Documentof TheWorld Bank

FOROFMICIA USE ONLY Public Disclosure Authorized

lit l't. N~C. I ill ' i "!''y RCP0"No. 10075 ,9i _>i,(.[ / X . hi;f\A j4 , : .- I}h•j}j

PROJECT COMPLETION REPORT

KINGDOM OF MOROCCO Public Disclosure Authorized

PILOT PROJECT FOR THE COMMUNAL !NFRASTRUCTURE FUND (FEC) (LOAN 2272-MOR)

NOVEMBER 14, 1991 Public Disclosure Authorized

Infrastructure Operations Division

Public Disclosure Authorized Country Department II Europe, Middle East and North Africa Region

This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. .

CURRENCY EQUIVALEhTS

Local Currency - Dirham (DH)

Appraisal Year Average: US$1.00 - DH 6 DH 1.00 - US$0.167

Project Execution Average: US$1.00 - DH 8.47 DH 1.00 - US$0.118

GLOSSARY OF ABBREVIATIONS

BDCL - Municipal Development Bank (Banque de Developpement des Collectivit6s Locales)

BM - Central Bank of Morocco (Bank Al-Maghrib)

CDG - Savings and Management Bank (Caisse de Depot et de Gestion)

CIH - Credit Immobilier et H6telier

CL - Local Authorities (Collectivit6s Locales)

DGCL - General Directorate for Local Authorities (Direction G6n6rale des Collectivit6s Locales)

FEC - Fonds d'Equipement Communal

MOF - Ministry of Finance

mOI - Ministry of Interior

ONE - National Power Corporation (Office National de l'Electricit6)

ONLP - National Water Corporation (Office National de l'Eau Potable)

FISCAL YEAR

January 1 - Dacember 31 FOR OFFICIL USE ONLY THEWORLD BANK Washington,D.C. 20433 U.S.A.

Offiocof Direotor-Generai Operation.Evaluation

November 14, 1991

MEM_RANDUMTO THE EXECUTIVEDIRECTORS AND THE PRESIDENT

SUBJECT: ProjectCompletion Report on Kingdomof Morocco - Pilot Projectfor the CommunalInfrastructure Fund (FEC) (Loan2272-MOR)

Attached,for information,is a copy of a report entitled"Project CompletionReport on Xingdom of Morocco - Pilot Project for the Communal InfrastructurePund (EEC) (Loan 2272-MOR)"prepared by the EMENA Regional Office. No audit of this projecthas been made by the OperationsEvaluation Departmentat this time.

Attachment

Thisdocument hs a tricted distributionand may be usd by recipiintsonly la the performanceof theiroMcil dutles. Its contentsmay not otherwisebe disclosedwithout World Bankautborizatlon. FOROFFICIAL USE ONLY

PROJECT COMPLETIONREPORT

KINDO.M OF MOROCCO

PILOT PROJECT -FOR THE COMMUNAL INFRASTRUCTURE FUND (FEC) (LOAN 2272-MOR)

TABLE OF CONTENTS

Page No.

PREFACE ...... EVALUATION SUMMARY ...... ii

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ......

I. PROJECT IDENTITY ...... 1 II. BACKGROUND...... 1 III. PROJECT OBJECTIVES AND DESCRIPTION . 3 IV. PROJECT DESIGN AND ORGANIZATION...... 4 V. PROJECT IMPLEMENTATION ...... 5 FEC Operations ...... 5 Financial Restructuring ...... 6 Institutional Development ...... 7 VI. PROJECT RESULTS ...... 8 VII. PROJECT SUSTAINABILIT& ...... 9 VIII. BANK'S PERFORMANCE ...... 9 IX. BORROWER'S PERFORMANCE .10 X. RELATIONS BETWEENTHE BANRAND THE BORROWER. 11 XI. CONSULTANTS'SERVICES ...... 11 XII. PROJECT DOCUMENTATIONAND DATA ...... 11

PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . 12

Comments on Part I ...... 12 Project Design ...... 13 Project Organization ...... 14 General Project Overview ...... 15 Bank's Performance ...... 16 FEC's Performance ...... 16 Project Implementation ...... 16 Impact of FEC Actions ...... 18 Conclusions ...... 18

PART III: STATISTICAL INFORMATION ...... 19

Table I : Related Bank Loans ...... 19 Table 2 : Project Timetable ...... 20 Table 3 : Cumulative Loan Disbursements ...... 21 Table 4 : Project Costs and Financing ...... 22 Table 5 : Status of Covenants ...... e . . . 23 Table 6.1 : Missions ...... 24 Table 6.2 : Staff Inputs ...... 25

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (cont'd.)

Page No. PART III: STATISTICALINFORMATION (cont'd.)

Table 7 : List of Subprojects ...... 26 Table 8 : FEC Activity (1981-1990)...... 28 Table 9 : FEC Income Statements (1981-1990) ...... 29 Table 10 : FEC Sources and Applicationof Funds (1981-1990). 30 Table 11 : FEC Balance Sheets (1981-1990) ...... 31 Table 12 : FEC FinancialPerformance Indicators (1981-1989) . 32 Table 13 : Lending Rates .33 Table 14.1: AccumulativeDisbursements ...... 34 Table 14.2: Distributionof Loans Refinancedby IBRD by Sector ...... 35 Table 14.3: Distributionof Loans Refinancedby IBRD by Type of Borrower ...... 36 PROJECT COMPLETIONREPORT

KINGDOM OF MOROCCO

PILOT PROJECT FOR THE COMMUNAL INFRASTRUCTUREFUND (FEC) (LOAN 2272-MOR)

PREFACE

This ProjectCompletion Report describesthe preparation,appraisal, and implementationof the Pilot Project for the Communal InfrastructureFund (FEC), for which Loan 2272-MOR in the amount of US$16 million was signed on May 23, 1983. The project became effectiveon April 2, 1984 and was closed on December31, 1989 after one six-monthextension. The loan accountremained open until February 7, 1990. The US$16 million loan was fully disbursed.

The EvaluationSummary, Parts I and III of the PCR were prepared by the Infrastructure Operations Division, Technical Department, with the assistanceof the InfrastructureOperations Division, Country DepartmentII, of the Europe,Middle East and North Africa Regional Office, on the basis of, inter alia, the Staff Appraisal Report, the Loan Agreement, supervision reports, correspondencebetween the Bank and the Borrower, internal Bank memoranda, and consultaLionwith implementationagency officials and staff, and former project officers.

Part II has been prepared by FEC's managerial staff. - iii -

PROJECT COMPLETION REPORT

KINGDOM OF MOROCCO

PILOT PROJECT FOR THE COMMUNAL INFRASTRUCTURE FUND (FEC) (LOAN 2272-MOR)

EVALUATION SUMMARY

Background

1. When the project was identified in 1980, Morocco's populationwas approximately20 million,with about 9 million, or 40% living in urban areas. Whereas most of the urban populationwas concentratedin six major cities of the Kingdom, a new trend emerged in which mid-sized cities experiencedrapid population growth in response to the development of agriculture, light industries,and services. To address Lne new needs arising frim the shift in urban population,the Government adopted a strategy aimed at administrative decentralizationand a more balanced regional development. By Decree-Lawof September 1976, the local authorities(CLs) were accorded greater responsi- bility for infrastructureand public servicesmanagement. This new level of responsibilitymeant a simultaneousincrease in their financial decision- making authority.

Project Obiectivesand ImplementationExperience

2. The project aimed at supporting the Government'sdecentralization policy by assistingCLs in implementingprimary infrastructure.This was the second time, after Jordan,!/the Bank financed municipal infrastructure through a line of credit to a specializedfinancial institution. The Bank granted a US$16 million loan, consistingof a line of credit for refinancing eligible subprojectsat the local level (US$15million), supplemented with a technicalassistance program (US$1million). The borrowerwas the Government. The Loan proceeds were used to reimburse FEC disbursementson the foreign components of the projects it financed. There was a Loan Agreement between the Governmentand the Bank and a ProjectAgreement between the Bank and FEC. The foreign exchange risk was born by the Government. The Communal Infra- structure Fund (FEC) was to prcvide CLs with both financial resources and technicalassistance.-' It was presumed that by strengtheningFEC's technical capacity, FEC would, in turn, eventually be able to help the CLe design projects that were both economicallyand technicallyviable.

Jordan - First Cities and VillagesDevelopment Project (Loan 1826-JO).

2 The Communal InfrastructureFund (FEC) is a public institutionwith legal status and financialautonomy, established by Law No. 1-59-169of June 13, 1959, as amendedby Decree No. 929-66 of March 2, 1967. Its administrative and financialmanagement is entrustedto the Savings and Management Bank (CDG). _ iv -

3. During project implementation,annual commitmentsof subloansto CLs and public utilityR6gies increasedby more than 300%, from an annual average of DH 120 million in 1981-84 to DH 530 million in 1989-90,along with FEC's increase in, and training of, its professionalstaff, Disbursementsof sub- loans, however,were much slower, as the CLs' absorptivecapacity was limited due to (i) insufficienttraining of local staff in the appraisalof investment projects and (ii) cumbersomewithdrawal procedures,which were subject to public expenditureguidelines.

4. FEC's equity was to have been increased through three budgetary allocationsof DH 20 million p.a. beginning in 1983. However, out of these three payments,the Treasurypr,;vided only two, the first one in 1985 and the second one in 1988. Lending interest rates were also to have been increased to yield a minimum spread of 3%. However, the progressiveincrease in FEC loan interest rates was incommensuratewith the more rapidly escalating resource costs. In November 1986, the rediscountingfacility at prime rate available through the Central Bank was eliminated,compelling FEC to turn hastily to more expensiveresources, whereas its assets were locked at fixed interest rates. This placed FEC in a precarious financial position, culminating in a negative spread for fiscal years 1987-89. In 1990, a positive spread was re-established.

5. In collaborationwith the Bank, FEC establishedproject evaluation criteria for each subsector and integrated them into a Policy Statement according to schedule. However, because of staff and other resource constraints,FEC was unable to supervise subprojectseffectively. It is thereforeimpossible to ascertainthe extent to which appraisalexpectations for cost recoverywere met.

Proiect Results

6. Ninety subprojectsbenefitted from Bank assistance. Eighty-threeof these were for CL infrastructureand the remainingseven were for investment projects carriad out by public utility corporations ("R6gies"). Bank refinancingaveraged DH 1.49 million, or 42% of average project costs. The beneficiarieswere 44 "rural communes"i,&ofollowed by 27 "municipalities",12 "autonomous centers"t,and 7 R6gies. The subsectors benefitting were: commercial infrastructure, 36 subloans; water supply, 12; solid waste disposal, 11; and sewerage,8.

7. FEC staff, especiallythose in charge of financial activities and appraisalstudies, benefitted substantially from practicaltraining. The use of office technologyfor managementcontrol and financialprojections made it possible to simplifypro:edures, increase staff productivity,and develop a better management approach.

3/ Moroccan Local Authorities are classified into categories depending on their size. Below "Provinces" and "Prefectures,"local communities comprise (by decreasing size): "municipalities," "autonomous centers," and "rural communes." Sustainabillity

8. As FEC continuedto evolve towardsbecoming an autonomousfinancial institution, its organizational structure took on a more sustainable character. Under the project, the training of FEC personnel was a major project goal. In the future,management training is expected to expand and replicatecurrent lending operations. During project implementation,it was observed that tnere was a correlationbetween the technical quality of loan applicationssubmitted to FEC and the pace of loan and subloan disbursement. The preparation of sectorial guidelinesshould also have a lasting effect. A partial proceduresmanual has been approved and eligibilitycriteria have been defined as part of a long-rangestrategy for FEC's eventual transforma- tion into an independentfinancial institution.

Conclusionsand Lessons Learned

9. This pilot project had a decisive impact on:

(a) resource allocation. As a result of the application of subloan eligibility criteria, FEC and some of the CLs can now better determinewhich investmentswill generate positive financial rates of return. Doubtless,the preparationand processingof applications for FEC loans left CLs' managerswith a good understandingof project analysis and cost recovery;

(b) human resources development. Project-related training made it possible for existingFEC personnelto form the core of a potentially autonomousfinancial institution; and

(c) poverty alleviation. Subloans to CLs were granted to finance house connections for water supply and sewerage, benefitting several thousand low-incomefamilies.

10. The followinglessons may be appliedto future operationsof similar scope:

The use of a specialized financial institution for lending to municipalitiesand their agencieshas proved to be the right approach at a time when the financialsector in Moroccowas still affected by Government constraints and directed credit was the only way to introduce financial discipline into a heavily subsidized sector (municipaldevelopment). In the future, the liberalizationof the financialsector in Morocco should lead the Governmentto decide on granting more managerial autonomy to FEC and on the best ways to ensure that FEC mobilizationand use of resourcesfor the financing of urban infrastructureprojects responds to its policy.

Funds earmarkedfor the prefinancingof feasibilitystudies for low- income CLs were invested wisely, making it possible to maximize resource allocation (by increasing the number of beneficiariesfor each DH invested.)

Staff were continuallyand systematicallyprovided with in-service training. But it was conductedalmost entirely in-house. Clearly, - vi - the training cycle and organizationcould have been more efficient if specializedtraining institutionshad been involved.

FEC should have paid more attention to subprojectsupervision. It should also have monitoredmore rigorouslyits pipeline of subloans to the R6gies, particularlyin the light of their financialrestruc- turing operations. PROJECT COMPLETIONREPORT

KINGDOMOF MOROCCO

PILOT PROJECT FOR THE COMMbNAL INFRASTRUCTUREFUND (FEC) (LOAN 2272-MOR)

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

I. PROJECT IDENTITY

Name; Pilot Project for the Communal InfrastructureFund (FEC) Loan Number: 2272-MOR RVP Units EMENA Countrys Kingdom of Morocc- Sectors Infrastructure Sub-Sector: Urban Development

II. BACKGROUND

2.01 From 1980 to 1982, Morocco'smacroeconomic situation was marked by a sharply increasing external debt. This was generated by an ambitious investmentprogram when export prices, and phosphate prices in particular, declinedwhile the price for importedoil increased. Thus, the externaldebt serviceon exports increasedfrom 10.7% in 1977 to 35%, or US$1.5 billion, in 1982. For the 1978-80period, the Govsrnmentadopted a StabilizationPlan and enforced rigorous credit and import controls. It also severely reduced expendituresthrough a concertedeffort to decreaseinvestments. As a result, new investmentsdeclined from 27% of the GNP in 1978 to 12% in 1980. Internal factors(drought, military expenditures, and increasingcommodities subsidies) and external factors (appreciationof the dollar, increase in oil prices and interest rates) added to the effects of the StabilizationPlan, leading to a 1.3% decline in GNP in 1981, a Treasurydeficit of 14% of GNP, and a negative balance of payments of US$1.8 billion, or 12.6% of GNP. In April 1982, the InternationalMonetary Fund intervenedwithin the frameworkof an agreement that focussed on fiscal measures and expenditurerestrictions.

2.02 When the project was identified in 1980, Morocco's population was approximately20 million,with about 9 million, or 40% living in urban areas. Whereas most of the urban populationwas concentratedin six major cities of the Kingdom,i.e., Casablanca,Rabat-Sal6, Marrakech, Fez, Meknes, and Tanger, a now trend emerged in which mid-sized cities experiencedrapid population growth in response to the developmentof agriculture,light industries,and services. To address the new needs arisingfrom the shift in urban population and macro-economicconditions (para. 2.01), the Governmentadopted a strategy aimed at the administrativedecentralization and a more balanced regional development.Decentralization appeared as being potentiallya major source of improvement in public sector management by reducing the distance between decisi..nmakers and users of public goods and services, and giving a more manageable scale to the delivery and administrationof local services. -2^

Decentralization had, hence, beyond the social dimension of promoting politicalparticipation at the local level, an economicobjective, namely the improvementin the use and allocation of resources. The decentralization process had to be gradual. Consistencywas needed betweenlocal needs and the availability of means, and the State needed to ensure that essential investmentsreceived adequatepriority when decisionswere taken at the local level. A Decree-Law of September 1976 defined the organizationof local authorities(CLs) and gave them greaterresponsibility for infrastructureand public services management. This new level of responsibilitymeant a simultaneousrelative increasein their financialdecieion-making authority. In this respect,additional decisions were taken between 1976 and 1980, iitter alia, to reform the local fiscal system and to strengthen the role of the Communal InfrastructureFund (FVC in the financingof municipalinvestments. However, decisionsconcerning th ^cal fiscalsystem were not translatedinto action until 1988. In 1976, how, ar, provincialgovernments were given the responsibility for the distribution of Ministry of the Interior (MOI) budgetary allocations. This strengthened their authority in setting investment priorities at the commune level. Previously, the financial autonomy of local authoritisshad been very limited, both because of the weight of centrally allocated funds in local budgets and because of insuf- ficient cost recovery when providing local services. Indeed, budgetary allocations from the Central Government to the CLs had been made through various technical ministries for each project category and consisted of (a) the redistributionof local taxes collectedby the Central Governmenton behalf of the CLs and returned to them and (b) transfersto the poorest CLs.

2.03 Decisions concerning FEC's financial and managerial autonomy and institutionalstrengthening were graduallyimplemented. FEC was created in 1959 as a public agency to finance investments in infrastructureby the provinces, urban and rural communes and syndicatestherefore, and municipal autonomous Regies (essentiallyfor urban transportand the distributionof electricityand water). Although FEC was legallyand financiallyautonomous, it was, for practicalpurposes, a small departmentappended to, and adminis- tered by, CDG (Caisse de Dep6t et de Gestion). It had a staffing complement of seven in 1980. Decisions affectingits lending operationswere taken by the CDG Director after consultationwith a Technical Committee composed of representativesfrom MOI and the Ministry of Finance (MOF). Its statutory resourceswere largelypublic, i.e., rediscountsfrom CDG and the CentralBank (BM), and whenever necessary, Government grants and subsidies or local borrowingsguaranteed by the Government.

2.04 In mid-1979,an ITter in^sterialCommittee met to study and recommend measures to expand the role of FEC as a major promoter and financier of investmentby the local authorities. The Committeerecommended, in particu- lar, that:

(a) to increase its assistanceto CLs both quantitativelyand qualita- tively,FEC shouldbe administrativelyreorganized and should create a Technical Unit responsible for the technical and financial appraisal of projects,as well as for their supervisionand follow up;

(b) FEC establish a Project Preparation Fund, financed from FEC's profits, to prefinancefeasibility studies; - 3 -

(c) FEC's financialresources be diversifiedand expanded in line with the expansion of its loan cc-mmitments.New sources of funds would be the BM rediscountfacilities, bond issues, and foreignborrowing with Governmentguarantee; and

(d) the average maturity of FEC loans be extended from 8 to 12 years, while increasing the interest rate to 8.5Z to maintain financial equilibrium.

III. PROJECT OBJECTIVESAND DESCRIPTION

3.01 Project preparation took place in the background described above. The project was to support the Govetrnment'sdecentralization policy by assisting CLe in implementingprimary infrastructure. In this respect, FEC was to provide them with both financialresources and technicalassistance. It was presumed that by str'engtheningof FEC's technical capacity, that institutionwould, in turn, eventuallybe able to help the CLs design projects that were both economicallyand technicallyviable.

3.02 The total project cost was estimatedto be US$31 million. The Bank granted a loan to the Governmentin the amount of US$16 million, consisting of:

(a) a line of credit of US$15 million to FEC for the financing of infrastructuresubprojects in eligible sectors (to be specifiedin FEC's Policy Statement);and

(b) a technicalassistance program of US$1 million for staff trainingand the services of technical experts as well as experts on banking organization.

3.03 The line of credit would be used for the funding of about 30 self- financingsubprojects. Prospectivesub-borrowers were urban and rural CLs, groups of CLs, and public utility and transportRggies. It was agreed that all FEC-financedprojects, regardless of whether they were refinancedby the Bank, would have to comply with the same eligibility criteria defined accordingto sector. The line of credit was limited to the foreign cost of subprojects,estimated at about 50% of their value. With the exceptior.of sanitationinvestments with unit costs below US$80,000, fees, user charges, and taxes collected by the municipalitieshad to cover the total capital investmentand recurrentexpenditures.

3.04 In this context, the Bank's strategywas to help strengthenFEC to use the institution as a conduit for channeling assistance to the CLs. Technicalassistance provided by FEC to CLa in project and financialmatters was seen as a means to develop,at the local level, conceptsof cost-recovery and reduce accordinglysubsidies from the Central Government.

3.05 The technicalassistance component was designed to support:

(a) the training of FEC's technicalstaff; and -4-

(b) consultant services. It was envisaged that an expert would be engaged for a two-yearperiod. That person'sassistance would focus on: (i) project preparationtechniques and feasibility studies on small-sizeprojects in particular;(ii) the formulationof subproject eligibilitycriteria; (iii) the definition of financing and loan recoveryprocedures; and (iv) project supervisionby FEC.

IV. PROJECTDESIGN AND ORGANIZATION

4.01 This was the second time (afterJordan)" 1 the Bank financedmunicipal infrastructurethrough a line of credit to a financialinstitution. To ensure replicabilityof this financing,the project concentratedprimarily on FEC's institutionaldevelopment, particularly its organization,procedures, and staff training. FEC management,with Bank assistance, prepared a Policy Statement, which defined sectorial interventionpriorities, cost-recovery procedures,credit policy, and project eligibilitycriteria. The technical strengtheningof FEC would ultimatelyhelp CLs prepareand implementtheir own projects.

4.02 The Bank consideredthis operation a pilot project in view of its multisectorialnature, its innovativecharacter, and FEC's inexperiencein investment project selection. At the same time, the Bank and Moroccan authorities envisaged that if FEC were successful in meeting project objectives, it might eventually be granted full managerial and financial autonomy.

4.03 Project preparationwas carried out over two years. The first identificationmission visitedMorocco in May 1980. The projectwas appraised in June 1982 and negotiationswere held in March 1983 in Washington. The loan was signed on May 23, 1983.

4.04 A number of serious problems had to be solved during project preparation:

- Moroccan authoritiespreferred to fill the technicaladvisor position with a Mo=occan national,which limitedrecruitment possibilities.

- To restrictfttture loans to revenue-generatingprojects, FEC's Policy Statement had to be drafted and ratified. Moreover, since a systematiccost recoverypolicy for the sanitationsector was not yet clearly defined in Morocco, the refinancingof these subprojects would have to be approvedby the Bank on a case-by-casebasis.

- Water supply and electricitysubprojects eligible for refinancing would be implementedby ONEP and ONE, which were the only institu- tions technically capable of preparing and carrying out these projects at the time.

Jordan - First Cities and Villages DevelopmentProject (Loan 1826-JO). - 5 -

- To increase the number of potential borrowers, each eligible subproject had a ceiling of up to DH 6.5 million for loans to municipalitiesand DH 5.0 million for loans to R6gies.

Subprojectssubmitted to FEC financinghad to complywith eligibility criteria. The criteriadefined: (a) the eligible subsectors,i.e.: water and electricitydistribution, urban transportation,commercial facilities,urban development,sewerage, and municipal roads; (b) cost-ceilingsby type of borrower; (e) the cost-recoverypercentage by subprojectsize; (d) the minimum internal rate of return by type of investment;(e) the maximum duration of the equipmentsaturation capacity;and (f) the minimum cash-flowexpected in relation to the investmentprograms of the R6gies.

- To lay the groundworkfor PEC's financialautonomy from CDG, interest rates had to be increasedfrom an annual average of 8.5% in 1982 to 10% in 1983 and 11.5% in 1984, and the Government would increase FEC's capital by DH 20 million in each of the fiscal years 1984, 1985, and 1986.

- The regular supervision at the mtnicipal level of EEC-financed subprojectswas deemed necessary to ensure the successof the staff training program. All projects financed by FEC (regardless of whether they were to be refinancedby the Bank) were subject to the same appraisaland eligibilitycriteria.

- To meet institution-buildingobjectives, an organizationalchart would have to be approvednot later than November 1983.

4.05 Project design proceeded from the critical need to reinforce PEC institutionally. Its current organizationwas inappropriatefor its new financialresponsibilities. Clearly, the project's success could be traced directly to the high priorityassigned to developinga strategythat focussed on realigning interest rates to correspond to the capitalmarket in Morocco and the training of FEC staff to enable them to carry out that strategy.

V. PROJECT IMPLEMENTATION

FEC Operations

5.01 Total subloan annual commitmentsincreased by more than 300%, from an average of DH 120 million in 1981-84to DH 530 million in 1989-90, along with FEC's increase in, and training of, its professionalstaff. Disburse- ment, however,was much slower,as the CLs' absorptivecapacity was limited due to (a) insufficienttraining of local staff in the appraisalof investment projects and (b) cumbersome withdrawal procedures, as municipalitiesare subject to public expenditureguidelines. The sharp and steady depreciation of the dirham in relation to the US dollar in the mid-1980s translated into a slower disbursementpace than originallyforecast; cumulative withdrawals lagged behind appraisalestimates, up to 1988. -6-

FinancialPestructuring

5.02 FEC's equity was to have been increased through three budgetary allocationsof DH 20 million p.a. beginning in 1983. However, out of the three payments expectedfrom the Treasury (totallingDH 60 million),only two were made, thn first one in 1985 and the second one in 1988. Insufficient equity not only increasedFEC's average resourcecost (see table below), but also led to an increasein its debt/equityratio from 9 in 1988 to 12 in 1989.

5.03 As covenantedin the Loan Agreement,interest rates on lendingwere to have been increased to yield a minimum spread of 3%. In November 1986, pursuant to an IMF request, the rediscountingfacility at prime rate through BM was eliminated. FEC suddenlyhad to rely on bonds issued on the national financial market. This led to a precarious financial position as CDG's conditions for subscribing to FEC's bonds were similar to those on the national financialmarket whose rates approached 11.5% (comparedwith 5.8% within the B.M. rediscounting facility). Following the Bank's repeated request, in April 1987, MOF and MOI authorizeda rate increase between 0.52 and 3% dependingon the beneficiary. Trends in the resultingspreads were as follows:

1984 1985 1986 1987 1988 1989 1990

Loan return 8.00 8.10 9.09 9.26 10.08 10.57 11.19

Resource cost 7.24 7.79 8.53 9.30 10.66 10.68 10.89

Spread 0.76 0.39 0.56 -0.13 -0.58 -0.11 0.30

5.04 Whereas arrearson CLs were insignificant,the arrears on reRavments from th_ R6gies, since 1982, could not be coveredbecause neither revenuenor provisioaswere sufficient.

R6aies 1984 1985 1986 1987 1988 1989 1990

Arrears/ Outstandingdebt 19% 12% 2.6% 9.4% 13.5% 23.1% -

Provisions/ Outstandingdebt of regies 0.5% 0.86% 1.75% 2.07% 1.84% 2.04% 4.25%

5,05 Debt consolidationthrough substitutionof long-term bonds with short-termborrowing from CDG reducedthe maturitymismatching risk. With an average maturity of 10 years, the long-term debt rose from 28% of the liabilitiesin 1986 to 83% in 1987.

5.06 Concretemeasures were taken throughoutthe project life to increase commitmentfees and limit the negative impact of the interest-ratestructure on the institution'sviability. -7-

Funds earmarkedfor the prefinancingof feasibilitystudies for low- income CLs were invested wisely, making it possible to widen the number of potential borrowers. The committed amount for this use exceededDH 12 million at the end of 1989.

The seriousrisk posed by the R6gies'debt structure(especially that of the transport R6gies) prompted debt reschedulingthrough the consolidationof arrears and interest capitalization,as well as a requirementthat any future loan to a R6gie be guaranteed by the responsibleCL.

To restoreF .C'sfinancial viability, the interestrates on FEC loans were increased in April 1987 and June 1990. Compared with the prevailing conditions of 1984 (i.e., flat rate of 10%), rates on loans to rural CLs remained the same (i.e., 10%), whereas rates applicableto urban CLs and R6gies were increasedto 11.5% or 12.5% and 13%, depending on the purpose of the loan. However, these increaseswere insufficientto compensate for the 4ncrease in the resource cost in the short-term.

InstitutionalDevelopment

5.07 Experience in implementing the organizationaland institutional aspects of the project is summarizedas follows:

(a) The recruitmentof an experiencedand qualifiedtechnical adviser to assist in reorganizing FEC and in formulating administrative procedurestook longer than originallyenvisaged; however, this was offset by the quality of the candidatewho eventually filled the position.

(b) The Operations Manual defined several procedures relating to the institution's clients but did not consolidate all procedural guidelines for FEC's operations. FEC should have prepared and distributeda detailed operationalmanual to all staff.

(c) Staff benefittedfrom continuousand systematicin-service training. But trainingwas conducted almost entirely in-house. The training cycle and organizationcould have been more efficient,if specialized training institutionshad been involved as specified in the Project Agreement. The Bank's missions repeatedly recommended such an action.

(d) In collaborationwith the Bank, FEC establishedproject evaluation criteria for each sector and integrated them into the Policy Statement according to schedule. However, the criteria were not always strictly followed.

(e) Because of staff and other resourcesconstraints, FEC was unable to supervisesubprojects effectively. It is, therefore,impossible to ascertain the extent to which appraisal expectations for cost recovery,a major subprojectselection criterion for FEC refinancing, were met. - 8 -

VI. PROJECTRESULTS

6.01 Ninety subprojectsbenefitted from Bank assistance. Eighty-threeof these were for CL's infrastructureand the remainingseven were for investment projects carriedout by the R6gies. Bank refinancingaveraged DH 1.5 million, or 42Z of average project costs. The main beneficiarieswere 44 rural CLs, followed by 27 municipalities,12 autonomous centers, and 7 R6gies. The subsectors benefitting from subloans were: commercial infrastructure,36 subloans;water supply, 12; solid waste disposal,11; and sewerage,8.

6.02 Since 1987, FEC has restructuredits liabilitiesand generatednew long-term resources through the i.ssuanceof 12-year bonds paid at market prices. Except for 1988, the resourcesprovided by the Bank have been at a limited level:

1984 1985 1986 1987 1988 1989 1990 (DH million)

FEC disbursementsp.a. 147 201 364 321 384 361 498

Bank refinancing 0.5 8.8 3.1 37.5 74.4 8.7 3.9

0.4% 4% 1% 12% 19% 2% 1%

Average Bank refinancing - 5.6% -- __ __

6.03 Although the increase in FEC's lendingrates have lagged behind the increase of the resource cost, it is worth mentioning that two important measures were taken in 1987: the increase of the lending rates and the suppressionof the three point interest subsidy have brought FEC's lending conditionsnear market level (see Table 13).

6.04 FEC staff, especiallymanagers in charge of financialactivities and appraisalstudies, benefitted substantially from practicaltraining. The use of office technology for project appraisaland financialprojections made it possible to simplify procedures,increase staff productivity,and develop a better management approach.

6.05 This pilot project had a decisive impact on:

(a) resource allocation. As a result of the application of subloan eligibility criteria, FEC and some of the CLs can now better determinewhich investmentswill generate positive financialrates of return. Doubtless,the preparationand processingof applications for FEC loans left CLs' managers with a good understandingof project analysis and cost recovery;

(b) human resources development. Project-related training made it possible for existingFEC personnelto form the core of a potentially autonomousinstitution; and - 9 -

(c) poverty alleviation. Subloans to CLe were granted to finance house connections for water supply and sewerage benefitting low-income families.

VII. PROJECT SUSTAINABILITY

7.01 As FEC continues to evolve towards becoming an independent financial institution for which new statutes are presently before the Parliament, its organizational structure takes on a more sustainable character. Under the project, the training of FEC personnel was a major goal. Management training is expected to expand and replicate current lending operations. During project implementation, a correlation between the technical quality of loan applications submitted to FEC and the pace of loan and subloan disbursement was noticed.

7.02 The preparation of specific procedures should also have a lasting effect. Procedural guidelines have already been approved and eligibility criteria defined, thereby preparing FEC to achieve a sound, financial performance.

7.03 The cost-recovery of municipal investments in commercial facilities varies according to municipality. In some cases, the front-end fee paid for the right to benefit from a retail or artisan shop fully covered investment costs, even before the rent payments had begun. In other cases, new stores were financed only after a period of two to three years. Municipal facilities are subject to recovery through tariffs or the local tax system, in particular since the approval of the Tax Reform of 1989 pertaining to the modification of the local fiscal system and the extension of sources of income (e.g., users' rights, slaughter tax).

VIII. BANK'S PERFORMANCE

8.01 The Bank played a dual role throughout the project life. As a financial institution, the Bank established efficient refinancing procedures even though the major depreciation of the dirham in relation to the US dollar during the mid-1980s, combined with the Government's delays in transferring the reimbursements received from the Bank to FEC, resulted in an average Bank refinancing of 42% to 45%, instead of the originally estimated 50%, of the investment value. In its advisory capacity, the Bank continually provided FEC personnel with assistance in technical and strategic problem solving. In particular, the Bank helped FEC prepare eligibility criteria for its loans and improve its financial projection methodology, as well as its technical and financial project appraisal procedures. The Bank regularly drew FEC management's attention to corrective measures aimed at preserving the institution's financial viability.

8.02 Finally, in accordance with the Government's plans for FEC's progressive transformation into a municipal development bank (BDCL), the Bank assisted MOI and MOF in preparing terms of reference for the feasibility study, in coordinating outside 3sistance, and in making technical recommenda- - 10 _ tions at each stage of the projectpreparation. The proposed (Bank-assisted) project to transformFEC into fully-fledgedbank was finallydropped in early 1990 in favor of a more modest updating of FEC statutes as a financialpublic corporation. However, the bulk of the studies performedduring the prepara- tion of this project are expected to be used by FEC in the future.

8.03 The Bank has put constant pressure on FEC to undertake subproject supervision. It also has encouraged FEC to monitor more rigorously its pipeline of subloans to the R6gies, particularly in the light of their financialrestructuring plans.

IX. BORROWER'SPERFORMANCE

9.01 Due to cyclical problems within the Treasury, the Government has repeatedly delayed the reimbursements received from the Bank to FEC. A special account had i.ot been envisaged for the implementation of this pilot project. If a second line of credit to FEC is considered,advance funding should be envisaged through a special account. Similarly,interest-payment subsidies due by the Government,according to a program that was dropped in January 1987, were constantlyin arrears. Since the CLs had to bear only the net rate, the Governmenthad to pay directlythe discounts(amourting to three percentagepoints) to FEC on a quarterlybasis. Even though new subsidies have been eliminated,the Governmentcontinues to bear responsibilityfor the current maturities of loans granted before 1987. At the end of 1988, the Govertmenthad accumulatedDH 17 million in arrears.

9.02 The availabilityof a local project preparation facility against future income from loans enabled FEC to prefinance project studies by CLe. This fund not only helped the CLs define their borrowingneeds but also helped FEC expand its market and loan absorptioncapacity. If the currentlyproposed follow-onmunicipal developmentproject is not approved,the advance is to be transformedinto a subsidy.

9.03 FEC made good use of the technicalassistance provided to strengthen its organization. Managers and staff profited from in-house training and increased their efficiency. Both their and the new recruits'dynamism made it possible to increasesignificantly the annual commitmentvolume in a short time.

9.04 FEC's main weakness was its failure to supervise subprojects systematically. The departmentresponsible for this task had insufficient staff and operating budget. The CLs did not submit all information FEC requested for completed operations. Therefore,actual implementationcosts and detailed cost recovery are unknown.

9.05 The inability of FEC to address the supervisionissue was due not only to its lack of capacity but also to the reluctance of the beneficiary municipalitiesand R6gies to be evaluatedand controlled. The problem of the R6gies togetherwith the lack of adequatepricing of municipalservices still has to be addressedthrough future Bank involvementin the sector. - 11 -

X. RELATIONS BETWEENTHE BANK AND THE BORROWER

10.01 Cooperationbetween FEC and the Bank was close throughoutthe project life. A meaningfuldialogue with CDG and FEC, togetherwith both professional and personal relations,were strengthenedover the supervision period. A series of importantactions having a direct impact on project success and in particular,the institutionalviability of FEC, emerged from decisionstaken by MOI and MOF. The sensitizationof Moroccan authoritiestowards various constraintsfaced by FEC (e.g.,need for interest rates high enough to cover fees, recapitalizationby the Governmentas shareholder,application of strict eligibilitycriteria) laid the groundwork for FEC's eventual transformation into an autonomousfinancial institution.

XI. CONSULTANTS' SERVICES

11.01 The consultantscarried out their tasks to the satisfactionof the Borrower. One expert spent two years helping FEC prepare the organizational chart and proceduresand train staff in banking activities. His assistance was especiallyuseful towards the goal of institutionstrengthening.

XII. PROJECTDOCUMENTATION AND DATA

12.01 The Loan Documents and Staff Appraisal Report proved to be useful tools in project supervision. In addition,FEC facilitatedthe task of Bank missions by providingaccess to its financialstatements and technicalfiles. The Borrower made the necessary efforts to submit audit reports in a timely manner in accordancewith the Loan Agreement. - P -

UnofficialTranslation

PART II: PROJECT REVIEW FROM THE BORROWER'SPERSPECTIVE

Comments on Part I

1. Part I of the PCR covered the followingpoints:

(a) Project Identity (b) Background (c) Project Objectivesand Description (d) Project Design and Organization (e) Project Implementation (f) ProjectResults

2. The analysis containedin this part of the Report does not call for any particular comments. However, a few details should be added in the followingsections:

Projectpreparation (para. 4.04). Side Letter No. 2 to the Loan Agreement referred to Morocco's commitment to make supplementalcontributions to FEC's capital, or to ensure that CDG would make loans to FEC at moderate long-term cost, so as to increase FEC's own funds by annual installments of DH 20 million startingDecember 31, 1983. In compliancewith the above, the Governmentmade two annual payments of DH 20 million on each of the following dates:

- November 28, 1985: DH 20 million - June 15, 1988: DH 20 million

FEC operations (para. 5.01). The pace of annual commitmentsexperienced a sharp increase during the life of the project, matching, though on a smaller scale, the strengtheningof FEC's staff complement. FEC's staff peaked at 49 in December 31, 1987, stabilizingat 48 by 1989. Since 1990, followingthe departureof four professionals,FEC has had 44 employees. The recruitment of replacement staff and of reinforcements (32 new employees),designed to bring the total up to 80 by December 31, 1990, has not yet taken place. Having acquired experienceand expertise,particu- larly in the use of PCs (of which there are 10), FEC personnel, although reduced in numbers, have been able to increase their productivity and output. The averagerate of increasewas lower for disbursementsthan for commitments. This was the result of the time needed to prepare contracts, issue invitationsto tender, and have the contractsapproved (approvalby the central authoritiesis requiredwhen the amount involved is over DH I million), the funds being released in installments.

Financial strengtheninsof FEC (para. 5.02)

(a) Progressiveincrease in interest rates. The financialdifficulties experiencedby FEC between 1987 and 1989 were due less to the slow increase in lending rates than to the rapid escalation in resource - 13 -

costs, which came about in 1987 following elimination of the rediscountingfacility and consolidationof DH 800 million through issuance of bonds at 11.5%. Between 1980 and 1990, lending rates were adjusted as follows:

- for the rural communes,the rate rose from 6% (through1979) to 8.52 in 1980, stabilizingat 10% in 1984. During this period, several rural communes were transformedinto autonomouscenters, sometimes even into municipalities, thus becoming subject to the rates applicableto such categories;

- for urban centers, the rate rose from 6% (through 1979) to 8.5% in 1980 and 10% in 1984. Over the period 1987-1990 the range was between 10.5% and 13%, and after July 1990 it was between 11.5% and 13%;

- for the R6gIes Autonomes, the rate rose from 6% (through 1979) to 8.5% in 1980 and 10% in 1984. Between 1987 and 1990 the range was between 11.5% (urban transportation)and 13%, and then, starting in 1990, between 12% (for the same sector)and 13%.

The effects of the rates revisionin 1990 are alreadybeing felt at the end of this fiscalyear, and should yield increasingimprovements in operating results over the next three fiscal years.

(b) FEC recapitalization.The 1983 tranchewas paid in November 1985 and the 1984 tranche in June 1988.

(c) Arrearson repavmentsfrom the R6gies. It was stipulatedin the Loan Agreement that FEC would set up loan loss provisions reaching (no later than December 31, 1984) 0.25% of the portfolioof loans to the R6gies Autonomes not guaranteed by the State. These loan loss provisionswere to be increasedto 0.50% of portfolioby December 31, 1985 at the latest, and up to 1% by December 31, 1986. After 1986, FEC was to gradually increase the provisions to 3%. However, FEC actually establishedprovisions in the followingpercentages:

- 1986: 1.75% instead of the proposed 1%; - 1990: 4.25%, higher than the proposed 3% ceiling.

Prolect sustainability(Chapter VII). The duration of FEC loans rarely exceeds 10 years and never 12. Except for vehicles, for which the loan term is equivalentto the period of technicaldepreciation (5 years), all FEC-financedprojects have a life of at least 20 years. Without it being necessaryto measure the sustainabilityof a project'seffects, we may be sure that after paying the installmentaon the respective loan, the commune concerned will continue to earn revenues from the project for severalmore years.

Proiect DesiRn

3. This was the first time the FEC had received a loan from an international financial institution, let alone from the World Bank, the world's foremost development financing agency. This is why it was so - 14 - important to obtain this loan, not for monetary considerations,but essen- tiallywith a view to establishinga working relationshipbetween Bank and FEC staff. FEC staff would, therefore,be able to acquire experience,particu- larly in the area of appraisal of viable projects for the communes, thus giving them the capability to handle a specific type of project and bor- rower. This also explains the delays -- due to the need to take precautions and also to take particular care -- that occurred during preparationof the appraisalof the FEC Pilot Project (1980-1983). It also explainswhy so much emphasiswas placed on project design and organization.

Proiect Organization

4. The project'smain priority was the institutionalstrengthening of FEC in the areas of procedures,organization, and staff training.

(a) Procedures

(i) Dreparation of the Policy Statement. Based on the fact that the FEC's areas of interventionwere not clearly established in its statutes,it was considerednecessary to limit its interventionto well-defined sectors falling habitually within its sphere of activity, but excluding the financing of the Local Authorities' buildings. It is pointed out that an arbitrarilypre-established classificationof the communes' different requirementsis imprac- tical, since those requirementschange depending on the level of development achieved and the new responsibilitiesconferred by legislation(communal schools, health centers). Lastly, it would be desirablein the future to include in this statementthe possibility of supportingthe trainingof communeprofessionals, to enhancetheir experiencethrough specialinternships related to the maragementof complexprojects; and

(ii) rreparation of project apraisal _criteria. This was the most difficult task for all the parties concerned, since it mainly involved the adoption of technicalratios and the establishmentof deadlines for meeting the various requirements,to ensure that the infrastructurewas designedto the appropriatescale. The data for the various analyses needed to be gathered from the communes,but they generallydid not have the statisticsrequested. It was thus difficultto apply the project appraisalcriteria at the start, but this representedan opportunityfor both PEC and commune staff to familiarize themselveswith this project approach. The original criteria obviouslyhad to be adapted to make them compatiblewith local conditions. As progress was made with the gathering of information,the volume of appraisalreports kept increasing,to the point that it was consideredadvisable to trim their content. On the financialside, the analyses relate both t, the commune budget and to project viability, taking account, as far as possible, the borrowingcapacity of the communeconcerned. Comments and recommen- dations on financingterms for a given project do not appear in the actual Loan Agreement,but are forwardedto the commune in the form of a Project Agreementannexed to the letter that the loan has been granted. - 15 -

(b; Organizationand trainingof i3ersonnel

(i) The TechnicalAdviser was hired followinga very careful selection process, which emphasized staff training and its impact on the commune professionalsin the area of preparationof loan applica- tions. The operationsmanual and the list of proceduresrelative to each function were drawn up. Since preparation of the appraisal criteria took up a great deal of the time of FEC's reduced staff complement, it was not possible to prepare a detailed operations manual reproducing the existing documents, which in any case are assimilatedby each employee during the course of his work; and

(ii) A new FEC organizationalchart was drawn up in July 1986, with later versions appearingin 1988 and 1990.

(c) Staff training took place mainly at FEC itself and during missions to the communes. The small number of staff in relation to the volume of work militated in favor of providingtraining in the field.

5. Project activities were not monitored systematicallybecause the necessary informationwas collectedwhenever funds were released. However, the monitoringthat was done was always satisfactory. On the other hand, in communes that have already received loans [and have applied for further loans), ex-post supervisiontakes place, for logisticalreasons, at the time of appraisal of future projects. FEC accounts have been subject to audit since 1980; the audit reportsare sent regularlyto the Bank. The audits for 1990 are now in progress.

General Prolect Overview

6. We feel that the project was largely successful for the following reasons:

(a) Institutionalstrengthening was carried out as indicatedabove, and FEC staff acquiredexperience in the areas relatedto its activities;

(b) FEC's financialstrengthening also took place as planned,despite the higher cost of funds. Fiscal year 1990 representedthe start of a period of sound financialmanagement and surplusfor FEC, which will improve its borrowingcapacity;

(c) FEC intensified its assistance both in the area of financial resourcesand in terms of technicalassistance to the communes.

(d) The notion of project cost recovery and of recovery in general, i. now well understoodby the commune authorities;and

(e) The achievement of these resulto is made possible owing to the constructivedialogue preceding client relationships,and to the close collaborationbetween FEC staff and World Bank experts. - 16 -

Bank's Performance

7. Overall, the Bank's performancewas positive. However, a review of the project implementationgives rise to the followingcomments:

(a) A systematicexamination of all the appraisalreports on a case-by- case basis should no longer be necessary.

(b) Bank disbursementswere made generally according to schedule. However, in view of the small amounts of the PEC subloans,requests for disbursementwere seldom submitted to the Bank until a large volume of project expenditureshad been accumulated. It would thus be advisablein the future to set up a revolvingfund to facilitate and acceleratewithdrawals.

(c) The FEC projectwas supervisedby Bank experts,who always stressed the importanceof the successof such projects to the developmentof our local communities.

(d) The most recent supervisionmissions (those undertaken since 1988) have worked on the preparationof a new line of credit. The FEC staff are very anxiousto see the definitiveappraisal of this second line of credit completedas soon as possible.

FEC's_Performance

8. FEC's performanceunder this project should not be dissociatedfrom its general frameworkof activity,both in terms of its interventionpolicies and the appraisalof the technical,economic and financialfeasibility of the operationssubmitted to it for financitig.FEC, whose reform was decided by the InterministerialCommission on November 10, 1979 and begun in 1980, in parallelwith preparationand startupof the FEC Pilot Project,has made every effort to act in accordancewith the principlesof that reform, as enhanced and supplementedby the covenantsof the IBRD Loan and Project Agreements. In the desire to make FEC into an instrumentof local development,the public authorities,in compliancewith the principles of the reform and with the agreements signed with IBRD, have made every effort to respect the Policy Statementand mutually agreed eligibilityand approval criteriain all of its operations.

Proiect Imtlementation

9. Despite initial difficulties,FEC's actions during implementation conformedas closelyas possible to the objectivesof the reform and the terms of the Agreements. It may now be affirmed that the project was broadly positive for the local communitiesas well as for FEC, which now tends fully to assume the role of a municipal developmentbank. The delay occurring during project startupwas essentiallythe result of difficultieslinked to the transitionand changes experiencedby FEC. The start of the Government- ordered restructuring process coincided with project identificationand preappraisalby the Bank experts. - 17 -

10. Two types of difficultiescaused some hindranceduring startup:

(a) Internal difficulties:

- start of restructuring(basic organizationalchart);

- start of human resource strengthening;

- time needed to assimilate criteria and learn methods of project appraisal appropriateto the wide variety of sectors of communal infrastructure;

- gradual establishmentof new appraisalreport outlines;

- technicalcapacity of a staff still limited in numbers to handl, an increasing work load and supervise the ever-expandinginflow of recruits;and

- difficultiesof applicationof certain rigorous criteria.

(b) External difficulties:

sudden increasein loan applications,following the missions of the travelingExtension Committee;

difficultiesencountered by the Local Authorities and RftIes in establishingloan applications,since they were still accustomedto the old procedures;and

new procedure for releasingloan funds in tranches.

II. All these difficultieswere overcomein 1985 and 1986, becauseof the followingactions:

- human resourcestrengthening, with good results in terms of perfor- mance;

- recruitmentof a technicalassistant, who helped with: the establishmentof a new organizationalchart; the drafting of an outline for a manual of procedures. the preparationof standard loan applicationoutlines.

- initial computerizationof FEC through the purchase of a microcom- puter under the technicalassistance component of the Pilot Project Loan.

- familiarizationof clients,thanks to identificationand assistance missions, with loan applicationoutlines and project preparation procedures.

- advanoes to finance studies. - 18 -

Impact of FEC Actions

12. Both within the project frameworkand by its overall actions, FEC's actionshad beneficialand satisfactoryeffects in terms of helping to provide infrastructurefor the Local Authorities:

- provisionof water supply to urban and rural dwellers,which slowed down the flight from the land;

- contributionto solid and liquiA waste disposalup to the treatment stage, with its impact on the environment and the prevention of water-bornediseases;

- contributionto the solutionof the housing crisis,in restructuring unservicedhousing and in slum absorption;

- opening up of areas to urban and industrialdevelopment (industrial parks) with all their multiplier effects (e.g., mobilization of public savings and leverage effect on the mobilizationof private savings, creation of permanentjobs);

- incentivesto encouragecitizens to participatein urban improvement works through neighborhoodassociations;

- executionof commercialinfrastructure to improvecommunal revenues;

- realizationby the Local Authoritiesof the need for cost recovery, which has now become accepted practice;and

- consideration of recurrent expenses (maintenance costs) before implemen ation of the communal infrastructureprojects.

Conclusions

13. In the future, these efforts should be encouraged and extended to reach the maximum number of Local Authorities,thereby increasingthe numbers of beneficiaries. In particular,the followingmeasures should be taken:

- preparationof FEC project preparationguides;

- preparationof a consolidatedinternal proceduresmanual;

- review of appraisalcriteria in light of the retrospectiveanalysis;

- simplificationof appraisalreports, making them more concise;

- logistical arrangements for the monitoring and more widespread *upervisionof FEC-financedoperations; and

- review of fund release procedures. - 19 -

PART IIIs STATISTICALINFORMATION

Table 1: Related Bank Loans

Loan Number and Title Purpose FY Status

Loan 1528-MOR Help the Government finance the 78 Completed; First Urban Development rehabilitationand develop- March 1984 Project ment program in the Butte district of Rabat.

Loan 1944-MOR Help the Governmentfinance the 81 Completed; Second Urban Development rehabilitationand develop- July 1988 Project ment program as well as improve municipal services in Meknes and Kenitra.

Loan 2245-MOR Line of credit to CIH 83 Completed; Third Urban Development for low-cost housing January 1990 Project subprojects.

Loan 3121-MOR Help the Governmentpromote 89 Ongoing Housing Finance Project developmentof housing for low- and medium-income households.

Loan 3122-MOR Stimulatehousing finance 89 Ongoing Housing Finance Project activitiesand help CIH improve financialposition operations. - 20 -

Table 2: Project Timetable

Planned Revised Actual

Identification 05/80

Preappraisal 02/81

Appraisal Mission 06/82

Loan Negotiations 03/25/83

Board Approval 04/26/83

Loan Signing 05/23183

Loan Effectiveness 08/22/83 11/22/83 04/02/84

Loan Closing 06/30/89 12/31/89 12/31/89

Last Disbursement 06/30/89 12/31/89 01/29/90 - 21 -

Table 3: Cumulative Loan Disbursements(in million US Dollars)

Ratio of Estimated Actual Disb. Bank Disbursements Cumulative Actual Cumulative vs. Estimated Fiscal Year at Appraisal Total Disbursements Total Total Disbursements

Sep. 1982 Dec. 1982 Mar. 1983 Jun. 1983 0%

1984 Sep. 1983 Dec. 1983 Mar. 1984 Jun. 1984 0.9 0.9 0.04 0.04 4.44%

Sep. 1984 0.04 Dec. 1984 0.02 Mar. 1985 0.02 Jun. 1985 3.3 4.2 0.30 0.42 10.00%

Sep. 1985 0.28 Dec. 1985 0.28 Mar. 1986 0.25 Jun. 1986 4.7 8.9 1.45 2.68 30.11%

19~87 Sep. 1986 0.53 Dec. 1986 2.02 Mar. 1987 1.00 Jun. 1987 3.6 12.5 2.04 8.28 65.28%

Sep. 1987 0.76 Dec. 1987 0.00 Mar. 1988 2.86 Jun. 1988 2.0 14.5 0.57 12.47 86%

Sep. 1988 1.46 Dec. 1988 0.58 Mar. 1989 0.27 Jun. 1989 1.5 16 0.32 15.90 94.37% 1990 Sep. 1989 0.21 Dec. 1989 0.20 Mar. 1990 16.0 0.49 16.00 100% Jun. 1990

Date of last disbursement: January 29, 1990 Table 4: Proiect Costs and Financing

IBRD REFINANCING (LOAN 2272-MOR)

Distribution by Benefici.ary

Number of FEC Loan IBRD Refinancing Average Beneficiary Refinanced Projects Amount in M DH in M DHin % Refinancing in H DH

1. Local Authorities (83) (242.76) (106.75) (44) (1.29) of which - Rural Communes 44 84.98 38.35 45 0.87 - Autonomous Centers 12 51.37 20.92 41 1.74 - Municipalities 27 106.41 47.48 45 1.76 2. Autonomous Regies 17L (78.53) (27.291 (351 (3.901

TOTIAL 90 321.29 134.04 42 1.49

Distribution by Sector

Number of FEC Loan IBRD Refinancing Average Sector Refinanced Projects Amount in M DH in M DH in % Refinancing in M DH

1. Water Supply 12 43.40 19.32 45 1.61 2. Electricity 0 3. Urban Transport 4 55.40 15.92 29 3.98 4. Commercial Infrastructure 36 79.18 37.17 47 1.03 5. Special Infrastructure 6 15.89 6.68 42 1.11 6. Urban Development 9 37.15 15.22 41 1.69 7. Sport/Tourism Infrastructure 4 21.62 9.64 45 2.41 8. Liquid Waste a 51.70 22.29 43 2.79 9. Solid Waste 11 16.95 7.80 46 0.71

TOTAL 90 321.29 134.04 42 1.49 - 23 -

Table 5: Status of Covenants

Loan Agreement Reference* Description/Deadline for Compliance Status

LA 4.02 Borrower to review with the Bank and FEC capital Complied with. requirements and interest charged to ensure FEC's sound financial position, by October 1, 1985.

PA 2.06 (a) FEC to maintain and provide the Bank with records of Complied with. costs and benefits at regular intervals.

PA 2.06 (b) FEC to prepare a completion report no later than six Complied with in months after the closing date. May 1991.

PA 2.07 FEC to employ

(i) qualified technical advisor to assist in Complied with in project appraisal and supervision, by October April 1984. 1, 1983. (ii) technical experts as project advisors, by Complied with. October 1, 1983. (iii) technical consultants, by January 1, 1984. Complied with.

PA 2.08 (a) FEC to review each year with tha Bank its capital Government in requirements and interest charged to ensure its sound default. financial position.

PA 3.02 (a) CDG to submit to the Bank a staffing plan for PEC, by Complied with in October 1, 1983. 1988.

PA 3.02 (b) CDG to employ five economists/financial planners, two Complied with in engineers, and three technical aides; January 1, 1984. September 1984.

PA 3.02 (c) CDG to submit to the Bank the training program of the Complied with in department managing PEC, by January 1, 1984. March 1985.

PA 4.01 FEC to maintain detailed financial and accounting Complied with. records and retain for one year after the closing date.

PA 4.02 (a) EEC to have its accounts audited each fiscal year. Complied with.

PA 4.02 (b) FEC to furnish the Bank with audited financial Complied with statements no later than six months after the end of generally within each fiscal year. several months of the due date.

* LAt Loan Agreement, dated May 23, 1983 PAs Project Agreement, dated May 23, 1983 - 24 -

Table 6.1 Missions

Stage of Month/ No. of Dayc in Specializations Nature of Project Cycle Year Staff Field Represented Ratings Problems

Preparation 01/81 4 14 2 Loan Officers 1 Urban Specialist 1 Financial Analyst

05/81 1 7 1 Urban Specialist

06/81 5 3 1 Urban Specialist 1 Financial Analyst 1 Loan Officer

Preappraisal 03/82 3 14 1 Urban Speciatist 1 Financial Analyst 1 Economist

Appraisal 07/82 3 24 1 Financial AnaLyst 1 LoanOfficer 1 Urban Specialist 02/83 2 4 1 Division Chief 1 Urban Specialist Supervision 11/83 1 3 1 Urban Specialist I

03/84 1 12 1 FinanciaL Analyst 1

10/84 1 8 1 Financial Analyst 2 Managerial

03/85 2 6 1 Financial AnaLyst 2 Managerial 1 Consultant Engineer

10/85 3 5 1 Deput- Chief 2 Managerial 1 Consultant, Engineer 1 Consultant, Economist/ Financial Analyst

03/86 4 12 1 Urban Specialist 2 ManageriaL 1 Engineer

10/87 3 12 1 Engineer 2 Managerial 1 Economist/Fin. Analyst

07/88 1 7 1 Financial Analyst 2 Managerial

Project Cospletion 06/89 1 28 1 Financial Analyst

10/90 1 15 1 FinanciaL Analyst

12/90 1 5 1 Financial Analyst

05/91 1 10 1 Financial Analyst - 25 -

Table 6.2: Staff Inputs (in weeks)

Preparation AppraisaL Negotiations Processing Supervision PCR TotaL

FY81 51.6 6.5 58.1 FY82 12.4 3.0 .7 16.1 FY83 .2 16.8 .1 9.5 26.6 FY84 .9 2.7 3.6 FY85 6.1 6.1 FY86 8.7 8.7 FY87 1.8 1.8 FY88 2.7 2.7 FY89 4.8 4.8 FY90 1.9 1.9 FY91 14.7 14.7

Total 64.2 19.8 .1 17.6 30.4 14.7 145.1 -26-Table 7 Page 1 of 2 Table 7: List of SubprolectsLoan MOR-2272

Loan data: Original amount 16,000,000US Dollars

Amounts disbursed by Bank Categorv Description Lin US dollars)

A-1 C.R. SIDI MOUSSA BEN 26,877.21 A-10 MUNICIP. D'ALHOCEIMA (CHAUSSEES) 77,750.27 A-100 MARCHE COUVERT C.R. IFRANE ATLAS SAGHIR 24,984.17 A-101 MATERIEL ROULANT MUNICIP. MER-SULTAN 124,233.80 A-102 MAT. COLLECTE ORDURESMENAGERES/TANGER 224,176.15 A-103 VOIRIE-MUNICIP.TAZA 333,676.17 A-104 A.E.P. C.R. SBAA AIOUNE 57,116.63 A-105 MARCHE C.A. GUERCIF 157,342.27 A-106 MAT. COLLECTE ORDURESMENAGERES-KHEMISSET 86,820.00 A-107 2 CAMIONS BENNE C.R. MELLALYINE 0.00 A-108 HALTE ROUTIERE-VOYAGEURS-ESSAOUIRA 123,387.07 A-14 MUNICIP. DE KSAR EL KEBIR 51,547.74 A-15 MUNICIP. DE TAZA (ASSAINISSEMENT) 349,219.31 A-16 C.R. DE MOUALINE EL OUED 8,088.83 A-17 C.A. DE MARTIL (CAMIONBENNE A ORDURES) 9,516.27 A-18 CENTRE COMMERCIALSEFROU 227,094.09 A-19 C.R. DE BOUARFA (ASSAISSEMENT) 260,959.64 A-2 C.R. EL BOROUJ 52,795.99 A-20 VOIERIE C.A. FQIH BEN SALAH 131,100.14 A-21 C.R. DE SOUR SEBT OULED NEMMA 125,961.67 A-22 C.R. ISSAGUEN 118,903.38 A-23 C.R. LARABAA TAOURIT 106,330.22 A-24 C.R. IZZEMOUREN 42,758.27 A-25 SOUK C.R. BENI ABDELLAH 43,867.95 A-26 STATIOND'EPURATION PISCINE A RHEMISSET 59,762.31 A-27 DEPLACEMENTDU SOUK C.R. BENI HADIFA 93,923.99 A-28 SOUR C.R. BENI BOUAYACH 131,5.6.54 A-29 EQUIPEMENTSOUR D'IMZOUREN 55,034.61 A-3 MUNICIPALITEDE TANGER 104,573.69 A-30 EQUIPEMENTSOUR C.R. BENI BOUNSAR 28,683.29 A-31 SOUK TAMASSINTC.R. IMRABTEN 103,451.69 A-32 DEPLACEMENTSOUK C.R. SOUALEMTRIFIA 390,797.55 A-33 EQUIPEMENTSOUK C.R. ROUADI 43,629.34 A-34 EQUIPEMENTSOUK C.R. TAGHZOUT 22,221.97 A-35 C.R. D'EL KBAB (CAMIONBENNE) 9,161.35 A-36 ZONE INDUSTRIELLEELJEDIDA 297,262.78 A-37 ZONE INDUSTRIELLEELJEDIDA 186,625.60 A-38 AEP C.R. AHLAF 33,891.62 A-39 COMPLEXE SPORTIF/CUESSOURHOUR ASSAWDA 349,749.71 A-42 MARCHE COUVERT C.R. BOUMIA 123,102.54 A-43 A.E.P. MELILLA 13,204.81 A-44 A.E.P. OULED ALI 27,723.44 A-45 A.E.P. MOUALINE EL GHABA 26,695.81 A-46 RESERVOIR30,OOOM A SALE-RED 569,794.13 A-47 MARCHE COUVERT A OUARZAZATE 91,860.31 Table 7 - 27 Page 2 of 2

Amounts disbursed by Bank Category Description (in US dollars)

A-48 MARCHE C.R. DE ZAGORA 116,186.37 A-49 MARCHE C.R. DE TINEGHIR 89,889.36 A-5 CENTRE AUTONOME DE TIZNIT 320,120.84 A-50 MARCHE C.R. D'ELKALAA M'GOUNA 61,270.09 A-51 ASSAINISSEMENT C.A. DE YOUSSOUFIA 389,904.92 A-52 ASSAINISSEMENT C.A. DE BEN SLIMANE 403,797.26 A-53 20 AUTOBUS + 60 MINIBUS-REGIE TRANSRABAT 542,397.59 A-54 RESERVOIR 25,OOOM AINTEKKI-RAD 545,284.13 A-57 VOIRIE MUNICIP. DE TANGER 64,392.25 A-58 EXTENSION MARCHE MUNICIP. DE TANGER 50,343.04 A-59 EQUIP. ORDURES MENAGERES MUNICIP. TETOUAN 281,859.90 A-6 MUNICIPALITE D'OUED-ZEM 191,600.27 A-61 ANENAGEMENT FRONT DEMER-AGADIR 274,081.33 A-63 MARCHE COUVERT-TIFLET 296,744.82 A-65 RESERVOIR 3000M A BENI MELLAL RADEET 220,956.35 A-66 MATERIEL ROULANT-MUNICIP. D'ASILAH 56,979.41 A-67 CAMIONS ORDURES MENAGERES-RHENIFRA 40,210.67 A-68 SOUR C.R. TABARANT 71,569.59 A-69 C.R. KHEMIS-ZEMAMRA ASSAIN. (IERE PHASE) 201,788.41 A-7 C.R. D'IRHOUD 15,550.04 A-71 C.R. BENI KHLOUG-AMENAGEMENT/SOUK TNIN 205,725.62 A-72 C.A. BERRECHID-AMENAGEMENT/CONSTRUCTION 370,740.94 A-73 20 MINIBUS PAR RATM 404,312.39 A-76 MATERIEL ROULANT-RATMA 575,678.30 A-78 LOTISSEMENT AIN EL ATARIS-SKHIRAT 203,100.95 A-79 GARE ROUTIERE TANGER 420,861.32 A-8 C.R. DE TAHALA (SOUK DE SIDI ABDELJALI) 236,492.94 A-80 ASSAIN. MEDINA/ETUDE SCHEMA MEKNES 398,957.81 A-81 CAMIONS ORDURES MENAGERES - EL HAJEB 32,833.44 A-82 AEP C.R. AIT YOUSSEF OUALI 287,950.46 A-83 AEP C.R. BENI-BOUAYACH 154,920.62 A-84 AMENAGE14ENTSOUR C.R. BENI AMMART 72,014.56 A-85 MARCHE DE GROS - ESSAOUIRA 260,765.91 A-87 MATERIEL ROULANT C.A. FQIH BEN SALAH 64,160.81 A-88 A.E.P. - C.A. TARGUIST 196,341.63 A-89 TRANSFERT DU SOUR C.R. DEROUA 162,691.47 A-9 CENTRE AUTONOME DE TAROUDANT 258,615.99 A-91 AMENAGEMENT SOUR D'ARBAA C.R. KETAMA 98,291.90 A-92 TRANSFERT SOUK C.R. TLET LOULAD 163,403.48 A-93 10 BUS - AGADIR - RATAG 301,524.54 A-95 TRANSFERT SOUR C.R. BZOU 76,877.73 A-96 CAMPING-CARAVANING MUNCIP. FES 476,184.05 A-97 TRANSFERT SOUK/CONST. FOUR-HAMMAM 88,404.76 A-99 CAFE ET ENSEMBLE FOUR-HAMMAM C.R. KSAB 71,746.23 FE FEE FRONT END FEE .25% 39,900.00 1 SUBLOANS, 50% OF EXPENDITURES FOR INVES 0.00 2 EXPERT SERVICES AND FELLOWSHIPS TO FEC 318,020.06 A-109 TETOUAN VOIRIE/ASSAINISSEMENT 297,371.13

Total 16,000,000.00 Table 8: FEC Activity 1981 - 1989

(UnitU - million DH)

Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

(1) Coeituents TOTAL 103.0 156,0 151.3 90.5 286.4 382,S 521.7 544,4 519.6 962

1.1 -jLocal Authorities 6 t49) (122) (71) (160) (310) (356) (512) (490) (898)

o Prefectures _- - 49 36 - - - 51

o Mieipelitds 34 12 83 40 60 217 291 301 307 488

o CoiRsnes Autonomes 15 17 22 22 16 22 38 48 36 144

o Coammunes rurales 25 20 17 9 35 35 27 162 148 215

1.2 - Local Utilities J(9) (107) (29) (19) (126) (73) (165) (32) (30) (64)

o Water/Power 14 76 29 9 36 34 96 3 5 -

o Transport 15 16 - - 90 39 42 10 - 38

o Others - 15 - 10 - - 27 19 24 26

(2) Disbursements TOTAL- 88. 58.1 127.6 147,2 193,4 334,3 320,8 384,1 361,8 498

2.1 - Local Authorities (55) (28) (72) (110) (95) (255) (243) (280) (332) (490)

o "Prefectures' - - - - 10 1B 29 7 a 21

o Miu:icipalit6s" 38 13 44 74 57 198 167 194 175 334

o "Coemunes Autonomes 15 6 17 21 13 19 24 37 30 42

o "Communes rurales" 2 8 12 14 15 20 23 41 119 93

2.2 - Local Utilities (33) (30) (55) (38) (98) (79) (77) (104) (30) (8)

o Water/Power 18 17 52 37 35 28 50 35 19 8

o Transport 15 13 3 - 53 61 27 31 4 _

o Others - - - 1 10 - - 39 7 _

(3) Loans Outstandinx 494,8 469.3 514,0 570,2 674,1 939,7 1.139,4 1.380,5 1.575.1 1.875

(4) Average maturity of assets (yr.) 11 11 10 10 11 9 _

Sources = Rapports dlActivit6s - FEC Tabe 9: fEC Income Statements (19a8-1990)

(in M. Oh)

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

INcWE

Intereston Long-TermLoans 32.24 32.06 35.44 43.40 51.02 74.64 96.45 127.54 157.28 196.48 Interest on Late Payments 0.49 0.84 1.19 2.24 2.09 0.92 2.27 4.46 6.91 4.64 Interest on Loansto Staff 0.10 0.10 0.15 0.19 0.23 Niscellaneous 0.10 0.01 0.02 1.51 0.13 0.11 6.13 Total Income 32.73 32.90 36.73 45.64 53.12 75.68 .00.34 132.27 164.48 207.48 EXPENSES

Charge on Borrowings 4.59 8.45 9.43 9.57 11.43 12.79 48.64 116.17 128.22 162.86 Chares on FEC Bonds 18.00 18100 Fets on rediscou u 21.11 18.70 20.78 27.37 34.71 51.70 45.30 17.23 13.43 9.57

Total Expenses 25.70 27.15 30.21 36.94 46.14 64.49 93.94 133.39 159.65 190.43 Provisions for Risks 0.00 0.00 0.00 1.14 1.09 4.87 0.40 0.00 0.00 8.01 NIscellaneom Fees 1.41 1.70 1.95 3.11 5.06 4.88 5.37 7.45 7.28 8.61 Total Fees 27.11 28.85 32.15 41.19 52.30 74.24 99.71 140.84 166.93 207.12

METPROFITI(NET LOSSES) 5.63 4.05 4.57 4.45 0.83 1.44 0.63 (8.57) (2.45) 0.36 Table 10: FEC Sources and Arplicationof Funds (1981 - 1990) (in N Dh)

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

A. StURCES OF FUNS Sources of Funds generated bv Operations Met Profit (Met Losses) 5.63 4.05 4.57 4.45 0.83 1.44 0.63 (8.57) (2.45) 0.36 Depreciation and Provisions 0.08 0.08 0.13 1.35 1.31 5.10 1.15 1.53 1.74 10.62 Sub-Total 5.f1 4.13 4.71 5.80 2.13 6.55 7.78 (7.04) (0.71) 10.98 Goverrnent Endowments snd Subsidies 20.00 -- -- 20.00 0.00 0.00 Sale of Fixed Assets 0.06 0.04 1.13 Loan Repayment Repayment of Advances for the Financing of Studies 0.13 2.11 2.28 2.09 Repayment of Loans co Staff 0.23 0.23 0.28 0.55 1.07 Equity Repayment of Loans 75.98 83.52 82.91 93.45 96.02 98.70 121.06 142.16 167.89 198.47 Sub-Totat 75.98 83.52 82.91 93.45 96.02 99.06 121.29 144.55 170.71 201.63 Foreign 8orrowigs4t IBRO 0.55 8.81 3.14 37.49 74.37 8.66 3.95 IDO + USAID 1.60 2.93 73.61 Sub-Total 0.00 0.00 0.00 0.55 8.81 3.14 37.49 75.97 11.59 77.56 National Borrowings in Bonds 50.00 (0.93) - -- 785.20 -- 393.60 393.60 5-year Notes -- 200.00 --

;ub-lotal 0.00 50.00 (0.93) 0.00 0.00 0.00 785.20 200.00 393.60 393.60

TOTAL SOURCES OF FUNDS 81.69 137.65 86.69 99.80 126.97 108.74 945.82 433.48 575.24 684.90 o B. APPLICATIONOF FUNDS Release of Fuids Loan Payments 88.80 58.08 127.63 147.17 201.35 364.27 320.80 383.28 359.48 496.28 Loans for Refinancing of Studies 1.00 1.54 0.46 1.88 6.01 4.71 4.92 Loans to Staff 2.81 1.47 0.86 2.10 1.47 Sub-Total 88.80 58.08 127.63 148.17 202.89 367.54 324.15 390.15 366.29 502.67 Reiwbursement of Foreign Currency Borrowings IBRD 6.44 10.08 10.95 Other Borrowings

Sub-Total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.44 10.08 14.47 Reimbursement of National Borrowings Bonds 3.34 3.34 3.34 6.68 6.68 6.67 6.67 60.07 ES.06 86.47 5-year Notes

Sub-TotaL 3.34 3.34 3.34 6.68 6.68 6.67 6.67 60.07 60.06 86.74 Reifbursement of Short-Term Borrowings Fixed Assets 0.43 0.16 0.04 0.19 7.35 Interest on unpaid Loans

TOTAL APPLICATION OF FUNDS 92.14 61.42 130.97 154.85 209.57 374.64 330.98 456.70 436.61 611.23

NET DIFFERENCEOF WORKINGCAPITAL (10.45) 76.23 (44.28) (55.05) (82.60)(265.90) 614.84 (23.22) 138.63 73.67 Tobte 11: FEC Balance Sheets (1981-1990) (in H Dh.)

1981 1982 1983 1984 1955 1986 1987 1988 1989 1990

ASSETS Short-Term Assets UBnks w*d Cash 1.48 2.94 3.66 5.11 2.94 5.70 8:96 2.68 4.29 6.44 Current Maturities 81.83 81.73 91.94 94.15 93.96 119.67 140.54 167.17 197.70 233.18 Current Maturities (LoOs to Staff) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.36 0.45 0.48 Maturities due on Short-Term Loans 23.70 34.70 37.17 57.85 57.06 57.63 87.08 122.03 165.08 169.09 Other Debtors 2.21 2.99 4.61 7.5S 19.66 13.76 19.26 27.88 20.73 19.98 Stb-Totat 109.21 122.36 137.39 164.72 173.62 196.75 255.83 320.11 388.26 429.17 Long-Term Loom 494.76 469.32 514.05 567.77 674.09 939.66 1,139.40 1,380.52 1572.11 1869.91 less Cturrent Maturities (81.83) (81.73) (91.94) (94.15) (93.96) (119.67) (140.54) (167.17) (197.70) (233.18) Loans to Staff 2.59 3.83 4.41 5.96 6.36 less Current Maturities (0.36) Lows for Prefinricing of Studies t.00 1.54 1.87 3.74 7.65 10.08 12.91 tess Current Maturities Fixed Assets 0.43 0.45 0.38 0.63 5.61 tess Depreciation (0.03) (0.03) (0.03) (0.03) (0.27) (0.42) Deferred Charges 0.83 0.75 1.54 1.66 1.45 1.25 15.38 13.95 18.7'. 24.27 TOTAL ASSETS 522.97 510.69 561.04 641.00 756.74 1.022.84 1.278.07 1559.45 1 797.36 2114.16

LIABSLITIES Short-Term Liabilities Bants 407.35 337.41 385.18 461.66 552.22 800.32 203.67 261.51 140.42 41.69 Current Maturities 3.34 3.34 6.68 6.68 6.67 6.67 63.95 69.91 97.36 124.40 Regularization accoumts 3.71 7.49 8.93 12.32 15.53 27.27 50.27 50.00 70.76 84.58 Other Creditors 0.00 3.16 3.07 3.36 1.28 4.75 1.78 4.72 3.95 20.11 Sut-Total 414.39 351.40 403.85 484.02 575.70 839.02 319.67 386.14 312.49 270.78 Mediuiw- rd Long-Ters Debts - Sorns 46.66 93.32 89.98 83.30 76.62 69.95 863.28 803.21 1.143.15 1456.41 Less Current Maturities (3.34) (3.34) (6.68) (6.68) (6.67) (6.67) (60.07) t60.06) (86.74) (113.42) - 5-ye w otes 200.00 200.00 (200.00) Less Current Maturities - 1|10D 0.88 9.69 12.83 50.32 118.25 116.83 109.83 Less Current Maturities (3.88) (9.85) (10.62) (10.98) . Other orrowings 1.60 4.53 74.62 Less Current Maturities Sub-Total 43.32 89.98 83.30 77.50 79.64 76.11 849.65 1,053.14 1.367.15 1716.46 Provisions for Risks 1.14 2.23 7.11 7.51 7.51 7.51 Egtrity Capitat social 51.03 51.03 51.03 51.03 71.03 67.75 66.95 86.51 84.25 15.52 Equity on Loows to Staff 3.29 4.09 4.53 6.78 81.91 Reserves 10.97 9.12 ret Profit 8.60 14.23 18.28 22.85 27.30 28.13 29.57 30.20 10.66 6.08 Accuulated Retained Earnings 5.63 4.05 4 57 4.45 0.83 1.44 0.63 (8.57) (2.45) 0.36 Sut-Total 65.26 69.31 73.89 78.34 99.16 100.61 101.24 112.66 110.21 111.40

TOTAL LIABILITIES 522.97 510.69 561.04 641.00 756.74 1.022.84 1.278.07 1559.45 1.797. 2114.16 Table 12: FECFinancial Performance Indicators (1981-1989)

1981 1982 1983 1984 1985 1988 1987 1988 1989 1990

LIQUIDITY RATIOS Current Ratio 0.26 0.35 0.34 0.34 0.30 0.23 0.80 0.83 1.24 1.58

FINANCIAL tATIOS Long-Term Debt/Working Capital Ratio 0.66 1.30 1.13 0.99 0.80 0.76 8.39 9.35 12.40 14.52 Debt Service Cuverage Ratio 0.76 2.32 0.76 0.77 1.01 0.88 8.98 2.99 3.32 Foreign Currency Debt as Z of Long-Term Debt 1.13X 12.17X 16.86X 5.92X 10.67X 8.28% 10.01 IEIRD Debt as X of :ong-Teru Debt 1.13X 12.17X 16.86% 5.92X 10.52X 7.97X 5.96 toxns/Equity Ratio 7.58 6.77 6.9% 7.11 6.58 8.59 10.33 11.42 13.33 14.81

PROFITABILITY RATIOS Gross inccae/Average Totau Assets 6.372 6.85X 7.59X 7.60X 8.51X 8.72X 9.32X 9.80% Financiat Expemes/Totat Assets 5.58X 6.00X 6.8W2 7.48X 8.34X 8.67X 9.93X 9.95X Spread 0.78% 0.85X 0.74X 0.12 0.16X 0.05X -0.60X -0.15% get Profit as : of Equity 8.62X 5.84% 6.19X 6.212 1.97X 1.86X 0.51X -7.42X -2.43% 0.28 Net Profit as S of Average Total Assets 0.78X 0.85X 0.74X 0.12X 0.16X 0.05X -0.60X -0.15% Net Profit Margin (Net rIncmeas 2 of Releases) 6.34X 6.972 3.58% 3.002 0.41X 0.392 0.19% -2.20X -0.67% 0.07 Provisions as 2 of Short-Term Assets 0.71X 1.29X 3.72X 3.04X 2.352 1.93X Met Profit before Taxes as X of Average Equity 6.0Z/ 6.392 5.85Z 0.93% 1.45X 0.622 -8.022 -2.20%

Growth Rate of Assets -22 102 142 182 35X 252 222 15% 18% Table 13: Lending Rates

1980 19847 avril ler juin Maturity 1980 1987 1990 (in years) (1) (2)

1. Local Authorities

1.1 Urban Areas

- infrastructure (10) 8,5% 10% 12% 12,5% - construction (10) all all 13% 13% - vehicles ( 5) sectors sectors 10,5% 11,5%

1.2 Rural areas

- all subsectors (12) 10% 10%

2. "Rfties"

2.1 Water, Electricity (10) 13% 13% 2.2 Urban Transport (5) 11.5% 12%

(1) Before Governmentsubsidy. This 3 point subsidy initiatedin 1981, was paid directly to FEC, who charged its borrowersonly the net rate. This subsidywas eliminatedon January 1, 1987. (2) Commitmentfee of 0.75%. - 34

Table 14.1: Accumulative Disbursements

Is

4' .

44

I A 3. 4 6 6 7 a X oi 1011 1l4 13 1bl7 18 9 20 Zl22 4 215 ZS27 (quarters)

anticipated + actual - 35 -

Table 14.2: Distributionof Loans Refinanced by IBRD

by Sector

(1 to 9, as listed in Table 4)

eo. -

70 -

Ll4 40 0

I0

,,s_7.I g ,

6 (11i )\i af /

Distribution of Bank's refinancingby sector. -36-

Table 14.3 Distributionof Loans Refinancedby IBRD

by Type of Borrower

140

lao Ito

44-lgo. .

00

40 oo

C.k C-fit m P7. i

Pler (I, Ct(=

m0X4%