached at baseline would have stayed the same without the project) and the actuals constitutes the savings. A negative sign means that there is no savings, and instead, the transfers to SOEs are increasing. A positive sign means there are some savings. • For the second scenario, it is assumed that the level of the ratio reached in 2021 (just before the conflict) will stay the same without the conflict. The difference between the estimated ratio without the conflict and the baseline constitute the gain in this second scenario. For PDO#3 • Here it is assumed that the main impact affecting that indicator is the COVID-19 pandemic, since the indicator fell sharply in 2021, which is a year after the pandemic. Therefore, two scenarios have also been estimated, one using the actual data, and another one suppressing the effect of the pandemic by assuming that the level reached by the ratio in 2020 will have stayed at least at the same level without the pandemic. This is comforted by the fact that the ratio is back to its pre-crisis level in 2022. • As per the first PDO, the differences between actual or corrected data and the baseline have been estimated (actual or corrected data – baseline), a positive number indicating an increase of public financing of SOEs, and a negative sign indicating a reduction of SOEs transfers. Results Without corrections for external shocks (Russia’s invasion of Ukraine and the COVID-19 pandemic), economic and financial results are modest, with an NPV of US$28.14 million at the end of the project and an IRR of just 2% for PDO#1. For PDO#3, without the correction for the COVID-19 pandemic, the NPV stands at US$31.28 million and an IRR of 55%. When accounting for the external shocks and eliminating their impacts, the benefits are much more tangibles. For PDO#1, the NPV now stands at US$207.0 million, and the IRR is 315%. For PDO#3, the NPV stands at US$42.07 million and IRR at 67%. Page 36 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) Table 3: Results Economic and Financial impact 2018 2019 2020 2021 2022 2023 2024 PDO#1: Reduced Public Financing of SOEs Scenario 1: Public financing of SOEs, actual (US$ millions) 213.9 138.8 131.0 146.3 265.4 298.2 293.9 Public financing of SOEs at baseline (US$ millions) 213.9 213.9 213.9 213.9 213.9 213.9 213.9 Difference with the baseline (baseline - actual) -24.1 75.2 82.9 67.6 -51.5 -84.3 -80.0 NPV (US$ million) $28.14 IRR (%) 2% Scenario 2: suppressing the impact of Russia’s invasion of Ukraine Public financing of SOEs without the external shock (US$ millions) 213.9 138.8 131.0 146.3 163.0 183.1 196.0 Difference with the baseline (baseline - actual) -24.1 75.2 82.9 67.6 51.0 30.8 18.0 NPV (US$ million) $207.00 IRR (%) 315% PDO#3: Annual public revenues from SOEs Scenario 1 Annual public revenues from SOEs, actual (US$ million) 5 22 22 6.2 22.2 22.2 15 Annual public revenues from SOEs at baseline (US$ million) 5 5 5 5 5 5 5 Difference with the baseline (actual- baseline) (US$ million) -24.1 17 17 1.2 17.2 17.2 10 NPV (US$ million) $31.28 IRR (%) 55% Scenario 2: eliminating the impact of the COVID-19 pandemic Annual public revenues from SOEs, without the covid19 (US$ million) 5.00 22.00 22.00 22.00 22.20 22.20 15.00 Difference with the baseline (actual- baseline) -24.1 17.00 17.00 17.00 17.20 17.20 10.00 NPV (US$ million) $42.07 IRR (%) 67% Page 37 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS The project’s M&E implementation was constrained from the start of its effectiveness in October 2018 because, as the Bank itself acknowledges, the project design did not clearly establish the intended Theory of Change or identify the most appropriate indicators for measuring the project's contributions to achieving the intended results. The effective monitoring of the project’s indicators, started in August 2019, more than a year after the project became effective, with the hiring of the M&E specialist, and was based on the same definitions, data collection methodologies, data sources, calculation methodologies and frequencies defined in the project's original Results Framework and the data collected from the UASE. With regard to the Intermediate Results indicators, there was no failure to submit data, but rather the submission of data relating to indicators whose evolution values were zero, i.e., indicators that did not show any evolution during the execution of the project, according to information gathered from the beneficiaries. Page 38 of 39 The World Bank STATE OWNED ENTERPRISES RELATED FISCAL MANAGEMENT PROJECT (P160796) ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) Figure 1: Theory of Change (ToC) Page 39 of 39