|1. Project Data:
ICR Review Date Posted:
|Enterprise Institution Building
Project Costs(US $M)
Loan/Credit (US $M)
Sector, Major Sect.:
|Central government administration, General industry and trade sector,
Law and justice and public administration; Industry and trade
Cofinancing (US $M)
Board Approval (FY)
|Government of Uzbekistan
|2. Project Objectives and Components:|
a. ObjectivesOriginal Objectives: 1. Improve efficiency of privatized enterprises; 2. Support Government's implementation of case- by-case privatization to improve enterprise efficiency, and attract foreign know-how and capital; 3. Enhance effectiveness and widen public participation in capital markets and protect shareholders; 4. Strengthen institutional capacity to facilitate enterprise reform.
Original Performance Indicators: 1. Implement 30 enterprise restructuring plans; 2. Sale of seven large firms to strategic investors; 3. Increase in trade of shares on the stock exchange, improved mechanisms for trade of securities, and more secure shareholder rights; 4. Stronger local private entrepreneurs and more foreign investment.
Revised Objectives: 1. (unchanged) Improve efficiency of privatized enterprises; 2. Support Government's implementation of case- by-case privatization to improve enterprise efficiency, and attract foreign know-how and capital through: (a) preparation for privatization of at least 10 large enterprises; and (b) sale of at least 1 large enterprise; 3. Enhance effectiveness in the functioning of capital markets by improving access to and facilitating the flow of information on issuers, turnover, and prices; 4. (unchanged) Strengthen institutional capacity to facilitate enterprise reform.
Revised Performance Indicators: 1. Implement 20 restructuring plans and privatize 10 medium enterprises; 2. Sale of at least 1 large enterprise to strategic investor; 3. Improved mechanisms for trade of securities through installation of software and hardware systems; 4. (unchanged) Stronger local private entrepreneurs and more foreign investment.
b. Components (or Key Conditions in the case of Adjustment Loans):A. Post-privatization advisory services (US$1.8 million disbursed out of planned US$16.2 million). Intended to support enterprise reform by building institutional capacity for restructuring through a new Enterprise Institution Building Bureau (EIBB) that provided a demonstration effect for restructuring, and by developing the local consulting industry.
B. Case-by-case privatization (US$6.3 million disbursed out of planned US$26.5 million). Intended to build capacity to privatize large, complex enterprises transparently, introduce large foreign investment banks to the Uzbek business environment (which was expected to provide feedback to officials about necessary changes), and also provide experience to local consultants who were expected to work with investment banks.
C. Capital markets development (US$1.1 million disbursed out of planned US$2.4 million). Intended to support further development of the Securities Center, Stock Exchange, and National Depository. Sub-components were: (a) securities market regulation and investor protection; (b) assistance in supporting secondary trade in securities; (c) technical upgrade of the national depository; and (d) training.
An additional US$2.6 million was unallocated (of which zero was disbursed).
c. Comments on Project Cost, Financing, Borrower Contribution, and DatesProject cost (IBRD) was US$9.2 million out of a planned US$28.0 million; US$17.6 million was canceled (the difference was due to exchange rate fluctuations). In addition to the costs noted above, US$1.65 million was expended from the Bank administrative budget, and US$0.36 million from trust funds. According to the ICR Annex 2, the government did not provide US$19.7 million in counterpart funding to which it was committed.
The project was restructured after the mid-term review (5/01) and again in 4/04, after the initial closing date of 12/31/03. The extension was granted in order to permit completion of 10 pending case-by-case privatizations and to complete work under the capital markets development component. It should be noted that for components 2 and 3, after progress was disappointing following the 2001 restructuring, the 2004 restructuring lowered the targets again.
|3. Relevance of Objectives & Design:|
The relevance of the project objectives and design (even after revision) was modest. Critical to project success was adequate borrower support--support for specific actions under the project, as well as a supportive policy environment for enterprise privatization and a conducive business climate. In the event, none of these was forthcoming, and in many respects borrower performance directly undermined project achievement and sustainability. The project also contained a provision requiring firms that received consulting assistance (component 1) to pay 25% of these costs, an unrealistic requirement in an environment in which working capital was scarce. Additionally, the capital markets objective was restructured to encompass installation of a computer system to support stock trading. However, in large measure due to the poor business climate and limited privatization achievement, it is unlikely that share trading volume will be sufficient to make this a viable investment.
In retrospect, the project objectives and design were overly optimistic about the support for the project that was being received or could be expected from government, and the strong opposition that could be expected from stakeholders (associations, holding companies, and enterprises themselves).
|4. Achievement of Objectives (Efficacy) :|
1. Improve efficiency of privatized enterprises; overall achievement was negligible, and was also negligible compared to both the original and revised performance indicators. Nine firms were restructured compared with the original goal of 30 and the revised goal of 20 (however, there is evidence that these 9 firms did become more efficient). Factors that impeded progress (and that also hindered achievement of other objectives) included:
- Greatly diminished GOU support for privatization overall, and for the Privatization Investment Funds, a critical element of project design
- A poor and deteriorating business climate
- Unrealistic government price expectations (for privatized enterprises)
- GOU withholding of the most attractive firms to privatize
- Renewed centralized control of resources, which made operation of private businesses difficult
- Strong resistance from holding companies, associations, and the enterprises themselves
2. Support Government's implementation of case- by-case privatization to improve enterprise efficiency, and attract foreign know-how and capital; overall achievement was modest: Achievement was negligible compared to the original objective, and modest with respect to the revised goal. Two large enterprises were sold to foreign investors and 10 enterprises were prepared for privatization, compared to the original goal of selling 7 large firms and the revised goal of selling 1 firm and preparing 10 for privatization. The reasons for the shortcomings in this area are similar to those presented for Objective 1.
3. Enhance effectiveness and widen public participation in capital markets and protect shareholders; overall achievement was negligible, and was also negligible with respect to both the original and the revised objective. Capital markets in Uzbekistan are rudimentary, and the project did not have the envisioned effect of increasing the number of companies whose shares would be traded. While a computerized trading system was installed in accordance with the restructured objective, it is unlikely that trading volume will increase sufficiently to make this a viable investment. There are presently 429 companies represented on the stock exchange, and a weekly average of 96 transactions.
4. Strengthen institutional capacity to facilitate enterprise reform. Achievement was negligible overall. While some capacity was created to restructure and privatize enterprises, given the magnitude of the obstacles to privatization as noted above, that capacity will for the most part remain a latent capacity.
No measures of project efficiency were calculated, and the administrative costs of the project were not separately identified. However, with a Bank administrative cost of around US$2.0 million (including trust funds), equal to nearly 22% of total project expenditure, it seems unlikely that an acceptable rate of return was achieved.
|6. M&E Design, Implementation, & Utilization:|
While the PAD calls for monitoring progress toward PDOs utilizing the agreed Performance Indicators, there is no evidence that this procedure was followed. As indicated in sec. 8, Bank reporting on progress toward achieving the PDO seems to have been excessively optimistic.
|7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):|
Reason for Disagreement/Comments
|Highly Unsatisfactory||Highly Unsatisfactory||Section 2 of the ICR, Principal Performance Ratings, rates outcome as highly unsatisfactory, while in sec. 4.1 the ICR rating is unsatisfactory. A rating of highly unsatisfactory is consistent with the IEG assessment of modest overall relevance, negligible achievement on 3 of 4 objectives and modest achievement on the 4th, and a likely assessment of poor project efficiency.|
|Modest||Negligible||A rating of negligible for IDI is consistent with a rating of highly unsatisfactory for outcome.|
|Unsatisfactory||Unsatisfactory||During supervision, project ratings were unduly optimistic. For example, 12 of 16 PSRs rated overall PDO achievement as satisfactory at the same time that only 21 of 48 component ratings were considered satisfactory.|
|Unsatisfactory||Highly Unsatisfactory||The government took numerous actions that were detrimental to project achievement, most notably those cited in sec. 4.1. In addition, according to the PAD the government was committed to provide US$19.7 million in counterpart funding, but the ICR does not provide evidence that any of this funding was provided.|
Quality of ICR:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.
The Bank should have done a more thorough stakeholder assessment to gauge the extent to which the goals of the project were shared by intended participants.
- When the Bank understood the extent to which the environment was inimical to privatization, cancellation of the loan should have become a more serious option, rather than the more limited restructuring done at MTR.
|10. Assessment Recommended? Yes|
Why? A PPAR should examine the circumstances under which the Bank did not seriously consider termination of the project, and also how the Bank and government perceptions of project design features and performance indicators may have differed.
|11. Comments on Quality of ICR:|
The ICR is excellent. It is admirably frank, comprehensive, and well-organized. Especially helpful are tables 1-4 that clearly lay out the original and changed project objectives and performance indicators, key decision points in the progress of the project, and project rating on IP, DO, and each component for each of the 16 PSRs that were completed.