Document of

The World Bank

Report No. T-6928-CM

TECHNICAL ANNEX

TO THE

MEMORANDUM AND RECOMMENDATION

(REPORT NO. P-6928-CM)

ON A PROPOSED CREDIT

IN THE AMOUNT EQUIVALENT TO SDR 8.8 MILLION

TO THE REPUBLIC OF CAMEROON

FOR A

PRIVATIZATION AND PRIVATE SECTOR

TECHNICAL ASSISTANCE PROJECT

MAY 22, 1996

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CURRENCY EQUIVALENTS(as of May 10, 1996)

Currency Unit = CFA Franc (CFAF)US$1 = CFAF 513.5CFAF I million - USS1.947.4

WEIGHTS AND MEASURESMetric System

FISCAL YEAR

July I - June 30

ABBREVIATIONS AND ACRONYMS

BEAC Banque des Etats de l'Afrique CentraleBICIC Banque Intemationale pour le Commerce et l'lndustrie - CamerounBCD Banque Camerounaise de D1veloppementCAA Caisse Autonome d'AmortissementCAMAIR Cameroon AirlinesCAMBANK Cameroon BankCAMSHIP Cameroon Shipping LinesCAMTAINER Societd Nationale de Transport et de Transit du CamerounCAMSUCO Cameroon Sugar CompanyCAS Country Assistance StrategyCDC Cameroon Development CorporationCFD Caisse Francaise de DeveloppementCEPER Centre d'Edition pour l'Enseignement et la RechercheCFA Communaute Financiere AfricaineCFAF Franc Communautt Financiere AfricaineCNCC Conseil National des Chargeurs du CamerounCNIC Chantier Naval et Industriel du CamerounCIMENCAM Cimenteries du CamerounERC Economic Recovery CreditEU European UnionFNE Fonds National de l'EmploiFOGAPE Fonds de Garantie et de Credits aux Petites et Moyennes EntreprisesFONADER Fonds National de Developpement RuralFY Fiscal YearGDP Gross Domestic ProductGOC Govemment of CameroonHEVECAM Socidtd de Developpement Hdvda CamerounIBRD Intemational Bank for Reconstruction and DevelopmentIDA Intemational Development AssociationIMF International Monetary FundMRESP Mission de Rehabilitation des Entreprises du Secteur Public et ParapublicOHADA Organisation pour l'Harmonisation du Droit des AffairesONPC Office National des Ports du CamerounPE Public EnterprisePAGE Projet d'Appui a Ia Gestion de l'EconomiePIP Public Investment ProgramRNCF Rdgie Nationale des Chemins de Fer du CamerounSAC Structural Adjustment CreditSAL Structural Adjustment LoanSAR Staff Appraisal ReportSCB-CL Societe Commerciale de Banque - Crddit LyonnaisSCT Societd Camerounaise des TabacsSGBC Socidtd Generale de Banque du CamerounSISEP Systeme d'lnformation sur les Entreprises PubliquesSNEC Societd Nationale des Eaux du CamerounSNH Societe Nationale des HydrocarburesSNI Socidte Nationale d'InvestissementSODECOTON Socidtd de Ddveloppement du Coton du CamerounSOCAPALM Socidte Camerounaise des PalmeraiesSONARA Societe Nationale de RaffinageSONEL Socidtd Nationale d'ElectricitdSRC Socidtd de Recouvrement des Crdances du CamerounUDEAC Union Douaniere et Economique de l'Afrique Centrale

REPUBLIC OF CAMEROONPRIVATIZATION AND PRIVATE SECTOR

TECHNICAL ASSISTANCE PROJECT

TECHNICAL ANNEX

TABLE OF CONTENTS

SECTION A. DETAILED PROJECT ............................. I

I - COUNTRY BACKGROUND ..II - PUBLIC - 'TERPRSE SECTOR .. 2III - BANKING SECTOR .. 4IV - THE JUDICIARY SYSTEM ...................................................... 6V - THE GOVERNMENT'S NEW APPROACH TO REFORM . . 6

A. Public Enterprises .6A. I Privatization Program .6A.2 Portfolio Management .10A.3 Liquidation.11B . Financial Sector .12

VI - LESSONS LEARNED AND STRATEGY FOR IDA ASSISTANCE . . 13VII - DESCRIPTION OF THE PROJECT .. 15VIII - BENEFITS AND RISKS .. 16

SECTION B. PROJECT COSTS AND ADMINISTRATION ............................................... 18

I - PROJECT COSTS .. 18II - PROCUREMENT .. 18

A. Employment of Consultants .18B. Procurement of Goods .19

III- DISBURSEMENTS .. 20IV - ACCOUNTING AND AUDITING .. 20

SECTION C. IMPLEMENTATION AND MONITORING ............................................. 21

TABLES

Table 1. Companies to Be Privatized - Selected Financial Data (1993-1994) ........................................................ 7Table 2. Person-month by Type of Technical Assistance and Activity ....................................................... 16Table 3. Estimated Project Costs ....................................................... 18

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SCHEDULES

Schedule A. Estimated Project Costs and Financing Plan ........................................ 23Schedule B. Procurement and Disbursements ........................................ 25Schedule C. State's Portfolio and Financial Indicators ........................................ 27Schedule D. Privatization Implementation Action Plan ........................................ 34Schedule E. Project Supervision Plan ........................................ 42Schedule F. Letter of Development Policy ........................................ 43Schedule G. Monitoring Indicators and Expected Results ........................................ 46

REPUBLIC OF CAMEROON

PRIVATIZATION AND PRIVATE SECTOR

TECHNICAL ASSISTANCE PROJECT

TECHNICAL ANNEX

SECTION A. DETAILED PROJECT

I - COUNTRY BACKGROUND

1. Cameroon is one of the richest countries in the region. It is endowed with abundant naturalresources and significant development potential. Until 1978, its economic growth averaged five percent peryear, based mainly on agricultural production and exports in which it had a strong comparative advantage.The discovery of oil in 1978 gave a boost to the economy, resulting in annual growth rates of about sevenpercent. By 1985, oil production accounted for 44 percent of revenues and 20 percent of GDP. Bothinternal and external balances became substantially positive. As a result, Government spending tripled inreal terms over the periods and, by 1986, it accounted for 23 percent of GDP. Its participation in theeconomy increased significantly through a growing number of state-owned enterprises in all sectors of theeconomy.

2. In 1985, three major shocks exposed weaknesses in economic policies and structure. First, thesudden drop in the prices of oil, coffee, and cocoa led to a 60 percent deterioration in the external terms oftrade; second, the long-te Pm slide in oil production was not compensated by the growth of other exports; andfinally, due to the depreciation of the dollar and the Nigerian Naira, the real exchange rate appreciated by 54percent between 1986 a d 1988, greatly weakening Cameroon's competitiveness. By 1993, the overalleconomic situation had i;Sbstantially deteriorated. On average, GDP fell annually by six percent between1986 and 1993. Econom:c decline was accompanied by increased poverty, especially among farmers. Themiddle class, once among the most developed in Sub-Saharan Africa, shrank in numbers.

3. To address this deteriorating trend, the Government launched an economic reform programsupported by an IMF Stand-by Agreement and by a Structural Adjustment Loan from the Bank in 1988.This program was aimed at counteracting the currency overvaluation and reestablishing sustainable internaland external balances. Although there was progress in some areas, such as reducing price controls andrationalizing the incentive framework, the reforms failed to resolve the fundamental structural problems inthe absence of exchange rate adjustments and strong commitment by the Government. Instead, budgetdeficits grew and arrears, both on internal and external debt, increased as revenues declined faster thanexpenditures. Investment and savings started to decline in 1989 mirroring the deterioration of economic

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policy and management. The resulting sharp decline in incomes raised discontent among people and fueledpolitical unrest which lasted for two years.

4. In January 1994, along with other CFAF countries, Cameroon devalued its currency by 50 percentand became an IDA Country. This monetary adjustment was part of a new economic recovery programsupported by the World Bank and the International Monetary Fund aiming at: (a) producing a budgetarysurplus; (b) shifting spending to productive sectors; (c) holding inflation to five percent a year; and (d)achieving a five percent growth per annum. It was designed to secure quick gains in competitiveness fromthe devaluation while setting the ground for more fundamental reforms such as: (i) civil service reform; (ii)revision of Government's procurement code; (iii) reform of the forestry code and of regulations applicableto the oil sector; and (iv) privatization of state-owned enterprises. At the same time, jointly with its partnersin the Central African Customs and Economic Union (UDEAC), Cameroon began implementing a farreaching trade and tariff reform, including: a common tariff based on four rates ranging from five percent to30 percent; an inter-union preferential tariff at 20 percent of the normal rate; and a simplified turn-over taxand suppression of customs taxes including the taxe unique. In addition, most non-tariff barriers wereabolished. As a result of these reforms, Cameroon's economy has become one of the most open among allCFA countries.

5. Despite the immediate positive impact of the devaluation and the recovery of coffee prices, whichled to a 12 percent increase in volume of non-oil exports in 1994, the overall economic situation did notimprove due to: (a) poor budgetary performance, linked to reduced customs receipts; (b) a sharp increase ininternal debt, to CFAF 2.3 trillion, or 49 percent of GDP, by the end of 1995; and (c) failure to restructurethe financial sector. As a result, the first review under the Stand-by agreement could not be completed,disbursements were suspended and a shadow program for FY95 was put in place.

6. Following the reorganization of the Ministry of Economy and Finance and the appointment of a newminister in July 1994, budgetary performance improved substantially. Government revenues increased by55 percent in FY95, while expenditures declined from 20 percent of GDP in the early 1990s to 9 percent ofGDP in FY95. The wage bill declined from 64 percent of revenues in FY93 to 36 percent in FY95.

7. Improved budgetary performance led to the signature of a new Stand-By Agreement between theIMF and the Government in September 1995 and to the approval of a US$150 million Structural AdjustmentCredit (SAC II) by the World Bank on February 8, 1996. The main objective of SAC II is to pursue reformsin three key areas: (a) reform of the tax system and improvements in budgetary performnance; (b)restructuring of the financial sector, and (c) settle an internal debt. A follow up adjustment operation isunder preparation to support (i) improvement in the business environment for private sector developmentand (ii) an acceleration of the privatization program.

II - PUBLIC ENTERPRISE SECTOR

8. Background. As in most sub-Saharan African countries, state-owned enterprises were first createdin Cameroon at the time of independence, as a result of the transfer of basic public utilities and servicespreviously managed by the colonial power. This movement gained momentum during the 1970s, whennearly half of the public enterprises were created as a result of Govermnent's policy of substituting for theprivate sector, considered at the time inefficient and incapable of financing the investments needed foraccelerated growth. With the economic boom resulting from the oil exports in the late 1970s, expansion ofthe public enterprise sector entered a third stage. The cash surplus recorded by a number of public

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enterprises, such as the National Petroleum Company (SNH), the National Social Security Fund (CNPS), theNational Commodities Marketing Board (ONCPB), and the National Investment Company (SNI), theholding created by the Government to manage Government's participation, led to a new increase in the roleof the public sector.

9. As a result of this policy, more than 200 public enterprises, of which 80 were owned by SNI, wereoperating in the late 1980s; they were scattered in all sectors of the economy, although they were especiallydominant in the oil secor, agro-industry, the tourist and hotel business, and transportation sector, not tomention the major basic public utilities, i.e., water, electricity, and telecommunications. It is estimated thatin the early 1990s, public enterprises contributed about 20 percent of the gross domestic product, nearly 60percent of the industrial sector's gross domestic product, and 21 percent of gross public investment. Inaddition, direct and indirect Government subsidies, including tax exemptions, were estimated at about fourpercent of GDP, non budgetary financing by SNH excluded.

10. Reform Program. In 1986, following the deterioration of the macro-economic situation and thesharp decline in budgetary revenues, the Government launched an economic reform program with specialemphasis on public enterprise restructuring. One of the priority objectives was to alleviate the budgetaryburden generated by public enterprises, the losses of which were estimated at CFAF 33 billion, on June 30,1986, despite CFAF 69 billion in Government direct subsidies. This rehabilitation program, based on an in-depth analysis of 75 public enterprises, resulted in a new classification of the public enterprises in twogroups, namely those that would be liquidated -- 59 enterprises outside the financial sector-and those thatwould remain state-owned --120, including 25 priority enterprises to be rehabilitated under performancecontracts. Tnis first step was to be accompanied by the adoption of a new institutional framework to bringpublic enterprises' operating procedures closer to those prevalent in the private sector and to strengthenGovernment's financial supervision. In addition, in 1990, the Government issued a decree listing 15enterprises to be privatized. This program was to be implemented by a new Government Agency, the PublicEnterprise Rehabilitation Mission (MRESP), attached to the Presidency. The various components of thisrehabilitation and privatization program were part of the Structural Adjustment Loan (Ln. 3089-CM)approved by the Bank in 1989, and supported by a technical assistance project (PAGE, Projet d'Appui a laGestion de l'Economie, Ln. 3110-CM).

11. Overall Situation in 1994. Based on the FY94 financial statements available (59 enterprises, orabout 60 percent of the total number) that are summarized in Schedule C, implementation of this reformprogram proved to be a difficult task, and very limited progress was achieved. Financial institutions andthe petroleum company (SNH) excluded, these enterprises account for about 10 percent of the country'sGDP and total assets amount to CFAF 1950 billion (about US$4 billion), or 60 percent of GDP. Lossesrepresented about 10 percent of total revenues when taking fully into account the consequences of the 1994devaluation, or 3 percent otherwise. Total employment in these enterprises accounted for about 30 percentof the civil service and 14 percent of the formal private sector. Due to the limited number of financialstatements available, it can be assumed that the PEs' overall contribution to GDP is still around 15 percentat least. A comparative analysis based on a sample of 34 PEs shows that between 1989 and 1993 allenterprises in which the State was the majority shareholder accumulated losses, with the exception of threemonopolies: (a) Societe Nationale d'Electricite (SONEL); (b) Cimenteries du Cameroun (CIMENCAM);and Societe Nationale des Hydrocarbures (SNH). Finally, as a result of these losses, PEs have built-up alarge domestic debt amounting to CFAF 517 billion (about US$1 billion) by end 1994.

12. Performance Contracts. Performance contracts signed with the 25 largest public enterprises inthe transportation, agriculture, water, and electricity sectors, showed disappointing results. Total financinggranted by the Government to these enterprises for the 1989-92 period amounted to CFAF 460 billion

(about US$2 billion) in the form of operating subsidies, capital increases, assumption of debt, and claimsdropped. Such financing was partly inevitable, given that it only reflected the past losses of these enterprisesand their inability to face debt servicing due to poor efficiency of past investments. However, it did notlead to a significant, overall improvement in the performnance of these enterprises. Pre-subsidy operatinglosses were marginally reduced -- from CFAF -67.8 billion in 1989 to CFAF -52.2 billion in 1992-- whileoverall productivity remained more or less the same. Furthermore, despite an average 18 percent staff cut,the wage bill remained at apprcximately the same level. With the exception of the electricity company, thelargest agro-industries (Hevecam, CDC and Sodecoton) and the national railways company, the productivityof which has substantially increased, overall PE performance did not improve. The performance contractsessentially transferred debt from public enterprises to the central government without benefiting creditors,since the central government was unable to meet its obligations, because of growing financial problems.

13. Financial Supervision. Government was unable to effectively implement financial supervision ofpublic enterprises due to the absence of an institutional framework with the exception of PEs underperformance contract. The General Statute for Public Enterprises that was scheduled to be approved underthe 1989 adjustment operation was never finalized. Although considerable efforts were devoted to settingup a data base, the information system on public enterprises (SISEP), the data collected on a regular basis,covered only 17 enterprises.

14. Privatization. Between 1990 and 1994, out of the fifteen enterprises to be privatized listed inDecree 90/1423 dated October 3, 1990, five were sold (one of them only partially), three were liquidated,five divestitures were unsuccessful, and two enterprises were withdrawn from the list to be privatized.While sales totaled CFAF 3.8 billion, the State was still left with liabilities of around CFAF 10 billion. Inaddition to the small size of the enterprises sold and the questionable nature of the list, the process wasnotoriously slow, given the cumbersome privatization framework. Privatization procedures and structureswere subject to more than 6 laws and regulations drafted between 1988 and 1994. Privatization strategiesformulated for each enterprise by the Technical Committee had to be submitted for approval to: (a) anInterministerial Committee composed of seven ministers; (b) the Prime Minister; (c) the General Secretaryat the Presidency; and (d) finally the President himself. The same process applied to the final selection ofbuyers. As a result, the numerous authorizations required at different stages of divestiture and the largenumber of participants in the process with sometimes contradictory objectives, all created obstacles to theprocess and delayed the transactions. This heavily bureaucratic process was a reflection of the absence of aclear strategy for divestiture and of the lack of consensus among all the actors. Finally, the evaluationprocess, based primarily on asset valuation, led to unrealistic estimates and to the rejection of bids submittedby operators. Moreover, differences in the assessments made by the Government and SNI, a shareholder inthese enterprises, blocked the process. As a result, the divestiture process was delayed while the losses ofcompanies continued to grow.

15. Liquidations. Out of the 59 enterprises liquidated in 1989-1990, 33 were companies owned by SNIand 26 were owned by the State. At the end of 1994, 55 of these 59 liquidations were still ongoing. For the26 enterprises whose liquidation was supervised by the Technical Committee, audits performed on nine ofthem showed that basic asset protection procedures were not being observed and that the liquidation processlacked transparency. Also, some of the largest liquidations, especially the liquidation of the NationalCommodities Marketing Board (ONCPB), escaped any control.

III - BANKING SECTOR

16. The financial sector in Caneroon is the largest and the most diversified of the Central Africa Stateszone. It is composed of: (a) eight commercial banks; (b) eight non bank financial institutions; (c) a postal

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saving bank; (d) sixteen insurance companies and a reinsurance company; (e) a housing bank; (f) a socialsecurity institution; (g) a number of mutualistic savings and loan cooperatives; and (h) a recovery agency.A Central Bank (Banque des Etats de l'Afrique Centrale, BEAC) is shared with five other countries. Acentral bank auction money market was launched in July 1994. Cameroon does not yet have a bond orequity market.

17. Commercial banks constitute the largest part -- 64 percent -- of the financial sector with total assetsof CFAF 795 billion by end-September 1995. Commercial banks employ more than 2,200 people and havea network of about 104 branches throughout the country. Despite this high number of banks, the sector isdominated by three institutions (Banque Internationale pour le Commerce et l'Industrie (BICIC); SocieteCamerounaise de Banque - Credit Lyonnais (SCB-CL); and Societe Generale de Banque (SGBC), the assetsof which represent more than 60 percent of total bank assets. The assets of the National Pension Fund(CNPS) and the insurance companies amount respectively to 14 and 12 percent total financial institutionsassets and they employ 4,300 workers.

18. Past Restructuring Efforts. Since the middle of the 1980s, the financial sector has facedincreasing difficulties due to the sharp decline in the economy which has resulted in a constant deteriorationof its portfolio. As a result of this deteriorating trend, M2 to GDP decreased to 17 percent in 1990,compared to an average of 22 percent in Sub-Saharan African countries. In 1988, audits of most of thebanking institutions were conducted and the Government decided to restructure the sector. Three banks,Banque Camerounaise de D6veloppement (BCD), Cameroon-Bank (Cambank) and Banque Paribas-Cameroun and one fund, Fonds de Developpement Rural (FONADER) were liquidated. The operations ofanother fund, Fonds d'Aide et de Garantie et de Credits aux Petites et Moyennes Entreprises (FOGAPE)were brought to a stop, while five other banks were restructured and the non-performing assets transferred tothe Loan Recovery Agency (SRC) created in 1989.

19. Limited Achievements. On the whole, only limited results were achieved due to: (a) the poorsupport provided by the judiciary to the recovery of bad loans; (b) continued decline in economic activity;and (c) large public deficits and arrears. Over the past five years, contraction of the banking sector has beensevere. Total bank credit declined by 58 percent between 1989 and 1993, while deposits dropped by 35percent. Most banks are still burdened with large non-performing portfolios. In particular, Government hascontracted large debts -- CFAF 246 billion by end 1994 -- of which the quasi-totality is in arrears. A part ofthis is PE debt taken over by Government over the past five years. The ratio of provisions to doubtful loansis low and the net worth of some banks is negative and, as a whole, banks' capital inadequacy wasestimated to be around CFAF 101 billion by end-1994.

20. Overall, banks have high operating costs and, despite being high by international standards (aboutseven percentage points), margins are insufficient to ensure adequate provisioning given the large size ofthe non-operating portfolio. Because of these high margins, after-tax bank lending rates are in the order of18-20 percent. Cameroon is thus faced with a paradoxical situation where margins are insufficient to ensurethe long-term profitability of banks, while at the same time interest rates and particularly real rates are sohigh that they discourage borrowing by credit worthy customers.

21. The Loan Recovery Agency (Societe de Recouvrement des Creances du Cameroun, SRC). Itwas established in 1989 to receive the loan portfolio of liquidated banks and non-performing credits fromrestructured banks. Out of the CFAF 609 billion in assets (including large suspense accounts) it received, ithas barely recovered CFAF 20 billion in cash and about CFAF 60 billion through compensation during itsfirst three years of operation. It has been able, nonetheless, to carry out limited repayment of small privatedepositors. Several factors explain its poor performance: (a) an ill-defined mandate; (b) incomplete files;

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(c) high operating costs; and (d) a judiciary apparatus-that does not provide the support SRC needs. In June1994, hower--er, SRC received the "privilege du tresor" which enables it to freeze debtors' bank accountswithout a court order and to seize properties with the exception, however, of real estate.

22. SRC's main source of revenue is a commission of seven percent on cash recoveries, recentlyincreased to 15 percent, which is still insufficient to cover its operating costs. Over the last three years,cumulative losses have amounted to CFAF 623 million, or 120 percent of SRC's equity base.

IV - THE JUDICIARY SYSTEM

23. The judiciary system is not providing the needed support to financial institutions in enforcingfinancial contracts and facilitating the recovery of bad debts. There are problems at three levels: (a) thetexts themselves; (b) the administration of justice; and (c) the lack of means and facilities.

24. Problems with texts can be found with: (a) the accelerated recovery procedures that include thepossibility of opposition through the "contredit" thereby slowing down the recovery process; (b) the"privilege du tr6sor"; and (c) the "saisie conservatoire." Texts should be revised and harmonized with therecently introduced regional approach to business law (OHADA - Organisation pour l'Harmonisation duDroit des Affaires).

25. Problems with the administration of justice are manifold. Judgments are often rendered incontradiction to the law; parties adopt dilatory measures; delays in dealing with cases are long (e.g., thereare 3,000 cases pending at the Supreme Court); the Office of the Clerk of the Court operates in a veryrudimentary fashion and is the source of substantial delays; the bailiff system operates haphazardly andthere is much interference with the work of bailiffs; registering a mortgage is a difficult proposition.

26. Several of the above-mentioned problems are attributable to the small budget on which the judiciaryoperates. Salaries are very low. Judges' compensation ranges from CFAF 80,000 to CFAF 110,000 permonth, following the 1993 wage cuts and have not yet been restored to their previous levels contrary tosome other civil servants salaries. The budget of the Ministry of Justice was cut from CFAF 5 billion in1993 to CFAF 2 billion in 1994. The annual administrative budgets of some courthouses run as low asCFAF 100,000 for the purchase of all equipment and supplies. Litigating parties must supply paper andpencils to the judge. Buildings are literally in ruins. In addition, due to a lack of financial means,publication of the Official Gazette was suspended in 1989, and the judgments of the Supreme Court and theAppeals Courts have not been published since the beginning of the 1980s. As a result, most of the judgesare not informed of jurisprudence. Similarly, the legal profession, not to mention the public, operateswithin a framework of minimal information.

V - THE GOVERNMENT'S NEW APPROACH TO REFORM

A. Public Enterprises

A.1 Privatization Program

27. Recent Developments. In light of the very limited results achieved in the PE sector over the pastfive years and the devaluation of the CFA Franc in January 1994, the Government has revised its economicreform strategy and decided to focus on privatization, instead of rehabilitation, as part of a global process tofurther liberalize the economy. The Government's Letter of Development Policy, adopted in June 1994 inthe context of the Economic Recovery Credit financed by the Bank, was aimed at achieving progressively

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partial or full privatization of all industrial and commercial PEs, although with limitations with regard to thepublic utilities, while further liberalizing the economy.

28. In addition to the measures contained in the policy statement issued by the Government in June1994, a list of 15 additional enterprises to be privatized was published in Decree No. 94-125 dated July 14,1994. This list included: (a) the largest enterprises in the transportation sector, CAMSHIP/CAMTAINER(shipping company), Cameroon Airlines (CAMAIR, National airlines), REGIFERCAM (railway company),and the national public transportation company (SOTUC); (b) the major agro-industries: HEVECAM(rubber company), SODECOTON (cotton development company), SOCAPALM (palm oil), CameroonDevelopment Company (CDC, tea, palm oil, rubber, bananas), Swiss Farm Palm Plantation Company andthe Coastal Refinery (palm oil), Cameroonian Tobacco Company (tobacco growing and processing); and (c)three other smaller enterprises. The following table gives selected information on some of these companiesfor which financial information is available and that represent 55 percent of the assets of the sector (SNHand SONARA excluded).

Table 1. Companies to Be Privatized - Selected Financial Data (1993-19941)

(In billions of CFA Francs)

Company Total Turnover Value Added Net Profit Staffl _____________ 1 Assets or LossCAMAIR 22.3 34.3 10.1 -4.5 1,560CAMSHIP 25.4 25.1 2.9 0.2 276SOTUC 13.7 1.7 0.9 -13.9 990REGIFERCAM 167.3 24.1 15.0 0.9 3,200CDC 69.7 29.7 16.1 -0.5 13,500SODECOTON 59.5 55.3 13.2 8.1 2,301HEVECAM 45.1 9.0 5.8 1.1 4,236SOCAPALM 26.2 11.6 6.1 -16.1 4,072SCT 0.8 0.3 0.05 -1.6 N.A.SONEL 323.6 57.6 43.6 3.1 N.A.SNEC 203.8 13.1 7.5 -5.0 2,176INTELCAM 145.9 12.5 9.1 -13.7 450Total 1103.3 274.3 130.35 -41.9 32,761

29. In June 1995, this new approach was confirmed by the Head of State who had decided to acceleratethe privatization program and to expand its scope by including the main public utilities, i.e., water,electricity, and telecommunications. Based on the Government's action plan presented during negotiationsof the on-going SAC at least 18 enterprises should be privatized in the course of the next two years, andother companies might also be put up for sale, depending on how the program is progressing. This is an on-going process that will be reviewed annually to define the targets to be met the following year. (Jnder theStand-by Agreement signed with the International Monetary Fund, the Government also committed itself toraise CFAF 30 billion from the privatizations prior to June 30, 1996. Finally, the Development Policy

'/ The financial indicators provided above do not reflect accurately the real impact of devaluation for various reasons:(a) in 3ome cases (Intelcam) the losses are overestimated due to the fact that the consequences of the devaluation onforeign long-term debt are fully charged in 1994, contrary to standard accounting practices, and (b) in other cases suchas CDC, the information is based on pre-devaluation information (1993 balance sheet).

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Letter attached to the on-going SAC, reaffirms the key role of privatization as part of the country's medium-term development plan.

30. To achieve these goals and restore the credibility of the privatization program which has beenheavily undermined by past sluggishness, the Government is currently discussing a new privatizationinstitutional framework. A first step was taken by the Government in January 1996 when it split thetechnical commission into two different units: the Privatization Technical Commission and theRehabilitation Technical Commission. This first step will allow restructuring and strengthening thePrivatization Unit and avoid the previous confusion between two different missions: portfolio managementand privatization. However, additional changes are needed to streamline the privatization decision makingprocess and reduce the numerous approvals needed. During the negotiations of the on-going SAC, theGovernment agreed to review the current institutional framework and address the remaining issues. Thenew framework should be approved and implemented at the latest by end-1996; meanwhile, to ensure thetransparency and equity of coming sales, the Government has decided that the following principles wouldapply: (a) bids would be opened in public; and (b) selection criteria would be published. Given the variousprivatization schemes that will be used, guidelines governing public openings of bids will be specified in thetechnical specifications for bids that will be issued for each privatization.

31. The Government, however, is well aware that to be successful when implementing this program, itneeds to resolve the following issues: (a) changing the present poor image of the privatization process; (b)attracting foreign investors; (c) ensuring broad participation of the Cameroonian private sector and of thepublic at large; (d) developing a competitive environment and eliminating all direct and indirect subsidies toPEs prior to their privatization and; (e) coping with the social costs of divestiture.

32. Changing the Poor Image of the Privatization Process. The privatization process has, so far, beencharacterized by sluggishness and a lack of equity and transparency. Whatever efforts have been made toaccelerate the process (six privatizations were brought to an effective conclusion in FY95), both privateoperators and the population at large have distrusted the privatization program in the past. To address thisand to ensure broader local participation, the Government is planning to launch a wide-ranging publicrelations campaign to present its program, the schedule of the operations and the new procedures that will beused; among other themes, this campaign will also present some of the past successful privatizations such asthe sale of the Banana Marketing Board. The Government intends also to proceed more expeditiously; thelists of enterprises to be privatized will not be published until some preparatory work has been completed,therefore reducing the time required for the sale itself. Privatization decrees will be published annually,based on the progress of the program, so that the transactions can be completed within no more than oneyear, with the exception of the large public utilities, the privatization of which might take more time.

33. Attracting Foreign Investors. The crisis in the financial sector has had a major impact on savingsand investment in the country. Following the near-bankruptcy of many banks and financial institutions, it isestimated that an additional CFAF 100 billion worth of deposits will be frozen. This situation hasconsiderably reduced private savings in Cameroon and its investment capacity. In addition, the Governmenthas confirmed its intention to exclude from the privatization process all the defaulters that will not haveregularized their situation vis-A-vis the SRC. Finally, the banking sector is no longer in a position to takefull responsibility for financing the economy, as is evident from the 58 percent decline in lending between1989 and 1993. This situation will substantially constrict the country's growth and the privatizationprogram, if it is not offset by a large in-flow of foreign capital. To succeed in this objective, theGovernment will: (a) launch an information campaign in a limited number of well targeted countries todescribe its program; (b) design market-driven privatization strategies with the support of investment bankswith incentives built into their contracts; (c) establish realistic targets in terms of financial evaluation of the

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companies put on the market; and (d) given the weaknesses of Cameroon's legal and judicial system, usearbitration mechanisms to solve litigation that might happen with the objective of mitigating the highcountry risk that could adversely affect some transactions.

34. Increasing National Participation in the Privatization Process. Unlike many sub-Saharan Africancountries, Cameroon has a dynamic and vibrant private sector with a long tradition in entrepreneurship. Theprivatization program must, therefore, provide enough room for the nationals, and be supported by financialmechanism to be created by the Government to allow participation of small shareholders, growers andworkers. To address this issue, the Government has already taken the following preliminary steps: (a)request, when possible, foreign investors to warehouse ("faire le portage") a limited number of shares; and(b) associaec the donors and IFC with these actions. These mechanisms, however, will be limited in scope,and for this heason the Government is planning to study alternative mechanisms, such as the creation of atrust fund or other tools that might be adequate. The feasibility study should be completed before October1996 and its results will be presented to other donors. The functions of such a fund could also be expandedlater to include brokerage operations under the new regulations being prepared by BEAC.

35. Developing a Competitive Environment. Although the Government has substantially liberalizedthe economy over the past few years .ad it is one of the most open in the CFA zone and in sub-SaharanAfrica, many non-tariff barriers to entry still exist in various sectors where public enterprises operate, i.e.,reinsurance, advertising, maritime transport. Under the privatization program, the Government has agreedto eliminate these captive markets so that an efficient and competitive environment can be developed. Aspart of the privatization of the major public utilities, such as water, electricity, or telecommunications, theGovernment is also planning to open the market to competition whenever possible, to fix time limits onmonopolies, if any, and to set up a regulatory framework and effective appeals' bodies, so that any abusecan be eliminated.

36. In addition to improving the competitive environment of public enterprises and as short-termmeasures to complement the privatization program, there is a need a to review some key elements of thebusiness environment to facilitate the divestiture program and support investment. To achieve theseobjectives the Governments intends to: (a) adopt a competition law; (b) review some elements of theincentive system, especially the investment code and an industrial free trade zone; and (c) review somesectoral regulations such as the mining code and the energy framework to improve efficiency andtransparency.

37. Social Impact of Privatization. The Government is aware of the social implications ofprivatization, in terms of loss of both employment and basic public services, such as health, education, andinfrastructure, that are provided by public enterprises in rural areas.

38. Regarding the public services provided by public enterprises, studies conducted recently on theagro-industrial sector have shown that: (a) although relatively large, expenditures for the above services donot exceed five to six percent of production costs; (b) in most cases, financing of these expenditures isneither mandatory nor imposed by the Government as shareholder; (c) comparisons with similar privatecompanies show that the latter generally provide the same kind of services as a way to attract and retain thestaff they need. However, the Government wants to ensure that throughout the privatization process, therewill be a mechanism in place to allow for basic social services to be continued without burdening the newoperators. In this regard, the Government is developing a policy of setting up partnership structures forwhich provincial administrations and local associations may take over ownership and management. TheGovernment will also open these new entities to other people than those employed by the enterprises. Theywould be financed on a cost-sharing basis, and their management would be accountable so that better

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efficiency and reduced costs should be attained. The creation of independent organizations for educationand health will also provide the operators with guarantees that they will be able to limit their financialparticipation to their workers, while at the same time, making sure that these services will still be provided.

39. Redundancy Issues. Despite past efforts to regain competitiveness and financial sustainability,which have resulted in an 18 percent staff reduction for the 25 enterprises under performance contract in theearly nineties, the Government is aware that, in some cases, the privatization process will entail sizable staffcuts which cannot be avoided if the company is to remain competitive. However, the situation will varylargely from one enterprise to another, and there has been no overall assessment of the situation, except forthe five major enterprises in the transport sector. For these enterprises, staff cuts have been estimated ataround 3,300, of which 1,600 for SOTUC which was liquidated in January 1995. In the telecommunicationsand water sectors, overstaffing is also estimated to be high. On the other hand, staff downsizing in the agro-industrial sector should be limited, especially in the case of the four largest enterprises that will beprivatized in 1996, since: (a) social plans have already been implemented under performance contracts; and(b) the involvement of foreign operators in the capital or management of these enterprises has reduced therisks of overstaffing. In addition, past experience with the privatization of the Banana Marketing Board hasshown that, in some cases, production gains were so great that major staff cuts were not needed.

40. As part of the privatization program, private operators will be free to further downsize the staff ofthe enterprises that they have purchased. However, in devising privatization strategies and in selectingoperators, Government will include criteria to make sure that employment is sufficiently taken intoconsideration. Downsizing will be governed by the dispositions of the labor code and by-laws of thecompany. To ensure timely severance payments, which was not the case in the past, the Government willconduct an annual assessment which will be based on the privatization schedule and will allow for thesecosts to be included in the Tableau des Operations Financieres de l'Etat (TOFE). Bilateral and multilateraldonors, such as Caisse Francaise de Developpement (CFD) and the European Union (EU), have agreed tofinance part of these costs as in the past and will continue in the future.

A.2 Portfolio Management

41. The Government is aware that previous PE restructuring programs have proved to be relativelyineffective and that privatization is the best way to ensure financial sustainability of these enterprises.However, full privatization of the PE sector will take some time and can only proceed in stages. In thislight, the Government intends to strengthen financial supervision and to impose hard budgetary constraintson the PEs that will not be privatized immediately. With the adoption of the new General Statute for PublicEnterprises in August 1995, the legal foundations for such actions have been established.

42. General Statute For Public Enterprises. This new law addresses two different issues: theoperating rules of PEs and their supervision by Government; and the dispositions regarding liquidation ofPEs. This law introduces three categories of enterprises: (a) public enterprises with an administrativevocation which are involved in non-commercial affairs and are branches of the central Government; (b)state-owned companies, which are industrial or commercial corporations in which the central Governmentand/or other public agencies own 100 percent of the equity; and (c) semi-public enterprises, which arecompanies held jointly by public agencies and the private sector. The basic principles contained in thisstatute are as follows: (i) companies other than those in the first category are subject to corporate law,except for specific arrangements such as the designation of the Board of Directors; (ii) the statutory organs,such as the Board of Directors and shareholders' meetings, are sovereign bodies, and the Government, asshareholder, intervenes exclusively through these channels; (iii) a priori approval by technical ministries iseliminated; (iv) dispositions regarding financial reporting are reinforced; (v) supervision is centralized in the

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Ministry of Finance; and (vi) semi-public enterprises are treated as private companies exclusively subject tocorporate law, even if the private sector is a minority shareholder.

43. Financial Supervision. On the basis of these provisions, the Ministry of Economy and Finance willput in place mechanisms to ensure an effective financial supervision of the public enterprises. The PublicEnterprise Information System [SISEP] will be reinforced and should be fully operational by June 30, 1996,for the 17 current core enterprises. Based on its privatization strategy, the Government will expand SISEP'ssimplified mechanisms to include the major enterprises that are to remain in the State's portfolio in themedium term. Regarding the companies that do not produce financial statements, the Government willestablish a list of those enterprises by June 31, 1996, at the latest. A specific action plan will be determined foreach of these enterprises, to bring them into line with the regulations. These action plans will also assess thesustainability of the enterprises, especially those whose losses exceed 50 percent of equity. This wholeprocess will be completed by 31 December, 1997.

44. Based on thc-- new mechanisms, the Minister of Economy and Finance will enforce strict budgetarydiscipline on PEs. Achievements will be evaluated on annual basis and will concern: (a) the aggregatefinancial performance of PEs; (b) direct subsidies granted by the Central Government; (b) indirect subsidies,such as debt written-off or taken over by the Government, (c) loan repayments; (d) tax arrears and taxespaid; (e) arrears due to CNPS and to the water, electricity, and telecommunications companies; and (f) thesituation of public enterprises vis-a-vis the banking sector, and specially outstanding loans, including anyarrears. Finally, this management information system will also make it possible to: (i) monitor domesticdebt and prevent building-up new arrears once the cross debt is settled in 1996 and (ii) evaluate the cost ofPEs at both the micro and macro economic levels. Such assessments will help fine-tune the divestiturepriorities and support the public information campaign by presenting the cost to the population of notprivatizing. The first report will be completed by end-1996.

A.3 Liquidation

45. As indicated above, the general statute for PEs also defines standard rules for PE liquidation thatreplace the various procedures currently in use. In addition, it introduces a warning system, i.e., when thelosses of an enterprise exceed 50 percent of its equity, it must be liquidated unless it is restructured. Stepshave also been taken to protect assets and provide effective protection for private creditors. Since manyprivatizations entail prior liquidation, specific provisions have been incorporated to shelter buyers fromlawsuits having to do with either the tax debts or corporate obligations of the former enterprise.

46. Since this legislation will take effect immediately, the Government will rely on this new frameworkto complete the on-going liquidations of the 26 enterprises that are supervised by the Public EnterpriseRehabilitation Mission and carry out all future operations transparently. The Government will ensure thatthese rules are enforced and that all the liquidations that were ongoing by end 1994 will be completed byJune 30, 1997, at the latest. For future liquidations, such as those falling within the provisions of Article 68of the General Statute for Public Enterprises, the Government will appoint expert liquidators from theprivate sector to manage the process under Government supervision. The objective is for every liquidationto be completed within 18 months. To achieve this objective in the case of non commercial PEs(Etablissements Publics a Caractere Administratij), the Government will have to ensure availability offunds to finance severance payment costs.

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B. Financial Sector

47. A strong financial sector is an essential component of the Government's efforts to encourage privatesector development and elicit a supply response following the devaluation. This program forms part of themeasures supported by the on-going SAC and includes: (a) settlement of domestic public debt and arrears;(b) improvement of the regulatory framework and strengthening the supervision of the financial sector; (c)restructuring of the banking and insurance sectors; (d) reorganization of SRC; and (e) preliminary measuresto improve the judiciary with respect to litigation in the area of the financial sector. The specific sub-sector-reforms that will be supported by the present project are described below.

48. Banking Sector Reform. A transparent plan to restructure four banks and liquidate another isbeing implemented by the Government with the objective of achieving a reduced, but sustainable, bankingsector. The principles governing the proposals are that all institutions involved in restructuring should bethe subject of independent audits (already completed); Government should not issue additional debt to covershortfalls in assets; and shareholders (public and private) should bear their share of past losses.Restructured banks will be recapitalized from private sources, and the Government will withdraw from thesector, holding only minor shareholdings, when necessary, as a stop-gap or bridging measure (which cannotexceed 20 percent of share capital in any case). The overall plan is designed to minimize social andeconomic costs, especiallY for small depositors (whose deposits would be protected).

49. Agreements have already been signed with foreign investors to recapitalize two banks. TheGovernment will keep minority participation in one of these banks on a temporary basis until other privateinvestors can be found. Non-performing assets will be fully provisioned, and an active recovery policypursued by the bank (no assets transferred to SRC). Operating expenses will be reduced through lay-offsand branch closings. The other two banks will first be allowed to transfer non-performing assets and anequivalent amount of liabilities (including deposits) to the loan recovery agency (SRC). In this regard, alldepositors will receive equal treatment with all deposits over a certain threshold transferred to SRC. Smalldepositors will be thereby protected. The banks will then be liquidated or merged into new entities thatwould be taken over by new foreign and/or Cameroonian banking partners and investors. Care will be takento limit the burden of Government debt. Simulations of financial projections will check on the long-termviability of the new entities. To prevent an immediate run on these new entities, their demand deposits mayhave to be transformed into time deposits with staggered maturities. If private banking investors cannot befound within a reasonable time frame, the banks will be recapitalized by non-bank investors andperformance-based management contracts will be signed with banks, with a reputation for good financialstanding and high-quality management.

50. The cost of this program is substantial, but far less than the cost of not restructuring. Overall, about1,300 bank employees would become redundant. The cost to Government is CFAF 20 billion and to privateshareholders CFAF 28 billion, in terms of loss of equity and recapitalization. Under the program, publicand private deposits totaling a massive CFAF 100 billion will be frozen at the SRC, until recoveries aremade. Measures will be taken to avoid such deposit losses in the future. This amount is to be compared to apotential total loss of deposits of CFAF 300 billion without restructuring. Such a loss of deposits might wellprovoke a general banking sector crisis, which would in turn deprive many exporters, manufacturers andmerchants of their main source of funds. Thus the restructuring is clearly advantageous in net terms to theprivate sector, which considers lack of credit and poor financial intermediation to be leading constraints togrowth.

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51. Loan Recovery. SRC has been set up as a liquidation unit rather than a recovery agency, with theproceeds of recoveries in each liquidation distributed among the claimants according to legal liquidationrules. Its mandate is ill-defined, its operating costs are excessive and it has suffered from politicalinterference and a lack of judicial support, which has compromised its effectiveness in repossessing assets.The Government has prepared an action plan to make it more effective. It will be restructured, downsized,and its priorities will be better defined with quantitative targets (US$15 million by end June 1996,US$18 million plus 7 percent of new portfolio by end June 1997). An expatriate loan recovery specialistwill be hired to support implementation of this plan. SRC will use the privilege of the Treasury granted to itin 1994 more effectively as a powerful instrument to enable it to recover assets with the same seniorityrights as the Treasury. The portfolio to be recovered will be ranked on the basis of agreed criteria, includingage, size and the probability of recovery.

52. Recovery efforts will concentrate on recently transferred loans from the current restructuringexercise, on a few large debtors and on high-profile individuals with the means to repay their debt. Thelatter, whose arrears total CFAF 48 billion, will be required to regularize their payments immediately. Thecomposition of SRC's Board of Directors will be modified, through an amendment to its by-laws, to includerepresentatives from groups with a large stake in the recovcries who will have at least one third of the votes.The General Manager will no longer be appointed by decree. He will be appointed by the SRC's Board witha two-thirds majority. The registry of bank borrowers in the Central Bank will also serve as registry ofdelinquent borrowers. Delinquent borrowers will be prohibited from borrowing from any bank, and fromparticipating in the privatization of public enterprises and in bids for Government purchases of goods andservices.

53. Judiciary. Currently, the legal framework and the judicial system fail to support the enforcementof financial contracts and the recovery of bad debts. A Roundtable on Justice and Financial Institutions heldin Yaounde in November 1994 concluded that five problems require attention. First, debtors should nolonger be able to oppose application of the accelerated recovery procedure to the uncontested part of aclaim. Second, they should no longer be able to block SRC's right to use the privilege of the Treasury. Inthe future, this privilege should also apply to real property, including machinery and equipment. Third,freezing of assets pending court cases will be easier, quicker and with limited recourse. Fourth, the judgesare not always aware of the recent laws, regulations and jurisprudence due to the interruption of thepublication of the official gazette and of the judgments of the supreme court and courts of appeal. Fifth,there is a lack of skilled human resources and financial means in the Ministry.

54. The Government intends to address all these issues but with clear priorities. It will first draft theneeded amendments to the current laws (89-201, 92-008 and 94-327), that are needed to strengthenrecovery. Publication of the Official Gazette and main court decisions will resume by June 1996 andbudgetary allocations of the Ministry of justice have been increased in 1996 and this effort will be continuedduring coming years. Finally, supervision of the magistrates and other civil servants will be strengthened toaddress biased court decisions.

55. These measures should be considered as preliminary steps in the context of a medium-term effortthat will need support from all the donors to achieve significant results and resume trust in the judiciarytime.

VI - LESSONS LEARNED AND STRATEGY FOR IDA ASSISTANCE

56. Despite the fact that public enterprise reform was an important part of the previous adjustmentsoperations (1989 and 1994) and was supported by an Economic Management Project (PAGE; Ln. 3110-

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CM), results have been disappointing. Apart from some initial progress resulting in the closing-down ofseveral non-viable PEs in the 1988 adjustment program, the PE reform program was hampered by manyfactors, including: (a) persistent economic imbalances; (b) emphasis on performance contracts withoutrealistic incentives; (c) lack of a satisfactory institutional framework for PE supervision and divestiture; and(d) deficient organization of the unit responsible for PE restructuring. The PAGE implementationcompletion report (ICR, Report No. 14156) shows that although most of the studies which had to be donewere completed, only limited action was taken by the authorities. It concludes that the privatizationprogram was never internalized by the Government and was probably too broad, and that its objectives werenever clearly defined. In addition, the institutional framework was inadequate to ensure a smoothdivestiture process and allow efficient supervision of the other PEs. Performance contracts andprivatizations failed because of both the lack of commitment from Government and PEs and theunsatisfactory framework.

57. However, since the January 1994 devaluation, some significant progress has been made with respectto privatization, liquidation and the financial supervision of PEs: (a ) the general objectives of theprivatization program were clarified by the Government in 1994 and more recently during the preparation ofSAC II; (b) a general statute for public enterprises was approved in August 1995; (c) the legal frameworkfor PE divestiture has.been recently modified to separate portfolio management from privatization and theGovernment has agreed to further streamline the process by reducing the number of layers/approvals neededfor each divestiture; and (d) a comprehensive list of enterprises to be privatized has been established by theGovernment. As a result, privatization resumed in 1995: (a) one of the largest agro-industries, HEVECAM,was put on the market in December 1995; and (b) more recently in March 1996, invitations to bid wereissued for CAMSIHP, the national shipping company. In addition, the Government is committed to expandthe scope of the divestiture program.

58. The lessons learned from past experience have led to addressing first some of the critical issuesunderscored in the PAGE completion report, such as institutional arrangements. In addition, the choice ofHEVECAM for the first large privatization, a profitable company for which more than eleven foreigninvestors have expressed interest, will help build a successful record for privatization. The Governmentinstitutions and staff, private operators and other donors were broadly involved in the preparation of theprogram. To build a broad consensus, the Government is currently launching a public relations campaignfinanced under the PPF aimed at presenting its program and the specific objectives it wants to achieve. Inaddition, following the Private Sector Assessment Seminar a public/private sector working group has beenconstituted to follow-up recommendations made during the seminar; this working group will be regularlyinformed of the progress in the divestiture program and will be able to make further recommendations.Finally, a more sequential approach will be used. The current program includes 18 PEs; it is aimed at: (a)achieving some significant transactions such as the sale of HEVECAM; and (b) completing the privatizationof a number of PEs that were listed in previous decrees but for which sales have not yet been completed.Based on the progress achieved, the program will then be expanded on a yearly basis.

59. EI)A's Akssistance Strategy. The country assistance strategy discussed with the Board on February8, 1996, is to hcVp recover lost ground in economic and social development as quickly as possible whilefurther restructuring the economy to remain competitive in a rapidly changing world. Over the next threeyears, the Bank's program will be aimed at: (a) consolidating the benefits of the devaluation; (b)accelerating growth and alleviating poverty; and (c) creating a climate favorable for private sectordevelopment. The main tools to achieve these objectives in the short-term are the on-going SAC and theEnterprise Reform and Divestiture Project which is scheduled for FY97 and which will focus onprivatization and regulatory measures aimed at creating an environment conducive to private sectordevelopment and growth. The proposed operation is complementary to these adjustment operations; with

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respect to privatization, SAC II will provide support for setting-up an adequate framework for privatizationand the proposed project will support preparation and implementation of privatization that will be one themain objectives of the next Sectoral Adjustment Credit; with respect to the financial sector,restructuring/privatization of banks and reorganization of SRC are conditions of release of the financialsector tranche of SAC II that will be supported under the proposed project and its PPF advance.

60. To ensure efficient implementation of the project, agreements were reached as follows: (a) staffingof the privatization technical unit (already implemented), selection of the accounting firm to prepare thefinancial statements of the project is a condition of effectiveness of the project; and (c) an action plansatisfactory to IDA to resume publication of the Official Gazette is a condition of disbursement of thiscomponent.

VII - DESCRIPTION OF THE PROJECT

61. The proposed project is an integral part of the Bank's broad strategy for Cameroon; its objectivesare closely linked to adjustment operations and aimed at encouraging growth and private sector participationin the economy. The project will provide additional financing to complete PE privatization work in theagriculture and financial sectors respectively launched in 1994 and 1995 under PPF financing, and enlargethe scope of privatization. Furthermore, the project's objective of establishing a transparent institutionalframework will help accelerate the overall privatization program. Finally, the proposed project willprepare the groundwork for the next adjustment sector operation (The Enterprise Reform and DivestitureCredit) scheduled for FY97. More specifically, the project objectives are to: (a) put in place an adequateand transparent institutional framework for privatization/liquidation and implement a broad privatizationprogram; (b) improve the regulatory and business environment in a limited number of well targeted areascomplementary to the privatization program; (c) reorganize the loan recovery agency and support therestructuring of two banks; and (d) provide preliminary support to the judiciary to initiate a program ofreforms over the next few years.

Project Description. To achieve the above objectives, the project would consist of the four followingcomplementary components:

(a) Privatization and Liquidation. This component will provide consultant services to: (i)complete selected privatizations, including the largest enterprises in the agriculture sectorand the public utilities, as agreed by the Government during the negotiations of SAC II; (ii)complete the ongoing liquidations and implement procedures allowing quickscission/liquidation, the most likely approach to divestiture/restructuring; and (iii) launchprivatization promotion campaigns to inform the public of the implications, as well as thebenefits associated with the Government's divestiture program. The privatization/liquidation process will be implemented by private advisers who will have incentives builtin their contracts to achieve the objectives set up by the Government. The project will alsoprovide basic equipment to the privatization unit and will finance the recruitment of alimited number of long-term nationals and foreign experts to help supervise the process;

(b) Restructuring Two Banks and the Loan Recovery Agency. This component willsupport: (i) the reorganization of the Loan Recovery Agency to increase collection of loans;and (ii) completion of the restructuring/privatization of two out of the four largest bankstargeted under SAC 11;

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(c) Preliminary Support to Improve the Private Sector Environment. In addition toimplementing divestiture of public enterprises, the project will also support some criticalactions aimed at improving the business environment that are complementary to theprivatization program. The specific actions that will be supported by the project are asfollows: (i) finalizing the competition law; (ii) a review of the incentives system, especiallythe investment code; and (iii) a review of sectoral regulations, such as the energy frameworkand the mining code, to support private sector participation; and

(d) Strengthening of the Judiciary. This component will be limited to providing thenecessary support to the Ministry of Justice to enable the regular publication of main courtdecisions in the area of business laws and financial sector, and of the Official Gazette so toallow normal diffusion of laws and regulations and to strengthen the Inspection Directorateof the Ministry of Justice.

62. Technical Assistance Training and Seminars. The credit would finance 752 person-months ofconsulting services of which 492 for local experts, for short-term studies, staffing of the privatization unit,training and seminars; the break-down of these person-months is provided in the table below:

Table 2. Person-month by Type of Technical Assistance and Activity

Formulation of Staffing of Policy Support TrainingDivestiture Srategies Privatization Unit

and Restructuring

Agro-industries 41

Energy 15

Industry 18

Other Enterprises 72

Financial Sector 96 12

Communications 32

Sector Management 288 113

Judiciary 8 20

Other 60 51 17

VIII - BENEFITS AND RISKS

63. Project Benefits. Given the limited number of public enterprises that provide financial statementsin Cameroon, an accurate evaluation of project benefits is difficult to conduct. However, shifting ownershipof assets to the private sector and reducing state participation in the economy are expected to bring thefollowing results: (a) further reduction of financial transfers to PEs; (b) growth in foreign and domesticprivate investment; (c) improved efficiency of enterprises and key public utilities; and (d) increases inpublic savings. Public savings will be improved by reducing direct and indirect subsidies and improvingfiscal revenues, since all PEs are now subject to the tax code. In addition, settlement of the cross-debtsbetween Government and PEs and adequate financial supervision of these enterprises should prevent PEs

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from building up new arrears. It is also expected that privatization of some of the largest PEs will catalyzethe investment that the Government was unable to finance and, therefore, ensure a significant increase inproduction and exports, especially in the agriculture sector. The improved efficiency of the key publicutilities and the privatization of the shipping, airline and railways companies will also reduce transactioncosts for the private sector. Based on conservative hypotheses, a successful implementation of the projectshould bring about the following benefits:

(a) despite the fact that direct subsidies to PEs have been almost eliminated since 1994, indirectsubsidies such as debt taken over by Government or tax evasion, are still high for variousenterprises and can be estimated to be in the order of at least US$20 million a year. Bettersupervision of PEs and fast privatization of some of them should result in the reduction ofthese transfers up to US$18 million over three years;

(b) comparisons between public and private enterprises show that, on average, rotation of assetsis much higher in private companies (0.79) than in public enterprises (0.45). For the threelarge agro-industries alone, additional investments to be financed by the new owners areestimated to amount to US$30 million; better efficiency of these new enterprises wouldresult in a cumulative increase of value-added of US$10 million over the next four years,assuming no change in commodity prices. In addition, an eight percent reduction oftechnical losses of the public utilities between 1998 and 2000 would result in gains ofUS$25 million, which would in turn translate into better service, reduced costs of operationsand lower tariffs; and

(c) finally, proceeds from privatization are estimated at US$80 million over four years andwould increase the budgetary surplus up to 20 percent.

64. Risks. The risks of the proposed operation should not be underestimated, including: (a) lack ofcommitment to privatization in some line ministries; (b) significant delays, especially with respect to theeffective implementation of the revised privatization framework ; (c) Government's reluctance to deal withsensitive issues such as redundancies; and (d) the general population's distrust of the privatization process,given the lack of transparency of previous sales. These risks are to be viewed in the context of thepresidential elections scheduled for 1997. In addition, there is a serious risk that transparency problemswith one privatization may discourage foreign investors whose participation is crucial for the success of theprogram.

65. Government is conscious that failure to act decisively on its privatization program would delayBank further support in the form of adjustment lending, with serious consequences on the viability of themacroeonomic framework. It is determined to move forcefully in the months ahead. The project is aninstrument designed to help the Government implement its economic reform program, with specialemphasis on divestiture of public enterprises. It supports key measures to reduce the above-mentioned risks(e.g., transparency of bids, streamlined and efficient institutional support). These, together withGovernment commitment to the reforms will help mitigate the risks. The program will also be closelysupervised.

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SECTION B. PROJECT COSTS AND ADMINISTRATION

I - PROJECT COSTS

66. Total project costs, including price contingencies and taxes, are estimated at US$16.7 million. Thecosts, net of taxes and duties, are estimated at US$15.8 million with a foreign exchange component ofUS$12.1 million, or 73 percent. The Government would bear the cost of taxes and duties levied onconsulting services, goods, estimated at US$0.8 million. The Government will also provide offices for theprivatization technical unit and support 10 percent of the local costs, consultants services excluded. Giventhe current budgetary constraints, no other contribution to the project would be requested from theGovernment. A summary breakdown of the project costs net of taxes is given below.

67. Financing. Out of a total project costs of US$16.7 million, Government would finance US$1.1million, including US$0.8 million in taxes and US$0.3 million in counterpart funds; EU and CFD wouldfinance US$3.0 million for consulting services, and the remaining, US$12.6 million, would be financedunder the project, including US$2.0 million for the refinancing of two PPFs.

Table 3. Estimated Project Costs

Component Total Costs(US$ million)

I. Equipment 5832. Consultants' Services and Studies

(a) Privatization 8,340(b) Liquidation 300(c) Financial Sector Restructuring 1,700(d) Project Preparation Facility 2,000(e) Public Relations Campaign 700(f) Judiciary 300(g) Private Sector Environment and Incentives 675

3. Training and Seminars 3104. Publication 4955. Operating Costs 557Non allocated 425

Total 15,885

II - PROCUREMENT

A. Employment of Consultants

68. In order to ensure the satisfactory execution of the project, the Borrower will be requested duringnegotiations to provide assurance that qualifications, experience, and termns and conditions of employmentof consultants shall be satisfactory to IDA. Such consultants will be selected in accordance with principlesand procedures satisfactory to IDA on the basis of the Guidelines for the Use of Consultants by World BankBorrowers and by the World Bank as Executing Agency, published by the Bank Group in August 1981 (theConsultant Guidelines). Procurement procedures are indicated in Schedule B. The model letter of invitation

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issued by the Bank Group shall be used. For complex assignments, the Borrower will employ suchconsultants under contracts, using the standard form of contract for lump sum or time-based paymentsissued by the Bank Group, with such modifications as shall have been agreed by IDA. Where no relevantstandard contract documents have been issued by the Bank Group, the Borrower will use other forms agreedwith IDA prior to launching the bids.

69. Following the recommendations of the Country Procurement Assessment Report issued in April1994, which concluded that procurement practices in Cameroon were inadequate, and to enable asatisfactory procurement process, the following measures were agreed during preparation:

(a) short-lists shall be a minimum of 3 and a maximum of 6 firms with no more than two firmsfrom the same country;

(b) quality shall be the main criterion for the selection of consultants; and

(c) bid and performance securities shall not be requested from consultants.

B. Procurement of Goods

70. Goods estimated to cost the equivalent of US$100,000 or less per contract, up to an aggregateamount equivalent to US$210,000, may be procured under contracts awarded on the basis of competitivebidding, advertised locally, in accordance with procedures acceptable to IDA, including: (a) bids are openedin public in the presence of bidders or their representatives; (b) there will be no negotiation with biddersbetween bid opening and contract award; (c) bid evaluation and post-qualification criteria will be defined inprecise quantitative and monetary terms; (d) award will be made to the lowest evaluated responsive bidder;and (e) foreign bidders will be allowed to participate in the bidding if they wish to. Specialized services(publication of the official gazette) will be awarded on the basis of international competitive bidding (ICB).

71. Review by IDA of Procurement Decisions:

(a) with respect to each contract for goods estimated to cost the equivalent of US$50,000 ormore, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines forProcurement under IBRD Loans and IDA Credits published by the Bank in January 1995shall apply. Where payments for such contracts are to be made out of a Special Account,such procedures shall be modified to ensure that one conformed copy of the contract,required to be furnished to IDA pursuant to said paragraph 2 (d), shall be furnished to IDAprior to the making of the first payment out of such Special Account in respect of suchcontract;

(b) with respect to consulting services contracts with firms and individuals, the prior reviewthreshold will be US$20,000 and US$5,000 respectively;

(c) with respect to each contract not governed by the preceding paragraph, the procedures setforth in paragraph 4 of Appendix I to the Guidelines shall apply. Where payments for suchcontract are to be made out of a Special Account, said procedures shall be modified toensure that the two conformed copies of the contract, together with the other informationrequired to be furnished to IDA pursuant to said paragraph 3, shall be furnished to IDA aspart of the evidence to be furnished showing that such payment was made exclusively foreligible expenditures; and

- 20 -

(d) the provisions of the preceding subparagraph (b) shall not apply to contracts on account ofwhich withdrawals are to be made on the basis of statements of expenditures.

During negotiations, the procurement plan summarized in Schedule D has been agreed upon.

III - DISBURSEMENTS

72. Schedule B details the amount to be disbursed from the credit per category. The percentage ofexpenditures to be financed is 100 percent of the cost net of taxes and duties for consultants' services, 90percent of other costs for goods, operating costs and other services.

73. To facilitate disbursements and to ensure that funds are available on time to finance the costs ofservices to be provided under the project, the Government will establish a Special Account in a commercialbank on terms and conditions acceptable to IDA. The Special Account will be managed by the CaisseAutonome d'Amortissement, and its authorized amount is CFAF 250 million. In addition, three sub-accounts will be opened and will be managed by the Ministry of Finance, the head of the privatization unit,and the Ministry of Justice. These sub-accounts will be replenished by CAA through the Special Account,at least every month, on the basis of the justification of the expenses paid. Requests for replenishing theSpecial Account will also be submitted to IDA on a two-month basis or at such intervals as IDA shallspecify.

74. Disbursements will be made against standard Bank documentation, except for contracts of less thanUS$50,000 for consultants and goods, for which certified statements of expenditure would be used. Thesestatements of expenditure will be subject to review by supervision missions and periodic financial audits.The minimum application size for payments directly from the credit account will be US$50,000.

IV - ACCOUNTING AND AUDITING

75. Accounting. The Ministry of Finance, the head of the privatization unit, and the Ministry of Justiceand CAA will maintain records and accounts adequate to reflect, in accordance with sound accountingpractices, the operations, resources and expenditures in respect of the Project. Accounting of the projectwill be sub-contracted to a qualified local firm that will review the procedures of the different units andprepare the financial statements of the project on a quarterly basis. The selection of the accounting firm willbe a condition of effectiveness of the project.

76. Auditing. During preparation of the project, the Borrower agreed to:

(a) have the records and accounts referred to in the preceding paragraph, for each fiscal year,audited in accordance with appropriate auditing principles consistently applied byindependent auditors acceptable to IDA;

(b) furnish to IDA as soon as available, but in any case not later than six months after the end ofeach such year, a certified copy of the report of such audit by said auditors, of such scopeand in such detail as IDA shall have reasonably requested;

- 21 -

(c) furnish to IDA such other information concerning said records and accounts and the auditthereof as IDA shall from time to time reasonably request; and

(d) without any limitation to the provisions of paragraphs (a) through (c) above, have therecords and accounts of the Special Account audited in accordance with paragraphs (a)through (c) above every six months after the Effective Date; and furnish such audits to IDAat the latest within two months following the end of the periou audited.

77. For all expenditures with respect to which withdrawals from the Credit Account were made on thebasis of statements of expenditure, the Borrower shall:

(a) maintain or cause to be maintained, in accordance with paragraph 94, records and accountsreflecting such expenditures;

(b) retain, until at least one year after IDA has received the audit report for the fiscal year inwhich the last withdrawal from the Credit Account or payment out of the Special Accountwas made, all records (contracts, orders, invoices, bills, receipts and other documents)evidencing such expenditures;

(c) enable IDA's representatives to examine such records; and

(d) have the records and accounts of the statements of expenditure audited in accordance withparagraph -76 above: and ensure that the report of such audits contains a separate opinion bysaid auditors as to whether the statements of expenditure submitted during the periodpreceding such audit, together with the procedures and internal controls involved in theirpreparation, can be relied upon to support the related withdrawals.

SECTION C. IMPLEMENTATION AND MONITORING

78. Organization and Management. The newly created Privatization Technical Unit attached to theMinistry of Economy and Finance will be responsible for the privatization/liquidation component of theproject. The Minister of Economy and Finance, with the support of his adviser financed through the FrenchFonds d'Aide et de Cooperation, will be directly in charge of the financial sector components. The privatesector development component will also be managed by the Minister of Economy and Finance with thesupport of a steering committee that will associate staff of other Government agencies such as the Industryand Trade Ministry to ensure good coordination. The Ministry of Justice, specifically the InspectionDirectorate, will be in charge of the Judiciary Component, including the publication of the Official Gazette.

79. A Project Implementation Plan has been prepared by each of the component coordinators to helpimplement and monitor the project. The plan would include all project procedures agreed with IDA,standard bidding documents for consultants, the list of consulting services to be procured and the type ofprocurement, estimated costs, the terms of reference of the most important studies and support services to becarried out, and standard forms for progress reports, including the specific indicators to be monitored. Anoutline of the Project Implementation Plan was agreed during project preparation. Terms of reference forthe critical project activities in the short-tern have been agreed by the Government (i.e., financial advisorsfor the privatization of SODECOTON, SOCAPALM and CDC, study to resume publication of the Official

-22 -

Gazette, and advisor to the General Manager of SRC). Letters of invitation, including terms of reference,and short-lists for these activities have been reviewed by IDA.

80. To address up-front some of the critical issues (i.e., misprocurement and mismanagement of specialaccounts), brought to light by the country portfolio implementation carried out by the Resident Mission in1993, a central unit for management and administration will be established at the beginning of theoperations. Its role will be to: (a) implement sound procurement practices among all the components; (b)draft or review all the contracts; (c) ensure that Bank's procurement and disbursement procedures areenforced; and (d) make the link with the Debt Management Agency (CAA) which will manage the SpecialAccount. In addition, the project supervision plan calls for tight supervision at the start of the project toensure a good and quick implementation.

81. Implementation Schedule. The implementation schedule of the project was agreed duringpreparation of the proposed project as well as during negotiations of SAC II. It is provided in Schedule D.It was prepared on the basis of the following assumptions: (a) the credit would become effective by October1996; and (b) it would be executed over a three-year period and would be closed by December 31, 1999.

82. Reporting and Monitoring. The contents and timing of progress reports have been agreed duringnegotiations. Progress reports will be prepared quarterly and in advance of each Bank's supervisionmission. The reports will review progress on financial execution and studies; these reports would alsomonitor the indicators presented in Schedule G that will be agreed during negotiations:

83. Supervision Plan. Bank staff input into the supervision of the project would take the followingform:

(a) Portfolio Management. Procurement documents, terms of reference and reports (progress,final, studies, financial statements) would be reviewed at Bank Headquarters.

(b) Field Supervision. Missions will review the progress of technical assistance and studies inthe three broad project areas of policy support, institutional development, and projectpreparation and implementation. Missions will monitor the impact of project activities anddiscuss action plans for implementing study recommendations.

84. Mid-Term Review. Under the supervision of the Minister of Economy and Finance, thecoordinators of each component will prepare and hold a mid-term review of the project execution no laterthan November 30, 1997. The review will be organized in collaboration with the Administration, publicenterprises, IDA supervision mission, and representatives of donor agencies involved. The review processwill include progress in meeting project's objectives, overall project performance against established andagreed key performance indicators, implementation of study recommendations, and performance ofconsultants under the Project. The mid-term review will provide the opportunity for IDA to assess theGovernment's continued commitment to the project objectives. During negotiations, the Borrower agreedto the carrying-out of a mid-term review and to its objectives.

- 23 -

Schedule APage I of 2

REPUBLIC OF CAMEROONPRIVATIZATION AND PRIVATE SECTOR

TECHNICAL ASSISTANCE PROJECTESTIMATED PROJECT COSTS AND FINANCING PLAN

A. Estimated Project Costs(US$ 000 equivalent)

Project Components Local Foreign Taxes Total % Foreign % TotalExchange Base Cost

A. Privatization and Liquidation1. Privatization (consulting services)

(a) Public Relations Campaign 100 600 17 717 83.68 4.39(b) Socapalm - 275 - 275 100.00 1.68(c) Sodecoton - 350 - 350 100.00 2.14(d) CDC - 400 - 400 100.00 2.45(e) Sonel - 600 - 600 100.00 3.67(f) Cimencam 20 100 3 123 81.30 0.75(g) Inrelcam - 800 - 800 100.00 4.90(h) Snec - 500 - 500 100.00 3.06(i) Other enterprises 158 2,988 27 3,173 94.16 19.41(j) Other studies (regulatory) 75 375 13 463 80.99 2.83

2. Staffing of the Privatization Unit 400 500 120 1,020 49.01 6.243. Liquidation 300 - 51 351 - 2.154. Portfolio Management 260 - 27 287 - 1.755. Training 70 140 12 222 63.06 1.366. Operation Costs of Privatization Unit 557 - 81 638 - 3.907. Equipment 242 - 96 338 - 2.06

SUBTOTAL 2,182 7,628 447 10,257 75.34 62.78

B. Financial Sector1. Consulting Services

(a) SRC 200 400 34 634 63.09 3.88(b) Banks 1,000 - 1,000 100 6.12

2. Training 50 50 8 108 46.30 0.663. Equipment for SRC 220 - 88 308 - 1.88

SUBTOTAL 470 1,450 130 2,050 70.73 12.54

C. Support to the Judiciary1. Consulting Services 200 - 200 100 1.222. Publication of the Official Gazette 485 - 84 569 3.483. Training 100 - 17 117 - 0.724. Equipment 121 - 48 169 - 1.03

SUBTOTAL 706 200 149 1,055 18.96 6.45D. Preliminary Review of the Business

Environment1. Consulting Services 150 525 26 701 74.9 4.29

E. Audits 140 - 34 174 - 1.06F. PPF Refinancing 600 1,400 102 2,102 66.60 12.86TOTAL BASE COSTS 4,248 11,203 888 16,339 69.18 100.00Physical Contingencies 0 100 0 100 100 0.61Price Contingencies 75 200 50 325 1.99TOTAL PROJECT COSTS 4,323 11,503 938 16,764 69.21 102.60

- 24 -

Schedule APage 2 of 2

B. Financing Plan

Sources Local Foreign TotalIDA 3.873 8,727 12,600Govemmenl 1,164 - 1,164EU - 1,000 1,000CFD - 2,000 2,000TOTAL 5,037 11,727 16,764

- 25 -

Schedule BPage I of 2

REPUBLIC OF CAMEROONPRIVATIZATION AND PRIVATE SECTOR

TECHNICAL ASSISTANCE PROJECTPROCUREMENT AND DISBURSEMENTS

A. Procurement Methods(US$ 000 equivalent)

Procurement ArrangementsIntemational National NotCompetitive Competitive BankBidding (2) Bidding (2) Other (2) Financed Total

A. GoodsComputers 220 220Other Equipment 243 243Vehicles 210 210

B. Specialized ServicesPublication of the Official Gazette 485 485

C. Training and Seminars1. Local 220 2202. Abroad 190 190

D. Consulting Services1. Privatization 6,050 3,000 9,0502. Financial Sector 1,787 1,7873. Judiciary 300 3004. Business Environment 675 675

E. Operating Costs 220 285(1) 505F. PPF Refinancing 2,000 2,000G. Taxes 879 879SubTotal 948 210 11,442 4,164 16,764

(I) Government counterparts including equipment(2) All the amounts under ICB, NCB and Other are IDA-financed

- 26 -

Schedule BPage 2 of 2

B. Allocations and Disbursements under Proposed IDA Credit(US$ COO equivalent)

Allocation category Amount % Financed(USS 000)

Privatization and liquidation- Consultant Services and Training 6,010 100%- Equipment 220 90%- Operating Costs 370 90%Financial sector restructuring- Consulting Services and Training 1,700 100%- Equipment 200 90%Judiciary- Consulting Services and Training 300 100%- Equipment 110 90%- Publications 450 90%Private Sector- Consulting Services and Training 675 100%Audits 140 100%PPF Refinancing 2,000 100%Non-allocated 425 N.ATotal 12,600

C. Estimated Disbursements(US$ 000 equivalent)

FY 1997 1998 1999 2000Annual 4,355 4,590 2,515 1,140Cumulative 4,355 8,945 11,460 12,600

-27- SCHEDULE CPage I of 7

State's Portfolio and Financial Indicators(CFAF billion)

Entreprise Raison Sociale Activite Statut Participations Chiffres Valcur REsultat Actifs Situation Effectifd'affaires Ajoutec Ntt Nette

Etat SEM SNI Privds PrivdsEPIC nationaux etrangers

Transport

CAMAIR (94 Catmeroon Airlines Transport arnen SEM 7500 0.00 0.00 0.00 2500 34 34 1009 -448 2225 -1708 1,560CAMSHIP (94) Carneroon Shipping Lines Transponr maritinle SEM 36 30 0 00 30.30 0.00 33 40 25 14 2.95 0 19 25 39 3 01 276CAMTAINER(94) SocieteNationaiedeTransportetde Transponlde SEM 25.00 15.00 000 1500 4500 100 032 -0.17 148 0.00 142

Transit du Cameroun containersCNCC(94) ConseilNationaldesChargeurs Conseil aux EPA 0.00 000 0.00 0.00 000 069 019 042 6.11 467 121

du Cameroun chargeursCNIC Chantier Naval et Indust du Camneroun Chantier naval SEM 45.00 10.00 15 00 000 30 00 1 75 n a n.a. ni a ni a. 195LABOGENIE (93) Laboratoire National de Ginie Civil Recherche, etudes SCP 100.00 0.00 0.00 0 00 0.00 1 41 1 20 -0 48 6.86 -2 48 408MATGENIE (93) Parc National de Materiel de Genie Civil Gestion de mat6riel SCP 100.00 0.00 0.00 0.00 0 (10 0 72 0.58 3 29 8 87 n.a. 385

de travaux publicsONPC (94) Office National des Ports du Cameroun Gestion portuaire SCP 10000 0.00 0.00 000 000 17 11 13 63 0.51 94.48 34 27 1,035RNCF(94) RcgieNationaledesCheminsdeFerdu Transport SCP 100.00 000 0.00 000 0.00 2409 1496 094 16726 10435 3,200

Cameroun ferroviaireSOTUC(94) SoecitedesTranspoftsUrbainsdu Transporturbajit SEM 75.00 0.00 4.00 000 21.00 1 71 086 -13.27 13.70 -3090 990

Camerounlotal(S) 105.49 44.19 -18.40 337.53 95.84 7,732

Industries Extractives

SNH Societ Nationale des Hydrocarbures Promotion des SCP 100 0 0 0 0 3.66 n.a. n.a. n.a n a 251hydrocarbures

BOSCAlvt Bouygues Offshore Cameroun n.a. n a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n a. n.a. n.a(GETRAM)

ELF SEREPCA ELFRecbercheeet Exploitation Pdtroliere Recherche/exploitp SEM 20 0 0 0 80 6920 75.19 7.15 120.58 1.15 438du Cameroun ftroliere.

MPC(94) Mobil Production Cameroon Recherche/producd' SEM 20 0 0 0 80 1.39 167 -55.34 19.K00 -3202 n.a.hydrocarbures

PECTEN PECTEN Cameroon Company n.a. SEM 20 n.a. n a n a. n.a n a. n a. n.a. n.a. n.a n aTEPCAM (94) Total Exploration/Production Cameroun Recherche/producd' SEM 20 0 0 0 80 9.09 -073 557 1685 261 86

hydrocarburesTotal (3) 79.69 76.13 -55.34 156.44 -28.26 775

-28- SCHEDULECPage 2 of 7

State's Portfolio and Financial Indicators(CFAF billion)

Entreprisc Rsion Sociak Activite Statut Participations ChifYres Valcur Resultat Actifs Situation Effectifd'affaires Ajoutee Net Nette

Etat SEM SNI Privts PrivesEPIC nationaux etrangers

Agro-Industries

CAMSUCO (92) Cmncroon Sugar Company Production sucriore SEM 62.5 0 35.6 0.1 1.8 3.81 n.a. -490 10.78 -35.92 2,592CDC (94) Camrwoon Developmcnt Corporation Exploitation de tht, SCP 100.0 0 0 0 0 29.67 16.05 -0.45 6976 13.87 13,500

palmier, via, aetbananc

HEVECAM (94) Sociae de Dtveloppencnt Hevea- Exploitation hevta SCP 100.0 0 0 0 0 9.01 5.76 105 4506 17.21 4,351Camnoun

SCT(94) SocieteCamerounaisedeTabacs Production tabacs SCP 33.4 0 66.4 0 0 0.25 0.05 1.59 0776 -6.13 n.a.SEMRY Socitt d'Expansion et de Modernisation Riziculture SCP 100.0 0 0 0 0 nl.a. ni a n a n a n a. n.a.

de la Riziculture d YagouaSOCAPALM(94) SociettCrnerounaisedePalmeraics Exploitationide SCP 100.0 0 0 0 0 12.27 6.60 -1614 1491 -027 4,072

palmiersSODECAO(94) Socidtt*deDveloppmncnttdu Cacao Cacao EPA 88.2 0 11.8 0 0 040 n.a -016 447 184 n.a.SODECOTON (93) Sociite de Developpement du Coton du Production et SEM 45.0 0 25.0 0 30.0 26.58 1.03 -2(05 8871 569 1,637

Cameroun transformation decolon

SOSUCAM (94) Socitd Sucriere du Cancroun Productionsucrire SEM 34.4 0 7.8 0 57.8 12.01 6.64 0.98 1059 2 70 1,800MAISCAM SocidttdesMaiserienduCameroun Culturceltrans- SEM 15.0 0 15.0 70.0 0 3.16 3.34 0.29 610 0.97 77

formation du maisMILKY WAY Socitti de Farication dc Produits Production/vente SEM 0 0 35.5 65.5 0 0.28 n.a n.a. n.a -2 36 95

Laitiers dc produits laitiersSAFACAM(94) SoeittdAfricaideForestiereetAgricole Hdv4aculturcet SEM 0 0 35.0 0 65.0 3.30 1.98 -0.26 5.86 2.39 1,503

palmier i huiledu Camneroun

SCAN Socidtd des Conserveries Alimentaires Conserves SEM 0 0 49.0 51.0 0 n.a. n.a. n.a. n a n a. n.a.du Noun alimentaires

SIC-CACAO(94) SocieteIndustrielleCamerounaiscdu Productionet SEM 15.0 0 15.0 17.9 521 7.03 2.05 0.85 4.09 1 32 156Cacao transformation de

ffeves de cacaoSODEPA Socidet de Detveloppement t d'Exploita- Developpenent SCP 66.7 0 33.3 0 0 n.a. n a. n.a 1a a n.a. n.a.

lion de Production Animale production animaleUCCAO Union Centrale des Cooptratives Commercialisation/ COOP n.a. n.a. n.a. n.a. n.a. 2.08 -0.21 n.a. 1215 2.44 95

collecte du cafeTotal (9) 103.28 43.48 -20.49 265.11 37.73 29,878

-29- SCHEDULE C

Page 3 of 7State's Portfolio and Financial Indicators

(CFAF billion)Entreprisc Raison Sociale Activitt Sbatut Participations Chifrres Valeur Resultat Actirs Situation Elfectif

d'aflaircs Ajoutec Net NettcEtat SEM SNI Prives PrivesEPIC nationaux dtrangers

Autres Industries

ALUBASSA (94) Societi Aluminium de Bassa Quincaillefie SEM 0 70.1 17.3 11.0 1.6 1.31 0.44 0.13 1.31 0.05 79aluminium

ALUCAM(94) CompagnieCamerounaisedel'Aluminium Produc. aluminium SEM 39.7 0 6.9 0 53.4 43.16 906 1.38 52.10 2149 810CAMELCAB(94) Cameroon ElectricCables Fabricalion cables SEM 0 0 40.0 0 60 0.49 0.23 -0.28 09 -1.73 67

decmtriquesCICAM (94) Cotonniere Industrielle du Cameroun Tissagc, Teinture SEM 0 0 300 0 70 10.51 3.63 -0.80 15.96 3.96 1.004

Impresion cotonCIMENCAM(94) CimenteriesduCameroun Fabrication/veimie SEM 0 0 63 1 14 35 5 19.64 5.91 1.18 19.61 8.25 577

dc cimentECAM- Entrqxise Camacunaise de Placage Transfonnatiots du SEM 0 0 35.0 0 65 4 39 1 25 0.43 3 00 063 345PtACAGES (94) boisSABC(94) Societt6AnonymedesBrasseriesdu Production/vaite SEM 0 0 15.8 6.4 77.8 5815 23.07 -257 64 18 4647 1.210

CtMnaeF biere-soda-siropSABM (SCBMP) Societ Ceise de Broyage de Broyage mninerais SEM 35.0 0 0 0 65 0 04 n a. n.a. n.a. -0.27 3

Minerais Ptio iersSATC SociddApplicationsTedniquesdu Fabricationde SCP 0 74.8 25.2 0 0 0.04 -0.03 -007 0.18 024 18

Coierama bouchosaSCM Socidtt C _aeroutaise des Mmnes Minotenes SA n.a. n.a. n.a. n.a. n.a. G.aSEMC(94) SocietedesEx aMidraiesdu Productiond'eau SEM 0 52.5 37.5 0 10 1.13 0.03 0.08 0.88 0.42 n.a.

Caeroun min.iae (Tangui)SCS(94) SocidetCamaounaisedeSachries Fabricationde SEM 39.4 0 26.6 0 34 127 0.12 -0.93 3.72 -2.75 190

sacitsSCDP(93) SocieteCunerounaisedesDepp&s D6pitspdtrolicr SEM 40.0 0 11.0 0 49 4.13 2.55 0.33 995 524 243

PetroiersSONARA(94) Socidt6NationaledeRaffinagc Raffincrie SEM 49.0 0 17.0 0 34 82.11 16.45 5.10 80.77 23.72 520SOCATRAL(94) SocietdeCunaunaisedeTraisformation Trgusfoanationde SEM 0 52.5 25.0 0 23.5 15.37 1.95 0.25 8.54 2.29 155

de rAluminium al'uminiumSOCAVER (94) SocidtdCunanm aisede Vereric Fabrication/vente SEM 0 36.7 35.0 13.3 15 3.71 2.32 0.05 5.08 1.75 4.77

bouteilles et flaconsSOFIBEL (91) SocidteForestieret Industriellede Exploitation SEM 39.4 0 40.0 0 20.6 2.72 0.92 -1.02 4.19 -7.75 n.a

Bebabo foresti6r:SOLICAM Socidt TextileduCainesounpourLinge Confectiondelinge SEM 0 0 13.8 52.0 34.2 2.08 0.66 0.00 4.16 1 75 160

de Maison de maisonSONADIC Sociitt Nationale des Domaines n.a. EPA 100.0 0 0 0 0 ' n a. n.a. n.a. n.a. n a n.a.

Industriels du CamneounSTPC (TANICAM) Societt des Tanneries et Peausseries du Tanneries SEM n.a. n.a. n.a. n.a. n.a. n a. n.a. n.a. n a n a. n a

CamerounSYNTECAM Soci6tt Cmnerounaisc de Fabrication Confection de SEM n.a. n.a. n.a. n.a. n a n.a. n.a. n.a. nm a. n a mi a

de Tissus Synthdiiques (SOLICAM) tissusTotal (15) 250.18 68.58 -5.60 274.44 103.79 5,537

-30-SCHEDULE C

Page 4 of 7State's Portfolio and Financial Indicators

(CFAF billion)E;tttrcpri5e Raigon Sociale Activite Statut Participations Chiffres Vtaleur Rbsultat Actifs Situation Effectif

d'affaires Ajoutce Nel NetteEtat SEM SNI Privds Privds

EPIC nationaux dtrangers

Energie etEau

SNEC(94) SocieliNationaledcsEauxduCameroun Distnbution d'eau SFM 74 0 0 0 n.a. 13.07 7.46 -497 203.78 -38.44 2,176

SONEL(93) SocieW Nationale d'Electricite Electricite SEM 93.05 0 001 0 6.94 57.64 43.60 3.08 323.5 5 139.22 n.a.'I'otal 70.71 51.06 -4.97 527.34 100.77 2,176

AutresServices

CHU Centre Hospitalier Universitaire Hopital EPA 100 0 0 0 0 n.a. n a. ri a 1i a n a 499CNPS(93) CaisseNationaledePrevoyance Prestationis EPA 100 0 0 0 0 27.94 na -697 15929 10347 2.903

Sociale socialesHGY Hopital GCneral de Yaounde Hopital EPA 100 0 0 0 0 ii a n.a. na. d1a n.a 402LANAVET (93) Laboratoire National V1eeinaire Production vaccins SCP 300 0 0 0 0 0.22 0.03 -020 5.24 0.21 118OFFICE OfficedesProduitsCerealiers Stabiliserpnxdes SCP 100 0 0 0 0 0.13 0.03 028 0.78 -0.38 32CEREALIER (94) produits cerealiersONADEF(93) OfriceNationaldeDeveloppeinentdes Developpementdu EPA 0 0 0 0 0 1.18 0.31 0.58 193 3.04 489

fordts du Camerounsecteur forestier

SNI (94) Soci&t Nationaled'Investissements Investissemenits SCP 100 0 0 0 0 2.67 2.26 0.09 3458 40.92 3ooCDEN Caissede Dveloppement del'Elevage du Support nalelevage EPA 300 0 0 0 0 n.a. n.a. n.a n.a n.a 100

NordCDENO Caiswede Developpement de l'Elevage Developpement de EPA 100 0 0 0 0 n.a n.a. n.a. n a n a. 2

pour le Nord-OuestI'3evage

CDPM Caisse de Dveloppement de la P6che Peche et activites EPXA 300 0 0 0 0 n.a. n.a n a ii a n a n.a.Maritime aniexes

CENAFOP CentreNationaledeFormation Formation EPA 100 0 0 0 0 i a. n.a lia. II a. It a n aProfessionnelle Continue Prol essionnelle

CPC (94) Centre Pasteur du Cameroun Recherche medic. EPA 100 0 0 0 0 0.56 0 26 -0 45 1 47 1 37 97CEFAM Centre de Fornation pour AdFninistratioit Fonmation EPA 100 0 0 0 0 0.01 n.a n a 1 a n a 42

MunicipadeCENEEMA Centre National d'Etudes et dExprimen- Mcanisatioin SCP 100 0 0 0 0 0.16 n.a n a. 1i a n a 54

tation du Machinisrrw Agricole Agricole

-31- SCHEDULE C

Page 5 of 7State's Portfolio and Financial Indicators

(CFAF billion)Entreprise Raison Sociale Activit* SvtlA Participations Chiffres Valcur REsultat Actifs Situation Effectir

d'aftaires Ajoutec Net NetteEtat SEM SNI Privts PrivdsEPIC nationaux Otrangers

CSPH (93) Caisse de Stabilisation des pns des Regulansation pnx EPA 100 0 0 0 0 8.74 2.49 622 28.94 28.21 68Hydrocarbures hydrocarbures

DGTC Direction des Grands Travaux du Realisation ct EPA 100 0 0 0 0 0 44 n.a n a 1 a -I 84 122Cameroun contr6le des

grands uavauxIMPM Institut de Recherche Medicale el d'Faude Recherche medic EPA 100 0 0 0 o n.a 1a a n a n a n a 67

des Plantes MedecinalesIRA Institut de la Recherche Agronomique Recherche agro EPA 100 0 0 0 0 1 93 n a n a a a n a 886IRGM Institut de Recherches Geologiques et Recherche Goilog EPA 100 0 0 0 0 n a n a n a n a ni a. 132

MiniereIRZV Institut de Recherches Zootechniques et Recherche Zootec EPA 100 0 0 0 O a n a n a n a n.a 367

vetennairesMAGZI Mission d'Amenagement et de (iestion Developpemeiin SCP 100 0 0 0 o a n a. n a It a n.a n.a

des Zones industrielles indusinelMEBENOUE Mission d'Etude pour l'Amenagement de la Amettagement du SC(P 100 0 0 0 0 o1 a a a n a n a n.a 64

vallee superieures de la Benoue territoireMEDSO Mission d'Etudes pour le Developpemenm Developpement Rural EPA 100 0 0 0 0 n a n a a a n a n.a. 64

du Sud-OuestMID-S-E Mission de Developpement du Sud-Est n.a. SCP 100 0 0 0 0 n.a. n a n.a. n a n.a n aMIDENO (94) Mission de D1veloppement dela Dcvelkpp.ement SCP 100 0 0 0 0 0.01 -006 0.03 241 0 51 80

Province Nord-Ouest ruralMIDEPECAM (94) Mission de Developpement de la Peche P&che artisanale SCP 100 0 0 0 0 0.32 0.02 -0 05 0 36 0.31 52

Axtisanale MaritimeMIDIMA (94) Mission de Nveloppement des Monts Developpement SCP 100 0 0 0 0 n.a -0.02 005 0.55 n.a. n.a.

Mandara regionalOLNC (93) OfficedelaLoterieNationaledu Jeuxdehazard SCP 100 0 0 0 0 0.89 0.58 -012 0.50 0.43 42

CamerounONCC (93) Office National du Cacao et du Cafe Contrle de qualite/ SCP 100 0 0 0 0 0.59 0.32 0.56 5.04 0.34 140

suivi camnpagneONDAPB Office National de Developpement de Developpement de SCP 100 0 0 0 0 n.a. n.a. n.a. n.a n.a. n.a.

I'Avicuthure et du Petit B6taill'Aviculture

ONZFI Office National des Zones Franches Gestion du regime GIE n.a. n.a. n a. n.a. n.a. n.a. n.a. n.a. n a. n.a. 7Industielles

de la ZFIOPV Office Pttarmaceutique Wterinaire Commericali. SCP 100 0 0 0 0 n.a. n.a. n.a n.a. n.a. 49-

medicaments vet.PAL.des PdaisdesCongres Locationdesalles SCP 100 0 0 0 0 0.12 -0.02 -0.78 5.47 5.85 n.a.CONGRES (94)SEFERCAM Soci*M Etudes Fer au Cameroun n.a. SEM n.a. n.a. n.a. n a n.a. n.a. n.a. na na n.a. n.a.SEGAZCAM Soci6t6dcEtudesMise oGazdu n.a. SEM n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a. n.a.

Cameroun

Total (10) 15.43 6.22 -1.59 88.73 50.80 1,218

-32-SCHEDULEC

Page 6 of 7State's Portfolio and Financial Indicators

(CFAF billion)Ettrcpris Rlaison Sociale Activitt Statut Participations ChilTres Valcur R*sultat Actifs Situation EfNectif

d'affaires AjoutEc Net Ne9rcEtat SEM SNI Prives PrivcsEPIC nalionaux fIrangers

H6tellerie/Tourisme

AYABA HOTEL Ayaba Hotel Bamenda Hotellene SCP 100 0 0 0 0 0.12 0.05 -0.21 1.77 1.67 44(94)CAMPEMENTDE Campement de Waza Hotellerie et n.a. 100 0 0 0 0 0.05 na. -0.01 n.a. n.a n.a.WAZA (94) RestaurationCENTRE Centre Climatique de Dschang Hotellene SCP 100 0 0 0 0 0.05 n.a. n.a. n.a n.a 32CLtMAT.CHC (93) Catneroon Hotels Corporation Hotellene SEM 40 0 30 0 30 1.72 0.56 -3.89 25 32 2 29 200CHL Catneroon Hotels Limited Hotellene SCP n.a. n.a. n a. n.a na n.a. n.a. n.a n.a. n.a n.a.CPE Cameroun Publi-Expansion Publicite Tounsme SEM 0 0 60 0 20 n.a. naa. n.a. n.a. na 46HOTEL DE WAZA Hotel de Waza Hotellerie SCP 100 0 0 0 0 n.a. n.a n.a. n.a. n a n.a.SGHC(94) Soci4e8desGrandsHotelsduCameroun Hotellerie SEM 3.6 0 89.5 na. 6.9 0.96 0.41 -0.15 2.05 -0.9' 225SHE (93) Soci&6Hotellierede l'Est Hotellene SCP 76.2 0 23.8 0 0 0.05 0.01 -0.02 0.26 -0.04 10SHNC Novotei Garoua Hotellerie SEM 50 0 47 n.a. n.a. n.a. in.a. n.a. n.a. n.a. n.a.SOHLI(94) Soci*e Hotellitredu Littoral Hotellerie SEM 3.4 0 89 0.5 7.1 1.01 037 -0.17 2.35 -079 196

Total (5) 3.86 1.40 -4.45 31.75 2.17 675

Communications

IMPRIMERIE ImprimerieNationale Imprimerje SCP 100 0 0 0 0 0.54 0.47 -0.25 3.04 -I 75 271NATIONALECEPER Centre d'Etudes pour l'Enseignement el la Art polygraphique SCP 100 0 0 0 0 0.29 n.a. n.a n.a n.a 140

RechereheSOPECAM (93) Soci&*dePresseetd'Editionddu Presse/nmprimerie SCP 100 0 0 0 0 0.66 0.13 -0.76 3.08 -I 54 147

CamnerotmCRTV(94) Cameroon RadioTelevision Audiovisuel SCP 100 0 0 0 0 0.69 -0.97 -1.34 2801 -5 63 1,590DInELCAM(94) Soci6tedesT`l&communications Servicesde SCP 100 0 0 0 0 12.46 9.06 -13.65 14585 11605 450

Intemationale du Ca;meroun Telecom.Total 14.65 869 -16.00 179.98 107.13 2.598

SCHEDULE CPage 7 of 7

State's Portfolio and Financial Indicators(CFAF billion)

Entreprix Raisot Sociale Activitt Statut Participations Chiffres Valeur Resultat Actifs Situation Effectifd'affaires Ajoutec Net Nette

Etat SEM SNI Priv6s PrivesEPIC nationaux etrangers

Immobilier

MAETUR (93) lUission d'Amenagement et Amenagemetl! SCP 100.00 0 00 0.00 0.00 0.00 1 35 2.25 5 56 8.81 -2.70 131d'Equipcment des Terrains Urbains equipement

SIC(93) SocieietmmmobiliieeduCameroun tmmobilier SEM 96.00 000 0.00 4.00 0.00 6.90 477 -1.18 94.56 -799 1naSIMAR(93) SocietelnmmobiliereMaritime tmmobibler SEM 42.90 28.60 000 2860 000 000 001 -4.24 9.59 -4.58 n.a

Total 8.25 7.03 -5.42 112.97 -15.27 131

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-42-

Schedule E

REPUBLIC OF CAMEROONPRIVATIZATION AND PRIVATE SECTOR TECHNICAL ASSISTANCE PROJECT

Project Supervision Plan

Periode Activites Profils Personnes -semainesSiege Terrain

1997 Passation de marchCs Passation de marches 1.0Semestre I Evaluation des progrCs Secteur Financier 2.0 1.0

Reglementation 1.0 2.0Ministere de la Justice 1.0 1.0Gestion de Projet 2.0 2.0Decaissement 1.0Privatization 3.0 2.0Tableau de bord EP 2.0 1.0Communication 1.0Total 14.0 9.0

1997 Passation de marches l'assation de marches 1.0Semestre 2 Evaluation des progres Secteur Financier 2.0 1.0

Reglementation 1.0 1.0Ministere de la Justice 1.0 1.0Gestion Projet 2.0 1.0Privatisation 4.0 2.0Tableau de bord EP 2.0Communication 0.5Total 13.5 6.0

1998 Passation de marches Passation de marches 1.0Semestre I Evaluation des progres Secteur Financier 1.0 1.0

Ministere de la Justice 1.0 1.0Reglementation 2.0 1.0Gestion Projet 2.0 1.0Privatisation 4.0 2.0Communication 0.5Total 11.5 6.0

1998 Passation de marches Passation de marches 1.0Semestre 2 Evaluation des progres Secteur Financier 1.0 1.0

Ministere de la Justice 1.0 1.0Reglementation 1.0 1.0Gestion Projet 2.0 1.0Privatisation 3.0 2.0CommunicationTotal 9.0 6.0

1999 Passation de marches Passation de marchts 1.0Semestre I Evaluation des progres Ministere de la Justice 1.0 1.0

Reglementation 1.0 1.0Gestion Projet 1.0 1.0Privatisation 2.0 2.0CommunicationTotal 6.0 5.0

1999 Passation de marches Passation de marches 1.0Semestre 2 Evaluation des progres Ministere de la Justice 1.0 1.0

Reglementation 1.0 1.0Gestion Projet 1.0 1.0Privatisation 2.0 2.0CommunicationTotal 6.0 5.0

2000 Passation de marches Passation de marchts 1.0Semestre I Evaluation des progres Ministere de la Justice 1.0 1.0

Reglementation 1.0 1.0Gestion Projet 1.0 1.0Privatisation 2.0 2.0CommunicationTotal 6.0 5.0

SCHEDULE F43 Page 1 of 3

REPUBLIC OF CAMEROONPRIVATIZATION AND PRFWVATE SECTOR

TECHNICAL ASSISTANCE PROJECT

Letter of Development Policy - Public Enterprises (SACII)

1. Since 1986, the Government has recognized the need to completely reorganize its publicsector portfolio (220 enterprises). To this end, it created the Public Enterprise RehabilitationMission in June 1986, charging it with formulating a new policy on government equityparticipation and developing regulations for the supervision, control and management of state-owned enterprises.

2. After an initial phase of studies, the implementation of the reform started in 1988/89 andwent through two distinct stages: (i) a first phase, which ended in June 1994, the maincomponent of which was the review of the scope of the portfolio and the rehabilitation of thelargest enterprises; and (ii) a second phase, which started in July 1994, the main objective ofwhich was government divestiture.

3. Despite numerous difficulties, the action plan for the first phase of reform, adopted bythe Government in consultation with the World Bank and set forth in Economic Strategy andRecovery Declaration adopted in May 1989, was implemented with the following results as ofJune 30, 1994: (i) a significant reduction of the government portfolio through the liquidation ofclose to 36 percent of the enterprises, of which 22 were statutory bodies and 57 limitedcompanies. This portfolio reduction resulted in appreciably lower direct government subsidies,which went from a yearly average of CFAF 150 billion to less than CFAF 20 billion in 1993/94;(ii) the technical and financial rehabilitation of 25 public enterprises, including some of the mostimportant ones, and a significant rationalization of the Government/enterprise relationshipincluding the definition of precise economic and financial objectives for the enterprises; and (iii)the privatization of five enterprises (OCB, SEPBC, SOCAMAC, COCAM, SCDM) and thecompulsory liquidation of three others (SEAC, CREVCAM and GETRAM).

4. The Declaration of General Policy relative to public and parapublic enterprises adoptedby the Government in May 1994 defined new rules for government involvement in the economy.These regulations imply a disengagement from the productive sector and the reorientation ofgovernment activity towards basic development. The legal and institutional framework thatserved as the basis for the implementation of this new policy consists of: (i) the ordinance ofJune 22, 1990, regarding the privatization of public enterprises and its application decree ofAugust 30, 1990; and (ii) the ordinance of August 17, 1995, defining the General Statute ofPublic Enterprises.

5. This new orientation of public enterprise reform was reflected as of July 14, 1994 in apresidential decree that listed 15 new enterprises to be privatized. This brought to 22 the totalnumber of enterprises to be privatized by that date. An additional step was taken on June 1, 1995with the decision to associate the private sector in the management of public utilities (water,electricity and telephone), for which preparatory work has started.

44 SCHEDULEFPage 2 of 3

6. The first implementation measures of this new policy have led to the divestiture andliquidation of seven enterprises during the last 18 months (Onaphram, OPV, Socatour, Seda,Sotuc, Soderim and Cenafop) and the privatization of eight others, including three by sale of theGovernment's minority share (SPFS, SRL and CHOCOCAM), two by management contract(Aeroports du Cameroun and a banana plantation) and three by sale of assets (ONDABPYaounde and Muyuka, as well as Sofibel). The preparatory work for the privatization of the fourkey enterprises of the transport sector (CAMSHIIP, CAMTAINER, CAMAIR, REGIFERCAM)has also been started.

7. However, the Government is aware that the privatization process has been slower thanexpected, and that improvements are urgently needed.

8. In order to support the emerging economic recovery, it intends to: pursue methodically,and at a sustained rhythm, its policy of divestiture; accelerate the restructuring of the sector; andreinforce the financial supervision of the enterprises maintained in the Government's portfolio.The following measures will be taken: (i) simplification of the decision-making procedure asregards privatization, so as to reduce the number of steps; (ii) adjustment and clarification of thelegal framework for privatization in some key areas; (iii) privatization of public enterprises in amore sequential fashion, so as to allow for the completion of preparatory work before adoptionof the decree disclosing the short-list of enterprises admitted to the privatization procedure (theobjective is to shorten the time lag between the publication of these decrees and the actualtransactions); and (iv) for the privatization of enterprises in monopoly situations, implementationof mechanisms putting an end to these monopolies and/or, in the case of certain public services,establishment of a regulatory framework to avoid any abuse of dominant position. The sameapproach will be adopted for public enterprises whose divestiture is not immediate.

9. The Government is equally aware that, owing to the size of the enterprises put up forsale, the privatization process will succeed only if substantial external investments are mobilizedand the Government promotes broad national participation. To this end, it intends to implementthe following additional measures: (i) launching a large-scale communication's campaign topresent the privatization program both domestically and abroad; and (ii) implementingarbitration mechanisms to settle potential disputes that could arise in the context of thetransactions, in lieu of domestic courts of law. It will also encourage the creation of aninvestmentlprivatization fund to support the participation of nationals in the privatizationprocess.

10. The implementation of the policy of divestiture should result as a matter of priority in:(i) privatization of the four public enterprises of the transport sector, that is, CAMAIR,CAMSHIP, CAMTAINER and REGIFERCAM, as well as the CNIC; (ii) privatization of thelargest agro-industries, including HEVECAM, SOCAPALM, CAMDEV, SODECOTON,CAMSUCO, SCT, Station ONDAPB de Douala, and Station Pilote Laitiere de Ngaoundere; (iii)association of the private sector in the management of the three main public utilities, water,electricity and telecommunications; (iv) continuation of the divestiture of banks, insurancecompanies and other financial institutions (SOCAR, CNR, BICIC, etc.); (v) progressiveprivatization of the various semi-public companies operating for the most part in the processingindustry; and (vi) completion of the liquidations begun as of June 30, 1995 under the scope ofactivities of the Rehabilitation Mission and not yet completed.

45 SCHED.LIE FPage 3 of 3

11. As regards the reorganization and restructuring of the public enterprises that will bemaintained within the Government's portfolio, priority will be given within the next three yearsto those whose economic and social function is particularly sensitive. The relations of theseenterprises with the Government will henceforth be governed by performance contracts and otherappropriate mechanisms. In addition to the removal of subsidies to enterprises operating inmarkets, these measures will aim mainly at reducing their production costs, improving theirtechnical and financial performance, and strengthening transparency in management. In order toassess the impact of these actions, the Government will regularly publish a report for publicenterprises highlighting: (i) the consolidated financial accounts of these enterprises; (ii) financialflows between the Government and public enterprises; and (iii) changes in arrears and crossdebts. This report will be completed for 20 enterprises before June 30, 1996, and beprogressively extended to all enterprises within two years.

- 46 -

.Schedule GPage I of 2

PRIVATIZATION AND PRIVATE SECTORTECHNICAL ASSISTANCE PROJECT

Monitoring Indicators and Expected Results

Objectives Activities Cost Performr.tice Indicators Expected Results Implementingf; JSSM) Agency

Efficient and Privatization of at 5.40 1/ Timely completion of the divestiture 1/ US$ 80 million increase in Ministry oftransparent divestiture least 18 program; Govemment's Revenues; Financeprogram enterprises 2/ On average. 5 bidders for each 2/ Reduction by 8% of Privatization

over 3 years enterprise; technical and non-technical Technical Unit3/ Average privatization process not to losses of public utilities; 1exceed one year for each enterprise; 3! Additional investment of4/ Average cost of transactions not to USS 30 million.exceed 8% of the sales proceeds (leasecontracts and social costs excluded).

Improving portfolio Expansion of 0.30 1/Timely implementation of SISEP; Reduction by USS 18 million Ministry ofmanagement SISEP 2/ Yearly analysis of financial flows in direct and indirect subsidies Finance

between Govemment and PEs. over three years. RehabilitationTechnical Unit

Liquidations 0.30 li Transparent liquidation processimplemented by private experts2! Completion of 26 on-goingliquidations over 18 months.

Financial sector Restructuring of 0.9 1/Timely implementation of the I/ New board and Ministry ofrestructuring SRC restructuring program; general/deputy general Finance

2/ Acceleration of recovery. manager in place by June Banking Unit1996;2/ US$ 15 million recoverv byJune 1996; US$18 millionplus 7% of the new portfolioby end 1997.

Restructuring 1.0 1/ Timely implementation of the/Privatization of program - restructuring completed by 1/ Banks profitable by endtwo banks end 1996; 1997.

2/ Financial sustainability of therestructured banks.

Total billing I (production less auto-consumption)

- 47 -

Schedule GPage 2 of 2'

Objectives Activities Cost Performance Indicators Expected Results Implementing(USSM) Agency

Support to the Publication of the 0.45 I Resumption of regular publication by I/ Diffusion of all laws and PresidencyJudiciary Official Gazette Oct .1996 on a ftinancially sustainable regulations General Secretar)

basis;2' Publication of the Official Gazette Ministry offinanced by the Government by March Justice1998 Inspection

DirectorateStrengthening of the 0 41 1/ 6 full court inspections completed I/ Strengthening of courtinspection directorate each Near: supervision and diffusion of

2/ Regular Publication of the supreme the jurisprudence.court jurisprudence'3/ Publication of a financial sector lawreview .

Improving business Review of the 0 68 I/ study of a transparent and equitable Ministry ofenvironment incentives system incentive system: Finance

and formulation of 2/ Increase of private sector Private/Publicsectoral participation in infrastructure. Commissionregulations.

I'IAGING

Report No:T 6928 CMType: MOP