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 THE WORLDBANK 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