IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-21517, TF-52183) ON A GRANT IN THE AMOUNT OF US$25 MILLION TO THE HASHEMITE KINGDOM OF JORDAN FOR THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-21517, TF-52183) ON A GRANT IN THE AMOUNT OF US$25 MILLION TO THE HASHEMITE KINGDOM OF JORDAN FOR THE Report No: ICR2075 IMPLEMENTATION OF ECONOMIC REFORM AND DEVELOPMENT PROGRAM Finance and Private Sector Development Middle East and North Africa Region June 27, 2012

2 CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 2012) Currency Unit = Jordanian Dinar (JD) JD 1.00 = US$ 1.41 US$ 1.00 = JD JD FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ACT AMPCO APC ARC ASE BOT CEGCO EDCO EPC ERC FT GCC GOJ IDECO IRC ITC JEPCO JPMC JTC MENA MOPIC MOU NEPCO OECD PIU PPP PTRC QAIA RJ ROE SOEs SSCIU USAID Aqaba Container Terminal Agricultural Marketing and Processing Company Arab Potash Company Aqaba Railways Company Amman Stock Exchange Build-Operate-Transfer Central Electric Generating Company Electricity Distribution Company Executive Privatization Commission Electric Regulatory Commission France Telecom Gulf Cooperation Council Government of Jordan Irbid District Electricity Company Insurance Regulatory Commission Information Technology Communications Jordan Electric Power Company Jordan Phosphate Mines Company Jordan Telecommunications Company Middle East and North Africa Ministry of Planning and International Cooperation Memorandum of Understanding National Electric Power Company Organization for Economic cooperation and Development Program Implementation Unit Public-Private Partnership Public Transport Regulatory Commission Queen Alia International Airport Royal Jordanian Airlines Returns on Equity State-owned Enterprises Social Security Corporation Investment Unit United States Agency for International Development Vice President: Inger Andersen Country Director: Hedi Larbi Sector Manager: Simon C. Bell Program Team Leader: William Mako ICR Team Leader: William Mako

3 JORDAN Implementation of Economic Reform and Development Program CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring I. Disbursement Graph 1. Program Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Grantee/Implementing Agencies/Donors Annex 1. Program Costs and Financing Annex 2. Outputs by Component (selected) Annex 3. Economic and Financial Analysis Annex 4. Grant Preparation and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Grantee's ICR Annex 8. Comments of Co-financiers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP

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5 A. Basic Information Country: Jordan Project Name: Implementation of Economic Reform and Development Program Project ID: P L/C/TF Number(s): TF-21517,TF ICR Date: 06/27/2012 ICR Type: Core ICR Lending Instrument: TAL Grantee: Original Total Commitment: Revised Amount: USD 23.22M Environmental Category: C Implementing Agencies: Executive Privatization Commission Cofinanciers and Other External Partners: USAID B. Key Dates MINISTRY OF PLANNING AND INTERNATIONAL USD 23.71M Disbursed Amount: USD 22.55M Process Date Process Original Date Revised / Actual Date(s) Concept Review: 09/30/1997 Effectiveness: 02/15/1998 Appraisal: Restructuring(s): 10/14/2010 Approval: 02/15/1998 Mid-term Review: Closing: 10/14/ /31/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Grantee Performance: Satisfactory Low or Negligible Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General finance sector General industry and trade sector Theme Code (as % of total Bank financing) Corporate governance Regulation and competition policy State-owned enterprise restructuring and privatization E. Bank Staff Positions At ICR At Approval Vice President: Inger Andersen Kemal Dervis Country Director: Hedi Larbi Inder K. Sud Sector Manager: Simon C. Bell Deane N. Jordan Project Team Leader: William Peter Mako Christian E. Petersen ICR Team Leader: ICR Primary Author: William Peter Mako William Peter Mako F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) As this was a trust fund grant approved in FY98, there was no Program Appraisal Document. According to a Cooperative Agreement (dated February 10, 1998) between USAID and the World Bank ("Bank"), the grant was intended to support reform and development of Jordan's economy, including through further trade facilitation and export development,

7 privatization, financial sector reform, and streamlining of the regulatory environment. The Cooperative Agreement did not specify key indicators. The development objectives, as per the Grant Agreement of TF021517, dated February 15, 1998, between the Bank and the Ministry of Planning and International Cooperation, the Recipient, are "Implementation of Annual Programs to support increased competition, outward-oriented growth, a modern, efficient and well-regulated financial sector, bestpractice business laws, and privatization, including: (i) trade liberalization and export development; and (ii) financial sector and legal reform." Revised Project Development Objectives (as approved by original approving authority) The World Bank, USAID, and GOJ rapidly agreed on the need to narrow the scope of the Program. In a Memorandum of Understanding (MOU dated August 16, 1999) among the GOJ Ministry of Planning (subsequently superseded by the Ministry of Planning and International Cooperation), the implementing agency the Executive Privatization Unit (EPU) (subsequently superseded by the Executive Privatization Commission), USAID, and World Bank, the parties agreed to complete initial assistance on insurance and securities regulation, but that the Program should otherwise focus on privatization. A Revision to the Cooperative Agreement (dated June 13, 2000) specified that the Program would focus on privatization and would exclude post-privatization support. More specifically, the Revision indicated that the Program should focus on privatizations in telecommunications, postal services, airline, buses, rail, seaport, electricity, petroleum refining/distribution, water, and grain silos. The Revision also provided for institutional strengthening of the EPU and development of a public communications program. At the request of MOPIC, and following discussions with the Bank and USAID, the objectives of the program were amended to include financing for public sector reform. The revised objectives read as "Implementation of Annual Programs to support privatization, private sector investment and public sector reform." The development objectives in the Letter Agreement for the additional grant of US$10 million (TF052183), dated May 27, 2005, are to: "(a) strengthen the investment climate, leading to new investment and job creation; and (b) improve effectiveness and efficiency of the delivery of public services, and creation of fiscal space. The activities for which the Grant is given are the implementation of annual programs to support privatization, private sector investment and public sector reform." (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Privatization of existing state-owned enterprises Jordan's infrastructure sectors were almost 100% N/A state-owned. Formally Revised Target Values Revision included postal, airline, Actual Value Achieved at Completion or Target Years In addition to other privatizations (telecoms, mining)

8 buses, rail, seaport, electricity, petroleum, water and grain completed airline, buses, seaport, and electricity privatizations and PPPs Date achieved 12/01/ /01/ /30/ /31/2008 Comments (incl. % achievement) Attempt to privatize postal was unrealistic. Grain derailed due to food security concerns. Petroleum refining privatization effort is ongoing. Expect ultimately to see 80 percent of targets privatized with Program support. Indicator 2 : Legal and regulatory reform Value quantitative or Qualitative) No independent regulatory authorities N/A N/A Achieved: independent regulators established for insurance, electricity sector, and land transportation Date achieved 02/15/ /01/ /01/ /31/2003 Comments Thus far, 75 percent of attempts succeeded. We still expect GOJ will eventually (incl. % establish a regulatory framework for petroleum refining/distribution. achievement) Indicator 3 : New investment Value quantitative or Qualitative) N/A N/A N/A Privatized firms that had received Program support invested an additional US$1.015 billion to expand and modernize assets. The airport rehabilitation and expansion has attracted an additional US$750 million of financing. Date achieved 02/15/ /01/ /01/ /31/2007 Comments Additional investment in privatized firms represented 11.4 percent of total FDI (incl. % for achievement) Indicator 4 : Job creation Value quantitative or Qualitative) N/A N/A N/A While privatization led to a net loss of 448 jobs (2%) in SOEs privatized with program

9 support, GOJ estimates that reforms led to an additional 25,000 jobs just at the telecom sector (mobile phone firms and ITenabled businesses). Date achieved 02/15/ /01/ /01/ /31/2008 Comments (incl. % achievement) Indicator 5 : Value quantitative or Qualitative) In cases where labor reductions at SOEs were necessary, the GOJ relied on early retirement packages with lump sum payments and payment of health and other benefit premiums until retirement. Improved effectiveness and efficiency of public service delivery. Long delays, poor service in fixed-line telephone. Unacceptable delays at Aqaba Port. N/A N/A Huge gains in efficiency and reliability of fixed line telephone. Great gains in efficiency at Aqaba Container Terminal. More reliable electricity supply. Date achieved 02/15/ /01/ /01/ /31/2007 Comments (incl. % achievement) Rehabilitation of Queen Alia International Airport terminal and construction of new terminal will provide substantial additional gains in efficiency and quality of air transport services. Indicator 6 : Creation of fiscal space. Value quantitative or Qualitative) Total debt to GDP in 1997 was 115 percent. N/A N/A Total debt to GDP in 2008 was 60 percent. Date achieved 02/15/ /01/ /01/ /30/2008 In 2008, GOJ concluded an agreement to buy back US$2.4 billion of Paris Club Comments debt (at an 11 % discount) using US$1.9 billion of privatization proceeds (from a (incl. % total of US2.3 B from privatizations supported by the Program) and additional achievement) support from GCC. Indicator 7 : Public sector reform Value quantitative or Qualitative) Not measureable N/A N/A No demonstrable public reforms beyond those already cited (i.e., independent regulators, privatization) Date achieved 02/15/ /01/ /01/ /31/2011 Comments (incl. % MOPIC indicates that MOPIC staff assigned to support public sector reform provided support for privatization. But MOPIC did not provide or cite additional

10 achievement) outputs or outcomes for this activity. (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Original Target Values (from Baseline Value approval documents) Privatization and PPP transactions None N/A N/A Formally Revised Target Values Actual Value Achieved at Completion or Target Years Program supported 2 transactions (port mgmt contract, airport BOT) and 15 privatization transactions: JTC, RJ Airlines, 5 RJ spinoffs, 2 aviation schools, agricultural processing, potash co., phosphate mines, electricity generation, and 2 electricity dist Date achieved 02/15/ /01/ /01/ /31/2008 Comments (incl. % achievement) This was an extraordinarily successful privatization program, which also saw some important PPP transactions, for both of which the Program provided essential transaction support. Indicator 2 : Privatization proceeds Value (quantitative or Qualitative) N/A N/A N/A The fifteen privatization transactions that were completed with Program support raised US$2.295 billion in sales proceeds. Date achieved 02/15/ /01/ /01/ /31/2008 Comments (incl. % achievement) To reiterate, the Program provided important support for completing privatization programs that provided the means to create more fiscal space, and supported gains in competitiveness and employment. Indicator 3 : Public sector reforms Value (quantitative or Qualitative) N/A N/A N/A No demonstrable public sector reforms other than privatization and establishment of independent regulators. Date achieved 02/15/ /01/ /01/ /31/2011

11 Comments (incl. % achievement) MOPIC staff assigned to support public sector reform are said to have provided support for implementation of the GOJ's privatization program. But MOPIC did not provide or cite additional outputs or outcomes for this activity. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 07/18/2008 Satisfactory Satisfactory /20/2010 Satisfactory Satisfactory /09/2011 Satisfactory Satisfactory /09/2011 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made 10/14/2010 S S Extension of Closing Date I. Disbursement Profile *Disbursement projections were not inputted in SAP until in 2003

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13 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal In late 1997, Jordan s infrastructure sectors (air transport, buses, rail, electricity, water, telecommunications, and seaports) were state-owned. Moreover, through the state-owned Jordan Investment Corporation, the Government of Jordan (GOJ) retained substantial shareholdings in mining companies listed on the stock market. These companies suffered from problems typical for state-owned enterprises (SOEs). For instance, it could take up to ten years for the state telephone company to install a fixed-line. The airline had an unsustainably high level of debt. International financial institutions were reluctant to lend more to the state electricity sector. In terms of overall macroeconomic stability, Jordan s total debt to GDP ratio in 1997 was a worrisomely high 115 percent. While Jordan s public sector accounted for 40 percent of GDP and employed 40 percent of the labor force, service delivery surveys found that the public sector remained a poor provider of public services. The GOJ desired structural reforms as a means to resume growth in per capita incomes, maintain low inflation, and strengthen international reserves. Key elements in the GOJ s structural reform program included further reductions in tariff rates, continuation of financial and legislative reforms, privatization, and public sector reforms. The World Bank s country strategy at the time included an emphasis on reviving, maintaining, and accelerating economic growth through higher levels of private investment, export development, and tourism. Active support for Jordan s privatization program was deemed the most feasible short-term way to attract large-scale foreign investment for state enterprises in infrastructure sectors. For Jordan s energy sector, for instance, the World Bank s country strategy emphasized establishment of a competitive electricity market; separation of electricity generation, transmission, and distribution; and creation of an independent regulator for the electricity sector. In 1998, the United States Agency for International Development (USAID) awarded a grant of US$15 million, to be administered by the International Bank for Reconstruction and Development, to the Hashemite Kingdom of Jordan for the implementation of its economic reform and development program. The Grant, TF021517, became effective on February 15, In 2005, following the good performance of the TF and at the request of the GOJ for financial assistance, USAID provided an additional grant of US$10 million to increase the total grant amount to US$25 million. Due to changes in the Bank s administrative fee policy and in financial reporting requirements, the US$10 million was not added to the original grant, but instead a successor trust fund to TF was created. The successor TF TF became effective on June 6, With this new trust fund, the objectives of the grant were amended to include public sector reform. 1

14 This modification was the result of lengthy discussions between the Bank, USAID and the GOJ regarding public sector reform and means to provide support in this area. As this was a trust fund grant approved in FY98, there was no Program Appraisal Document. Subsequently, under the Trust Fund Management Framework approved by the Bank s Board of Executive Directors on October 30, 2007, World Bank administered trust funds were mainstreamed in the work of the Bank and integrated with Operational policies and procedures applicable to IBRD/IDA Programs. As part of this effort, Recipient-Executed trust funds with a commitment value of over US$5 million became subject to standard documentation and reporting requirements. But at the time of their inception, TF and TF were not subject to this Trust Fund Management Framework. 1.2 Original Program Development Objectives (PDO) and Key Indicators According to a Cooperative Agreement (dated February 10, 1998) between USAID and the World Bank ( Bank ), the grant was intended to support reform and development of Jordan s economy, including through further trade facilitation and export development, privatization, financial sector reform, and streamlining of the regulatory environment. The Cooperative Agreement did not specify key indicators. The development objectives, as per the Grant Agreement of TF021517, dated February 15, 1998, between the Bank and the Ministry of Planning and International Cooperation, the Recipient, are Implementation of Annual Programs to support increased competition, outward-oriented growth, a modern, efficient and well-regulated financial sector, bestpractice business laws, and privatization, including: (i) trade liberalization and export development; and (ii) financial sector and legal reform. 1.3 Revised PDO The scope of program development objectives export development, privatization, financial sector reform, regulatory streamlining, and business law reform identified in the Cooperative Agreement and Grant Agreement were too broad and poorly-defined. As mentioned above, the Cooperative Agreement did not specify key indicators. The World Bank placed itself at substantial risk of promising more than it could realistically expect to be able to deliver. After eighteen months, the World Bank, USAID, and GOJ agreed on the need to narrow the scope of the Program. In a Memorandum of Understanding (MOU dated August 16, 1999) among the GOJ Ministry of Planning (subsequently superseded by the Ministry of Planning and International Cooperation), the implementing agency the Executive Privatization Unit (EPU) (subsequently superseded by the Executive Privatization Commission), USAID, and World Bank, the parties agreed to complete initial assistance on insurance and securities regulation, but that the Program should otherwise focus on privatization. A Revision to the Cooperative Agreement (dated June 13, 2000) specified that the Program would focus on privatization and would exclude post-privatization support. More specifically, the Revision indicated that the Program should focus on 2

15 privatizations in telecommunications, postal services, airline, buses, rail, seaport, electricity, petroleum refining/distribution, water, and grain silos. The Revision also provided for institutional strengthening of the EPU and development of a public communications program. At the request of MOPIC, and following discussions with the Bank and USAID, the objectives of the program were amended to include financing for public sector reform. The revised objectives read as Implementation of Annual Programs to support privatization, private sector investment and public sector reform. The development objectives in the Letter Agreement for the additional grant of US$10 million (TF052183), dated May 27, 2005, are to: (a) strengthen the investment climate, leading to new investment and job creation; and (b) improve effectiveness and efficiency of the delivery of public services, and creation of fiscal space. The activities for which the Grant is given are the implementation of annual programs to support privatization, private sector investment and public sector reform. 1.4 Main Beneficiaries The main beneficiaries are: Ministry of Finance which was able to use $1.9 billion of privatization proceeds (from $2.3 billion total) to pay down debt (which, together with the effect of GDP growth, reduced debt/gdp from 115 percent in 1997 to 60 percent in 2008). Jordan s citizens and private businesses who benefited from improved infrastructure services, additional (indirect) employment, and lower interest rates and lower taxes; and Strategic and financial investors who witnessed gains in the value of the investments as a result of improvements in the performance of the privatized firms. 1.5 Original Components The activities financed by the Program were not grouped under specific components and are derived from the Cooperative Agreement and Grant Agreement. From actual practice, it is reasonable to group Program activities into four main components, as follows: Regulatory reforms; Privatization; Public Sector Reform; and Public-private partnerships. 1.6 Revised Components Not Applicable 3

16 1.7 Other significant changes As noted above (Section 1.3), the scope of the Program was significantly narrowed through a June 2000 Revision to the Cooperative Agreement. Consistent with the August 1999 MOU, the Executive Privatization Unit established a Program Implementation Unit (PIU) to implement the Program e.g., select and use external consultants, prepare and conclude privatization transactions with administrative oversight from the World Bank. Satisfied with the Program progress of the initial grant, USAID made available in 2005 an additional US$10 million to finance additional activities. This additional US$10 million was constituted as a successor trust fund to the initial grant. Activities under the first grant were initially scheduled to be completed by February 28, The Grant s Closing Dates were extended three times, to February 28, 2003, to October 14, 2004 and finally to October 14, Activities under the successor trust fund were initially scheduled to be completed by October 14, The Closing Dates were extended at GOJ s request and with USAID s concurrence five times since and the Grant activities ultimately concluded on December 31, Key Factors Affecting Implementation and Outcomes 2.1 Program Preparation, Design and Quality at Entry The scope of the original Cooperative Agreement and Grant Agreement, which encompassed numerous private and financial sector reforms, was too broad. As noted above, the scope of activity was narrowed in the June 2000 Revision to the Cooperative Agreement to focus on privatization. With this focus on privatization, the World Bank was able to draw on extensive worldwide experience including from OECD countries on lessons and best practices in the design, development, and implementation of privatization programs. 2.2 Implementation Since it dealt mostly with utilities and infrastructure sectors, Jordan s privatization strategy emphasized sector restructuring to encourage private investment and allow for sustainable development of these sectors, in order to meet growing demand and improve the quality of infrastructure services. Thus, sustainable sector development received the highest priority. A second set of priorities included maximization of sales proceeds, maintaining tariffs for consumers, and raising competition and competitiveness. The GOJ was also very careful to reduce surplus labor through voluntary separations supported by generous severance packages. While capital market development was a strategic objective, local retail and private institutional investors showed relatively low interest in participating in the privatization program s public share offerings. 4

17 Broad-based consultations helped achieve a consensus in support of privatization. The main elements of Jordan s privatization strategy were identified in a 1999 National Privatization Strategy that was drafted by the Executive Privatization Commission (EPC), reviewed by the Privatization Higher Council (including economic ministers and the Central Bank governor and chaired by the deputy prime minister), and later discussed and approved by the Council of Ministers and the Parliament. This National Privatization Strategy including objectives, guidelines, principles, methods, sectors, and institutions) provided the basis for the Privatization Law that Jordan enacted in Privatization was also seen as a means to address remaining imbalances in the economy and complete implementation of the adjustment program that the GOJ had agreed upon with the International Monetary Fund after Jordan s earlier economic crisis. Jordan s privatization strategy did not identify a specific timetable for individual privatization transactions. The timing of individual transactions instead depended on the readiness of each sector (e.g., in terms of financial sustainability and regulatory framework), recruitment of international advisors, and decisions taken by the Privatization Higher Council. Despite frequent changes in governments, Jordan sustained its commitment to privatization for more than a decade through Key stakeholders accepted privatization as necessary to support the structural adjustment programs that had been agreed at the highest levels of government. By coordinating, following up, and serving as program advocate, the EPC also helped to maintain continuity of support for privatization. At times, resistance to privatization did arise. For instance, some members of society objected to the sale of public assets while others objected the transfer of ownership to investors; managers and workers at some SOEs were also resistant. In the end, the consensus in favor of privatization was strong enough to maintain forward progress. Success in implementing Jordan s privatization program reflects the following factors: (i) professional experienced and well-trained staff and management at the EPC; (ii) adherence to international best practices in restructuring and privatization; (iii) support from the World Bank and USAID in advising the EPC/GOJ and facilitating exposure to cross-country experience; and (iv) use of highly-qualified international consultants to support the EPC and GOJ in preparing, structuring, and concluding privatization transactions. Local financial institutions played some role in privatization transactions. For instance, domestic banks participated in advisory consortia for the electricity and Royal Jordanian transactions. A major local bank was in the initial investor consortium that purchased 40 percent of Jordan Telecommunications Company. But Jordan s institutional investor base has remained narrow. Hence, in most of the privatization transactions, the main financial investor has been Jordan s state-owned Social Security Corporation Investment Unit (SSCIU) supplemented in some cases by institutional investors from Gulf Cooperation Council countries. 5

18 Not all privatization attempts have succeeded. For instance, Aqaba Rail was too distressed and too integral to Jordan Phosphate Mines Company (JPMC) to be privatized apart from JPMC. Food security concerns thwarted plans to privatize Grain Silos. Excessive legacy staffing and expensive universal service obligations discouraged qualified operators from submitting bids for Jordan Post. While Jordan Petroleum Refining Company (JPRC) may yet be privatized, the process still awaits Parliament s approval of an enabling law. While the EPC showed substantial successes in privatization and in two large publicprivate partnerships (PPPs) (Aqaba Container Terminal and Queen Alia International Airport), it was not able to make progress on innovative small PPPs. Due to the lack of an appropriate PPP Law at the time of implementation, a few small/medium PPP projects had to be terminated. For the Axle Load Management, which was selected for procurement as a PPP, local law firms have provided conflicting views on whether or not a sufficient legal basis exists for a private facilitator operator to collect fines that would otherwise go to the GOJ. The Irbid Wholesale Fruit and Vegetables Market was also deemed to be financially and commercially not viable for a private developer. The Grant was restructured mainly to accommodate an extension of its closing date. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Interest in M&E has grown since 1998, when this Program commenced. This Program did not have any special arrangements for M&E. However, assessment of Program outcomes has been facilitated by the availability of (i) an independent 2008 privatization impact assessment financed by the European Union and (ii) a 2011 World Bank regional financial sector flagship report that provides some basis for assessing the impact of regulatory reforms in the areas of mutual funds and insurance regulation. These assessments of Program outcomes are presented below in Section Safeguard and Fiduciary Compliance As the Program typically supported the privatization of existing SOEs, there were no safeguard issues. However, EPC and the Bank were mindful of potential environmental issues in preparing for investor due diligence. Most terms of reference for transaction advice required an assessment of environmental issues. This was to protect the GOJ in case environmental issues arose during the sales process. On fiduciary compliance, records and accounts were kept and audited, and audited financial statements submitted to the World Bank annually in accordance with the Grant Agreement. On procurement, a post-review of sample contracts conducted in June 2009 found that record keeping for contracts not subject to the Bank s prior review was incomplete. This was resolved to satisfaction and the EPC was advised to keep up-to-date and accurate records. 6

19 2.5 Post-completion Operation/Next Phase As the Program resulted in a number of completed privatization transactions in many cases involving a strategic investor and financial institutional investors reforms are likely to be sustained by the normal corporate governance and capital market rules and institutions that apply to privately-owned firms. The main uncompleted portion of the Program at the time of the completion of work on December 31, 2011, is closure on some innovative small/medium public-private partnerships (PPPs) e.g., facilities management of government buildings, bus terminal, wholesale market. It appears that a special-purpose PPP Law is needed to enable such PPPs. The Bank provided technical assistance and Japan PHRD Grant financing to support development of a draft PPP Law. The draft law was approved by the Cabinet in June 2011 and submitted to Parliament where it is still under consideration. Follow-on implementation of innovative small/medium PPPs will depend on enactment of a suitable PPP Law. Development of innovative small/medium PPPs which can achieve both fiscal savings and improvements in public services would also benefit from establishment of a PPP unit e.g., within the office of the Minister of Finance or Prime Minister to identify opportunities for private financing of capital investments that would otherwise receive public financing. These comments notwithstanding, Jordan has accomplished much in PPPs and can serve as a model for other countries in the region. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The privatization and PPP transactions supported by the Program are consistent with long-standing joint efforts by the GOJ and World Bank to promote private sector development within Jordan, enhance the competitiveness of Jordanian firms in a globalized economy, improve service delivery, enhance fiscal sustainability, and reduce and manage fiscal and macroeconomic risks. 3.2 Achievement of Program Development Objectives The outputs listed in Annex 2 resulted in a number of specific outcomes, which follow. The M&E sources listed above (Section 2.3) provide a basis for assessments of the impact and support for Program development objectives, which are summarized below. Specific Outcomes: Regulatory Reforms Mutual fund regulation The Program assisted the Jordan Security Corporation in developing a 1999 mutual fund regulation. Insurance regulation The Program financed preparation of a draft regulation, which provided the basis for the Insurance Supervision Act issued in In addition, the Program provided important support for establishment of Jordan s independent Insurance Regulatory Commission (IRC) in

20 Electricity sector regulation The Program supported establishment of Jordan s independent Electricity Regulatory Commission (ERC) in In turn, the ERC provided a sound regulatory basis for the subsequent restructuring of the National Electricity Power Company (NEPCO), the privatization of one state-owned generating company and two state-owned distribution company, and the establishment of two independent power producers (IPPs). Land transport regulation The Program financed preparation of a draft law to support establishment of an independent Public Transport Regulatory Commission (PTRC) in 2001 to regulate privately-owned and operated road transport. PTRC subsequently evolved into a Land Transport Regulatory Committee. Downstream petroleum regulation The Program supported development of a draft Energy and Mineral Law that was discussed in Parliament and then returned to the GOJ for further revision. Specific Outcomes: Privatization Jordan Telecommunications Company (JTC) EPC s public tender for a strategic investor for 40 percent of JTC s shares and full management control attracted bids from two consortia. The consortium controlled by France Telecom was declared the winner and purchased 40 percent of the GOJ s JTC shares in A follow-on 2002 tender of GOJ shares was undersubscribed, but an additional 10.5 percent of shares were placed with Jordan s Social Security Corporation Investment Unit (SSCIU) and other institutional and retail investors. In 2006, the Jordan Investment Corporation (JIC) sold another 11 percent of shares to France Telecom (FT) giving FT majority ownership and 29 percent to other institutional investors. Recent JTC shareholdings were as follows: France Telecom, 51 percent; SSCIU, 29 percent; other institutional investors, 13 percent; free float, 7 percent. Arab Potash Company (APC) Through competitive tender, a 26 percent GOJ shareholding was sold in 2003 to a foreign strategic investor. The sale/purchase agreement gave the strategic investor the right to propose candidates for key management positions. Agricultural Marketing and Processing Company (AMPCO) AMPCO was privatized in All shares were sold through an open bidding process to a foreign investor. Jordan Phosphate Mines Company (JPMC) In 2006, a foreign institutional investor purchased 37 percent of JPMC shares and acquired management rights. Recent JPMC ownership was as follows: foreign institutional investor, 37 percent; GOJ, 26 percent; SSCIU, 14 percent; other pension funds, 5 percent; other financial investors, 11 percent; and free float, 7 percent. Aviation sector During , EPC conducted open tenders to sell percent of shares in five businesses that had been spun off from Royal Jordanian Airlines: 8

21 duty free shops and catering to foreign strategic investors; aircraft maintenance to a foreign financial investor; and engine maintenance and training/simulation to Jordanian investors. In addition, 100 percent of shares in the Royal Jordanian Air Academy and the Queen Noor Technical College for Civil Aviation were sold to Jordanian investors through competitive tenders. Royal Jordanian Airlines (RJ) Following extensive restructuring to turn around Jordan s ailing national carrier, 63.3 percent of RJ shares were sold through an initial public offering (IPO). Recent RJ ownership stands as follows: GOJ, 26 percent; SSCIU, 10 percent; employees, 5 percent; other institutional investors, 36 percent; free float, 23 percent. Central Electric Power Generation Company (CEGCO) Following an open tender, 51 percent of CEGCO shares were sold to a foreign consortium with another 9 percent sold to SSCIU. Electricity distribution Following an open tender, the GOJ sold its 100 percent holding in Electrical Distribution Company (EDC) and 55.4 percent holding in Irbid Distribution Company (IDECO) to a consortium made up of foreign and local financial investors. Aqaba Railways Company (ARC) While ARC s workforce had been reduced 40 percent as of 2007, two attempts at privatization were unsuccessful. Jordan Post A 2009 open tender was cancelled because it attracted only one bidder, who was considered unsatisfactory. Worldwide, postal privatization has been especially challenging because of high staffing/labor costs and expensive universal service obligations. Jordan Grain Silos Due to food security concerns prompted by a sharp worldwide rise in food prices, the GOJ decided in 2008 not to proceed with this privatization. Jordan Petroleum Refinery Corporation This transaction has been delayed, but is still expected to proceed to completion after the Government and Parliament agree on a supporting law. Specific Outcomes: Public Sector Reform Program-financed staff working in MOPIC s Policies and Strategies Department helped develop economic and development policies, set strategic plans and priorities, and provided general support for the privatization program. Specific Outcomes: PPPs Aqaba Container Terminal (ACT) A management contract was awarded to a leading international port operator in

22 Queen Alia International Airport (QAIA) Following a competitive tender, an international consortium was selected to rehabilitate the existing QAIA terminal, develop a new terminal, and operate both terminals for 25 years under a rehabilitation, expansion, and operation agreement (REOA). This transaction reached financial closure in November Small/medium PPPs For various reasons (e.g., absence of an enabling law, municipal opposition), the EPC was unable to move beyond feasibility studies for a number of potential transactions. These included PPPs for tourism, bus terminals, government office buildings, hospital parking, axle-load management, urban development, wholesale markets, and customs warehouses. Impact: Regulatory Reforms Mutual fund regulation As of end-2009, Jordan still had only three mutual funds with the equivalent of US$17 million in assets under management, well below the level expected for a country with Jordan s economic and demographic characteristics. Insurance regulation Establishment of an independent regulator supported robust development of Jordan s insurance sector. As of end-2009, life insurance premiums were close to expected levels while non-life premiums were above predicted levels for a country with Jordan s economic and demographic characteristics. Electricity sector regulation This allowed both privatization and the introduction of new independent power producers. The resulting gains to consumers are summarized below. Impact: Privatization Table 1. Privatization Proceeds (US$ in millions) Transaction(s) Year(s) Amount Jordan Telecommunications Co. 2000/2002/2006 1,327.3 RJ spinoffs + aviation schools 2000/2001/2003/2005/2006/ Arab Potash Co Agricultural Marketing/Processing Jordan Phosphate Mines Co Royal Jordanian (RJ) Airline CEGCO Electricity distribution (2) TOTAL 2,295.3 Sales proceeds Privatization transactions financed by the Program raised US$2.3 billion (Table 1). Almost all (82 percent) of these proceeds were used to retire external debt. The remainder was used to pay off SOE debts or for financing health, education, or rural development Programs. In March 2008, Jordan concluded an agreement to buy back US$2.4 billion of Paris club debt (at an 11 percent discount) using privatization proceeds and some assistance from Gulf Cooperation Council (GCC) countries. As a result, Jordan s debt/gdp ratio dropped from 100 percent in 2000 to 60 percent in Thus, 10

23 privatization contributed to lower interest charges and overall macroeconomic stability and resilience heading into the worldwide financial crisis that commenced in mid Recurring fiscal proceeds Annual payments to the Treasury e.g., taxes, dividends, revenue-sharing, royalties, fees from SOEs restructured and privatized with Program support have more than tripled, from JD 78 million in 2000 to JD 270 million in Enterprise performance Firms restructured and privatized with Program support have shown substantial gains in financial performance and productivity. For example, JTC sales/employee has increased from JD 58,000 in 2000 to JD 159,000 in 2009, while the number of subscribers per employee has risen from 170 in 2000 to 1,000 in At CEGCO, sales per employee increased from JD 106,000 in 1999 to JD 162,000 in 2007, while power generation per employee increased from 4.6 giga-watt hours (GWh) to 8.0. The electricity distribution companies were privatized only in For the period , however, returns on equity (ROE) were consistently higher at the fullyprivate Jordan Electric Power Company (JEPCO) and partially-private IDECO than at the fully-public EDCO. Royal Jordanian Airlines (RJ) more than doubled its revenues and staff productivity between 2000 and 2008 and modernized its fleet, while reducing its debt/assets from 150 percent to about 50 percent. Other RJ spinoffs have remained profitable. The mining companies have been generally profitable since privatization. Consumers Jordan s consumers have gained from privatization, to varying degrees. For example: In telecommunications, waiting times for a fixed-line connection have dropped dramatically, from almost ten years pre-privatization to just a few days now. One-time connection fees have been cut by 75 percent. Almost all fixed-line tariffs have been halved since The exception has been local peak-time calls, but the 50 percent growth in these is in line with inflation. Fixed-line reliability has improved greatly. Consumer gains in telecommunications are due to the combined effects of technological improvements, increased competition, and commercialization and privatization. In electricity, total bulk supply almost doubled between 1999 and Average tariffs have been increased in line with inflation, but the social life line tariff actually declined in real terms. In air transport, Royal Jordanian has increased its destinations, while average weekly frequencies and passenger numbers have doubled. Customer satisfaction had increased by 2008 to 95 percent for business class and 92 percent for economy. Workers As a matter of policy, GOJ sought to avoid involuntary retrenchments in the course of privatization. Voluntary early retirement packages, consisting of a lump sum payment combined with monthly health and other benefits until retirement age, was the norm. Staff cut-backs did exceed 15 percent at the two mining companies and JTC. Overall, however, employment at the enterprises privatized with Program support decreased only by 2 percent (or 448 jobs) between 2000 and Against this number, GOJ estimates that sector reforms led to 25,000 additional new jobs at mobile phone 11

24 firms and IT-enabled businesses. For workers who were not retrenched and who remained with firms being privatized, real (i.e., post-inflation) wages for the period increased or held steady in most cases. Workers at privatized firms also benefited from improved health insurance coverage. Lastly, in at least some cases, new investors/operators of privatized firms increased training budgets. Local communities Jordan s privatized enterprises have shown a greater commitment to corporate social responsibility (CSR) than did their SOE predecessors. For example, several privatized firms have substantially increased contributions to support local schools, rehabilitate civil works, improve food distribution, and expand medical services. Capital investment Privatized firms for which the Program financed transaction support additionally invested JD 721 million (about US$ billion equivalent) during the period to expand and modernize fixed assets or 11.4 percent of total foreign direct investment (FDI) for the period. It is noteworthy that this JD 721 million went to enhance the capacity and productivity of Jordan s industrial and service sectors, while much other FDI into Jordan was for real estate development. Capital market development As of end-2009, market capitalization of JD 5.9 billion for five privatized firms (JTC, RJ, JPMC, APC, IDECO) represented 26 percent of total market capitalization for the Amman Stock Exchange (ASE). In most cases, however, the great majority of shares in these companies are held by the strategic investor and GOJ institutions, such that free floats available for public trading remain thin: e.g., about 7 percent for JTC, 10 percent for APC, and 7 percent for JPMC. Impact: Public Sector Reforms While Program-financed MOPIC staff may have provided some support to the GOJ s privatization program, it is not evident that these staff had any impact on other areas of public sector reform. Impact: PPPs Aqaba Container Terminal (ACT) ACT operations improved immediately after a leading international operator was awarded a management contract to run ACT. Container throughput increased 18 percent in the first year of private operation and nearly doubled in five years, from 302,927 twenty-foot equivalent units (TEUs) in 2003 to 587,530 TEUs in Anchorage waiting time was reduced from as much as 129 hours (>5 days) to zero during the first year, and average port stays dropped from 8 days under public management to a few hours in 2005 under private management. New shipping companies have started using ACT, which has been rated as among the three best terminals in the Middle East and South Asia. Queen Alia International Airport (QAIA) As part of its rehabilitation, expansion, and operation agreement, the international consortium will invest US$750 million to refurbish the existing QAIA terminal and build a new terminal. This is expected to support a 12

25 doubling of passenger traffic by 2030 and enhance Jordan s attractiveness as an international tourist destination and regional air hub. 3.3 Efficiency The two Grants totaled US$25 million, including the Bank s administrative fees. Over the 13-year life of these Grants, the grant-funded Program generated over US$4 billion in capital inflows (or commitments), as follows: US$2.295 billion in privatization sales proceeds; US$1.015 billion in capital investment by privatized companies; and US$0.750 billion in capital investment in the QAIA Program. In addition, the Program has had many indirect benefits, which are not measured. Notable indirect benefits include employment gains of 25,000 in the reformed ITC sector; higher annual fiscal inflows from privatized firms; improved access to reliable electrical service; and additional FDI and trade flows resulting from major improvements at Aqaba Container Terminal. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory Program outputs and outcomes provided direct support for private sector development, increased competitiveness and employment, improved services, and fiscal sustainability. USAID s contribution of US$25 million in grant funding for regulatory reform, institutional, and transaction support led to privatization/ppp transactions that produced over US$4 billion in inflows as detailed above. Hence, the Program was extraordinarily efficient and might have warranted a Highly Satisfactory rating. However, beyond the contribution to the privatization of state-owned enterprises, associated regulatory reforms, and the attendant improvements in service delivery, the program did not contribute any other aspect of the Government s public sector reform agenda. In addition, the Program did not achieve any closure on innovative small/medium PPPs. For these reasons, the overall outcome rating is judged to be Satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The privatization/ppp transactions supported by the Program led to additional overall employment (indirect plus direct), improved public services at no overall increase in costs, lower interest rates, and corporate social responsibility (CSR) programs that benefitted rural areas (detailed in Section 3.2) all of which support poverty reduction, gender, and social development goals. (b) Institutional Change/Strengthening The Program supported the establishment of a number of institutions including an 13