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Myanmar: Grain Storage and Processing Project (Credit 1707-BA)

The Myanmar Grain Storage and Processing project (Credit 1707-BA for US$ 30 million equivalent) was approved in FY86, with the UNDP and the Swiss Development Corporation (SDC) as cofinanciers. The Credit was closed on June 30, 1995. Around US$19 million will be canceled. The date of final disbursement will be determined after overdrawn funds are returned by the borrower. The East Asia and Pacific Regional Office prepared the Implementation Completion Report (ICR). The borrower had no comments on the draft, and the cofinanciers' comments do not differ substantively from the ICR.

The project objective was to increase Myanmar's foreign exchange earnings by raising the quality of export rice, reducing storage losses, and initiating a program to rehabilitate private mills. The main project components aimed to (i) construct six rice mills and integrated paddy storage facilities, with the Myanma Agricultural Produce Trading Corporation (MAPT) as owner/operator; (ii) construct a rice reprocessing plant to enhance MAPT's capability to regrade and mix rice at the export terminal; and (iii) establish a longterm credit facility for foreign exchange and local currency to rehabilitate about 120 private rice mills. UNDP provided grant funds for consultants to support all three components.

Project design was altered within a year after effectiveness. The government's decision in August 1987 to liberalize grain procurement and trade materially changed the project's rationale and prompted cancellation of the six mills and storage facilities. Political disturbances in mid-1988 brought the project to a halt until 1991. Rehabilitation was seen as even more important then, but the government and Bank did not take steps to ensure that profitable mills would have fair access to foreign exchange to repay their loans. Eighteen mills had been rehabilitated by 1993, but two were subsequently surrendered to MAPT (which holds the liens), and the other 16 face a bleak future. Owners of a second group of 49 withdrew from the program, though not before MAPT had imported equipment for them in anticipation of their participation, and plans for the last group of 53 mills were canceled. The construction and initial operational performance of MAPT's reprocessing plant have met expectations, but at more than four times the cost projected at appraisal.

The reasons for the poor outcome of the rehabilitation component are (i) the denomination of subloan repayments in US dollars at the official rate; (ii) MAPT's continuing monopoly of rice exports, which extended past the liberalization program of 1987 and precluded mill owners from acquiring foreign currency from direct sales overseas; (iii) the high costs of rehabilitating the mills (and associated debts); (iv) MAPT expansion of its own mill capacity; and (v) the government's sale and licensing of small village-based mills, also competitive with the project mills. Starting in 1994, the government and Bank did try to help the mill owners by allowing restricted exports by MAPT on behalf of the owners, but with no apparant effect.

The Operations Evaluation Department (OED) agrees with the ICR ratings of project outcome as highly unsatisfactory, institutional development as negligible and sustainability as uncertain. OED does not agree with the ICR's rating of Bank performance as satisfactory, given the lack of attention to the financial returns to rehabilitation of the mills at appraisal and the failure of Bank supervision to respond adequately to major changes affecting project design. The SDC notes that after 1987 the cofinanciers should have called for a reappraisal of the project, and in 1991 Bank supervision should have reassessed the viability of the mill component that was the main justification for continuing IDA disbursements. The ICR cites an important lesson for operations elsewhere, which is that partial market liberalization can distort conditions further and exacerbate sectoral problems, particularly if a public enterprise does not operate fairly in competitive situations. This project also demonstrates the importance of taking possible changes in the initial policy environment_threatening successful project performance_fully into account during both appraisal and supervision through a thorough analysis and continuing review of risk.

The ICR is unsatisfactory. It does not deal adequately with the mill rehabilitation component: the fourfold increase in unit costs, the 7 years to complete the first 18 mills (MAPT had committed itself to deliver all 120 mills in 5 years), the Bank's justification for approving the dollardenominated loan repayments, the reasons for ordering equipment for the second group of mills before the initial investments had been assessed for viability, and especially the Bank's apparant failure to address the exchange rate issue until the first mills were facing bankruptcy. The ICR does not reestimate the appraisal economic rate of return of 49 percent, and its explanation_that the project scope was reduced_is not convincing. No audit is planned



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