Document of THE WORLD BANK FOR OFFICIAL USE ONLY Report No. 23621 PROJECT PERFORMANCE ASSESSMENT REPORT REPUBLIC OF CONGO PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (Loan 2868-COB) ECONOMIC RECOVERY CREDIT (Credit 2635-COB) PRIVATIZATION AND CAPACITY BUILDING PROJECT (Credit 2775-COB) February 6, 2002 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Currency Unit Francs 1983 US$1 417.37 1984 US$1 479.60 1985 US$1 378.05 1986 US$1 322.05 1987 US$1 267.00 1988 US$1 302.95 1989 US$1 289.40 1990 US$1 256.45 1991 US$1 259.00 1992 US$1 275.33 1993 US$1 294.78 1994 US$1 534.60 1995 US$1 490.00 1996 US$1 523.70 1997 US$1 598.81 1998 US$1 562.21 1999 US$1 652.95 2000 US$1 704.95 Fiscal Year January 1 - December 31 Abbreviations and Acronyms ATC Agence Trans-Congolaise des Transports BCC Banque Commerciale du Congo BEAC Banque des Etats d'Afrique Centrale BIDC Banque Internationale du Congo CEM Country Economic Memorandum COBAC Commission Bancaire d'Afrique Centrale CORAF Congolaise de Raffinage ERC Economic Recovery Credit GOC Government of Congo ICR Implementation Completion Report IMF International Monetary Fund MOP Memorandum of the President ONPT Office National des Postes et Telecommuncations PCBP Privatization and Capacity Building Project PCT Parti Conglais du Travail PE Public Enterprise PEIDP Public Enterprise Institutional Development Project PR President's Report SAP Structural Adjustment Program SNDE Socijtg Nationale de Dveloppement des Eaux SNE Socit6 Nationale d'Electricitg TA Technical Assistance UCB Union Congolaise des Banques UDEAC Union Douaniere des Etats d'Afrique Centrale UPADS Union Panafricaine pour la Dimocratie Sociale URD Union pour le Renouveau Dimocratique Director-General, Operations Evaluation: Mr. Robert Picciotto Director, Operations Evaluation Department: Mr. Gregory K. Ingram Manager, OEDCR: Mr. Ruben Lamdany Task Manager: Ms. Yvonne Jones Peer Reviewer: Ms. Alice Galenson FOR OFFICIAL USE ONLY The World Bank Washington, D.C. 20433 U.S.A. Office of the Director-General February 6, 2002 Operations Evaluation MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Assessment Report on Republic of Congo- Public Enterprise Institutional Development Loan (Loan 2868-COB), Economic Recovery Credit (Credit 2635-COB), and the Privatization and Capacity Building Project (Credit 2775-COB) Attached is the Project Performance Assessment Report for the Republic of Congo: The Public Enterprise Institutional Development Loan (PEIDP, Loan 2868-COB) for US$15.2 million, the Economic Recovery Credit (ERC, Credit 2635-COB), for US$100 million and the Privatization and Capacity Building Project (PCBP, Credit 2775-COB), for US$9 million. The PEIDP became effective in January 1988 and closed on December 31, 1996, two years and four months behind schedule. The ERC became effective immediately after Board presentation on June 28, 1994, and closed on schedule in July 1995. The PCBP became effective in January 1996 and closed as scheduled on June 30, 1999. The PEIDP was designed to accompany the First Structural Adjustment Program by assisting the GOC in implementing the actions required by the SAP and by carrying out studies which would assist the Government in compiling the data and formulating policies and actions to effect the reforms. The project's major objectives were to assist the Government in the formulation and implementation of the larger structural adjustment reforms and to promote the rehabilitation public enterprises. In response to the region-wide devaluation of the CFA franc in 1994 and the sharp fall in oil prices between 1992 and 1994, the ERC was a one-tranche policy loan whose major objectives were very similar to those of the PEIDP. Additionally it required retrenchment of civil servants, improved management of oil sector revenues and public utility tariffs, adoption of changes in the tariff and domestic tax regimes, adoption of privatization and petroleum laws, and improvements in the management of the education and health sectors. At the completion of the ERC, the Privatization and Capacity Building Project enabled the reform to move forward. Major objectives were the preparation of a regulatory framework for the six major public enterprises and for the banking and financial sectors in order to increase competition and to lead to privatization, continued liquidation of nonviable public enterprises and a public information campaign to promote privatization within government and civil society. Implementation of all three projects was adversely affected by resistance to reform, civil unrest resulting from political instability, a continuing exchange rate crisis and oil price volatility. Despite these problems, eventually progress was achieved toward building a sound regulatory environment, and opening the door to increased private sector participation in the economy. In particular, the passage of the petroleum law increased transparency and improved the regulatory environment in the sector, permitted a tripling of the number of firms operating in the oil sector. Progress was made toward privatizing the six major public enterprises. A number of smaller state enterprises were fully privatized while many nonviable ones have been liquidated. However, less than satisfactory progress was achieved toward reform of the banking sector and little was accomplished in the social sectors. The outcome of all three projects is rated moderately unsatisfactory. This rating confirms the original OED rating for the PEIDP, downgrades the original satisfactory rating for the ERC, and upgrades the This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. original unsatisfactory rating for the PCBP. While significant changes were made, major objectives were not achieved. The overriding objective of privatizing major public enterprises is not yet complete. Furthermore, government's progress toward privatization has been jeopardized by political instability. All projects are rated modest on institutional development. This is the same as the Evaluation Summary for the PEIDP and the ERC, but represents an upgrade for the original negligible rating for the PCBP. While overall progress was made toward some objectives, no momentum leading to lasting change was built. Sustainability of the PEIDP and the PCBP are rated non-evaluable because the privatization program has not been completed and it is unclear what its eventual impact will be. The ERC is rated highly unlikely which is a downgrade from the original uncertain evaluation. The change is due to the negative impacts of exogenous factors such as the civil conflicts, the conflicting policy signals given by the current government, and political uncertainty. At the time of the original evaluations, borrower performance was not rated for the PEIDP nor for the ERC while for the PEIDP it was rated unsatisfactory. This assessment rates borrower performance under the PEIDP as unsatisfactory, while rating performance under the ERC and the PCBP as satisfactory. The rating for the PEIDP is based upon the lack of achievement of major project objectives due principally to lack of Government commitment. The ratings for the ERC and the PCBP are merited because of the substantial efforts expended by Government to change the institutional regulatory framework for trade, privatization and the petroleum sector, and the significant progress made toward privatization before the onset of civil conflict in mid-1997. Bank performance is rated satisfactory for the PEIDP, unsatisfactory for the ERC and unsatisfactory for the PEIDP. The only changed rating is for the ERC which has been downgraded from the original OED satisfactory rating because of the complexity of the project design, the lack of learning from previous Bank adjustment lending, and the absence of an accompanying technical assistance program. The main findings are: * Too broad an agenda is likely to run into difficulties. More consideration needed to be given to defining narrow, step-wise reform agendas on which subsequent increments of reform could have been built over a long period of time. Policy conditionality for each operation should have been restricted to an absolute minimum, but the conditions needed to bite hard in those areas critical to that sequence of reforms. * Using poorly defined "windows of opportunity" is risky. More rigorously defined quantitative and qualitative entry and exit conditions for providing aid would provide a more rational basis for lending. * In politically fragile countries rigorous political risk analysis needs to be updated frequently and needs to include an evaluation of the views of important political and social groups whose support is needed to continue the reform process, e.g. political elites, unions, and important ethnic groups. * A longer term reform program needs to be complemented by investments which address pressing social issues, like creating employment and providing training for transitioning from the civil service to the private sector or to self-employment. Contents P reface ................................................................................................................................. i Ratings and Responsibilities ...........................................................................................iii 1. Introduction ............................................................................................................... 1 Economic Context.....................1... ................1 Political Context and Civil Strife.................................. 3 Role of the International Monetary Fund.......................... 3 2. World Bank Assistance Strategy, Project Objectives and Design.................... 4 Evolution of Bank Country Strategy, 1987-1996 ...........4........4 Project Design and Objectives ....................6.... ...........6 3. Implem entation Experience .................................................................................. 9 Reform of Major Public Enterprises Has Made Significant Progress . ......... 10 Privatization and Liquidation of Smaller Enterprises Has Been the Most Successful Element ......... .......... .............................. 12 Improving Public Resource Management Has Proven Difficult To Achieve and To Sustain................................................. 12 Trade and Regulatory Frameworks Have Been Strengthened ...... ......... 13 Financial Sector Reform Has Been Slow....................... 13 Social Sector Reform Has Been Minimal ............................ 14 4. Outcom e/Assessm ent ........................................................................................... 14 5. C onclusion ........................................................................................................... 19 6. M ajor Findings ..................................................................................................... 21 7. N ext Steps ................................................................................................................ 22 Figure in the Text 1.1 Brent Crude Oil Prices, 1980-2000 .................................... 2 Table in the Text 2.1 Three Assessed Projects and Related Loans........................... 4 This report was prepared by Yvonne Jones (Task Manager). Silvana Valle provided administrative support. (cont.) Annexes A. Annex Table 1: Selected Economic and Financial Indicators, 1985-2000..... 23 Annex Table 2: Republic of Congo-Debt Data, 1980-1989.... ........ 24 Annex Table 3: Republic of Congo-Debt Data, 1990-1999 .... ......... 26 Annex Table 4: Important Political Events in the Republic of Congo ............. 28 Annex Table 5: Objectives of Assessed Projects...................... 30 Annex Table 6: Average Spot Price for Congolese Djeno Crude ..... ...... 32 B. List of Persons Interviewed ........................... ......... 33 C. Basic Data Sheet ...................................... 37 Preface This is the Project Performance Assessment Report (PPAR) for the Republic of Congo: Public Enterprise Institutional Development Project (Loan 2868-COB), Economic Recovery Credit (Credit 2635-COB), and Privatization and Capacity Building Project (Credit 2775-COB). These loans were reviewed because the Bank is beginning to implement a post-conflict program in Congo Brazzaville after several years of civil unrest. The experience of these projects covers a period spanning major changes in the Government's development philosophy. The Public Enterprise Institutional Development Project (PEIDP) was approved on July 21, 1987 and totaled US$15.2 million. The project was closed on December 31, 1996, compared to the original closing date of June 30, 1994, with disbursements of US$14.22 million, representing 94 per cent of the total envisaged. The remainder of the loan was cancelled. The Economic Recovery Credit (ERC) was approved on June 28, 1994 and became effective on June 30, 1994, in the amount of US$100 million. The loan was closed on July 5, 1995, five days after the original closing date of June 30, 1995. Total disbursement amounted to US$100 million. The Privatization and Capacity Building Project (Credit 2775-COB) was approved in September 1995 and became effective in January 1996, in the amount of US$9.0 million. The project was closed on June 30, 1999, as scheduled. Total disbursements amounted to approximately US$4.6 million. This PPAR is based on Memoranda of the President, President's Reports, Country Assistance Strategies, loan and credit agreements, economic and sector reports from 1987 through 1994, documents from the International Monetary Fund, discussions with current and former Bank staff directly involved in the loans, Project Audits and Implementation Completion Reports, and relevant books and journal articles. A mission visited Congo Brazzaville during the second half of May 2001 and discussed the projects with Congolese Government officials, who implemented the project, and with members of Congolese civil society. The draft PPAR was sent to officials in Government. No comments were received.  Ratings and Responsibilities Performance Ratings Project Outcome Sustainability Institutional Dev. Impact Bank Performance Borrower Performance PPAR ES PPAR ES PPAR ES PPAR ES PPAR ES Public Moderately Marginally Non- Uncertain Modest Partial Satisfactory Satisfactory Unsatisfactory Not rated Enterprise unsatisfactory unsatisfactory evaluable Institutional Development Economic Moderately Satisfactory Highly Uncertain Modest Moderate Unsatisfactory Satisfactory Satisfactory Not rated Recovery Unsatisfactory unlikely Privatization Moderately Unsatisfactory Non- Uncertain Modest Negligible Unsatisfactory Unsatisfactory Satisfactory Unsatisfactory and Capacity Unsatisfactory evaluable Building Key Project Responsibilities Economic Recovery Credit (Credit 2635-COB) Task Manager Division Chief/Sector Leaders Director Appraisal Naiem Sherbiny Luis Ernesto Derbcz Olivier Lafourcade Completion Naiem Sherbiny Luis Ernesto Derbez Olivier Lafourcade Privatization and Capacity Building Project (Credit 2775-COB) Task Manager Division Chief/Sector Manager Director Appraisal Demba Ba lain Christie Nils Tcheyan Completion Claude Sorel Demba Ba Serge Michailof Public Enterprise Institutional Development Project (Loan 2868) Task Manager Division Chief/Sector Manager Director Appraisal Myrna Alexander Elkyn Chaparro Francisco Aguirre-Sacasa Completion Demba Ba Thomas W. Allen Nils Tcheyan  1 1. Introduction 1.1 Since 1982, the Republic of Congo (hereafter termed Congo Brazzaville), assisted by IMF and World Bank programs and other donor assistance, has struggled to develop policies and mechanisms to address: * the lack of proper fiscal management, including the poor management of oil revenues; * the continuing and non-transparent accumulation of external debt, much of it contracted on terms highly detrimental to the country; * dependence on poorly managed and inefficient public enterprises as the primary sources of economic growth; and * an overly large and poorly managed civil service, including by extension, employees of public enterprises. 1.2 The Bank designed three operations to address some of these deep-seated development issues. Those projects are the Public Enterprise Institutional Development Project (PEIDP-Loan 2868-COB), the Economic Recovery Credit (ERC-Credit 2635- COB), and the Privatization and Capacity Building Project (PCBP--Credit 2775-COB). This assessment evaluates the performance of those three interventions to answer two questions: What prevented reform in the past? Have those factors changed so that there is a higher probability today than there was in the mid-1980s, of improving both macroeconomic management and the living conditions of the people of Congo Brazzaville? Economic Context 1.3 The Congolese economy is oil-based. By 1980 oil production accounted for over 61 percent of revenues and 36 percent of percent of GDP. Five years later, oil production represented 43 percent of GDP and 68 percent of revenues. Gradually production in the primary and service sectors stagnated due to the overvaluation of the CFA, better employment opportunities in the public sector, and a deteriorating road system. (See Annex A, Table 1.) 2 Figure 1.1: Brent Crude Oil Prices, 1980-2000 40- 35 30 - 25- 20 - 15 - 10 - 5- 0 0 N O 02 0 N M0l a 0202 02 0 c 002 G 02 0 a) 0) ) 0 0 2 0 2 a 0 0) CD 0 2 0 2 0D 0) 0 2 0 2 02 02 0 Year 1.4 Given the large increase in oil revenues, and the statist ideology of the Government from 1969 through 1990, little attention was given to promoting the development of the private sector. Because of the abundance of oil revenues, the Government offered employment to all graduates of secondary schools and universities, as well as provided generous scholarships for students in Congo Brazzaville and abroad. The public enterprises and the public service became major employers as production of most goods and services was entrusted to them by the state. When oil prices fell sharply beginning in the mid-1980s, GOC was unable to generate enough revenues to finance its obligations. 1.5 The Government borrowed heavily, from the banking system and from external sources, bilateral and commercial, to continue financing its salary and scholarship obligations, as well as to continue subsidizing the public enterprises, many of which were running huge deficits. External indebtedness soared, from 100 percent of GDP and 153 percent of exports in 1984 to 214 percent of GDP and 434 percent of exports by 1988. (See Annex A, Tables 2 and 3.) Despite short periods in the mid-1980s and mid-1990s when there were noticeable decreases in external indebtedness, it remains at high and unsustainable levels. 1.6 During the same period, the CFA franc was overvalued. The exchange rate between the CFA franc and the US dollar, the international currency of valuation of oil production, rose from CFA 378 to the dollar in 1985 to 322 to the dollar in 1986 to 267 to the dollar in 1987. Between 1988 and 1993, the CFA averaged 279 to the dollar. So, even if the price per barrel of oil improved, as it did between 1989 and 1993 (averaging US$19.66 per barrel of Brent benchmark crude), the overvaluation of the currency would have reduced the positive effects of increased oil prices. Certainly the overvaluation of 3 the currency made it difficult for the inefficient and state-dominated non-oil productive sectors to compete. (See Annex A, Table 1.) 1.7 A third defining factor was the size of the civil service and the proportion of total formal sector employment which it represented. During the period of this review total formal sector employment, varied between 70-85,000 people, depending upon the Government's compliance with reform program conditionality. Of that total, approximately 80 percent were employed in the public sector as civil servants, employees of public enterprises, or as members of the army. Civil service and public enterprise employees were and are represented by strong unions. Political Context and Civil Strife 1.8 During the first 20 years of its existence as an independent country, Congo Brazzaville's economy was organized according to centrally planned economy principles. Virtually all economic institutions were state-owned, including marketing boards, transportation and distribution agencies, and productive enterprises. There was one political party, the Parti Congolais des Travailleurs (PCT). Following a national conference convened in 1991, after 20 years of Marxist government, the county experienced the beginnings of movement toward a multi-party system. After the first multi-party election s in 1992, no one party gained a stable majority. This led to a three year period of uncertainty during which multiple elections were held and contested. After the intercession of an international commission, a Government was formed which took office in February 1994. That Government was headed by Mr. Pascal Lissouba. The former president and head of the PCT, Mr. Sassou-Nguesso, left the Congo several months later. The governing coalition of that period may be described as a marriage of convenience. Partners coexisted uneasily until 1997. When the former president returned in early 1997, his presence exacerbated existing tensions associated with the elections scheduled for July 1997, as he was assumed to be a candidate. Before elections could be held, civil war broke out in June 1997. That war ended in four months, at which time Mr. Sassou-Nguessou declared himself president. A tentative peace prevailed until December 1998, when fighting broke out between opposition forces and those of Mr. Sassou. Fighting ended in 1999. A national reconciliation process began in 2000, which culminated in a national conference in Brazzaville in March 2001. Elections should occur by early 2002. (See Annex A, Table 4.) Role of the International Monetary Fund 1.9 Because of the breadth of the problems facing the Government and the negative impact of the above issues on the economy, in the mid-1980's the Government sought assistance from the IMF. From that period through the present the conditions imposed by the IMF have set the framework for the assistance received by the Government. Through 1. The CFA franc is tied to the French franc at a fixed exchange rate of 100 CFA to one French franc. 4 three Stand-By Programs (1987, 1990, 1994,) one Enhanced Structural Adjustment Facility (ESAF-1996), and the current Emergency Post-Conflict Program (2000), the principal objectives have remained remarkably consistent. The 1987 Stand-By arrangement goals were: a reduction in the budget deficit, an increase in non-oil revenues, reduction of domestic credit creation, reduction of Government domestic arrears, reform of major public enterprises and banks, and the adoption of an appropriate domestic investment program. At the time of the adoption of the ESAF program, the goals remained the same, except that more investment in the social sectors and measures to protect the economically disadvantaged were included. And the 2000 post-conflict program retains many of those objectives, within the overriding goal of financing humanitarian assistance and reconstruction. However, none of the of the four programs in the 1980's and 1990's was completed. The Government's lack of ability to comply with program objectives has been highly associated with weak institutions and political instability. 2. World Bank Assistance Strategy, Project Objectives and Design 2.1 Since 1983, the Bank has financed six operations related to the issues presented in paragraph 1.1, including the three projects under review. The other three projects were the first and second technical assistance projects (Loans 2285-COB and 2353-COB) and the structural adjustment loan described below (Loan 2866-COB). Table 2.1: Three Assessed Projects and Related Loans Projects US$ 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Technical Assist Project 11.0 Technical Assist Project II 4.0 Structural Adjustment Loan 70.0 )Public Enterprise Inst Dev. Loan 15.2 Economic Recovery Credit 100.0_ Priv. & Capacity Building 1 9.01 ) Projects included in this assessment Evolution of Bank Country Strategy, 1987-1996 The Structural Adjustment Program, 1987-89 2.2 The Bank's longer term strategy for Congo was established in the structural adjustment program of 1987-89. The principal objectives of that strategy remained the core objectives of the country assistance strategies described below, and only changed after Congo Brazzaville became a post-conflict country in 2000. The first structural adjustment loan, approved in 1987, sought to reduce the country's external and internal 5 balances as quickly as possible. The program was a complicated one, but had four major foci: * improving the efficiency of public resources allocation and utilization; * optimizing oil resources, their use, and reducing local supply costs; * reducing the burden of the public enterprise sector on the economy and increasing public enterprise accountability and autonomy; and * rehabilitating key public enterprises to improve their performance. 2.3 The program was broad (it contained 202 actions) and complicated. Two technical assistance projects, of which one was the PEIDP, were financed to help implemented it. The PEIDP report was considered an integral part of the larger President's Report for the Structural Adjustment Program (Loan 2866-COB). At the same time the Bank produced a CEM (Report No. 5809-COB, 1987) which provided a detailed systemic diagnosis. The CEM noted that the Government had realized that undertaking structural adjustment would not be sufficient to correct the fundamental economic problems. It stated that the country needed to minimize distortions of factor and commodity prices, better manage oil and energy resources, reform state enterprises, and manage the external debt.2 The PEIDP also benefited from an Energy Sector Report (Report No. 6420-COB, 1988). The ERC was based on analyses completed during the first phase of the PEIDP. The PCBP was based on a public sector enterprise review (Report No. 13755-COB, 1994). The 1994 CAS 2.4 GOC lapsed into non-accrual status in 1991.When the dialogue re-opened in 1993, the former, single-party Government had been replaced by a coalition Government, including several new political parties. Following a national dialogue on political and economic development had occurred. And in January 1994 the National Assembly had approved an Action Plan for Economic and Social Recovery (PARESO), with the principal objectives of: * to restore budgetary equilibrium through sound management of public finances, to stimulate a new start to economic and commercial activity through diversification, with financing from public and private sources; and * to improve the quality of life through guaranteeing equal access to education and to health services for the population. 2. People's Republic of Congo Country Economic Memorandum, Report No. 5809-COB, 1987, p. iii. 6 2.5 The Bank's CAS, which covered the period from FY94 through FY97, supported the Government program in three areas: * improving public resource management through reforms of public finance and public enterprises; * strengthening the country's production capacity through trade and regulatory reforms and removing obstacles to private sector development; and * developing human resources and improving poverty. The 1996 CAS 2.6 The strategy emphasized that Congo enjoyed "a fragile calm" after four years of difficult political transition. It took into account the lack of recent analytical work in Congo as a basis for dialogue and program development and a history of poor project implementation performance. 2.7 The CAS was focused on assisting the Government to attain its poverty reduction strategy. The primary vehicles for achieving this goal were a proposed structural adjustment credit which would have supported reforms permitting the Government to resume delivery of basic services. Four sectoral lending operations were also envisaged, aimed at creation of employment for low income groups, restructuring of health and nutrition services towards the poor, rehabilitation of the priority road network to restore internal trade, urban sanitation works to create more jobs and improve health, and agricultural services to raise productivity in farming. Special efforts were to be made to ensure that women benefited from the projects. And in support of the CAS, a poverty assessment was completed in 1997. The objective of refocusing the role of the state in the economy was supported by the PCBP, evaluated in this Assessment. Due to the outbreak of civil strife in June 1997, and the subsequent accumulation of GOC arrears vis-A-vis the Bank, the CAS was not implemented. The next strategy, a transition support strategy, was not prepared until 2000. It is discussed in the "Next Steps" section of this assessment. Project Design and Objectives 2.8 The three projects are parts of an overarching attempt by three consecutive administrations and the World Bank to transform an oil-based, state dominated economy with virtually no financial controls, into a more productively diverse and well managed economy. The aim was to achieve a reasonably sized civil service, alternative private sector employment opportunities, and transparent and more efficient public resource management policies and mechanisms. The principal path for facilitating the transformation was the reform of the public enterprises. 7 The Public Enterprise Institutional Development Project 2.9 The PEIDP was designed to accompany the First Structural Adjustment Program by assisting the GOC in implementing the actions required by the SAP, and by carrying out studies which would help the Government in compiling the data, and formulating policies and actions to effect the reforms. The project's major objectives were (i) to assist the Government in the formulation and implementation of the larger structural adjustment reforms and (ii) the rehabilitation of public enterprises. The project had six subcomponents and 15 defined activities under those sub-components. (See Annex A, Table 5.) The project provided: (a) assistance to the secretariat of the structural reform steering committee in formulating and implementing the public enterprise reforms required under the structural adjustment program; (b) assistance in formulating and implementing the public enterprise divestiture program for selected enterprises through privatization, liquidation, and investment promotion and development of industrial policies; (c) preparing and implementing a management training program for high ranking staff of the public enterprises; (d) assisting the national accounting commission in executing audits of the public enterprises and the training of its personnel; (e) assisting in management and organizational reforms for four major public enterprises, SNDE, ATC, ONPT, and Hydro-Congo; and (f) executing other studies and technical assistance which were to be determined during the course of implementation of Program reforms. The Economic Recovery Credit 2.10 The one-tranche ERC was identified very quickly by the Bank in response to the financial crisis brought on by the devaluation of the CFA franc. It was one of several operations of this kind mounted in every CFA country. In Congo, the country's economic situation was also aggravated by the falling international price of oil. The Brent crude price declined from US$19.31 per barrel in 1992 to US$17.02 per barrel in 1993 to US$15.83 per barrel in 1994. Revenues in Congo fell relatively more as the average spot price for Congo Djeno crude fell more steeply than did the benchmark. (See Annex A, Table 6.) 2.11 The principal objective of the Credit was to support the Government's declaration of development policy adopted after the devaluation of the CFA franc (PARESO program-adopted late 1993). The other major objective was to provide budgetary support for the Government. Two of the three objectives of the project continued to address issues identified in the 1987 Country Economic Memorandum cited above. Those objectives were: (a) the improvement of public sector efficiency through better public 8 resource management and public enterprise reforms and (b) strengthening the country's production capacity through trade and regulatory reforms and removing impediments to sectoral development, including the private sector. The Credit objectives were noteworthy for (c) the inclusion of the additional objectives of developing human resources and reducing poverty. 2.12 To receive the Economic Recovery Credit, GOC had to have an IMF Standby program and meet tough, up-front conditions for Board presentation: * Retrenchment of 8,000 civil service posts (representing 10 percent of the total number of posts) with limits on new recruitment, on the size of the civil service, and on the size of the civil service wage bill; * Agreement reached between the GOC and the management company of the oil refinery to end the management contract by September 1994, making it possible to privatize or liquidate the refinery; * Increases in transport and public utility rates to stem the outflow of budgetary resources, rationalize consumption of utility services, and prepare for eventual privatization of the major public enterprises; * Creation of a commission to oversee liquidating two banks and auditing two others to prepare for privatization; * Adoption by the Government and submission to the National Assembly of a Petroleum Law designed to promote flexibility and transparency in agreements with the oil companies and to balance the interests of GOC and the oil producing companies; * Adoption by the Government and submission to the National Assembly of a Privatization Law; * Initiation of the selection of an administrator to oversee the liquidation of ATC, based on terms of reference agreed with IDA; and * Launching of an inventory of basic education and health facilities in urban areas and the preparation of staff redeployment plans. Adoption of the laws on petroleum and privatization was a condition of project effectiveness. The Privatization and Capacity Building Project 2.13 After the completion of the ERC, the PCBP enabled the reform agenda to move forward. The overall objective was to strengthen the Government's capacity to prepare 9 and implement the second phase of the economic reform program, begun under the ERC. To accomplish this objective, the project financed: * the preparation of regulatory frameworks for the six major enterprises leading to the gradual opening up of the sectors to competition; * the privatization of the six major enterprises; * liquidation of other non-viable public enterprises; and * improvement of regulation and competition in the financial sector and reform of banking institutions. 2.14 Public enterprises to be privatized and/or liquidated were divided into three categories: the premier perimetre containing the six largest enterprises representing at the time 13,000 salaried workers (10-15 percent of formal sector employment) and generating 17 percent of GDP; the deuxieme perimetre comprising enterprises which had positive economic valuations but were not efficient as state enterprises; and the troisieme perimetre comprising enterprises to be liquidated. Technical assistance was provided to liquidate 57 non-viable enterprises specified in the project documents. Private firms were to be hired to liquidate theses enterprises. Assistance was also provided to the Ministry of Justice to supervise liquidators. 2.15 A Japanese grant financed proposals for restructuring the financial sector. Audits, debt restructuring, and liquidation/privatization plans were envisaged for the state insurance company and for three banks. The establishment of a secretariat for the bank restructuring committee was envisaged, as was support for a roundtable on justice and financial institutions. The Government also undertook a public information campaign to inform important groups in the Government, in the private sector and in civil society about the privatization process, its benefits and its implications. 3. Implementation Experience3 3.1 These projects were focused on four major themes, and two important, but subsidiary themes. Foremost were the objectives of: (i) reforming major public enterprises, (ii) improving public resource management, (iii) diversifying the country's 3. Evaluation of Loan 2868 and Credit 2775 were made more difficult than usual because of the absence of most documents in the country and the absence of some documents from the World Bank project files. Government officials informed the mission that documents for the two projects were destroyed during the civil disturbances of 1997 and 1998-1999. At headquarters, files contained fewer project status reports, than is the norm. One project financial management report was available, but no final project audits for either project. 10 productive capacity and enlarging the private sector, and (iv) reforming the financial sector, banks, pensions, and the social security system. Less compelling, but important themes were (v) the privatization of smaller enterprises and (vi) assistance to the social sectors. Reform of Major Public Enterprises Has Made Significant Progress 3.2 Beginning with the PEIDP, the public enterprise reform agenda was broad, ambitious and complex in policy and in practical terms. During the first phase of implementation of this project, major outcomes included policy decisions on the reorganization of the PEs. Reorganization plans were created for the Societe Nationale des Eaux and the Societe Nationale d'Electricite, the water and electricity utilities. These utilities were to be managed under concession contracts with private investors. The Office National des Postes et Telecommunications was to be split, separating the post office from the telecommunications agency. The Agence Trans-Congolaise des Transports was to be separated into three entities: navigable waterways, the railroad, and the ports of Brazzaville and Pointe Noire. New management information system and tariff policies were also proposed for the transport agency. A comprehensive sector strategy for the oil producing and refining sector, Hydrocongo and CORAF, the national refinery, was financed. 3.3 During the second implementation phase, the rehabilitation objective became privatization. Unfortunately, no major privatizations occurred, due in part to lack of financial resources and in part to the complexity and length of the process. However, as an impetus to privatization and to safeguard the financial and physical assets of the major PEs, the government replaced the sitting managers of the PEs with interim administrators. While the practical results of this decision are hard to evaluate due to an absence of financial documents permitting the comparison of PE balance sheets before and after privatization, the action served notice of the seriousness of government intent. 3.4 An unquantifiable, but important output of the second phase of the project was the beginning of attitude change toward PE privatization by a group of government technicians and some segments of the political elite. This change was closely tied to the political debate which had begun with the 1991 National Convention which agreed on a change to a multi-party system. 3.5 The ERC buttressed the measures taken under the PEIDP by requiring the passage of the Privatization Law and the creation of the Interministerial Privatization Committee. The interministerial committee included members from the affected PEs the ministry of finance, the ministry of Justice, the unions, and the private sector. It brought together in an information and decision making structure representatives of a large number of the stakeholders in the privatization process. 3.6 The PCPB was the vehicle designed to move privatization ahead rapidly. Recognizing the risk inherent in the political situation, the project's ambitious goal was to launch the privatization of the six major PEs before the scheduled June 1997 presidential elections. Much progress toward that goal was made, between project effectiveness in 11 January 1996 and the outbreak of civil war in June 1997, which in practical terms ended project implementation. 3.7 Bids were launched for the privatization offive of the six major public enterprises. Bids were evaluated and a buyer selected for the telecommunications company. Regrettably that buyer failed to perform financially, leaving the transaction incomplete. For the water and electricity companies, through a pre-qualification process GOC had selected four potential operators for the water company and five for the electricity company. The operators formed a consortium to compete for management of both utilities. In the transport sector, the government decided that the two ports would become autonomous entities and the railroad was to be managed by a concession agreement with the private sector. In the oil sector, bidding was launched for private operators of Hydrocongo and the CORAF. Eight bids were received and three pre- qualified for negotiation. The Government initiated discussions with bidders on the price structure and price adjustment mechanisms. 3.8 At the end of the three year period of civil war, the new Government did not change the goal ofprivatizing the major enterprises. Progress has been slow, but it continues. The first major privatization, that of Hydrocongo, occurred on May 15, 2001. The status of other privatizations is: * CORAF. Privatization by June 2002 is the objective. * ATC. The ports of Pointe Noire and Brazzaville operate as independent entities. However, their charters will be reviewed by the Bank before end 2001. The Bank has recommended that their boards include private sector representatives. Repairs of the railroad must be completed before it can be privatized. The Bank and the government have agreed to proceed with privatization/ agreement to a concession for the railway by end 2001, with a transaction completion goal of January 2003. No strategy has yet been formulated for the navigable waterways and little investor interest has been shown. * The bidding process for concession contracts for the water and electricity companies began in October 2001. * The Government reaffirmed the separation of the posts and telecommunications agencies. Bids for privatization of the telecommunications company are to be called for in 2002. * One bank was liquidated and one was privatized. Other bank privatizations are in process. 12 Privatization and Liquidation of Smaller Enterprises Has Been the Most Successful Element 3.9 Under the PEIDP, the government had or was in process of divesting itself of 70 of the 194 enterprises targeted for divestiture or liquidation during project preparation. Seventeen PEs were fully or partially privatized. Thirty-four others were consigned to private liquidators. The ERC did not address this issue. Under the PCBP, of the 57 state- owned enterprises operating when the project was prepared, 15 were liquidated by early 2000 and 20 more were slated for liquidation. The privatization of these enterprises continues under the auspices of the Privatization Committee. Improving Public Resource Management Has Proven Difficult To Achieve and To Sustain 3.10 Projects have focused on improving the management of oil revenues and reducing the size of the civil service. An important achievement was the removal from sector ministers of their authority to contract loans guaranteed by the State without effective oversight by the Ministry of Finance. During implementation, the authority to contract loans was restricted to the Minister of Finance. A major project objective was the settlement of PE cross debts. While a plan was prepared to settle these debts, it was not implemented due to GOC financial constraints. The PEIDP also addressed the first goal through financing studies to restructure and to make more efficient the management of the four of the six major enterprises, as well as by attempting to strengthen the auditing of enterprises and the skills of PE managers and staff. The auditing and training components of the project had negligible impact. 3.11 Under the ERC, the Government introduced competition in oil exploration and production contracts. The number of companies exploring and producing oil increased from three in 1993 to nine by 1996. This was a major achievement in introducing transparency into this sector. The Government also adopted production sharing agreements as the vehicle for revenue generation, rather than royalty-based contracts. 3.12 Non-oil revenue mobilization also improved. The Customs Administration was strengthened, domestic tax collection units were established, and a system of tax payer identification numbers was introduced. Non-oil revenues increased sharply in 1995 to 17 percent of GDP, compared to 15.5 percent in 1993. As a result of these and other measures, the primary deficit was reduced from 5.2 percent of GDP in 1993 to 1.3 percent in 1994. Public resource management improved in the short term. However, the three year period of civil war eliminated prospects for longer term resource management gains. 3.13 The size of the civil service has decreased and increased, depending upon the government in power and its political stability. Under the PEIDP the legal status of PE employees was changed from civil service status to Labor Code status, making them subject to laws applying to private sector employment. Total costs of civil service retrenchment to agreed goals were calculated. Approximately 3500 employees were removed from the rolls. Government salary and pension arrears were not resolved, due to 13 a lack of adequate financial resources. And during the 1991-94 period, the government hired a large number of new civil servants. This decision can be attributed in part to the attempts of the Marxist government to maintain its control during the period of transition to a multi-party government. The ERC required the elimination of 8,000 salaried positions as a condition of Board presentation. During implementation, a further 2,000 jobs were eliminated. Due to lack of budgetary resources, salary and pension arrears remained unresolved. The PCBP did not directly address this issue because it was to be a focus of a planned financial sector operation. Trade and Regulatory Frameworks Have Been Strengthened 3.14 Under the PCBP the design of the legal and regulatory frameworks for liquidation, privatization, and PE interim management were designed. The project also addressed the institutional framework for corporate governance by requiring the replacement of the system of tri-partite management of PES by a general director, the labor unions and the PCT by a business-oriented structure comprised of a general manager and a board of directors. Under the ERC the government enacted UDEAC reforms, the most important of which were reductions of tariff levels of between 5 and 30 percent and the lifting of all quantitative restrictions. The Petroleum Law was passed which introduced a transparent regulatory framework for investment and production in the oil sector. Under the PCBP, the Telecommunications Law was passed. Legal frameworks for the utilities sectors were also under preparation when implementation halted. After the change of Government, work continued on the preparation of legal frameworks for the two utilities. Financial Sector Reform Has Been Slow 3.15 During implementation of the first phase of the PEIDP, a banking sector diagnosis and reform plan were completed. Banking regulations were drafted. Recapitalization proposals were formulated, but not implemented. During the second phase BEAC ceilings on credit limits to government were implemented, reducing them from 33 percent in 1986 to 8 percent of credit to the whole economy in 1995. Bank restructuring was incomplete. In 1992, the Government liquidated the country's second largest bank, Banque Commerciale du Congo, and the national development bank, BNDC. In 1995, GOC initiated discussions with foreign investors to privatize, merge, or liquidate to other state-owned banks, Union Congolaise des Banques and the Banque Internationale du Congo. 3.16 The ERC continued the work of the PEIDP by requiring the creation of a commission to ovcrsee the liquidation of two banks, although the liquidation did not occur. Two other banks were audited in preparation for privatization. The PCBP required the establishment of a finance sector restructuring committee. Studies destined to provide recommendations for reform of legal framework for the sector, bank restructuring, and reform of the social security institutions were financed with grant funding. 14 3.17 The first bank privatization occurred in late 1999. The privatization of two other banks is in process. Privatization of Credit Agricole et Industriel du Congo is foreseen before end 2001, as is the privatization or the liquidation of the BIDC. Social Sector Reform Has Been Minimal 3.18 While the structural adjustment program of which the PEIDP was a part acknowledged the potential social consequences of the proposed reforms, that project did not directly address social sector issues. The ERC was notable for including in a loan whose primary objectives were macroeconomic and private sector reform, pre-Board conditionality requiring an inventory of basic health and education facilities in urban areas. It also required preparation of staff redeployment plans in these two sectors. Regrettably, no follow up action was taken after the surveys. Donor roundtables to agree on strategies for social sector development and financing were being held when the 1997 civil war began. 3.19 The PCBP did not provide funds nor include conditionality for social sector development. Rather, for the first time, its design acknowledged the need for an extensive communications strategy to explain the need for and the process of privatization to various groups of stakeholders. Foremost among these were the PE managerial and technical staff and the members of employee unions. Radio and television programs and discussions were produced. Seminars were held for manager of PEs and for union leaders and members. A privatization newsletter was published. While surveys taken during implementation which would have helped to demonstrate the efficacy of these approaches were destroyed with other project documents during periods of civil conflict, it is clear that the government endorsed a strong outreach effort. 4. Outcome/Assessment 4.1 Implementation of all three projects was adversely affected by resistance to reform, both inside and outside the Government, civil unrest resulting from political instability, and continuing budgetary crises. Despite these problems, progress has been made toward trade reform, building a sound regulatory environment, and opening the door to private sector development. The Petroleum Law introduced greater sector transparency and the improved regulatory environment tripled the number of oil companies operating in the country. Privatization has made progress, with one major enterprise privatized and the bidding process opened for privatization of most components of the remaining five enterprises. Less than satisfactory progress was achieved toward reform of the banking sector and little was accomplished in the social sectors. But the history of the program has been characterized by periods of intense activity, followed by long lulls caused by the build up of arrears by the Governments to creditors or by civil strife. These interruptions have been a major reason for lack of sustained reform progress. The last two civil conflicts caused the death or displacement of Government technical and managerial staff, destroyed physical assets and government 15 documents, disrupted the economy in all regions except those of Pointe Noire and the far north, and increased external and internal indebtedness. 4.2 The outcome criteria take into account the extent to which the project's major relevant objectives were achieved or are expected to be achieved. All three projects are rated as moderately unsatisfactory. It is clear that the different Governments and the Bank expended considerable effort to achieve project goals. However, in no case did a project succeed in achieving the majority of its major objectives. And none of the projects succeeded in achieving the overriding objective, reform of the major public enterprises. While each project built upon analyses and actions implemented under previous projects, no sustained momentum for change was built from project to project. The. PEIDP contributed analyses which fed into policy discussions, provided critical assistance in preparing the ERC, and financed key technical assistance services required to implement the PCBP. But it did not achieve critical objectives like the privatization of major enterprises, sustained improvement of public resource management, or a lasting reduction in the size of the government workforce. 4.3 The moderately unsatisfactory rating for the ERC represents a downgrade from the original OED evaluation. While a number of the public resource management and trade and regulatory reforms were successfully implemented, the long standing issues of the transformation of public enterprises and banks, and the fragility of public finances, as represented by the bankrupt state of the social security system, proved impossible to resolve. Nonetheless, the Government of the period demonstrated determination and commitment to the program's objectives. 4.4 This assessment upgrades the original OED completion rating for the PCBP from unsatisfactory to moderately unsatisfactory. The upgrade is due to the substantial efforts the government and the Bank to promote privatization of five of the six largest public enterprises and the continuing policy commitment of the current Government. The rating is also due to the strong commitment to involving stakeholders in privatization information and decision making, which promoted attitude change. 4.5 Relevance is the extent to which the project's objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistance strategies. When identified and implemented, the objectives of the three projects were and remain highly relevant to major development priorities and to country sectoral and assistance strategies. Nonetheless, there are two weaknesses with respect to the Bank's current corporate goals. None of the projects adequately addressed poverty reduction. And two of the three projects (PEIDP, ERC) did not address the Bank's current participatory processes goal. 4.6 The efficacy dimension measures the extent to which an operation achieved its stated objectives. All projects are rated modest on this dimension because none of the projects achieved a high proportion of its objectives. Furthermore, potential efficacy was reduced due to lack of continuity between the project implementation teams of differing governments. 16 4.7 The institutional development dimension measures whether the project has led to better management of human and financial resources. This dimension is rated modest across all projects. This rating is due principally to the transitory nature of changes made during project implementation. The whole period during which these operations were implemented can be characterized as a "stop and go" reform effort. During each project some positive changes were made in the institutional and legal/regulatory frameworks for managing human and financial resources. But no sustained momentum leading to lasting change was built. The changes were transitory and depended on the desires of the Government in power. 4.8 Sustainability is assessed by evaluating the risks and uncertainties faced by the project, determining whether adequate arrangements are in place to help avoid unknown operational risks or mitigate their impact. Sustainability of the PEIDP and the PCBP are rated non-evaluable because their major objective of reform of PEs was not achieved and because Government has changed the institutional arrangements governing privatization. They are also rated as non-evaluable because past Government performance has been tightly linked to the policies and to the political strength of the sitting government. Congo Brazzaville will hold new elections in the next six months. The outcome of those elections will have a major impact on whether and how privatization of major enterprises and better management of Government finances occur. 4.9 On this dimension the ERC was rated uncertain by OED at completion and it is rated highly unlikely in this assessment. The principal reasons for this rating are: the negative influence of exogenous factors, like civil conflict and the conflicting policy signals given by the current government.4 Furthermore, the results of the three periods of civil conflict include the destruction ofproject achievements. In particular the conflicts have accelerated the degradation of the country's human and physical assets. They have reduced per capita income and made it impossible to replenish the social security system. External indebtedness has increased. 4.10 Borrower performance is rated as the extent to which a borrower assumed ownership and responsibility to ensure quality ofpreparation and implementation and complied with covenants and agreements to achieve development objectives and sustainability. At completion borrower performance was not rated for the PEIDP and the ERC. OED rated it unsatisfactory for the PCBP. This assessment rates the PEIDP unsatisfactory and the ERC and the PCBP satisfactory. The PEIDP rating is based upon the lack of achievement of major project objectives, lack of Government commitment to phase one of implementation, and the lack of continuity in Government staff charged with executing the project during the two different implementation periods. Lack of political will, an absence of attention to basic economic data collection and analysis also marred this operation. This assessment rates the ERC as satisfactory because of the effort 4. Oxford Analytica, Oxford Analytica Brief, "Congo-Brazzaville: Presidential Authority," September 28, 2001. 25 Annex A Annex Table 2: Republic of Congo-Debt Data, 1980-1989 (cont.) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Debt Restructurings Total Amount Rescheduled 3 1 344 268 79 44 Debt Stock Rescheduled Principal Rescheduled 255 182 56 32 Official 84 45 28 25 Private 171 137 28 7 Interest Rescheduled 74 69 19 8 Official 26 26 9 8 Private 48 44 10 0 Debt Forgiven 1 18 6 Memo: Interest Forgiven Debt Stock Reduction Of Which Debt Buyback Annex A 26 Annex Table 3: Republic of Congo-Debt Data, 1990-1999 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Debt Indicators EDT/XGS (%) 329.2 394.2 379.4 428.2 526.6 481.8 316.2 280.9 342.1 279.9 EDT/GNP(%) 212.9 212 186.7 307.6 357.4 389.6 384.6 391.5 364.5 302.7 TDS/XGS (%) 35.3 24.5 12.9 10.8 54.2 14.5 20.4 6.2 2.7 1.4 INT/XGS (%) 11.2 7.4 5.1 4.3 24.5 7.8 12 3.2 1.5 1.2 INT/GNP (%) 7.3 4 2.5 3.1 16.7 6.3 14.6 4.4 1.6 1.2 RES/EDT(%) 0.2 0.2 0.2 0.1 1 1.1 1.8 1.2 0 0.8 RES/MGS (months) 0.1 0.1 0.1 0 0.3 0.4 0.4 0.4 0 0.2 Short-term/EDT (%) 14.9 16.2 18.6 18.9 11.4 17.2 10.2 14.9 16.3 21.3 Concessional/EDT(/) 35.1 37.6 36.8 33.3 34.8 33 38.2 36.6 36.8 34.4 Multileral/EDT (%) 11.5 11.8 11.3 10.5 13 11.7 12.9 12.2 12.2 11.9 Summary Debt Data Total debt stocks (EDT) 4947 4832 4770 5081 5413 6004 5241 5071 5119 5031 Long -term debt (LDOD) 4200 4041 3876 4114 4774 4955 4666 4284 4251 3932 Public and publicly guaranteed 4200 4041 3876 4114 4774 4955 4666 4284 4251 3932 Private non-guaranteed .. .. .. .. .. .. .. Use oflMF credit 11 6 6 5 20 19 38 34 34 29 Short-term debt 736 785 889 962 619 1030 537 753 834 1070 ofwhich interest arrears on LDOD 181 324 496 643 265 441 283 371 511 588 Official creditors 77 204 370 508 170 332 155 227 343 419 Private creditors 104 120 126 134 95 109 128 144 167 169 Memo: principal arrears on LDOD 571 757 1029 1255 796 1028 1011 1228 1474 1618 Official creditors 127 258 486 701 400 595 520 671 831 937 Private creditors 443 499 543 555 396 433 491 558 642 681 Memo:exportcredits 1877 1331 1580 1641 1865 2510 2356 2420 1671 1496 NetTransfersonDebt -163 -217 5 362 -202 -127 -316 -70 -13 0 Public and publicly guaranteed -163 -217 5 362 -202 -127 -316 -70 -13 0 Official creditors -12 14 10 3 4 -37 -298 -70 -13 0 Multilateral -50 -3 2 1 77 -29 -48 -53 -13 0 Concessional -2 0 2 1 102 -3 -5 0 -1 0 Bilateral 38 17 8 2 -73 -8 -250 -17 Concessional 84 20 10 2 -9 1 -50 2 Private creditors -151 -231 -5 360 -206 -90 -18 .. Bonds.. . .. ... .... ... Commercial banks -127 -209 27 366 -153 -84 .. .. Other private -24 -22 -32 -6 -53 -6 -18 .. .. Private nonguranteed .. .. .. .. .. .. .. .. .. Bonds.. . .. . ... ... ... Commercial banks Memo: IBRD -16 -6 0 .. -110 -27 -22 -4 -4 0 IDA -1 0 0 .. 95 -3 0 0 -1 0 27 Annex A Annex Table 3: Republic of Congo-Debt Data, 1990-1999 (cont.) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Debt Restructurings Total amount rescheduled 780 146 15 2 1044 108 269 91 69 36 Debt stock rescheduled .. .. Principal rescheduled 386 97 8 2 505 65 193 70 53 Official 101 55 2 2 354 60 182 70 53 25 Private 285 42 5 150 5 11 .. Interest rescheduled 370 50 4 .. 433 42 69 19 16 7 Official 248 42 0 .. 396 41 65 19 16 7 Private 121 8 4 38 0 5 Debt forgiven 11 3 126 24 77 37 35 17 Memo: Interest forgiven 0 .. 0 8 24 4 4 2 Debt stock reduction .. .. Of which debt buyback .. .. .. .. Annex A 28 Annex Table 4-Important Political Events in the Republic of Congo, 1960-2001 Date Event 1960 Independence is granted- Abbe Fulbert Youlou becomes first president. 1963 President Youlou resigns after a security crackdown on demonstrations and trade unionists; new president Alphonse Massemba-Debat moves Congo into radical African camp 1964 Marxist-Leninist Mouvement National de la Revolution formed; youth wing is forerunner of the Parti Congolais du Travail (PCT) 1964-68 First socialist five year plan instituted 1968-September President Massemba-Debat overthrown by Captain Marien Ngouabi 1969-December Parti Congolais du Travail formed (Marxist); President Ngouabi named party chairman 1977-March President Ngouabi assassinated; Colonel Joachim Yhombi-Opango named successor 1979-February Colonel Denis Sassou-Nguesso replaces Yhombi-Opango as PCT chairman due to perceived pro-westem stance of Yhombi-Opango 1990-91 Student and worker protests and demands by church leaders force PCT to legalize opposition parties and to accede to a national conference 1991 March to National conference meets; declares itself sovereign, replacing the PCT. June-1992 1991-1992 Government is now assured by a transitional cabinet led by Andre Milongo (former World Bank official). Bishop Ernest Kombo heads the transitional assembly, the Conseil Superieur de la Republique. President Sassou- Nguesso remains in office, but without effective power. 1992-March Multi-party constitution is adopted by a referendum in which it is approved by 96.3 per cent of the voters 1992 First multi-party elections are held; the PCT is crushed, but none of the four major parties wins an absolute majority in the legislative elections. Mr. Sassou-Nguesso is eliminated in first round presidential elections, but supports Lissouba in second round in return for a PCT role in the new government. 1992 Mr. Lissouba wins second round of presidential elections, but loses control of Parliament when the PCT withdraws support from Lissouba. Parliament is dissolved in November. Fresh elections are scheduled for May 1993. 1993-mid year Two coalitions dominate political scene-UPADS, the party of Mr. Lissouba, backed by AND (led by Mr. Yhombi-Opongo and UDR (led by Mr. Milongo). Opposants are the URD, headed by Mr. Kolelas and the RDPS (led by Mr. Thystere-Tchicaya.) Mr. Kolelas is also allied with the PCT, but as a marriage of convenience against Mr. Lissouba. Mr. Lissouba emerges ahead of Mr. Kolelas and the latter boycotts the second round of elections, permitting Mr. Lissouba to win an absolute majority in the National Assembly. Mass protests are organized by Kolelas supporters in Brazzaville. Mediators from France and Gabon persuade both sides to re- run the second round of elections while international observers examine disputed first round results. 1993-94 Militias based on ethnicity formed in Brazzaville in the northern, central and southern districts, backing Sassou-Nguesso, Lissouba, and Kolelas. War based on ethnic differences breaks out; about 2,000 are killed. 29 Annex A Annex Table 4-Important Political Events in the Republic of Congo, 1960-2001 (cont.) Date Event 1994 Parliamentarians from UPADS and the URD form a peace keeping committee and negotiate a compromise between Messrs. Lissouba and Kolelas. A joint peacekeeping force is organized by the army and by opposition groups. The force begins to collect weapons. 1994 mid year Mr. Lissouba persuades supporters to back Mr. Kolelas as mayor of Brazzaville. Another major political figure, Mr. Thystere-Tchikaya is elected mayor of Pointe Noire. 1995-January A coalition government is created between the two major, southern Congo- based parties headed by Messrs. Lissouba and Kolelas. Relations with the PCT militia remain tense 1995-September After his militia is forced out of its traditional districts in Brazzaville, former President Sassou-Nguesso leaves Congo to reside in France 1997-February Former President Sassou-Nguesso returns to Brazzaville to a warm welcome 1997-June War breaks out in Brazzaville between the forces of President Lissouba and mayor of Brazzaville, Mr. Kolelas and former president Sassou-Nguesso 1997-October Forces backing Sassou-Nguesso prevail; Sassou-Nguesso declares himself president 1998-December - War breaks out between Government and forces backing Messrs. Lissouba 1999 April and Kolelas; the latter two are defeated. Approximately one third of the country's total population is displaced during the war. Many not killed due to fighting suffer from malnutrition and from living in the forests without adequate resources. 1999-Nov Peace accords signed. Formal peace agreement ratified in December. 2000-2001 March National reconciliation dialogue conducted in regions of Congo, culminating in a National Reconciliation Conference in Brazzaville in March 2001 2001-autumn National elections to be held Source: Table based on data provided in the Economist Intelligence Unit, country profiles for Congo Brazzaville, 1992-93-1999-2000. Annex Table 5: Objectives of Assessed Projects Objectives Projects PEIDP (1988-89; 1995-96) PCBP (1995-97; closed 1999) ERC (1994-95) Structural Reform, including Advisers in privatization, industrial policy, Preparation of regulatory frameworks for Cancellation of existing oil refinery improving management of and legal issues and preparation of financial six major public enterprises in petroleum agreements public finance projections for key PEs: ACT, CORAF, distribution, transportation, Liberalization of imports of petroleum Hydrocongo, ONPT, SNDE, SNE telecommunications, power, and water products distribution Selection of the office to audit the Funds for studies to formulate medium term petroleum sector sector policies and for advisers to assist in Adjustment of public utility rates for water, external debt restructuring electricity, telephone, and transport Support to the PE technical Adviser on PE for technical and policy aspects Appointment of a management team for unit of the reform, coordinator of short tern Hydrocongo. Signing of a management consultants contract for the railroad; singing of an agreement of liberalize management of river transport; signing of an agreement to create a port management company; reorganization of the Congolese road Smaintenance office t Legal/institutional expert to review public Passage of Petroleum and Privatization enterprise institutional framework Laws; revision of the Code Miiere TA to prepare financial projections for key publuluintererises Logistical and operational support Support for implementation Assistance in divesting public enterprises Establish interim administrations for six and monitoring of reform major public enterprises measures Review of inter-enterprise arrears Monitoring of banking sector reform and Creation of a restructuring committee for Completion of two major bank audits UCB credit ceilings the financial sector (BEAC, Ministries of and BIDC by the central African states bank Finance and Planning) audit commission (COBAC) Formulation of a rehabilitation plan for the financial sector Review of public enterprise salary structures, Formulation of a program to clean up civil Improvement of public sector efficiency personnel statutes, management procedures, service records through better resource management- and staffing plans retrenchment of 8,000 civil service posts and revision of labor legislation Elaboration of financial agreements in key PEsfinancialsecto Annex Table 5: Objectives of Assessed Projects (cont.) Objectives Projects PEIDP (1988-89; 1995-96) PCBP (1995-97; closed 1999) ERC (1994-95) Development of procedures to monitor PE investments as part of public investment program Accounting and auditing Assistance to the national accounting assistance commission to continue audits of 20 PEs per ear and training of commission personnel Specific assistance to key PEs a) SNDE-preparation of comprehensive Privatize six major public enterprises, ATC, reorganization plan and customer CORAF, Hydrocongo, ONPT, SNDE, SNE inventory and implementation of enterprise rehabilitation plan Liquidate non viable enterprises b) ONPT-computerization of the accounting system, preparation and updating of accounts, improvements in personnel management organization strategy, including a tariff review c) privatization of ATC peripheral activities, implementation of decentralized management information, accounting and personnel systems d) Hydrocongo-assistance in implementing the rehabilitation program Public information campaigns Implementation of a public awareness campaign among targeted social groups Human resources Preparation and implementation of a Examination of financing levels for non- development-support for management training program for the national wage budgetary items in the human establishment of a training center for management resources sector and determination of program appropriations levels Development of in-house training capability Inventory of repairs needed for classrooms and provision of courses and seminars for PE and health centers in urban areas and managers and Government officials adjacent areas responsible for overseeing PE performance Measures to protect prices of key input items like supplies and priority medicines Environment Approval by Council of Ministers of a National Environmental Action Plan Annex A 32 Annex Table 6: Average Spot Price for Congolese Djeno Crude (US$ per barrel) 1991 1992 1993 1994 1995 16.2 17.0 14.7 13.9 15.5 Source: Economist Intelligence Unit, Congo Country Profile, 1996-97, p. 43. 33 Annex B List of Persons Interviewed The Republic of Congo Public Sector Ministry of Economy, Finance, and Budget M. Jean-Claude Montbouli, Directeur du Cabinet M. Léon Raphaël Mukoko, Directeur des Relations Extérieures M. Pascal Bobassa-Ebale, Conseiller aux Restructurations et Privatisations Mme. Albertine Nsakaboueya, Conseiller Ministry of Commerce and Small and Medium Enterprises M. Michel Niama, Directeur des Petites et Moyennes Entreprises The Congolese State Oil Refinery M. Nestor Mawandza, Directeur Général Privatization Committee M. Portella, Secrétaire Général du Comite M. Jérôme Goma, Chef Comptable M. Alain Akouala, Conseiller de Communication Private Sector Unicongo (private secto,r large firm professional association) M. Jean-Christophe Tranchepain, Président Unicongo et Directeur Général de la SDV M. Jean-Jacques Samba, Secrétaire Général Mme. Nicole Labarre, Secrétaire Général Adjoint Shell Congo M. Jean Paul Bidiet, Directeur Administration Law Firm-Pointe Noire M. Boniface Carle-Malilou Two other lawyers Annex B 34 Public enterprise liquidator M. Nicolas Makaya, Président Directeur-Gerant, Cabinet MNDE-Fiduciaire International Sarl Union La Confederation Syndicale des Travailleurs Congolais M. Louis Gondou, Président M. Joseph Kiafouka, Secrétaire charge des Finances et Matériels Mme. Alphonsine Kando, Secrétaire Générale charge de l'Administration M. Dieudonné Mengobi, Secrétaire au Conflits de Travail Mme. Anne Marie Nzila, Secrétaire charge de la Promotion de la Femme M. Michel Souza, Secrétaire a l'Economie M. Fidele Biyambika, Secrétaire charge de la Jeunesse Travailleuse Newspapers M. Joachim Mbanza, Directeur de Publication, La Semaine Africaine M. Joseph Ngouala, Coordonnateur Générale, Charge de la Publication, Le Tam-Tam NGO M. Roger Bouka-Owoko, Responsable de la Communication de l'Observatoire Congolais de Droits de l'Homme Donors M. William Paton, Représentant du PNUD M. Raymond Janssens, Représentant de l'UNICEF M. André Meyer, Directeur, Agence Française de Développement M. Joseph Pihi, Economiste, PNUD Private Person M. Félix Ngoulou, ancien Secrétaire Permanent, Comite de Privatisation The World Bank Mr. Demba Ba, former task manager, PCBP Mr. Jerome Chevalier, former Division Chief, Congo Brazzaville Mr. Pierre Demangel, former Resident Representative, Congo Brazzaville Mr. Mamadou Dia, former Resident Representative, Congo Brazzaville Mr. Jean-Michel Happi, author ICR PCBP Mr. Paul Lignieres, author ICR PEIDP Mr. Serge Michailof, former Country Director, Congo Brazzaville Mr. Andre Ryba, Lead Adviser Finance Sector, AFR 35 Annex B Mr. Naiem Sherbiny, former country economist, Congo Brazzaville Mr. Nils Tcheyan, former Country Director, Congo Brazzaville The International Monetary Fund Mr. Michael Hadjimichael, former Mission Chief, Congo Brazzaville  37 Annex C Basic Data Sheet PRIVATIZATION AND CAPACITY BUILDING PROJECT (CREDIT 2775-COB) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Loan amount (IDA) 9.0 4.6 51 Parallel financing -Agence Franqaise de Developpement 0.9 0.9 100 Cumulative Estimated and Actual Disbursements (amount in US$ million) FY96 FY97 FY98 FY99 Appraisal estimate 2.5 6.3 8.1 9.0 Revised estimate 0.9 4.7 6.5 9.0 Actual 0.9 2.93 2.96 2.96 Actual as % of appraisal 36 46 36 32 Date of final disbursement: September 1997 Project Dates Original Actual Identification n.a. Preparation (Pre-appraisal mission) March 1995 April 3, 1995 Appraisal June 1995 May 26, 1995 Negotiations July 1995 July 18, 1995 Letter of development/Sector policy - July 24, 1995 Board Presentation - September 5, 1995 Signing October 11, 1995 Effectiveness October 1995 January 5, 1996 Midterm review March 5, 1997 Completion December 31, 1998 Closing date June 30, 1999 June 30, 1999 Staff Inputs (staff weeks) Planned Actual Stage ofproject cycle Weeks US$ '000 Weeks US$ '000 Through appraisal n.a.* n.a*. 36.9 92.2 Appraisal to Board 8.6 19.7 6.6. 13.6 Supervision through completion 119.5 257.3 123.12 296.4 TOTAL 128.1 277.0 166.62 402.2 * Not available Annex C 38 Mission Data Date No. of Days in Specializations Performancea ratine (month/year) persons field represented Implem.. Status Dev. Objectives Through appraisal 06/1995 7 20 TTL, Peer Reviewer, Lawyer, Disburs. Analyst, Financial Analyst, Consultant Appraisal through 12/1995 14 TTL Board approval Supervision 4/1996 2 HS HS Midterm review 3/1997 2 8 Sr. Operations S S Officer, Economist a. S: Satisfactory HS: highly satisfactory 39 Annex C Other Project Data Borrower/Executing Agency: Republic of Congo RELA TED OPERATIONS Year of Preceding Operations Purpose Approval Status First Technical Assistance To improve: (a) the quality of government's 1983 Closed on Project public finance management; and (b) the 06/30/87 (Loan 2285-COB) execution of its urban infrastructure program (PCR No. 8834 date 06/01/90) To help the government: (i) design and 1987 Closed Second Technical Assistance implement measures to promote growth in the onl2/31/90 Proj ect non-oil productive sectors; (ii) improve public (Loan 2753-COB) investment programming and the management of public finances, including debt management; and (iii) formulate a more effective petroleum strategy (PCR No. 10792 dated 06/10/92) Public Enterprise Institutional The main objective of the PEIDP was to 1988 Closed on Development Project facilitate formulation and implementation of the 12/31/1996 (Loan 2868-COB) Structural Adjustment Program. It also aimed at strengthening the GOC's capacity to implement PE reforms and improve their management, through: (a) technical and logistical support; (b) consultant services for general sector reforms, including liquidation and privatization, banking sector reform, PE staff reduction, and financial agreements between PEs and Government; (c) management training programs through CENAGES; (d) auditing and accounting assistance through CNC; (e) advisory services to improve management and restructure key public utilities, including ONPT (telecoms); SNDE (water); SNE (electricity); Hydro-Congo and CORAF (oil); and ATC (transport); and (f) services for other adjustment tasks to supplement resources under the Second TA Project. Economic Recovery Credit To (i) improve public sector efficiency through 1994 Closed on (Credit 2635-COB) better public resources mgmt &PE reforms; (ii) 06/30/1995 strengthen the country's production capacity though trade and reg. Reforms and remove impediments to sectoral development , including private sector; and (iii) develop human resources and reduce poverty. Annex C 40 Basic Data Sheet PUBLIC ENTERPRISE INSTITUTIONAL DEVELOPMENT PROJECT (LOAN 2868-COB) Key Project Data (amounts in US$ millions) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Loan amount 15.2 14.22 94 Cancellation 0.98 Cumulative Estimated and Actual Disbursements (amount in US$ millions) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Appraisal estimate 2.4 4.5 7.1 9.9 12.4 14.3 15.2 15.2 15.2 15.2 Actual 5.1 8.3 10.1 11.1 11.1 11.1 11.1 11.6 13.7 14.2 Actualas%ofappraisal 213 184 142 112 90 78 73 76 90 93 Date of final disbursement: March 31.1997 Project Dates Original Actual Identification 05/1986 10/1986 Preparation 11/1986 Appraisal 03/02/1987 03/03/1987 Negotiations 05/26/1987 05/29/1987 Letter of sector policy 06/15/1987 06/15/1987 Board presentation 07/21/1987 07/21/1987 Signing 07/31/1987 07/31/1987 Effectiveness 09/1987 01/27/1988 Completion 07/30/1994 12/31/1996 Closing date 07/31/1994 04/30/1997 Staff Inputs (staff weeks) Actual US$ Through appraisal (preparation, pre-appraisal) n.a. 24.2 Appraisal to Board (negotiation) n.a. 9.1 Board approval to Effectiveness n.a -- Supervision n.a 154.1 Completion n.a 14.5 TOTAL n.a 201.9 41 Annex C Mission Data Performance ratinga Date No. of Days in Specializations Implem. Dev. Type of (month/year) persons field represented Status Impact Problems Through 11/1986 4 21 Sr. Financial None None appraisal Analyst, Economist, Consultants Appraisal 03/1987 2 14 Economist, T.A. None None Timetable for through Board Officer, conditionalities approval Consultants Board to 07/1987 1 4 T.A. Officer None None Conditions for Loan Effectiveness Effectiveness 10/1987 2 14 T.A. Officer Economist Supervision I 05/1988 4 12 T.A. Officer, 1 1 Overall supervision Economist II 07/1988 1 4 T.A. Officer, 1 1 Training and overall Economist supervision III 11/1988 6 18 Sr. Op. Officer 1 1 Overall supervision IV 05/1989 1 14 Sr. Op. Officer 2 2 Extension of TA V 07/1989 1 14 TA. Officer 2 2 Preparation of ICR on SAP, counterpart funds VI 10/1989 1 10 TA. Officer, Sr. 2 2 Overall supervision Count. Officer VII 12/1989 2 9 T.A. Officer, Sr. 2 2 Assistance to CCA Count. Officer VIII 06/1990 2 13 T.A. Officer, Sr. 2 2 Implementation issues Count. Officer, IX 11/1990 1 14 T.A. Officer 2 2 T.A., counterpart funds, Acc & Aud. X 07/1991 3 13 T.A. Officer, 3 3 Establish dialogue with Economist, Sr. new GOC on PE Count. Officer\ reform XI 05/1994 1 7 Pr. Count. 2 2 Review of project Officer priorities XII 11/1994 3 12 Op. Officer, En. 2 2 PE sector review Economist, Cons. Annex C 42 Performance ratinga Date No. of Days in Specializations Implem. Dev. Type of (month/year) persons field represented Status Impact Problems XIII 05/1995 3 7 TM, En. U U Project restructuring Economist, Cons. XIV 12/1995 6 16 TM, Lawyer, S S Financial, energy, post, Telecom, telecom & transport issues 04/1996 2 21 Infrast., Op HS HS Financial covenants Officer, Cons e Completion 03/1997 2 5 Economists, S U ICR preparation Sr. Operations Officer a. Key to status as shown in Supervision Form 590: Rating are S (satisfactory), or from 1 (highest) to 4 (lowest) 43 Annex C Other Project Data Borrower/Executing Agency: Republic of Congo RELATED OPERATIONS Year of Preceding Operations Purpose Approval Status First Technical Assistance Project To improve: (a) the quality of Government's public 1983 Closed on Loan 2285-COB finance management; and (b) the execution of its urban 06/30/87 infrastructure program (PCR No. 8834 dated 06/01/90) Second Technical Assistance To help the Government: (i) design and implement 1986 Closed on Project (Loan 2753) measures to promote growth in the non-oil productive 12/31/90 sectors; (ii) improve public investment programming and the management of public finances, including debt management; and (iii) formulate a more effective petroleum strategy. (PCR No. 10792 dated 06/01/92) Simultaneous Operations First Structural Adjustment Loan To assist the Government (a) re-establish overall 1987 Closed on (Loan 2866-COB) financial equilibrium, independent of the vagaries of 03/31/89 the oil market; (b) lay the foundations for durable economic growth over the medium-term, with strong emphasis on development of non-oil sectors; (c) diversity productive activities, especially in agriculture; and (d) restore Congo's creditworthiness. (PPAR No. 9745 dated 06/01/91) Following Operations Economic Recovery Credit To support the Government: (i) improve public sector 1994 Closed on (Credit 2635-COB) efficiency through better public resources management 06/30/94 and PE reforms: (ii) strengthen the country's production capacity through trade and regulatory reforms and remove impediments to sectoral development, including private sector; and (iii) develop human resources and reduce poverty (ICR No. 15765 dated 06/01/96) Privatization and Capacity To help the Government: (a) prepare regulatory 1995 Closed on Building (Credit 2775-COB) framework for the six major PEs and open the sectors 06/30/99 up to competition progressively; (b) conduct the privatization of these PEs; (c) liquidate other non- viable PEs; and (d) support regulation and competition in the financial sector and reforms in banking institutions. Annex C 44 Basic Data Sheet ECONOMIC RECOVERY CREDIT (CREDIT 2635-COB) Key Project Data (amounts in US$ millions) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Credit amount 100 100 100 Cumulative Estimated and Actual Disbursements (amount in USS millions) FY95 Appraisal estimate 100.0 Actual 100.0 Actual as % of appraisal 100% Date of final disbursement: June 30, 1994 Project Dates Original Actual Identification 02/1994 Preparation 3 months Appraisal 04/02-24/1994 Negotiations 06/6-7/1994 06/6-7/1994 Letter of Development Policy 02/02/1994 Board approval 06/28/1994 06/28/1994 Signing 06/29/1994 Effectiveness 07/05/1994 06/29/1994 Closing date 07/05/1995 06/30/1995 a. As provided in the President's Report Staff Inputs (staff weeks) Actual US$ (000) Preparation to appraisal 66.7 161.7 Appraisal 17.0 46.1 Negotiations through Board approval 8.0 21.8 Supervision 14.4 45.8 Completion 1.6 1.2 TOTAL 107.7 276.6 45 Annex C Other Project Data Borrower/Executing Agency: Republic of Congo RELATED OPERATIONS Year of Preceding Operations Purpose Approval Status Privatization and Capacity (a) Help the Government prepare regulatory 1995 Closed on Building project frameworks for the 6 major public enterprises 06/30/1999 (Credit 2775) and open the sectors up to competition progressively; (b) conduct the privatization of these PEs; liquidate other non-viable PEs; and (d) support regulation and competition in the financial sector and reforms in banking institutions. Assist the Government in acquiring the Public Enterprise necessary technical and administrative capacity 1987 Closed Institutional Development to implement PE reforms and to improve PE Project (Credit 2868) management (a) Re-establish overall financial equilibrium independently of the vagaries of the oil market; 1987 Closed (b) lay the foundations for self-sustaining economic growth over the medium term, with strong emphasis on development of the non-oil sectors; and (c) restore the country creditworthiness.