Document of The World Bank Report No: 32669 IMPLEMENTATION COMPLETION REPORT (IDA-28770) ON A LOAN/CREDIT/GRANT IN THE AMOUNT OF US$ 25.15 MILLION TO THE REPUBLIC OF GHANA FOR A PUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE PROJECT May 25, 2005 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of The World Bank
Report No: 32669
IMPLEMENTATION COMPLETION REPORT(IDA-28770)
ON A
LOAN/CREDIT/GRANT
IN THE AMOUNT OF US$ 25.15 MILLION
TO THE
REPUBLIC OF GHANA
FOR A
PUBLIC ENTERPRISE AND PRIVATIZATION
TECHNICAL ASSISTANCE PROJECT
May 25, 2005
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CURRENCY EQUIVALENTS
(Exchange Rate Effective May 25, 2005)
Currency Unit = GHC GHC 1 = US$ 0.000123
US$ 1 = GHC 8090
FISCAL YEARMay 25 2005
ABBREVIATIONS AND ACRONYMS
ADMU Aid and Debt Management UnitBOT Build-Operate-TransferCAS Country Assistance StrategyDIC Divestiture Implementation CommitteeEC Energy CommissionEU European UnionGDP Gross Domestic ProductGOG Government of GhanaGSB Ghana Standards BoardICT Information Communication and TechnologyIMF International Monetary FundISO International Organization for StandardizationMOF Ministry of FinanceMOP Memorandum of the President NCA National Communication AuthorityPCU Project Coordinating UnitPEPTA Public Enterprise and Privatization Technical AssistancePME Portfolio Monitoring and EvaluationPPI Private Participation in InfrastructurePPP Public-Private ParticipationPSD Private Sector DevelopmentPURC Public Utility Regulatory CommissionQAG Quality Assurance GroupSEC State Enterprises CommissionSOE State-Owned EnterpriseUSAID United States Agency for International Development
Vice President: Gobind NankaniCountry Director Mats KarlssonSector Manager Demba Ba
Task Team Leader/Task Manager: Herve Assah
GHANAPUBLIC ENTERPRISE AND PRIVATIZATION TECHNICAL ASSISTANCE
CONTENTS
Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 85. Major Factors Affecting Implementation and Outcome 206. Sustainability 227. Bank and Borrower Performance 238. Lessons Learned 259. Partner Comments 2710. Additional Information 30Annex 1. Key Performance Indicators/Log Frame Matrix 31Annex 2. Project Costs and Financing 35Annex 3. Economic Costs and Benefits 37Annex 4. Bank Inputs 38Annex 5. Ratings for Achievement of Objectives/Outputs of Components 40Annex 6. Ratings of Bank and Borrower Performance 41Annex 7. List of Supporting Documents 42
Borrower/Implementing Agency: Republic of Ghana/ Ministry of Finance; Divestiture Implementation Agency; State Enterprises Commission; Ministry of Transport and Communications; Ministry of Employment and Social Welfare; Energy Commission; Ministry of Justice
Other Partners: British ODA, European Development Fund
STAFF Current At AppraisalVice President: Gobind Nankani Jean-Louis SarbibCountry Director: Mats Karlsson K.K. FramjiSector Manager: Demba Ba Thomas AllenTeam Leader at ICR: Herve Assah Paul G. BerminghamICR Primary Author: Linda Cotton
3. Assessment of Development Objective and Design, and of Quality at Entry
3.1 Original Objective:Introduction The Government of Ghana’s State-Owned Enterprise (SOE) Reform Program was launched in 1988, as part of Ghana’s overall Economic Recovery Program. At this time, there were 350 state-owned enterprises. By the end of 1995, the Divestiture Implementation Committee had approved 195 divestitures, and some 79 sales had already been completed. These included the 1994 sales of Accra Breweries and Standard Chartered Bank as well as 30 percent of the government’s stake in the Ashanti Goldfields Corporation (AGC) which raised $350 million on the Ghana and London Stock Exchanges. In 1995, the Government announced a list of 114 privatizations to be expedited, and there seemed to be significant momentum built up around the privatization effort. The Government of Ghana (GOG) then requested assistance from the World Bank to continue their program, which was attempting to complete increasingly complex transactions. The PEPTA project provided technical assistance to support privatization transactions and was later restructured to accommodate development of broader investment climate measures. The project was used as a dialogue instrument for policy reform to advance these two agendas.
Original ObjectiveThe original objective of the PEPTA project, as outlined in the Memorandum of the President (MOP) dated May 13, 1996 (P-6901) was to assist the Government of Ghana to continue to implement its public enterprise reform and privatization program. The program was viewed as a core element of the Government’s plan to promote private sector development and refocus its expenditure priorities by transferring ownership and management of commercial enterprises to the private sector.
The project continued the support provided under an earlier technical assistance program and was part of the package of assistance to help the Government implement its reform program. The project complemented the Private Sector Adjustment Credit (Cr. 2718), the Economic Reform Sector Credit (Cr. 3228) and the Financial Sector Adjustment Credits (Cr. 1911 and Cr. 2318) which were the main vehicles for policy dialogue on divestiture, and planned operations in support of the reform program. Other donors, such as USAID and the EU also assisted in the reform program.
The project was fully consistent with the government’s strategy for the promotion of economic growth which emphasized public enterprise reform and privatization. The project was also consistent with the Country Assistance Strategy, (CAS) because it was aimed at improving the effectiveness of public services, reducing demands for resources directed at state-owned enterprises (SOEs) and reducing public sector involvement in the productive sectors, which were key elements of the strategy.
3.2 Revised Objective:While the project’s initial focus was placed on SOE restructuring and privatization transactions - which was at the core of the first generation of privatizations in the 1990s - the Bank's approach had been modified by early 2000. It was then recognized that improving the regulatory framework and business environment were equally important to achieving successful privatizations and promotion of private sector growth. An unsatisfactory regulatory and legal framework is bound to negatively affect investor perceptions of business risk, increasing the difficulty of attracting large investors needed for the remaining infrastructure privatizations.
Recognizing the links between business environment and privatization, the project team proactively restructured the project by extending the project scope to include business environment activities which were part of another project set to close in June 2000 (Private Sector Development project, Cr. 2665 GH).
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This restructuring did not involve a change in the development objectives and was approved by the Bank’s board in May 2000.
3.3 Original Components:The original components as summarized in the Development Credit Agreement are divided into public enterprise reform and privatization.
Component 1: Public Enterprise Reform Program1. Strengthening the capacity of the State Enterprises Comission (SEC) to monitor and evaluate the performance of SOEs through: (a) development of a comprehensive SOE database;(b) strengthening the operation of SEC's performance contract system through the provision of technical advisory services and training; and(c) increasing the accountability of SOEs through dissemination to the public of SEC's SOE sector reports.2. Carrying out a review of the Borrower's policies for the future development of the SOE sector, including clarification of the Borrower's role with respect to SOEs both before and after privatization and, where appropriate, development and implementation of new policies to facilitate the development of the sector.3. Strengthening the capacity of the Ministry of Finance (MOF) to manage the Borrower's portfolio of equity investments, loans and guarantees through the provision of technical financial advisory services. 4. Preparation of selected SOEs for divestiture by SEC, including preparation of company profiles and identification of issues to be addressed prior to divestiture. 5. Provision of technical assistance and staff training to SEC to enable it to prepare company regulations in compliance with the Borrower's Statutory Corporations Act of 1993 (Act 461), and to develop diagnostic action plans for SOEs to facilitate their commercialization.6. Carrying out a review of the Borrower's policies for its aviation, cocoa and petroleum sectors and, where appropriate, developing and implementing new policies in order to achieve improvements in sector performance and to encourage private sector participation. 7. Strengthening the capacity of SEC to manage the SOE reform program through the provision of technical advisory services, the acquisition of updated office equipment and staff training.
Component 2: Privatization 1. Developing and implementing a communications strategy for DIC to build and sustain public support and investor confidence in the divestitures to be undertaken under the Program. 2. Carrying out the divestiture of the Borrower's SOEs including provision of professional advisory services to assist DIC to prepare SOEs for sale and to negotiate such sales. 3. Assisting the Borrower to manage labor redundancy issues arising from the divestiture of SOEs through, among other things, (a) reviewing the Borrower's policy for dealing with redundant labor, (b) implementing a system for communicating with redundant workers, (c) improving the administrative arrangement for managing redundancies; and (d) implementing a retraining program for redundant employees. 4. Installation by DIC of a comprehensive financial and operational information management system. 5. Strengthening the capacity of DIC to carry out the divestiture of the Borrower's SOEs through the provision of technical advisory services, the acquisition of vehicles and equipment and staff training.
Component 3: Program CoordinationImproving MOF's capacity to coordinate the implementation of the Program through the provision of technical advisory services, the acquisition of equipment and the training of staff involved in the implementing the program.
3.4 Revised Components:
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The Mid-Term Review recognized an evolution in the thinking on privatization and private sector promotion in general. The review recommended that the divestiture program no longer be based on simply counting the number of companies privatized, without regard to their importance in the economy. The divestiture component was to be refocused on introducing private sector participation in five large infrastructure and financial companies (Electricity Corporation, Ghana Railways, Ghana Water Company, National Investment Bank, Ghana Commercial Bank). Public-private participation (PPP) in these key enterprises, and the preparation leading up to it, would entail improvements in service delivery which, in turn, would ultimately have a larger impact on the economy, lowering the cost of infrastructure provision and improving the business environment in general. The addition of the legal and regulatory reform components was in keeping with the new emphasis on improving the general investment climate and promoting private sector growth.
The reforms suggested by the Mid-Term Review mission would not have required amendment of the agreements by themselves. However, the growing recognition of the importance of private participation in infrastructure and an improved business environment coincided with the decision to consolidate the Bank PSD portfolio. The activities relating to regulatory and legal reform and support to regulatory agencies were initiated under the Private Sector Development project and were added to the PEPTA project (components 1 and 2 of the revised project description, given below).
As mentioned earlier, revisions of the project were anticipated in the appraisal document, which drew from lessons from other privatization programs. The MOP (paragraph 19) noted that “the project was designed to provide flexibility needed to adapt to needs which will vary from sector to sector and circumstances, which will change over time.” The revised project scope was more in line with government priorities, and the privatization program was in line with the objectives of the macroeconomic program agreed with the IMF and the Bank.
In hindsight, the selection of five large infrastructure and financial SOEs at restructuring was very optimistic. In fact, it usually takes several years to complete one of these complex privatizations. The importance of the political aspects in privatizing large public companies and the need for a broad consensus for highly visible infrastructure companies appears not to have been fully appreciated at the time of restructuring. But the increased scrutiny of these key enterprises during preparation produced some improvements in the business climate and built the momentum crucial to any privatization program. The total number of transactions completed in the end, despite the factors outside of the control of the project, is impressive compared to most other countries undergoing similar projects. Finally, the addition of the business environment components was a judicious use of funds to further the attainment of the development objectives.
The revised components, as described in the amendment to the Development Credit Agreement dated May 16, 2000 are as follows:
1) Regulatory Capacity BuildingThe carrying out of regulatory capacity building measures including: a) the provision of support to the Public Utility Regulatory Commission (PURC) to: develop efficient tariff regimes and competition policies for public utilities and undertake consumer education programs;(b) assistance to the Energy Commission (EC) to: (i) develop guidelines for deregulation, codes of service, performance standards, rules, procedures and monitoring framework and (ii) establish an information database center to facilitate research and development activities, including alternative energy sources;(c) the provision of support to the Ghana Standards Board (GSB) to achieve ISO 9000 quality standard certification through upgraded management practices, acquisition of necessary equipment and information
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technology, and; (d) assistance to the Ministry of Communication and the National Communication Authority (NCA) to establish a prudent frequency management regime, develop national policies on Broadcasting and Information Technology and review the overall telecommunication sector strategy.
2) Legal Reform The carrying out of legal reform measures including the provision of support for the reform of statutory laws and legal services in order to foster an independent and efficient judiciary, including: (a) The improvement of public access to judicial opinions, statutory revisions and other public records and the expediting of legal procedures;(b) Analytical review by the Ministry of Justice of factors accounting for delays in court cases: rehabilitation of the legal information system and modernization of technology to facilitate public access to laws and judicial opinions;(c) Completion by the Judicial Commission of a comprehensive review and revision of statutory laws;(d) The provision to the Council of Law Reporting of support for the development of a plan to modernize and speed up the publication of judgments, and; (c) The provision of support to the Registrar General’s Office to reduce the cost of and time expended on registration of businesses, including filing, and searching for pubic records.
3) Public Enterprise Reform and Privatization
Public Enterprise Reform(a) the provision of support to; the State Enterprises Commission (SEC) to undertake pre-sales preparation of State-Owned Enterprises (SOEs) including (i) preparation by SEC of company profiles and the resolution of outstanding issues relating to the divestiture of SOEs (ii) the making by SEC of recommendations as to the appropriate actions necessary for the divestiture of SOEs and (iii) development of SEC sector policy for the consideration of the Government of Ghana;(b) the strengthening of SEC’s capacity through the acquisition for SEC of updated office equipment and the training of the staff of SEC;(c) the provision of support to the Government and SEC to carry out an improved program monitoring and evaluation system and redefine the sector policy;(d) the provision of support to the Ministry of Finance (MOF) working with SEC to strengthen the capacity of MOF and SEC to manage the portfolio of SOEs not yet privatized and in establishing aid and debt monitoring capabilities in the MOF, including:(i) the maintenance by MOF of complete and reliable information on aid and debt;(ii) the provision of advice to the Government on required returns on investment, capital expenditure prior to privatization, dividend policy, on-lending arrangements, provision of guarantees, risk-sharing with the private sector and other financial policy issues;(iii) monitoring the financial performance of the portfolio of state-owned enterprises, including dividend payments, subventions, repayment of loans, annual audited accounts; and (iv) provision of information and advice to the Government, including impact assessment, to enable the Government to decide on the strategy timing and mode of future divestitures.
PrivatizationThe extension of the divestiture program to infrastructure, finance, petroleum, transportation and other strategic sectors with large SOE presence including:(a) the provision of support to the Divestiture Implementation Committee (DIC) for the carrying out of the Government’s divestiture program through a streamlined divestiture process;(b) the design of a communications strategy and program to build and sustain public support and enhance
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investor confidence and; (c) the utilization of technical advisory services to manage the in-house and out-sourced divestitures, and ensure effective coordination between DIC and its subcommittees and other project entities.
4) Project Coordination
Development of capacity in MOF to coordinate the program and carry out the project, including the provision of support in the areas of training, the utilization of technical advisory services to advise on policy issues and assist with the carrying out the project.
3.5 Quality at Entry:Quality at entry was not assessed by QAG and is rated as Moderately Unsatisfactory.
The project was consistent with the Government’s strategy of accelerating its divestiture program. The PEPTA project was also consistent with the Country Assistance Strategy which aimed to support “measures to achieve a leaner and more effective public service and reducing demands on the Government from SOEs for resources,” and “increasing competition, lowering costs, creating investment opportunities for private investors, reducing public sector involvement in the productive sector and signaling the Government’s commitment to enlarge the role of the private sector in the economy.”
The appraisal drew from Bank experience in projects of this type, and correctly provided for an early mid-term review to assess progress and change design as needed. In hindsight, the privatization targets were ambitious, although the aggressive approach taken was not unreasonable given the important achievements in the divestiture area in the mid-nineties.
The appraisal team also identified the risk of a reduction of Government commitment to macroeconomic reform in general and divestiture in particular, although it appears to have underestimated the risk. A mid-term review note prepared by Government notes that the project flexibility may have been one of the reasons why clear targets were not specified for various components. This in turn might have contributed to lack of clarity as to project objectives. Also, the project structure was not as effective as it could have been, especially regarding privatization transactions. While the Ministry of Finance had overall responsibility for the project and the reform program, the DIC reported to the office of the President, and it is not clear that it ever accepted the Ministry of Finance’s mandate.
4. Achievement of Objective and Outputs
4.1 Outcome/achievement of objective:In this section, we discuss the project outcome rating, briefly outline project outputs, and finally consider output and outcome indicators.
Project Outcome Rating. The team rates the project outcome as Moderately Unsatisfactory. This rating reflects the satisfactory outcomes of the legal, regulatory and public enterprise reform projects and the partial completion of the important privatization component. The progress in these components has contributed directly or indirectly to the improvements noted below in the outcome indicators. It is understood that the ICR rating system is in the process of being revised and that “Moderately Unsatisfactory” is not yet an accepted rating. Pending publication of the revised ICR template and Guidelines for use in FY 2006, a four point system is still being used, (HU, U, S, HS). The rating of “Moderately Unsatisfactory” corresponds to “Unsatisfactory” in the current system.
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Project Outputs. The original objective of the project, which was not changed at restructuring, was to assist the Government to continue to implement its public enterprise reform and privatization program, viewed as a core element of the Government’s plan to promote private sector development and refocus its expenditure priorities by transferring ownership and management of commercial enterprises to the private sector.
The regulatory and legal reform components added during restructuring have undoubtedly improved the business environment. Great strides were made in improving the efficiency of the judicial system for commercial cases and access to these services was increased. The increase in technical capacity and physical resources at the Ghana Standards Board is opening further access to export markets. The Public Utilities Regulatory Commission has successfully created a tariff system leading to cost-recovery for the power and water utility sectors. The Energy Commission has also been supported to develop a licensing regime for power utilities and oil marketing firms and the capacity- building provided has helped in their development of a Strategic National Energy Plan for 2000-2005. Public enterprise reform was essentially not changed during the restructuring and there were gains in Government monitoring of SOEs, resulting in cost-saving for the Government and better performance on the part of the firms involved. At close, the project privatized an estimated 57 companies out of the 114 slated for the first wave of privatizations. There were very few monitoring reports on privatization throughout the project so progress was difficult to assess and transparency was lacking. The commitment of the government to make the decisions to finalize transactions was not consistent across time. Furthermore, many larger transactions were done outside of the framework established by the project, meaning that at times Ministries completed transactions, not the DIC.
The slow down in privatization transactions during the years preceding the restructuring occurred just as a fundamental shift emerged in the thinking on approaches to privatization. This shift involved placing greater importance on private sector participation in major infrastructure enterprises rather than counting the number of various privatizations. This approach would contribute to an increase in access to services and a decrease in prices, improving the general business environment. During the years following restructuring, progress was made toward arranging management concessions for the five targeted infrastructure and financial sector companies. Ghana Railways has selected the firm to undertake its private management, and the extremely important electricity and water SOEs have benefited from the momentum built during the project and are in the final phases of completing Public-Private Participation in Infrastructure (PPI) arrangements. The Divestiture Implementation Committee continues to divest enterprises using procedures agreed under the Credit and using private firms to conduct transactions. Recent sales included its shares in financial institutions and timber companies.
Indicators. Performance indicators - mostly output indicators - were included in the Memorandum of the President (MOP), although many of these were not quantified because the use of log frames became common practice only in the late 1990s. Many of these indicators were unrealistic, including the number of companies to be privatized. The original indicators and those which were agreed at the time of restructuring are provided in Annex 1.
The outcome indicators identified in the MOP included a projected increase in total investment from 23 percent to 26 percent of GDP by project closure – it actually fell to 22 percent in 2003, (the latest year available). However, this could be due to factors outside the project as this includes both public and private investment. The share of private sector investment was supposed to increase from 50 percent to 60 percent and it did, in fact, reach 58 percent. There were a number of other outcome indicators including 1) reduction in state equity ownership in commercial enterprises; 2) increased private sector participation in
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infrastructure sectors; 3) better quality of goods and services and fair competition, and; 4) increased number of cases employing alternative conflict resolution mechanisms. Some positive movement was attained on all of these indicators. State equity ownership was undoubtedly decreased given that DIC completed 132 transactions worth a total of $182 million. Private sector participation in infrastructure sectors increased in telecommunications and railroads and is about to increase in electricity and water. The indicator “better quality of goods and services and fair competition” was not a wise choice for an indicator given that this is very difficult to measure. Finally, the number of cases utilizing alternative dispute resolution definitely increased after the process was introduced.
The following indicators also provide measures of progress toward the development objective: 1) increased performance monitoring of enterprises leading to improved corporate governance and management, 2) increased private sector growth 3) decreased Government subsidies to SOEs and 4) improvement in infrastructure service delivery and affordability. While these indicators – with the exception of reduced subsidies – cannot be wholly and directly attributable to the project, activities under the project have undoubtedly contributed to improvement in these indicators. In addition, a cost-benefit analysis of the privatization program illustrates that the benefits have outweighed the costs.
Increased monitoring of enterprises. Increased performance monitoring of enterprises was intended to improve corporate governance and management as well as increase information availability to the Government and the public. These goals were furthered by an increase in the number of companies privatized and listed on the Ghana Stock Exchange, (Table 1). When listed, companies are required to disclose financial and management information. GSE’s market capitalization soared from 3.2 billion Cedi in 1999 to 12.6 in 2003 before culminating at 97.6 billion cedis with the merger of AngloGold and Ashanti Goldfields Company. Moreover, the stock market (an indicator of the confidence of investors in the economy and the level of financial sector activity) emerged as the best performing stock market in the world in 2003, with a return in US dollar terms of about 144 percent, (World Stock Market Performance Ranking 2003). Privatization has therefore encouraged the growth of the stock market and in turn, improved corporate governance.
Table 2: Ghana Stock Exchange1991 2000
Listed domestic companies, total 13 22 Market capitalization of listed companies (current US$ m) 76 502
Private sector growth. The structure of the Ghanaian economy has changed between 1990 and 2002 in part due to privatization.. Industry (mainly mining and quarrying, manufacturing, electricity, water, construction) increased from 17 percent to 28 percent and services have stabilized, though the sector has the fastest growth rate. Agriculture’s contribution to GDP has decreased from 45 percent to 39 percent. These shifts are important, considering that the largest mining and industrial concerns have been privatized. Thus, private sector contribution to the economy has increased over the period, at least in part due to privatization.
Decrease of Government Subsidies to SOEs. The PEPTA project was undertaken in part to reduce direct government subvention, which according to the MOP accounted for 10 percent of government expenditure in 1987. The extent to which the specific companies privatized by DIC were subsidized was not quantified at the outset of the project. It is, therefore, difficult to assess the extent to which privatizations saved public funds that otherwise would have gone towards subsidies. However, the government states that there are currently no official direct subsidies.
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Improvement in Infrastructure Service Delivery and Affordability. Private sector participation in infrastructure was secured in telecommunications and railways. There were also improvements in infrastructure service delivery and national coverage in other sectors as well, due to regulatory reforms and preparation for private management, (Table 3). These improvements are due to project efforts such as strengthened capacity of Government, technical exchanges between company staff, World Bank staff, consultants and Government advisors on best practices in each targeted field. Increased scrutiny of company management augmented the pressure for improved performance.
Table 3: Infrastructure ServicesAccess to Basic Services 1990 2000-2003*
Population with access to improved water source (%) 54 79 Electricity production (billions of kwh) 5.7 7.3 Population with access to electricity (%) 28 45 Telephone Mainlines (per 1,000 people) 2.9 11.7 Mobile Phones (per 1,000 people) 0.0 6.4 Internet Users (per 1,000 people) .006** 159Affordability of Services
Cost of local phone service (3 minutes, $US) 0.06 0.03 Cost of phone call to US, (3 minutes, $US) 2.92*** 1.13*latest year available,**1995, *** 1999
Privatization Cost-Benefit Analysis. In addition, a cost-benefit analysis was conducted to approximate privatization outcomes. The GOG took over outstanding loans of some SOEs and paid the retrenchment costs in its bid to enable the new investor to start on a clean slate. 11 sample companies received amounts from the Government to pay end-of-service benefits for a total of 3.5 bn Cedi. Some 7 of these companies were provided with loan guaranties by the GOG for approximately 4.4 bn Cedi. Ghana Telecom had loans taken over by GOG for 353 billion Cedi and $7 million USD. Overall, DIC has spent some $235 million from 1996 to 2004 on the divestiture program including liabilities, retrenchment costs, consultancies, operating costs, etc. However, despite these costs, the overall revenues (direct asset sales proceeds of US$182 million, sale of Ashanti shares, investments made by a sample of privatized companies and taxes paid by these companies) outweighed the expenses, (Table 4). In addition, indirect effects of privatization (improvement in company’s operational and financial results, increased FDI, new jobs) benefited the Ghanaian economy. In the mid-1990s especially, the high number of privatizations sent signals to investors that GOG was committed to private sector development. From September 1994 to the end of 2004, the Ghana Investment Promotion Centre registered a total of 2,372 projects with foreign investment, totaling US$2.5 billion. Of course, privatization was not the only determinant of increased foreign investment, but it was an important factor.
Table 4. Summary of Costs and Benefits of PrivatizationsMillion Current $
Costs Cost of the first privatization progr am n.a. Loans taken over by GOG during the first phase of privatization $11 Divestiture liabilities including severance awards of divested companies $132 Other divestiture expenses( Staff costs of DIC staff, electricity, telecom charges, running costs of official vehicles, consultancies, etc.)
$103
Total $246
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Benefits Proceeds from transactions 1989-2004 - Excluding Ashanti $284 Sale of Ashanti shares $350 Investments reported by privatized firms in the sample. (Sum of reported data where available.)
$550
Investments by firms not in the sample n.a. Increased taxes paid by privatized firms in the sample. Net present value. $260. Total $1440
4.2 Outputs by components:This section contains both original and revised components.
The original components included building capacity within the Ministry of Finance and State Enterprises Commission (SEC) and policy and regulatory reforms in a number of key sectors in which the state played a dominant role such as aviation, cocoa, and petroleum . The idea was to allow the opening of these critical sectors of the economy to private entry and increase competition as a way to (i) enhance quality of service; (ii) increase access and affordability and (iii) enable access to new technology and its applications. At the incept, the project was to support development of policy and regulatory reform in these sectors, however, concurrently the government contracted other loans and credits from the Bank and other donors, and utilized its own resources to undertake these reforms, which indirectly benefited from the project’s privatization platform. After restructuring, the capacity buidling of several other regulatory agencies were added, (PURC, EC, GSB and NCA).
Cocoa. With support from USAID, and the World Bank (ERSO Credit and Cocoa Rehabilitation Credit), the Government of Ghana embarked on an ambitious program of reform in the cocoa sector by changing price, tax and marketing policies. Ultimately, the dominant role of government was downgraded and market forces replaced government interventions in the sector. The reforms have resulted in the formation of a regulatory agency that licenses private firms wanting to buy and export cocoa, producers are being paid at higher levels, and the government focuses more on research and development in the sector. Cocoa export levels have risen dramatically over the last few years, leading to increased incomes for farmers.
Petroleum. The government decided to deregulate this sector in 1995 in order to among other things, rationalize its involvement while ensuring the availability of petroleum products throughout the country to support economic and social activities, promote competition within a framework of regulated but transparent pricing system guided by an automatic adjustment formula, and upgrade legislative and regulatory framework. This has largely been achieved except for privatization of the state-owned oil refinery, and oil marketing company.
Aviation. While the government recognized the need to develop policies whose implementation would ensure a safe, reliable and affordable air transport that would assist in the nation's economic development, it took the Yamoussoukro Accord (Open Space Agreement signed in 2000 among African nations) to catalyze government action. With support from the Bank under the Gateway project and government internally generated resources, the government has developed a liberalized skies policy, introduced private
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sector participation into national air carrier, reformed the civil aviation authority beginning with new legislation and a stronger focus on regulation and aviation safety. The latter has led to Category 1 rating from the FAA of the US. The incomplete portion of the agenda is the continued government ownership of the loss-making Ghana Airways. At the time of this ICR, the airline was bankrupt and the government was in the process of introducing a PPP arrangement into the defunct airline.
Public Utilities Regulatory Commission. The PURC has been successful in publishing the Electricity Rate Setting Guidelines, important in that they established a formula for quarterly revision of power tariffs and brought tariffs more in line with costs. PURC also completed Electricity Tariff Transitional Plans. Also, awareness-building workshops were held periodically and consumer rights are now published in national newspapers. Capacity building and upgrading and expansion of physical locations were successfully undertaken.
Energy Commission. Much of the work of the EC was suspended following the decision of the new Government after the 2000 elections to review the reforms in the energy sector. After the review, several activities were re-started. The EC has adopted a deregulation policy for the sector under a reform program being financed by another Bank credit. Electricity Supply and Distribution (Technical and Operational) Rules, were passed in 2002. These rules set performance codes for the supply and metering of electricity, quality of supply, electricity interruptions and billing. Performance indicators were established and monitoring is complied with, as it is tied to the annual licensing procedure. A public access database was also established in 2002.
Ghana Standards Board. The GSB was strengthened with support from the project. GSB operations have been computerized, most of its laboratories have been stocked with testing and calibration equipment and the majority of staff trained. Some of GSB testing has been accredited to ISO 9000 and they are now able to certify products for export. GSB was also able to partially commercialize its activities - quality, standards, and metrology. GSB earns at least 30 percent of its annual budget, thus reducing the level of dependency on the Government budget.
National Communications Authority. The NCA benefited from consulting services for capacity building and upgrading of computer systems. The project funded consultancies to help redesign the frequency management regime. Significant progress was made in reassigning frequencies to private companies. A national ICT (Information, Communication and Technology) strategy was approved in June 2004 and a National Telecommunications Policy was developed with support from the project.
2) Legal Reform. (US$3.89 million, 15.46 %)
The rating of this component is Satisfactory.
All of the legal reform activities were successfully undertaken. Public access to judicial rulings was improved through the modernization and speeding up of judgment publication by the Council of Law Reporting. In addition, private entities now even provide judicial reports on the Internet for a fee. An analytical review of factors slowing down court cases was initiated under the prior Private Sector Development project and finalized under PEPTA. Considerable progress was made in improving the efficiency and predictability of the judicial system. Some 90 percent of approximately backed-up 5,000 court cases have been cleared, within the years of the project, with an extraordinary initial 75 percent reduction one year ahead of schedule. There are now 11 "fast track courts," automated courts to deal with commercial cases where cases are heard within the mandated 34 days of preliminary filing. Alternative dispute resolution has also been introduced to increase efficiency in the legal system. Commercial laws
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have been revised, significantly improving the business environment. Several statutory laws have been revised by the Judicial Commission, including the Companies Code, which was approved by the Cabinet but remains to be passed by Parliament. The business registration process was automated under the project leading to a drastic reduction in the time it took to register a business from about 85 days to 3 days. Searches for a new business name are now computerized and take as little as five minutes, as opposed to seven days previously.
3) Public Enterprise Reform and Privatization. (US$13.22 million, 52.56%)
The rating for this component is Moderately Unsatisfactory to account for the weaknesses and slower-than-anticipated implementation as well as the substantial accomplishments.
Public Enterprise Reform (US$ 2.58 million, 10.26%)
Rating is Satisfactory for this sub-component.
Assistance was provided to the SEC for pre-sales preparation of SOEs including preparation of company profiles and resolution of outstanding issues and the making of recommendations for pre-sales activities. However, the instances of sales being blocked due to insufficient pre-sale preparation by the SEC signal continued problems. The Revised Policy on SOE Sector Development was discontinued and the study transferred to the National Institutional Renewal Program, a government initiative to reform the public sector and public enterprises, which was also supported by the Bank. The project supported capacity building for staff of the commission and the board of directors on various topics such as management of the various SOEs still under government control and corporate governance and provided necessary office equipment.
The Performance Monitoring & Evaluation (PME) system was successfully implemented and 32 key SOEs signed annual performance targets with a view to improving their commercial performance, including submission of annual audited accounts on time and payment of dividends to government. The SEC also implemented an integrated SOE database which compiled all key SOE data. Also, under the new government elected in 2000, forensic audits were carried out for certain key SOEs, which identified fiduciary issues needing to be addressed.
PEPTA also helped strengthen the Aid & Debt Management Unit (ADMU) and the Portfolio Management Unit (PMU) at the Ministry of Finance to enable the Government to effectively monitor SOE debts/loan payments, collections and share ownership in divested SOEs.
Advice to the Government on management of the SOE sector is now provided by the ADMU and PMU in the Ministry of Finance, which guide policy on required returns on investment, capital expenditure prior to privatization, dividend policy, on-lending arrangements, provision of guarantees, risk-sharing with the private sector and other financial policy issues.
A draft impact assessment on divestiture was completed for the Ministry of Finance but was not of acceptable quality according to Bank staff. This assessment was intended to enable the Government to decide on the strategy, timing and mode of future divestitures. The draft was never revised in the end due to a desire by the Government to review its entire approach to divestiture. To this end, the Government completed forensic audits of the Divestiture Implementation Committee (DIC) and individual SOEs. These audits revealed significant failings in the DIC such as lack of clarity in its role and responsibility, a flawed process for selection of committee members and deficiencies in overall organizational set-up and staffing.
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Privatization (US$10.64 million, 42.31%)
Rating for this sub-component is Moderately Unsatisfactory.
After restructuring, privatization of smaller companies continued, although the focus of this sub-component was shifted to the privatization of five large infrastructure and financial enterprises. The Project Completion Report prepared by the Ministry of Finance states that throughout the project, the DIC undertook the sale of the enterprises on the original list of 114 smaller firms. These sales resulted in gross proceeds of about US$26 million and dollar receipts of another $US112 million. The report also states that “it is not clear whether any formal monitoring reports based on these indicators (number of divestitures, size of companies, number of divestitures outsourced, net proceeds, level of deferred payments and arrears, average time taken to divest) have been produced to date.” Largely because of the absence of information, there were difficulties during project implementation in assessing the progress and benefits of the government’s divestiture program. The DIC completed 132 transactions representing an estimated 57 firms and totaling $US182 million, with the most common type of transaction being sale of assets, (Table 5), (Ghana Privatization Impact Assessment). Firms are sometimes broken up and sold in several transactions.
Table 5. DIC Privatization Transactions, 1997 to 2004Year Transactions
Fully capturing the impact of the privatization project is further complicated by the fact that many of the larger divestitures were conducted outside of DIC in other ministries but have still made sizeable impacts on the economy. Part of the Ghana Telecom privatization in 1996 was funded under the PEPTA project and was completed through the Telecommunications Ministry, with DIC involvement. The sale of 30 percent of Government shares was awarded to Telekom Malaysia. Under the a management contract with Telenor of Norway, there has been improved access. A total of $550 million will be invested by end-2006 and the number of landlines has more than doubled from 78,000 in 1997 to 230,000 in 2001. Telenor is expected to increase landlines to 400,000 within 2 to 3 years.
Support provided by the Bank after restructuring focused on five 5 public enterprises which would need to be completed prior to project closing. These were the Electricity Corporation of Ghana, the Ghana Commercial Bank, Ghana Railways, Ghana Water Company and National Investment Bank. The Government is currently introducing private sector participation in these SOEs, except for Ghana Railways which was completed.
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(i) Electricity Company of Ghana. The privatization of ECG was held up when the newly-elected Government decided to review the Energy Sector Reform Program in 2001. The Government has now approved moving forward. The ECG will be managed under a private management contract and the process is ongoing. The Government has drawn up a short-list of consulting firms and is preparing to send out the request for proposals. (ii) Ghana Railways Corporation. The PEPTA project financed the technical assistance required to concession the railway. A winning bidder has been selected, and the concession contract is being negotiated. With the recent election just completed and the Government still in the process of naming Ministers, it is difficult to estimate when negotiations will be finalized and the concessionaire will begin managing the railway. (iii) Ghana Water Company. This transaction was slowed down largely due to vocal opposition from donors and non-governmental organizations. Private sector participation is being introduced and a management contract is almost final. This transaction is being financed under a separate Bank credit.(iv) National Investment Bank. The Government still owns majority shares. The bank is under new management selected by the various owners (largely other government owned banks). The government is considering what direction to take with this financial institution. (v) Ghana Commercial Bank. The sale of GCB shares to the public has been completed and the shares are now being traded on local stock exchange. The Government was unable to find a qualified strategic investor to take over management responsibilities – typically important in successful privatizations of financial institutions. Furthermore, political opponents of the Government successfully encouraged public opposition to this privatization. The process of divesting the remaining government holdings (about 30%) is to resume in the future, but the timing has not been decided.
Activities set up to address consequences of privatization, (public relations and retrenchment), were not implemented as planned. The communications campaign envisaged under the project was never put in place as originally conceived and did not succeed in gaining public support. Consultants were hired to formulate the public information campaign at the beginning of the project, but their terms of reference were changed by the government, to a foreign investment promotion campaign, as the government at the time felt that privatization was well understood by the public. The consultants had already completed two months of work under the original terms of reference, and decided in the end to withdraw from the project. The campaign was eventually restarted by DIC but it focused on process rather than content. After restructuring, it was agreed that the DIC would collaborate closely with the Ministry of Information and Presidential Affairs on public education strategies, but DIC was slow to pick this up and the communications campaign was technically carried out but was, in practice, not effective. The technical assistance which was to be associated with staff retrenchment never took place, as the expected support from donors did not materialize. The Government paid out severance payments with the proceeds of the sale of enterprises. The completion report notes that in a number of cases firms were sold or liquidated and the payments to workers have not been made because of a lack of resources. It is not clear why the Bank did not consider taking over this aspect of the project.
Finally, the team would like to point out some particularities of privatization projects that complicate the examination of project success or failure. Like most privatization projects, the team was very ambitious when estimating the number of companies that would be privatized by the end of the project. In addition, counting the number of companies privatized is not necessarily a relevant measure of progress, given that many SOEs had to be split into separate units and sold separately. Thus the number of transactions completed is a more relevant measure of activity and progress, but is difficult to foresee. Market reaction to assets put up for sale is also important to consider, as it is outside the control of the Government or the Bank. In addition, the outcome of sales contract negotiations is frequently unpredictable and should not be one of the factors influencing project evaluation.
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Similar dilemmas were faced in assessing other privatization projects - Gabon (Cr.4186) and Togo (Cr. 30450) - and such ambiguities will probably emerge when assessing the Niger (Cr. 3130) and Tanzania (Cr. 3304) privatization projects soon. Privatization objectives were framed as the number of companies privatized which was not completely achieved, but progress was made on increasing momentum in privatizations and on the broader objective of lowering infrastructure costs and improving services. Recent studies conducted on privatizations in Latin America and currently in Africa call for a thorough rethinking in this field for project design, monitoring and evaluation.
Project implementation arrangements were complex reflecting the nature of the project and the institutional structure in Ghana at the time of appraisal. The project was to be coordinated by a Project Implementation Unit located in the Ministry of Finance while direct responsibility for implementation fell to the relevant agencies as follows: divestiture (the Divestiture Implementation Committee which reported to the Office of the President and collaborated with Sector Ministries); state enterprise reform (State Enterprises Commission and the Ministry of Finance); labor redundancy program (Ministry of Employment). The design recognized the capacity constraints of implementing agencies and most privatizations were expected to be outsourced to specialized private firms.
The project was to support the development of capacity in the Ministry of Finance to coordinate the program and implement the project, in terms of training, consulting services to advise on policy issues and assist with implementation, as well as operating costs. Monitoring of project implementation was to be carried out by the Project Coordinating Unit (PCU). Each beneficiary was to submit an annual work plan to the PCU to be forwarded to IDA for review, comment and approval.
Training, consulting services and operating costs were supplied to the PCU. However, the PCU could have performed better in its reporting function by more strictly enforcing reporting requirements. There were some structural issues that should be taken into account, at least concerning the DIC. During the first half of the project, the DIC did not comply fully with the submission of annual progress reports to the PCU in the MOF because the DIC reported directly to the President’s office. After restructuring, the 2000 election slowed privatization and reporting activities in annual reports seem to have stopped. DIC continues to submit annual audited financial accounts. The SEC on the other hand, produced annual reports, including audits, but did so independently of the PCU.
4.3 Net Present Value/Economic rate of return:N/A
4.4 Financial rate of return:N/A
4.5 Institutional development impact:The rating for institutional development is Modest.
There were important successes in terms of legal and regulatory reform which improved the investment climate, as discussed above. These successes included sustainable improvements in the organization, profitability and operational performance of several agencies. The project assisted PURC in establishing a formula for regular power tariff revisions, bringing them more in line with costs. The Energy Commission was set up and established performance codes and a monitoring system for electricity supply, metering and
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billing. The Ghana Standards Boards was significantly strengthened allowing it to accredit products testing to international standards. GSB was also able to partially commercialize activities, earning 30 percent of its annual budget. Legal reforms led to the modernization of several activities in the legal sector increasing the amount of information available to the public, improving organization and decreasing the amount of time and money spent dealing with commercial cases. The State Enterprises Commission set up a successful Performance and Monitoring and Evaluation system which signed annual performance targets with key SOEs, improving their operations and profitability.
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing agency:After 1997, there was a downturn in foreign direct investment as well as privatizations throughout the developing world, due in large part to the negative effects of the Asian and Russian financial crises and subsequent general economic downturn. The world trend could explain in part the slowdown in privatization transactions.
The European Union was not able to provide the US$ 25.6 million for retraining and addressing labor redundancies as originally envisioned. According to the Government Implementation Completion Report, the EU was unable to undertake this part of the project because of “problems it encountered in undertaking a similar project” in the country. The report also states that the DIC was then obliged to meet the costs of severance payments through divestiture proceeds. The Government’s contribution indicates that the lack of a social safety net mechanism was “the single most important shortcoming of the project, and the biggest constraint to extending and sustaining the privatisation process.”
During project implementation, environmental and social non-governmental organizations (NGOs) and donors began international campaigns against the privatization of the water sector, in particular. International opposition emerged because in countries where this sector had been privatized badly, (e.g. insufficient regulatory framework and inadequate implementation capacity at privatization), the poor suffered disproportionately from higher prices, insufficient access, poor quality service provision and negative public health consequences, etc. International NGOs worked in partnership with domestic organizations fearful that the private sector desire for profits would mean unbearable price increases for the poor.
5.2 Factors generally subject to government control:Project activities declined in the period leading up to the 2000 election as well as for about a year and a half afterwards, as it took that long to appoint the heads of agencies vital to the project, such as the DIC.
While it seemed at times that there was support in the Government for divestiture, there was almost continuous reluctance to make the decisions necessary for progress. The public opposition to the privatization program was also due to insufficient transparency and an inadequate communication strategy. Public opposition played a major role in the inconsistency of Government commitment to privatization.
5.3 Factors generally subject to implementing agency control:The inconsistency commitment to privatization at the highest levels in government and the opposition of some sector ministries to many of these transactions makes it difficult to make a judgment on DIC’s effort.
Even when commitment was clearly visible at the DIC and the Ministry of Finance, it was not evident at the DIC Sub-Committee level, where sector agencies participated. There were also cases where sector agencies challenged the DIC’s right to privatize SOEs in their sector. On occasion, line ministries unilaterally removed SOEs from approved divestiture lists or divested the SOEs themselves outside the
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legal established framework. There were a number of actions such as providing clear information which was within the agency’s control but which was insufficient.
The SEC could have carried out better preparatory work in the area of privatization, such as clearing up land titling issues before handing the enterprise over to DIC for privatization.
5.4 Costs and financing:The estimated original cost of the project was US$24.76 million. At the Mid-Term Review, about 31 percent had been disbursed due largely to delays in the main project component, privatization. The actual final costs of the entire project were US$25.15 million (see Annex 2A).
The Regulatory Capacity Building component was added after restructuring and accounted for about 6 percent of the total project cost. Of the regulatory agencies, the GSB had the largest expenditures because its program involved purchases of equipment (using more than 5 times the amount for other agencies), and it was among the most successful components. The Legal Reform component was added at restructuring and accounted for 15 percent of the final cost of the project. Fewer resources were disbursed for the Public Enterprise and Privatization component than originally planned, due to slow progress on this component and the restructuring which brought a change in focus toward improving the business environment and targeting fewer firms for privatization. In spite of its reduced importance, the privatization component accounted for 42 percent of the project costs. Program coordination was more than twice the original budget, due in part to the extension of the project from an original closing date of December 31, 2001 to an actual closing date of June 30, 2004.
6. Sustainability
6.1 Rationale for sustainability rating:The sustainability of the project is rated as Likely, given the progress made on the legal and regulatory fronts and the enterprise reform and divestiture supported by the project.
Though the proceeds from sales were reduced by severance payments and other liabilities, the government is in a better fiscal position due to reduced expenditures on the SOEs that were successfully privatized, liquidated and those whose performance is improving with monitoring. With DIC still in place, the Government is continuing the divestiture process with the system set up under the Credit. Completing the PPP activities undertaken under the project would require that there is (a) continued commitment of the Government in the context of a stable socio-political environment and (b) specific financial assistance focusing on further strengthening the regulatory framework to foster increased private public partnership in infrastructure.
The capacity built will allow local expertise to complete the remaining privatization processes without external aid while adhering to generally accepted principles. As with all privatization projects, the divestiture unit is designed to be dismantled after privatizations have been completed. Most of the staff can easily integrate into the private sector with consulting firms or industrial and service companies thanks to the skills developed and exposure gained during their privatization mission.
In addition, most of the achievements made by the project are irreversible. For instance, the reforms under way in water and electricity will not end with the project and are already producing positive results in line with the project objectives, including cost-recovery due to tariff adjustments.
The sustainability of the project is furthered by the development of regulatory capacity in strategic sectors.
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The technical capacity of the Government to manage and monitor its portfolio of loans and investments has been built up during project implementation. In the legal sector, alternative dispute resolution methods have been set up and are currently operating, reducing the use of courts for routine commercial cases. New legislation and institutions have been set up to bring transparency in licensing and tariff setting in the water and power sectors and in the telecommunications sector and improvements on standards measurement have improved the prospects for exports.
6.2 Transition arrangement to regular operations:Institutions and programs initiated under the regulatory and legal components will continue to operate after the project. The Government is continuing work on public enterprise reform and divestiture, mostly without Bank involvement, although there is some expectation that there will be cooperation in financial sector reform.
7. Bank and Borrower Performance
Bank7.1 Lending:The Bank’s performance in project identification and appraisal is rated as Moderately Unsatisfactory.
The project was consistent with the Government’s development strategy and the Bank’s assistance strategy. Momentum had been building in the government’s divestiture program which enjoyed widely recognized successes during the period preceding the project. The risk of a decrease in government commitment was outlined in the MOP. However, in hindsight, estimations of the government commitment at the early stages of the project were too optimistic. It was also thought that privatization could be accelerated with the use of outsourcing. In fact, outsourcing actually took considerably longer than anticipated reflecting either a lack of government commitment or insufficient competencies in government to follow this approach. However, the project built in the flexibility needed to discontinue this method which clearly failed to accelerate the privatization pace and did not satisfactorily resolve transparency concerns.
The resistance of some line ministries to relinquishing SOEs, a source of prestige and income was also underestimated. In the case of some of the larger SOEs, the combination of technical difficulties and resistance from entrenched interests proved too difficult to overcome. The resistance is conceivably due also to a residual sense of national pride and security in maintaining state ownership of the more important SOEs. The political economy of privatizing state-owned infrastructure companies and financial sector companies does not appear to have been closely analyzed at the time of Appraisal. At present, however, broad dialogue and consensus building in sector ministries and in the SOEs themselves are recognized as standard practice.
7.2 Supervision:Supervision is rated as Unsatisfactory.
Supervision was adequate until the time of restructuring, with two task managers following the project. There was a frequent turnover of Bank Task Team Leaders since then, with a total of four between 2001 and 2004. This period coincided with the slow-down in the privatization program. The turnover problem was underlined in the Government’s contribution as a significant hindrance to project success, and it is quite likely that the dialogue on privatization could have been more productive if there had been a lower turnover of staff after restructuring. The Project Status Reports seem to reflect the optimism of the Bank team at the time, rather than measured progress, which was not recorded in the reports. Monitoring and evaluation of the privatization component was lacking, as was noted in the GOG’s ICR.
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The Bank team was proactive and showed flexibility in the restructuring of the project. It reoriented the privatization and public enterprise components and added related activities, which were financed under a private sector development project. In hindsight, the idea underlying the reorientation of the divestiture component that government would be more ready to aggressively pursue divestitures of large enterprises quickly was unrealistic. The reorientation of the divestiture component at restructuring was in line with Bank strategy (and coordinated with the IMF) and the Economic Recovery Credit approved after the restructuring included the same privatizations (which in the end was rated unsatisfactory).
The possibility of the Bank financing the retrenchment program seems not to have been considered, possibly because Government commitment to privatization was not clear.
7.3 Overall Bank performance:Overall Bank Performance is rated as Unsatisfactory.
Borrower7.4 Preparation:Borrower preparation is rated as Satisfactory.
The MOF, SEC and DIC cooperated by participating in consultations, preparing lists of firms for divestiture and assisting the Bank preparation team in consideration of possible constraints. There were concerns about the difficulties of the tasks outlined in the project components but there was willingness to proceed with the program as defined.
7.5 Government implementation performance:Government implementation is rated as Unsatisfactory.
Actual support for privatization, the key component of the project, was lukewarm throughout project implementation. The Mid-Term Review noted that there were significant closing delays, at times due to the firm’s inability to secure the required funding but at other times due to delays in receiving approval of the Office of the President. The fact that the project coincided with a period of political transition, doubtlessly contributed to the lack of commitment.
7.6 Implementing Agency:Implementation Agency Performance is rated as Unsatisfactory
The Bank team remarked that information, specifically, data on privatization transactions, was not readily available from government agencies. Especially during the first few years, considerable time and effort was devoted to data-gathering that it reinforced the Government’s and the PCU’s impression that the Bank was micro-managing tasks. As was mentioned, project monitoring reports were scarcely provided. This lack of reporting reflects the overall lack of transparency on the part of the Government regarding individual transactions and throughout the life of the project.
In addition, the audit of DIC’s special account for 1997 was 8 months late. Also, forensic audit reports on the DIC raised questions regarding non-collected debts, undervalued SOEs, unaccounted expenditures, outstanding payments, all of which resulted in losses to the Government. These reports identified major shortcomings in the DIC such as lack of clarity in its role and responsibility, a flawed process for selection of committee members and deficiencies in overall organizational set-up and staffing.
There was a lack of coordination between agencies. This resulted in firms being placed on the DIC list for
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divestiture without proper preparation by SEC. Attempts to convene meetings between DIC and SEC at a senior level were unsuccessful. Therefore, SEC lacked the feedback on how preparation could be improved. There were also cases of SOEs being removed from the divestiture list by a line ministry.
After-divestiture reports on divested companies were also not made available, mostly due to the new owners of these SOEs unwillingness to provide information and the DIC’s inability to compile the needed information thus making it difficult to assess the benefit to the economy of the privatizations that did take place.
7.7 Overall Borrower performance:Taking into consideration the above ratings, overall Borrower performance was Unsatisfactory.
8. Lessons Learned
Rethinking Privatization Project Design. Looking forward, further strengthening of the Public-Private Partnership in Infrastructure (PPI) approach is required in Ghana. In order to support Government efforts in improving service in the remaining infrastructure sectors, different PPI schemes could be envisaged. These would include not only privatization (straight sale of assets) but also Build-Transfer-Operate (BTO) and management concessions. Focus can also be placed on continuing to establish a general business environment conducive to increased private sector investment in infrastructure. Such schemes would allow increased access, affordability and sustainability of a minimum infrastructure platform, reducing the cost of doing business for the private sector. This will help Government reduce poverty through growth, employment, income generation and economic diversification.
The Bank will re-engage the Government on these issues. The key specific output of such a consultation will consist in an agreed framework setting out the necessary policy initiatives and reforms required to increase PPI in Ghana, including proposed priority areas or actions. The framework will then (i) serve as a useful input towards the future development of a clear and concise action plan of the Government to increasing PPI in the country and (ii) include workshops aiming at a better understanding among decision-makers and the general public in Ghana of the conditions and the mechanisms for the successful implementation of PPI schemes.
Looking beyond Ghana, a more flexible approach to privatization in Africa, which includes the various private sector participation arrangements, should be an integral feature of future projects dealing with SOEs. In addition, timelines should be more realistic and based on past experience in projects such as PEPTA.
Consideration of Political Realities. Privatization is a sensitive subject in that it can affect job losses, national pride, and if not done correctly, it can increase prices or decrease access to key services previously provided by the Government. Appropriate consideration needs to be given to these constraints and Government commitment should be measured through measurable actions. Political realities of the country should be taken into account, in order to more accurately estimate the time required.
Importance of Communication Strategy. The lack of public consultation and support can slow down privatizations as well as hurt the overall image of the Bank and the client government. It is clear that greater priority must be given to the proper design and implementation of the communications strategy in order for privatizations or PPP projects to succeed.
Adjustment Program Conditionality. This project was essentially a Technical Assistance project.
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Although there were Private Sector, Economic Reform Support and Financial Sector Adjustment Programs, which advanced the policy dialogue, the requirements in these operations did not match those of the Technical Assistance Project. In addition, some of the conditionality on the number of SOEs to be divested that had been agreed under these adjustment projects was waived for one reason or another. The technical assistance operation will only be as successful as the program. The overall country dialogue and strategy should have taken into account the full implications of privatization requirements.
Secure Social Safety Net. The provisions for redundancies and resources for retraining should be an integral part of privatization projects as they have profound effects on public opinion and thus government commitment.
9. Partner Comments
(a) Borrower/implementing agency:The Government has prepared an Implementation Completion Report. The Executive Summary is reproduced below. The full report is available in the project files.
1. EXECUTIVE SUMMARY- Government of Ghana's Implementation Completion Report
OBJECTIVES
The Public Enterprise and Privatisation Technical Assistance (PEPTA) project, as originally conceived, sought to “assist the Government of Ghana to implement its public enterprise reform and privatisation programme”. However it was subsequently restructured to respond to emerging priorities for contributing to the broader objective of “promoting private sector development”.
In addition to its original focal areas of supporting the State Enterprises Commission (SEC) and the Divestiture Implementation Committee (DIC) to undertake their portfolio management and privatisation mandates, the PEPTA project has also included activities that addressed identified shortcomings in the environment within which the private sector in Ghana operates. Total cumulative disbursement under the project as at 22nd September 2004 amounted to US$22,890,394, as compared with a total of US$24,826,914 allocated to the project.
ACHIEVEMENTS
Significant achievements were recorded by the implementing agencies that participated in the project, including:
SEC – prepared profiles of all enterprises listed for divestiture in 1995; collaborated in development of new policies for State-owned Enterprises (SOEs), including dividend payment policies; undertook internal and external capacity building activities.
DIC – undertook sale of 114 listed enterprises, some through the outsourcing approach; realised gross proceeds of over ¢234 billon, together with Dollar receipts of over $112 million; strengthened internal DIC capacity.
Ministry of Communications/National Communications Authority – developed national telecommunications policy, strategy and regulations; installed a Local Area Network (LAN), covering 68 offices; implemented full liberalisation of the telecoms sector, the first in Africa.
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Public Utilities Regulatory Commission – rationalised utility tariffs through introduction of successive tariff adjustments, which have led to full cost recovery and stabilised the financial position of the utility companies; carried out consumer education activities; commissioned first regional office, procured computers and office equipment, and undertook capacity building for all levels of professional staff.
Aid and Debt Management Unit of Ministry of Finance – established a database to monitor and manage on-lending and guarantee facilities given to parastatals and SOEs; assisted Government to recover long-outstanding loans; prepared draft Loans Bill to replace 1970 Loans Act.
Non-Tax Revenue Unit of Ministry of Finance – established a partial database on Government’s portfolio of investments; achieved greatly increased collection of dividend payments from SOEs; procured a vehicle and equipment, and undertook staff training.
Ghana Standards Board – developed a five-year business plan; computerised core businesses, leading to improved performance; completed first stage of certification process of the ISO 9000 Quality Management System; trained 23 own staff and 393 staff of other organisations in Quality Management; procured equipment, and upgraded laboratories.
Energy Commission – trained 27 professional staff; held workshops on efficient use of energy and other public education programmes; procured vehicles, computers and other office equipment.
Ministry of Justice/Legal Sector – disposed of about 83 per cent of pending cases, through a reduction of backlog activity; implemented a pilot project for Fast Track Courts, which was subsequently extended to the regions; undertook revisions of some laws, to bring them into conformity with the 1992 Constitution, and revised the Companies Act; cleared part of the backlog of Ghana Law Reports, undertook staff training, and procured equipment; reduced the time and cost of registering a new business, by computerising and networking the Registrar General’s Department; undertook training programmes for Ministry staff, procured 26 computers, and worked on a Local Area Network.
Ministry for Private Sector Development – supported the establishment of the Ghana Investors’ Advisory Council, which identified priority issues for reform (Financial Sector Reforms; Labour Reforms; Customs and Civil Service Reforms; Land Reforms; and Agriculture and Agri-business); worked collaboratively with the various sector Ministries, Departments and Agencies to address identified bottlenecks.
Ministry of Energy – undertook revaluation of assets of Volta River Authority, as a preparation to creating separate companies for Hydro Power, Thermal Power, and National Transmission.
LESSONS LEARNT AND WAY FORWARD
While the project has recorded important achievements, significant capacity and process constraints have also been identified, which particularly impacted on the privatisation process. There is the need to put in place the elements that will create the conditions for future success in the area of privatisation and public enterprise reform, including:
• Formulation of a social safety net programme;• Institutional framework to continue the privatisation process;
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• Training of public servants to function within a market environment;• Deeper participation in project design within implementing agencies;• Clearer and more consistent policy framework, and greater donor consistency;• Integration of a research-based communications strategy;• Adoption of a flexible approach to privatisation that recognises that benefits can be obtained from privatising management, without necessarily privatising ownership of assets; and • Political will to implement reforms, and Government commitment to non-interference in the process once agreed.
Increase in total investment from 23 percent to 26 percent of GDP
Project Close 22 percent (2003)
Share of private sector investment in total investment increase from 50 to 60 percent
Project Close 58 percent
Reduction in sate equity ownership in commercial enterprises
Project Close DIC completed 132 transactions worth $182 million
Increased private sector participation in infrastructure sectors
Project Close Ghana Telecom privatized, Ghana Railways under private management, Electricity and Water soon to be privatized.
Better quality of goods and services and fair competition
Project Close No measure available.
Increased number of cases employing alternative conflict resolution mechanisms
Project Close Alternative dispute resolution introduced and widely utilized.
Increased performance monitoring of enterprises leading to improved corporate governance and management
Project Close Monitoring via Ghana Stock Exchange disclosure
Increased private sector growth Project Close Industry increased from 17% to 28% of GDP, from 1990 to 2001
Decreased Government subsidies to SOEs
Project Close Government states direct subsidies at zero.
Improvement in infrastructure service delivery and affordability.
Project Close From 1990 to early 2000s - Telephone Mainlines (per 1,000 people) from 2.9 to 11.7. Population with access to improved water source, from 54 to 79 %. Population with access to electricity from 28 to 45 %.
adopted being financed under Bank-supported energy credit.
Public Access to information database
2001 Database set up by 2002.
Environmental Impact Draft Report submitted
2001 EIA done
General Standards Board (GSB)
At least 30 % of GSB budget resources originate from provision of services to private sector
2002 Earn 30% of budget since 2002.
At least 150 companies initiated into ISO’s standards
Project Close 369 companies initiated on standards, 3 companies completed certification to ISO 9000. Other companies currently being certified by private companies.
B. Legal Reform Attain 50 % decrease in case backlog
2001 Backlog was reduced by 75 % early, by 2001.
Attain 75 % decrease in case backlog
2002 See above
Draft revised statute law 2002 Statute laws revised include Companies Code in 2002.
Draft study on corruption 2002 Not done, Bank financed corruption study under another Credit.
36 staff Trained in ADR, 10 processional judges and 30% in all categories.
Project Close Number trained is 131 (38 judges, 5 magistrates and 88 administrative staff).
Up to date information on the status and performance of the SOE sector
Q1 1997 Completed
Review of performance contract system
Q1 1997 Completed
Annual report on SOE sector performance
From Q3 1996 Completed
Publication of audit reports by SOEs
From Q3 1996 Completed
Production of business profiles of SOEs remaining in Government ownership
By Mid term review (Q4 1998)
Completed
Identification of policy issues and impediments to divestiture of SOEs
By Mid term review (Q4 1998)
Provided at least 30 profiles of SOEs that detailed such issues prior to passing these on to DIC for divestiture.
Recommendation of necessary actions to be taken prior to divestitures, e.g. accounting
By Mid term review (Q4 1998)
See above
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arrears, title issues, environmental considerations, regulatory issuesTraining and assistance to SOEs that have converted legal form to limited liability companies
Annual training modules
SEC provided annual training to such SOEs
At least 32 SOEs using revised PME system
Project Close 32 companies using PME system
At least 10 SOEs handed over to DIC
Project Close 23 SOEs handed to DIC
At least 10 SEC staff trained 2002 12 staff trained
Ministry of Finance Establishment and administration of Project Coordination unit in the MOF
From Q2 1996 on
Completed.
Monitoring and evaluation of the program implementation
From Q2 1996 on
Incomplete.
Revised Government policy and performance measures for the future development and performance of the SOE sector
1997 Discontinued.
Contract out elements of the management of the portfolio to private firms
From Q2 1997 Completed.
Sector policy and regulatory reviews for cocoa, petroleum and aviation sectors
Policy reviews by mid-term review (Q4 1998)
Completed under other projects.
Assistance in implementation of new regulatory frameworks for cocoa, petroleum and aviation
(above) Completed under other projects.
Assistance to facilitate private participation including divestitures in cocoa, petroleum and aviation
(above) Partially completed under other projects.
All debtors identified in debt collection database
Majority of 114 SOEs on privatization list to be divested
Mid-term review (Q4 1998)
Completed according to Government Project Completion report. Bank Impact Assessment indicates 57 SOEs.
Plan for divestiture of majority of remaining SOEs (approx. 100)
Mid-term review (Q4 1998)
Not completed
Divestiture of remaining SOEs Project Close (Q4 2000)
Not completed.
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Improved financial and operational information on the privatization program for management and external parties
Q4 1996 and thereafter
Not completed
The majority of new divestitures in particular medium and large size enterprises, would be contracted out to private firms
At least 20 SOE divestitures to be contracted out annually
Discontinued after restructuring.
Public information and communications (PIC) strategy
Q3 1996 Completed.
Implementation of PIC strategy Ongoing from Q3 1996
Completed
TV, radio and newspaper ads advertised, pamphlets produced and distributed
2001 Done and on-going.
Consulting study to identify options to promote local involvement by Ghanaians in investment opportunities created by divestiture
Q4 1996 Not Completed
Implementation of these options Q4 1996 Not CompletedStrengthen management of labor issues by quantifying dimensions of affected labor and associated liabilities (MESW and DIC)
Q3 1996 EU discontinued program and withdrew funding.
Policy statement on labor redundancies from divestitures
Q4 1996 EU discontinued program and withdrew funding.
Action plan to put in place new institutional framework for dealing with labor redundancy
Q4 1996 EU discontinued program and withdrew funding.
Implementation, including retraining and redeployment scheme
On-going from Q1 1997
EU discontinued program and withdrew funding.
At least five major SOEs such as Electricity Corporation, Ghana Railways, Ghana Water Co., National Investment Bank, Ghana Commercial Bank, privatized
Project Close Ghana Railways underwent concessioning. ECG & Ghana Water expected to be under private management (mgmt contract) by end Q2 2005.
At least fifteen non-viable SOEs liquidated
Project Close Completed.
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Annex 2. Project Costs and Financing
Project Cost by Component (in US$ million equivalent)AppraisalEstimate
Actual/Latest Estimate
Percentage of Appraisal
Component US$ million US$ million1. Regulatory Capacity Building a. Public Utility Regulatory Commission 1.02 b. Energy Commission 0.43 c. Ghana Standards Board 3.03 d. National Communications Authority 0.59 e. Ministry of Communication 0.51
2. Legal Reform 3.89
3. Public Enterprise Reform and Privatization a. Public Enterprise Reform 7.40 2.58 32.4 b. Privatization 27.68 10.64 38
4. Program Coordination 1.17 2.45 208
Total Baseline Cost 36.25 25.14Total Project Costs 36.25 25.14
Total Financing Required 36.25 25.14
Appraisal Estimate Project Costs By Procurement Arrangements not available.
Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)
Total 4.49 1.01 21.35 0.00 26.85(0.00) (0.00) (0.00) (0.00) (0.00)
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1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff
of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.
Project Financing by Component (in US$ million equivalent)
Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal
IDA Govt. CoF. IDA Govt. CoF. IDA Govt. CoF.1. Regulatory Capacity Building a. PURC 1.02 0.10 0.00 b. EC 0.43 0.00 0.00 c. GSB 3.03 0.60 0.00 d. NCA 0.59 0.00 0.00 e. Ministry of Communications
0.51 0.10 0.00
2. Legal Reform 3.89 0.50 0.003. Public Enterprise Reform and Privatization a. Public Enterprise Reform
Data are for 1998 - 2004, pre-1998 not available in SAP.
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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)
RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA
SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA
Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA
Lending HS S U HUSupervision HS S U HUOverall HS S U HU
6.2 Borrower performance Rating
Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU
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Annex 7. List of Supporting Documents
Memorandum and Recommendation of the President of the International Development Association to the Executive Directors on a Proposed Credit in an Amount of SDR 18.2 million to the Republic of Ghana for a Public Enterprise and Privatization Technical Assistance Project, May 13, 1996.
Technical Annex, The Republic of Ghana, Public Enterprise and Privatization Technical Assistance Project, May 13, 1996.
Aide Memoires and Project Supervision Reports
Report on the Annual Meeting of the PEPTA Project Review Meeting, January 18-19, 2003.
ICR on PEPTA for the Ministry of Finance and Economic Planning, Republic of Ghana, September 24, 2004
PEPTA Development Credit Agreement, 1996.
PEPTA Amendment to the Development Credit Agreement, 2000.
Nellis, John (2003) “Privatization in Africa: What Has Happened, What is to be Done?” Working Paper Number 25, Center for Global Development, Washington, DC.
Appiah-Kubi, Kojo (2001) “State-owned Enterprises and Privatization Ghana” Volume 39, Number 2, The Journal of Modern African Studies, Cambridge.
White, Oliver Campbell, and Anita Bhatia (1998) “Privatization in Africa,” Directions in Development, The World Bank, Washington, DC
Ghana Privatization Impact Assessment, Roger Christen and Haja Andriamarofara, May, 2005.
