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Implementation Completion Report (ICR) Review - Public Enterprise Reform Technical Assistance

1. Project Data:   
ES Date Posted:
Project Name:
Public Enterprise Reform Technical Assistance
Project Costs(US $M)
 16.0  13.6
Loan/Credit (US $M)
 12.0  12.0
Sector, Major Sect.:
Private Infrastructure,
Private Sector Development
Cofinancing (US $M)
 0  0
L/C Number:
L3821; LP199      
Board Approval (FY)
Partners involved
Closing Date
07/31/1998 12/31/1999
Prepared by: Reviewed by: Group Manager: Group:  
John H. Johnson
Jorge Garcia-Garcia Ruben Lamdany OEDCR

2. Project Objectives and Components:

a. Objectives
the Public Enterprise Reform Technical Assistance Loan (PERTAL) supported the efforts of the Government of Ecuador to (a) reduce power subsidies in a sustainable manner; (b) reform the legal/regulatory framework of the electricity and telecommunications sectors, so as to ensure complete separation of state policy and regulatory functions; (c) establish and strengthen the public institutions in charge of these policy and regulatory functions; and (d) privatize the provision of telecommunications and power services.

b. Components
The components included (a) strengthening the capacity of the State Modernization National Council (CONAM) to coordinate and supervise power and telecom reforms, properly utilize the proceeds of privatization, and coordinate other public enterprise reforms; (b) developing and implementing promotional campaigns to highlight the need for public enterprise reform and privatization; (c) reform telecom sector policies and the legal/regulatory framework; (d) strengthening public entities charged with policy and regulatory functions, including licensing and radio spectrum management; (e) preparation of the state telecommunication enterprise (EMETEL) for privatization; analysis of privatization of municipal telecommunications services; (f) reform of power sector policy and the regulatory framework; (g) institutional strengthening of the public entities charged with power policies and regulation; (h) restructuring of the Electrification Institute (INECEL) into separate corporations for generation, transmission, and distribution; and (i) preparation of these separate corporations for privatization.

c. Comments on Project Cost, Financing and Dates
The Bank project costs were US$12.0 million dollars, disbursed over a period of six-and-one-half years. The project closed 12 months after the original closing date.

3. Achievement of Relevant Objectives:

(a) power subsidies were not reduced, but were actually increased during the implementation period; (b) telecom sector policy reforms were modest, achieving partial separation of regulatory from commercial functions, but proving ineffective in improving cost recovery or attracting new investment; (c) the public regulatory institutions experienced considerable rationalization and institutional strengthening, but policymaking capacity remains weak; (d) neither the telecom nor the power public enterprises were privatized, due to unattractive bidding terms, inadequate tariff policy definition, and unstable domestic political and economic conditions. However, recent legislation appears to reaffirm the desirability of privatization of both sectors. In the event they are privatized, the earlier restructurings sponsored by PERTAL will have played an important role in readying them for privatization.

4. Significant Outcomes/Impacts:

ENECEL and EMETEL were separated into independent sub-units, facilitating their privatization; new regulatory frameworks for power and telecoms introduced significant modernization.

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

Power subsidies increased by 40 percent during project implementation; excessive reserve prices, restrictions on foreign ownership, and inadequate policy and regulatory definition of cost recovery and new service offerings led to failure of two attempts to privatize the telecom state enterprise; frequent changes of government and policies, economic instability, and rapid technological change have made privatization of Ecuador's state enterprises unattractive to date; the public administration, including units benefited by PERTAL, have suffered severe turmoil and disruption, due to political and economic unrest.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
SatisfactoryModerately Satisfactory
    Difference in rating systems. Consistent in ICR language describing outcome.
Institutional Dev.:
    Changes in the rules of the game, such as the legal-regulatory frameworks for power and telecom, were significant, but flawed and incomplete. Moreover, the capacity-building benefits of PERTAL have been undermined by political and economic instability, and the resulting disruption of public administration.
    Frequent changes of government and fundamental economic policies increase uncertainty about the economic and political viability of the current reformist policy framework. There is insufficient information to resolve these doubts at the present time.
Bank Performance:
Borrower Perf.:
    Economic mismanagement, frequent changes in government and policies, inconsistent and sporadic implementation of key PERTAL components, and disruption of the basic processes of public administration blunted the potentially large impact this operation could have had.
Quality of ICR:

7. Lessons of Broad Applicablity:

Privatization requires a permanent Government commitment whcih transcends the scope and duration of a technical assistance project.

8. Audit Recommended?  No


9. Comments on Quality of ICR:

The ICR provided adequate information on which to base a rating judgment. More in depth discussion of Bank performance, particularly during supervision, would have been helpful in explaining why this project was never rated less than satisfactory, even during periods when the incumbent administrations were either openly hostile or neutral about the desirability of privatization, and adopted measures which frustrated the goals of PERTAL.

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