This document has a restricted distribution and may be ...€¦ · TAP Technical Assistance Project...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 16365

IMPLEMENTATION COMPLETION REPORT

ARAB REPUBLIC OF EGYPT

TECHNICAL ASSISTANCE PROJECT FOR PRIVATIZATION, ENTERPRISE

AND BANKING SECTOR REFORM

(CREDIT 2402-EGT)

November 5, 1997

Infrastructure Development Group L *

Middle East and North Africa Region -

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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Currency equivalentsCurrency Unit = Egyptian Pound (L.E.)

L.E. per US Dollar(average)

1993: 3.331994: 3.371995: 3.391996: 3.40 (estimated)

1997: 3.39 (as of October 31)

Fiscal YearJuly 1-June 30

Abbreviations and Acronyms

ACs Affiliated CompaniesCAS Country Assistance StrategyCBE Central Bank of EgyptCIDA Canadian International Development AgencyEDI Economist Development InstituteERSAP Economic Reform and Sectoral Adjustment ProgramEU European UnionFDI Foreign Direct InvestmentHCs Holding CompaniesHQ HeadquartersIDA International Development AssociationIMF International Monetary FundKfW Kreditanstalt fuir WiederaufbauNCCD National Company for Construction and DevelopmentODA Overseas Development AdministrationPE Public EnterprisesPEO Public Enterprise OfficeSAL Structural Adjustment LoanTAP Technical Assistance Project for Privatization, Enterprise

and Banking Sector ReformUNDP United Nations Development ProgramUSAID United States Agency for International Development

Vice President: Kemal Dervis

Country Director: Khalid Ikram

Sector Director: Jean-Claude Villiard

Task Manager: Mohsin Alikhan

FOR OFFICIAL USE ONLY



TECHNICAL ASSISTANCE PROJECT FOR PRIVATIZATION, ENTERPRISEAND ANKING SECTOR REFORM

(Credit 2402-EGT)

TABLE OF CONTENTS

Page No.

PREFACE

EVALUATION SUMMARY................................................................................i

PROJECT IMPLEMENTATION ASSESSMENT

A. Background ....................................................... 1

B. Objectives and Project Description ....................................................... 2

C. Achievement of Objectives ....................................................... 4Institutional Development of PEO ....................................................... 4Training ....................................................... 5Professional Advisory Services for Privatization and Restructuring .......................6Banking Sector Reform ....................................................... 6

D. Project Sustainability ....................................................... 7

E. IDA Performance ....................................................... 7Project Identification ....................................................... 7Project Preparation and Appraisal ....................................................... 8Supervision ....................................................... 8

F. Borrower Performance ....................................................... 9

G. Assessment of Outcome ....................................................... 9

H. Key Lessons Learned ....................................................... 9

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

STATISTICAL TABLES

Table 1: Summary of Assessments ............................. I 1Table 2: Related Bank Loans/Credits ............................. 12Table 3: Project Timetable ............................. 13Table 4: The Original Credit Agreement ............................. 14Table 5: Loan/Credit Disbursements ............................. 15Table 6: Key Indicators for Project Implementation ............................. 16Table 7: Project Costs and Financing ............................. 17Table 8 Project Financing ............................. 18Table 9: Status of Legal Covenants ............................. 19Table 10: Bank Resources: Staff Inputs ............................. 21Table 11: Bank Resources: Missions ............................. 22

ANNEXES

Annex 1: Summary of PEO ComponentsAnnex 2: Summary of Banking Sector Reform Components



TECHNICAL ASSISTANCE PROJECT FOR PRIVATIZATION, ENTERPRISEAND BANKING SECTOR REFORM

Preface

This Implementation Completion Report (ICR) analyzes the Technical Assistance ProjectFor Privatization, Enterprise and Banking Sector Reform from preparation to cancellation. TheCredit (Cr. 2402-EGT), in the amount of SDR 6.6 million (US$9 million equivalent) wasapproved by the Board on June 25, 1992 and became effective on March 19, 1993. The Creditwas canceled at the request of the Government of Egypt effective November 19, 1996. Of theCredit amount, total disbursement was SDR325,840 (US$455,000 equivalent). Cofinancing forthe project has been provided by the EU, USAID, UNDP, KfW, ODA, and CIDA.

The Credit was refocussed effective March 7, 1995 and the funds reallocated within theoriginal categories of the Credit.

This ICR has been prepared by Mr. Mohsin Alikhan based on material in the project files,the supervision reports throughout the life of the project, interviews with some of the taskmanagers who supervised the project and a draft Project Completion Note that was preparedpreviously. Ms. Elisabeth Sherwood provided editorial and preparation assistance; Mr. RamonDe Mesa provided production assistance. The ICR was reviewed by Mr. Alastair J. McKechnie,the then Division Chief, MN2PI.



TECHNICAL ASSISTANCE PROJECT FOR PRIVATIZATION, ENTERPRISE ANDBANKING SECTOR REFORM

(CREDIT 2402-EGT)

EVALUATION SUMMARY

Background

1. IDA's strategy in Egypt during the early 1990s was to assist the Government in designinga comprehensive Economic Reform and Structural Adjustment Program (ERSAP) and to providethe necessary resources to support effective implementation. The strategy also aimed to mobilizedonor support for the reform program. This was supported by the Bank's Structural AdjustmentLoan (SAL) and an IMF Standby Arrangement, both approved in mid-1991. Central to thesuccess of the ERSAP was a thorough reform of the Public Enterprise (PE) sector, includinginitiation of a privatization program. The Technical Assistance Project for Privatization,Enterprise and Banking Sector Reform (TAP), intended to support the PE program, wasdeveloped within the framework of the SAL.

Project Objectives

2. The objectives of the TAP were as follows: (i) the institutional development of the PublicEnterprise Office (PEO) and the Central Bank of Egypt (CBE) to design and implement thepublic enterprise reform and privatization programs and the banking sector reform program,respectively; (ii) training of executives and board members of the PEO, Holding Companies(HCs) and Affiliated Companies (ACs); and (iii) preparation of strategies and plans to privatizeor restructure public enterprises and assistance with specific privatization transactions. Theproject was refocussed effective March 7, 1995, and the funds reallocated within the categoriesof the Credit. The project objectives remained the same.

Achievement of Objectives

3. In terms of the institutional development of the PEO .and the CBE to implement theirrespective reform programs, performance during the life of the project was less than satisfactory.However, some benefits continue to materialize, albeit slowly. Renewed commitment andsupport for the privatization program from the recently (1996) elected Government andcontinued donor interest indicate a certain level of momentum for privatization that will likelycontinue.

ii Evaluation Summary

4. The Government allowed PEO only a restricted role and gave insufficient authority to itto become an apex institution for the privatization program as envisaged under the project.However, the PEO was strengthened enough to allow it to act as a focal point where donors,experts, management and staff of HCs and ACs and purchasers and other parties interested inprivatization could communicate. This enabled the hiring of international expertise to assistlocal counterparts in moving forward with the program, albeit slowly.

5. According to the latest Country Assistance Strategy (CAS dated May 5, 1997), by the endof December 1996, 42 of the 314 (Law 203) public companies had been privatized. Of these 42companies, six were sold to strategic investors, fifteen through the stock markets, and ten toemployees shareholder associations, while eleven were liquidated. The sales to date however,have mostly involved smaller companies or minority stakes of larger companies. The value ofprivatization is estimated at 10 percent of the public companies identified. However, the PEOwould need to be further strengthened and supported to enable it to tackle the complexities of themajor privatizations that are expected to follow.

6. In terms of training, IDA, with the assistance of donors, arranged for training and studytours to other countries where similar privatizations programs had taken place or were underimplementation. It also designed and conducted training sessions and procurement seminars atBank headquarters and the Resident Mission in Cairo.

7. The TAP did fund two organizational studies of the CBE, the results of which will beused to support modernization efforts funded by the EU and other donors. In terms of bankingsector reform, some of the goals of the TAP have been achieved - i.e., indirect monetary controland bank supervision - albeit with little IDA involvement.

Project Sustainability

8. It is likely that the modest achievements of the project will be sustainable. With thesupport of the President, the Prime Minister has become one of the main forces behind theprivatization program. A Cabinet Committee has been formed to drive and monitor theprivatization process, there are strong signals to the private sector that portfolio investment iswelcomed as much as foreign direct investment, and there is a stronger role for the PEO to act asa catalyst for privatization.

9. Similarly for the banking sector reform program, the modest achievements of the TAPwill likely be sustainable. TAP-financed studies are being used to support the modernizationefforts of the CBE, which is being funded by other donors.

Major Factors Affecting the Project

10. The most important factor affecting the TAP was the apparent weakening of theGovernment's commitment to privatization after the project was approved. This was likely dueto many factors, including fear of unemployment resulting from privatization, lack of consensusin the country and within the Government on the pace and methods of privatization, and

Evaluation Summary iii

decentralization of the authority for privatization to the HCs. The availability of grant fundingwas another key factor that hindered IDA from playing an effective role.

IDA Performance

11. The privatization program was under discussion with the Egyptian authorities for sometime as part of the economic reform program and specifically under SAL. All concerned knew ofthe issues affecting the privatization program. TAP came about as part of the SAL and the needto meet creditors' requirements for debt relief. However, since this was technically anindependent project, it should have been treated as such, and the risks and constraints facing theproject given more emphasis in the design and implementation of the project. Duringimplementation, IDA identified early the difficulties facing the project, but internal Governmentconstraints prevented effective corrective measures from being taken despite recommendationsfrom IDA staff and management. With respect to project supervision, there were four TaskManagers (TMs); two had been involved with Egypt's privatization program for some time andprovided continuity until 1994, when the second half of SAL was canceled. The other two TMssupervised TAP for a brief period when the project was losing its raison d'etre. IDA'ssupervision of the project was carried out as a combined effort on this project and that on theSAL, given the close interlinkage between the two projects. Thus, implementation of this projectwas subject to the policy dialogue under the SAL.

12. IDA has not played a substantial role in the privatization process in Egypt, though itscatalytic role in strengthening the institutional capacity of the PEO, even with all itsshortcomings, formed an important base for the eventual continuation of the process. Similarobservations apply to the banking reform component.

Borrower Performance

13. During preparation of the TAP, the Government expressed its commitment to the project,but was unable to build the necessary consensus to follow through. The project was originallycommitted to more out of a necessity to satisfy SAL conditionality, and it did not receive thedegree of stakeholder commitment that was essential to successful implementation. GOEperhaps promised far more under the TAP than it had the commitment or capacity to deliver.Borrower performance left much to be desired. Furthermore, the availability of grant fundingmade use of IDA funding less attractive, thereby adversely affecting IDA Credit disbursements.

Assessment of Outcome

14. Rated according to both its original and refocussed objectives, the project's performancewas unsatisfactory.

iv Evaluation Summary

Key Lessons Learned

15. Commitment: Strong commitment from borrowers is needed for technical assistance.When there are doubts of government commitment, proper safeguards should be built into theproject design.

16. Risks: Identify risks and assess likelihood of their occurrence and take these into accountin the project design.

17. Project Cancellation: Where borrower commitment to a project has weakened, andwillingness to use IDA funding has become insufficient, decisions to cancel the project should bemade earlier rather than later in the interest of both the Client and IDA.

18. Numerical Targets Should be Realistic: Constraints should be taken into account inestablishing realistic targets.

19. The Timing of Privatization: A careful assessment should be made on the advisability ofundertaking privatization transactions while an economic reform or structural adjustrnentprogram is underway, due to the need for PEO-type organizations to be restructured andstrengthened prior to being able to operate effectively in a sensitive and difficult economicenvironment.

20. Should TA Services Offered for a Fee?: Consideration should be given by the BankGroup to offering technical assistance for a fee to be charged to donors. Although thismechanism is not available, this is in essence what occurred in the TAP, although without a fee.



TECHNICAL ASSISTANCE PROJECT FOR PRIVATIZATION, ENTERPRISE ANDBANKING SECTOR REFORM

(CREDIT 2402-EGT)

A. Bacikground

1. Until recently, and for most of the last four decades, Egypt pursued a public-sector ledand inward-looking development strategy and gave high priority to social welfare. This strategygenerated large fiscal and current account deficits financed (in part) by foreign debtaccumulation. Over time, Egypt was unable to service its debts, triggering substantial reductionsin gross capital inflows and accumulation of arrears and making apparent a heavy external debtoverhang.

2. In response to the deteriorating economic conditions starting in the late 1980s, theGovernment of Egypt (GOE) began implementing a comprehensive Economic Reform andStructural Adjustment Program (ERSAP) in the spring of 1990. This was supported by theBank's Structural Adjustment Loan (SAL) and an IMF Standby Arrangement, both approved inmid-1991. Central to the success of the ERSAP was a thorough reform of the Public Enterprise(PE) sector, including initiation of a privatization program. The goal was to improve the overallefficiency and productivity of the economy through privatization and the reform of the policyenvironment in which public enterprises operated. A new Minister for Public Business-SectorEnterprises was appointed, and to assist the Minister a small technical secretariat, the PublicEnterprise Office (PEO), was created. The Technical Assistance Project for Privatization,Enterprise, and Banking Sector Reform (TAP), intended to support the PE reform program, wasdeveloped within the framework of the SAL.1

3. As part of the overall reform program, in 1991 GOE liberalized interest rates, relaxedGovernment control of foreign exchange and unified exchange rates. These,crucial steps towarda market-based system needed to be accompanied by reforms in other parts of the financialsector, in particular, strengthening the operations of the Central Bank of Egypt (CBE). The TAPwas also intended to support the Government's efforts in carrying out banking and financialsector reforms.

At the time, Egypt was to benefit from the Paris Club's debt forgiveness of US$15 billion and other economicsupport. The last tranche of debt forgiveness took place in October 1996 (compared to an original date of mid-1994). The reason for the delay was the inability of the Government to meet IMF conditions, includingprivatization targets. Similarly, in the case of the SAL, the Government was only able to partially meet theconditions of the privatization program. Nonetheless, a waiver was requested and granted by IDA for thesecond tranche release (March 1993).

2 Implementation Completion Report

4. IDA's strategy in Egypt during the early 1990s was to assist the Government in designinga comprehensive reform program (ERSAP) and to provide the necessary resources to supporteffective implementation. The strategy also aimed to mobilize donor support for the reformprogram. The TAP was consistent with both strategic objectives.

B. Objectives and Project Description - Evaluation of Objectives

5. The project was prepared in response to explicit requests from the Government fortechnical assistance and with the active participation of the PEO and the CBE. During thepreparation and appraisal of the project, the Government had expressed a strong commitment tothe objectives of the project at both the ministerial and working levels.

6. The project was designed to provide technical assistance, funded through an IDA Creditand donor grant funds, to promote privatization and restructuring of PEs, training, and bankingsector reform.2 More specifically, the project had three objectives: (i) institutional developmentof the Public Enterprise Office (PEO) and the Central Bank of Egypt (CBE) to design andimplement the public enterprise reform and privatization programs and the banking sector reformprogram, respectively; (ii) training of the PEO's, Holding Companies' (HCs) and AffiliatedCompanies' (ACs) executives and board members; and (iii) preparation of strategies and plans toprivatize or restructure PEs and assistance with specific privatization transactions.

7. The project as originally designed comprised the following components: (i) consultingservices to assist with the preparation for the privatization of about 65 ACs' major assets orshareholdings; (ii) strengthen the capabilities of the PEO over a 5-year period and recruitment ofan international team of experts to help the PEO design and monitor privatization and PE reformprograms; (iii) training and seminars for senior and middle managers; and (iv) design andimplementation of a comprehensive banking sector reform program.3 Through its banking sectorreform component, the TAP was to help the CBE improve its banking regulation and supervisioncapability, develop a modem clearing and payments system, strengthen its market monitoringcapacity, and reform and privatize state-owned banks.

8. At the Government's request, IDA organized a donor's conference in May 1992 tomobilize donor support. Donors participating in this conference made commitments of grantresources equivalent to US$90 million to support Egypt's technical assistance program, whichwere to be spread over the next few years depending on the completion of bilateral agreements.However, firm donor commitments from six countries were made for this project for a total costof the project of US$43.9 million (Tables 7 and 8), including IDA and GOE resources. In the

At negotiations, the Government requested inclusion of the banking sector component and IDA agreed.

The CBE recognized the urgency of the reforms. Donor agencies also supported the project. Generous grantfunding was made available by donors, however, this reduced the need for IDA funding to a negligibleamount.

Implementation Completion Report 3

design of the project, IDA took into account the findings and recommendations contained in theBank document, "Managing Technical Assistance in the 1990s."

9. At the request of the Government, the project components were refocussed in March1995 and the Credit proceeds reallocated largely to PE restructuring in the expectation that thiswould provide impetus to the privatization process and accelerate the use of IDA funds.Objectives of the project remained the same. The refocussed TAP placed greater emphasis onenterprise restructuring as a first step in the plan for privatization, the training program, andbanking sector reform, rather than preparation of transactions for the privatization of the ACs.The refocussed project components covered: (i) consulting services for restructuring of about 20ACs; (ii) training and seminars and management information system activities for the NationalCompany for Construction and Development (NCCD) and its ACs; and (iii) the design andimplementation of the comprehensive Central Bank reform program.

10. As originally designed, the project was to be implemented over 5 years by two agencies.The PEO was to be responsible for implementing three components of the project - theprivatization, restructuring and training programs. The CBE was to be responsible for the designand implementation of a comprehensive bank reform program. With the refocus of the IDACredit, however, the PEO became responsible for PE restructuring activities, and the NCCD (oneof the HCs), on behalf of the PEO, for the training of its ACs. The CBE's responsibilitiesremained the same.

11. Despite refocussing the Credit, four years after effectiveness only a small amount of IDAfunds had been utilized - the CBE had conducted two studies at a cost of US$455,000. None ofthe other agencies utilized IDA funds. The refocussed project did not accelerate the use of IDAfunds largely due to the large amount of available donor funding.

12. Although the objectives of the project were sound, they were overly ambitious. As notedearlier, the Government had demonstrated strong commitment at the preparation stage of theproject. The Government was eager to solve its debt crisis and IDA responded, but neitherparties realized that it would take far more time to build the domestic consensus for theprivatization program and the institutional capacity to carry forward such a complex andcomprehensive program within the envisaged timeframe. IDA was aware that donor countrieswere already assisting Egypt's privatization program and were facing difficulties makingprogress. Despite these risks, IDA thought it worthwhile to take a calculated risk in processingthe TAP, because of the project's high potential benefits to Egypt's and the region's economicdevelopment.

13. A number of key risks to the project were highlighted in the TAP's Memorandum of thePresident (June 2, 1992). These were: (i) Government may weaken its commitment to theoverall program; (ii) institutional development and capacity building would require more timethan expected; (iii) project activities may prove to be too complex relative to the absorptive

4 Related to IDA Credit.


capacity of the PEO and the CBE; and (iv) the Government's targets for privatizing andrestructuring enterprises, which were fairly ambitious given the experience of other countries,may not be accomplished. Some measures were taken to address and minimize the above risks,but despite this, all came to materialize to different degrees and the project faced majorimplementation difficulties both in terms of utilization of IDA funds and in moving the projectahead. By agreeing to refocus the project it was hoped that the situation would improve, butunfortunately the project continued to face the same difficulties.

C. Achievement of Objectives

14. In assessing the performance of the project two key aspects of TAP operations should bekept in perspective: (i) utilization of the Credit; and (ii) the institutional impact made by IDA toenable the Government to implement its privatization program. On (i), TAP's performance wasunsatisfactory, however, experience elsewhere suggests that non-utilization of Bank/IDA fundsshould be expected on TAP-type operations when grant funds from other donors are readilyavailable. There are a number of reasons for this, including more favorable financial terms andno repayment requirements on grant funds, perceptions that IDA's procurement procedures arecomplex and strict, and encouragement from bilateral donors to accept grant funds.

15. At appraisal, IDA knew that donors were already assisting the Government onprivatization in some form or another and were providing grant funds. The IDA Credit didprovide about 20 percent of the total funding for the larger TA program. The Government chosenot to utilize IDA funds and this in turn restricted IDA's role. However, the unused IDA fundswere recycled and returned to the IDA pool allocation for Egypt for utilization elsewhere. TheTAP experience provides important lessons in terms of how much funding should be provided intechnical assistance operations. These lessons are discussed later in the report.

16. On (ii), performance of the project was also less than satisfactory despite continualattempts by IDA supervision and review missions urging the Government to strengthen and givesufficient authority to the PEO to enable it to carry out the privatization program agreed to underTAP. However, benefits seem to be materializing now, albeit with delay. Preparation of thetransactions for privatization of PEs was slow and did not fully begin until recently, the bulk of itbeing done with donor funding. The Government itself faced political difficulties related to thesensitive and potentially explosive unemployment situation, opposing viewpoints within theGovernment itself on the pace and methods for achieving privatization, the lobbying power ofthe PEs and nationalistic economic sentiment. It also lacked the institutional capacity and didnot recruit appropriate staff for the PEO to deal with such a complex and comprehensiveprogram. Perhaps the most important factor that affected the project was the Government'sweakened commitment once the debt crisis had passed.

17. Institutional Development of PEO: At the depth of the debt crisis the Government wasenthusiastic about undertaking far-ranging reforms in return for debt relief from the internationalcommunity. The Government's subsequent lukewarm support had a negative impact on thestrengthening of the institutional capacity of the PEO. Delays occurred in the recruitment for thePEO, experienced staff could not be attracted and retained, and there was a lack of donor


coordination by the PEO in terms of project implementation. Although currently donor fundingfor privatization is high, the initial weakness of the PEO delayed donor community participationin the project. For example, the European Union (EU) earmarked funding of up to US$60million to support Egypt's TA program, but did not finalize its agreement with the Governmentuntil 1995 and did not fully staff its unit until mid-1996. Other donor countries faced similardifficulties. The exception to this was UNDP, which covered salary and other costs of the PEO.However, it should be pointed out that not all the constraints were from the Egyptian side, butalso due to the internal procedural requirements of the donor countries themselves. IDAsupervision missions concentrated on strengthening the institutional capacity of the PEO tominimize these problems and hence facilitate donor participation.

18. Other contributors to the slowdown of the privatization program were: (i) decentralizationof the privatization process to the HCs, which further exacerbated the scarcity of skills; (ii)marginalization of the role of the PEO as the coordinator of the privatization program; (iii)PEO's limited capacity to manage the program; and (iv) internal personnel problems within thePEO. Additional implementation difficulties followed: (i) the PEO proceeded with consultantselection and evaluation and then canceled the request prior to negotiations with the consultant;(ii) the PEO recruited international consultants but canceled their contract within a few weeks' ofarrival in Cairo; and (iii) the PEO filled the position of training manager with a candidate withless than adequate skills after the originally selected candidate declined the position.

19. Despite these difficulties, the PEO provided a focal point where donors, experts,management and staff of HCs and ACs and purchasers and other parties interested in theprivatization process could communicate their views. IDA's involvement did strengthen thePEO's institutional capacity to tackle these matters. However, IDA's role should not beoveremphasized as its impact on the operations of the PEO was marginal. The Governmentallowed the PEO only a restricted role and gave insufficient authority to it to become an apexinstitution for the privatization program as envisaged under the project. Since the formation ofthe new Government in 1996, however, the PEO has been more relied upon by the Minister, andincreased technical responsibility and donor coordination has been entrusted to the PEO.

20. Training: IDA, with assistance from the donor community, arranged for training andstudy tours to other countries where similar privatization programs were done or were underimplementation. It also used the expertise of the Economic Development Institute (EDI) todesign and conduct training sessions and procurement seminars at Bank HQ and the ResidentMission. The training program targeted senior managers, members of boards of directors,members of the general assemblies of the ACs and HCs and trainers.

21. A number of training and related activities were carried out, including: (i) workshops onvaluation techniques and stock flotation for PE managers; (ii) training programs for financialmanagement and planning; (iii) development of the proposal for the German-EgyptianManagement Center; (iv) formulation of human resource development strategies for publicenterprises; (v) advice to the Ministry of Labor on employment and labor issues; and (vi) aseminar on reviving the Alexandria Cotton Exchange. The activities have led to improved: (i)


financial management skills; (ii) personnel management skills; and (iii) technical knowledge ofquality control, marketing and information processing.

22. Training has improved the ability of Egyptian personnel to operate more successfully inan increasingly market-based economy, which has facilitated to some extent the process of publicenterprise reforms and privatization. It is difficult to assess the full impact of the trainingcomponent. Due to the decentralization of the privatization process, skills requirementsincreased considerably. Given the large needs of the country for skilled personnel in theprivatization area, it was unfortunate that, despite the availability of IDA Credit funds fortraining, they remained unutilized by the Government and were subsequently canceled.

23. Professional Advisory Services for Privatization and Restructuring: This component ofthe project was designed to support the provision of professional advisory services to assist HCsand ACs to: (i) prepare and carry out specific transactions to privatize individual companies ormajor holdings, and (ii) support the provision of advisory services to restructure certaincompanies. The provision of advisory services was envisaged in the Project Appraisal report asjointly funded by a number of donor agencies.5 None of the IDA Credit funds were utilized forthis component of the project and IDA had little impact on (i) and on (ii).

24. Just prior to project closing, both the number of donors and the size of grant financingincreased substantially as compared with the original plan. The EU, which originally did notplan to support this component, provided grant funding of about US$60 million beginning in late1995. At the same time, USAID concluded its second-phase grant agreement with theGovernment to fund US$25 million covering the 1995-99 period. The provision of advisoryservices has been vastly expanded, with overall donor funding of about US$120 million.

25. According to the latest Country Assistance Strategy (CAS dated May 5, 1997), by the endof December 1996, 42 of the 314 (Law 203) public companies had been privatized. Of these 42companies, six were sold to strategic investors, fifteen through the stock markets, and ten toemployees shareholder associations, while eleven were liquidated. The sales to date however,have mostly involved smaller companies or minority stakes of larger companies. The value ofprivatizations is estimated at 10 percent of the public companies identified. The more difficulttask of major privatizations is still to come and will require considerable strengthening of PEO'sinstitutional capacity. The complexity of future large transactions is likely to continue to delaythe process. The PEO will continue to provide a mechanism for the donor community to channelfunds. However, on the larger question of whether the project was able to build sufficient localinstitutional capacity to tackle the complexities of the privatization program, much remains to bedesired.

26. Banking Sector Reform. Advisory services were to be provided to CBE to help study,provide recommendations, and implement: (i) organizational structure of the CBE; (ii) indirect

Advisory services were generally funded in parallel with IDA services, rather than jointly funded. Each donorwould make its own contractual arrangements but would coordinate with IDA.


monetary control; (iii) foreign exchange management; (iv) bank supervision; (v) payments andclearing systems; (vi) privatization of joint venture banks; (vii) CBE automation study; (viii)assistance to the Banking Institute; and (ix) a CBE research and training.

27. The implementation of this component experienced some delay, but despite this someprogress was made. IDA once again played a limited catalytic role in facilitating twoorganizational studies covering some of the areas above. The CBE utilized IDA Credit fundsamounting to SDRO.325 million (US$0.455 million equivalent). Based on the findings of thestudies, the EU will provide US$16 million to support the modernization efforts of the CBE.Other donors will also support different advisory services on a bilateral basis. Whilecomprehensive reform of the banking sector will take time, implementation of indirect monetarycontrol and bank supervision has already been achieved. Prospects for moving ahead in the otherareas are positive, and there is strong donor support.

D. Project Sustainability

28. Privatization. As a follow up to the Economic Summit in Amman in October 1995, theGovernment announced its decision to accelerate the implementation of the privatizationprogram. The new momentum for privatization has been supported by strong politicalcommitment and concrete Government action plans in a number of areas. With the support ofthe President, the Prime Minister has become one of the main forces behind the privatizationprogram. A Cabinet Committee has been formed to drive and monitor the privatization process,there are strong signals to the private sector that portfolio investment is welcomed as much asforeign direct investment,6 and there is a stronger role for the PEO to act as a catalyst forprivatization. Sustainability, however, should be measured in terms of whether sufficientcapacity was created under the project for the Government to carry out the program substantiallyon its own. The Government's renewed commitment, donor support, and greater domesticconsensus on privatization, provide reasons for cautious optimism for the privatization program.

29. Banking Reform. Similarly for the banking sector reform program, the modestachievements of the TAP will likely be sustainable. TAP-financed studies are being used tosupport the modernization efforts of the CBE, which is being funded by other donors.

E. IDA Performance

30. Project Identification. The privatization program was under discussion between theBank/IDA and Egyptian authorities for some time as part of the economic reform program andspecifically under SAL. All concerned knew of the issues affecting the privatization program.TAP came about as part of SAL and the need to meet creditors' requirements for debt relief. Asignificant amount of work went into the preparation of the project and even though risks to the

6 In early 1996, The Government announced the sale of 49 enterprises, of which only 14 would be seekingstrategic investors and the balance through the capital market. There has been a large demand for sharesfloated in the capital market, as evidenced by over subscription and acceptance of initial price offers.


project were recognized, IDA took a calculated risk due to the impact a successful privatizationprogram would have on Egypt's economic development. Since the program was ambitious,more weight should have been given to the Government's limited implementation capacity, skillsscarcity and the longer time it would take the Government to build domestic consensus orpolitical will to implement the privatization program.

31. Project Preparation and Appraisal. One aim of IDA's strategy was to mobilize donorsupport for the reform program. IDA's catalytic role and arranging of a donors' conferencehelped to mobilize large pledges for Egypt's TA program and the TAP. In a sense, this workedagainst the TAP as the Government decided not to utilize IDA funds. IDA could haveconditioned effectiveness on recruitment of qualified and experienced personnel for the PEO andstrengthening of the PEO's advisory services. These measures, if insisted upon, would havecreated delays in project effectiveness, but would have demonstrated some measure of theGovernment's commitment to the TAP. However, there was pressure to quickly approve theTAP in order to satisfy creditors for debt relief.

32. The donor community was ready and willing to provide sufficient grant funds for theTAP. At appraisal, it was thought that allocation of sufficient IDA funds would allow it to play amore effective role in assisting and strengthening PEO capacity. Unfortunately, the Governmentchose not to use IDA funds to strengthen the PEO. For the most part, all parties dealt with thePEO on a bilateral basis, leaving IDA with little leverage. Under these circumstances, theoriginal project cost estimates of US$43.9 million meant little, as the donor communitynegotiated bilaterally with the PEO on the privatization work and with CBE on the bankingsector reform initiatives. Annexes 1 and 2 present summaries of the bilateral donors'contributions to the TAP.

33. IDA has not played a substantial role in the privatization process in Egypt, though itscatalytic role in strengthening the institutional capacity of the PEO, even with all itsshortcomings, formed an important base for the eventual continuation of the process. Similarobservations apply to the banking reform component. Again, the availability of donor funds tosupport advisory services has limited IDA's role in this area.

34. Supervision. IDA identified early the difficulties facing project implementation. Bankmissions worked with the Government, performed special project reviews and showed flexibilityto facilitate project implementation. Weakening of the Government's commitment to the project,problems with PEO operations, decentralization of responsibility for privatization to HCs andnon-utilization of IDA funds were brought to the attention of IDA management, includingrecommendation by supervision missions to cancel the project. Despite recognition of theproblems with the project by all concerned, project implementation did not improve. As alludedto before, TAP was not considered a stand-alone project, but was closely interlinked with SAL.IDA Management did not opt to cancel TAP due to the larger issues affecting SAL and Egypt'scomprehensive economic reform program (see para. 37). However, even after the cancellation ofthe SAL, the TAP Credit was still not canceled.

35. There were four task managers over the life of the project who supervised TAP. Two had


been involved with Egypt's privatization program for some time and provided continuity until1994, when second half of SAL was canceled. The other two TMs supervised TAP for a briefperiod when the project was losing its raison d'etre. There was a long gap in the supervision ofthe project between 1993 and 1995, however, IDA did conduct special reviews of the country'sprivatization program, which also covered issues affecting this project. IDA's supervision of theproject was carried out as a combined effort with the SAL, given the close interlinkages betweenthe two projects. Under the circumstances, project implementation was subject to the policydialogue under the SAL.

F. Borrower Performance

36. The Government expressed its commitment to the project, but was unable to build theconsensus or demonstrate the political will necessary to follow through. Staffing andstrengthening of the PEO to enable it to spearhead privatization work was not supported by theGovernment. The PEO's role was further eroded by the Government's decision to decentralizeprivatization responsibility to the HCs. Given the scarcity of skills, this further diluted efforts onprivatization. The implementing agencies decided to use grant to fund advisory services insteadof the TAP funds. If the intention of the Government was not to utilize IDA funds because of theavailability of grant funds, the Government could have requested cancellation earlier, which itdid not do. The Government did, however, propose alternative use of the TAP funds, but theseunfortunately did not meet the project objectives approved by the Bank's Board. The Credit wasultimately refocussed and the funds reallocated at the Government's request. Despite thisaccommodation, the Government chose not to utilize the reallocated funds due to the availabilityof more competitive funding.

37. The concluding remarks in the SAL's ICR (dated January 22, 1996) are pertinent here:"given the comprehensive nature of the reform program the Government should be commendedfor the very impressive progress made towards stabilization of the economy." However, it alsonotes that "implementation on privatization has been rather hesitant." GOE promised far moreunder the SAL and the TAP than it had the commitment or capacity to deliver.

G. Assessment of Outcome

38. Rated according to its original and refocussed objectives, the project's performance wasunsatisfactory. It failed to achieve major objectives within the envisaged timeframe. However,if the Government's renewed commitment and donor interest and support continues, theprivatization and the banking sector reforms should move ahead, albeit slowly.

H. Key Lessons Learned

39. Commitment: Strong Government commitment is essential for TAP-type operations to besuccessful. Proper safeguards should be built into the project design in case commitmentweakened, as happened in this project.


40. Appraise the risks and seek to contain and mitigate them: Appraising the risks that mayaffect a project should not be limited to identifying them, but assessing the likelihood of theiroccurrence. If the risks are too high, the project design must be adjusted to reduce them. Oneway of reducing risk is to require that crucial actions for institutional strengthening be in placebefore the project is presented to the Board or is declared effective.

41. Do not hesitate to cancel a non-performing project: If the Government was committed tothe project during preparation and appraisal, but subsequently loses interest, the difficult decisionto cancel should be made earlier than later in the interest of the Client and IDA. The possibilityof unilateral cancellation by IDA of non-performing projects/components should be givenconsideration.

42. Numerical targets should be realistic: All Bank missions involved with the TAP,including special review missions, noted that the privatization program was ambitious and thatskills resources in the country were scarce. Having rightly recognized these constraints, were thenumerical targets for privatizing ACs (65) realistic within the envisaged timeframe? If they werenot, IDA could have explored the possibility of selecting a few priority candidate PEs with theGovernment to work through the privatization process and demonstrate success, which couldhave had a duplicative effect.

43. Should privatization transactions be attempted during the course of an economic reformprogram? A careful assessment should be made on the advisability of undertaking privatizationtransactions while an economic reform or structural adjustment program is underway, i.e., in analready sensitive and difficult economic environment. Institution building and strengthening forundertaking a privatization program subsequently could be included as part of an economicreform program.

44. Should the Bank Group offer TA services for afee? Perhaps the most important lesson isthat in TAP-type operations, consideration should be given by the Bank Group to confining itselfto strengthening institutional capacity and mobilizing financial resources. Should these servicesbe offered for a fee to be charged to donors with the concurrence of the concerned governmentand donors? If the idea is feasible and could be put into practice, it could have a number ofpotential benefits. This mechanism, however, was unavailable at the time TAP was conceivedand is probably still unavailable. It should be noted, however, that IDA ended up doing preciselythat, to some degree, under the TAP, although without a fee and with considerable difficulties.


Table 1: Summary of Assessments

A. Achievement of Objectives Substantial | Partial Negligible | NotApplicable |Macroeconomic Policies VSector Policies VFinancial Objectives VInstitutional Development VPhysical Objectives VPoverty Reduction VGender IssuesOther Social Objectives VEnvironmental Objectives VPublic Sector Management VPrivate Sector Development VOther (Training) . .

Likely Unlikely UncertainB. Project Sustainability I

C. Bank Performance Highly Satisfactory Satisfactory DeficientIdentification DfcePreparation VAppraisal VSupervision V'

|D. Borrower Performance Highly Satisfactory |Satisfactory |Deficient |Preparation lImplementation / ***

Covenant complianceOperation | | l

Highly HighlySatisfactory Satisfactory Unsatisfactory Unsatisfactory

[E. Assessment of Outcome I l *** I* Greater recent Government commitment to the objectives of the TAP and continued donorsupport make the sustainability of the project likely.* * Identification took place largely within the context of the SAL, which included privatizationas a reform objective.*** Unsatisfactory within the envisaged time frame. Subsequent events may contribute to amore positive outcome.


Table 2: Related Bank Loans/Credits

ApprovalLoan/Credit Title Purpose Year Status

(mm/yr)Preceding Operations

Structural Adjustment Objectives: 6/21/91 Declared effectiveLoan (Ln. 3353-EGT) * to stabilize the economy, achieve 2/20/92;

internal and external equilibrium, First trancheand liberalize the fnancial and disbursed 8/17/92;foreign exchange markets; Second trance

* to restructure the economy and canceled in 10/93increase the efficiency of due toresource use through price improvements inliberalization, decontrol of balance-of-investment, a more outward payments position;orientation, and the reshaping of Closed on 6/30/94;the regulatory framework; and Overall

* to minimize any transitory satisfactoryadverse effects of the reforms on implementationthe poor through improved socialpolicies.

Following Operations

None


Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual/ LatestEstimate

Identification June 1991Preparation July 1991Appraisal February 1992Negotiations May 1992Board Presentation June 1992Signing July 29, 1992Effectiveness November 1992 March 19, 1993Credit Refocussing March 7, 1995Project Completion June 30, 1998 November 19, 1996Loan Closing/Cancellation November 19, 1996


Table 4The Original Credit Agreement

Revised Schedule 1Final Disbursements and Cancellation

AOunt f h Revie Crdi isure :cnee1dCe.catWegor C redit AlctAll llbae Credit Amount n0n

Express in Epse In: (Exree iinSDRSRSRSD

yauiv4e it Equivan) Eqiaet Eqvln)1. Office Equipment of PEO 185,000 0 02. Consultant Services

(a) PEO:Institutional Development 2,015,000 0 0Privatization of PE 1,835,000 0 0Restructuring of PE 365,000 4,475,0001 0 4,475,000

(b) CBE 1,465,000 1,465,000 325,840 1,139,160

3. Training for PEO 735,000 660,000 0 660,000TOTAL 6,600,000 600,000 325,840 6,274,160

The Govermnent had agreed with the Bank to use the Credit proceeds for non-investment restructuringpurposes as preparation towards privatization.


Table 5: Loan/Credit Disbursements: Cumulative Estimated and Actual(US$ millions)

| FY93 FY94 FY95 FY96 FY97 |

Appraisal estimate 2.2 5.4 7.5 8.59Actual 0.0 0.72 0.91 0.97 0.46Actual as a percentage of 0% 1.8% 0.12% 0.11% .05%

estimateDate of final disbursement September 1995 .

US$5 10,000, the utilization of which had not been identified, was returned by the Governmentin December 1996, leaving the total amount disbursed at US$455,000.

Disbursements totalled only SDR 325,840 (US$455,000), all of which went toward two studiesfor services for the CBE. Final disbursement was in September 1995. Special Accounts wereclosed in December 1996.


Table 6: Key Indicators for Project Implementation

Indicators' Achievements1. Develop privatization programn: Majority interests in 31 PEs had been

* number of enterprises privatized sold by end- 1996 (six to strategic* higher level of private-sector investment investors, 15 through the stock market,

and ten to employee shareholderassociations);Minority interests in 25 PEs had beensold; and

211 PEs had been liquidated.2. Reform public enterprises:

* delivery of studies3 and implementation of Nonerecommendations

* increased efficiency of public enterprises Partial3. Reforn the banking sector:

* delivery of studies3 and imnplementation of Partial (2 studies)recommendations

* improved financial sector performance Partial. Will take time to implementsubstantial reforms.

4. Build institutional capacity for privatization:* number of trained and fully equipped experts Satisfactory4

* increased private-sector investmnent See note above in (1)

I Discussed and agreed with Borrower in June, 19962 Figures from 1997 Egypt CAS (Report No. 16533-EGT, May 5, 1997); Egypt TAP

Memorandum and Recommendation of the President established as a goal the privatization of65 ACs over the life of the project.

3 Studies were not defined at appraisal. Areas of coverage were defined, i.e., PEO support,professional advisory services for privatization and restructuring, and banking sector reform.Two organizational studies regarding Central Bank of Egypt operations were financed underthe Credit.

4 Difficult to assess impact of training. Formal assessment was to be made by UNDP, but inprinciple effort on training was satisfactory.


Table 7: Project Costs and Financing *

Appraisal estimate (US$M)Item Foreign costs Local costs Total

Public Enterprise Office 3.9 7.1 11.0IDA 3.0 - 3.0UNDP 0.3 2.7 3.0GOE 0.6 4.4 5.0

Training Program 2.5 1.6 4.1IDA 0.5 0.5 1.0GOE and Fees 1.1 1.1EEC 2.0 - 2.0

Professional Advisory Services l

Privatization transactions 6.5 3.5 10.0IDA 1.7 0.8 2.5CIDA 1.7 0.8 2.5USAID 3.1 1.1 4.2GOE and fees 0.2 0.8

Restructuring transactions 2.5 1.3 3.8IDA 0.4 0.1 0.5CIDA 0.3 0.2 0.5German Government 1.8 - 1.8GOE and Fees 1.0 1.0

-Banking Sector Reforms 12.5 2.5 15.0IDA 1.0 1.0 2.0EEC 7.5 0.5 8.0Fees __1.0 1.0German Government 1.0 - 1.0ODA 3.0 - 3.0

TOTAL 27.9 16.0 43.9

* Project costs include probable contributions from bilateral donors at the time of appraisal. Thesecontributions were negotiated bilaterally; IDA project supervision monitored IDA's contribution, althoughthere was some involvement in facilitating negotiations with other donors.

IDA Contribution (US$M)

Appraisal estimate Refocus Estimate (1995) ActualItem Total

Public Enterprise Office 3.0 _Training Program 1.0 0.86Professional Advisory

ServicesPrivatization 2.5 _

transactionsRestructuring 0.5 6.14 _

transactionsBanking Sector Reforms 2.0 2.0 | 0.46TOTAL 9.0 9.0 1 0.46


Table 8: Project Financing(at Appraisal)

Appraisal estimate (US$M)Source Local costs Foreign costs Total

IBRD/IDA 2.4 6.6 9.0CIDA 1.0 2.0 3.0EEC/EU 0.5 9.5 10.0KfW _ 2.8 2.8

ODA 3.0 3.0USAID 1.1 3.1 4.2UNDP 2.7 0.3 3.0GOE and fees 8.3 0.6 8.9TOTAL 16.0 27.9 43.9


Table 9: Status of Legal Covenants

Agreement Section Covenant Present Original Revised Description of covenant CommentsType Status fulfillment fulfillment

date date

Loan 3.01(a), (b) (i) 3 CP GOE to carry out project * Complied with forCovenant and (ii) through PEO and CBE and Banking Reform

provide promptly funds, * Action Plan disregardedfacilities, services, and otherresources for the projectaccording to implementationarrangements.

Loan 3.01 (b) (i) 3 C GOE to ensure availability of Complied withCovenant adequate funding to PEO for its

operations.Loan 3.02 3 C Procurement of goods and * PEO initiatedCovenant services financed out of credit procurement, but ended up

proceeds to be governed by the using its own funds ratherprovisions of Schedule 3. than the Credit;

* Complied with forbanking sector reform;

* No disbursement for PEOLoan 4.01 (a) and (b) I CP Maintain records and accounts Audit reports received withCovenant of the project separately for delay.

PEO and CBE components andfurnish to the Bank audit reportsof project accounts, includingspecial accounts, prepared byauditors acceptable to IDA.

Loan 4.01 (c) 1 C Maintain records for all Complied with for BankingCovenant expenditures withdrawn on the Reform. Special account of

basis of statements of PEO was not utilized.expenditures. These to be

___________ ________ ______ _________ ________ included in the annual audits.Loan Schedule 4, 5 C Hire experienced and qualified * Complied with, butCovenant para I (a) PEO director. experience and

qualifications left much tobe desired;

* After July, 1996, directoris marginalized due togreater authority given toHolding Companies.

Loan Schedule 4, 5 CP 7/31/92 12/31/92 Recruitment of 4 staff. Complied with, but skillslCovenant para I (b) and mix left much to be

l_________ ________ ___________ __________ ______________________________ d esiredLoan Schedule 4, 5 C 12/31/92 3/31/93 PEO and CBE to prepare action * PEO actions programCovenant para 2 program for carrying out agreed to in minutes of

respective parts of project. negotiations in May 1992;* Banking Sector Reform

Program agreed with CBEin March 1993.

Loan Schedule 4, 5 CP 12/31/92 PEO and CBE to prepare annual * Plans not prepared byCovenant para 3 (a) work plans for respective parts PEO;

of the project. * Prepared by CBE after1996.

Loan Schedule 4, 9 CP PEO and CBE to prepare Received late, but PEOCovenant para 3 (b) quarterly progress reports on never submitted after

i___________ respective parts of the project. October 1994.


Agreement Section Covenant Present Original Revised Description of covenant CommentsType Status fulfillment fulfillment

date date

Loan Schedule 4, 5 NC 6/30/92 Appointment of PEO Training Four members appointed,Covenant para 4 Advisory Committee. but committee was never

I_________ _______ _I_________ __________ activated.Loan Schedule 4, 9 NC 1/31/93 1/31/95 PEO and CBE to carry out Not complied with.Covenant para 5 annual performance reviews

jointty with IDALoan Schedule 4, 10 CP 6/30/92 8/15/92 Adherence to "guidelines" on * Prepared and agreed byCovenant para 6 (a) privatization and restructuring. Bank and PEO in October

1992; issued by PEMinister in February1993;

*Partial compliance toagreed guidelines.

Loan Schedule 4, 10 NC 11/15/92 Professional Advisory Services Professional AdvisoryCovenant para 6 (b) to be carTied out according to Services contract never put

procedures satisfactory to IDA. in force.Loan Schedule 4, 13 C Only affiliated companies Complied with.Covenant para 6 (c) (ACs) subject to restructuring.Loan Schedule 4, 13 C Privatization transaction defined Complied with.Covenant para 6 (d) as one in which major

ownership is transferred to theI lprivate sector.

Covenant TypI = Accounts/audits2 = Financial performance/revenue generation from beneficiaries3 = Flow and utilization of project funds4 = Counterpart funding5 = Management aspects of the project or executing agency6 = Environmental covenants7 = Involuntary resettlement8 = Indigenous people9 = Monitoring, review and reporting10 = Project implementation not covered by categories 1-911 = Sectoral or cross-sectoral budgetary or other resource allocation12 = Sectoral or cross-sectoral policy/ regulatory/ institutional action13= Other

Present Status:C = Covenant complied with

CD = Complied with after delayCP = Complied with partiallyNC = Not complied with


Table 10: Bank Resources: Staff Inputs(in US$ thousands)

ActualStage of Project Cycle Weeks USS

Preparation to appraisal 13.5 36.5Appraisal 21.0 68.9Negotiations through Board 12.4 41.7

approvalSupervision 114 380.4Completion

TOTAL 160.9 527.5


Table 11: Bank Resources: Missions

Performance ratingStage of Month/ Number of Days in Specialized staff IP DO Types of problems

project cycle year persons field skillsThrough 7/91 n/a n/a

appraisal l

Appraisal 1/92 8 20 n/a n/athroughBoardapproval

6/92 5 12 Banking reform n/a n/aSupervision 7/92 4 12 Financial specialist; 1 1

informationtechnology specialist

11/92 4 13 Financial specialist; 2 2 Administrative overload oneconomist; training the PEO; lack of a clearly

specialist articulated committment toprivatization by the GOE;uneven acceptance ofprivatization objectives at theHC level; and unwillingnessof the GOE to proceed withliquidation of clearly unviableenterprises out of concern forthe political consequences forlabor redundancy.

3/93 1 5 Financial specialist n/a n/a Decentralization ofprivatization process to HCs;insufficient capacity withinthe PEO.

7/93 3 10 Privatization 2 2 Lack of consistent ministerialspecialist; financial leadership and episodicanalyst; economist government decision-making;

lack of clear governmentcommitment to privatization;deficient programmanagement; unclearresponsibilities of HCs and

____________ _______ ______PEO; non-use of IDA funds.12/95 2 10 Financial specialist HU HU Weak management of PEO;

lack of GOE support.7/96 2 Financial specialist U HU Non-implementation of

project; use of donor rather.__ _ than IDA funds.

Note: There were no supervision missions specifically for the TAP between July 1993 and December 1995.

Annex 1Summary of PEO Components

EypVt: TA for Privatization and Enterprise and Banking Sector ReformsPrivatization ComponentsRecap as ofOctober 1996

Components Donors Plan Implementation Comments

Part A: Institutional IDA Recruit S international experts PEO tendered for expertise but did IDA funding was not utilizedDevelopment of the not negotiate. Re-tendered byPEO recruiting individuals followed by

cancellation after few months

UNDP Financing of Egyptian PEO recruited specialists Quality of experts varied significantly -Specialists high turnover among quality staff.

Part B: Training IDA PEO Follow Training Program Training Specialist selected, IDA IDA funds not utilized because ofAgreed with IDA gave no objection, but did not join disagreement on the award. IDA made

PEO. available training inGov't request for NCCD (an HC) privatization/restructuring andto implement a training program for procurement for PEO staff at the Bank.its ACs. IDA agreed to NCCD's role, but it was

not undertaken due PEO informingNCCD of seeking grant funding.

UNDP Series of Short Term training Training provided to HCs and ACs No assessment of the quality of trainingProgram for the executives of Executives and PEO staff, CMA program available. UNDP plans toHCs and ACs, and PEO review the program in principle

satisfactory.

EU Short term training consultants Not yet materialized EU signed an agreement in late 1996with the Govermment.

Part C: Professional IDA Preparation for privatization of In 1995, Bank agreed to No IDA funding utilized. Due toAdvisory Services for 65 companies restructuring of 20 companies as a availability of grant funding. EUPrivatization and step towards privatization funding is utilized to undertake IDA'sRestructuring (PAS) portion.

CIDA Mainly untied funding for PAS CIDA funding is still in process of CIDA has informed IDA and PEO thatbeing made available its technical assistance, now, is fully tied.

EU None was planned Up to 90 ACs planned for New entrant! largest donor funding (US$privatization transactions 60m). Program started early 96,

complicated by staff tumover. ProjectUp to 30 ACs for restructuring Mgmt. Unit (PMU) is now staffed andoperations recruitment planned for local experts.

USAID Prepare companies for 4 companies privatized Due to decentralization of privatizationprivatization/restructuding 10 companies sold to employees program, USAID directly support

25 companies partially floated HCs/ACs. Recently, USAID has beenworking more closely with PEO and hasprovided: Ist phase S15m (90-95). 2ndphase S35m (95-99).

Amecx2Summarv of Banking Sector Reform Components

Evvgt: TA for Privatization and Enterprlse and Bankine Sector ReformsBanking Sector Reform Component

Recap as of Octaber 1996

Components Donors Plan Implementation Comments

Part D: Banking Sector IDA Support for Banking Sector Reform, Less than 25% utilized to used by CBEI and donors to contiueReform (Central Bank Mainly CBE finance two studies on CBE with the reforms.of Egypt - CBE) orgamization.

IDA fimding not needed due to grantfunds

EU finance(a) indirect monetary control EU reached agreement in mid- EU has doubled its original(b)bank supervision(c)clearing and 1995 and PMU is on board since commitment to $16 million. EU'spayment system(d) FX reserve the beginning of 1996 support for TAP is 70%/ out of aboutmanagement. US$ 120m.

KfW Training CBE staff training in Germany Overall satisfied

ODA Finance Automation study and Automation study completed, ODA agreed to CBEs request toBanking Institute Seminar series. series of seminars on banking finance advisor for implementation of

canied out study

USAID Privatization of joint-venture banks To be done by the PE Ministry. Various share valuation taken place,Provide funding for Research though actual bank privatization hasand to supplement EU's been sluggish.program New entrant to support (supplement

EU) CBE

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