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1 Public Disclosure Authorized IEG ICR Review Independent Evaluation Group Report Number : ICRR Project Data: Date Posted : 07/14/2011 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Country: Nigeria Project ID : P Project Name : Privatization Support Project Appraisal Actual Project Costs (US$M US$M): N.A. L/C Number: C3520 Loan/Credit (US$M US$M): Sector Board : FPD Cofinancing (US$M US$M): N.A. Cofinanciers : Board Approval Date : 06/14/2001 Closing Date : 12/31/ /31/2009 Sector(s): Central government administration (78%); Power (11%); Water supply (10%); Law and justice (1%) Theme(s): State enterprise/bank restructuring and privatization (50% - P); Regulation and competition policy (50% - P) Prepared by : Reviewed by : ICR Review Group: Coordinator : Rene I. Vandendries Kris Hallberg Ismail Arslan IEGPS2 2. Project Objectives and Components: a. Objectives: The phrasing of the development objectives in the Project Appraisal Document (PAD) differs somewhat from that in the Development Credit Agreement (DCA). The PAD states (A.1, page 2) : The project's development objectives are: (1) to support transparent and effective implementation of the Federal Government of Nigeria (FGN)'s privatization program, as a basis for fostering accelerated economic growth, through expanded private investment and improved efficiency in the productive sectors, and in infrastructure; and (2) to create an enabling environment for private sector participation and competition in infrastructure services, notably in telecommunications and electric power. The DCA states (Schedule 2, Description of the Project): The objectives of the project are to : (i) reduce the Borrower's role in commercial activities through assisting the Borrower to carry out its Privatization Program; (ii) reduce the public deficit caused by the Borrower's support for Public Enterprises; and (iii) improve the supply and quality of telecommunications and other infrastructure, through creating an enabling regulatory environment for private sector participation and competition. The statement in the PAD places the emphasis on privatization, while the DCA focuses more on a by -product, i.e. fiscal savings; the definition in the PAD stresses improved efficiency versus the DCA where quality of services is stressed instead. In terms of real content these definitions do not differ much. This review follows the phrasing in the PAD because it is less vague and corresponds well to those key performance indicators that were fully owned by the borrower. b.were the project objectives/key associated outcome targets revised during implementation? No c. Components: The project had six components. Estimated costs at appraisal are shown in brackets. The ICR does not provide actual costs. In essence, there was a substantial reallocation of funds from components 1, 2, 3, and 5 to

2 components 4 (telecommunications) and 6 (water). 1. General privatization support, to assist the Bureau of Public Enterprises (BPE) in its programs for sector reform and privatization. (US$ 43.2 million) 2. Institutional support to BPE through technical advisory assistance.(us$ million) 3. Privatization consensus building through public relations campaigns for members of the legislature and the public at large. (US$ million) 4. Telecommunications sector reform, including through the development of a National Telecommunications policy, legal and regulatory reform, institutional strengthening of the Nigerian Communications Commission, and privatization of the Nigerian Telecommunications Company. (US$ million) 5. Power Sector Reform, through development of a National Power Policy, legal and regulatory reform, restructuring of the National Electric Power Authority (NEPA), and privatization of entities formed from NEPA. (US$ million) 6. Financing for restructuring of the Lagos State Water Corporation and private sector participation. ( US$ million) d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was approved on June 14, 2001 for SDRs 90.2 million (US$ million equivalent). Additional financing was to be provided by the government, USAID and DFID. Slow implementation led to a three-year delay in the closing date; two years after a 2005 restructuring of the project, followed by an additional year in The only change in targets introduced at the time of the 2005 restructuring was a reduction in the target number of enterprises to be privatized from around 100 to 75 (ICR, para 9). In the end, an estimated US$23 million was cancelled, primarily reflecting delays in project execution. Bank database shows the historical disbursement equivalent to US$ million. The ICR does not provide information on actual government or other financiers' contribution. 3. Relevance of Objectives & Design: a. Relevance of Objectives: The project was one of the first projects in Nigeria after re -engagement with the country in 1999 with the transition from military to democratic rule. The new government's economic strategy was focused on economic recovery and growth, institutional reforms and market liberalization. Privatization of state-owned enterprises was a key element of that strategy. The Bank's Interim Country Strategy Note in 2001 was in sync with the government's strategy and included, among others, technical assistance to provide advisory services for the government's privatization program, including divestiture in major infrastructure sectors such as telecommunications and electric power. The urgency and priority of market liberalization and of an increasing role of the private sector in the Nigerian economic context has remained throughout the eight -plus year implementation period of the project. To conclude, the relevance otf the project's objectives was and remains high. b. Relevance of Design: With its focus on technical assistance and institutional development the project was well -designed to address the issues - poor performance of public enterprises (PE), inadequate policy and regulatory frameworks, excessive government intervention, and weak capacity to implement reforms. Also, a facilitating legal framework had been put in place in 1999 with the creation of a National Council on Privatization (NCP), chaired by the Vice President, to oversee the privatization program, and its secretariat, the Bureau of Public Enterprises (BPE), as implementing agency. But the project was also very complex and ambitious with several agencies involved in implementation and numerous vested interest to be dealt with. One expression of the complexity of the project was the large number and at times overlapping nature of the key performance indicators in the PAD; some indicators were also poorly defined. These issues were resolved only in 2005 when the project had to be restructured. The restructuring involved scaling up the successful telecommunications component, especially to provide more rural access, reducing the allocation for the slowly progressing privatization program, increasing the allocation for emergency spending in the water sector, and refocusing the reform program in the electric power sector, which was experiencing serious delays. The risks and difficulties associated with power sector reform were also not well factored into the design. Still, on balance, the relevance of design is rated substantial.

3 4. Achievement of Objectives (Efficacy): Objective 1: Support transparent and effective implementation of the government's privatization program, as a basis for fostering accelerated economic growth, through expanded private investment and improved efficiency in the productive sectors, and in infrastructure. Four of five performance indicators (PI) were designed to measure progress towards this objective. The first PI was to private 100 PEs (reduced to 75 at the time of the mid-term review). By the project's closing 109 PEs had been privatized, with net proceeds to the federal government estimated at close to US$ 1 billion, and many more PEs had been taken to the point of sale. The second PI was to increase private participation and efficiency in the telecommunications, electric power and water sectors. Progress in this area has been mixed. In the telecommunications sector, difficulties encountered with the privatization efforts of the Nigerian Telecommunications Company (the preferred bidder was unable to pay) were overshadowed by the impact of market liberalization : a new Telecommunications Bill became law in 2003 and opened up the sector to competition; this led to highly satisfactory results in terms of entry of more than 18 new operators and increased accessibility to telephones : teledensity now exceeds 50 percent. On the other hand, in the electricity sector, progress towards liberalization and privatization was limited during the course of the project. There was a long delay in passage and enactment of the Power Sector Reform Act in the National Assembly due to political resistance. There was also intense resistance to reform from the labor unions. All of this let to substantial delays in reforming the sector. Still, the National Electric Power Authority was eventually unbundled into generation, transmission, and distribution and some privatization took place. Furthermore, a new reform effort, consistent with the original objective of the project regarding privatization and market liberalization was launched in In the water sector, little progress towards privatization has been made thus far, but emergency rehabilitation work was carried out successfully under the project. Progress towards the third PI, increased access to telecommunications, electric, and water services in both urban and rural areas was also mixed. Major progress in telecommunications, far beyond objectives, but little or no progress in increasing power or water connections. The fourth PI under this objective, reduction of PE deficits, was abandoned for lack of data. However, the very significant savings to the government resulting from the privatization program to date suggest that good progress has been made. Apart from the results noted in terms of PIs, a most significant achievement was that the financing of transaction advisors created a core function in the government of staff able to prepare transactions for sale to potential investors in a coherent, systematic, and technically competent fashion. In the process also a Privatization Procedures Manual was developed which, by providing transparency, greatly expedited the process of divesting PEs. The ICR notes that progress made in reforming the Ports sector was especially impressive; evidence includes a reduction in average ship waiting time at anchorage from days to 1-0 days, a reduction in average ship turnaround time from 10 to 5 days, the installation of scanners in all the port terminals, and a reduction in the excessive number of casual dock workers from to A sample of case studies representing about 30 percent of the value of privatizations to date also shows impressive results with labor productivity increasing tenfold and investment tripling after privatization. In terms of job creation, the ICR reports that in the telecommunications sector alone direct employment increased by 21,000 and indirect employment by an estimated 1 million, but this was a very rough estimate provided by the Nigerian Communications Commission. On the other hand, the only evidence on jobs lost in the privatization process refers to the number of casual workers at the ports. The success of the privatization program so far and the highly satisfactory results in increasing access to telecommunications are counterbalanced by the limited progress in electricity and water sector reform. But the reform efforts, especially in the electricity sector, are continuing. On balance, this suggests a substantial efficacy rating for the achievement of the first objective. Objective 2: Create an enabling environment for private sector participation and competition in infrastructure services, notably in telecommunications and electric power. This objective was fully achieved in the telecommunication sector following approval of a New Telecommunications bill by the National Assembly in 2003, which formalized the opening up of the sector to competition and provided an adequate regulatory framework. In the power sector, some progress was made

4 though much delayed. In 2005 an Electricity Power Sector Reform bill was enacted but subsequent delay in proceeding with sector reform delayed the usefulness of the legislation. On balance, efficacy for this second objective is rated substantial. 5. Efficiency: The economic analysis at appraisal was confined to one project component, Lagos Water Supply ( 6 percent of total project cost): an IRR of 27 percent was estimated, but this component was subsequently dropped. The bulk of the project was TA for which economic and financial analysis is not required and was not done at appraisal. The ICR makes an attempt but it is difficult to judge this, except to say that the TA contributed to a significant amount of privatizations. Efficiency is rated modest. a. If available, enter the Economic Rate of Return (ERR ERR)/Financial Rate of Return (FRR FRR) at appraisal and the re-estimated estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: The relevance of the project's objectives was high and that of its design was substantial. Efficacy was mixed. The privatization program proceeded well and access to telecommunications increased dramatically as did the environment for private participation in the sector. On the other hand, progress with reform efforts in the power and water sectors was delayed and limited. Efficiency is rated modest. On balance, outcome is rated moderately satisfactory. a. Outcome Rating : Moderately 7. Rationale for Risk to Development Outcome Rating: The main achievements in telecommunications access and in privatization are likely to be sustained. On the other hand, political and entrenched vested interests slowed project implementation especially in the power sector and these risks are still there. a. Risk to Development Outcome Rating : Significant 8. Assessment of Bank Performance: a. Quality at entry: The project was well prepared and consistent with government and Bank priorities. Lessons learned from other privatizations were taken into account and risk factors were identified. But the project proved too complex and ambitious which resulted in long delays. The original monitoring and evaluation (M&E) framework was deficient. Quality-at at-entry Rating : Moderately b. Quality of supervision: Supervision was diligent and regular. However, there was high turnover of task team leaders in the early stages of the project which hampered implementation. Also, the risks associated with the run -up to the 2007

5 elections were underestimated and this affected power sector reform. Quality of Supervision Rating : Moderately Overall Bank Performance Rating : Moderately 9. Assessment of Borrower Performance: a. Government Performance: The government was committed to the reform program as exemplified by the successes in privatization and in the telecoms sector. But the government also changed its views in the power sector, opting for a reduced pace of reform with focus on rehabilitation before privatization. Government Performance Rating Moderately b. Implementing Agency Performance: The implementing agency (BPE) was also committed but, at times, its effectiveness was reduced, e.g. due to the pressures of the 2007 elections. Also its financial management was poor: there were long outstanding ineligible expenditures that were not refunded as well as expenditures with insufficient supporting documents. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately 10. M&E Design, Implementation, & Utilization: a. M&E Design: The original performance indicators were poorly defined and many lacked baseline data. This was remedied after the 2005 restructuring of the project. b. M&E Implementation: Needless to say, there was little M&E at first. When the performance indicators were streamlined and reduced to five, M&E took place while training was provided to strengthen monitoring capacity. c. M&E Utilization: The results of M&E were utilized to, among others, reallocate funds, revamp the power sector program, and prepare follow-on projects, i.e. a Nigeria Electricity and Gas Improvement project, and a Public -Private Partnerships project. M&E Quality Rating : Modest 11. Other Issues

6 a. Safeguards: The ICR does not discuss the implementation of environmental safeguards, although this was an Environmental Category B project. b. Fiduciary Compliance: Financial management in BPE was not satisfactory. There were long outstanding ineligible expenditures that were not refunded as well as expenditures with insufficient supporting documents. c. Unintended Impacts (positive or negative): d. Other: 12. Ratings: ICR IEG Review Outcome: Moderately Moderately Risk to Development Significant Significant Outcome: Reason for Disagreement /Comments Bank Performance : Moderately Borrower Performance : Moderately Quality of ICR : Moderately Moderately NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: The ICR contains good lessons: Commitment together with the creation of a solid legal and institutional foundation for reform is a sine-qua-non for success. Smooth project implementation requires good cross -agency coordination. Successful privatization requires strong efforts to effectively communicate with the various stake holders. 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: The ICR contains enough information to evaluate the project. However, it is not always very clear or internally consistent. Examples: The reason for splitting the project's two objectives (para 8) into three objectives in para 52 and thereafter is unclear. Part of the objectives was "improved efficiency in the productive sectors ", but the ICR only comments on

7 efficiency in infrastructure sectors. The section on components (paras 14 through 19) lists appraisal costs for each component, but does not mention that these include, among others, financing by USAID, while para 25 is unclear about USAID participation. a.quality of ICR Rating :