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Implementation Completion Report (ICR) Review - Public Enterprise Reform Loan (PERL)

1. Project Data:   
Project ID:
Project Name:
Public Enterprise Reform Loan (PERL)
Private Infrastructure, Private Sector Development
L/C Number:
L3517; LP166
Partners Involved:
Prepared By:
David Greene, (consultant), OEDCR
Reviewed By:
Roger J. Robinson
Group Manager:
Ruben Lamdany
Date Posted:

2. Project Objectives, Financing, Costs, and Components:

The PERL of 1992 provided US$ 11 million to finance technical assistance to support the Government's public enterprise reform and privatization program, specifically in the telecommunications, power and the transport sectors, to develop sectoral policies and regulatory regimes, and to implement restructuring of public enterprises. The loan was cofinanced by two Japanese grants totaling US$ 2.4 million. However, a referendum in that same year, voided clauses in the privatization law allowing partial privatization of the state telecommunications law. Only $4.2 million of the loan was used for its original purpose, US$ 3.6 million was reallocated for other purposes, and US$ 3.2 million was canceled. US$ 0.3 million of the Japanese grant was also canceled.

3. Achievement of Relevant Objectives:

While some of the objectives of the loan were not accomplished, most notably in the telecommunication sector, progress was made in developing the regulatory frame work for utilities. The state airline was partly privatized, however, 1700 former airline employees remain on the state payroll. Port sector reform is in progress and a system of private concessions for most commercial services was introduced. This was a major breakthrough given strong union opposition. New regulations are being drafted for the power sector and the state monopoly on the generation of power has been terminated. Privatization options for the cement and alcohol plants were rejected following the referendum. Small-scale privatization has not been actively pursued since the referendum. Project funds were reallocated to insurance sector reform, reform of the sanitation sector, technical improvements in postal services, and rationalization of armed forces health services.

4. Significant Outcomes/Impacts:

Given the change in political will and the subsequent decline in government commitment to privatization, achievement of the ambitious agenda for this operation was not accomplished. Nevertheless, progress in demonopolization in key areas was achieved and the foundations for continued efficiency improvements in the provisions of public utilities was laid.

5. Significant Shortcomings (include non-compliance with safeguard features):

Both the Government and the Bank misjudged public support for a change in the role of the public sector in Uruguay. Although the Memorandum of the President noted the possibility that parts of the Public Enterprise Law could be voided by referendum, the authorities informed the Bank that "there was little possibility of any referendum eventuating." (MOP p.6) and the Bank stated that "with the provision of appropriate safeguards in the unlikely event the law is overturned, we intend to proceed..." Given that the operation went to the Board in September 1992, and the referendum on privatization was held in December 1992, perhaps it might have been more prudent to have postponed Board presentation until after the referendum. Even for components less affected by the referendum results, cumbersome Uruguayan administrative procedures and numerous staff changes delayed implementation.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

In environments where there is a strong public sector involvement in a wide range of commercial activities, enterprise restructuring and/or privatization will undoubtedly encounter strong opposition from a variety of vested interests. Therefore gauging the public's acceptance of such reform, and thereby the Government's political will to proceed is a crucial component of any appraisal of a project designed to support such change.

8. Audit Recommended?  No


9. Comments on Quality of ICR:

The ICR is satisfactory, however it lacks the completion mission aide memoire and any input from the Borrower on an evaluation of this project.

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