I Ninth Annual Review of Project Performance Audit Results 1983 I I PUB4720 NINTH ANNUAL REVIEW PROJECT PERFORMANCE AUDIT RESULTS Operations Evaluation Department The World Bank Washington, D.C., U.S.A. Copyright O 1983 by The International Bank for Reconstruction and Development 1 THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing December 1983 NINTH ANNUAL REVIEW OF PROJECT PERFORMANCE AUDIT RESULTS TABLE OF CONTENTS Page No . FOREWORD ........................................................... V HIGHLIGHTS ......................................................... xi I . INTRODUCTION ................................................. 1 The P r o j e c ts Reviewed ..................................... 3 11 . SUMM AR Y OF OVERALL RESULTS ................................... 4 O b j e c t i v e s and Approach ................................... 4 P r o j e c t I m p l e m e n t a t i o n .................................... 7 ( a ) S i g n i f i c a n t P r o j e c t Changes ....................... 7 (b) Cost Overruns ..................................... 9 ( c ) Completion D e l a y s ................................. 11 P r o j e c t E f f e c t i v e n e s s ..................................... 12 ( a ) P h y s i c a l Output and C a p a c i t i e s .................... 12 (b) P r o j e c t B e n e f i c i a r i e s ............................. 13 ( c ) Economic R e t u r n s .................................. 15 ( d ) F i n a n c i a l Performance ............................. 20 (e) Impact on P o l i c i e s and I n s t i t u t i o n a l Development .. 20 111. SIJPPLEMENTARY NOTES .......................................... 24 P r o j e c t s w i t h U n s a t i s f a c t o r y or U n c e r t a i n R e s u l t s ................................................. (1979-83) 24 ........................... D i s c o n t i n u e d P r o j e c t s (1979-83) 29 ............................................ P r o j e c t Design 30 IV. SUMMARY FINDINGS. LESSONS. FEEDBACK .......................... 31 1. AGRICULTURE A . Overview .......................................... 31 B . Performance by S u b s e c t o r .......................... 32 C . ................. I m p l e m e n t a t i o n and P r o j e c t D e s i g n 34 D . Poverty-Orientation ............................... 34 E . Performance Trends ................................ 35 F . Technology Adoption ............................... 35 G . Ecology ........................................... 36 H . Frequent Lessons o f Experience .................... 36 I . Follow-up ......................................... 37 TABLE OF CONTENTS (Cont'd) Page No . 2 . PUBLIC UTILITIES A B . . Demand F o r e c a s t i n g Changes i n Scope ................................ .................................. 38 38 C. ...... F i n a n c i a l Performance. Covenants and T a r i f f s 39 D. I n s t i t u t i o n a l Change.............................. 40 E F . . C o n s u l t a n t s and A d v i s o r s Environmental A s p e c t s .......................... ............................. 41 41 3 . A.TRANSPORTATION AND U R BA N ......................... S e c t o r P o l i c y Environment 42 .B .......... T r a f f i c F o r e c a s t i n g and Design S t a n d a r d s 43 .C Transit Traffic ................................... 45 . . D E I n s t i t u t i o n a l Development Operational Efficiency ......................... ............................ 45 48 F. ............... Third P a r t y F i n a n c i a l Contributions 48 4 . DEVELOPMENT FINANCE COMPANIES ......................... 49 6 . OIL AND GAS ........................................... 53 7 . EDUCATION .......................:................ 54 8 . NON-PROJECT LENDING ................................... 56 C l a s s i f i c a t i o n of P r o j e c t s by Year of F i n a l Disbursement. Annex I: Agreement Date. S e c t o r . Region and S i z e . Tables 1- . 5 57 Ninth Annual Review of P r o j e c t Performance Audit R e s u l t s Foreword Development i s , by d e f i n i t i o n , i n n o v a t i v e , and r e s u l t s cannot be p r e d i c t e d w i t h c e r t a i n t y . The World Bank i s guided by p a s t experience i n i t s e f f o r t s t o f o s t e r economic growth and reduce poverty i n i t s developing member c o u n t r i e s . Thfs r e p o r t , t h e n i n t h i n an annual s e r i e s , a s s e s s e s 127 completed World Bank -1 p r o j e c t s t h a t were s u b j e c t e d t o ex-post evalua- t i o n d u r i n g 1982. Ex-post e v a l u a t i o n i s t h e f i n a l s t e p i n t h e World Bank's continu- ous s u p e r v i s i o n of a l l t h e p r o j e c t s i t f i n a n c e s . Borrowers provide f r e - quent r e p o r t s , Bank s t a f f make p e r i o d i c f i e l d v i s i t s , middle management oversees p r o g r e s s , and t h e Bank's s e n i o r management r e g u l a r l y reviews t h e e n t i r e l o a n p o r t f o l i o and e s p e c i a l l y problem p r o j e c t s . P r o j e c t s a r e o f t e n amended i n response t o changes i n economic circumstances and changing p r i o r i t i e s of borrowers a n d - a s a r e s u l t of t h e Bank's own on-going l e a r n i n g process. The l e s s o n s of experience a r e a l s o taken i n t o account i n t h e design of new p r o j e c t s . Then, when a p r o j e c t i s completed, t h e o p e r a t i n g department p r e p a r e s a P r o j e c t Completion Report (PCR). The PCR reviews t h e e x t e n t t o which t h e o b j e c t i v e s of t h e p r o j e c t were achieved. I f t h e o r i g i n a l p l a n s f o r t h e p r o j e c t had t o be changed, t h e PCR f r a n k l y examines why. Increas- i n g l y , t h e Bank's borrowers a r e themselves p r e p a r i n g PCRs, w i t h Bank sup- p o r t a s necessary. The Operations Evaluation Department (OED) reviews a l l PCRs. This department i s e n t i r e l y s e p a r a t e from t h e r e s t of t h e Bank and r e p o r t s d i r e c t l y t o t h e Bank's Board of Executive D i r e c t o r s . O ED s t a f f conduct a d e t a i l e d a u d i t of about h a l f t h e p r o j e c t s they review. Both borrowers and t h e Bank's o p e r a t i o n a l s t a f f a r e given o p p o r t u n i t y t o connnent on t h e s e Pro- j e c t Performance Audit Reports (PPARs). The PPARs examine both q u a n t i f i a - b l e a s p e c t s of performance (such a s d e l a y s and c o s t overruns) and q u a l i t a - t i v e r e s u l t s (such a s i n s t i t u t i o n a l and p o l i c y changes). The PPARs i n c l u d e , wherever a p p r o p r i a t e , a r e e s t i m a t e of t h e economic r a t e of r e t u r n i n t h e l i g h t of a c t u a l implementation c o s t s and updated information on expected b e n e f i t s . This document i s t h e O E D ' s annual r e p o r t , a s y n t h e s i s of t h e PCRs and PPARs of t h e l a s t year. It h i g h l i g h t s t r e n d s and r e c u r r e n t problems. The i n t e g r i t y of t h e e v a l u a t i o n system would s u f f e r i f t h e Bank d i d n o t r e s p e c t t h e c o n f i d e n t i a l i t y under which borrowers provide informa- t i o n on p r o j e c t problems. Therefore, t h e names of c o u n t r i e s and of s p e c i f - i c p r o j e c t s have been d e l e t e d from t h i s published v e r s i o n of t h e OED report. 1. I n c l u d e s t h e I n t e r n a t i o n a l Development Association (IDA). Eighty percent of the completed projects covered by this report, or 89 percent of the total investment involved, achieved their major objectives or were considered at the time of audit to be on their way to doing so. This is a lower success rate than the OED reported for projects reviewed in previous years. In the amount of total investment involved, this year's results are somewhat worse than in the past. In the number of projects that failed to meet their objectives, this year's results are considerably worse. This is due to various factors. A number of the projects that failed were complex and risk-prone agricultural projects in Africa; the institutional and managerial framework in much of Africa is weak, and the Bank was sometimes over optimistic about the capacity of countries to innovate. Most of the projects reviewed in this report were initiated in the mid-19708, when the Bank was breaking much new ground. More than half of the projects were the Bank's first major activity in what was for it a new sector in the country concerned, and these "first generation" projects represented new institutional relationships and sometimes introduced approaches and technologies that were new to the country. Project formulation and design were deficient in a number of cases, there was insufficient knowledge of the local environment, and the quality of supervision during implementation was sometimes inadequate. The worsening global economic environment and political events, such as war and changes of government, contributed to this year's higher percentage of projects that failed to meet their objectives. The bulk of the projects reviewed in this report broadly achieved their objectives. The agricultural projects evaluated here benefited close to 10 million people living in the countryside and resulted in an increase of some 12.5 million tons in annual food production. Urban and water supply projects expanded the availability of shelter and basic services, especially for the urban poor. The education projects reviewed here provided more than 90,000 new student places. The industrial projects raised production capacity and export revenues, the power projects helped meet increasing demands for electricity, and road, rail, and port projects upgraded basic infrastructure in many countries. The average rate of return where available for this year's projects was 21 percent, which is in line with that of past years.. Of the 127 projects assessed here, 107 were designed not.only to increase production, but also to improve economic development policies or strengthen institutions. All but 16 of them had a reasonable degree of success. The Bank's influence was particularly effective in the transport and education sectors and with nonproject lending. The projects that succeeded in achieving their institutional objectives were generally characterized by a high degree of understanding between the Bank and the borrower, phased implementation of institutional change, and sensitivity to staffing problems and training needs. Four o u t of e v e r y f i v e p r o j e c t s were changed i n t h e c o a r s e of implementation. Some were reduced i n scope because of c o s t o v e r r u n s . O t h e r s were changed because o f i n a d e q u a c i e s i n t h e o r i g i n a l p r o j e c t d e s i g n , changes i n t h e p r i o r i t i e s of t h e borrower, o r u n f o r e s e e n d i f f i c u l t i e s i n t h e e x t e r n a l environment. P r o j e c t changes were p a r t i c u l a r l y p r e v a l e n t i n e d u c a t i o n and t r a n s p o r t . Most p r o j e c t s reviewed t h i s y e a r s u f f e r e d t i m e and c o s t o v e r r u n s , b u t b o t h t i m e and c o s t o v e r r u n s were lower t h a n r e p o r t e d i n p a s t y e a r s . Delays were a t t r i b u t a b l e p r i m a r i l y t o changes i n p r o j e c t s c o p e , w i t h a d m i n i s t r a t i v e c o n s t r a i n t s and procurement d i f f i c u l t i e s a l s o c o n t r i b u t i n g f a c t o r s . Most of t h e p r o j e c t s t h a t e x p e r i e n c e d s e r i o u s d e l a y s were o r i g i n a l l y s c h e d u l e d t o be completed i n l e s s t h a n f o u r y e a r s , a c o m p a r a t i v e l y s h o r t implementation p e r i o d f o r a Bank p r o j e c t . To e n s u r e r e a l i s m i n i t s a p p r a i s a l o f implementation s c h e d u l e s , t h e World Bank now r o u t i n e l y compares proposed s c h e d u l e s w i t h t h e a v e r a g e disbursement p r o f i l e s f o r p r e v i o u s p r o j e c t s i n t h e s u b s e c t o r and t h e r e g i o n o r country. The Bank h a s been working t o make i t s a p p r a i s a l c o s t e s t i m a t e s more r e a l i s t i c , and most o f t h e c o s t o v e r r u n s n o t e d t h i s y e a r were because i n f l a t i o n i n t h e 1970s was more s e v e r e t h a n a n t i c i p a t e d . F i v e o f t h e 127 p r o j e c t s covered by t h i s r e p o r t were d i s c o n t i n u e d . An a g r i c u l t u r a l p r o j e c t i n E a s t A f r i c a was h a l t e d because a f l e d g l i n g p r o j e c t u n i t was u n a b l e t o r e s o l v e a l a r g e number o f problems; t h e o r i g i n a l I D A c r e d i t was c a n c e l e d and a new c r e d i t extended t o f i n a n c e a modified v e r s i o n o f t h e p r o j e c t . Another a g r i c u l t u r a l p r o j e c t i n E a s t A f r i c a was c a n c e l e d because l o c a l s e c u r i t y problems made implementation i m p o s s i b l e . Two p r o j e c t s i n t h e Middle E a s t were c a n c e l e d a t t h e b o r r o w e r s ' r e q u e s t . One o f them, a p o p u l a t i o n p r o j e c t , was d i s c o n t i n u e d because t h e government became concerned a b o u t p r o j e c t e d l a b o r s h o r t a g e s and d e c i d e d n o t t o proceed, A p o r t p r o j e c t i n North A f r i c a was d e s i g n e d p r i m a r i l y t o s e r v e a planned s t e e l m i l l , b u t t h e c o u n t r y l a t e r c a n c e l e d plans t o build the m i l l . Twenty-four o f t h e 127 p r o j e c t s f a i l e d t o meet t h e i r o b j e c t i v e s . The Bank does n o t normally approve p r o j e c t s t h a t a r e e x p e c t e d t o y i e l d rates o f r e t u r n below 10 p e r c e n t , and 17 o f t h e s e 24 p r o j e c t s had low o r n e g a t i v e r a t e s o f r e t u r n . The o t h e r s were p r o j e c t s f o r which r a t e of r e t u r n c a l c u l a t i o n s a r e seldom a p p r o p r i a t e ( e d u c a t i o n p r o j e c t s , f o r example) o r f o r which i n s u f f i c i e n t i n f o r m a t i o n was a v a i l a b l e a t t h e end of t h e p r o j e c t t o e n a b l e a c l e a r judgement t o be made a b o u t t h e i r p r o s p e c t s . T h i s r e p o r t d e t a i l s t h e wide d i v e r s i t y and complexity o f t h e r e a s o n s f o r p r o j e c t f a i l u r e s . There a r e l o t s o f t h i n g s t h a t can go wrong i n t h e p r o c e s s o f development. But some g e n e r a l i z a t i o n s emerge, t o o . F i f t e e n o f t h e 24 p r o j e c t s t h a t f a i l e d were a g r i c u l t u r e p r o j e c t s , mostly i n A f r i c a and m o s t l y l i v e s t o c k p r o j e c t s . While acknowledging t h a t t h e r e a r e no q u i c k s o l u t i o n s t o t h e problems o f A f r i c a n a g r i c u l t u r e , t h e r e p o r t recommends s i m p l e r p r o j e c t d e s i g n s , g r e a t e r u s e of p i l o t p r o j e c t s , improved s e c t o r p o l i c i e s , and more t e c h n i c a l a s s i s t a n c e . The Bank i s vii f i n a n c i n g more a g r i c u l t u r a l r e s e a r c h i n A f r i c a and h a s a l s o begun making s t r u c t u a l a d j u s t m e n t s l o a n s t h e r e t o s t r e n g t h e n t h e p o l i c y and i n s t i t u t i o n a l framework w i t h i n which p r o j e c t l o a n s are made. The r e p o r t u r g e s i n c r e a s e d a t t e n t i o n t o socioeconomic and o t h e r l o c a l c o n s t r a i n t s on t h e i n t r o d u c t i o n o f new t e c h n o l o g i e s . A mismatch between technology and l o c a l c o n d i t i o n s f r e q u e n t l y c o n t r i b u t e d t o t h e d i f f i c u l t i e s of l i v e s t o c k p r o j e c t s i n A f r i c a , and i t a l s o emerged as a r e c u r r e n t problem more g e n e r a l l y . An a g r i c u l t u r a l p r o j e c t i n L a t i n America f a i l e d because f a r m e r s d i d n o t s w i t c h t o a new p r o d u c t i o n p r o c e s s . A f o r e s t r y p r o j e c t i n E a s t A f r i c a f a i l e d because a f o r e i g n t r e e s p e c i e s d i d n o t grow a s r a p i d l y a s expected under l o c a l c o n d i t i o n s . A l i v e s t o c k p r o j e c t i n E a s t A s i a f a i l e d because f o r e i g n r a n c h i n g t e c h n i q u e s proved d i f f i c u l t t o adapt. P o l i t i c a l changes--war, c i v i l d i s t u r b a n c e s , changes of government, and f l u c t u a t i o n s i n government s u p p o r t f o r a p r o j e c t - - a r e a l s o sometimes c i t e d a s r e a s o n s f o r p r o j e c t f a i l u r e . o t h e r r e c u r r e n t problems i n c l u d e weak management, countrywide economic d i f f i c u l t i e s , and low producer p r i c e s . P r o j e c t s t h a t f a i l e d o f t e n s u f f e r e d from a combination of such f a c t o r s . An E a s t A f r i c a n l i v e s t o c k p r o j e c t f a i l e d because of a combination of poor management and changes r e s u l t i n g from a r e v o l u t i o n i n t h e c o u n t r y , f o r example, and t h e r a t e of r e t u r n on a highway p r o j e c t was d i s a p p o i n t i n g because of poor p r o j e c t management combined w i t h a lower-than-expected volume of t r a f f i c . A major purpose of i n t e r n a l p r o j e c t e v a l u a t i o n i s t o l e a r n l e s s o n s t h a t can be a p p l i e d t o f u t u r e work. T h i s r e p o r t h i g h l i g h t s s p e c i f i c l e s s o n s t o be l e a r n e d i n e a c h of t h e s e c t o r s i n which l o a n s were made. A g r i c u l t u r e accounted f o r 56 of t h i s y e a r ' s 127 p r o j e c t s . L i v e s t o c k was t h e l a r g e s t s u b s e c t o r i n t h i s y e a r ' s sample and a l s o t h e most problematic; overcoming t h e d i f f i c u l t i e s h i g h l i g h t e d i n t h e r e p o r t i s e s s e n t i a l because l i v e s t o c k o f f e r s t h e main o p p o r t u n i t y f o r economic advancement i n some p l a c e s . The r e c o r d i s more encouraging i n t h e i r r i g a t i o n s u b s e c t o r , w i t h p r o j e c t s showing a n a v e r a g e r a t e of r e t u r n of 24 p e r c e n t . Crop and a r e a development p r o j e c t s were a l s o g e n e r a l l y s u c c e s s f u l , w i t h rates o f r e t u r n a v e r a g i n g 16 p e r c e n t . The s e t t l e m e n t and t r e e c r o p p r o j e c t s i n t h i s y e a r ' s sample a l s o performed w e l l . While r a t e s of r e t u r n were v e r y h i g h f o r a g r i c u l t u r a l c r e d i t p r o j e c t s , t h e r e p o r t n o t e s t h a t t h e w i d e r impact of t h e s e p r o j e c t s on t h e r u r a l economy i s d i f f i c u l t t o q u a n t i f y and t h a t t h e Bank i s r e a s s e s s i n g i t s approach t o a g r i c u l t u r a l c r e d i t ; a new s e c t o r p o l i c y paper on r u r a l f i n a n c e i s expected t o be i s s u e d i n 1984. Poverty-oriented a g r i c u l t u r a l p r o j e c t s proved t o be c o s t - e f f e c t i v e and s u c c e s s f u l i n r e a c h i n g a l a r g e number of b e n e f i c i a r i e s and i n r a i s i n g food production. The r e p o r t concludes t h a t e x p e r i e n c e s t r o n g l y s u p p o r t s t h e h i g h p r i o r i t y t h e Bank g i v e s t o p o v e r t y - o r i e n t e d agricultural projects. The P u b l i c U t i l i t i e s p r o j e c t s reviewed t h i s y e a r d e m o n s t r a t e t h e d i f f i c u l t y , a l r e a d y noted i n p a s t y e a r s , of t r y i n g t o f o r e c a s t t h e demand viii for services. The report also calls attention to the fact that most utility companies failed to meet their earnings goals because governments were reluctant to raise tariffs to cover rising costs. The Bank is improving its monitoring of financial performance in order to strengthen its dialogue with borrowers on this issue. In assessing Transportation projects, the recurring problem of forecasting traffic volume is noted. The report stresses that future traffic must be projected on the basis of broad economic analysis, rather than on the basis of extrapolation from past trends. The one Urban project reviewed this year was successful, largely because an effective central agency was established to manage construction. The strength of this agency had an adverse effect on other local government agencies, however, illustrating the limitations of a centralized approach to the complex problems of metropolitan development. Experience with Development Finance Companies (DFCs) has been good, with funds provided by the Bank being well invested and generating solid returns. Considerable progress was made with institution-building objectives. The repart cautions that unless governments rectify financial sector policies, more DFCs will be tempted to concentrate on money-market operations at the expense of industrial development. One of the lessons of Industrial projects is that the Bank should continue to supervise industrial estates projects after physical completion to ensure that the estate is fully occupied and efficiently managed. In one successful project, a group of manufacturers financed, built, managed, and then themselves occupied the estate, thus almost ensuring full use and adequate maintenance of the investment. The one Oil and Gas project reviewed largely met its production objectives. It also facilitated the transfer of sophisticated technology and the development of a capable institutional structure. The report notes that Bank lending directly to an implementing agency (instead of through the government) can enhance the agency's relations with foreign oil companies and financial institutions. For the Education projects reviewed here, less money was invested in physical infrastructure than in curriculum improvement and other "software," reflecting the Bank's preoccupation with qualitative improvement rather than mere quantitative expansion. The report notes a tendency to underestimate the complexity of changing curricula. In assessing Nonproject loans, the report notes that while program loans can be effective vehicles for an extended economic dialogue with a government and for monitoring economic performance, deep-seated sectoral adjustments and institutional reforms are better addressed through implicitly longer-term structural adjustment loans. The experience of the one structural adjustment loan reviewed this year demonstrates the need for thorough economic and sector analysis in the design of such loans. In many respects, the lessons derived from this year's batch of completed projects are similar to those stressed in the reviews of the last five years. Failures can be attributed to various factors, many of which are beyond the control of the Bank, but inadequacies of project design have often proved to be an important factor. The report highlights the following recommendations: O Project size and complexity should not exceed the borrower's implementation capacity. O Project design and technology should be compatible with local socioeconomic conditions. O Adequate borrower input and/or agreement should be obtained for the design of innovative projects. O The feasibility of unconventional designs should first be explored through pilot projects. This report and the Project Performance Audit Reports on which it is based are circulated within the Bank and among member governments so that the lessons of experience are indeed applied to future projects. Sectoral departments disseminate the results of these audits through workshops for Bank staff or, in the case of the Bank's Agriculture and Rural Development Department, through a series of memoranda to all the managers in the sector. This Ninth Review, like its predecessors, underlines the inherent complexity of the development process and the great variety of potential problems that the Bank and its borrowers must aim to anticipate and overcome. HIGHLIGHTS This Review covers 127 o p e r a t i o n s r e p r e s e n t i n g approximately $3.5 b i l l i o n i n World Bans loans and c r e d i t s and around $7.9 b i l l i o n i n t o t a l investments. The o p e r a t i o n s covered by t h i s s e r i e s of nine Reviews now t o t a l 836, f o r loans and c r e d i t s of $18.3 b i l l i o n and t o t a l investments of $56.6 billion. A l l major s e c t o r s of Bank o p e r a t i o n s a r e r e p r e s e n t e d i n t h i s Review. A g r i c u l t u r e predominates with 56 p r o j e c t s (44% of t o t a l ) , followed by t r a n s - p o r t a t i o n , p u b l i c u t i l i t i e s , i n d u s t r y and education. There i s a s u b s t a n t i a l group of seven program loans. There a r e a l s o t h e Bank's f i r s t s t r u c t u r a l adjustment loan and t h e f i r s t loan f o r an o i l and gas p r o j e c t . The review concerns i t s e l f with t h e e f f i c i e n c y and e f f e c t i v e n e s s of Banksupported o p e r a t i o n s , d e f i n i n g e f f e c t i v e n e s s i n terms of t h e objec- t i v e s s e t f o r t h e s e o p e r a t i o n s , t h e i r a c t u a l and a n t i c i p a t e d measure and meaning, t h e q u a n t i t a t i v e r e s u l t s and t h e q u a l i t a t i v e . E f f e c t i v e n e s s is thus viewed i n t h e i n t e r p l a y between pro j e c t s and t h e i r surrounding p o l i c i e s , i n t h e i r i n s t i t u t i o n a l , s o c i a l and t e c h n o l o g i c a l dimensions as w e l l a s t h e economic and f i n a n c i a l . Advantage has a l s o been taken of accumulated p r o j e c t experience of t h i s and e a r l i e r reviews t o i d e n t i f y some t r e n d s and examine c e r t a i n r e s u l t s over t i m e . A l l but f i v e of the p r o j e c t s i n t h i s group (4.2% of Bank lending) have been implemented. Twenty-four pro j e c t s (9.4% of Bank lending and 10.6% of investments i n completed p r o j e c t s ) y i e l d e d r e s u l t s a t a u d i t t h a t were e i t h e r u n c e r t a i n , marginal, o r u n s a t i s f a c t o r y . On t h e b a s i s of information a v a i l a b l e a t a u d i t , 80X of t h e completed p r o j e c t s r e p r e s e n t i n g around 90% of Bank lending and 89% of t o t a l investments appear t o have achieved t h e i r major o b j e c t i v e s , or were on t h e way t o doing s o , and were adjudged t o have been worthwhile. T h e s e r e s u l t s a r e l e s s good t h a n t h o s e of t h e l a s t s e v e r a l reviews: however, i n terms of t h e t o t a l investments r e p r e s e n t e d by the 836 p r o j e c t s whose performance has been s o f a r e v a l u a t e d , around 90% have been considered worthwhile. An a n a l y s i s over time (Chapter 11, Charts 2 and 3; Chapter 1 1 1 , Chart 4) of t h e 550 p r o j e c t s reviewed i n t h e l a s t f i v e y e a r s shows: ( i ) an improvement i n c o s t and time overruns i n t h i s group, mainly r e s u l t i n g from improved completion c o s t and time e s t i m a t i n g ; ( i i ) an improvement i n t h i s group, following a d e c l i n e i n t h e preceding t h r e e y e a r s , i n t h e weighted average r a t e s of r e t u r n expected on completed p r o j e c t s f o r which such r e t u r n s were r e e s t i m a t e d a t a u d i t : a s i n g l e group r e s u l t t o which no s p e c i a l s i g n i f i - cance can be a t t a c h e d f o r t h e p r e s e n t ; ( i i i ) an i n c r e a s e i n t h e number of f a i l e d p r o j e c t s and those whose outcome a t t h e t i m e of a u d i t was u n c e r t a i n ; and ( i v ) a concentration of f a i l u r e s i n t h e two A f r i c a Regions. Apart from t h e u s u a l problems of t h e microprocesses of development a f f e c t i n g p r o j e c t 11 - Includes I n t e r n a t i o n a l Development Association ('IDA). p r e p a r a t i o n , d e s i g n and implementation, t h e reasons f o r t h e d e c l i n i n g t r e n d i n p r o j e c t r e s u l t s include an i n c r e a s e i n t h e proportion of more complex and risk-prone a g r i c u l t u r a l p r o j e c t s - e s p e c i a l l y i n Africa - and a worsening economic environment i n general. Of 70 completed p r o j e c t s i n t h i s Review f o r which expected r a t e s of r e t u r n were estimated a t a p p r a i s a l , 53 (76%) o f f e r e d r e e s t i m a t e s on completion of 10% o r more. I n h a l f of t h e s e t h e r e e s t i m a t e d r e t u r n s e q u a l l e d o r exceeded those projected a t appraisal. A g r i c u l t u r a l pro j e c t s y i e l d e d a w e i g h t e d average economic r e t u r n p r o j e c t i o n of 23% a t a u d i t . The expected economic r a t e s of r e t u r n of 182 a g r i c u l t u r a l p r o j e c t s reviewed i n the l a s t f i v e y e a r s have ranged from 202 t o 232 on weighted average. One hundred and s i x t y - f o u r o f t h e a b o v e a g r h u l t u r a l p r o j e c t s b e n e f i t e d approximately 32.7 m i l l i o n people; 10.2 m i l l i o n from p r o j e c t s i n t h e present group. Thirty-seven p r o j e c t s under review were d i r e c t l y designed t o i n c r e a s e food production; a t completion, t h e y were estimated t o have generated 12.5 m i l l i o n tons of a d d i t i o n a l foodgrains a year. P r o j e c t s i n t h i s group pursued a wide range of o b j e c t i v e s . The immediate purpose of i n c r e a s i n g production and p r o d u c t i v i t y was r e i n f o r c e d by concerted e f f o r t s t o h e l p improve t h e p o l i c y and i n s t i t u t i o n a l environment. Most of t h e completed p r o j e c t s - 107 out of 122 -included components o r undertakings designed t o i n f l u e n c e borrower p o l i c i e s o r to s t r e n g t h e n i t s institutional capability. About 85% of t h e s e e f f o r t s achieved a moderate t o s u b s t a n t i a l measure of success. F i v e of t h e 127 p r o j e c t s were not completed: one w a s cancelled by t h e borrower, a second had t o be discontinued f o r s e c u r i t y r e a s o n s , and t h r e e o t h e r s b e c a u s e o f changed borrower p o l i c y and economic c i r c u m s t a n c e s o r because t h e y r a n i n t o insuperable problems of implementation. The 24 p r o j e c t s with a n t i c i p a t e d outcome t h a t was r a t e d a s u n c e r t a i n o r u n s a t i s f a c t o r y a t a u d i t included 15 i n a g r i c u l t u r e , f i v e i n t r a n s p o r t , two i n i n d u s t r y , one i n t e c h n i c a l a s s i s t a n c e , and one i n population. Three d i f f e r e n t s e t s of f a c t o r s operated to u n d e r l i n e t h e d i f f i c u l - t i e s of d e v e l o p m e n t . One was t h e p o l i t i c a l f a c t o r r a n g i n g from war and r e v o l u t i o n t o changes i n governments and t h e i r p o l i c i e s . A t l e a s t eleven p r o j e c t s were e i t h e r abandoned o r otherwise s e v e r e l y a f f e c t e d by p o l i t i c s . Less than d r a s t i c i n £ luence of p r i c i n g p o l i c i e s on p r o j e c t outcome i s excluded from t h i s count but is o t h e r w i s e p e r v a s i v e . The c a t a c l y s m i c a s p e c t o f p o l i t i c s a p a r t , t h e processes of p o l i t i c a l decision-making and t h e i r c r u c i a l importance i n planned economic development r e i n f o r c e t h e r o l e of program and s t r u c t u r a l adjustment loans as instruments f o r t h e Bank and borrowers t o r e a c h , and s u s t a i n , agreement on p o l i c y is,sues. The second and t h i r d groups o f f a c t o r s a r e i n t e r r e l a t e d . They concern technology, innovation and change; t h e i r o p p o r t u n i t i e s and l i m i t a - t i o n s . Since development means change, Bank p m j e c t s tend t o promote innova- t i o n and t a k e risks, not always with success nor with s u f f i c i e n t s e n s i t i v i t y t o the n a t u r e of the change and the m i l i e u i n which it i s t o be introduced. The twelve l i v e s t o c k p r o j e c t s i n t h i s group o f f e r an i n t e r e s t i n g i l l u s t r a t i o n . - xiii - Inadequate p r o j e c t design a d v e r s e l y a f f e c t e d the performance of e i g h t o u t of t w e l v e , and a r e c u r r i n g c o n s t i t u e n t o f i n a d e q u a t e d e s i g n was t e c h n o l o g y i n a p p r o p r i a t e t o p r o j e c t c i r c u m s t a n c e s . The p r o b l e m a c q u i r e s a s p e c i a l d i m e n s i o n i n Sub-Sahara A f r i c a . Most Sub-Sahara A f r i c a p r o j e c t s i n t h e p r e s e n t a g r i c u l t u r a l group were i n t h e l i v e s t o c k and a r e a development cate- gories. F i v e of t h e s i x p r o j e c t s with n e g a t i v e r a t e s of r e t u r n p r o j e c t i o n s were i n l i v e s t o c k . One of t h e t h r e e dominant reasons f o r t h e i r f a i l u r e was i n a p p r o p r i a t e technology i n s u f f i c i e n t l y adapted t o l o c a l c o n d i t i o n s . Yet, l i v e s t o c k development i s of c r i t i c a l importance t o t h e s e c o u n t r i e s , and so i s t h e need f o r new, more p r o d u c t i v e a p p r o a c h e s t o i t ( p a r a s . 4 . 1 1 , 4 . 1 2 ) . S i m i l a r attempts a t s i g n i f i c a n t innovation appear i n a f e r t i l i z e r p r o j e c t ( s u c c e s s f u l a f t e r a determined e f f o r t ) and two education p r o j e c t s (imaginative but u n s u c c e s s f u l ) . It would seem t o be a l l a matter of r i s k and innovation, and how t o b r i n g t h e two i n t o productive balance: a m a t t e r more of a r t , i n t u i t i o n , and judgement than of s c i e n c e ( a l s o see p a r a s . 3.12-3.16, 4.14, 4.15). The o t h e r reasons f o r u n s a t i s f a c t o r y o r u n c e r t a i n p r o j e c t outcome were t h e f a m i l i a r ones. These included changed e x t e r n a l economic circum- s t a n c e s , inadequate borrower comnitment and s e c t o r p o l i c i e s , d e f i c i e n c i e s i n p r o j e c t d e s i g n , weak p r o j e c t management, and i n c r e a s e s i n p r o j e c t c o s t s which o u t s t r i p p e d t h e a n t i c i p a t e d b e n e f i t s ( p a r a s . 2.40-2.47). It i s a mark of t h e d i f f i c u l t i e s encountered by p r o j e c t s i n t h i s group t h a t 81%.of those with c l e a r l y defined p h y s i c a l content were changed d u r i n g implementation. The proportion in l a s t year's group w a s 61%. Most Bank-supported p r o j e c t s s t a r t off with a c l e a r l y defined and reasonably f i r m design. Changes during implementation c o n s t i t u t e an i n s t i t u t i o n a l response, whether t o changed circumstances, t o c o s t overruns and s e r i o u s d i f f i c u l t i e s i n implementation, ..or t o t h e r e a l i z a t i o n t h a t t h e o r i g i n a l assumptions and d e s i g n were f a u l t y . An a n a l y s i s of s i g n i f i c a n t changes i n p r o j e c t s i n t h e groups reviewed i n t h e l a s t f i v e y e a r s appears i n p a r a s . 2.10-2.14. Overall, the r i s i n g i n c i d e n c e of s i g n i f i c a n t changes i n p r o j e c t s r e v i e w e d s i n c e 1 9 8 1 r e f l e c t s t h e more d i f f i c u l t environment i n which many of t h e s e p r o j e c t s were implemented, combined with t h e i r more complex design. Chapter I11 o f f e r s a trend a n a l y s i s of p r o j e c t s with u n s a t i s f a c t o r y o r u n c e r t a i n outcome i n t h e l a s t f i v e groups, t a k e s a look a t discontinued p r o j e c t s , and b r i e f l y comnents on some i s s u e s of p r o j e c t design. I n t h e f i n a l a n a l y s i s , what emerges from t h i s s e r i e s of reviews i s t h e i n h e r e n t complexity of t h e development process, t h e m u l t i p l i c i t y of t h e i s s u e s involved, and t h e s h e e r magnitude of t h e e f f o r t t h a t continues t o confront t h e Bank, t h e borrow- i n g governments, and t h e m u l t i t u d e of people whose l i f e t h e process a f f e c t s . NINTH ANNUAL REVIEW OF PROJECT PERFORMANCE AUDIT RESULTS I. INTRODUCTION 1. O l T h i s r e p o r t i s t h e n i n t h of a n a n n u a l s e r i e s . It r e v i e w s t h e e x p e r i e n c e o f 1 2 7 World ~ a n l & / s u p p o r t e d p r o j e c t s whose p e r f o r m a n c e w a s e v a l u a t e d i n 1982. The s e r i e s s t a r t e d w i t h t h e p r o j e c t performance a u d i t r e p o r t s (PPARs) completed p r i o r t o March 31, 1975; by t h e end of 1982, p e r f o r - mance a u d i t r e p o r t s had been i s s u e d f o r a t o t a l of 816 p r o j e c t s . I n addition, 20 unaudited p r o j e c t completion r e p o r t s (PCRs) have been i s s u e d d u r i n g t h e second h a l f of 1982, f o l l o w i n g a d e c i s i o n by t h e Bank's Board of Executive D i r e c t o r s t o i n t r o d u c e s e l e c t i v e a u d i t i n g ( s e e para. 1.03 below). The ex- p e r i e n c e of t h e s e 20 p r o j e c t s is i n c l u d e d i n t h e p r e s e n t review s o a s t o m i n t a i n comprehensive coverage of t h e system. 1.02 U n t i l t h e end of f i s c a l y e a r 1982, PPARs have been i s s u e d by t h e Operations E v a l u a t i o n Department (OED) a f t e r completion of each p r o j e c t f o r which Bank f i n a n c e h a s been provided. They c o n s i s t of a n a u d i t memorandum, prepared by OED, and a PCR prepared by t h e o p e r a t i n g department i n t h e Bank d i r e c t l y concerned w i t h t h e p r o j e c t implementation. The PCR i s t h e primary e v a l u a t i v e document; i t reviews t h e implementation e x p e r i e n c e and t h e p r o j e c t r e s u l t s i n t h e l i g h t of t h e o r i g i n a l e x p e c t a t i o n s a s s e t o u t a t t h e t i m e of a p p r a i s a l . Borrowers a r e being encouraged t o p r e p a r e t h e PCRs w i t h t h e Bank's h e l p a s e x e r c i s e s i n s e l f - e v a l u a t i o n which, i t i s hoped, w i l l expand i n t o o r r e i n f o r c e e x i s t i n g e v a l u a t i o n mechanisms i n developing c o u n t r i e s . Twenty- e i g h t of t h e PPARs and unaudited PCRs i n t h e p r e s e n t group had a completion r e p o r t prepared by t h e borrower, u s u a l l y w i t h e x t e n s i v e a d d i t i o n a l comments provided by t h e Bank o p e r a t i n g s t a f f . 1.03 To improve t h e e f f e c t i v e n e s s of t h e r e s o u r c e s a p p l i e d t o t h e ~ a n k ' s o p e r a t i o n s e v a l u a t i o n system, t h e Board of Executive D i r e c t o r s decided t o a d o p t , s t a r t i n g i n f i s c a l 1983, a s e l e c t i v e system of p r o j e c t performance a u d i t i n g . Under t h e modified system t h e Bank's o p e r a t i n g departments c o n t i n u e t o p r e p a r e PCRs f o r a l l completed p r o j e c t s , b u t o n l y about one h a l f of t h e s e p r o j e c t s a r e s u b j e c t e d t o performance a u d i t by O E D . ~ Borrowers' comments, however, c o n t i n u e t o be sought f o r a l l completed p r o j e c t s . The c r i t e r i a f o r s e l e c t i v i t y and t h e i r a p p l i c a t i o n a r e s u b j e c t t o c o n t i n u i n g review by t h e J o i n t Audit Committee of t h e Board. 1.04 The new system of s e l e c t i v e a u d i t i n g does n o t j e o p a r d i z e t h e i n t e g - r i t y of t h e ~ a n k ' s p r o j e c t e v a l u a t i o n system. There i s ample evidence t h a t project completion r e p o r t i n g by o p e r a t i o n a l s t a f f i s now f i r m l y e s t a b l i s h e d i n the Bank and t h a t major i n a d e q u a c i e s i n completion r e p o r t i n g o r i n iden- tifying i s s u e s of g e n e r a l i n t e r e s t a r e being s p o t t e d by OED's e v a l u a t i o n I - 1/ T h i s i n c l u d e s t h e I n t e r n a t i o n a l Development A s s o c i a t i o n (IDA). 21 - A l l PCRs, whether o r not s u b j e c t t o OED performance audit, continue t o be c i r c u l a t e d t o Executive D i r e c t o r s . o f f i c e r s , who continue t o read a l l PCRs. The u l t i m a t e o b j e c t i v e of Bank e v a l u a t i o n c o n t i n u e s t o be t o i d e n t i f y and d i s s e m i n a t e l e s s o n s t h a t c a n c o n t r i b u t e t o improvements i n t h e design and implementation of f u t u r e Bank- supported p r o j e c t s . 1.05 The Bank's Regional and Operations P o l i c y S t a f f and t h e borrowers have the o p p o r t u n i t y t o comment on t h e d r a f t of every PPAR and unaudited PCR b e f o r e i t i s i s s u e d i n f i n a l form. I n 57% of c a s e s i n t h i s Review, comments on t h e d r a f t PpARs/PCRs were received from t h e borrowers; i n 43% of c a s e s O E D s t a f f v i s i t e d t h e country and t h e p r o j e c t and held e x t e n s i v e d i s c u s s i o n s w i t h borrower s t a f f . The combined borrower i n p u t , through OED country v i s i t o r by w r i t t e n comment, t o t a l s 76% of PPARs/PCRs completed l a s t year. Borrower views and comments received during OED s t a f f v i s i t s a r e taken i n t o account and r e f l e c t e d i n t h e conclusions of t h e a u d i t ; t h e w r i t t e n borrower comments on d r a f t PPARS/PCRS a r e f u r t h e r reproduced i n t h e document i n f u l l . The views of Bank s t a f f a r e s i m i l a r l y taken i n t o account and, where a p p r o p r i a t e , comments have a l s o been i n v i t e d from m u l t i l a t e r a l and b i l a t e r a l co-financiers. It i s t h e aim of each PPAR/PCR t o reach a n o b j e c t i v e e v a l u a t i o n of t h e p r o j e c t experience. 1.06 An important a s p e c t of t h e process i s t o r e l a t e p a s t experience w i t h t h e p r e s e n t Bank e f f o r t . This Review aims t o summarize t h e experience w i t h 127 p r o j e c t s i n t h e same context. It n o t e s t h e o b j e c t i v e s s e t f o r t h e s e p r o j e c t s , s e e k s t o measure t h e l e v e l of achievement o r f a i l u r e , and p o i n t s t o r e c u r r i n g p a t t e r n s i n t h e process of p r o j e c t p r e p a r a t i o n , design and imple- mentation which might have c o n t r i b u t e d t o t h a t achievement o r f a i l u r e , and have i m p l i c a t i o n s f o r t h e f u t u r e . I n s y n t h e s i z i n g t h e i r conelusions t h e Review does n o t d i s t i n g u i s h between PPARs and unaudited PCRs. 1.07 More s o than i n previous reviews a n attempt has been made, where f e a s i b l e , t o extend t h e p e r s p e c t i v e f a r t h e r back i n t o t h e p a s t , t o look a t p a t t e r n s of experience not only i n t h i s group but a l s o i n groups reviewed i n e a r l i e r years. This h e l p s i d e n t i f y changes i n t r e n d s over time. It may a l s o l e a d t o t h e q u e s t i o n i n g o r q u a l i f i c a t i o n of conclusions based on the limited experience of t h i s group of p r o j e c t s , o r t o t h e i r reinforcement. 1.08 The primary emphasis of t h e Review i s on p r o j e c t e f f e c t i v e n e s s : economic, f i n a n c i a l , t e c h n o l o g i c a l , s o c i a l , and i n s t i t u t i o n a l . In this c o n t e x t , wider s e c t o r i s s u e s a r e considered a s they i n t e r a c t w i t h i n d i v i d u a l projects. Process e f f i c i e n c y i s a l s o examined bearing i n mind two s e p a r a t e considerations: ( i ) p r o j e c t design and implementation a r e c e n t r a l t o i t s s u c c e s s and a major f a i l u r e i n any a s p e c t of t h e process can i r r e p a r a b l y damage t h e p r o j e c t o b j e c t i v e s ; ( i i ) important elements of t h e p r o c e s s and of project design - t h e o r i g i n a l r a t e of r e t u r n p r o j e c t i o n s , i n s t i t u t i o n a l o b j e c t i v e s , schedules of implementation - a r e f r e q u e n t l y marked by over- optimism, and a p r o j e c t outcome which may f a l l s h o r t of e x p e c t a t i o n s y e t may, by o b j e c t i v e s t a n d a r d s , t u r n o u t t o be a worthwhile o p e r a t i o n . 1.09 Two frames of r e f e r e n c e a r e t h u s used i n p r o j e c t performance evalua- t i o n and i n an a g g r e g a t i v e review of t h i s kind. The primary frame remains the o b j e c t i v e s s e t f o r t h e p r o j e c t a t t h e time i t was approved. Deficiencies i n achievement a g a i n s t those o b j e c t i v e s , whether i n t h e d e s i g n and implementation process o r i n t h e p r o j e c t r e s u l t s , a r e noted and commented upon. I n the aggregate, however, i t i s necessary t o d i s c o u n t some of t h e o v e r l y o p t i m i s t i c t a r g e t s and a l s o a s s e s s t h e e f f e c t i v e n e s s of p r o j e c t s i n terms of o b j e c t i v e criteria: expected r a t e s of r e t u r n a s re-estimated a t t h e t i m e of p r o j e c t c o m p l e t i o n , and i n s t i t u t i o n a l and p o l i c y d e v e l o p m e n t s which i t would b e reasonable t o expect w i t h i n t h e time horizon of t h e p r o j e c t . I n sectors l i k e education, p o p u l a t i o n , development f i n a n c e companies (DFC) o p e r a t i o n s o r c e r t a i n non-pro j e c t l o a n s , where q u a n t i t a t i v e measurements a r e not a v a i l a b l e , q u a l i t a t i v e assessment of p r o j e c t performance i s made a g a i n s t t h e o r i g i n a l l y set o b j e c t i v e s . 1.10 Eighty-three percent of t h e 127 p r o j e c t s represented h e r e were approved by t h e Bank during f i s c a l years (FY) 1973 and a f t e r , and most of t h e m were completed i n t h e y e a r s FY19.79-82. They r e f l e c t some new approaches t o r a i s i n g p r o d u c t i v i t y and income, and a pronounced,and mounting concern w i t h t h e i n s t i t u t i o n a l and p o l i c y c o n t e x t i n which i n d i v i d u a l p r o j e c t s a r e under- taken. The implementation of a number of p r o j e c t s s t r a d d l e d t h e y e a r s of sharp p r i c e i n c r e a s e s , and t h e i r c o s t s and b e n e f i t s were a f f e c t e d accordingly. This Review, a s t h e one l a s t y e a r , seeks t o be s e n s i t i v e both t o t h e n a t u r e of p r o j e c t b e n e f i t s and t h e i r b e n e f i c i a r i e s . 1.11 Given i t s h i g h l y d i f f e r e n t i a t e d r e a d e r s h i p , t h e s t r u c t u r e of t h e Review h a s always presented something of a problem. The Review presented h e r e is a n overview and summary f i n d i n g s of t h e 127 p r o j e c t s and program l o a n s reviewed. The P r o j e c t s Reviewed 1.12 Unlike t h e group reviewed l a s t y e a r , a r e l a t i v e l y l a r g e s h a r e of t h e 127 p r o j e c t s (57%) represented f i r s t o p e r a t i o n s i n a given s e c t o r and country (35% l a s t y e a r ) . This p a t t e r n conforms more w i t h t h e experience of previous reviews t h a n l a s t year's group, and r e f l e c t s continuing expansion of Bank lending i n t o new s e c t o r s and c o u n t r i e s i n t h e period covered. 1.13 A g r i c u l t u r e predominates w i t h 56 p r o j e c t s (44% of t o t a l ) . Special a t t e n t i o n i n t h i s Review h a s b e e n g i v e n t o t h e a g r i c u l t u r a l s e c t o r ; t h e e f f e c t i v e n e s s of t h i s group of p r o j e c t s has been examined i n a l o n g e r time p e r s p e c t i v e and c e r t a i n a s p e c t s ( of experience cane i n f o r s p e c i a l a n a l y s i s . T r a n s p o r t a t i o n r e p r e s e n t s t h e second l a r g e s t group ( 2 3 p r o j e c t s o r 1 8 % ) followed by p u b l i c u t i l i t i e s (13 p r o j e c t s o r 10%). I n d u s t r y ( i n c l u d i n g DFCs and o i l and g a s ) , e d u c a t i o n and n o n - p r o j e c t l e n d i n g e a c h a c c o u n t f o r 1 1 o p e r a t i o n s ( 9 % ) while t h e remaining two p r o j e c t s a r e i n t h e population s e c t o r . A g r i c u l t u r e , i n d u s t r y , t r a n s p o r t and p u b l i c u t i l i t i e s t o g e t h e r r e p r e s e n t 81% of t h e p r o j e c t s reviewed. This s e c t o r c o n c e n t r a t i o n , i n t h i s and i n e a r l i e r Reviews, provides the b a s i s f o r a n a n a l y s i s of t h e r e g i o n a l incidence and broad causes of p r o j e c t f a i l u r e s i n t h e groups reviewed i n t h e l a s t f i v e y e a r s ( s e e Chapter 111). . 1.14 The d i s t r i b u t i o n of p r o j e c t s by s e c t o r , t o g e t h e r w i t h t h e volume of lending and t h e c o s t s of p r o j e c t s f o r which f i n a n c e was provided, a r e shown i n t h e t a b l e below. The comparative d i s t r i b u t i o n of p r o j e c t s by s e c t o r , s i z e and Region f o r t h i s and t h e e i g h t previous Reviews appears i n Annex I , Tables 3-5 . Table: PROJECTS BY SECTOR Number Amount of Re-es t imat ed of bendin& P r o j e c t costs& Sector Pro iects ------ USS millions----- Agriculture of which Livestock Irrigation Crops /Area Development Processing Treecrops/Estates Credit S e t t lement Technical Assistance Fisheries Forestry Industry of which DFCs Industry Energy Public U t i l i t i e s of which Power 9 Telecomnunications 2 Water Supply & Waste D i s p o s a l 2 of which Highways 13 253.7 468.5 Rai lways 2 60.5 169.8 P o r t s & Water T r a n s p o r t a t i o n 6 214.2 260.6 Other 2 103.0 201.7 Education Population Non-Pro j e c t Lending TOTAL - /a Bef o r e c a n c e l l a t i o n s . - /b T o t a l c o s t o f pro jectlprogram t o which l o a n l c r e d i t c o n t r i b u t e d ; some f i g u r e s a r e approximat i o n s . 1.15 About 37% of t h e p r o j e c t s reviewed a r e t h e f i r s t of a ' series i n which subsequent loans have s i n c e been made; another 20% a r e f i r s t loans which have n o t been followed by a second o p e r a t i o n . The remaining 43% r e p r e s e n t second o r subsequent loans t o t h e same borrower and p r o j e c t e n t i t y . 11. SUMMARY OF OVERALL RESULTS 2.O1 A b r i e f d e s c r i p t i o n o f t h e p r o j e c t s r e v i e w e d and a summary of performance experience a r e set out below. O b j e c t i v e s and Approach 2.02 The pro j e c t s i n t h i s group r e f l e c t a broad spectrum of o p e r a t i o n a l o b j e c t i v e s . The b a s i c purposes of most p r o j e c t s were t o i n c r e a s e production c a p a c i t i e s , t o d e v e l o p i n d i g e n o u s p h y s i c a l and human r e s o u r c e s , and t o s t r e n g t h e n t h e economic i n f r a s t r u c t u r e i n borrowing c o u n t r i e s . I n a d d i t i o n , a number of p r o j e c t s included components d e a l i n g with marketing, r e s e a r c h and s u p p o r t i n g s e r v i c e s , while o t h e r s focussed on t r a n s f e r of new technology. I n c r e a s i n g emphasis was a l s o given t o i n s t i t u t i o n a l o b j e c t i v e s and a s s o c i a t e d technical assistance. Wider s e c t o r i s s u e s were addressed by the m a j o r i t y of p r o j e c t s ; i n a few c a s e s , macroeconomic o b j e c t i v e s were p u r s u e d t h r o u g h non-project lending, i n c l u d i n g the Bank's f i r s t s t r u c t u r a l adjustment loan. Co-financing was o b t a i n e d f o r 25 p r o j e c t s supplementing t h e amount of Bank/IDA lending by US$341 m i l l i o n (10%). 2.03 Food production continued t o be t h e p r i n c i p a l o b j e c t i v e of a g r i c u l - t u r a l p r o j e c t s . Of t h e 56 p r o j e c t s under review, 4 1 were designed t o i n c r e a s e food supp l y f o r domestic consumption, o r contained major components t o enhance food production. This included 14 l i v e s t o c k and f i s h e r i e s p r o j e c t s , a l a r g e r s h a r e than i n previous reviews. Another major o b j e c t i v e of t h e p r e s e n t group w a s t h e promotion of a g r i c u l t u r a l e x p o r t s through production programs, pro- c e s s i n g and marketing arrangements. Development o f r u r a l i n f r a s t r u c t u r e and s e r v i c e s i n some c a s e s combined with land s e t t l e m e n t c o n s t i t u t e d a t h i r d important o b j e c t i v e which was pursued by 12 p r o j e c t s i n t h i s group. A s i n t h e p a s t , most a g r i c u l t u r a l p r o j e c t s were designed t o meet s e v e r a l o b j e c t i v e s , i n c l u d i n g marketing, r e s e a r c h , t r a i n i n g and i n s t i t u t i o n a l development. 2.04 All D FC o p e r a t i o n s had t h e d u a l purpose of resource t r a n s f e r and i n s t i t u t i o n a l development. The l a t t e r aimed e s s e n t i a l l y a t s t r e n g t h e n i n g t h e o r g a n i z a t i o n a l s t r u c t u r e , management p r a c t i c e s and t h e s t a f f of t h e s e DFCs; a t improving p r o j e c t a p p r a i s a l , i n p a r t i c u l a r t e c h n i c a l , economic and market a s p e c t s ; and a t b u i l d i n g up pro j e c t s u p e r v i s i o n c a p a b i l i t y . I n some c a s e s an important c o n s i d e r a t i o n was t h e development of competent l o c a l s t a f f t o f i l l p o s i t i o n s of r e s p o n s i b i l i t y and t h e r e b y reduce t h e dependence on expatriates. I n o t h e r i n s t a n c e s , Bank lending sought t o advance broader d e v e l o p m e n t a l and p o l i c y o b j e c t i v e s , i n c l u d i n g t h e DFC s c a p a b i l i t y f o r domestic and f o r e i g n resource m o b i l i z a t i o n . D i r e c t lending f o r i n d u s t r i a l and o i l and gas p r o j e c t s involved t h e t r a n s f e r of technology and t h e e x e r c i s e of t h e Bank's r o l e a s a c a t a l y s t i n t h e e x t e r n a l f i n a n c i n g of t h e p r o j e c t s . 2.05 P u b l i c u t i l i t i e s p r o j e c t s were intended t o provide, i n t h e most e c o n o m i c a l way, new c a p a c i t y t o meet t h e e s t i m a t e d g r o w t h i n demand f o r s e r v i c e s and t o improve e x i s t i n g f a c i l i t i e s . They were t y p i c a l l y p a r t s of t h e long-term development programs of t h e u t i l i t i e s concered. The power p r o j e c t s a l s o endeavored t o develop indigenous energy resources o r t o improve r e l i a b i l i t y of s e r v i c e and e f f i c i e n c y of use of imported f u e l s . Some of t h e s e p r o j e c t s included components designed t o prepare f o r f u t u r e development. Concern t o extend p r o j e c t b e n e f i t s t o t h e l e s s p r i v i l e g e d groups i n urban and r u r a l a r e a s was l e s s pronounced i n t h i s group of p r o j e c t s than i n p a s t Reviews although one p r o j e c t aimed a t extending water supply s e r v i c e t o r u r a l communities while o t h e r s included degrees of c r o s s - s u b s i d i z a t i o n f o r lower income consumers. 2.06 A l l t r a n s p o r t p r o j e c t s reviewed d e a l t w i t h t h e b a s i c trunk t r a n s p o r t networks of t h e c o u n t r i e s ; p r o j e c t design was, t h e r e f o r e , mostly determined by national o r international considerations rather than local o r regional factors. However, t h e c o n s t r u c t i o n of secondary o r f e e d e r roads a l s o were important o b j e c t i v e s i n f o u r of the p r o j e c t s . I n a t l e a s t one of t h e p r o j e c t s i n a country of new Bank involvement i n t h e s u b s e c t o r concerned, opportunity w a s taken t o support systematic and noteworthy i n s t i t u t i o n a l development. Some p r o j e c t s provided t h e s e t t i n g f o r a broader d i a l o g u e between t h e country and t h e Bank. The p o l i c y a r e a s covered included investment planning, t r a n s - p o r t c o o r d i n a t i o n and user charges. 2 -07 E d u c a t i o n p r o j e c t s c o n c e n t r a t e d on t h e t r a i n i n g of s p e c i a l i s t manpower t o meet t h e f o r e c a s t needs of t h e economy, w i t h s t r o n g elements of curriculum reform and innovation. Two of t h e p r o j e c t s , however, e x p l i c i t l y considered f o r t h e f i r s t t i m e a problem of fundamental importance - t h a t of p r o v i d i n g b a s i c e d u c a t i o n f o r t h e e n t i r e p o p u l a t i o n of s c h o o l a g e i n a s i t u a t i o n where t h e f i n a n c i a l circumstance of t h e country precluded such a n e x t e n s i o n based on t h e e x i s t i n g system. The p r o j e c t s i n t h i s group g e n e r a l l y had more complicated designs than those reviewed l a s t year. Each p r o j e c t addressed s e v e r a l a r e a s i n t h e e d u c a t i o n a l f i e l d ; one of them was n o t a b l e f o r i t s over-loaded d e s i g n , financing a s i t d i d some 43 i n d i v i d u a l i n s t i t u t i o n s of t e n d i f f e r e n t kinds. The Bank's i n c r e a s i n g a t t e n t i o n t o t h e software element of education p r o j e c t s was manifest i n t h i s group, where f o r t h e f i r s t time i n an 0 E ~ ' r e v i e wt h e amounts a l l o c a t e d f o r p h y s i c a l i n f r a s t r u c t u r e , mainly c i v i l works, i n a m a j o r i t y of t h e p r o j e c t s was l e s s than t h a t f o r t h e o t h e r elements combined. 2 -08 A common o b j e c t i v e of t h e f i r s t s t r u c t u r a l adjustment l o a n and of o t h e r program l o a n s / c r e d i t s reviewed was t o provide short-term balance of payments support and t o improve c a p a c i t y u t i l i z a t i o n , p a r t i c u l a r l y i n industry. I n a d d i t i o n , t h e loans supported programs of s t r u c t u r a l reforms. A t t h e n a t i o n a l l e v e l , t h e s e r e f o r m s promoted a n o u t w a r d - l o o k i n g p o l i c y o r i e n t a t i o n , f i s c a l and exchange r a t e d i s c i p l i n e , g r e a t e r r e l i a n c e on t h e p r i c e mechanism and a n i n c r e a s i n g r o l e f o r t h e p r i v a t e s e c t o r . I n some program l o a n s , s e c t o r issues were addressed, i n i t i a l l y aiming a t t h e restor- a t i o n of i n d u s t r i a l c a p a c i t y following n a t u r a l d i s a s t e r and war d i s l o c a - t i o n , and subsequently addressing s p e c i f i c problems r e l a t i n g t o productive e f f i c i e n c y and broader p o l i c y questions. P r o j e c t Implementation 2.09 Thirty-eight p r o j e c t s (30% of t h e group reviewed) were executed a s agreed a t t h e time of Board a p p r o v a l , o r w i t h only minor modifications. Another 84 p r o j e c t s were s i g n i f i c a n t l y changed during implementation. As i n previous y e a r s , t h e s e changes were caused by c o s t i n c r e a s e s which f o r c e d r e d u c t i o n s i n p r o j e c t scope, by changes i n t h e a t t e n d a n t s e c t o r o r macro- economic environment, and by i n i t i a l l y d e f i c i e n t p r o j e c t p r e p a r a t i o n and design. Five p r o j e c t s (4%) were not implemented and t h e supporting Bank l o a n / I ~ Ac r e d i t s were c a n c e l l e d e i t h e r completely o r i n l a r g e p a r t . (a) S i g n i f i c a n t P r o j e c t Changes 2.10 The number of com l e t e d p r o j e c t s i n t h i s group w i t h c l e a r l y defined p h y s i c a l c o n t e n t was 1 0 4 . ~ f As mentioned above, 84 of them ( o r 812 of t h e 104) were s i g n i f i c a n t l y changed i n t h e course of implementation: 43 of t h e m were reduced, 1 5 expanded, and 26 had some components reduced and o t h e r s expanded. The proport i o n of changed p r o j e c t s was s u b s t a n t i a l l y h i g h e r t h a n t h a t i n previous reviews. P r o j e c t changes were p r e v a l e n t i n a l l s e c t o r s , but more s o i n e d u c a t i o n and t r a n s p o r t , while i n p u b l i c u t i l i t i e s they stayed below t h e a v e r a g e . Given t h e random n a t u r e of p r o j e c t g r o u p s r e v i e w e d , year-to-year comparison i n t h e p r o p o r t i o n of p r o j e c t s undergoing changes during implementation i s not very s i g n i f i c a n t . A longer-term a n a l y s i s of the groups reviewed i n 1979-1983 (394 p r o j e c t s w i t h c l e a r l y defined p h y s i c a l c o n t e n t ) i s t h e r e f o r e presented i n Chart 1 below. This shows a sharp i n c r e a s e i n changes i n t h e groups s i n c e 1981. 2.11 An important reason f o r changes i n p r o j e c t scope - less s o i n t h i s y e a r ' s group than i n e a r l i e r ones - were c o s t overruns which i n many c a s e s l e d t o r e d u c t i o n s i n p r o j e c t scope i n o r d e r t o keep down t o t a l expenditures. Other important reasons f o r change during implementation were inadequate p r o j e c t d e s i g n o r changes i n borrower p r i o r i t i e s and p r o j e c t environment which, f o r t h e most p a r t , could not r e a l i s t i c a l l y have been foreseen. Over- a l l , t h e r i s i n g incidence of s i g n i f i c a n t p r o j e c t changes i n t h e l a s t two groups r e f l e c t s t h e more d i f f i c u l t economic environment i n which many of t h e s e p r o j e c t s were implemented, combined w i t h t h e i r more complex o b j e c t i v e s and, i n some c a s e s , t h e i r innovative design. ' 2.12 Two l i v e s t o c k p r o j e c t s i n E a s t e r n A f r i c a s u f f e r e d from c o s t escala- t i o n s and had t o be s u b s t a n t i a l l y reduced i n scope. Moreover, both p r o j e c t s experienced implementation d i f f i c u l t i e s because l o c a l c o n d i t i o n s and customs had n o t b e e n a d e q u a t e l y r e f l e c t e d i n t h e o r i g i n a l p r o j e c t d e s i g n . The scope and s t r u c t u r e of two o t h e r l i v e s t o c k p r o j e c t s i n t h e E a s t Asia and P a c i f i c region had t o be changed because t h e technology package underlying' t h e s e p r o j e c t s proved t o exceed t h e borrowers' c a p a c i t y f o r implementation. A f u r t h e r example of a change i n p r o j e c t scope due t o inadequate design i s provided by t h e i r r i g a t i o n p r o j e c t i n one L a t i n American country which f a i l e d t o s u b s t i t u t e high value c a s h c r o p s f o r l o c a l food c r o p s because farmers were not g i v e n adequate i n c e n t i v e s . 11 - T h i s excludes DFC p r o j e c t s and non-project lending. Chart I PROPORTION OF PROJECTS SIGNIFICANTLY CHANGED DURING IMPLEMENTATION (Groups Reviewed in 1979-1 983) Percent 1980 1981 1982 Year of Review World Bank-25402 2.13 The two w a t e r supply p r o j e c t s (one i n E a s t A s i a and t h e o t h e r i n North A f r i c a ) i n t h i s Review i l l u s t r a t e t h e e x p e r i e n c e t h a t changes i n p r o j e c t scope o c c a s i o n a l l y occur a s a r e s u l t of premature Board p r e s e n t a t i o n . I n both c a s e s t h e changes c o u l d have been avoided i f , i n accordance w i t h p r e s e n t Bank p r o c e d u r e s , t h e l o a n s had been made a t a l a t e r s t a g e i n t h e p r o j e c t c y c l e when f i n a l d e s i g n o r , p r e f e r a b l y , t e n d e r s f o r major p r o j e c t c o n t r a c t s were a v a i l - a b l e . Another example i s provided by t h e t h i r d highway p r o j e c t i n a n E a s t e r n A f r i c a n c o u n t r y where t h e Government f a i l e d t o p r e p a r e complete d e s i g n s and t h e Bank e v e n t u a l l y agreed t o have t h e c o n t r a c t o r proceed w i t h o u t them. The p r o j e c t was completed w i t h s i g n i f i c a n t l y h i g h e r d e s i g n s t a n d a r d s t h a n had been agreed a t t h e t i m e of l o a n a p p r o v a l and t h i s c o n t r i b u t e d t o t h e l a r g e c o s t overruns t h a t t h e p r o j e c t experienced. 2.14 Borrower p r e f e r e n c e s and p o l i c i e s have been a n o t h e r i m p o r t a n t r e a s o n f o r a l t e r a t i o n s i n t h e scope of p r o j e c t s . Changing borrower p r i o r i t i e s l e d t o a major r e s t r u c t u r i n g of one e d u c a t i o n p r o j e c t i n Northern A f r i c a . The c a p a c i t y of t h e t e c h n i c i a n c e n t e r s was i n c r e a s e d s i x f o l d w h i l e most o t h e r p r o j e c t components were d e l e t e d . In the agro-industries project i n Brazil p r i c e c o n t r o l s imposed by t h e Government caused a major s h i f t i n t h e a l l o c a - t i o n of funds away from t h e p r i n c i p a l p r o j e c t c a t e g o r y (meat p r o c e s s i n g ) towards f e e d p r o c e s s i n g and s t o r a g e . I n a p o r t s p r o j e c t i n C e n t r a l America, t h e Government i n i t i a t e d a r e v i e w o f p r o j e c t d e s i g n s w h i c h u n d e r a new a d m i n i s t r a t i o n were t h o u g h t t o be t o o c o s t l y . The review r e s u l t e d i n changes which were a c c e p t e d by t h e Bank and e v e n t u a l l y r e s u l t e d i n c o n s i d e r a b l e c o s t savings . (b) Cost Overruns 2.15 Cost o v e r r u n s i n t h e s e Reviews a r e d e f i n e d a s e x p e n d i t u r e s i n e x c e s s of t h o s e v i s u a l i z e d f o r t h e p r o j e c t a t a p p r a i s a l . They need t o be s e e n i n terms of t h e i r c a u s e s , t h e i r budgetary e f f e c t s and i n r e l a t i o n t o expected p r o j e c t b e n e f i t s . Chart 2 below summarizes t h e t r e n d i n average c o s t and time o v e r r u n s i n t h e groups of p r o j e c t s reviewed i n t h e l a s t f i v e y e a r s . 2.16 F i n a l c o s t e s t i m a t e s a t t h e time of completion a r e a v a i l a b l e f o r 1 0 3 p r o j e c t s of t h e p r e s e n t group. O f t h e s e , 38 p r o j e c t s (37% of t o t a l ) showed a c t u a l c o s t s t o be below o r a p p r o x i m a t e l y e q u a l t o t h o s e e s t i m a t e d a t appraisal. The m a j o r i t y of t h e p r o j e c t s , however, e x p e r i e n c e d c o s t o v e r r u n s ranging from 10% t o 560%. A s mentioned above, containment of p r o j e c t c o s t s o f t e n was achieved a t t h e expense of a r e d u c t i o n i n p r o j e c t s c o p e , a l t h o u g h , i n some c a s e s , borrowers have succeeded i n c o n t r o l l i n g p r o j e c t e x p e n d i t u r e s through e f f i c i e n t p r o j e c t planning and management. 2.17 On b a l a n c e , c o s t o v e r r u n s exceeded c o s t s a v i n g s r e s u l t i n g i n a weighted a v e r a g e i n c r e a s e of 21% f o r t h i s group. This was much less t h a n t h e average c o s t o v e r r u n noted i n p r e v i o u s Reviews, t e s t i f y i n g t o more r e a l i s t i c a p p r a i s a l e s t i m a t e s i n t h e post-1973 p r o j e c t s and more s u c c e s s f u l e f f o r t s a t c o s t containment, i n c l u d i n g changes i n p r o j e c t scope d u r i n g implementation. Chart 2 i l l u s t r a t e s t h e changes o v e r t i m e i n t h e dimensions of c o s t overruns. The p r i n c i p a l r e a s o n f o r c o s t overruns was domestic and i n t e r n a t i o n a l p r i c e i n f l a t i o n which, d e s p i t e improved e s t i m a t i o n , i n a number of c a s e s exceeded t h e p r o j e c t i o n s a t a p p r a i s a l by a wide margin. I n t h o s e i n s t a n c e s where c o s t Chart 2 AVERAGE COST OVERRUNS AND COMPLETION DELAYSFORREVE I W GROUPS COST OVERRUNS' Percent 1979 1980 1981 1982 1983 Year of Review Percent COMPLETION DELAYS 80 r 1979 1980 1981 1982 1983 Year of Review Weighted by final costs of projects. World Bank-25425 o v e r r u n s w e r e a c c o m p a n i e d by r e d u c t i o n s i n p r o j e c t s c o p e , t h e r e a l c o s t i n c r e a s e would be h i g h e r . But t h e r e were a l s o c a s e s where c o s t overruns were caused by p r o j e c t expansions. Another important f a c t o r was d e l a y i n t h e completion of p r o j e c t s which, because of i n f l a t i o n , tended t o add t o t h e f i n a l c o s t of p r o j e c t s . 2.18 I n viewing c o s t o v e r r u n s , o r e x p e n d i t u r e i n c r e a s e s , two f a c t s need t o be borne i n mind. Cost o v e r r u n s have a l i f e of t h e i r own i n s o f a r a s t h e y g e n e r a t e unforeseen f i n a n c i a l p r e s s u r e on borrowers who a r e f r e q u e n t l y a l r e a d y hard p r e s s e d . Beyond t h a t , however, t h e i r importance l i e s i n how t h e y a f f e c t t h e r a t i o of c o s t s and b e n e f i t s . To t h e e x t e n t t h a t p r o d u c t p r i c e s a n d economic b e n e f i t s t o t h e borrower r i s e p r o p o r t i o n a l l y t o c o s t s , o r a n accept- a b l e l e v e l of r e t u r n from t h e p r o j e c t investment c a n be ensured by r e d e s i g n of t h e p r o j e c t , t h e a d v e r s e e f f e c t s of c o s t overrun can be s i g n i f i c a n t l y reduced. A s t u d y of c o s t o v e r r u n s , and t h e consequent changes i n p r o j e c t scope and d e s i g n , by t h e Operations P o l i c y S t a f f of t h e Bank i s now under way. (c) Completion Delays 2.19 Of t h e 1 0 4 p r o j e c t s w i t h c l e a r l y d e f i n e d p h y s i c a l c o n t e n t , 8 7 (84%) r e q u i r e d more time t o complete t h a n had been e s t i m a t e d a t a p p r a i s a l . Nine p r o j e c t s were completed on time w h i l e f o r e i g h t p r o j e c t s t h e d a t e of c o m p l e t i o n c o u l d be advanced. The a v e r a g e c o m p l e t i o n d e l a y f o r a l l 1 0 4 p r o j e c t s amounted t o 61% which w a s l e s s t h a n i n t h e two p r e v i o u s Reviews. 2.20 Changes i n p r o j e c t scope were a major f a c t o r causing d e l a y s i n t h e c o m p l e t i o n d a t e ; 61% of a l l p r o j e c t s w e r e a f f e c t e d by i t . O t h e r , o f t e n c o n c u r r e n t r e a s o n s f o r completion d e l a y s were problems i n e x e c u t i o n of works ( 5 1 % ) , a d m i n i s t r a t i v e c o n s t r a i n t s i n borrower c o u n t r i e s (55%) and procure- ment problems (32%). I n most i n s t a n c e s t h e i n f l u e n c e of t h e s e f a c t o r s on i n d i v i d u a l p r o j e c t s was hard t o p r e d i c t even though t h e i n t r i n s i c d i f f i c u l t i e s a t t e n d i n g t h e development p r o c e s s were w e l l known. The magnitude of average completion d e l a y s s u g g e s t s , however, t h a t o r i i n a l time s c h e d u l e s were of t e n u n r e a l i s t i c , a s i n p r e v i o u s groups reviewed./ Thus, n i n e of t h e 22 p r o j - e c t s which experienced time d e l a y s of 100% o r more were o r i g i n a l l y scheduled t o be completed i n t h r e e y e a r s o r less w h i l e a n o t h e r twelve p r o j e c t s were expected t o be completed i n l e s s t h a n f o u r y e a r s . These a r e r e l a t i v e l y s h o r t time spans i n terms of Bank experience. Delays were f u r t h e r caused by t h e g e n e r a l l y u n s e t t l e d e c o n o m i c c o n d i t i o n s ( i n a few c a s e s , a l s o p o l i t i c a l c o n d i t i o n s ) under which many of t h e s e p r o j e c t s were implemented, and which could not have been f o r e s e e n . These i n c l u d e d r a p i d i n f l a t i o n r e s u l t i n g i n an i n t e r a c t i n g p a t t e r n of s h a r p i n c r e a s e s i n p r o j e c t c o s t s p l a c i n g a d d i t i o n a l f i n a n c i a l burden on t h e c o u n t r i e s concerned, l e a d i n g , i n t u r n , t o changes i n p r o j e c t s c o p e , i n s u f f i c i e n t l o c a l f i n a n c i n g , and f u r t h e r d e l a y s . Other f a c t o r s i n c l u d e d i n a d e q u a t e p r o j e c t p r e p a r a t i o n and d e f i c i e n t d e s i g n ; orga- n i z a t i o n a l problems r e f l e c t e d i n weak management; and d e l a y s and d i f f i c u l t i e , ~ i n procurement r e s u l t i n g from l a c k o f . f a m i l i a r i t y of t h e borrowers w i t h t h e Bank's procurement procedures. 11 - I n response t o t h i s problem, disbursement p r o f i l e s have been developed t o r e f l e c t p a s t e x p e r i e n c e i n each s e c t o r / c o u n t r y , and now form t h e b a s i s f o r a l l new p r o j e c t a p p r a i s a l s . Project Effectiveness 2.21 Most of the p r o j e c t s under review succeeded i n , o r were w e l l on t h e way t o , meeting t h e i r b a s i c o b j e c t i v e s of i n c r e a s i n g p r o d u c t i o n , c r e a t i n g employment and income, s t r e n g t h e n i n g t h e i n f r a s t r u c t u r e , developing human r e s o u r c e s , and promoting i n s t i t u t i o n a l and p o l i c y change. A l i m i t e d number of p r o j e c t s were c o n s i d e r e d a t a u d i t t o be f a c i n g an u n c e r t a i n o r u n s a t i s f a c t o r y outcome i n terms of t h e i r o b j e c t i v e s . P h y s i c a l Output and C a p a c i t i e s 2.22 Food p r o d u c t i o n was a major o b j e c t i v e of a g r i c u l t u r a l p r o j e c t s . E s t i m a t e s of i n c r e m e n t a l food production on completion were a v a i l a b l e f o r 37 p r o j e c t s and add up t o 12.5 m i l l i o n t o n s a y e a r , a f i g u r e which comes c l o s e t o the o r i g i n a l a p p r a i s a l estimates. E f f e c t i v e p r o j e c t management, a p p r o p r i a t e t e c h n i c a l d e s i g n and adequate p r i c e / c o s t i n c e n t i v e s were major f a c t o r s i n achieving these objectives . 2.23 There were s i m i l a r e x p e r i e n c e s with i n d u s t r i a l p r o j e c t s which were supported e i t h e r d i r e c t l y by t h e Bank o r through DFC o p e r a t i o n s . Careful p r o j e c t p r e p a r a t i o n and e f f i c i e n t management during p r o j e c t implementation u s u a l l y r e s u l t e d i n e f f e c t i v e c r e a t i o n and u t i l i z a t i o n of production capaci- ties. I n s e v e r a l c o u n t r i e s , t h e promotion of export-oriented i n d u s t r i e s met with measurable success and some o f t h e p r o j e c t s financed with Bank r e s o u r c e s exported from 30% t o 100% of t h e i r production. A l i m i t e d number of p r o j e c t s were, however, c o n s t r a i n e d by f o r e i g n exchange s h o r t a g e s , management def i c i e n - c i e s , s c a r c i t y of s k i l l e d l a b o r and i n s u f f i c i e n t s u p p l i e s of domestic raw m a t e r i a l s , a s a r e s u l t of which c a p a c i t y u t i l i z a t i o n was low.. 2.24 Two h y d r o e l e c t r i c power p r o j e c t s w e r e e f f e c t i v e i n d e v e l o p i n g indigenous energy r e s o u r c e s a l t h o u g h c a p a c i t y u t i l i z a t i o n i n t h e e a r l y y e a r s was l e s s t h a n expected due t o c o n s e c u t i v e d r y y e a r s . Other power p r o j e c t s succeeded i n meeting s u b s t a n t i a l growth of demand and i n improving system reliability. They a l s o c o n t r i b u t e d t o f u e l s a v i n g s and extended s e r v i c e t o new customers. The water supply p r o j e c t s met o r exceeded t h e i r t a r g e t s of i n c r e a s i n g t h e volume of p o t a b l e water a v a i l a b l e f o r d i s t r i b u t i o n . 2.25 The dimensions of most highway p r o j e c t s were s c a l e d down t o acconr modate r i s i n g c o s t s w i t h i n t h e l i m i t e d a v a i l a b i l i t y of funds. These p r o j e c t s n e v e r t h e l e s s made s u b s t a n t i a l c o n t r i b u t i o n s t o t h e borrowers' b a s i c t r a n s p o r t network. One of the two r a i l w a y p r o j e c t s s u p p o r t e d a s l i c e of a longer-term i n v e s t m e n t program w h i l e t h e o t h e r p r o v i d e d t r a n s p o r t f a c i l i t i e s f o r a n expanded i r o n o r e mine. The p o r t s p r o j e c t s provided a d d i t i o n a l c a p a c i t i e s f o r g e n e r a l and b u l k cargo which accomnodated t r a f f i c growth o r helped reduce p o r t congestion. 2.26 A c t u a l e n r o l l m e n t i n s c h o o l s s u p p o r t e d b y t h e Bank r e a c h e d on average about 89% of a p p r a i s a l e s t i m a t e s by t h e t i m e of completion. I n c a s e s where t h e r e were s h o r t f a l l s i n e n r o l l m e n t s , the number of s t u d e n t s was ex- pected t o r i s e t o t h e e s t i m a t e d l e v e l s w i t h i n a few y e a r s . These q u a n t i t a t i v e achievements of e d u c a t i o n p r o j e c t s were o f t e n accompanied by q u a l i t a t i v e improvements i n e d u c a t i o n a l s t a n d a r d s . I n one C e n t r a l American country, f o r example, new c u r r i c u l a were i n t r o d u c e d i n t o primary t e a c h e r e d u c a t i o n c o u r s e s ; i n Western A f r i c a youth t r a i n i n g programs i n one c o u n t r y were r e v i s e d t o emphasize p r a c t i c a l a g r i c u l t u r a l s k i l l s ; i n a n o t h e r c o u n t r y i n t h e E a s t e r n A f r i c a r e g i o n , new c u r r i c u l a and textbooks were produced and new examinations a d o p t e d , w i t h t h e t r a i n i n g of secondary s c h o o l t e a c h e r s f o r p r a c t i c a l and s c i e n t i f i c s u b j e c t s f a c i l i t a t i n g t h e i n t r o d u c t i o n of a new lower secondary program. 2.27 Two e d u c a t i o n p r o j e c t s d i d a d d r e s s a q u e s t i o n of prime importance - namely, t h e dilemma of two of t h e p o o r e s t c o u n t r i e s i n Western Af r i c a s e e k i n g t o develop a s t r a t e g y t o meet b a s i c needs i n e d u c a t i o n and t r a i n i n g among t h e r u r a l p o p u l a t i o n i n circumstances where, a l t h o u g h a c o n s i d e r a b l e p r o p o r t i o n of government e x p e n d i t u r e s i s used f o r e d u c a t i o n , t h e e x i s t i n g primary e d u c a t i o n system e n r o l l s o n l y a s m a l l p r o p o r t i o n of school-age c h i l d r e n . These i n i t i a - t i v e s took t h e form of f i n a n c i n g r u r a l y o u t h t r a i n i n g c e n t e r s i n one c o u n t r y , w i t h u n i t c o s t s lower than primary s c h o o l s ; i n t h e o t h e r , a s t u d y of t h e problem was f i n a n c e d . N e i t h e r of t h e s e i n i t i a t i v e s could be s a i d t o have been very s u c c e s s f u l , however. The u n i t c o s t s of t h e r u r a l youth t r a i n i n g c e n t e r s i n c r e a s e d c o n s i d e r a b l y f o l l o w i n g s a l a r y i n c r e a s e s which brought t h e i r i n s t r u c - t o r s ' s a l a r i e s up t o t h e l e v e l of t h o s e of primary s c h o o l t e a c h e r s , w h i l e t h e s t u d y was unproductive . (b) Project Beneficiaries 2.28 P r o j e c t s a r e l i n k e d t o b e n e f i c i a r i e s through t h e d i r e c t p r o v i s i o n of c r e d i t , p r o d u c t i v e i n p u t s , such a s i r r i g a t i o n and e l e c t r i c power, o r s e r v i c e s , s u c h a s e d u c a t i o n and r a i l s e r v i c e . I n d i v i d u a l s and o r g a n i z a t i o n s a l s o b e n e f i t from p r o j e c t s i n d i r e c t l y through improvements i n p u b l i c i n f r a s t r u c t u r e such a s highways and w a t e r supply/sewerage systems. T h i s Review concerns i t s e l f o n l y w i t h d i r e c t b e n e f i c i a r i e s , t o t h e e x t e n t i n f o r m a t i o n was a v a i l a b l e a t audit. 2.29 The e v i d e n c e i s s t r o n g e s t i n t h e a g r i c u l t u r a l s e c t o r and s m a l l farmers a r e t h e l a r g e s t group of i d e n t i f i e d b e n e f i c i a r i e s . Small and medium farmers were i n c l u d e d a s p o t e n t i a l b e n e f i c i a r i e s i n 41 of t h e 53 a g r i c u l t u r a l p r o j e c t s i n t h i s group. Taken t o g e t h e r , t h e p r o j e c t s on completion were e s t i m a t e d t o have reached about 1.6 m i l l i o n f a m i l i e s , o r some 8.9 m i l l i o n r u r a l people. These f i g u r e s r e p r e s e n t a l l persons a f f e c t e d by t h e p r o j e c t s , whether i n t e n s i v e l y o r e x t e n s i v e l y . A s i n p a s t reviews, most of t h e bene- f i c i a r i e s were a t t r i b u t a b l e t o a few l a r g e p r o j e c t s : 9 of t h e 4 1 p r o j e c t s accounted f o r 90% of t h e b e n e f i c i a r i e s . 2.30 The 167 a g r i c u l t u r a l p r o j e c t s i n t h i s c a t e g o r y , which have been reviewed o v e r t h e p a s t f i v e y e a r s , extended b e n e f i t s t o an e s t i m a t e d 31.4 m i l l i o n people. The m a j o r i t y of t h e s e p r o j e c t s have been i n i r r i g a t i o n and a g r i c u l t u r a l c r e d i t , d i s s e m i n a t i n g simple i n p u t packages and low-cost c r o p technology t o l a r g e numbers of farmers. I n t h e p r e s e n t group, however, o v e r 60% of t h e b e n e f i c i a r i e s were reached through two a r e a development p r o j - e c t s : a r u r a l i n f r a s t r u c t u r e p r o j e c t i n E a s t Asia ( 4 m i l l i o n p e o p l e ) and t h e drought-prone a r e a s p r o j e c t i n South A s i a (1.5 m i l l i o n p e o p l e ) . 2.31 E f f o r t s t o r e a c h weaker s e c t i o n s of t h e p o p u l a t i o n w h i l e m a i n t a i n i n g p r o j e c t v i a b i l i t y were a l s o e v i d e n t i n o t h e r s e c t o r s . A prime example i s t h e urban p r o j e c t i n a South Asian c o u n t r y which h a s brought many b e n e f i t s t o t h e p e o p l e of t h e c i t y , m o s t o f whom a r e d e s p e r a t e l y p o o r . These b e n e f i t s i n c l u d e e x t e n s i o n of piped w a t e r s u p p l y and of sewerage and d r a i n a g e f a c i l i - t i e s i n t o new a r e a s , improved s e r v i c e i n e x i s t i n g a r e a s , and o t h e r upgrading of s a n i t a t i o n f a c i l i t i e s . A w a t e r s u p p l y p r o j e c t i n a North A f r i c a n c o u n t r y i n c r e a s e d t h e s u p p l y of p o t a b l e w a t e r t o one of t h e c o u n t r y ' s major c i t i e s and i t s n e i g h b o r i n g m u n i c i p a l i t i e s a s w e l l a s t o 62 r u r a l c e n t e r s w i t h p o p u l a t i o n s exceeding 500. The w a t e r s u p p l y p r o j e c t i n a n E a s t Asian c o u n t r y supported t h e second s t a g e of a long-range p l a n t o supply p o t a b l e w a t e r t o t h e c o u n t r y ' s capital city. No e s t i m a t e s e x i s t a b o u t t h e number o f p e r s o n s t h a t h a v e b e n e f i t e d from t h e s e t h r e e p r o j e c t s , a l t h o u g h a l l i n d i c a t i o n s a r e t h a t t h e p r o j e c t s reached r e l a t i v e l y l a r g e groups i n t h e low-income b r a c k e t s . 2.32 I n f o r m a t i o n on employment and income e f f e c t s was more l i m i t e d t h a n f o r t h e o t h e r dimensions e v a l u a t e d . Also, t h e c o n c l u s i o n s may i n some c a s e s be s u b j e c t t o m o d i f i c a t i o n on c l o s e r examination a s some impact e v a l u a t i o n reports - which f o l l o w some y e a r s a f t e r t h e r e g u l a r performance a u d i t s i n selected cases - have r e v e a l e d . 2.33 With t h e a b o v e q u a l i f i c a t i o n s , i n f o r m a t i o n o n f a r m e r s ' income was a v a i l a b l e a t a u d i t f o r 23 a g r i c u l t u r a l p r o j e c t s i n t h i s group, b u t f o r f i v e of t h e s e no b a s e income e s t i m a t e s w e r e made a t a p p r a i s a l . For t h e remaining 1 8 p r o j e c t s , income comparisons i n r e a l terms showed i n c r e a s e s ranging f r m 50% t o 500%, o r from US$80 t o US$2,500 a y e a r p e r family. In s e v e r a l of t h e p r o j e c t s , income g a i n s exceeded a p p r a i s a l e s t i m a t e s . On t h e o t h e r hand, n e t income a c t u a l l y d e c l i n e d i n one c a s e due t o lower y i e l d s and smaller a r e a s p l a n t e d . Some of t h e p r o j e c t s f o r which s p e c i f i c income d a t a were n o t a v a i l a b l e showed o t h e r evidence of s i z a b l e income g a i n s . 2.34 I n f o r m a t i o n on employment g a i n s was a v a i l a b l e , o r c o u l d be i n f e r r e d , f o r 31 o u t of t h e 53 completed a g r i c u l t u r a l p r o j e c t s and f o r two i n d u s t r i a l projects. The 3 1 a g r i c u l t u r a l p r o j e c t s p r o v i d e d t h e e q u i v a l e n t o f some 350,000 man-years i n i n c r e m e n t a l employment. About two t h i r d s of t h e p r o j e c t s f o r which comparisons w i t h a p p r a i s a l estimates c o u l d be made, m e t o r exceeded those projections. I n l i n e w i t h e a r l i e r e x p e r i e n c e , i r r i g a t i o n and c r e d i t p r o j e c t s tended t o have t h e l a r g e s t employment e f f e c t s . The c o s t p e r addi- t i o n a l man-year o f employment v a r i e d w i d e l y , r a n g i n g f r o m a n a v e r a g e o f US$1,660 i n t h e i r r i g a t i o n s u b s e c t o r t o US$32,000 f o r c r e d i t p r o j e c t s . The t o t a l i n c r e m e n t a l employment g e n e r a t e d by a g r i c u l t u r a l p r o j e c t s reviewed i n t h e l a s t t h r e e y e a r s was of t h e o r d e r of 1.7 m i l l i o n man-years. 2.35 Two i n d u s t r i a l p r o j e c t s w e r e designed t o g e n e r a t e employment. An i n d u s t r i a l e s t a t e p r o j e c t i n a n E a s t e r n A f r i c a n c o u n t r y achieved i t s o b j e c t i v e only p a r t i a l l y : employment was about 2,200 a t completion compared t o 5,000- 6,000 p r o j e c t e d a t a p p r a i s a l . The s h o r t f a l l was p a r t l y due t o t h e l o c a t i o n , d e s i g n and phasing of t h e p r o j e c t ; i n a d d i t i o n , t h e Bank's s u p e r v i s i o n e f f o r t - p a r t i c u l a r l y a f t e r t h e c o n s t r u c t i o n phase - a p p e a r s n o t t o have been commen- s u r a t e w i t h t h e t a s k s a t hand and i n s u f f i c i e n t a t t e n t i o n was p a i d t o t h e o p e r a t i n g problems of t h e e s t a t e . Another p r o j e c t - - t h i s one i n E a s t Asia-- sought t o i n c r e a s e a c c e s s t o i n s t i t u t i o n a l c r e d i t of small- and medium-scale i n d u s t r i a l e n t e r p r i s e s , t o provide them w i t h e x t e n s i o n s e r v i c e s and t o c r e a t e employment a t low investment c o s t . The p r o j e c t was s u c c e s s f u l i n r e a c h i n g t h e t a r g e t groups and i n promoting l a b o r - i n t e n s i v e a c t i v i t i e s i n a v a r i e t y of i n d u s t r i a l subsectors. Some 850 s u b p r o j e c t s were funded c r e a t i n g a n e s t i m a t e d 20,000 new jobs. (c) Economic Returns 2.36 An i n t e r n a l r a t e of r e t u r n i s g e n e r a l l y used a s a summary i n d i c a t o r of a p r o j e c t ' s o v e r a l l economic m e r i t . The e s t i m a t i o n of b e n e f i t s , however, v a r i e s w i t h d i f f e r e n t t y p e s of p r o j e c t s . It i s most s t r a i g h t f o r w a r d where t h e p r o j e c t i s i n t e n d e d t o produce a n o u t p u t which i s t r a d e d and whose economic v a l u e can t h e r e f o r e be observed. Where t h e v a l u e of t h e p r o j e c t l i e s i n s a v i n g c o s t s o r c r e a t i n g o p p o r t u n i t i e s f o r new e c o n o m i c a c t i v i t y , a s i n t r a n s p o r t , t h e e s t i m a t i o n of b e n e f i t s i s l e s s d i r e c t . Where t h e p r i c e of t h e product i s c o n t r o l l e d by government and t h e r e i s no o t h e r ready measure of i t s economic v a l u e ( a s i n p u b l i c u t i l i t i e s p r o j e c t s ) , t h e economic worth of t h e s e r v i c e i s d i f f i c u l t t o determine and f i n a n c i a l revenues a r e normally used a s a minimum measure of b e n e f i t s . F i n a l l y , t h e r e a r e p r o j e c t s f o r which b e n e f i t s cannot r e a d i l y be compared w i t h c o s t s ; t h e i r m e r i t must t h e r e f o r e be judged q u a l i t a t i v e l y i n r e l a t i o n t o t h e o b j e c t i v e s s e t f o r them. Education and p o p u l a t i o n p r o j e c t s belong t o t h i s c a t e g o r y . 2.37 A f t e r t h e p r o j e c t h a s been completed, expected economic r e t u r n s a r e r e e s t i m a t e d . These r e v i s e d p r o j e c t i o n s a r e based upon a c t u a l investment c o s t s and such r e v i s i o n s of t h e s t r e a m s of b e n e f i t s and o p e r a t i n g c o s t s a s t h e e x p e r i e n c e s i n c e t h e p r o j e c t a p p r a i s a l may r e q u i r e . The r e e s t i m a t e d r e t u r n i s t h u s a measure of changed e x p e c t a t i o n s f o r t h e p r o j e c t i n t h e l i g h t of t h e implementation e x p e r i e n c e and changed e x t e r n a l circumstances. It remains a p r o j e c t i o n , however, based on t h e d i s c o u n t e d stream of c o s t s and b e n e f i t s f o r t h e u s e f u l l i f e of t h e a s s e t s c r e a t e d . 2.38 O f t h e 80 p r o j e c t s i n t h i s Review f o r which economic r a t e s of r e t u r n were p r o j e c t e d a t a p p r a i s a l , f o u r were n o t implemented. Another s i x p r o j e c t s d i d n o t p r o v i d e s u f f i c i e n t i n f o r m a t i o n a t a u d i t f o r r e e s t i m a t i n g t h e expected r a t e s of r e t u r n . T h i s l e a v e s 70 p r o j e c t s f o r which economic r a t e s of r e t u r n were r e e s t i m a t e d on completion. Of t h e s e , 5 3 p r o j e c t s (76%) o f f e r e d r e e s t i - mates of 10% o r more w h i l e t h e remaining 1 7 p r o j e c t s (24%) produced r e t u r n s which a t t h e time of completion were expected t o be n e g a t i v e o r l e s s t h a n 10%. For 26 p r o j e c t s (37%) t h e r e e s t i m a t e d r e t u r n s e q u a l l e d o r exceeded t h o s e made a t appraisal. 2.39 One of t h e d i s c o n t i n u e d p r o j e c t s ( a n a g r i c u l t u r a l d e v e l o p m e n t p r o j e c t i n a n E a s t e r n A f r i c a n c o u n t r y ) had t o be h a l t e d because t o o many problems a r o s e d u r i n g implementation which t h e f l e d g l i n g p r o j e c t u n i t was unable t o r e s o l v e . A f t e r c a n c e l l i n g most of ' t h e IDA c r e d i t t h e p r o j e c t was reduced i n scope and funded by a n o t h e r IDA c r e d i t . Implementation of a n o t h e r a g r i c u l t u r a l d e v e l o p m e n t p r o j e c t i n t h e same r e g i o n was h a l t e d a f t e r a promising s t a r t due t o l o c a l s e c u r i t y problems. Only about 10% of t h e sup- p o r t i n g IDA c r e d i t was d i s b u r s e d w h i l e t h e r e s t was c a n c e l l e d . The Bank l o a n f o r a t h i r d p r o j e c t ( o i l s e e d p r o c e s s i n g i n a Middle E a s t e r n c o u n t r y ) w a s c a n c e l l e d i n f u l l by t h e Borrower w i t h o u t any e x p l a n a t i o n . A f o u r t h p r o j e c t ( t h e b u i l d i n g of a p o r t i n North A f r i c a ) had t o be abandoned because t h e s t e e l m i l l which w a s t o be t h e p o r t ' s major u s e r was not b u i l t . No r a t e of r e t u r n e s t i m a t e was made a t a p p r a i s a l of a p o p u l a t i o n p r o j e c t i n a n o t h e r Middle E a s t e r n c o u n t r y which w a s a l s o subsequently d i s c o n t i n u e d from l o s s of borrower interest. 2.40 Judgement i s d i f f i c u l t on t h e six p r o j e c t s w i t h i n s u f f i c i e n t i n f o r - mation a t a u d i t t o r e e s t i m a t e t h e expected r a t e s of r e t u r n . Based on a v a i l - a b l e i n f o r m a t i o n and u s i n g a mix of q u a n t i t a t i v e and q u a l i t a t i v e e v a l u a t i o n , t h r e e of them may be considered on balance t o have been s u c c e s s f u l investments and t h r e e , n o t . A drought prone a r e a s p r o j e c t i n South Asia was c o n s i d e r e d t o h a v e m e t o r e v e n e x c e e d e d most of t h e t a r g e t s s e t a t a p p r a i s a l f o r f o o d product i o n , employment c r e a t i o n , and t h e number of b e n e f i c i a r i e s . However, s i n c e t h e monitoring and e v a l u a t i o n program f o r t h e p r o j e c t w a s n o t imple- mented a s planned, i t s v a l u e a s a r e p l i c a b l e p i l o t p r o j e c t could not be f u l l y e s t a b l i s h e d . The urban development p r o j e c t i n a South Asian c o u n t r y mentioned e a r l i e r , d e s p i t e some implementation d i f f i c u l t i e s , succeeded v e r y w e l l i n s u p p o r t i n g t h e urban improvement program and s t r e n g t h e n i n g t h e o p e r a t i o n s of a c r i t i c a l l y important new i n s t i t u t i o n . It a l s o g e n e r a t e d widespread s o c i a l b e n e f i t s which a r e d i f f i c u l t t o q u a n t i f y . A beef ranching p r o j e c t i n a n E a s t e r n A f r i c a n c o u n t r y w a s completed i n 1974 and d i d v e r y w e l l i n r e s p e c t of v i r t u a l l y a l l i t s major o b j e c t i v e s u n t i l 1978 when c i v i l s t r i f e and s e v e r e s u p p l y s h o r t a g e s l e d t o e r o s i o n of i t s a s s e t s . The a u d i t c o n s i d e r e d t h e t e c h n i c a l package t o have been v e r y e f f e c t i v e and t h e i n c r e m e n t a l p r o d u c t i o n of l i v e s t o c k t o have exceeded a p p r a i s a l e x p e c t a t i o n s . A l a r g e number of r a n c h e r s b e n e f i t e d from t h e p r o j e c t . The f i n a n c i a l r e t u r n t o t h e e n t e r p r i s e w a s s a t i s f a c t o r y , and a l t h o u g h an economic r a t e of r e t u r n c o u l d n o t be r e c a l - c u l a t e d due t o u n s e t t l e d economic and p o l i t i c a l c o n d i t i o n s , t h e a u d i t judged t h e p r o j e c t t o have been worthwhile. S i m i l a r l y , a r a i l w a y p r o j e c t i n a South Asian c o u n t r y was a l s o a f f e c t e d by war and c i v i l d i s t u r b a n c e . I n t h i s case, however, t h e p r o j e c t was o n l y p a r t i a l l y implemented, and t h e o p e r a t i o n a l , economic, f i n a n c i a l and i n s t i t u t i o n a l r e s u l t s were d i s a p p o i n t i n g . The a u d i t e s t i m a t e d t h e economic r e t u r n from a l a r g e p a r t of t h e p r o j e c t t o be u n s a t i s - factory. The remaining two harbor p r o j e c t s i n E a s t e r n A f r i c a achieved t h e i r main p h y s i c a l o b j e c t i v e s , a l b e i t w i t h s u b s t a n t i a l time and c o s t overruns. However, low p r o d u c t i v i t y i n p o r t o p e r a t i o n s and poor maintenance, t o g e t h e r w i t h t r a f f i c s h o r t f a l l s caused by depressed economic a c t i v i t y i n t h e bene- f i c i a r y c o u n t r i e s , l e f t t h e economic outcome of t h e s e p r o j e c t s i n doubt. 2.41 Chart 3 ( a ) below compares t h e weighted averageL/ of r e e s t i m a t e d economic r a t e s of r e t u r n f o r 69 p r o j e c t & / i n t h e c u r r e n t Review, w i t h t h e r e t u r n s on p r o j e c t s reviewed i n t h e p r e v i o u s f o u r y e a r s . The weighted average of 22% f o r t h e 1 9 8 3 Review g r o u p c o m p a r e s f a v o r a b l y w i t h e a r l i e r Review 11 - Weighted by t h e c o s t s of p r o j e c t s a t completion. - 21 One energy p r o j e c t i n South A s i a was e l i m i n a t e d from t h e 1983 Review group average because i t w a s f e l t t h a t t h e s i z e of t h e p r o j e c t ($640 m i l l i o n ) coupled w i t h t h e high r e e s t i m a t e d r e t u r n (143%) due t o o i l p r i c e i n c r e a s e s , would d i s t o r t t h e o v e r a l l 1983 r e s u l t s . Chart 3 EXPECTED ECONOMIC RATES OFRETURN' (a) ALL PROJECTS REVIEWED2 Percent Year of Review (b) AVERAGE BY MAJOR SECTOR 1979- 19832 Percent Agriculture Transport I Reestimated on completion; averages weighted by final project cost Projects for which expected rates of return were reestimated. World Bank-25426 groups (21%). Chart 3(b) breaks t h e most recent five-year average of r e e s t i - mated r a t e s of r e t u r n down i n t o major s e c t o r s . I n Review years 1979-83, a g r i c u l t u r a l p r o j e c t s showed h i g h r e t u r n s o v e r a l l , even though most of t h e p r o j e c t s w i t h low o r n e g a t i v e r e t u r n s a l s o o c c u r r e d i n t h e a g r i c u l t u r a l sector. 2.42 The 17 p r o j e c t s with r e e s t i m a t e s below 10% included 15 i n a g r i c u l - t u r e and 2 i n t r a n s p o r t . Of t h e 15 low-return a g r i c u l t u r a l p r o j e c t s , 1 1 were c l e a r cases o f f a i l u r e e i t h e r completely o r t o a l a r g e e x t e n t . A livestock p r o j e c t i n one c o u n t r y i n t h e E a s t e r n A f r i c a r e g i o n ( r e e s t i m a t e d r e t u r n negative) s u f f e r e d from s u b s t a n t i a l c o s t i n c r e a s e s and depressed p r i c e s a s w e l l a s from t h e outbreak of d i s e a s e s . A d a i r y p r o j e c t i n another country i n t h e same region ( r e e s t i m a t e d r e t u r n n e g a t i v e ) f a i l e d t o achieve i t s p r i n c i p a l o b j e c t i v e of i n c r e a s i n g m i l k production i n t h e p r o j e c t a r e a due l a r g e l y t o poor management and changes caused by a r e v o l u t i o n . I n t h e same country, a second l i v e s t o c k p r o j e c t ( r e e s t i m a t e d r e t u r n negative) s u f f e r e d from major design d e f i c i e n c i e s which did not t a k e i n t o c o n s i d e r a t i o n t h e s t r o n g l y en- trenched h a b i t s and preferences of a t r a d i t i o n a l s o c i e t y . S i m i l a r l y , another l i v e s t o c k p r o j e c t i n t h e same r e g i o n ( r e e s t i m a t e d r e t u r n n e g a t i v e ) a l s o neglected l o c a l c o n d i t i o n s ; i n a d d i t i o n , t h e p r o j e c t s t r a i n e d t h e borrower's implementation c a p a c i t y and s u f f e r e d from c o s t e s c a l a t i o n . A s a result, the project's impact on t h e country's l i v e s t o c k s e c t o r has been minimal. In Western Af r i c a , t h e l i v e s t o c k p r o j e c t in one country ( r e e s t i m a t e d r e t u r n n e g a t i v e ) w a s b e s e t by p r o j e c t management and n a t i o n a l economic problems which caused a slower than expected build-up of p r o j e c t b e n e f i t s . The beef c a t t l e p r o j e c t i n one East Asian country ( r e e s t i m a t e d r e t u r n negative) underestimated the d i f f i c u l t i e s of introducing modern technology pac kages i n a t r a d i t i o n a l environment. A c r i t i c a l weakness was t h e omission of a p i l o t p r o j e c t on t h e b a s i s of which t h e f e a s i b i l i t y of a f u l l - s c a l e a p p r o a c h c o u l d h a v e been determined. I n t h e same region, but i n a d i f f e r e n t country, an i n t e g r a t e d d a i r y p r o j e c t ( r e e s t i m a t e d r e t u r n n e g a t i v e ) w a s s u c c e s s f u l i n terms of pro- d u c t i o n , farmer s' p a r t i c i p a t i o n and i n s t i t u t i o n a l improvements. The pro j e c t outcome was however expected t o be economically u n s a t i s f a c t o r y when valued a t world market p r i c e s f o r t h e o u t p u t . A smallholder l i v e s t o c k p r o j e c t i n t h e P a c i f i c ( r e e s t i m a t e d r e t u r n of 2 % ) was a f f e c t e d by c o s t overruns, d e c l i n i n g beef p r i c e s and a v a r i e t y of o t h e r f a c t o r s including uneconomically small c a t t l e u n i t s , land t e n u r e problems, f a i l u r e of t h e farmer t r a i n i n g program and inadequate extension s e r v i c e s . 2.43 An i r r i g a t i o n p r o j e c t i n one country i n L a t i n America ( r e e s t i m a t e d r e t u r n of 2%) had major d e s i g n flaws and lacked supporting s e r v i c e s . As a r e s u l t , farmers d i d not r e a d i l y switch t o t h e new i n t e n s i v e production process which formed t h e b a s i s f o r t h e p r o j e c t . A smallholder tobacco p r o j e c t i n a n E a s t e r n African country ( r e e s t i m a t e d r e t u r n n e g a t i v e ) w a s u n s u c c e s s f u l mainly b e c a u s e o f c i v i l s t r i f e b u t a l s o b e c a u s e of weak management and a d v e r s e pricing policies. An agro-industries p r o j e c t i n one country i n t h e L a t i n American region ( r e e s t i m a t e d r e t u r n n e g a t i v e ) d i d not produce t h e expected b e n e f i t s due t o s e r i o u s d i s t o r t i o n s i n s e c t o r and country p o l i c i e s . 2.44 The remaining f o u r low--return a g r i c u l t u r a l p r o j e c t s can be c l a s s i - f i e d as marginal cases. An i r r i g a t i o n p r o j e c t in n o r t h e r n A f r i c a ( r e e s t i m a t e d r e t u r n of 9 % ) d i d n o t f u l l y achieve its a g r i c u l t u r a l production o b j e c t i v e s because of weakness i n p r o j e c t management and f a i l u r e t o make n e c e s s a r y p o l i c y changes. A f r u i t and v e g e t a b l e e x p o r t p r o j e c t i n one European c o u n t r y ( r e - e s t i m a t e d r e t u r n of 8%) was p h y s i c a l l y implemented b u t f a i l e d t o expand t h e c o u n t r y ' s a g r i c u l t u r a l e x p o r t s because i n s u f f i c i e n t a t t e n t i o n was g i v e n t o t h e e s t a b l i s h m e n t of an i n t e g r a t e d p r o d u c t i o n and marketing system. A pine- a p p l e p r o j e c t i n Western A f r i c a ( r e e s t i m a t e d r e t u r n of 8%) d i d n o t r e a c h t h e expected production l e v e l because inadequate i n p u t s reduced y i e l d s . A f o r e s t r y p r o j e c t i n one c o u n t r y i n E a s t e r n A f r i c a ( r e e s t i m a t e d r e t u r n of 7%) experienced slower t h a n expected t r e e growth because f o r e i g n s p e c i e s d i d n o t a d a p t r e a d i l y t o t h e l o c a l environment. 2.45 There were two low r e t u r n t r a n s p o r t p r o j e c t s : one highway p r o j e c t i n a n E a s t e r n A f r i c a n country--the t h i r d of i t s kind--(reestimated r e t u r n of 4%) and t h e o t h e r i n t h e P a c i f i c ( r e e s t i m a t e d r e t u r n of 8-10%). A second highway p r o j e c t i n t h e same E a s t e r n A f r i c a n c o u n t r y ( r e e s t i m a t e d r e t u r n of 7-16%) was d i f f i c u l t t o c l a s s i f y f o r t h e r e a s o n s g i v e n below and i s c o n s i d e r e d t o have been s u c c e s s f u l . The t h i r d highway p r o j e c t i n t h e E a s t e r n A f r i c a n r e g i o n r e f e r r e d t o e a r l i e r encountered major d i f f i c u l t i e s i n p r o j e c t manage- ment, procurement and p r o j e c t s u p e r v i s i o n , which r e s u l t e d i n a low l e v e l of achievement. The highway p r o j e c t i n t h e P a c i f i c s u f f e r e d from s u b s t a n t i a l c o s t overruns while t h e volume of t r a f f i c d i d n o t come up t o e x p e c t a t i o n s . O n completion of t h e second highway p r o j e c t i n t h e E a s t e r n A f r i c a n c o u n t r y i t became c l e a r t h a t a n important s h a r e of t h e b e n e f i t s (45%) would a c c r u e t o a neighboring c o u n t r y a g a i n s t 15% v i s u a l i z e d a t a p p r a i s a l . While t h e g o a l of p r o v i d i n g t h e landlocked c o u n t r y w i t h a r e l i a b l e o u t l e t t o t h e s e a was a c h i e v e d , d i r e c t b e n e f i t s t o t h e borrower d e c l i n e d . However, when i n d i r e c t b e n e f i t s a r e i n c l u d e d , t h e expected r a t e of r e t u r n t o t h e p r o j e c t rises t o 16%. Allowing f o r recoupment of b e n e f i t s by t h e borrower, t h e a u d i t judged t h e p r o j e c t t o have been worthwhile. The methodological i s s u e r a i s e d by t h e t r e a t m e n t of t r a n s i t t r a f f i c i n r a t e of r e t u r n c a l c u l a t i o n s i s e l a b o r a t e d i n p a r a . 4.45. I 2.46 For 47 p r o j e c t s , economic r e t u r n s were n o t e s t i m a t e d a t t h e time of a p p r a i s a l ; f o r 35 of them, q u a l i t a t i v e a s s e s s m e n t s were made a t a u d i t . One p r o j e c t was n o t implemented and t h e s u p p o r t i n g Bank l o a n was c a n c e l l e d due t o a change i n t h e borrower's p r i o r i t i e s ( s e e p a r a . 3.11). The remaining 11 o p e r a t i o n s were non-pro j e c t l o a n s , a l l of which subs t a n t i a l l y achieved t h e i r major o b j e c t i v e s . I 2.47 The 35 p r o j e c t s f o r which q u a l i t a t i v e a s s e s s m e n t s were made i n c l u d e d 2 t e c h n i c a l a s s i s t a n c e p r o j e c t s i n a g r i c u l t u r e , 13 p u b l i c u t i l i t y p r o j e c t s , 1 i n d u s t r i a l p r o j e c t , 7 DFC o p e r a t i o n s , 11 e d u c a t i o n p r o j e c t s and 1 p o p u l a t i o n project. The performance of a l l b u t f o u r of t h e s e p r o j e c t s w a s judged t o be s a t i s f a c t o r y a t a u d i t . A t e c h n i c a l a s s i s t a n c e p r o j e c t i n one Western A f r i c a n c o u n t r y ( p a r a . 2.57) which was designed t o s t r e n g t h e n a g r i c u l t u r a l i n s t i t u - t i o n s and p o l i c i e s f a i l e d t o achieve most of, i t s o b j e c t i v e s . The p r o j e c t was i m p l e m e n t e d a t a t i m e of e x t e n s i v e p o l i t i c a l a n d s o c i a l c h a n g e s i n t h e c o u n t r y , which a g g r a v a t e d a l r e a d y e x i s t i n g d i f f i c u l t i e s i n t h e s e c t o r . In a d d i t i o n , t h e c o n s u l t a n t s employed under t h e p r o j e c t performed poorly. The i n d u s t r i a l e s t a t e p r o j e c t i n t h e E a s t e r n A f r i c a r e g i o n was o p e r a t i n g w i t h a low-occupancy r a t e d u e t o a d e c l i n e i n f o r e i g n i n v e s t m e n t , p o o r manage- I ment of t h e e s t a t e , and c o m p e t i t i o n from s m a l l e r privately-owned i n d u s t r i a l e s t a t e s . The r e s u l t s of a c r e d i t t o t h e investment bank of a n E a s t e r n A f r i c a n c o u n t r y were c o n s i d e r e d u n s a t i s f a c t o r y because of t h e poor performance of h a l f t h e s u b p r o j e c t s f i n a n c e d w i t h t h e c r e d i t . The f i r s t p o p u l a t i o n p r o j e c t of one Middle E a s t e r n c o u n t r y was much reduced i n scope and achieved few of i t s objectives. Lack of borrower s u p p o r t was t h e main r e a s o n f o r t h e u n s a t i s - f a c t o r y performance. 2.48 Five of t h e 127 p r o j e c t s covered by t h i s Review were d i s c o n t i n u e d . Of t h e 122 completed p r o j e c t s , 24, r e p r e s e n t i n g around 20% of t h e t o t a l number c o m p l e t e d a n d a r o u n d 1 0 . 6 % of t h e t o t a l i n v e s t m e n t s i n t h i s g r o u p , w e r e c o n s i d e r e d e i t h e r u n s u c c e s s f u l i n t h e i r major o b j e c t i v e s , o r o f f e r e d a n u n c e r t a i n outcome a t t h e time of a u d i t . These r e s u l t s a r e l e s s f a v o r a b l e t h a n t h o s e r e p o r t e d i n p r e v i o u s Reviews. The u n d e r l y i n g t r e n d s a r e d i s c u s s e d i n paras. 3.02-3.08. (d) F i n a n c i a l Performance. 2.49 The Review i n c l u d e s 25 p r o j e c t s s u p p o r t i n g revenue-earning e n t e r - p r i s e s i n p u b l i c u t i l i t i e s , t r a n s p o r t a t i o n , i n d u s t r y and o i l and g a s . Taken t o g e t h e r t h e group showed a mixed performance. F i n a n c i a l r e t u r n s d u r i n g c o n s t r u c t i o n and e a r l y o p e r a t i o n were i n 9 o u t of 15 c a s e s lower t h a n had been s t i p u l a t e d i n l o a n c o v e n a n t s , a l t h o u g h t h e m a j o r i t y of p r o j e c t e n t i t i e s recorded improvements o v e r time. S e l f - f i n a n c i n g g o a l s were reached o r ex- ceeded i n 9 o u t of 15 c a s e s f o r which i n f o r m a t i o n was a v a i l a b l e . On t h e whole, t h i s performance was somewhat b e t t e r t h a n t h a t of t h e group reviewed i n t h e p r e v i o u s two years. 2.50 A s i n t h e p a s t , p r i c e and t a r i f f c o n t r o l s a f f e c t e d t h e f i n a n c i a l outcome of t h e s e p r o j e c t s a s d i d c o s t overruns f o r investments and h i g h e r t h a n a n t i c i p a t e d o p e r a t i n g expenses, I n some c a s e s , t h e e n t e r p r i s e s experienced d i f f i c u l t i e s i n c o l l e c t i n g revenues o r s u f f e r e d s h o r t f a l l s i n demand. (e) Impact on P o l i c i e s and I n s t i t u t i o n a l Development 2.51 Most of t h e completed p r o j e c t s - 107 o u t of 122 - i n c l u d e d compo- n e n t s o r u n d e r t a k i n g s designed t o i n f l u e n c e borrower p o l i c i e s o r t o s t r e n g t h e n i t s i n s t i t u t i o n a l c a p a b i l i t y . About 38% of t h e s e e f f o r t s achieved s u b s t a n t i a l s u c c e s s , 47% were , p a r t i a l l y s u c c e s s f u l , and i n 15% of t h e c a s e s t h e r e s u l t s have been n e g l i g i b l e . These r a t i o s a r e s i m i l a r t o t h o s e e x p e r i e n c e d i n p r e v i o u s Reviews. The r a t e of s u c c e s s i n t h i s group was p a r t i c u l a r l y h i g h i n t h e t r a n s p o r t and e d u c a t i o n s e c t o r s and w i t h non-project l e n d i n g . 2.52 I n s t i t u t i o n a l d e v e l o p m e n t o b j e c t i v e s f o c u s s e d on i m p r o v e m e n t s i n management e f f e c t i v e n e s s and o r g a n i z a t i o n a l s t r u c t u r e of p r o j e c t e n t i t i e s , sometimes i n v o l v i n g t h e e s t a b l i s h m e n t of new e n t e r p r i s e s o r agencies. More s p e c i f i c a l l y , t h e Bank sought t o s t r e n g t h e n planning and programming c a p a b i l i - ties a t t h e s e c t o r l e v e l , improve t h e implementation c a p a c i t y of p r o j e c t u n i t s , f o s t e r inter-agency c o o r d i n a t i o n , b u i l d up s u p p o r t s e r v i c e s and market- i n g s t r u c t u r e s , improve a c c o u n t i n g , monitoring and e v a l u a t i o n procedures, o r i n t r o d u c e new c u r r i c u l a i n s c h o o l s and t r a i n i n g i n s t i t u t i o n s . The means employed t o a c h i e v e t h e s e o b j e c t i v e s were l e g a l covenants i n l o a n and c r e d i t agreements a d d r e s s i n g o r g a n i z a t i o n a l i s s u e s o r making t h e appointment of s e n i o r s t a f f c o n t i n g e n t o n Bank a p p r o v a l ; f u n d s e a r m a r k e d f o r t e c h n i c a l a s s i s t a n c e o r c o n s u l t a n t s who would work w i t h t h e borrowing agency i n key management o r a d v i s o r y p o s i t i o n s ; s t a f f t r a i n i n g on t h e job o r abroad a s w e l l as commissioning of s t u d i e s and l e g i s l a t i v e changes. 2.53 The i n g r e d i e n t s of s u c c e s s i n c l u d e d a program developed i n f u l l unde rs tanding and agreement between t h e Bank and t h e borrower, implemented o v e r t ime, and s e n s i t i v e t o t h e problem of s t a f f i n g and t h e need f o r t r a i n i n g of l o c a l s t a f f a t d i f f e r e n t l e v e l s . Cases of o u t s t a n d i n g s u c c e s s i n t h i s group conformed f a i r l y c l o s e l y t o t h e e s s e n t i a l s of t h i s p a t t e r n ; t h e f a i l u r e s did not. 2.54 The second p o r t p r o j e c t i n a C e n t r a l American c o u n t r y p r o v i d e s a good i l l u s t r a t i o n of s u c c e s s f u l i n s t i t u t i o n a l development. As a r e s u l t of t h i s p r o j e c t , t h e n a t i o n a l p o r t s a u t h o r i t y i n t h e 1970's became a w e l l r u n , a p p r o p r i a t e l y s t a f f e d , o p e r a t i o n a l l y e f f i c i e n t and r e l a t i v e l y autonomous e n t e r p r i s e with r e s p o n s i b i l i t y f o r a l l ports. T h i s performance exceeded a p p r a i s a l e x p e c t a t i o n s and was accomplished mostly by t h e a u t h o r i t y ' s own s t a f f w i t h t h e h e l p o n l y of a n o c c a s i o n a l i n d i v i d u a l c o n s u l t a n t . The s p e c i f i c a r e a s s e l e c t e d f o r improvement i n c l u d e d p l a n n i n g , f i n a n c i a l procedures, and management methods . The s u c c e s s i n i n s t i t u t i o n a l development w a s a t t r i b u t e d t o modest o b j e c t i v e s and a g r a d u a l approach, t o t h e e x i s t e n c e of w e l l designed systems i n one p o r t , which were provided under a p r e v i o u s Bank p r o j e c t , t o e x c e l l e n t s e n i o r management i n t h e a u t h o r i t y and t o a d e q u a t e s a l a r i e s f o r t h e a u t h o r i t y ' s s t a f f . Another example of s u c c e s s f u l i n s t i t u t i o n b u i l d i n g was t h e e l e c t r i c i t y a u t h o r i t y of one Middle E a s t e r n country. From a s m a l l e n t i t y w i t h v i r t u a l l y no implementation c a p a c i t y a t t h e time t h e f i r s t p r o j e c t was a p p r a i s e d , t h e e l e c t r i c i t y a u t h o r i t y developed i n t o a major state-owned and well-managed p u b l i c u t i l i t y , competent t o do a l a r g e p a r t of t h e p l a n n i n g , p r e p a r a t i o n and s u p e r v i s i o n of new p r o j e c t s . A c l o s e and c o n t i n u o u s d i a l o g u e w i t h t h e Bank a s w e l l a s t h e a v a i l a b i l i t y of q u a l i f i e d s t a f f i n t h e c o u n t r y were major f a c t o r s r e s p o n s i b l e f o r t h e s e achievements. 2.55 S e v e r a l e d u c a t i o n p r o j e c t s were e f f e c t i v e i n s t r e n g t h e n i n g t h e implementation c a p a c i t y of borrowers. I n one E a s t Asian c o u n t r y , t h e p r o j e c t s w e r e i n s t r u m e n t a l i n d e v e l o p i n g EDPITAF ( E d u c a t i o n Development P r o j e c t s Implementation Task ~ o r c e ) i n t o a powerful u n i t i n c h a r g e of c a r r y i n g o u t p r o j e c t i d e n t i f i c a t i o n , p r e p a r a t i o n and implement a t i o n , and e d u c a t i o n re- search. S i m i l a r p o s i t i v e r e s u l t s were noted i n a n o t h e r e d u c a t i o n p r o j e c t i n t h e Middle E a s t e r n country. The e f f e c t of t h e i n d u s t r i a l e s t a t e s p r o j e c t i n t h e E a s t e r n A f r i c a n r e g i o n (mentioned e a r l i e r ) on s t r e n g t h e n i n g implementation c a p a c i t y was judged t o have been o u t s t a n d i n g ; i n t h i s c a s e , and i n t h a t of t h e e d u c a t i o n p r o j e c t i n t h e E a s t Asian c o u n t r y , t h e q u a l i t y of i n d i v i d u a l s t a f f i n t h e p r o j e c t u n i t was a major c o n t r i b u t i n g f a c t o r . Education p r o j e c t s were, however, l e s s s u c c e s s f u l i n developing new i n s t i t u t i o n a l f e a t u r e s and pro- cedures. The i d e a of s h a r i n g s c h o o l f a c i l i t i e s under one p r o j e c t i n a Western African c o u n t r y , f o r i n s t a n c e , proved unsuccessful. The l a b o r a t o r y a n d workshop c e n t e r s i n c l u d e d o r i g i n a l l y i n t h e i n d u s t r i a l e s t a t e s p r o j e c t i n E a s t e r n A f r i c a a l s o d i d n o t a c h i e v e t h e i r aims. These c e n t e r s were i n t e n d e d each t o be s h a r e d by a number of p r i v a t e secondary s c h o o l s , w i t h a view t o providing: ( i ) improved p r i v a t e secondary educatLon; ( i i ) no a d d i t i o n a l r e c u r r e n t c o s t burden on t h e Government; and ( i i i ) improved Government c o n t r o l of p r i v a t e s c h o o l i n g . A l l t h e s e b e n e f i t s disappeared when t h e c e n t e r s were changed i n t o r e g u l a r Government secondary s c h o o l s by a change i n d e s i g n and t h e a d d i t i o n of classrooms. I n t h e s e c a s e s , Bank s t a f f may have overestimated t h e c a p a c i t y of t h e borrowers t o cope w i t h t h e d i f f i c u l t problems involved i n t h e o p e r a t i o n of such blocks of f a c i l i t i e s , i n c l u d i n g a d m i n i s t r a t i v e r e s p o n s i - b i l i t y , synchronized o r g a n i z a t i o n of t h e c e n t e r s and t h e s c h o o l s t h e y s e r v e , and c o n t r o l of equipment and s u p p l i e s . 2.56 A r e c u r r i n g problem i n i n s t i t u t i o n a l improvement was t h e s h o r t a g e of q u a l i f i e d s t a f f coupled with d i f f i c u l t i e s i n r e c r u i t i n g and r e t a i n i n g people. This w a s exemplified i n s e v e r a l p u b l i c u t i l i t y p r o j e c t s where t h e p r o j e c t e n t i t y had l i m i t e d autonomy i n personnel p o l i c y and t h e d e t e r m i n a t i o n of salary scales. I n one Western African c o u n t r y , t h e management of t h e e l e c - t r i c i t y c o r p o r a t i o n was p r e v e n t e d f r o m e x e r c i s i n g i t s l a w f u l powers t o s e t s a l a r i e s a t c o m p e t i t i v e l e v e l s , and, more r e c e n t l y , was f o r c e d t o reduce s a l a r i e s of s e n i o r management. The c o r p o r a t i o n ' s i n a b i l i t y t o r e c r u i t q u a l i - f i e d personnel undermined one of t h e key p r o j e c t o b j e c t i v e s , namely t o u t i l i z e technical assistance t o strengthen the organization. I n a n o t h e r power project--this one i n Europe--the agency r e s p o n s i b l e f o r power d i s t r i b u t i o n had n o f r e e d o m i n s e t t i n g p e r s o n n e l p o l i c i e s ; e n c o u n t e r e d d i f f i c u l t i e s i n r e c r u i t i n g and r e t a i n i n g s t a f f and s u f f e r e d from l a c k of c o n t i n u i t y of managers. I n an East Asian water supply p r o j e c t , t h e p r o j e c t e n t i t y had l i m i t e d c o n t r o l on personnel p o l i c i e s and management; i t had l i t t l e s a y i n r e c r u i t m e n t of s t a f f , employment terms, promotions o r t r a n s f e r s t o and from o t h e r s t a t e and f e d e r a l a g e n c i e s and departments. The performance of t h e e l e c t r i c i t y commission of one c o u n t r y i n t h e P a c i f i c w a s a f f e c t e d a d v e r s e l y by t h e h i g h r a t e of d e p a r t u r e of e x p a t r i a t e s t a f f and t h e i r r e p l a c e m e n t by inexperienced l o c a l s t a f f . A l a c k of p r o p e r l y q u a l i f i e d c o u n t e r p a r t s t a f f i n t h e e d u c a t i o n p r o j e c t s of two c o u n t r i e s l i m i t e d t h e achievement of t h e i n s t i - t u t i o n building a s p e c t s , while t h e education p r o j e c t i n a t h i r d country s u f f e r e d when t h e Government e s t a b l i s h e d such h i g h s t a n d a r d s f o r f e l l o w s h i p c a n d i d a t e s t h a t f e l l o w s h i p p o s i t i o n s could n o t be f i l l e d . 2.57 Some of t h e p r o j e c t s s u c c e s s f u l l y pursued wider s e c t o r o b j e c t i v e s both a t t h e i n s t i t u t i o n a l and t h e p o l i c y l e v e l . Thus, under a s u g a r p r o j e c t i n a n East Asian c o u n t r y , e f f e c t i v e coo-rdinati o n mechanisms were e s t a b l i s h e d t o provide common s e r v i c e s , c o o r d i n a t e r e h a b i l i t a t i o n p r o j e c t s and i n t r o d u c e sector analysis. Strong borrower commitment and c l o s e c o l l a b o r a t i o n w i t h t h e Bank were major f a c t o r s c o n t r i b u t i n g t o t h e s e achievements. Another example was t h e cement p r o j e c t i n North A f r i c a where p r i c i n g was a major i s s u e a t t h e time of a p p r a i s a l . Following d e t a i l e d d i s c u s s i o n s w i t h Bank s t a f f on t h e d e t r i m e n t a l e f f e c t s of t h e e x i s t i n g p r i c i n g s y s t e m a s p e c i a l s t u d y was undertaken on t h e b a s i s of which the borrower i n t r o d u c e d important changes. As a f i r s t s t e p , ex-factory cement p r i c e s were s e t a t l e v e l s t h a t would e n a b l e expanding f i r m s t o pay r e g u l a r d i v i d e n d s . Subsequently, f u r t h e r changes were introduced whereby ( a ) uniform ex-works c e i l i n g p r i c e s f o r cement were s e t , w i t h freedom of p r i c i n g below t h a t l e v e l ; ( b ) t h e zoning system of i n d i v i d u a l p l a n t s a l e s was a b o l i s h e d ; and ( c ) a p r i c e f o r m u l a was i n t r o d u c e d which provided f o r a u t o m a t i c adjustment of cement p r i c e s i n l i n e w i t h changes i n t h e c o s t of f u e l a n d e l e c t r i c i t y . By c o n t r a s t , t h e m a j o r o b j e c t i v e of t h e t e c h n i c a l a s s i s t a n c e p r o j e c t i n a Western A f r i c a n c o u n t r y t o improve planning and i m p l e m e n t a t i o n o f a g r i c u l t u r a l p o l i c y was n o t a c h i e v e d , e s s e n t i a l l y because t h e r e was no b a s i s f o r a n e f f e c t i v e d i a l o g u e between t h e borrower and t h e Bank. 2.58 N a t i o n a l i n s t i t u t i o n s and p o l i c i e s were t h e f o c u s of program l o a n s and t h e f i r s t s t r u c t u r a l adjustment l o a n a u d i t e d l a s t y e a r . The program l o a n s t o two countries--one i n L a t i n America and a n o t h e r i n Europe--turned o u t t o be e f f e c t i v e v e h i c l e s f o r a continued d i a l o g u e w i t h t h e borrower on p o l i c y i s s u e s and f o r m o n i t o r i n g e c o n o m i c p e r f o r m a n c e . The l o a n t o t h e L a t i n American c o u n t r y s u g g e s t s t h a t t h e Bank's involvement i n t h e f o r m u l a t i o n of a c t i o n programs was c r u c i a l f o r t h e i r s u c c e s s f u l implementation; t h a t tech- n i c a l a s s i s t a n c e p r o p o s a l s should be d e f i n e d i n very s p e c i f i c terms t o e n s u r e f o c u s and e x p e d i t i o u s implementation; and t h a t generous i n c e n t i v e s may l e a d t o abuses u n l e s s c a r e f u l l y monitored. The e x p e r i e n c e w i t h t h e program l o a n t o t h e European c o u n t r y shows t h a t t h e procurement procedures adopted were t o o d e t a i l e d o r even i m p r a c t i c a b l e f o r c e r t a i n commodities. As a r e s u l t , t h e y became cumbersome i n t h e i r implementation, w h i l e t h e y r e q u i r e d a n i n o r d i n a t e amount of manpower f o r t h e i r monitoring. 2.59 Deep-seated s t r u c t u r a l problems, however, r e q u i r e a l o n g e r time frame and may be addressed b e s t through s t r u c t u r a l adjustment l e n d i n g , which r e p r e s e n t s a n e v o l u t i o n of t h e program l e n d i n g approach. This i s indeed t h e d i r e c t i o n i n w h i c h t h e Bank h a s b e e n moving i n t h e p a s t few y e a r s . The e x p e r i e n c e w i t h t h e f i r s t s t r u c t u r a l adjustment l o a n t o t h e same European country and i t s supplement a f f i r m e d t h e c r i t i c a l importance of u n d e r l y i n g economic and s e c t o r work i n t h e d e s i g n of SALs. With more d e t a i l e d knowledge of economic, s e c t o r a l and i n s t i t u t i o n a l i s s u e s and t h e p r o g r e s s i v e develop- ment of more s p e c i f i c p o l i c y measures, t h e d e s i g n of subsequent SALs t o t h e European c o u n t r y improved w h i l e implementation a c t i o n s have tended t o become more c l e a r l y d e f i n e d and p r o g r e s s reviews more f o c u s s e d . Nonetheless, t h e s h e e r complexity and c o n s e q u e n t i a l s o c i o - p o l i t i c a l i m p l i c a t i o n s of c e r t a i n proposed reforms s u g g e s t a d i f f i c u l t and drawn-out implementation p r o c e s s . 2.60 The r e l a t i o n s h i p between i n s t i t u t i o n a l achievement and t h e a t t a i n - ment of o t h e r p r o j e c t o b j e c t i v e s , e s p e c i a l l y economic r a t e s of r e t u r n , was l e s s c l o s e t h a n i n l a s t y e a r ' s group. About 77% ( 8 2 % l a s t y e a r ) of t h e p r o j e c t s which achieved s u b s t a n t i a l o r ' a t l e a s t p a r t i a l s u c c e s s i n i n s t i t u - t i o n a l development y i e l d e d r e t u r n s of 10% o r more whereas 47% (73% l a s t y e a r ) of t h e p r o j e c t s w i t h n e g l i g i b l e i n s t i t u t i o n a l achievements produced low o r even n e g a t i v e r e t u r n s . There were, however, a few c a s e s where p r o j e c t s w i t h poor r a t e s of r e t u r n r e g i s t e r e d s u b s t a n t i a l i n s t i t u t i o n a l p r o g r e s s . One such example was t h e a g r o - i n d u s t r i e s p r o j e c t i n a L a t i n American c o u n t r y which had n e g a t i v e r e t u r n s l a r g e l y because of s e r i o u s economic d i s t o r t i o n s p r e v a i l i n g i n t h e country. Yet, t h e i n s t i t u t i o n a l achievements were s u b s t a n t i a l and t h e p r o j e c t u n i t e s t a b l i s h e d under t h e loan'managed t h e c r e d i t program e f f i - ciently. A n o t h e r c a s e i n p o i n t was t h e w a t e r s u p p l y p r o j e c t i n a N o r t h A f r i c a n c o u n t r y which y i e l d e d low f i n a n c i a l r e t u r n s b u t which was i n s t r u m e n t a l i n s t r e n g t h e n i n g t h e implementation c a p a b i l i t y of t h e u t i l i t y . On t h e o t h e r hand, s e v e r a l p r o j e c t s showed a d e q u a t e r a t e s of r e t u r n b u t f a i l e d t o r e a c h t h e i r i n s t i t u t i o n a l o b j e c t i v e s . An a g r i c u l t u r a l c r e d i t p r o j e c t i n one c o u n t r y i n L a t i n American (13% r e t u r n ) d i d n o t succeed i n s t r e n g t h e n i n g t h e p r o j e c t i n s t i t u t i o n l a r g e l y because of c o n t i n u o u s government i n t e r v e n t i o n i n i t s operations. A f o r e s t r y p r o j e c t i n a n E a s t e r n A f r i c a n c o u n t r y (11% r e t u r n ) f a i l e d t o improve t h e o p e r a t i n g e f f i c i e n c y of t h e f o r e s t r y department. Nor were a number of s t u d i e s t h a t had been a n i m p o r t a n t p a r t of t h e p r o j e c t e v e r carried out. 111. SUPPLEMENTARY NOTES 3.01 The f o l l o w i n g comments b r i e f l y a d d r e s s t h r e e i s s u e s : ( i ) the mounting p r o p o r t i o n of p r o j e c t s - and t h e i n v e s t m e n t s t h e y r e p r e s e n t e d - whose a n t i c i p a t e d outcome a t t h e t i m e of a u d i t i n t h e l a s t f i v e y e a r s was r a t e d a s u n c e r t a i n o r u n s a t i s f a c t o r y i n terms o f t h e i r o b j e c t i v e s ; ( i i ) p r o j e c t s t h a t were n o t completed and t h e l o a n s c a n c e l l e d over t h e same p e r i o d ; and ( i i i ) p r o j e c t d e s i g n a s a c o n t r i b u t i n g f a c t o r f o r p r o j e c t f a i l u r e . S t a t i s t i c a l e v i d e n c e and o t h e r m a t e r i a l , on which t h e s e comments a r e b a s e d , a r e drawn from t h e p r e s e n t group of p r o j e c t s a s w e l l a s from p r e v i o u s Reviews. P r o j e c t s w i t h U n s a t i s f a c t o r y o r U n c e r t a i n R e s u l t s (Review Years 1979-83) 3.02 The p r o p o r t i o n of completed p r o j e c t s , whose a c t u a l and a n t i c i p a t e d r e s u l t s a t t h e time of t h e annual reviews were adjudged e i t h e r u n s a t i s f a c t o r y o r u n c e r t a i n , averaged 14% d u r i n g 1979-83. The percentage of p r o j e c t s w i t h u n s a t i s f a c t o r y o r u n c e r t a i n outcomes h a s r i s e n s i g n i f i c a n t l y o v e r t h e p a s t f i v e y e a r s , r e a c h i n g 20% i n 1983 from 9% i n 1979 ( s e e Chart 4). The s h a r e of investment s u p p o r t e d by t h e s e p r o j e c t s , however, averaged only 7% f o r t h e f i v e y e a r s , i n d i c a t i n g t h a t t h e r a t e of f a i l u r e was h i g h e r f o r s m a l l e r p r o j e c t s t h a n f o r l a r g e r ones. But t h e i n c r e a s e over t i m e i n t h e r a t e of f a i l e d o r u n c e r t a i n i n v e s t m e n t s was s i m i l a r t o t h a t i n t h e number of u n s a t i s f a c t o r y p r o j e c t s , r i s i n g from 3% i n 1979 t o 1 1 % i n 1983. 3.03 The r a t e of p r o j e c t f a i l u r e s l l shows marked d i f f e r e n c e s by economic s e c t o r and g e o g r a p h i c a l r e g i o n ( s e e Chart 5 ) . Public u t i l i t y projects, f o r example, experienced by f a r t h e l o w e s t r a t e of u n s a t i s f a c t o r y o r u n c e r t a i n r e s u l t s (2%). T r a n s p o r t p r o j e c t s ( 1 1 % DFC/industry (12%) and e d u c a t i o n p r o j e c t s (12%) a l s o , s t a y e d below t h e a v e r a g e f o r a l l p r o j e c t s (14%) a l t h o u g h t h e i r f a i l u r e r a t e s were s u b s t a n t i a l l y h i g h e r t h a n t h o s e f o r p u b l i c u t i l i t y projects. A t t h e o t h e r end o f t h e s p e c t r u m w e r e a g r i c u l t u r a l p r o j e c t s (23%) and some of t h e more r e c e n t a r e a s of Bank involvement such a s t o u r i s m and p o p u l a t i o n p r o j e c t s . To some e x t e n t , t h e above noted i n c r e a s e i n t h e r a t e of p r o j e c t f a i l u r e s h a s i t s o r i g i n i n t h e g r o w i n g s h a r e o f a g r i c u l t u r a l p r o j e c t s i n t o t a l Bank o p e r a t i o n s . A g r i c u l t u r a l p r o j e c t s r e p r e s e n t e d 43% of a l l completed p r o j e c t s covered by t h e c u r r e n t Review, compared w i t h 28% i n t h e 1979 Review. 1/ - " F a i l e d p r o j e c t s " f o r purposes of t h i s d i s c u s s i o n i n c l u d e p r o j e c t s whose a c t u a l and a n t i c i p a t e d outcome a t a u d i t was c o n s i d e r e d t o be u n c e r t a i n o r unsatisfactory. The d e f i n i t i o n t h u s c o v e r s a l l completed p r o j e c t s n o t ad judged a s c l e a r l y s a t i s f a c t o r y . Chart 4 PROJECTS WITH UNSATISFACTORY OR UNCERTAIN RESULTS Review Years: 1979- 1983 I. AS A SHARE OF TOTAL PROJECTS REVIEWED Percent 20 Average 1979-1 983 10 0 1979 1980 1981 1982 1983 Year of Review II. ASASHARE OF TOTAL INVESTMENTS Percent Average 1979- 1983 - - Year of Review World Bonk-25427 Chart 5 SE CTOR AND REGIONAL INCIDENCE OF PROJECTS WITH UNSATISFACTORYO R UNCERTAIN RESULTS (As a share of total projects reviewed in 1979-1 983) Percent 20 - Average All Sectors - - 10 - 0 Public Transport DK: Education Agriculture Utilities Industw Percent - rAverage All Regions 1 EAP SA C EM WA EA 1 All Sectors--- World Bank-25428 3.04 P r o j e c t f a i l u r e s or u n c e r t a i n p r o j e c t outcomes during t h e review y e a r s 1979-83, were much higher i n E a s t A f r i c a (32%) and West A f r i c a (20%) than i n t h e o t h e r Regions where they ranged from 8% t o 10%. I n E a s t A f r i c a t h e f a i l u r e r a t e was p a r t i c u l a r l y h i g h i n a g r i c u l t u r e (52 %) , t r a n s p o r t (29%) and ~ ~ C / i n d u s t r(33%) y ( s e e Chart 6 ) . This i n d i c a t e s a g r e a t e r incidence i n t h a t Region of f a c t o r s causing p r o j e c t f a i l u r e s ( s e e p a r a s . 3.06-3.08 below), e s p e c i a l l y those beyond t h e Bank's c o n t r o l ( p a r a . 3.08). West A f r i c a had r e l a t i v e l y h i g h f a i l u r e r a t e s i n education (27%) and i n t h e a g r i c u l t u r e s e c t o r (25%) i n which t h e share of p r o j e c t s was l a r g e (54% compared with 37% f o r a l l Regions). I n Europe, Middle E a s t , and t h e North Africa Region and t h e L a t i n America and Caribbean Region t h e s e c t o r a l incidence of u n s a t i s f a c t o r y o r u n c e r t a i n p r o j e c t s d i d not d e v i a t e much from t h e o v e r a l l averages. The lower f a i l u r e r a t e s f o r a g r i c u l t u r a l p r o j e c t s i n t h e East Asia and P a c i f i c Region (16%) and South Asia ( 6 % ) r e f l e c t t h e r e l a t i v e m a t u r i t y of most borrowers i n those two Regions. There w a s a r e l a t i v e l y h i g h f a i l u r e r a t e f o r DFC/industry p r o j e c t s i n South Asia (36%); t h e s e were concentrated i n two c o u n t r i e s and r e f l e c t t h e p h y s i c a l damages and economic d i f f i c u l t i e s caused by war. 3.05 F a u l t y p r o j e c t d e s i g n , inadequate p r o j e c t p r e p a r a t i o n and unreal- i s t i c a p p r a i s a l e s t i m a t e s have been found t o have a f f e c t e d about 40% of t h e p r o j e c t s with u n s a t i s f a c t o r y o r u n c e r t a i n r e s u l t s . They u s u a l l y r e s u l t e d i n b e n e f i t streams lower than expected, e i t h e r i n t h e form of production s h o r t f a l l s or i n s u f f i c i e n t capacity u t i l i z a t i o n . I n many of t h e s e c a s e s , p r o j e c t designs were t o o ambitious or introduced technology which could not be absorbed by t h e u s e r s . I n o t h e r c a s e s , f u l l s c a l e investment schemes were launched without t h e b e n e f i t of p i l o t p r o j e c t s and of increased knowledge of l o c a l c o n d i t i o n s which t h e y would have brought. Bank s t a f f o c c a s i o n a l l y over looked borrower preferences d u r i n g p r o j e c t p r e p a r a t i o n or f a i l e d t o adapt p r o j e c t designs t o l o c a l c o n d i t i o n s . U n r e a l i s t i c a p p r a i s a l e s t i m a t e s some- t i m e s exaggerated p o s s i b l e growth i n demand (e.g., t r a f f i c ) o r f a i l e d t o t a k e i n t o c o n s i d e r a t i o n e x i s t i n g c a p a c i t i e s . I n one i n s t a n c e , a l t e r n a t i v e employ- ment o p p o r t u n i t i e s a v a i l a b l e t o farmers were overlooked and crops were not grown a s expected. 3.06 During implementation, c o s t overruns and completion delays occurred o f t e n combined w i t h o r caused by poor p r o j e c t management, weak i n s t i t u t i o n s and u n s u i t e d p o l i c i e s , l a c k of borrower s u p p o r t , and inadequate Bank supervi- s i o n and follow-up. A l l o r some of t h e s e f a c t o r s a f f e c t e d t h e m a j o r i t y of p r o j e c t s with l e s s than s a t i s f a c t o r y outcome, o f t e n r e s u l t i n g i n r e d u c t i o n s i n p r o j e c t scope and b e n e f i t streams. Problems i n recruitment and r e t e n t i o n of q u a l i f i e d s t a f f , i n a p p r o p r i a t e procedures and inadequate coordination with t r a d i t i o n a l i n s t i t u t i o n s f r e q u e n t l y were a t t h e r o o t of weak p r o j e c t management. I n e f f e c t i v e t e c h n i c a l a s s i s t a n c e and d e f i c i e n t o r g a n i z a t i o n a l s t r u c t u r e s c o n s t r a i n e d i n s t i t u t i o n a l development. Counterproductive p o l i c i e s , e s p e c i a l l y those r e s u l t i n g i n p r i c e d i s t o r t i o n s , reduced production i n c e n t i v e s and caused m i s a l l o c a t i o n of r e s o u r c e s . Cost overruns and t i m e delays were caused by one o r more o f : a d m i n i s t r a t i v e o b e t a c l e s , u n s a t i s f a c t o r y c o n t r a c t o r p e r f o r m a n c e , p r o c u r e m e n t p r o b l e m s and h i g h e r t h a n a n t i c i p a t e d i n f l a t i o n r a t e s . Bank s t a f f and borrower r e p r e s e n t a t i v e s were sometimes slow t o r e a c t t o such problems and f a i l e d t o focus on important implementation i s s u e s . In a few c a s e s , t h e complexity of t h e p r o j e c t design exceeded t h e Bank's c a p a c i t y f o r e f f e c t i v e s u p e r v i s i o n or caused d i f f i c u l t c o o r d i n a t i o n problems f o r t h e borrower. Chart 6 SECTO RAL FAILURE RATES WITHIN REGIONS (As a share of all projects reviewed during 1979-1 983 in each sector and region) EAST AFR lC A WEST AFRICA Percent Percent Regional Average EUROPE, MIDDLE EAST LATIN AMERICA & Percent & NORTH AFRICA Percent THE CARIBBEAN 20 Regional Average 10 0 EAST ASlA & PACIFIC SOUTH ASlA Percent Percent Regional Average PU -Public Util~ties ED = Educat~on TR = Transport AG = Agr~culture World Bank-25429 ID = lndustry/DFCs 3.07 About one t h i r d of t h e p r o j e c t s w i t h u n s a t i s f a c t o r y o r u n c e r t a i n r e s u l t s were a f f e c t e d by f a c t o r s beyond t h e Bank's o r t h e borrower's c o n t r o l . T h e s e f a c t o r s i n c l u d e d war and c i v i l s t r i f e , n a t u r a l c a l a m i t i e s s u c h a s prolonged drought, d e t e r i o r a t i o n of t h e domestic economy o r t h e i n t e r n a t i o n a l economic environment, a s well a s changes i n l o c a l governments and p o l i t i c a l upheavals. Discontinued P r o i e c t s (Review Years. 1979-83) 3.08 Out of t h e 550 p r o j e c t s c o v e r e d by Annual Reviews i n 1979-83, twelve p r o j e c t s (2.2%) have not been implemented o r were abandoned b e f o r e major b e n e f i t s could be reaped. Eight of t h e s e p r o j e c t s were i n a g r i c u l t u r e and f i s h e r i e s , two i n t r a n s p o r t and one each i n mining and population. Six projects - i . e . , one h a l f of t h e t o t a l - were l o c a t e d i n two c o u n t r i e s ; t h e o t h e r s i x were spread among d i f f e r e n t c o u n t r i e s r e v e a l i n g no p a r t i c u l a r geographic p a t t e r n . Three of t h e twelve p r o j e c t s were discontinued due t o f a c t o r s beyond t h e c o n t r o l of Bank o r borrowers. Two p r o j e c t s had t o be abandoned because of d e f i c i e n c i e s i n design. The remaining seven p r o j e c t s were not completed because of changing borrower p r i o r i t i e s or i r r e c o n c i l a b l e d i s p u t e s about p o l i c i e s . 3.09 Three of the p r o j e c t s were f a r advanced i n t h e i r execution and most funds o r a l a r g e p a r t of t h e s u p p o r t i n g B ~ ~ ~ / I D A were disbursed. However, in one c a s e (an a g r i c u l t u r a l development p r o j e c t i n an E a s t e r n Af r i c a n country) p o l i t i c a l u n r e s t i n t h e a r e a made i t impossible t o complete t h e p r o j e c t and no b e n e f i t s were obtained. I n t h e o t h e r case ( a c o a l mining p r o j e c t i n South Asia) t h e p r i n c i p a l p r o j e c t component was destroyed a f t e r completion by an a c c i d e n t and could no longer be used. A t h i r d p r o j e c t (urban t r a n s p o r t i n a country i n t h e Middle E a s t ) was abandoned a f t e r more than h a l f of t h e Bank l o a n had b e e n d i s b u r s e d b e c a u s e t h e i m p l e m e n t i n g a u t h o r i t i e s no l o n g e r supported t h e b a s i c concept of t h e p r o j e c t . 3.10 The o t h e r nine p r o j e c t s were a l l terminated a t an e a r l y s t a g e with l i t t l e o r no disbursements of ~ank/1DA funds. I n t h r e e of these c a s e s t h e events t h a t l e d t h e p r o j e c t s t o be abandoned could not have been a n t i c i p a t e d by Bank s t a f f a t t h e time of a p p r a i s a l o r n e g o t i a t i o n . Another a g r i c u l t u r a l development p r o j e c t i n t h e same E a s t e r n African country had a promising s t a r t but - l i k e the o t h e r a g r i c u l t u r a l development p r o j e c t mentioned e a r l i e r implementation had t o be h a l t e d due t o s e c u r i t y problems i n t h e p r o j e c t a r e a . - the The o i l s e e d processing p r o j e c t i n a Middle E a s t e r n country w a s c a n c e l l e d by t h e borrower without e x p l a n a t i o n t o t h e Bank. The p o r t p r o j e c t i n another c o u n t r y i n t h e same region became economically unviable when c o n s t r u c t i o n of a s t e e l m i l l which was t o become t h e main u s e r of t h e p o r t w a s i n d e f i n i t e l y postponed. Two o t h e r p r o j e c t s were discontinued when i r r e c o n c i l a b l e d i s p u t e s a r o s e about p o l i c i e s ( a g r i c u l t u r a l c r e d i t i n a L a t i n American country) and procurement ( g r a i n s t o r a g e i n a Middle E a s t e r n country). 3.11 Three o f the remaining f o u r p r o j e c t s s u f f e r e d from major design d e f i c i e n c i e s . One of them ( a f i s h e r i e s p r o j e c t i n t h e M i d d l e E a s t ) was discontinued because n e i t h e r t h e borrower nor t h e Bank showed much i n t e r e s t i n rescuing the project. I n t h e o t h e r two c a s e s (an i r r i g a t i o n p r o j e c t and an a r e a development p r o j e c t , both i n E a s t e r n Af r i c a ) , Bank s t a f f and borrowers l e a r n e d from t h e e x p e r i e n c e and t h e p r o j e c t s were s u b s e q u e n t l y revived through new o p e r a t i o n s i n a modified form and on a s m a l l e r s c a l e . The l a s t p r o j e c t i n t h i s group ( a p o p u l a t i o n p r o j e c t i n t h e Middle E a s t ) w a s abandoned mainly because a change i n economic environment l e d t o l a b o r s h o r t a g e s which made t h e b a s i c p r o j e c t o b j e c t i v e appear l e s s d e s i r a b l e t o t h e borrower. P r o j e c t Design 3.12 P a s t e x p e r i e n c e h a s shown t h a t t h e s u c c e s s o r f a i l u r e of a p r o j e c t i s o f t e n c r i t i c a l l y determined by t h e r e s p o n s i v e n e s s of i t s d e s i g n t o pre- v a i l i n g l o c a l conditions. Overly ambitious p r o j e c t s which t r y t o i n t r o d u c e new p r o c e s s e s and t e c h n o l o g i e s i n c o u n t r i e s with l i t t l e o r no e x p e r i e n c e i n t h i s f i e l d , o f t e n r u n i n t o s e r i o u s implementation problems and may not g e n e r a t e t h e b e n e f i t s t h a t had been expected a t t h e t i m e of p r o j e c t approval. The need f o r p r o j e c t d e s i g n s t o be adapted t o t h e f r e q u e n t l y l i m i t e d imple- mentation and managerial c a p a c i t y of borrowers , e s p e c i a l l y i n l e a s t developed c o u n t r i e s , has a g a i n been i l l u s t r a t e d by s e v e r a l p r o j e c t s i n t h i s year's group. On t h e o t h e r hand, t h e r e were a l s o examples of p r o j e c t s which, because of t h e i r c a r e f u l d e s i g n and p r e p a r a t i o n , managed t o enhance t e c h n o l o g i c a l development i n key a r e a s . 3.13 Several l i v e s t o c k projects f a i l e d i n t h e i r attempt t o introduce modern p r o d u c t i o n and marketing techniques i n t r a d i t i o n a l s o c i e t i e s . One of them, a beef c a t t l e p r o j e c t i n E a s t A s i a , attempted t o combine A u s t r a l i a n ranching technology with underut il i z e d land resources . The p r o j e c t was u n s u c c e s s f u l because t h e technology package proved t o be d i f f i c u l t t o adapt t o l o c a l conditions. There w a s no p i l o t p r o j e c t and t h e Bank's knowledge a t a p p r a i s a l of t h e borrower's l i v e s t o c k s e c t o r was l i m i t e d . Another example w a s a second l i v e s t o c k p r o j e c t i n an E a s t e r n A f r i c a n c o u n t r y which f a i l e d i n i t s e n d e a v o r t o i n t r o d u c e t o a t r a d i t i o n a l s o c i e t y modern t e c h n i q u e s of s l a u g h t e r , marketing and organized movement of l i v e s t o c k . The p r o j e c t d e s i g n p r o v e d t o be i n c o m p a t i b l e w i t h l o c a l s o c i o - e c o n o m i c c o n d i t i o n s and w i t h traditional institutional responsibilities. A l i v e s t o c k project i n another E a s t e r n Af r i c a n c o u n t r y f a i l e d p a r t l y because i t s o b j e c t i v e s were too am- b i t i o u s b u t a l s o because t r a d i t i o n a l m i g r a t o r y p a t t e r n and t r a d i n g p r a c t i c e s were not a d e q u a t e l y taken i n t o c o n s i d e r a t i o n d u r i n g t h e d e s i g n s t a g e of t h e project. 3.14 A second e d u c a t i o n p r o j e c t i n an E a s t Asian c o u n t r y financed 43 d i f f e r e n t i n s t i t u t i o n s of t e n d i f f e r e n t t y p e s i n a d d i t i o n t o t e c h n i c a l a s s i s t a n c e and f e l l o w s h i p s . T h i s "Christmas-tree" d e s i g n w a s c l e a r l y over- ambitious and some p r o j e c t elements were not completed s u c c e s s f u l l y . The s t u d e n t s i n t h e e x p e r i m e n t a l a g r i c u l t u r a l secondary s c h o o l s , f o r example, were i n s u f f i c i e n t l y mature f o r t h e p r a c t i c a l programs o f f e r e d , and t h e s c h o o l s had r e v e r t e d mainly t o c o l l e g e p r e p a r a t i o n . Problems were a l s o encountered with t h e b a s i c development s c h o o l s program, and t h e attempt t o e s t a b l i s h s o c i a l ( e x t e n s i o n ) l a b o r a t o r i e s d i d not succeed. 3.15 O t h e r p r o j e c t s w e r e more s u c c e s s f u l i n p r o m o t i n g i n n o v a t i o n . The beef ranching p r o j e c t i n E a s t e r n A f r i c a , f o r i n s t a n c e , c o n c e n t r a t e d i t s r e s o u r c e s on p u r c h a s i n g b r e e d i n g s t o c k and avoided f a r - r e a c h i n g changes i n t h e i n s t i t u t i o n a l s e t t i n g which might have slowed down t h e implementation p r o c e s s . An i r r i g a t i o n p r o j e c t succeeded i n i n t r o d u c i n g new t e c h n o l o g i e s by t a k i n g t h e i r s o c i a l i m p l i c a t i o n s f u l l y i n t o account d u r i n g p r o j e c t d e s i g n . Two land s e t t l e m e n t p r o j e c t s i n an E a s t Asian c o u n t r y produced h i g h l y s a t i s f a c t o r y r e s u l t s p a r t l y because t h e y d i d n o t i n t e r f e r e w i t h e x i s t i n g s o c i a l s t r u c t u r e s and ownership p a t t e r n . A f e r t i l i z e r manufacturing p r o j e c t i n one c o u n t r y i n South Asia ( p a r a s . 9.06, 9.08) was based on technology which on t h a t s c a l e had n o t been used b e f o r e . The u l t i m a t e s u c c e s s of t h e p r o j e c t was l a r g e l y due t o a thorough p r o j e c t p r e p a r a t i o n p r o c e s s i n which both t h e borrower and t h e Bank were h e a v i l y involved. A l t e r n a t i v e t e c h n o l o g i e s were c o n s i d e r e d and s u b j e c t e d t o r i g o r o u s t e c h n i c a l , economic and f i n a n c i a l a n a l y s e s . I n doing s o , t h e s c o p e and c o n f i g u r a t i o n of t h e p r o j e c t u n d e r w e n t s e v e r a l m o d i f i c a t i o n s . 3.16 Tbese examples tend t o confirm t h e f i n d i n g s of e a r l i e r Reviews t h a t : - p r o j e c t s i z e and complexity should n o t unduly exceed t h e borrower's implementation c a p a c i t y ; - p r o j e c t d e s i g n and technology should be compatible w i t h l o c a l socio-economic c o n d i t i o n s ; - adequate borrower i n p u t and/or agreement should be o b t a i n e d f o r t h e d e s i g n o f i n n o v a t i v e p r o j e c t s ; and - where n e c e s s a r y , t h e f e a s i b i l i t y of u n c o n v e n t i o n a l d e s i g n s should f i r s t be explored t h r o u g h p i l o t p r o j e c t s . IV. SUMMARY FINDINGS, LESSONS, FEEDBACK AGRICULTURE A. Overview 4.01 A g r i c u l t u r e a c c o u n t s f o r 56 p r o j e c t s , o r 442, of a t o t a l of 127 p r o j e c t s reviewed t h i s year. These 56 p r o j e c t s provided USS1.2 b i l l i o n of Bank Group f i n a n c i a l s u p p o r t f o r i n v e s t m e n t s w h i c h , a t c o m p l e t i o n , w e r e r e e s t i m a t e d t o c o s t USS3.3 b i l l i o n . The a v e r a g e c o s t o v e r r u n was 162, and implementation d e l a y s amounted t o 342, l e v e l s much below t h o s e of e a r l i e r years. I n d i v i d u a l p r o j e c t c o s t s ranged from USS3.3 m i l l i o n ( f o r t e c h n i c a l a s s i s t a n c e i n a Western A f r i c a n c o u n t r y ) t o USS596 m i l l i o n ( f o r a g r i c u l t u r a l c r e d i t i n a L a t i n American country. For 5 1 p r o j e c t s , a n t i c i p a t e d economic r a t e s of r e t u r n were r e e s t i m a t e d a t completion; t h e weighted a v e r a g e of t h e s e r e t u r n s was 232, s i m i l a r t o t h e f i n d i n g s of e a r l i e r Annual Reviews. Incre- m e n t a l food p r o d u c t i o n under 37 p r o j e c t s w a s e s t i m a t e d t o r e a c h 12.5 m i l l i o n tons. An e s t i m a t e d 10.2 m i l l i o n people (1.85 m i l l i o n r u r a l f a m i l i e s ) bene- f i t e d from i n v e s t m e n t s under 4 1 p r o j e c t s . B. Performance by Subsector 4.02 By subsector and r e g i o n , t h e 56 a g r i c u l t u r a l p r o j e c t s a r e divided a s shown i n t h e following t a b l e . Table: R I EAKDOWN OF AGRICULTURAL PROJECTS BY REGION AND SUBSECTOR Subsec t o r EAP EMENA LAC Total - L I VEST0CK IRRIGATION CR O P /AREA DEVELOPMENT& PROCESSING/MARKETING TREECROPS I E S T A T E ~ CREDIT SETTLEMENT TECHNI C AL ASS1STANCE FISHERIES FORESTRY TOTAL Note: EA = E a s t e r n A f r i c a ; WA = Western A f r i c a ; EAP = E a s t Asia and P a c i f i c ; SA = South Asia; E MENA = Europe, Middle E a s t , and North Africa; and LAC = L a t i n America and t h e Carribean. - /a Mostly a r e a development p r o j e c t s but a l s o includes s i n g l e annual crop p r o j e c t s and multi-component r u r a l development p r o j e c t s . - /b P r o j e c t s covering e s t a t e and/or t r e e c r o p development. 4.03 L i v e s t o c k p r o j e c t s were t h e l a r g e s t group of pro j e c t s reviewed, with seven out of 12 p r o j e c t i n g u n s a t i s f a c t o r y performance. This confirms t h e mixed performance of l i v e s t o c k p r o j e c t s i n e a r l i e r Annual Reviews. On t h e whole, t h i s and e a r l i e r reviews r e v e a l t h a t l i v e s t o c k p r o j e c t s - especially in Africa - have been l e s s s u c c e s s f u l than most o t h e r a g r i c u l t u r a l p r o j e c t s ; e s p e c i a l l y those l i v e s t o c k p r o j e c t s which involved importing modern ranch technology i n t o t r a d i t i o n a l s o c i e t i e s . I n a p p r o p r i a t e technology and i n s u f - f i c i e n t understanding of t h e sociology and economy of t h e l i v e s t o c k s e c t o r a r e among t h e explanations f o r such f a i l u r e s . However, l e s s o n s have been learned from t h e s e e x p e r i e n c e s , and t h e need t o p e r s i s t i s o v e r r i d i n g . I n some a r e a s , l i v e s t o c k o f f e r s t h e o n l y hope of economic advancement, and t h e Bank must continue t o meet t h e challenge t o i d e n t i f y and s u c c e s s f u l l y s o l v e t h e tech- n i c a l , s o c i a l and managerial problems which l i v e s t o c k p r o j e c t s p r e s e n t . I n an e f f o r t t o do s o , the Bank's Operations P o l i c y S t a f f (OPS) i s p r e s e n t l y under- t a k i n g a p o r t f o l i o review of Bankfinanced l i v e s t o c k p r o j e c t s , while O ED staff a r e working on a study of t h e smallholder dimension of l i v e s t o c k development. 4.04 I r r i g a t i o n p r o j e c t s , t h e second l a r g e s t group, a g a i n performed w e l l w i t h a weighted a v e r a g e r a t e of r e t u r n p r o j e c t i o n of 24%. Only one p r o j e c t was e x p e c t e d a t a u d i t t o b e u n s u c c e s s f u l ; a n o t h e r had somewhat m a r g i n a l r e s u l t s b u t i t s e t t h e s t a g e f o r f u r t h e r development i n i t s r e g i o n . As a group, i r r i g a t i o n p r o j e c t s had t h e l a r g e s t time o v e r r u n s and s u b s t a n t i a l c o s t o v e r r u n s , b u t h i g h e r o u t p u t p r i c e s i n many c a s e s o f f s e t c o s t overruns and time d e l a y s : f o u r p r o j e c t s had r e t u r n s a t t h e same l e v e l a s e s t i m a t e d a t a p p r a i s a l and t h r e e had s u b s t a n t i a l l y h i g h e r r e e s t i m a t e d r e t u r n s a t completion. The performance of t h e p r e s e n t group i s s u b s t a n t i a l l y i n l i n e w i t h t h e f i n d i n g s of t h e t h r e e p r e v i o u s Annual Reviews. 4.05 Croy/Area Development p r o j e c t s , a s a group, performed w e l l w i t h a n expected a v e r a g e weighted r a t e of r e t u r n of 16%. I n a l l b u t one c a s e reesti- mated r e t u r n s at completion were c o n s i d e r a b l y below a p p r a i s a l e s t i m a t e s , b u t t h e group a s a whole performed much b e t t e r t h a n t h a t of l a s t y e a r . S i x of t h e n i n e p r o j e c t s i n t h i s group were r u r a l development p r o j e c t s (poverty- oriented). S u c c e s s f u l implementation was c l e a r l y l i n k e d w i t h good d e s i g n and e f f e c t i v e p r o j e c t management. Semi-independent p r o j e c t management u n i t s were u s e d i n many c a s e s w i t h a b e n e f i c i a l e f f e c t on p h y s i c a l i m p l e m e n t a t i o n ; however, t h e long-term i n s t i t u t i o n a l impact of such arrangements was l e s s clear. 4.06 C r e d i t p r o j e c t s numbered o n l y a few t h i s y e a r . In l i n e with those reviewed e a r l i e r , however, t h i s group o f f e r e d t h e h i g h e s t r e e s t i m a t e d economic r a t e s of r e t u r n p r o j e c t i o n s and l o w e s t c o s t o v e r r u n s . However, t h e r e a r e c l e a r d i s t i n c t i o n s between c r e d i t t y p e o p e r a t i o n s and o t h e r a g r i c u l t u r a l p r o j e c t s which t o a l a r g e e x t e n t e x p l a i n t h e s e performance d i f f e r e n c e s . C r e d i t p r o j e c t s , o r r a t h e r t h e i r s u b - p r o j e c t m o d e l s , h a v e h i g h r a t e s of return. However, t h e bottom l i n e of economic a n a l y s i s of c r e d i t p r o j e c t s i s n o t t h e sub-project model but t h e e f f e c t t h e i n j e c t i o n of p r o j e c t funds had on t h e r u r a l economy. On t h e o t h e r hand, i n t e r m e d i a r i e s a r e i n t e r e s t e d mostly i n repayment, which i s a f u n c t i o n more of t h e o v e r a l l farm e n t e r p r i s e t h a n of t h e s p e c i f i c model investment . A r r e a r s posed s e r i o u s problems i n many p r o j e c t s , and a t p r e v a i l i n g l e v e l s p o r t f o l i o s c o u l d s e l f - d e s t r u c t and i n t e r m e d i a r i e s need c o n t i n u o u s e x t e r n a l funding . Furthermore, i n such s i t u a t i o n s i n t e r m e d i - a r i e s would f a c e continuous and u n s u s t a i n a b l e l o s s e s managing such p o r t - f o l i o s ; non-viable c r e d i t o r g a n i z a t i o n s would r e s u l t . Much more a t t e n t i o n t,o q u a n t i f y i n g t h e impact of c r e d i t p r o j e c t s on i n t e r m e d i a r i e s i s warranted. Many of t h e t r a d i t i o n a l views a b o u t a g r i c u l t u r a l c r e d i t and t h e o p e r a t i o n s of r u r a l markets a r e now being c h a l l e n g e d , and t h e Bank i s paying i n c r e a s i n g l y more a t t e n t i o n t o t h e s e problems, a l t h o u g h changing l o n g e s t a b l i s h e d ap- proaches and t r a d i t i o n s has been slow. G u i d e l i n e s have been i s s u e d and work has s t a r t e d t o r e p l a c e t h e 1975 A g r i c u l t u r a l C r e d i t S e c t o r P o l i c y Paper by a new s e c t o r P o l i c y Paper on Rural Finance ( e x p e c t e d t o be i s s u e d i n 1984). 4.07 Two o f t h e t h r e e s e t t l e m e n t p r o j e c t s were c l e a r l y h e a d e d f o r s u c c e s s , b u t t h e c o s t p e r b e n e f i c i a r y was s u b s t a n t i a l . Experienced s e m i - autonomous e x e c u t i n g a g e n c i e s were major c o n t r i b u t o r s t o s u c c e s s . Among t h e i s s u e s r a i s e d were: (a) t h e need f o r more f l e x i b i l i t y i n a c t u a l d e s i g n of farm l a y o u t , t a k i n g i n t o account g e o g r a p h i c a l f e a t u r e s r a t h e r t h a n f o l l o w i n g a p r e s c r i b e d g e o m e t r i c g r i d , and (b) t h e n e e d f o r more c r o s s - f e r t i l i z a t i o n w i t h i n t h e Bank t o g a i n maximum b e n e f i t of s e t t l e m e n t e x p e r i e n c e s i n d i f f e r e n t Regions. 4.08 Treecrop p r o j e c t s performed w e l l , confirming e a r l i e r f i n d i n g s . S u b s t a n t i a l time and c o s t i n c r e a s e s were of £ s e t by i n c r e a s e s i n r e a l p r i c e s . Wide v a r i a t i o n s among p r o j e c t s i n o t h e r s m a l l e r c a t e g o r i e s makes meaningful comments on them d i f f i c u l t . C. Implementation and P r o j e c t Design 4.09 A c o n c l u s i o n which remains e v i d e n t throughout t h e s e r i e s of Annual Reviews i s t h e importance of p r o j e c t d e s i g n f o r s u c c e s s f u l p r o j e c t implementa- t i o n . I n a l a r g e number of c a s e s , implementation d e l a y s o r p r o j e c t e d f a i l u r e s could be t r a c e d back t o l a c k of a p p r o p r i a t e p r o j e c t d e s i g n , i n c l u d i n g d e t a i l e d implementation planning. D e l a y s i n e f f e c t i v e n e s s were o f t e n d u e t o t h e absence of a s t a r t - u p p l a n , procurement problems occurred because of l a c k of d e t a i l e d p l a n n i n g , breaches i n covenants sometimes r e s u l t e d from a misjudge- ment as t o what was f e a s i b l e i n t h e p r e v a i l i n g c i r c u m s t a n c e s , and changes d u r i n g implementation of t e n r e s u l t e d from i n s u f f i c i e n t p r o j e c t d e s i g n . Thus, p r o j e c t d e s i g n was a m a j o r f a c t o r i n s u c c e s s f u l p r o j e c t i m p l e m e n t a t i o n . N e v e r t h e l e s s , t h e r e i s a f i n e balance h e r e . P r o j e c t d e s i g n should be s u f - f i c i e n t l y w e l l developed t o f a c i l i t a t e immediate and s t r a i g h t f o r w a r d p r o j e c t implementation b u t f l e x i b l e enough t o a l l o w f o r a d a p t a t i o n w i t h o u t causing wasted e x p e n d i t u r e s o r c o s t i n c r e a s e s . This i s w e l l a p p r e c i a t e d by Bank s t a f f i n p r i n c i p l e , b u t t h e s p e c i f i c a p p l i c a t i o n s of t h e p r i n c i p l e of t e n cause problems. D. Poverty-Orientation 4.10 Poverty-oriented p r o j e c t s were c o s t e f f e c t i v e , s o c i a l l y e q u i t a b l e and economically v i a b l e . They were much s m a l l e r i n s i z e and o n l y h a l f a s c o s t l y a s o t h e r a g r i c u l t u r a l development p r o j e c t s . Poverty-oriented p r o j e c t s w e r e most o u t s t a n d i n g i n t h e i r e x p e c t a t i o n of a c h i e v i n g f o o d p r o d u c t i o n t a r g e t s and i n reaching a l a r g e number of b e n e f i c i a r i e s . Even though they accounted f o r o n l y a f i f t h of t o t a l p r o j e c t c o s t s i n t h i s y e a r ' s group, t h e y were expected t o g e n e r a t e a t h i r d of t h e t o t a l i n c r e m e n t a l food production. Audit e s t i m a t e s of food production from t h e s e p r o j e c t s were a t l e v e l s substan- t i a l l y above a p p r a i s a l p r o j e c t i o n s i n most c a s e s . P r o j e c t c o s t p e r benefi- c i a r y was c o n s i d e r a b l y lower t h a n f o r o t h e r a g r i c u l t u r a l p r o j e c t s , confirming t h e f i n d i n g s of p r e v i o u s Reviews even though a s l i g h t l y d i f f e r e n t concept of poverty t a r g e t group has been used i n t h i s Review. D e f i n i t e c o n c l u s i o n s on income and employment e f f e c t s c a n n o t b e r e a c h e d d u e t o i n c o m p l e t e d a t a , although a v a i l a b l e d a t a p o i n t t o v e r y p o s i t i v e r e s u l t s . However, a c o n s i s t e n t f e a t u r e of poverty-oriented p r o j e c t s appeared t o be t h e i r l a r g e r c o s t over- runs. Because of t h e i r s m a l l e r s i z e t h e s e p r o j e c t s were more s e n s i t i v e t o changes i n t e r n a l and e x t e r n a l t o t h e p r o j e c t . Also, because of t h e i r s i z e , r e l a t i v e l y more s u p e r v i s i o n e f f o r t p e r u n i t of investment went i n t o poverty- oriented projects. As a whole, t h e e x p e r i e n c e w i t h poverty-oriented p r o j e c t s c o n t i n u e s t o s t r o n g l y s u p p o r t t h e Bank's p o l i c y commitment t o f i n a n c e them a s a priority. E. Performance Trends 4.11 The p r o p o r t i o n of p r o j e c t s expected a t a u d i t t o be marginal o r u n s a t i s f a c t o r y i n t h e i r outcome has i n c r e a s e d from 14% (1979 Review) t o 22% (1983 Review). P o o r l y performing p r o j e c t s tended t o be c o n c e n t r a t e d i n t h e E a s t e r n A f r i c a and Western A f r i c a Regions and t o f a l l i n t o t h e c a t e g o r i e s of l i v e s t o c k and a r e a development p r o j e c t s . The average weighted r a t e of r e t u r n r e e s t i m a t e d a t completion f o r p r o j e c t s i n Sub-Sahara A f r i c a went down from 18.6% (1979 Review) t o below 10% i n t h e l a s t two y e a r s . A s a p e r c e n t a g e of p r o j e c t s f o r which r a t e s of r e t u r n were r e c a l c u l a t e d a t a u d i t , t h e s h a r e of p r o j e c t s i n Sub-Saharan A f r i c a w i t h n e g a t i v e o r below 10% r a t e s of r e t u r n i n c r e a s e d from 28% (1979 Review) t o 44% (1983 Review). 4.12 P r o j e c t s with poor performance, i .e., w i t h low p r o j e c t e d economic r a t e s of r e t u r n , averaged only a b o u t o n e - t h i r d t h e s i z e of a l l a g r i c u l t u r a l p r o j e c t s reviewed and had much lower time and c o s t o v e r r u n s , b u t showed a h i g h e r p e r c e n t a g e of Bank/IDA funding. While t h e r e l a t i v e l y low time and c o s t overruns were t o some e x t e n t due t o p a r t i a l p h y s i c a l completion, t h e f a c t t h a t t h e Bank financed a h i g h e r s h a r e of p r o j e c t c o s t is symptomatic of s e v e r e r e s o u r c e c o n s t r a i n t s and b o t t l e n e c k s p r e s e n t i n t h e c o u n t r i e s concerned. The main r e a s o n s behind expected p r o j e c t f a i l u r e s were i n a d e q u a t e p r o j e c t prepara- t i o n and d e s i g n , u n s u i t a b l e i n s t i t u t i o n a l and managerial arrangements, and a d v e r s e p o l i c i e s combined w i t h l a c k of e f f e c t i v e borrower s u p p o r t . These, mostly i n combination, a f f e c t e d a l l p r o j e c t s w i t h poor performance, b u t were e s p e c i a l l y pronounced i n t h e i r e f f e c t on t h e A f r i c a n c o n t i n e n t . 4.13 There a r e no quick s o l u t i o n s t o t h e A f r i c a n s i t u a t i o n i n a g r i c u l - ture. Simpler p r o j e c t d e s i g n and g r e a t e r u s e of p i l o t p r o j e c t s , t o t e s t o u t t e c h n i c a l and i n s t i t u t i o n a l f e a s i b i l i t y and s o c i a l r e s p o n s e , would h e l p . So would improved s e c t o r p o l i c i e s and t e c h n i c a l a s s i s t a n c e . A l l these a r e now r e c e i v i n g t h e Bank's focussed a t t e n t i o n , and p r o j e c t l e n d i n g i s being r e i n f o r c e d by s t r u c t u r a l adjustment l o a n s i n p u r s u i t of p o l i c y and i n s t i t u - t i o n a l improvement. F. Technology Adoption 4.14 The concept of adequate t e c h n i c a l packages being c e n t r a l t o t h e d e s i g n s t r a t e g y f o r improved a g r i c u l t u r a l p r o d u c t i o n i s w e l l e s t a b l i s h e d i n t h e Bank's methodological approach t o p r o j e c t a p p r a i s a l . However, as t h e p r o j e c t s i n c l u d e d i n t h i s review i n d i c a t e , t h e s e a r c h f o r t e c h n i c a l e x c e l l e n c e i s o f t e n allowed t o outweigh a pragmatic assessment of t h e e x t e n t t o which new t e c h n o l o g i e s c a n be absorbed w i t h i n t h e socio-economic and p o l i t i c a l con- s t r a i n t s of many of t h e s i t u a t i o n s f o r which they a r e i n t e n d e d . With minor e x c e p t i o n s t h e technology p r e s c r i b e d f o r t h e p r o j e c t s i n t h i s Review was sound and f e a s i b l e i n p u r e l y t e c h n i c a l t e r m s , y e t i n many o f t h e p r o j e c t s t h e outcome was l a c k of a d o p t i o n o r f a i l u r e of t h e technology t o produce t h e r e s u l t s intended. The r e a s o n s f o r non-adoption o r f a i l u r e were complex, and r a r e l y was t h e r e a s i n g l e cause; t h e main f e a t u r e s were a s s o c i a t e d w i t h : (a) c u l t u r a l r e j e c t i o n o r s o c i a l i n a b i l i t y t o absorb rapid technological change ; (b) l o c a l l e v e l management p e r s p e c t i v e s , c o n d i t i o n e d by p r i o r e x p e r i - e n c e , c r e a t i n g d i f f i c u l t y i n absorbing t h e f u l l i m p l i c a t i o n s and r a t i o n a l e of the proposed t e c h n o l o g i c a l change; (c) c o u n t r y i n s t i t u t i o n a l p e r s p e c t i v e s a t some v a r i a n c e with those r e q u i r e d t o implement a new technology; and (d) i n some c a s e s , p r i c e / s u b s i d y d i s t o r t i o n s . 4.15 A p r i n c i p a l conclusion of t h i s review i s t h a t s u b s t a n t i a l d i v i d e n d s would probably r e s u l t from g r e a t e r investment i n examining and t a k i n g more f u l l y i n t o account t h e c u l t u r a l and s o c i a l a s p e c t s of t h e communities who a t t h e b a s e l e v e l a r e t h e i n t e n d e d m a n a g e r s a n d u s e r s of a n y t e c h n o l o g i c a l change. This review a l s o i n d i c a t e s t h a t : (a) t h e r e i s a h i g h p r o b a b i l i t y of t e c h n o l o g i c a l change being a c c e p t e d , a n d s u c c e s s f u l , when i t . i s p r o v e n o r o r i g i n a t e s f r o m w i t h i n a country source - and when a t l e a s t some members of t h e t a r g e t com- munity have a l r e a d y adopted t h i s technology i n some measure w i t h o u t encountering a d v e r s e managerial o r s o c i a l c o n s t r a i n t s ; (b) t h e i n c r e m e n t a l u s e of minor t e c h n o l o g i c a l change, from c r o s s - country t r a n s f e r s , i s l i k e l y t o be adopted a t a much slower r a t e t h a n t h e r a t i o n a l e of c o n v e n t i o n a l technical/economic a n a l y s i s would l e a d p l a n n e r s t o expect ; (c) major cross-country t r a n s f e r s involving macro-technical packages i n v o l v e a h i g h r i s k of f a i l u r e . G. Ecology 4.16 S e r i o u s water p o l l u t i o n was r e p o r t e d under two p r o j e c t s . Wildlife h a b i t a t was encroached upon i n a t l e a s t t h r e e p r o j e c t s and s e r i o u s damage t o p r o j e c t investments occurred a s a r e s u l t . T r i b a l people were a f f e c t e d under a t l e a s t two p r o j e c t s . While g u i d e l i n e s have been i n e x i s t e n c e f o r some time and have been e l a b o r a t e d i n more d e t a i l w i t h regard t o t r i b a l people r e c e n t l y , much more remains t o be done. F u r t h e r , g u i d e l i n e s r e g a r d i n g w i l d l i f e and f l o r a remain a p r i o r i t y need. H. Frequent Lessons of Experience 4.17 I s s u e s most f r e q u e n t l y emerging from t h e performance a u d i t p r o c e s s r e l a t e t o p r o j e c t d e s i g n and a p p r a i s a l ( s e e para. 4 . 0 9 ) , i n s t i t u t i o n - b u i l d i n g and management, t e c h n i c a l a s p e c t s such a s t h e farm l a y o u t f l e x i b i l i t y under s e t t l e m e n t p r o j e c t s ( s e e para. 4.07), s u p e r v i s i o n , and procurement. Among t h e more important l e s s o n s drawn t h i s y e a r were t h e following: (a) Adequate s u p e r v i s i o n pays; a good d i a l o g u e between Bank and borrower on - j e c t o b j e c t i v e s , and t h e i n s t r u m e n t a t i o n f o r a c h i e v i n g t h e s e p r o- i s e s s e n t i a l and s t a f f c o n t i n u i t y i n s u p e r v i s i o n i s a n important element t o achieve t h i s . (b) Insufficient - t.e c h n i c a l e x p e r t i s e i n s u p e r v i s i o n has an a d v e r s e e f f e c t ; t h e Bank should i n c r e a s e t e c h n i c a l i n p u t i n s u p e r v i s i o n e s p e c i a l l y i n t h o s e circumstances where t h e manpower b a s e i n t h e country i s r e l a t i v e l y small. (c) Strong government s u p p o r t is a key element f o r project success. (d) I n terms of i n s t i t u t i o n - b u i l d i n g e x i s t i n g a g e n c i e s a l r e a d y per- forming c e r t a i n f u n c t i o n s s h o u l d n o t be overlooked; semi-autonomous e x e c u t i n g a g e n c i e s have been most s u c c e s s f u l , b u t i t i s e s s e n t i a l t h a t they n o t be made t o o p e r a t e i n a t o o narrowly d e f i n e d and e x c e s s i v e l y c o n t r o l l e d framework. (e) The s e c t o r c o n t e x t i s d e c i s i v e l y important f o r p r o j e c t outcome; on t h e o t h e r hand, one cannot expect simple p r o j e c t s t o be i n s t r u m e n t s f o r major s e c t o r a l changes. (f) Monitoring and e v a l u a t i o n should be i n t e g r a t e d i n t h e p r o j e c t : f i r s t , s u c h components s h o u l d b e f u l l y d e s i g n e d a t o r b e f o r e a p p r a i s a l ; secondly, d a t a g e n e r a t i o n should b e p a r t of t h e p r o j e c t ' s o v e r a l l d a t a g a t h e r i n g systems, which should provide t i m e l y informa- t i o n t o meet agreed r e p o r t i n g requirements a t v a r i o u s l e v e l s . A d r a f t o p e r a t i o n a l p o l i c y n o t e (OPN) i s p r e s e n t l y being prepared by t h e Bank's A g r i c u l t u r e and R u r a l Development Department (AGR). (g) Higher p r i o r i t y should be g i v e n t o t r a i n i n g of l o c a l s t a f f . With r e g a r d t o t r a i n i n g , AGR h a s continued t o work c l o s e l y w i t h t h e Education Department on a g r i c u l t u r a l t r a i n i n g m a t t e r s . (h) More a t t e n t i o n i s needed f o r p o s t - p r o j e c t maintenance; a n i s s u e of very c o n s i d e r a b l e importance i n many borrowing c o u n t r i e s . I, Follow-Up 4.18 A s i n d i c a t e d i n l a s t y e a r ' s Annual Review, t h e A g r i c u l t u r e and Rural Development Department of t h e Operations P o l i c y S t a f f (OPS) r e g u l a r l y a d d r e s s e s memoranda t o a l l a g r i c u l t u r a l s e c t o r managers a c r o s s t h e Bank on l e s s o n s l e a r n t from r e c e n t PPARs. Each memorandum e x t r a c t s t h e l e s s o n s of e x p e r i e n c e f r o m a n i n d i v i d u a l PPAR, o r f r o m a s m a l l g r o u p of PPARs, a n d r e l a t e s t h e s e l e s s o n s t o c u r r e n t and f u t u r e Bank p r a c t i c e i n s i m i l a r a g r i - cultural projects. I n s o d o i n g , t h e memorandum n o t i n f r e q u e n t l y draws upon OPS e x p e r i e n c e t o b u i l d upon and f u r t h e r r e i n f o r c e t h e l e s s o n s emerging from t h e p a r t i c u l a r PPARs. The s e r i e s was i n t r o d u c e d a t t h e end of 1980. In the l a s t o n e y e a r s i n c e August 1 9 8 2 , a f u r t h e r 1 9 s u c h memoranda h a v e b e e n i s s u e d making a t o t a l t o d a t e of 44. 4.19 Other ways of d i s s e m i n a t i n g e v a l u a t i o n f i n d i n g s a r e a l s o being used, t o complete t h e l i n k a g e of e v a l u a t i o n w i t h t h e p r o j e c t c y c l e . These i n c l u d e seminars j o i n t l y sponsored by O ED and AGR, t o f o c u s on t h e b r o a d e r l e s s o n s of e x p e r i e n c e emerging from t h e e v a l u a t i o n system, and a s e r i e s of p a p e r s based on PPARs. With t h e i n c r e a s i n g number of p r o j e c t s completed and a u d i t e d ( a t o t a l of 257 a g r i c u l t u r a l p r o j e c t s have now been covered by OED), t h e oppor- t u n i t y t o develop such papers and t o review much more s y s t e m a t i c a l l y Bank e x p e r i e n c e w i t h g r o u p s of p r o j e c t s , i s much g r e a t e r . A recent paperl/ examined t h e s o c i o l o g i c a l a s p e c t s of a g r i c u l t u r e a n d r u r a l d e v e l o p m e n t reports. The f i n d i n g s were subsequently d i s c u s s e d d u r i n g a seminar f o r Bank s t a f f . S i m i l a r o t h e r papers a r e i n t r a i n . 2. PUBLIC UTILITIES A. Demand F o r e c a s t i n g 4.20 The r e l i a b i l i t y of demand f o r e c a s t i n g h a s b e e n t h e s u b j e c t o f d i s c u s s i o n i n Annual Reviews f o r t h e l a s t s i x y e a r s , and t h e r e a p p e a r s t o be l i t t l e new t o l e a r n from t h e experience w i t h t h e p r o j e c t s covered by t h i s Review. The mixed r e s u l t of a c t u a l s v e r s u s f o r e c a s t s i n d i c a t e s t h a t demand f o r e c a s t i n g i s more of an a r t t h a n a s c i e n c e . This i s t r u e p a r t i c u l a r l y i n t h o s e developing c o u n t r i e s where, a t t h e time of t h e f o r e c a s t , demand f o r a p u b l i c u t i l i t y s e r v i c e has been c o n s t r a i n e d f o r a number of y e a r s by t h e l a c k of f a c i l i t i e s t o provide t h e s e r v i c e , o r where t h e c h a r g e s f o r t h e s e r v i c e do n o t r e f l e c t r a t i o n a l p r i c i n g p o l i c i e s . A t t h e same t i m e , base d a t a on f a c t o r s which a f f e c t demand - such as household s i z e and income i n t h e c a s e of w a t e r supply, o r w a i t i n g l i s t s i n t h e c a s e of telecommunications - i s l i a b l e t o be deficient. Even when t h e r e i s a r e c o r d of meeting demand, and, t h u s some guidance from p a s t h i s t o r y , t h e r e i s t h e problem of u n p r e d i c t a b l e elements, such a s d r a s t i c changes i n t h e l o c a l economy and p o l i t i c a l u n r e s t , which c a n throw o f f any demand f o r e c a s t . O n t h e o t h e r hand, t h e r e have been i n s t a n c e s where some of t h e f a c t o r s were n o t g i v e n t h e l e v e l of c o n s i d e r a t i o n which they d e s e r v e d d u r i n g t h e p r e p a r a t i o n of t h e demand f o r e c a s t s . These f a c t o r s i n c l u d e r e a l i s t i c assumptions about t h e time r e q u i r e d t o extend s e r v i c e t o new a r e a s , t o reduce l o s s e s and t o implement sound p r i c i n g p o l i c i e s , and a b e t t e r u n d e r s t a n d i n g of g o v e r n m e n t p o l i c i e s w i t h r e s p e c t t o s o c i a l o b j e c t i v e s . B. Changes i n Scope 4.21 Of t h e p r o j e c t s r e v i e w e d t h i s y e a r , t h e r e w e r e o n l y f o u r w i t h s i g n i f i c a n t changes i n scope. Of t h e s e , two r e s u l t e d from f i e l d i n v e s t i g a - t i o n s and f i n a l d e s i g n d e c i s i o n s made a f t e r t h e l o a n s were made. I n both t h e s e c a s e s , ( w a t e r supply p r o j e c t s i n one c o u n t r y i n North A f r i c a and a n o t h e r i n East A s i a ) , t h e changes would not have r e s u l t e d i f , i n accordance w i t h p r e s e n t Bank Group p o l i c y , t h e l o a n s had been made a t a l a t e r s t a g e i n t h e p r o j e c t c y c l e when f i n a l d e s i g n , o r , p r e f e r a b l y , t e n d e r s f o r major p r o j e c t c o n t r a c t s , were a v a i l a b l e . I n t h e North A f r i c a n c o u n t r y , t h e changes may have i n c r e a s e d t h e long range b e n e f i t s , b u t i n t h e East Asian c o u n t r y t h e change 11 - S o c i o l o g i c a l V a r i a b l e s A f f e c t i n g A g r i c u l t u r a l and Rural Development P r o j e c t s : A Review Study, by Conrad P h i l l i p Kottak, May 1983. Following review of t h i s paper a t t h e seminar, t h e f i n a l r e p o r t w i l l form t h e concluding c h a p t e r of a book t o be published by t h e Bank on s o c i o l o g i c a l i s s u e s i n a g r i c u l t u r e and r u r a l development p r o j e c t s . merely c o r r e c t e d a d e s i g n d e f i c i e n c y and r e s u l t e d i n d e l a y s and h i g h e r c o s t . I n t h e t h i r d c a s e ( a power p r o j e c t i n a n o t h e r North A f r i c a n c o u n t r y ) , t h e scope of long-range planning was i n c r e a s e d , a p p a r e n t l y w i t h good j u s t i f i c a - t i o n , u s i n g funds which became a v a i l a b l e from c o s t s a v i n g s on o t h e r p a r t s of the project. I n t h e l a s t c a s e ( a n e n g i n e e r i n g p r o j e c t i n t h e Middle E a s t ) , i n s t i t u t i o n a l s t u d i e s were t e r m i n a t e d because t h e l e a d e r s h i p and o b j e c t i v e s of t h e c l i e n t m i n i s t r y changed and t h e work being done by t h e c o n s u l t a n t s was no longer applicable. The Bank and t h e borrower a g r e e d t h a t i t w a s b e t t e r t o t e r m i n a t e t h a n t o a t t e m p t t o r e d e s i g n t h e job. C. F i n a n c i a l Performance, Covenants and T a r i f f s 4.22 The m a j o r i t y of t h e p u b l i c u t i l i t i e s covered by t h i s y e a r ' s Review f a i l e d t o meet t h e i r e a r n i n g s covenants; a r e c u r r i n g p a t t e r n i n t h e s e reviews. A s noted e a r l i e r , t h e ,immediate cause of most f a i l u r e s w a s inadequate a c t i o n on a p p r o v a l of new t a r i f f s by governments, i n s p i t e of r i s i n g c o s t s . U s u a l l y , a p p r o v a l s were d e l a y e d , o r were f o r l e s s t h a n t h e u t i l i t y r e q u i r e d , i n a n e f f o r t t o c o n t a i n i n f l a t i o n a r y p r e s s u r e s o r because of p o l i t i c a l p r e s s u r e s . T h e s e and o t h e r r e a s o n s f o r r e s i s t a n c e t o t a r i f f c h a n g e s a r e common and r e q u i r e c o n s i d e r a b l e e f f o r t and time t o overcome. U n f o r t u n a t e l y , a s was t h e c a s e w i t h t h e p r o j e c t s reviewed t h i s y e a r , most p u b l i c u t i l i t i e s which have t h e s e problems i n developing c o u n t r i e s do n o t have t h e c a p a c i t y t o f o r e c a s t t h e need f o r t a r i f f changes and t o p r e s e n t a well-documented c a s e s u f f i c i e n t l y i n a d v a n c e t o overcome r e s i s t a n c e and a v o i d d e l a y s i n i m p l e m e n t i n g new tariffs. I n one c a s e ( t h e water s u p p l y p r o j e c t i n East A s i a ) , t h e management i n f o r m a t i o n system was s o poor t h a t t h e u t i l i t y d i d not even have good r e c o r d s of i t s c u r r e n t f i n a n c i a l p o s i t i o n . 4.23 Unlike p r e v i o u s y e a r s , t h e r e were no s p e c i f i c examples t h i s y e a r of r e s i s t a n c e t o t a r i f f i n c r e a s e s on grounds t h a t i n c r e a s e d o p e r a t i n g e f f i - c i e n c y of a n e n t i t y would be a more a p p r o p r i a t e p r i o r response t o a need f o r i n c r e a s e d n e t o p e r a t i n g revenues. 4.24 One-third of t h e u t i l i t i e s covered by t h i s review managed t o submit s a t i s f a c t o r y a u d i t e d f i n a n c i a l s t a t e m e n t s w i t h i n t h e s t i p u l a t e d time p e r i o d s . However, a n o t h e r t h i r d , which a p p a r e n t l y s u b m i t t e d a c c e p t a b l e a u d i t e d s t a t e - ments, was c o n s i s t e n t l y a few months late. This s u g g e s t s t h e need, i n some c a s e s , t o e s t a b l i s h more r e a s o n a b l e time requirements i n l o a d c r e d i t agree- ments f o r c l o s i n g a c c o u n t s and completing a u d i t r e p o r t s . Preferably, these should be i n l i n e w i t h s i m i l a r domestic requirements and should g i v e due c o n s i d e r a t i o n t o p a s t performance, t h e a n t i c i p a t e d f u t u r e development of accounting systems and t h e l o c a l procedures f o r o b t a i n i n g a u d i t s . The recom- mendations of a r e c e n t Bank t a s k f o r c e on a u d i t i n g may h e l p t o e n s u r e t h a t f u t u r e covenants w i l l be b e t t e r s u i t e d t o l o c a l c o n d i t i o n s . The f i n a l t h i r d of t h e a g e n c i e s covered by t h i s y e a r ' s Review were unable t o come anywhere n e a r t o meeting t h e a u d i t covenants. 4.25 A comprehensive review of p a s t e x p e r i e n c e w i t h f i n a n c i a l covenants i n t h e water supply s e c t o r has been i n i t i a t e d by t h e Bank. The f i r s t s t a g e made a p r e l i m i n a r y examination of t h e e f f e c t i v e n e s s of p a r t i c u l a r f i n a n c i a l covenants , t h e d i f f i c u l t i e s experienced by d i f f e r e n t borrowers i n complying w i t h them, t h e c a u s e s of non-compliance, and t h e r e l a t i o n s h i p of f i n a n c i a l covenants t o a l t e r n a t i v e approaches t o w a t e r supply t a r i f f s . During a l a t e r s t a g e , t h e review w i l l c o n s i d e r t h e s e q u e s t i o n s i n g r e a t e r d e t a i l and i t i s expected t h a t f u t u r e f i n a n c i a l covenants w i l l be designed i n t h e l i g h t of t h e c o n c l u s i o n s of t h i s Review. 4.26 E a r l i e r Reviews have emphasized t h e need t o judge f i n a n c i a l per- formance i n t h e c o n t e x t of a v a r i e t y of performance i n d i c e s f o r t h e p u b l i c s e c t o r u t i l i t i e s i n d i f f e r e n t c o u n t r i e s , and f o r a s y s t e m a t i c d a t a c o l l e c t i o n effort. It i s understood t h a t key monitoring i n d i c e s , r e f l e c t i n g t h e par- t i c u l a r problems and p o t e n t i a l s of borrowers, a r e now being i d e n t i f i e d i n t h e a p p r a i s a l s f o r water and power p r o j e c t s , a l t h o u g h not i n v a r i a b l y . Where such i n d i c e s a r e i d e n t i f i e d , t h i s i s done along w i t h agreed year-by-year t a r g e t v a l u e s , which a r e t h e n t o be monitored d u r i n g p r o j e c t s u p e r v i s i o n . The r e s u l t s a r e being used i n p a r t f o r a s t a t i s t i c a l overview of Bank-financed water supply and waste d i s p o s a l o p e r a t i o n s . Also, i n e l e c t r i c power, s e c t o r d a t a s h e e t s f o r each borrowing c o u n t r y , i n c l u d i n g s e v e r a l performance i n d i - c a t o r s , have b e e n p r e p a r e d a n d - a r e p r e s e n t l y b e i n g u p d a t e d ; a r e v i e w of s u i t a b l e q u a n t i t a t i v e measures of management and o p e r a t i o n a l performance i n power h a s been included i n an ongoing r e s e a r c h program which s t a r t e d i n FY82 and t h e i n i t i a l g u i d e l i n e s a r e expected t o be i s s u e d i n mid-1984. Realistic i n d i c a t o r s of performance and t h e i r s y s t e m a t i c monitoring should c o n t r i b u t e t o improved p r o j e c t management and s u p e r v i s i o n . D. I n s t i t u t i o n a l Change 4.27 P a s t Reviews have focused on t h e f a c t t h a t i n s t i t u t i o n a l change f r e q u e n t l y t a k e s time and r e q u i r e s c a r e f u l planning w i t h due a t t e n t i o n t o p o l i t i c a l , s o c i a l , s t a f f i n g and o t h e r c o n s t r a i n t s p e c u l i a r t o t h e country. Two power p r o j e c t s reviewed t h i s year once a g a i n u n d e r l i n e t h i s l e s s o n and s u g g e s t that t h e Bank was o v e r - o p t i m i s t i c about t h e achievements that c o u l d be expected d u r i n g t h e p r o j e c t p e r i o d . It appears t h a t i n b o t h c a s e s t h e Bank underestimated t h e d i f f i c u l t y of a c h i e v i n g t h e i n s t i t u t i o n a l o b j e c t i v e s g i v e n t h e p r e v a i l i n g a d m i n i s t r a t i v e p h i l o s o p h i e s and p o l i t i c a l s i t u a t i o n s . 4.28 One o b s t a c l e t o p r o g r e s s , which a g a i n emerges f o r c e f u l l y from t h e p r o j e c t experiences, reviewed t h i s y e a r , i s t h e s h o r t a g e of q u a l i f i e d man- a g e r i a l , f i n a n c i a l and t e c h n i c a l s t a f f . T h i s was t r u e p a r t i c u l a r l y i n t h r e e power p r o j e c t s and one water supply p r o j e c t where s u i t a b l e s t a f f could n o t b e h i r e d o r r e t a i n e d because of u n a t t r a c t i v e c o n d i t i o n s of s e r v i c e . This i s a n a r e a where a r e a s o n a b l e degree of independence i n engaging and managing s t a f f and i n e s t a b l i s h i n g wages and o t h e r c o n d i t i o n s of s e r v i c e appear t o be a key t o t h e s u c c e s s of a p u b l i c u t i l i t y . A good t r a i n i n g program f o r s t a f f a t a l l levels - r e a l l y a p a r t of t h e c o n d i t i o n s of s e r v i c e - i s a n o t h e r key t o success. I n t h e c a s e of an e l e c t r i c i t y a u t h o r i t y i n a Middle E a s t e r n coun- t r y , f o r example, autonomy w i t h r e s p e c t t o p e r s o n n e l p o l i c i e s and management was l i m i t e d . However, development of t h e e l e c t r i c i t y a u t h o r i t y was good, a p p a r e n t l y d u e i n p a r t t o a n e x c e l l e n t t r a i n i n g program which h e l p e d t o m o t i v a t e a s w e l l a s q u a l i f y s t a f f and t o good g o v e r n m e n t c i v i l s e r v i c e policies. 4.29 The Bank's a t t e n t i o n t o b a s i c p o l i c i e s i n t h e water supply and s a n i t a t i o n s e c t o r h a s been g i v e n s h a r p e r f o c u s i n r e c e n t y e a r s by annual seminars organized by t h e Bank f o r s t a f f of t h e Bank and o t h e r i n t e r n a t i o n a l agencies. One such seminar, h e l d i n January 1982, w a s devoted ' t o p u b l i c u t i l i t y management and reviewed t h e e x p e r i e n c e of s e v e r a l s u c c e s s f u l urban w a t e r supply a u t h o r i t i e s i n b o t h developed and developing c o u n t r i e s . Another seminar, h e l d i n January 1983, concerned b o t h r u r a l and urban water supply and s a n i t a t i o n programs and addressed i n s t i t u t i o n a l and t r a i n i n g a s p e c t s as w e l l a s t e c h n i c a l and f i n a n c i a l t o p i c s . E. C o n s u l t a n t s and Advisors 4.30 The g e n e r a l e x p e r i e n c e w i t h t h e u s e and e f f e c t i v e n e s s of c o n s u l t a n t s and a d v i s o r s on t h e p r o j e c t s covered by t h i s Review h a s been t y p i c a l and d e s e r v e s no comment. However, t h e r e a r e t h r e e s p e c i a l c a s e s worth n o t i n g i n t h i s summary. 4.31 A n o t a b l y s a t i s f a c t o r y e x p e r i e n c e w i t h t h e u s e of c o n s u l t a n t s o c c u r r e d i n a power p r o j e c t i n a n East Asian country. There, because of g e o l o g i c a l c o n d i t i o n s , a n i n t e r n a t i o n a l board of c o n s u l t a n t s w a s appointed t o a d v i s e on f i e l d i n v e s t i g a t i o n s , review d e s i g n s and provide s i t e i n s p e c t i o n s during construction. This proved t o be v e r y s u c c e s s f u l , and, s i n c e t h e n , t h e power a u t h o r i t y h a s b e e n u s i n g t h e s e r v i c e of t h e b o a r d f o r o t h e r m a j o r hydroelectric projects. Such an arrangement h a s now become ( s i n c e 1977) s t a n d a r d o p e r a t i n g p r a c t i c e on many p r o j e c t s f i n a n c e d by t h e Bank Group. 4.32 This Review i n c l u d e s two p r o j e c t s where t h e s e l e c t i o n o r u s e of c o n s u l t a n t s o r a d v i s o r s was i n a p p r o p r i a t e and r e s u l t e d i n t h e l o s s of b e n e f i t s expected. I n one power p r o j e c t i n Western A f r i c a , a prime o b j e c t i v e was t o s t r e n g t h e n management and t r a i n s t a f f . To a s s i s t i n t h i s e f f o r t , t h e bor- rower, w i t h o u t c o n s u l t a t i o n w i t h t h e Bank, engaged s e v e r a l e x p a t r i a t e s from v a r i o u s c o u n t r i e s . Due i n p a r t t o p o o r l y d e f i n e d r e s p o n s i b i l i t i e s and l a c k of l e a d e r s h i p , t h e cosmopolitan group of e x p a t r i a t e s f a i l e d t o work a s a team o r t o a d j u s t t o l o c a l circumstances and t h e i r work was l a r g e l y i n e f f e c t i v e . E v e n t u a l l y , t h i s group was r e p l a c e d by a n o t h e r drawn from a w e l l - e s t a b l i s h e d o r g a n i z a t i o n i n a developing c o u n t r y , and t h i s achieved b e t t e r r e s u l t s . A c o n c l u s i o n drawn f r o m t h e r e v i e w of t h i s e x p e r i e n c e was t h a t a g r o u p of a d v i s o r s , p a r t i c u l a r l y w i t h a n i n e x p e r i e n c e d c l i e n t , should come from a s i n g l e o r g a n i z a t i o n which can c o o r d i n a t e and s u p e r v i s e t h e work and can provide supplementary s h o r t v i s i t s by o t h e r e x p e r t s a s needed. 4.33 For a n e n g i n e e r i n g p r o j e c t i n t h e Middle E a s t , i n s t i t u t i o n a l and f i n a n c i a l a s p e c t s of t h e s t u d y w e r e s u b c o n t r a c t e d by t h e c o n s u l t a n t s t o i n d i v i d u a l s w i t h no e x p e r i e n c e i n devel-oping c o u n t r i e s . Their recommendations proved t o be o v e r l y e l a b o r a t e and i n a p p r o p r i a t e f o r c o u n t r y c o n d i t i o n s (and i n c o n s i s t e n t w i t h changed o b j e c t i v e s of t h e c l i e n t m i n i s t r y ) , and, w i t h t h e agreement of t h e Bank, t h e borrower suspended work on t h e s e a s p e c t s of t h e studies. The Bank e x p e r i e n c e with t h i s p r o j e c t r e i n f o r c e s i t s long-standing p o s i t i o n t h a t e x p e r i e n c e i n developing c o u n t r i e s i s e s s e n t i a l f o r c o n s u l t a n t s c a l l e d upon t o a d v i s e on i n s t i t u t i o n a l m a t t e r s . F. Environmental Aspects 4.34 S p e c i a l a t t e n t i o n t o environmental i s s u e s was g i v e n i n t h e review of t h e e x p e r i e n c e w i t h a n h y d r o e l e c t r i c p r o j e c t i n a n East Asian country. The r e s e r v o i r a s s o c i a t e d w i t h t h e p r o j e c t r e q u i r e d r e s e t t l e m e n t of about 1,000 families. The r e s e t t l e m e n t involved t h e c o n s t r u c t i o n of a c c e s s and v i l l a g e r o a d s , a power s u p p l y l i n e , d o m e s t i c w a t e r s u p p l y s y s t e m s , a g o v e r n m e n t compound, s c h o o l s , h e a l t h c e n t e r s and temples, and t h e e s t a b l i s h m e n t of an a g r i c u l t u r a l promotioq c e n t e r f o r e x t e n s i o n s e r v i c e s i n t h e r e s e t t l e m e n t a r e a . Compensation i n c l u d e d monies paid t o a l l t h e v i l l a g e r s and a home p l o t and a farm l o t f o r each family. T o t a l c o s t s were e s t i m a t e d a t about 4% of t o t a l project costs. 4.35 The r e s e t t l e m e n t was c a r r i e d o u t s a t i s f a c t o r i l y under t h e d i r e c t i o n of a r e s e t t l e m e n t committee according t o a p l a n which had been reviewed by t h e Bank; however, t o t a l c o s t s exceeded e s t i m a t e s by about 552, compared t o a t o t a l p r o j e c t c o s t o v e r r u n of a b o u t 3 0 % . No i m p o r t a n t e c o l o g i c a l a n d environmental problems were expected t o r e s u l t and none have been r e p o r t e d s i n c e t h e p r o j e c t was completed. A s a whole t h e r e s e t t l e m e n t e x e r c i s e appears t o have been well-planned and executed and should s e r v e a s a good example. The c o s t overrun, however, i s t y p i c a l of r e s e t t l e m e n t e x p e r i e n c e s and once a g a i n p o i n t s t o t h e need f o r more r e a l i s t i c e s t i m a t e s of r e s e t t l e m e n t c o s t s . 3. TRANSPORTATION AND URBAN A. S e c t o r P o l i c y Environment 4.36 Transport s e c t o r concerns were a s i g n i f i c a n t f e a t u r e of s i x of t h e c u r r e n t y e a r ' s p r o j e c t s . A s i n d i c a t e d l a s t y e a r , some t y p e s of p r o j e c t s ( s u c h a s s e c t o r o r o t h e r l a r g e s c a l e o p e r a t i o n s ) and some environments l e n d them- s e l v e s more r e a d i l y t o s e c t o r a l concerns t h a n o t h e r s and t h i s y e a r ' s e x p e r i - ence confirms t h a t o b s e r v a t i o n . S t r e n g t h e n i n g of i n s t i t u t i o n s t o p l a n and c o o r d i n a t e t r a n s p o r t was attempted i n each of t h e s e s i x c a s e s ; i t f e l l s h o r t of e x p e c t a t i o n s because of s u b s t a n t i a l d e l a y s o r c a n c e l l a t i o n s of p r o j e c t components i n t h r e e c a s e s , b u t achieved s i g n i f i c a n t r e s u l t s i n t h r e e o t h e r s . Even h e r e t h e r e s u l t s have n o t been i n t e r n a l i z e d i n each c a s e and i n one L a t i n American c o u n t r y , p a r t i c u l a r l y , t h e a u t h o r i t i e s c o n t i n u e t o need l a r g e o u t s i d e c o n s u l t i n g a s s i s t a n c e f o r t r a n s p o r t planning. The r e s o r t t o c o n s u l t i n g h e l p t h u s has had v a r i a b l e r e s u l t s r e f l e c t i n g t h e d e s i g n of t h e component, t h e r e l a t i o n s h i p between t h e Government and t h e c o n s u l t a n t and t h e p r i o r i t y placed by t h e Government on t h i s i s s u e . 4.37 O t h e r p o l i c y m a t t e r s were a d d r e s s e d i n o t h e r p r o j e c t s . The e s t a b l i s h m e n t of c o s t based charges continued t o be a major concern i n a r a i l w a y p r o j e c t i n South Asia and h a r b o r p r o j e c t s i n E a s t e r n and Western Africa. The funding and o r g a n i z a t i o n of highway m i n t enance , which engages t h e a t t e n t i o n of Government o f f i c i a l s w e l l beyond t h e highway s e c t o r , was a major concern i n f o u r cases. B o t h c o s t r e c o v e r y a n d f u n d i n g of highway maintenance a r e now being c l o s e l y s t u d i e d by t h e Operations P o l i c y S t a f f i n t h e Bank. 4.38 A s i n d i c a t e d i n l a s t y e a r ' s Review, s e c t o r a l reform responds b e s t t o a well coordinated e f f o r t . A highway p r o j e c t i n C e n t r a l America i n t h i s y e a r ' s group e x e m p l i f i e s t h i s p o i n t . The p r o j e c t provided t e c h n i c a l a s s i s t a n c e t o a l l t h r e e agencies involved i n t r a n s p o r t planning. S t a f f i n a l l t h r e e a g e n c i e s lacked t r a i n i n g and experience i n t h i s f i e l d and t h e r e was l i t t l e o r no b a s i c d a t a with which t o work. A c o n s u l t a n t was appointed t o t r a i n personnel i n a l l t h r e e agencies and t o prepare a s e r i e s of manuals and studies. The program w a s coordinated by t h e head of one of t h e t h r e e agen- c i e s . The program worked s o w e l l t h a t t h e c o n s u l t a n t was extended t h r e e t i m e s and e v e n t u a l l y t h e program r e s u l t e d i n major l e g i s l a t i o n . A broad program of reform was a l s o attempted i n an E a s t e r n African highway p r o j e c t . While i t c o n c e n t r a t e d on t h e r i g h t i s s u e s , i t had a n u n r e a l i s t i c i m p l e m e n t a t i o n schedule. Breadth of coverage thus needs t o be tempered with r e a l i s m t o achieve adequate c o o r d i n a t i o n . The absence of an o v e r a l l plan f o r t h e t r a n s - p o r t s e c t o r was thought t o have been t h e cause of o n l y l i m i t e d e f f e c t s from t h e two W e s t e r n A f r i c a n p r o j e c t s on s t r u c t u r i n g t h e c o u n t r y ' s t r a n s p o r t system. The p r o j e c t s provided t e c h n i c a l a s s i s t a n c e f o r such a plan but t h e c r e a t i o n of t h e plan had n o t been an agreed o b j e c t i v e between t h e Bank and borrower. Good implementation was a l s o a p r e r e q u i s i t e t o s e c t o r a l reform. B. T r a f f i c F o r e c a s t i n g and Design Standards 4.39 R e l i a b l e t r a f f i c f o r e c a s t i n g i s c r u c i a l f o r t h e e f f e c t i v e design of transport f a c i l i t i e s . The determination of p o t e n t i a l t r a f f i c i s e q u a l l y c r i t i c a 1 whether demand is d e r i v e d from general economic a c t i v i t y o r generated by t h e e x i s t e n c e of t h e f a c i l i t y i t s e l f . Various a s p e c t s and i m p l i c a t i o n s of t h i s problem have been commented upon i n t h e l a s t f o u r Reviews. Studies i n this a r e a have been i n s t i t u t e d by t h e Operations P o l i c y S t a f f . 4.40 It has been observed i n t h e p a s t t h a t road t r a f f i c and r a i l pas- senger movements were g e n e r a l l y p r o j e c t e d t o grow more slowly than a c t u a l l y o c c u r r e d , w h i l e r a i l f r e i g h t t r a f f i c was t y p i c a l l y o v e r e s t i m a t e d . This p a t t e r n i s ambiguous i n t h e c u r r e n t group of p r o j e c t s . Road t r a f f i c d i d not r i s e more r a p i d l y than p r o j e c t e d i n every case nor w a s t h e degree of d i s - crepancy t h e same i n t h e c a s e s where i t d i d ; and r a i l and p o r t s t r a f f i c had q u i t e indeterminant p a t t e r n s . 4.41 While d e t a i l e d road t r a f f i c d a t a were not a v a i l a b l e i n each of t h i s year's p r o j e c t s , seven of t h i s year's group of road p r o j e c t s showed a c t u a l t r a f f i c l e v e l s a t a u d i t s i g n i f i c a n t l y exceeding f o r e c a s t s , t h r e e f a l l i n g s i g n i f i c a n t l y below them, one where t h e r e s u l t s were s p l i t , and one where t h e a c t u a l t r a f f i c a f t e r t h e road was completed j u s t about matched t h e p r o j e c t i o n . However, among t h e p r o j e c t s where t r a f f i c grew f a s t e r than f o r e c a s t , s e v e r a l ( i n t h e P a c i f i c ) showed a s t a g n a t i n g p a t t e r n i n t h e period a f t e r t h e 1979 o i l price rise. Discrepancies between a c t u a l t r a f f i c and p r o j e c t i o n s were a t t r i b u t e d t o s e v e r a l causes i n c l u d i n g inadequate a p p r e c i a t i o n of macro- economic t r e n d s and i n s u f f i c i e n t a n a l y s i s of intermodal competition. There is a s i m i l a r absence of a c o n s i s t e n t p a t t e r n i n t h i s year's railway and p o r t projects. While passenger-kilometers on t h e railways of one South ~ s i a n country g r e a t l y exceeded e s t i m a t e s , t h e number of passengers f e l l below, i n d i c a t i n g an unforeseen lengthening of journeys. I n L a t i n America, i n t e r - urban r a i l passenger t r a f f i c i n one country f e l l more slowly than projected. O r i g i n a t i n g f r e i g h t tonnage i n both t h e s e c a s e s f e l l s i g n i f i c a n t l y below p r o j e c t i o n s while f r e i g h t ton-kilometers were only s l i g h t l y below f o r e c a s t s , i n d i c a t i n g t h a t t h e o r i g i n a l a n a l y s i s d i d not p r o j e c t t h e changing n a t u r e of rail t r a f f i c . P r o j e c t e d d r y cargo t r a f f i c was e i t h e r s l i g h t l y more o r l e s s t h a n a c t u a l t r a f f i c i n one of t h e p o r t s i n t h e E a s t A f r i c a p r o j e c t and i n t h e a C e n t r a l American p r o j e c t , while i n t h e o t h e r p o r t s i n t h o s e p r o j e c t s a c t u a l t r a f f i c f e l l s i g n i f i c a n t l y below t h e f o r e c a s t s . I n one Western A f r i c a n c o u n t r y , a c t u a l t r a f f i c was 60% more t h a n f o r e c a s t due t h e g r e a t o i l boom which s t a r t e d j u s t a f t e r l o a n a p p r o v a l . 4.42 Problems a r o s e n o t o n l y w i t h f o r e c a s t i n g o v e r a l l volumes of t r a f f i c b u t a l s o w i t h i t s n a t u r e and composition. In several instances, t r a f f i c f o r e c a s t s were a f f e c t e d by unforeseen developments r e l a t i n g t o a p a r t i c u l a r type of t r a f f i c : copper i n a n E a s t e r n A f r i c a n highway p r o j e c t , uranium- r e l a t e d t r a f f i c i n two Western A f r i c a n highway p r o j e c t s , and lumber i n one of t h e two p o r t s i n a C e n t r a l American country. A more d i s a g g r e g a t e d a n a l y s i s w i t h s e n s i t i v i t y t e s t s being a p p l i e d t o major segments of t r a f f i c might have p r o d u c e d b e t t e r r e s u l t s . T h i s d i s a g g r e g a t i o n would a l s o p e r m i t improved p r o j e c t design; f o r i n s t a n c e i n one Western A f r i c a n c o u n t r y had heavy v e h i c l e s been p r o j e c t e d t o double i n volume on t h e main road i n s t e a d of t o remain t h e same, t h e road might have been designed wider and t h e r e b y avoided t h e heavy wear which occurred a t i t s edges. A d i s a g g r e g a t e d approach a l s o i s h e l p f u l i n a v o i d i n g unnecessary d e s i g n changes; t h u s a s p e c i a l i z e d bulk g r a i n t e r m i n a l was dropped from one of t h e p o r t s i n t h e East A f r i c a p r o j e c t when t r a f f i c was found t o be i n s u f f i c i e n t t o j u s t i f y t h e i n s t a l l a t i o n . 4.43 As s t r e s s e d i n previous y e a r s , i t seems n e c e s s a r y t h a t p r o j e c t i o n s of f u t u r e t r a f f i c growth on highways be attempted i n t h e c o n t e x t of broader economic a n a l y s i s and not by mere e x t r a p o l a t i o n of p a s t e x p e r i e n c e . The e x p e r i e n c e w i t h t h e Western A f r i c a n highway p r o j e c t ( p a r a . 4.42) w e l l i l l u s - t r a t e s t h i s point. A c o n t i n u a t i o n of t r e n d s from t h e 1960's underlay t h e t r a f f i c p r o j e c t i o n s used i n t h e a p p r a i s a l . However, o r i g i n l d e s t i n a t i o n a n a l y s e s were n o t done and t h e e x t e n t of i n t e r n a t i o n a l through t r a f f i c was not known. Moreover, t h e a n a l y s i s of competing r o u t e s f o r moving i n t e r n a t i o n a l through t r a f f i c d i d n o t i n c l u d e a l t e r n a t i v e s which a c t u a l l y came i n t o u s e and d i d not c o n s i d e r f u l l y how t h i s t r a f f i c might be s p l i t among r o u t e s , i n c l u d i n g one financed under a n o t h e r highway p r o j e c t i n t h e same region. Further, d i s a g g r e g a t i o n of f o r e c a s t s t o t h e e x t e n t f e a s i b l e f o r v a r i o u s t r a n s p o r t modes needs t o be attempt'ed and, s i n c e t r a f f i c f o r e c a s t s i n f l u e n c e d e s i g n s t a n d a r d s , t h e o r g a n i z a t i o n a l and implementation consequences of v a r i o u s d e s i g n o p t i o n s may need t o be explored f u r t h e r i n t h e Bank's ongoing work on t h e highway d e s i g n model. Considerable a t t e n t i o n i n r e c e n t y e a r s has a l s o been g i v e n t o t h e problem of improving r a i l t r a f f i c f o r e c a s t s and t h e Bank has been making p r o v i s i o n i n many l o a n s f o r s p e c i a l commodity s t u d i e s . A r e c e n t d r a f t opera- t i o n a l memorandum on r a i l w a y p r o j e c t s i n c l u d e s a number of f u r t h e r s p e c i f i c recommendations. 4.44 Some c a s e s reviewed i n t h i s and p r e v i o u s y e a r s have r e f e r r e d t o problems between t h e Bank and t h e borrower on road design. Such c a s e s have concerned p r i m a r i l y an e f f o r t by t h e Bank t o m a i n t a i n low c o s t s t a n d a r d s a g a i n s t a borrower d e s i r e t o i n c r e a s e them. For i n s t a n c e , on one road i n a Western A f r i c a n c o u n t r y t h e Government widened b r i d g e s t o two l a n e s even though t h e d e s i g n agreed w i t h t h e Bank o n l y c a l l e d f o r s i n g l e l a n e width. However, i n a C e n t r a l American country t h e p o s i t i o n s were r e v e r s e d when t h e Government a f t e r l o a n a p p r o v a l i n i t i a t e d a review of t h e d e s i g n s on which t h e l o a n had b e e n b a s e d a n d which u n d e r a new a d m i n i s t r a t i o n t h e Government thought were t o o c o s t l y . The d e s i g n review r e s u l t e d i n r e v i s i o n s which t h e Bank a c c e p t e d and which saved t h e c o u n t r y over US$2 m i l l i o n e q u i v a l e n t and t h e p r o j e c t a b o u t 16% of t o t a l c o s t s . I n a number of o t h e r c a s e s i n t h i s y e a r ' s g r o u p , r o a d d e s i g n s w e r e r e d u c e d a f t e r l o a n a p p r o v a l when b i d s w e r e e x - c e s s i v e l y h i g h , b u t t h e s e r e d u c t i o n s were accomplished a f t e r mutual agreement b e t w e e n t h e b o r r o w e r a n d t h e Bank. I n one c a s e i n E a s t e r n A f r i c a , t h e Government f a i l e d t o p r e p a r e complete d e s i g n s and t h e Bank e v e n t u a l l y agreed t o have t h e c o n t r a c t o r proceed w i t h o u t them, w i t h t h e s u p e r v i s i n g e n g i n e e r t o provide d e s i g n s a s t h e work progressed. The work was completed w i t h s i g n i f i - c a n t l y h i g h e r d e s i g n s t a n d a r d s and w i t h c o s t s exceeding a p p r a i s a l e s t i m a t e s by 215%. This e x p e r i e n c e demonstrates t h a t e s t a b l i s h m e n t of a p p r o p r i a t e Bank procedures i s n o t enough and t h a t adherence t o such procedures i s e q u a l l y important i n t h e achievement of e f f e c t i v e d e s i g n s f o r Bank highway p r o j e c t s . However, p u r e l y economic c r i t e r i a cannot p r e v a i l throughout and t h e need c o n t i n u e s t o be of f i n d i n g a r e a l i s t i c means of compromise between c o n f l i c t i n g b u t l e g i t i m a t e ends. C. Transit Traffic 4.45 S e v e r a l of t h i s y e a r ' group of c a s e s a r e concerned w i t h t r a f f i c whose o r i g i n and d e s t i n a t i o n a r e o u t s i d e t h e p r o j e c t c o u n t r y . The i s s u e s i n r e g a r d t o such t r a f f i c a r e p a r t i c u l a r l y c a r e f u l l y analyzed i n t h e a u d i t s on t h e two highway p r o j e c t s i n Western A f r i c a where t h e p r o j e c t r o a d s , i n f a c t , compete w i t h each o t h e r f o r t h e same t r a f f i c . Other i n s t a n c e s of i m p o r t a n t components r e l a t i n g t o t r a n s i t t r a f f i c appeared i n t h e second highways p r o j e c t i n one E a s t e r n A f r i c a n c o u n t r y , two highways p r o j e c t s i n a Western A f r i c a n c o u n t r y , two harbour p r o j e c t s i n E a s t e r n A f r i c a and a second p o r t p r o j e c t i n Western A f r i c a . Among t h e i s s u e s which emerge from t h e s e c a s e s a r e : t h e need f o r a n economic methodology t o a n a l y z e t h e o p t i m a l a l l o c a t i o n of t r a f f i c among t r a n s i t r o u t e s ; t h e need f o r a s s u r i n g a c c e s s and e g r e s s and f o r a n a l y z i n g t h e a l t e r n a t i v e s a v a i l a b l e ; t h e need f o r c o n s i s t e n t t r e a t m e n t of t h e a l l o c a t i o n of b e n e f i t s and c o s t s between t h e t r a n s i t c o u n t r y and t h o s e who u t i l i z e i t s t r a n s p o r t s e r v i c e s ; and t h e need f o r a p p r o p r i a t e i n s t i t u t i o n s t o e s t a b l i s h c o o r d i n a t i o n between a t r a n s i t c o u n t r y and t h o s e who c r o s s i t and between c o u n t r i e s who o f f e r competing t r a n s i t s e r v i c e s . Recent s t u d i e s by t h e Bank on t h e t r a n s i t problems of land-locked c o u n t r i e s i n C e n t r a l A f r i c a have begun i n v e s t i g a t i o n s along t h e s e l i n e s . D. I n s t i t u t i o n a l Development (i) Technical A s s i s t a n c e 4.46 This a c t i v i t y was d e f i n e d i n t h e Third Annual Review a s s u p p o r t f o r s t r e n g t h e n i n g t h e Borrower's c a p a c i t y t o p l a n , implement and o p e r a t e p r o j e c t s and e n t e r p r i s e s . A l l b u t f i v e p r o j e c t s i n t h i s y e a r ' s group of 22 i n c l u d e d some elements of t h i s a c t i v i t y . However, t h e s c a l e of e f f o r t v a r i e d widely, ranging from r e o r g a n i z a t i o n of p a r t s of m i n i s t r i e s and s t r u c t u r a l reform t o l e s s e r i n t e r v e n t i o n s s u c h a s improved f u n c t i o n i n g of e x i s t i n g systems. The f o c u s continued t o be p r i m a r i l y on s u b s e c t o r a g e n c i e s a l t h o u g h some a t t e m p t w a s made t o d e a l w i t h sector-wide i n s t i t u t i o n s i n s e v e r a l c o u n t r i e s . 4.47 The most f r e q u e n t l y used d e v i c e s were: studies of, o r assistance t o , p a r t i c u l a r a s p e c t s of o r g a n i z a t i o n o r management (12 p r o j e c t s ) ; indepen- d e n t o r on-the-job t r a i n i n g t o improve s t a f f performance ( 9 p r o j e c t s ) ; and accounting s t u d i e s and a s s i s t a n c e t o s t r e n g t h e n f i n a n c i a l c o n t r o l and manage- ment ( 4 p r o j e c t s ) . The most s u c c e s s f u l i n s t a n c e of i n s t i t u t i o n a l development was considered t o have occurred i n a c a s e i n which minimal u s e w a s made of outside consultants. I n t h a t c a s e , t h e n a t i o n a l p o r t s a u t h o r i t y of t h e C e n t r a l American country achieved a number of important o r g a n i z a t i o n a l i m - provements i n p l a n n i n g , f i n a n c e and management mostly on i t s own. Success was a t t r i b u t e d t o a sound b a s i c o r g a n i z a t i o n a l s t r u c t u r e , t o a d e l i b e r a t e l y paced p l a n , and t o e x c e l l e n t s t a f f l e d by high q u a l i t y management. 4.48 The m o s t c o m p r e h e n s i v e e f f o r t was p r o b a b l y u n d e r t a k e n i n t h e f i r s t highway p r o j e c t of an E a s t e r n A f r i c a n country. The p r o j e c t sought t o r e v i s e t h e o r g a n i z a t i o n a l set-up f o r highways i n t h e c o u n t r y ( i n c l u d i n g a review of t r a i n i n g needs) and t o p u t i n t o e f f e c t a program f o r highway main- t e n a n c e , b e t t e r m e n t and c o n s t r u c t i o n . The p r o j e c t w a s based on t h e i n i t i a l phase of a c o n s u l t a n t ' s s t u d y which i n c l u d e d a review of t h e e x i s t i n g organ- i z a t i o n and o p e r a t i o n of t h e c o u n t r y ' s highway a u t h o r i t y . However, t h e main o r g a n i z a t i o n a l change recommended by t h e c o n s u l t a n t f o r a n a t i o n a l highway a u t h o r i t y t o u n i f y t h e n o r t h e r n and s o u t h e r n elements was found by t h e Govern- ment t o be i m p r a c t i c a l because i t s implementation would have v i o l a t e d a key p r o v i s i o n of t h e c o n s t i t u t i o n . While t h e b a s i c o r g a n i z a t i o n t h u s followed t h e Government's own r e o r g a n i z a t i o n law of 1973, l e s s e r changes recommended by t h e c o n s u l t a n t were g r a d u a l l y implemented and key p o s t s were f i l l e d by competent local staff. However, because of l a r g e c o s t overruns seven e x p a t r i a t e tech- n i c a l e x p e r t s recommended i n t h e s t u d y t o improve management, e n g i n e e r i n g and planning and t o t r a i n p r o f e s s i o n a l s were n o t h i r e d . Moreover, a f t e r t h e mid-1970's many s k i l l e d l o c a l s t a f f i n t h e n o r t h e r n Arab speaking p a r t of t h e country emigrated t o t h e nearby o i l producing Arab c o u n t r i e s w i t h t h e r e s u l t t h a t c u r r e n t l y t u r n o v e r i s very high among p r o f e s s i o n a l s and l e s s t h a n h a l f such p o s t s a r e now f i l l e d , w i t h consequent r e s h u f f l i n g of s t a f f , untimely promotions and merging of key p o s t s . The s t a f f i n g s i t u a t i o n i n t h e s o u t h e r n p a r t of t h e c o u n t r y was more c r i t i c a l p a r t l y because t e c h n i c a l a s s i s t a n c e and o t h e r o u t s i d e s u p p o r t were d i f f i c u l t t o provide t o t h i s remote p a r t of t h e country. Thus, while t h e scope of t h e i n s t i t u t i o n a l development work was comprehensive and t h e o v e r a l l scheme l o g i c a l , t h e r e s u l t s have been l i m i t e d . Exogenous c o n d i t i o n s have been important c a u s e s such a s t h e r e s u l t s of t h e c i v i l war, t h e boom i n n e a r l y o i l producing s t a t e s , and t h e more r e c e n t s e v e r e r e c e s s i o n i n t h e country. However, o t h e r f a c t o r s have c o n t r i b u t e d , i n c l u d i n g an u n r e a l i s t i c implementation s c h e d u l e , i n s u f f i c i e n t e x t e r n a l f u n d i n g , and inadequate a t t e n t i o n t o t h e s o c i a l and p o l i t i c a l c o n t e x t , i n c o n t r a s t w i t h a s i m i l a r l a r g e - s c a l e o p e r a t i o n f o r t h e r a i l w a y s of a L a t i n American c o u n t r y d i s c u s s e d i n t h e Review two y e a r s ago. The L a t i n American r a i l w a y p r o j e c t occurred during a t i m e of governmental and economic s t a b i l i t y and was c l o s e l y a t t u n e d t o t h e Government's b a s i c p o l i c y . It t h u s had t h e b e n e f i t of a b e t t e r environment and a b e t t e r design. (ii) C i v i l Construction 4.49 S e v e r a l of t h i s y e a r ' s p r o j e c t s i n c l u d e d s i g n i f i c a n t f i n d i n g s concerning improvement of t h e i n s t i t u t i o n s which provide c i v i l c o n s t r u c t i o n services. These cases r e f l e c t t h e growing i n t e r e s t of t h e Bank i n t h e con- s t r u c t i o n s e c t o r i n developing c o u n t r i e s , an i n t e r e s t exemplified i n t h e r e c e n t OPS study on t h i s s u b j e c t . I n two of t h i s year's cases c o n s t r u c t i o n t o o k place i n remote i s l a n d l o c a t i o n s i n t h e P a c i f i c . I n one, high c o s t s i n c u r r e d with an i n t e r n a t i o n a l c o n t r a c t o r might have been avoided had a l t e r n a - t i v e methods, such as f o r c e account, been considered by t h e Bank a t t h a t t i m e . I n a n o t h e r c a s e , c o n s t r u c t i o n was e x e c u t e d by a government-owned c o n t r a c t o r whose continued s u r v i v a l and p r o s p e r i t y became of s i g n i f i c a n t c o n c e r n t o t h e Bank and was a f o r t u n a t e by-product o f t h e p r o j e c t . The p r o j e c t provided a demonstration of an a l t e r n a t i v e scheme f o r c a r r y i n g o u t c o n s t r u c t i o n and of t h e continued need f o r c r e a t i v e s o l u t i o n s t o i n s t i t u t i o n a l problems i n t h a t s e c t o r . 4.50 Three o t h e r p r o j e c t s had components f o r t h e development of t h e domestic c o n s t r u c t i o n i n d u s t r y . Two were highway p r o j e c t s i n L a t i n America and one was t h e port p r o j e c t i n North A f r i c a . I n one L a t i n American country, a component w a s added during p r o j e c t implementation t o u t i l i z e l a b o r i n t e n s i v e c o n s t r u c t i o n techniques. The r e s u l t s c o n t r i b u t e d t o t h e Bank's s t u d y of labor and c a p i t a l s u b s t i t u t i o n i n c i v i l engineering c o n s t r u c t i o n . The o t h e r L a t i n American p r o j e c t included a s t u d y of t h e l o c a l c o n s t r u c t i o n i n d u s t r y and seminars f o r government o f f i c i a l s and c o n t r a c t o r s . The s t u d y made a number of s p e c i f i c recomnendations t o improve the i n d u s t r y . The North African case was d i r e c t e d s p e c i f i c a l l y a t t h e p o r t c o n s t r u c t i o n i n d u s t r y but came t o naught when t h e p r o j e c t w a s cancelled. The experience of t h e s e v a r i o u s c a s e s demon- s t r a t e s t h e complexity of i s s u e s i n t h e development of c i v i l c o n s t r u c t i o n and t h e l e n g t h of time and l e v e l of commitment which would be required i f t h i s endeavor i s t o succeed. The f a c t t h a t t h e Bank has made i t a s p e c i a l sub- j e c t of concern and has assigned s t a f f t o such work appears t o be an e n t i r e l y a p p r o p r i a t e response t o t h e s e i s s u e s . (iii) Urban 4.51 The urban p r o j e c t i n t h i s year's Review w a s based on a major i n s t i - t u t i o n a l i n i t i a t i v e f o r a m e t r o p o l i t a n a r e a of one South Asian country. In o r d e r t o respond more e f f e c t i v e l y t o t h e urban c r i s i s i n t h e c i t y concerned, t h e Government e s t a b l i s h e d a m e t r o p o l i t a n development a u t h o r i t y t o a c t a s t h e major p u b l i c works c o n s t r u c t i o n agency i n t h e metropolitan a r e a . I n due course, t h e m e t r o p o l i t a n development a u t h o r i t y became an e f f e c t i v e agency f o r managing a l a r g e c o n s t r u c t i o n program w i t h b o t h d e s i g n and s u p e r v i s o r y c a p a b i l i t i e s and thus c o n t r i b u t e d i n a major way t o t h e accomplishment of various physical construction objectives agency r a i s e d problems. . However, t h e v e r y success of t h i s These included a corresponding weakening of o t h e r organs of l o c a l government, n o t a b l y through a b s o r p t i o n of t h e i r s t a f f , an i n s u f f i c i e n t p r o v i s i o n f o r maintenance and management of p u b l i c f a c i l i t i e s , an undue emphasis by t h e metropolitan a u t h o r i t y on t e c h n o l g i c a l a s p e c t s and, a consequent a t t e n u a t i o n o f t h e p o l i t i c a l processes a t the l o c a l l e v e l . As a r e s u l t , t h e Government is now r e c o n s i d e r i n g t h e r o l e of the a u t h o r i t y and has i n i t i a t e d a long term program t o r e v i t a l i z e l o c a l governments. The experience p o i n t s t o t h e importance of timing and design i n i n s t i t u t i o n a l development. The p r o j e c t helped t h e m e t r o p o l i t a n a u t h o r i t y a t a c r i t i c a l t i n e , but it e v e n t u a l l y reached a l i m i t i n i t s e v o l u t i o n because of the l i m i t a t i o n s of a c e n t r a l i z e d approach t o t h e complex problems of metropolitan development. E. Efficiencv O~erational 4.52 Operationa 1 i n d i c a t o r s f o r revenue earning e n t i t i e s i n t h e present group show varying impact of Bank a s s i s t a n c e . I n most such e n t i t i e s , some improvement i n operations has been recorded. I n some c a s e s , b e t t e r per- f ormance r e s u l t e d from comprehensive, in-depth s t u d i e s which produced a wide range of recornendations which were c a r r i e d foreward i n a w e l l a r t i c u l a t e d a c t i o n program. However, e q u a l l y c h a r a c t e r i s t i c i n most c a s e s w a s a s i g n i f i - c a n t s h o r t f a l l i n p r o d u c t i v i t y from l e v e l s which could reasonably have been a t t a i n e d and which had f r e q u e n t l y been p o s i t e d during a p p r a i s a l . P a r t i c u l a r l y noteworthy i n t h i s regard were locomotive a v a i l a b i l i t y and wagon turnaround t i m e i n two r a i l w a y p r o j e c t s - - o n e i n S o u t h A s i a and t h e o t h e r i n L a t i n America; c o n t a i n e r operations i n t h r e e African p o r t s ; g e n e r a l cargo movements i n one C e n t r a l American country; and s h i p and r a i l w a y o p e r a t i o n s i n an East Asian country. The economic l o s s e s a s s o c i a t e d with reduced e f f i c i e n c y i n o p e r a t i o n s have been q u a n t i f i e d only i n t h e l a s t case. The expected economic r a t e of r e t u r n (ERR) i s thought t o be 24% a t f u l l e f f i c i e n c y , 1 3 % a t t h e p r e s e n t l y achieved l e v e l and 18% a t a projected improved l e v e l . The Bank's long-term emphasis on a c t i o n p l a n s r e f l e c t s t h e c o n t i n u e d i m p o r t a n c e of concerns with p r o d u c t i v i t y . The need f o r a broad range of measures is w e l l i l l u s t r a t e d by t h e a c t i o n plans i n one country i n South Asia and another i n Western Africa; and t h e d e s i r a b i l i t y of wide ranging systems a n a l y s e s , with c l o s e a t t e n t i o n t o coordination w i t h i n and without t h e e n t i t y , i s exemplified by t h e railways i n E a s t e r n Africa and one country i n Western A f r i c a . F. Third P a r t v - F i n a n c i a l Contributions 4.53 Most cases i n t h i s year's Review involved f i n a n c i a l c o n t r i b u t i o n s from t h i r d p a r t i e s with d i r e c t e f f e c t s on t h e p r o j e c t . Such c o n t r i b u t i o n s encompass co-f inancing but a l s o include provisions of funds which do not f a l l s t r i c t l y within that definition. The n a t u r e , e x t e n t and implementation of t h e s e c o n t r i b u t i o n s a r e not always f u l l y documented but such c o n t r i b u t i o n s were p r e s e n t i n a t l e a s t 15 of t h e 22 cases. The arrangements v a r i o u s l y t o o k t h e form of ( i ) p a r t i c i p a t i o n s i n t h e c o s t s of a major c o n s t r u c t i o n c o n t r a c t ; ( i i ) coverage of supervisory or design c o n s u l t i n g s e r v i c e s ; ( i i i ) f i n a n c e f o r major equipment i t e m s ; ( i v ) support f o r c o n s t r u c t i o n on t h e road l i n k s ad- j o i n i n g t h e one a s s i s t e d by the Bank Group o r f o r road c o n s t r u c t i o n where t h e Bank Group a s s i s t e d an i n s t i t u t i o n a l development scheme; and ( v ) finance f o r t e c h n i c a l s e r v i c e s and t r a i n i n g where t h e Bank Group a s s i s t e d an i n s t i t u t i o n a l development program. The c o n t r i b u t i o n s came from both p r i v a t e f o r p r o f i t and non-prof it sources and from n a t i o n a l and i n t e r n a t i o n a l governmental agencies. The most complex colending scheme occurred i n connection with a railways p r o j e c t i n a L a t i n American c o u n t r y where t h e Bank made two c o n c u r r e n t l o a n s , one t o a p r i v a t e company f o r expansion of an i r o n o r e mine ( a u d i t e d some y e a r s ago) and another t o t h e Government owned railway f o r improving the r a i l connection between t h e mine and t h e s e a ( a u d i t e d l a s t y e a r ) . The railway p r o j e c t involved e q u i t y and loan f i n a n c i n g from a v a r i e t y of p r i v a t e and p u b l i c sources and complex c o n t r a c t u a l arrangements among t h e v a r i o u s p a r t i c i - pants. The a u d i t on t h e r a i l w a y p r o j e c t concluded t h a t t h e f i n a n c i n g plan and c o n t r a c t u a l a r r a n g e m e n t s had r a i s e d s e r i o u s c o o r d i n a t i o n problems among v a r i o u s groups i n t h e Bank and among t h e various c o f i n a n c i e r s . The a u d i t a l s o noted t h a t t h e Bankhad assumed p o s s i b l y c o n f l i c t i n g p o s i t i o n s i n i t s d e a l i n g s w i t h t h e two p r o j e c t s , p a r t i c u l a r l y i n t h e c o u r s e o f d i s p u t e s among t h e p a r t i c i p a n t s , i n i t s v a r i o u s r o l e s a s l e n d e r and a d v i s e r t o t h e p r i v a t e mining company and t h e Government and i t s r e l i a n c e on common c o n s u l t a n t s f o r t h e mining and r a i l w a y schemes. T h i s e x p e r i e n c e p o i n t s t o t h e need f o r f u l l c o n s c i o u s n e s s on t h e p a r t of Bank s t a f f f o r t h e o p p o r t u n i t i e s f o r improved c o o r d i n a t i o n w i t h i n t h e Bank i n c a s e s of m u l t i p l e l o a n s f o r r e l a t e d schemes and f o r f u l l s e n s i t i v i t y t o p o s s i b l e c o n f l i c t s i n such schemes. 4. DEVELOPMENT FINANCE COMPANIES 4.54 Bank s u p p o r t f o r DFC o p e r a t i o n s h a s g e n e r a l l y b e e n e f f e c t i v e . F i n a n c i a l r e s o u r c e s provided through Bank l e n d i n g have f o r t h e most p a r t been w e l l i n v e s t e d and g e n e r a t e d a d e q u a t e r e t u r n s t o t h e borrowers. The subproj- e c t s f i n a n c e d were s e c t o r a l l y and r e g i o n a l l y w e l l d i v e r s i f i e d and i n l i n e w i t h each c o u n t r y ' s i n d u s t r i a l s t r a t e g y and s e c t o r a l p r i o r i t i e s . Some of them succeeded i n e x p o r t i n g a l a r g e s h a r e of t h e i r p r o d u c t i o n w h i l e o t h e r s used d o m e s t i c a l l y p r o d u c e d raw m a t e r i a l s . A good number o f t h e s u b p r o j e c t s experienced t e e t h i n g problems o r were b e s e t by t h e v i c i s s i t u d e s of t h e economy and r a n i n t o f i n a n c i a l d i f f i c u l t i e s and a r r e a r s . But, on t h e whole, t h e i r p e r f o r m a n c e a p p e a r s t o h a v e b e e n s a t i s f a c t o r y , e x c e p t a few c a s e s where s u b p r o j e c t s have been a f f e c t e d by n a t i o n a l c o n s t r a i n t s such a s s h o r t a g e of f o r e i g n exchange, s c a r c i t y of s k i l l e d l a b o r , o r i n s u f f i c i e n t s u p p l i e s of agricultural inputs. 4.55 All o p e r a t i o n s had s i g n i f i c a n t i n s t i t u t i o n - b u i l d i n g o b j e c t i v e s , a s most f i n a n c i a l i n t e r m e d i a r i e s supported were newly e s t a b l i s h e d o r had o n l y a b r i e f a s s o c i a t i o n w i t h t h e Bank. Considerable p r o g r e s s was made i n a c h i e v i n g t h e s e o b j e c t i v e s , a l t h o u g h t h e r e i s s t i l l need f o r f u r t h e r improvement. E s p e c i a l l y t h e a p p r a i s a l and s u p e r v i s i o n c a p a b i l i t y of t h e f i n a n c i a l i n s t i t u - t i o n s reviewed needs t o be upgraded. A r r e a r s i n a l l DFCs have been r i s i n g and i n some c a s e s a r e e r o d i n g t h e q u a l i t y of p o r t f o l i o , Resource m o b i l i z a t i o n e f f o r t s have n o t come up t o e x p e c t a t i o n s l a r g e l y because of d e f i c i e n t i n t e r e s t r a t e s t r u c t u r e s , e a s y a c c e s s t o o f f i c i a l c o n c e s s i o n a r y funds and undeveloped s e c u r i t y markets . 4.56 One p r o j e c t addressed t h e development of small-medium s c a l e i n - dustry. The p r o j e c t was w e l l designed combining f i n a n c i n g of a l a r g e number of s u b p r o j e c t s w i t h e x t e n s i o n of t e c h n i c a l a s s i s t a n c e . On t h e whole, t h e p r o j e c t h a s been s u c c e s s f u l e v e n though one of i t s components performed poorly. S i g n i f i c a n t p r o g r e s s was made towards i n d u s t r i a l d e c e n t r a l i z a t i o n , l a b o r - i n t e n s i v e a c t i v i t i e s were promoted, and a v a r i e t y of e x p o r t a b l e i t e m s were produced. Some i n s t i t u t i o n a l and p o l i c y changes were i n t r o d u c e d w i t h noticeable r e s u l t s . The t e c h n i c a l a s s i s t a n c e component of t h e p r o j e c t h a s i n l a r g e measure m e t t h e Bank's e x p e c t a t i o n s . 4.57 The review of t h i s s m a l l sample of seven DFC p r o j e c t s l e a d s t o o b s e r v a t i o n s ( n o t n e c e s s a r i l y r e p r e s e n t a t i v e of t h e Bank's t o t a l DFC p o r t - f o l i o ) which have wider i m p l i c a t i . o n s and from which l e s s o n s c a n be drawn f o r future operations. L a x i t y i n s u p e r v i s i o n of s u b p r o j e c t s , f o r example, seems t o be a p a r t i c u l a r l y weak p o i n t i n most DFCs' i n s t i t u t i o n - b u i l d i n g e f f o r t s , w i t h a d v e r s e e f f e c t s on t h e q u a l i t y of t h e i r p o r t f o l i o s . It seems, t h e r e f o r e , important t h a t t h e Bank m a i n t a i n a c r i t i c a l s t a n c e d u r i n g i t s own DFC s u p e r v i s i o n and t h a t emezging i s s u e s be addressed a t an e a r l y s t a g e , To t h e e x t e n t t h a t n e c e s s a r y p o l i c y changes a r e n o t forthcoming, t h e expediency o f d e v i s i n g a more p r e c i s e framework f o r t h e u s e of t h e Bank's f u n d s i n r e p e a t e r o p e r a t i o n s (e.g., a d d i t i o n a l c r i t e r i a f o r p r o j e c t s e l e c t i o n ) may be worth c o n s i d e r i n g . 4.58 Poor p r o f i t a b i l i t y h a s l e d a number of DFCs t o engage i n short-term o p e r a t i o n s i n t h e money m a r k e t ( a c c e p t d e p o s i t s , f i n a n c e i m p o r t s o f r a w m a t e r i a l s , p r o c e s s l e t t e r s of c r e d i t , e t c . ) . I f government i n i t i a t i v e s t o c r e a t e a s u i t a b l e p o l i c y framework (e.g., reforms of f i n a n c i a l p o l i c i e s and i n t e r e s t r a t e s t r u c t u r e s t o e n s u r e an adequate s p r e a d ) a r e n o t forthcoming, a n i n c r e a s i n g number of DFCs may b e f o r c e d t o s h i f t e m p h a s i s away f r o m development banking i n f a v o r of short-term o p e r a t i o n s t o a n e x t e n t beyond o r i g i n a l i n t e n t i o n s - - a more p r o f i t a b l e , l e s s u n c e r t a i n a n d l e s s t a x i n g activity. However, a s i g n i f i c a n t change i n f o c u s could weaken and u l t i - mately compromise a DFC's commitment t o i n d u s t r i a l development and t h e r e b y diminish o r d i v e r t e f f o r t s t o r e s o l v e p e r s i s t e n t i n s t i t u t i o n a l problems (e.g., s t r e n g t h e n i n g appraisal/supervision/loan c o l l e c t i o n c a p a b i l i t i e s ) . 4.59 The e x p e r i e n c e with s u b p r o j e c t c o s t and time overruns p o i n t s t o t h e e x i s t e n c e of c e r t a i n p o t e n t f a c t o r s , t o a d e g r e e beyond t h e c o n t r o l of t h e l e n d i n g i n s t i t u t i o n s , t h a t tend t o e x a c e r b a t e overruns. However, t h i s should n o t d e t r a c t from t h e need f o r a g r e a t e r e f f o r t by DFCs d u r i n g p r o j e c t a p p r a i s - a l t o a s s e s s more r e a l i s t i c a l l y p r o j e c t c o s t s , t o a l l o w f o r a d e q u a t e p r i c e and p h y s i c a l c o n t i n g e n c i e s and t o develop r e a l i s t i c implementation s c h e d u l e s . Underestimation of investment c o s t s t e n d s t o u p s e t t h e f i n a n c i n g p l a n and t h e c a p i t a l s t r u c t u r e of t h e sponsoring e n t e r p r i s e and may s e v e r e l y undermine t h e f i n a n c i a l and economic v i a b i l i t y of t h e p r o j e c t . DFC managements and Bank s u p e r v i s i o n missions need t o a t t e n d t o t h i s m a t t e r c l o s e l y . 4.60 A r r e a r s have been r i s i n g i n r e c e n t y e a r s d e s p i t e e x t e n s i v e resched- u l i n g and, i n c e r t a i n i n s t a n c e s , have reached uncomfortable l e v e l s . This l e v e l of a r r e a r s h a s p e r s i s t e d o v e r t h e p a s t s e v e r a l y e a r s , and c a n be a t t r i b u t e d mainly t o t h e d e t e r i o r a t i o n of i n t e r n a t i o n a l and domestic economic c o n d i t i o n s ; management and c a p i t a l s t r u c t u r e problems of t h e f i r m s sponsoring t h e sub-projects; d e v a l u a t i o n of l o c a l c u r r e n c i e s ; l i q u i d i t y , t e c h n i c a l and marketing problems; and weak s u p e r v i s i o n and c o l l e c t i o n e f f o r t s by t h e DFCs. The s i t u a t i o n c o u l d d e t e r i o r a t e f u r t h e r by i m p o n d e r a b l e and p r e c i p i t o u s f a c t o r s r e l a t i n g t o a country's economic environment and p o l i c y d e c i s i o n s . Improvement of s u p e r v i s i o n c a p a b i l i t y , c l o s e r follow-up and e a r l y a c t i o n by DFCs -- and p o s s i b l y by t h e Bank -- could h e l p a r r e s t such developments and improve t h e a r r e a r s s i t u a t i o n . Improvements i n macro-economic and f i n a n c i a l p o l i c i e s by governments and a r e v i v a l of economic a c t i v i t y a r e a l s o e s s e n t i a l i n removing c a u s e s of t h e p o r t f o l i o problems of t h e DFCs. The Bank's i n c r e a s - i n g concern a b o u t t h e p o l i c y environment i s i n response t o t h i s r e c o g n i t i o n . The Bank's i n i t i a t i v e t o e s t a b l i s h a Task Force t o look i n t o t h e a r r e a r s situation i s a s t e p i n the r i g h t direction. 4.61 Many DFCs have n o t y e t been a b l e t o s t r u c t u r e sound and e f f e c t i v e p r o j e c t a p p r a i s a l , s u p e r v i s i o n and c o l l e c t i o n c a p a b i l i t i e s , i n p a r t due t o d i f f i c u l t i e s i n a t t r a c t i n g and r e t a i n i n g competent p r o f e s s i o n a l s t a f f and h i g h administrative costs. A t t h e same t i m e , t h e y a r e f a c e d w i t h r i s i n g l e v e l s of d e f a u l t s and a r r e a r s w i t h which they u r g e n t l y t r y t o cope. This suggests t h a t , i n l i g h t of t h e s e developments, a n i n c r e a s e i n t h e frequency and d e p t h of Bank s u p e r v i s i o n s may be a d v i s a b l e t o h e l p c o n t a i n t h e s i t u a t i o n . The Bank should perhaps review t h e l e v e l of p r e s e n t manpower a l l o c a t i o n s budgeted f o r p r o j e c t s u p e r v i s i o n i n o r d e r t o a s s e s s t h e i r adequacy t o meet t h e r e q u i r e d effort. 4.62 A s i n d i c a t e d i n e a r l i e r Annual Reviews, DFC l e n d i n g has n o t been a f u l l y e f f e c t i v e i n s t r u m e n t f o r a d j u s t i n g i n t e r e s t r a t e s and, more g e n e r a l l y , f o r addressing s e c t o r a l issues. Attempts by t h e Bank t o engage government a u t h o r i t i e s i n d i s c u s s i o n s of f i n a n c i a l and i n d u s t r i a l p o l i c y i s s u e s i n t h e c o n t e x t of DFC o p e r a t i o n s have r a r e l y produced t h e d e s i r e d r e s u l t s . Nonethe- l e s s , such i s s u e s should c o n t i n u e t o be pursued a t t h e p r o j e c t l e v e l . But, i n a d d i t i o n , t h e Bank should i n t e n s i f y i t s e f f o r t s t o b r i n g about changes i n f i n a n c i a l and i n d u s t r i a l p o l i c i e s i n t h e c o n t e x t of i t s macro-economic and s e c t o r d i a l o g u e w i t h governments, i n c l u d i n g s e c t o r and s t r u c t u r a l adjustment lending. I n t h i s c o n t e x t , c o u n t r y i n d u s t r i a l s t r a t e g y p a p e r s and f i n a n c i a l s e c t o r reviews c o u l d provide t h e r e q u i s i t e a n a l y t i c a l underpinning. 4.63 This Review confirms e a r l i e r f i n d i n g s t h a t : (a) c l o s e c o o p e r a t i o n w i t h t h e r e l e v a n t government departments and a g e n c i e s a r e important c o n d i t i o n i n g f a c t o r s f o r t h e development and s u c c e s s of a f i n a n c i a l i n s t i t u t i o n ; (b) t h e q u a l i t y of management i s a p o w e r f u l d r i v i n g f o r c e b e h i n d t h e development of a n i n s t i t u t i o n ; (c) t h e r e i s need f o r a f u l l u n d e r s t a n d i n g and a p p r e c i a t i o n of t h e c u l t u r a l background, i n s t i t u t i o n a l arrangements, a t t i t u d e s and, g e n e r a l l y , of t h e way b u s i n e s s i s conducted i n a p a r t i c u l a r c o u n t r y , p r i o r t o i n t r o d u c i n g novel o r g a n i z a t i o n a l schemes; (d) t h e r e i s need f o r c l o s e s u p e r v i s i o n and continued guidance and a s s i s t a n c e u n t i l a newly c r e a t e d i n s t i t u t i o n i s f i r m l y e s t a b l i s h e d . 4.64 I n c o u n t r i e s where p u b l i c DFCs f i n a n c e p u b l i c s e c t o r e n t e r p r i s e s (e.g., a n investment bank i n an East African c o u n t r y ) t h e e x p e r i e n c e seems t o sugges t t h a t : (a) t o have a n impact on t h e of a p p r a i s a l , and t o i n f l u e n c e t h e p a t t e r n of investment i n t h e p u b l i c s e c t o r , DFCs should g e t i n v o l v e d a t a v e r y e a r l y s t a g e of t h e p r o j e c t s u b m i t t e d t o i t f o r f i n a n c i n g i n o r d e r t o be i n a p o s i t i o n t o c o n t r i b u t e more e f f e c t i v e l y , i n t e r a l i a , t o t h e c o n c e p t u a l i z a t i o n , d e s i g n and economic a s p e c t s of t h e p r o j e c t s sponsored by p a r a s t a t a l s . F u r t h e r - more, DFCs f i n a n c i n g p u b l i c s e c t o r p r o j e c t s should have t h e r e q u i - s i t e d e g r e e of independence which would a l l o w them t o d e c l i n e t o finance paras tatal-sponsored p r o j e c t s which i n t h e i r judgment are deficient; (b) t h e r e i s a l s o need t o develop an e f f e c t i v e b a n k - c l i e n t r e l a t i o n s h i p between t h e DFC and i t s p a r a s t a t a l sub-borrowers i n o r d e r t o e n a b l e t h e l e n d i n g i n s t i t u t i o n t o provide g u i d a n c e , t o i n s t i l l f i n a n c i a l d i s c i p l i n e , and t o have a n impact on t h e i r o p e r a t i o n s and per- formance when c i r c u m s t a n c e s w a r r a n t such i n t e r v e n t i o n ; and (c) t r a i n i n g programs i n i t i a t e d by DFCs f o r t h e managerial s t a f f of t h e i r c l i e n t s could be v e r y b e n e f i c i a l i n p a r t i c u l a r c a s e s and s h o u l d e m p h a s i z e p r o d u c t i o n management and e n g i n e e r i n g ( e . g . , p r o d u c t i o n p l a n n i n g , work methods, p r o c e s s e n g i n e e r i n g , preven- t i v e maintenance, m a t e r i a l s s e l e c t i o n , e t c . ) . A s s i s t a n c e by o f f i c i a l s o u r c e s a n d / o r t h e Bank should be sought and extended a s appropriate. 4.65 The e x p e r i e n c e w i t h t h e small-medium i n d u s t r y development p r o j e c t i n one c o u n t r y i n E a s t Asia i s i n s t r u c t i v e i n many r e s p e c t s . It s u g g e s t s ( a ) t h e need f o r a p p r e c i a t i o n of what i s p r a c t i c a l i n t h e l i g h t of surrounding circum- s t a n c e s p r i o r t o i n t r o d u c i n g new i n s t i t u t i o n a l arrangements; ( b ) t h e r e seem t o be advantages i n u s i n g e x i s t i n g e n t i t i e s and b u i l d i n g them up, i n s t e a d of c r e a t i n g new s p e c i a l i z e d i n s t i t u t i o n s ; ( c ) t h e importance of commitment by p a r t i c i p a t i n g a g e n c i e s t o a c h i e v e set o b j e c t i v e s and t h e need t o avoid d i s - s i p a t i o n of e f f o r t ; ( d ) t h e d i f f i c u l t y of r e p l i c a t i n g models from one s e c t o r t o a n o t h e r w i t h o u t f u l l a p p r e c i a t i o n of t h e u n d e r l y i n g s u b t l e c o m p l e x i t i e s ; ( e ) t h e need f o r gradualism, i n t h e s e n s e of f o c u s i n g on a smaller number of i n s t i t u t i o n s and fewer t a s k s i n s t e a d of f o l l o w i n g a n all-embracing approach, t h e r e b y making p o s s i b l e a more i n t e n s i f i e d and manageable i n s t i t u t i o n - b u i l d i n g and s u p e r v i s i o n e f f o r t w h i l e l e a r n i n g from t h e e x p e r i e n c e g a i n e d ; ( f ) t h e h i g h e r r i s k s and a d m i n i s t r a t i v e c o s t s i n f i n a n c i n g s m a l l s c a l e i n d u s t r y ; and (g) t h e need f o r more e f f e c t i v e l o a n s u p e r v i s i o n and c o l l e c t i o n p r o c e d u r e s , and b e t t e r monitoring and c o n t r o l procedures t o keep a r r e a r s w i t h i n a c c e p t a b l e limits. 5. INDUSTRY 4.66 The i s s u e s t h a t emerged d u r i n g t h e p r e p a r a t i o n , implementation, commissioning and o p e r a t i o n s t a g e s of t h e p r o j e c t s reviewed p r o v i d e a n e x p e r i e n c e which i s worth n o t i n g i n some d e t a i l . The Bank's s t a f f h a s become i n c r e a s i n g l y a w a r e of t h e s e l e s s o n s a n d t h e e x p e r i e n c e g a i n e d h a s b e e n u s e f u l l y a p p l i e d t o subsequent p r o j e c t work. 4.67 The e x p e r i e n c e w i t h t h e f e r t i l i z e r p r o j e c t i n a South Asian c o u n t r y a f f i r m s t h e importance of a p p o i n t i n g a f u l l - t i m e p r o j e c t implementation team e a r l y i n t h e p r o j e c t c y c l e ; s e l e c t i n g a competent e n g i n e e r i n g f i r m ( i n t h i s c a s e f o r e i g n ) a s c o n t r a c t o r ; developing a n e f f i c i e n t procurement system; i d e n t i f y i n g e a r l y t r a i n i n g needs and implementing an a p p r o p r i a t e t r a i n i n g program; and t h e t o p management's r o l e i n c o o r d i n a t i n g and monitoring t h e v a r i o u s p r o j e c t a c t i v i t i e s , i n d e l e g a t i n g a u t h o r i t y and r e s p o n s i b i l i t i e s and i n motivating s t a f f . I n a d d i t i o n , t h e p r o j e c t ' s experience suggests the expediency of advance arrangements f o r e x t e n s i o n of t e c h n i c a l a s s i s t a n c e d u r i n g t h e commissioning s t a g e t o cope e f f e c t i v e l y w i t h emerging problems and of t h e need f o r continued Bank s u p e r v i s i o n d u r i n g t h i s s t a g e . 4.68 The w e l l f u n c t i o n i n g management team of t h e cement p r o j e c t i n one c o u n t r y i n North A f r i c a confirms t h e view t h a t t h e c a l i b e r and s t a b i l i t y of t o p management i s a key element i n e n s u r i n g s u c c e s s of a p r o j e c t ; t h a t con- s u l t a n t s , s u p p l i e r s and c o n t r a c t o r s should a p p r e c i a t e t h e d i f f i c u l t i e s a r i s i n g from t h e remote l o c a t i o n of a p r o j e c t and i t s p o t e n t i a l e f f e c t on t h e imple- m e n t a t i o n s c h e d u l e ; and t h a t major s e c t o r i s s u e s ( p r i c i n g and d i s t r i b u t i o n i n t h i s c a s e ) should be i d e n t i f i e d e a r l y i n t h e p r o j e c t c y c l e and a d d r e s s e d c o n t i n u a l l y d u r i n g p r o j e c t p r e p a r a t i o n and e x e c u t i o n . 4.69 Lessons f o r f u t u r e i n d u s t r i a l e s t a t e p r o j e c t s p o i n t t o t h e need t o l o c a t e and t a i l o r t h e e s t a t e t o l o c a l l a b o r a v a i l a b i l i t y ; t o e n s u r e t h a t a p p r o p r i a t e housing and t r a n s p o r t f a c i l i t i e s a r e provided; and t o d e s i g n t h e e s t a t e (e.g. m u l t i - s t o r i e d v s . s i n g l e - s t o r i e d b u i l d i n g s ) i n r e l a t i o n t o t h e p r o j e c t e d volume and composition of demand f o r s p a c e by p r o s p e c t i v e occupant i n d u s t r i e s , t a k i n g a l s o i n t o account t h e world-wide e x p e r i e n c e w i t h m u l t i - s t o r i e d b u i l d i n g s - which a p p a r e n t l y h a s not been f e l i c i t o u s . I n t h e same v e i n , a d e g r e e of f l e x i b i l i t y should b e i n t r o d u c e d , p o s s i b l y f o l l o w i n g a building-by-stage approach, t o b e t t e r accommodate unforeseen s h i f t s i n t h e growth and s t r u c t u r e of demand. The p r o j e c t e x p e r i e n c e a l s o s u g g e s t s t h a t i t i s v e r y important t o c o n t i n u e t o s u p e r v i s e c l o s e l y t h e e s t a t e a f t e r p h y s i c a l completion i n o r d e r t o e n s u r e t h a t a p p r o p r i a t e measures a r e t a k e n t h a t would l e a d t o e f f i c i e n t management and f u l l occupancy. Complete d i s s o c i a t i o n of t h e Bank o n f u l l d i s b u r s e m e n t i n t h e a b s e n c e of a p p r o p r i a t e a r r a n g e m e n t s i n i n s t a n c e s w h e r e i n s t i t u t i o n b u i l d i n g i s d e f i c i e n t and t h e p r o s p e c t s f o r improvement a r e n o t encouraging, may n o t be a d v i s a b l e . The m a t t e r d e s e r v e s t h e Bank's c o n s i d e r a t i o n a s i t may be a p p l i c a b l e t o o t h e r s e c t o r s a s w e l l . F i n a l l y , g i v e n t h e u n c e r t a i n t y r e g a r d i n g f u t u r e occupancy which plagues most i n d u s t r i a l e s t a t e s , t h e s u c c e s s f u l Turkish model whereby f u t u r e occupants a r e r e q u i r e d t o form a c o o p e r a t i v e t o a c t a s t h e e x e c u t i n g agency, t o p l a n , t o f i n a n c e . t o b u i l d , t o o c c u p y a n d t o manage t h e i r own p r o j e c t , d e s e r v e s a t t e n t i o n . The f a c t t h a t i n t h i s i n s t a n c e e s t a t e s a r e s e t up spontaneously by groups of i n t e r e s t e d manufacturers who c l e a r l y s e e them a s b e n e f i c i a l , c a n c o n s t r u c t them a c c o r d i n g t o t h e i r s p e c i f i c r e q u i r e m e n t s and a r e w i l l i n g t o c o n t r i b u t e f i n a n c i a l l y t o t h e i r e s t a b l i s h m e n t , t e n d s t o enhance c o n s i d e r a b l y t h e i r chances of s u c c e s s . 6. OIL AND GAS 4.70 The p r o j e c t e x p e r i e n c e s u g g e s t s t h e f o l l o w i n g : (i) expediency of n e g o t i a t i n g o f f s h o r e p r o j e c t s a t a r e l a t i v e l y l a t e s t a g e of t h e p r o j e c t c y c l e i n o r d e r t o i n c r e a s e t h e r e l i a b i l i t y of cost estimates; (ii) sufficient provision for relatively high physical contingencies; (iii) t h e importance of a g r e e i n g w i t h t h e implementing agency on t h e b e n e f i t s t o a c c r u e from t e c h n i c a l a s s i s t a n c e and of s e c u r i n g i t s f u l l s u p p o r t b e f o r e c o n s u l t a n t s a r e engaged; (iv) t h e a d v i s a b i l i t y of a p p o i n t i n g p r o j e c t managers f o r each major c o n s t r u c t i o n a c t i v i t y covering a l l i t s phases and a s p e c t s of imple- mentation and i n v o l v i n g b o t h c o n t r a c t u a l and t e c h n i c a l m a t t e r s ; and (v) t h e expediency of making Bank l o a n s d i r e c t l y t o t h e implementing agency i n s t e a d of through t h e government, i n o r d e r t o enhance i t s p o s i t i o n vis-a-vis f o r e i g n o i l companies and f i n a n c i a l i n s t i t u t i o n s . 7. EDUCATION 4.71 The p r o j e c t s reviewed were a l l conceived on a sector-wide b a s i s and as a r e s u l t each addressed s e v e r a l a s p e c t s of e d u c a t i o n . One consequence of t h i s was t h a t some o f them w e r e more c o m p l i c a t e d i n d e s i g n t h a n e a r l i e r projects. The emphasis continued t o be on t r a i n i n g s p e c i a l i s t manpower w i t h well-developed p r a c t i c a l s k i l l s t o f a c i l i t a t e d i r e c t e n t r y i n t o employment, o r a t l e a s t t o provide p r e v o c a t i o n a l o r i e n t a t i o n s . Nonetheless, evidence on e x t e r n a l e f f i c i e n c y was somewhat s p a r s e b u t , where a v a i l a b l e , t h e r e was a d i s c e r n i b l e t r e n d f o r g r a d u a t e s from one e d u c a t i o n a l l e v e l t o proceed t o a n o t h e r l e v e l a s a n t i c i p a t e d employment o p p o r t u n i t i e s d i d n o t a l w a y s materialize. The a u d i t s emphasized t h e need f o r c l o s e r working l i n k s between employers and e d u c a t i o n a l i n s t i t u t i o n s a s w e l l a s t h e need f o r t h e Bank t o monitor developments i n t h i s r e g a r d . 4.72 It w a s observed t h a t i n t h i s group of p r o j e c t s , f o r t h e f i r s t t i m e , e x p e n d i t u r e s on p h y s i c a l i n f r a s t r u c t u r e were l e s s t h a n t h o s e on t h e s o f t w a r e elements t a k e n a s a whole. This i s c o n s i s t e n t w i t h t h e Bank's i n s i s t e n c e on q u a l i t a t i v e improvement r a t h e r t h a n mere q u a n t i t a t i v e expansion. I n pursuing q u a l i t a t i v e changes, however, e x p e r i e n c e w i t h t h i s group of p r o j e c t s r e v e a l e d a tendency t o u n d e r e s t i m a t e t h e c o m p l e x i t i e s of i n t r o d u c i n g curriculum change and t h e a s s o c i a t e d elements of r e o r i e n t i n g t e a c h e r s , producing textbooks and r e v i s i n g examinations a s w e l l a s t h e time i t t a k e s f o r e d u c a t i o n a l i n n o v a t i o n t o t a k e hold. Where v a r i o u s elements have t o be addressed a t t h e same time i n a n i n t e g r a t e d way, i t was recommended t h a t more advanced Borrower c o u n t r i e s should be considered f o r s e c t o r o r program l o a n s . 4.73 While t h e m a j o r i t y of t h e p r o j e c t s were approved i n a r e a s o n a b l e time (27 months between f i r s t m i s s i o n and Board a p p r o v a l ) , n e a r l y a l l e x p e r i - e n c e d c o n s i d e r a b l e t i m e d e l a y s and c o s t o v e r r u n s . The m a j o r f a c t o r i n - f l u e n c i n g time d e l a y s was u n r e a l i s t i c s c h e d u l i n g d e r i v i n g from a n o p t i m i s t i c e s t i m a t e of B o r r o w e r s ' i m p l e m e n t a t i o n c a p a b i l i t y . Two m e a s u r e s a d o p t e d t o d e a l w i t h c o s t o v e r r u n s h a v e i m p l i c a t i o n s w h i c h r e q u i r e more c a r e f u l consideration. The f i r s t concerns t h e p r a c t i c e of reducing equipment pro- v i s i o n when c i v i l works c o s t s i n c r e a s e . The s e c o n d r e l a t e s t o r e d u c i n g t e c h n i c a l a s s i s t a n c e p r o v i s i o n s , e s p e c i a l l y i n t h e form of e x p e r t s . Reduced p r o v i s i o n of equipment h a s a n e g a t i v e e f f e c t on t h e q u a l i t a t i v e improvements which a r e being sought; v e r y few Borrowers c a n make good t h e d e f i c i e n c i e s from t h e i r own r e s o u r c e s and i t is seldom t h a t follow-on p r o j e c t s c a t e r f o r t h e equipment d e l e t e d . Thus s e r i o u s c u t b a c k s on equipment, deemed t o have been . n e c e s s a r y , c a n be c o u n t e r p r o d u c t i v e I n t h e c a s e of t e c h n i c a l a s s i s t a n c e e x p e r t s , i f t h e i r presence was regarded a s i m p o r t a n t f o r r e i n f o r c i n g Bor- rowers' c a p a b i l i t i e s , c o n v e r t i n g t h e r e s o u r c e s earmarked f o r e x p e r t s i n t o f e l l o w s h i p s c a n deny t h e c o u n t r i e s e s s e n t i a l s e r v i c e s a t c r i t i c a l times. In some i n s t a n c e s t h e r e q u i r e d t e c h n i c a l a s s i s t a n c e which i s d e l e t e d from t h e p r o j e c t may be o b t a i n e d through b i l a t e r a l s o u r c e s . But even h e r e t h e r e i s a need t o e n s u r e t h a t t h e e x p e r t s match t h e o r i g i n a l s p e c i f i c a t i o n s v e r y c l o s e l y and have a commitment t o t h e u n d e r l y i n g c o n c e p t u a l i z a t i o n of t h e p r o j e c t s . 4.74 O n t h e whole t h i s group ,of p r o j e c t s r e v e a l s much t h a t i s p o s i t i v e i n t e r m s of a c h i e v i n g e n r o l l m e n t t a r g e t s , i m p r o v e d c u r r i c u l a , s t r e n g t h e n e d implementation c a p a b i l i t y , s t a f f t r a i n i n g and enhanced planning and management s k i l l s . Well-known problems i n implementing e d u c a t i o n a l reform have a l s o been e v i d e n t i n some i n s t a n c e s , b u t t h e s e have been l e s s a c u t e a s t h e Bank and t h e Borrowers, on t h e b a s i s of t h e i r accumulated e x p e r i e n c e , combined t o a l l e v i a t e t h e d i f f i c u l t i e s i n such v a r i e d a r e a s a s improving a r c h i t e c t u r a l d e s i g n s , making procurement procedures more f l e x i b l e and i n c r e a s i n g t h e e d u c a t i o n a l o p p o r t u n i t i e s f o r women and s p e c i a l groups. 4.75 The Bank and t h e Borrowers have endeavored t o s u s t a i n t h e momentum g e n e r a t e d by t h e s e p r o j e c t s i n promoting e d u c a t i o n a l reform and have in- c r e a s i n g l y sought t o e n s u r e t h a t t h e end r e s u l t s which t h e f a c i l i t i e s were i n t e n d e d t o produce a r e i n f a c t achieved and m a i n t a i n e d , d e s p i t e c e r t a i n i n h e r e n t d i f f i c u l t i e s i n measuring e d u c a t i o n a l impact. Feedback 4.76 The work o f t h e E d u c a t i o n D e p a r t m e n t of t h e O p e r a t i o n s P o l i c y S t a f f (OPS) d u r i n g FY82 has drawn upon t h e f i n d i n g s of O ED a s t h e s e were r e p o r t e d i n t h e E i g h t h Annual Review of PPARs a s w e l l as i n p r o j e c t a u d i t memoranda and O ED special studies. Review of t h e s e documents has c o n s t i t u t e d a f i r s t s t e p i n t h e p r e p a r a t i o n of review and p o l i c y papers c o v e r i n g such t o p i c s a s p o l i c y on h i g h e r e d u c a t i o n , r e s e a r c h c o m p o n e n t s i n e d u c a t i o n p r o j e c t s , and t h e s u c c e s s of i n v e s t m e n t s i n t e c h n i c a l and v o c a t i o n a l secondary schooling. The Education Department h a s a l s o i n i t i a t e d work t o improve t h e q u a l i t y of p r o j e c t completion r e p o r t s , t o make them more u s e f u l v e h i c l e s f o r communicating t h e Bank's e x p e r i e n c e . A paper on t h e s u b j e c t has been com- p l e t e d and t h e p r e s e n t G u i d e l i n e s f o r P r e p a r i n g P r o j e c t Completion Reports a r e being r e v i s e d . 4.77 F i n a l l y , t h e E d u c a t i o n D e p a r t m e n t of OPS h a s , i n some c a s e s , responded d i r e c t l y t o d e f i c i e n c i e s . i d e n t i f i e d i n PPARs by h o l d i n g workshops f o r r e g i o n a l s t a f f o r p r e p a r i n g p a p e r s a n d memoranda. Among t h e t o p i c s covered d u r i n g t h e p a s t y e a r were: ( i ) performance of e d u c a t i o n p r o j e c t s i n FY82; ( i i ) p r o j e c t management a r r a n g e m e n t s ; ( i i i ) t e c h n i c a l p r o b l e m s i n e d u c a t i o n p r o j e c t s ; ( i v ) problems w i t h t h e p r o v i s i o n of i n s t r u c t i o n a l equip- ment; and ( v ) t h e e f f e c t i v e u s e of e d u c a t i o n a l worksheets. 8. NON-PROJECT LENDING 4.78 The m a j o r l e s s o n s o f t h e n o n - p r o j e c t o p e r a t i o n s r e v i e w e d a r e being u s e f u l l y a p p l i e d t o c u r r e n t non-project l e n d i n g o p e r a t i o n s . 4.79 The e x p e r i e n c e w i t h t h e p r o g r a m l o a n t o a S o u t h A s i a n c o u n t r y i n d i c a t e s t h a t t h e development of wide-ranging a n d , a t t i m e s , i n s u f f i c i e n t l y focussed t e c h n i c a l a s s i s t a n c e programs can l e a d t o unimplementable recom- mendations which reduce t h e e f f e c t i v e n e s s of t h e o v e r a l l e f f o r t . Lack of c o n t i n u i t y i n management and poor r e c e p t i v i t y w i t h i n t h e j u t e and t e x t i l e h o l d i n g companies, and t h e i n s u f f i c i e n t c o o r d i n a t i o n of t h e v a r i o u s t e c h n i c a l a s s i s t a n c e programs, s t a l l e d important management changes and delayed a c t i o n w i t h a d v e r s e e f f e c t s on performance. The e x p e r i e n c e a l s o a f f i r m s t h e c r i t i c a l Importance of focused s e c t o r work i n a p p r e c i a t i n g b e t t e r t h e workings of i n d u s t r y , i n i d e n t i f y i n g d e f i c i e n c i e s i n performance i n s t i t u t i o n a l a r r a n g e - ments and p o l i c i e s , and i n enhancing t h e Bank's c a p a b i l i t y t o d e s i g n meaning- f u l and m o n i t o r a b l e a c t i o n programs t o a d d r e s s s p e c i f i c problems. 4.80 The e x p e r i e n c e w i t h t h e p r o g r a m l o a n t o o n e E u r o p e a n c o u n t r y shows t h a t t h e procurement procedures adopted must be a p p r o p r i a t e f o r t h e c o m m o d i t i e s i n q u e s t i o n i f t h e y a r e n o t t o become, a s h a p p e n e d f o r some commodities i n t h i s c a s e , cumbersome t o implement and c o s t l y t o monitor. A s i m i l a r l o a n t o a L a t i n American c o u n t r y u n d e r l i n e s t h a t t e c h n i c a l a s s i s t a n c e p r o p o s a l s should be d e f i n e d i n v e r y s p e c i f i c terms t o e n s u r e f o c u s s e d and e x p e d i t i o u s implementation; t h a t o v e r l y l i b e r a l i n c e n t i v e s may l e a d t o abuses u n l e s s p r o p e r l y monitored; and t h a t t r a n c h i n g may n o t be h e l p f u l i n improving t h e composition of t h e p u b l i c investment program i n t h e f a c e of c o n t r a c t u a l and p o l i t i c a l commitments. 4.81 The two program l o a n s mentioned i n para. 4.80 a f f i r m t h a t while they can be e f f e c t i v e v e h i c l e s f o r continued d i a l o g u e w i t h t h e government on p o l i c y i s s u e s and f o r monitoring economic performance, deep-seated s e c t o r a l a d j u s t - ment problems and institutional/organizational reforms r e q u i r e d i a l o g u e and m o n i t o r a b l e a c t i o n s . i n a l o n g e r time-frame. These may be more e f f e c t i v e l y achieved through s t r u c t u r a l adjustment l e n d i n g , which r e p r e s e n t s a n e v o l u t i o n of t h e program l e n d i n g approach and i s t h e d i r e c t i o n i n which t h e Bank h a s been moving i n t h e p a s t few y e a r s . 4.82 The e x p e r i e n c e w i t h t h e f i r s t s t r u c t u r a l a d j u s t m e n t l o a n t o a c o u n t r y i n Europe and i t s supplement a f f i r m s t h e c r i t i c a l i m p o r t a n c e of economic and s e c t o r work i n t h e p u r p o s e f u l d e s i g n of SALs. Following t h i s f i r s t SAL, t h e Bank's e f f o r t i n c r e a s e d i n t h i s a r e a and a number of major s t u d i e s were commissioned t o g u i d e p o l i c y changes. With more d e t a i l e d knowledge of economic, s e c t o r a l and i n s t i t u t i o n a l i s s u e s and t h e p r o g r e s s i v e development of more s p e c i f i c p o l i c y measures, t h e d e s i g n of subsequent SALs t o t h e European c o u n t r y concerned improved w h i l e implement a t i o n a c t i o n s have tended t o become more c l e a r l y d e f i n e d and p r o g r e s s reviews more f o c u s s e d . ANNEX I Page 1 of 6 C l a s s i f i c a t i o n of P r o j e c t s Covered by Reviews I - IX The 127 p r o j e c t s under r e v i e w a r e p a r t of t h e 836 whose performance has been e v a l u a t e d up t o December 31, 1982. This Annex shows t h e p r o j e c t s included i n each of t h e n i n e reviews t o d a t e under d i f f e r e n t c l a s s i f i c a t i o n s . Table 1 i n d i c a t e s t h e d i s t r i b u t i o n of t h e 836 i n terms of t h e y e a r i n which t h e l o a n s o r c r e d i t s were s i g n e d , and Table 2 t h e y e a r i n which t h e y were f u l l y disbursed. A s c a n b e seen from Table 1, each review b r i n g s t o g e t h e r p r o j e c t s o r i g i n a t i n g o v e r a wide range of y e a r s . This i s a r e f l e c t i o n of t h e con- s i d e r a b l e v a r i a t i o n i n t h e time r e q u i r e d t o implement i n d i v i d u a l p r o j e c t s . However, i t i s a l s o e v i d e n t from t h e t a b l e t h a t each s u c c e s s i v e review d e a l s w i t h a younger group of p r o j e c t s . For t h i s Ninth Review, 74% of t h e p r o j e c t s were signed i n t h e f i s c a l y e a r s 1973 through 1977 w i t h 17% p r i o r t o 1973 and 9% a f t e r 1977. The d i s t r i b u t i o n by s e c t o r , r e g i o n and s i z e i s shown i n Tables 3, 4 and 5 . I n each c a s e summary f i g u r e s a r e provided f o r t h e e i g h t e a r l i e r reviews. Taken t o g e t h e r , t h e t a b l e s i n t h i s Annex provide a q u i c k r e f e r e n c e t o t h e n a t u r e and scope of o p e r a t i o n s covered by t h e p r o j e c t performance e v a l u a t i o n review system through December 31, 1982. ANNEX -- I Page 2 of 6 Table 1 PROJECTS COVERED BY PPARs AND PCRs BY DATE OF LOANICREDIT AGREEMENT Annual Review F i s c a l Year -I -v - VI - VII VIII - IX - - Total Prior to FYI963 7 1 - - TOTAL 50 /a - Includes 20 PCRs which have not been audited. - 59 - - ANN- EX I Page 3 of 6 Table 2 Y PPARs AND PCRS PROJECTS COVERED B BY YEAR OF FINAL DISBURSJ~~NT- IS& Issued Issued Issued Issued Issued Issued Issued Issued Total Issued Date of F i n a l Zhrough 4/1/75 t o 1/1/76 t o 1/1/77 t o 1/1/78 t o 1/1/79 t o 1/1/80 t o 1/1/81 t o 1/1/82 t o Through Disbursement 3/31/75 12/31/75 12/31/76 12/31/77 12/31/78 12/31/79 12/31/80 12/31/81 12/31/82 6/31/83 Review I Review I1 Review I11 Review I V Review V Review V I Review V I I Review V I I I Review I X Before J u l y 1 , 1972 11 2 3 4 - - 1 - - 21 Second h a l f of -1972 20 3 . - 1 - - - - - 24 Mter CY1982 - - -- -- -- - - -- - - - 6 -- 6 50 Total - - - 57 - 70 - 109 - - 98 - - 130 - 87 - 108 127 - - 836 - Includes one l o a n c a n c e l l e d p r i o r t o disbursement. Includes two l o a n s c a n c e l l e d p r i o r t o Implementation a t borrower's r e q u e s t . Includes one l o a n c a n c e l l e d A p r i l 1978. Includes one l o a n c a n c e l l e d A p r i l 1980- Includes the l o a n c a n c e l l e d March 1977. Includes one l o a n c a n c e l l e d May 1981, and a n o t h e r l o a n c a n c e l l e d October 1981. ANNEX I -- Page 4 of 6 Table 3 PROJECTS COVERED BY PPARs AND PCRs BY SECTOR ' Annual Review - - I- - I1 - 1 -11- I -V - -V VI VII VIII IX Total Agriculture Public Utilities ~ - Power 7 13 14 10 7 19 6 12 9 97 Telecommunications 1 6 2 8 2 6 5 2 2 34 Water Supply & Waste Disposal -2 -3 -3 -2 -6 -3 -6 -6 -2 33 Sub-To t a l lo 22 19 20 15 28 17 20 13 164 Transportation Highways Railways Ports Pipelines Airports Other Tourism Sub-Total 24 10 18 38 28 30 19 17 23 20 7 Education - DFCs Industry - - 5 2 4 2 3 7 4!S 27 Non-Project Lending - 4 1 7 7 1 2 2 11 35 Population - - - - - 1 - 3 2 6 Technical Assistance - - - - - - -- 3 - - - - 1 -- -- -4 GRAND TOTAL 50 - 57 - 70 - 109 - 98 - 130 - 87 - 108 - 127 - 836 -- - - - - - - - - - - - /a I n c l u d e s one e n e r g y p r o j e c t . - 61 - ANNEX I Page 5 of 6 Table 4 PROJECTS COVERED BY ANNUAL REVIEWS I-IX -- BY SECTOR AND R E G X Europe, Eastern Western East Asia South Middle E a s t L a t i n America Africa Africa & Pacific Asia & N. A f r i c a & C a r i b b e a n T o t a l Agriculture 13 9 12 5 7 10 56 Public U t i l i t i e s Power - 1 2 - 5 1 9 Telecommunications - - 2 - - - 2 Water Supply & Waste Disposal -- -- - -1 -- -1 -- -2 Sub-To t a l - 1 5 - 6 1 13 Transportation Highways Railways Airports P o r t s & Water Transport Pipelines Tour i s m Other Sub-To t a l Education 1 2 1 - 4 3 11 Population DFCs 4 - 2 - 1 - 7 Industry 1 - - 2 1 - 4 Non-Project Lending -- -- 1 -- -4 -3 -3 1 -1 Total 24 18 23 14 26 22 127 I Review I Review I1 Review I11 Review IV Review V Review VI Review VII Review VIII GRAND TOTAL - - - - -. ANNEX I Page 6 of 6 Table 5 PROJECTS COVERED BY ANNUAL REVIEWS I - I X BY SECTOR AND SIZE OF LOANICREDIT ---------- S i z e i n M i l l i o n s of US$---------- Over 0 - 5 6 - 10 11 - 15 16 - 20 21 - 25 26 - 30 -30 - Total Agriculture 13 11 8 7 4 4 9 56 Public U t i l i t i e s Power 3 2 1 - 1 1 1 9 Telecommunications - - - - - 1 1 2 Water Supply & Waste Disposal Sub-To t a 1 Transportation Highways Railways Airports P o r t s & Water Transport Pipelines Tour i s m Other Sub-Tot dl - Education 2 6 3 - - - - 11 Population - DFCs 2 4 - - - 1 - 7 Industry 1 - - - - - 3 4 Non-Project Lending -1 -1 -- -- -- 1 -- -8 1 -1 Total 24 29 15 12 8 10 29 127 Review I Review I1 Review I11 Review IV Review V Review VI Review VII Review VIII GRAND TOTAL The World Bank Headquarters European Office Tokyo Office 1818 H Street, N.W. 66, avenue d'Itna Kokusai Building Washington, D.C. 20433, U.S.A. 75 1 16 Paris, France 1- 1 Marunouchi 3-chome Telephone: (202) 477- 1234 Telephone: (1) 723-54.21 Chiyoda-ku, Tokyo 100, Japan Telex: WUI 64145 WORLDBANK Telex: 842-620628 Telephone: (03) 2 14-500 1 RCA 248423 WORLDBK Telex: 78 1-26838 Cable Address: INTBAFRAD WASHINGTONDC ISSN 025 1-526l/ISBN 0-82 13-0314-7