Document of The World Bank Public Disclosure Authorized

Report No 25615

IMPLEMENTATION COMPLETION REPORT (CPL-35450; TF-25931; SCL-36050)

ON A

LOAN Public Disclosure Authorized IN THE AMOUNT OF US$ 130 MILLION

TO THE

ARAB REPUBLIC OF EGYPT

FOR A

PRIVATE SECTOR TOURISM INFRASTRUCTURE & ENVIRONMENTAL MANAGEMENT PROJECT Public Disclosure Authorized March 21, 2003 Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Egyptian Pound (LE) US$ 1.0 = LE 3 33 (at appraisal) US$ 1.0 = LE 4.64 at ICR

FISCAL YEAR Calendar Year

ABBREVIATIONS AND ACRONYMS

ASD - Abu Soma Development Company BOO - Build/Own/Operate CZM - Coastal Zone Management EEAA - Egyptian Environmental Affairs Agency GEF - Global Environmental Facility GOE - Government of Egypt ICR - Implementation Completion Report IFC - International Finance Corporation NCISS - Nile Cruise Information and Safety System SAR - Staff Appraisal Report TA - Technical Assistance TDA - Tourism Development Authonty USAID - United States Agency for Intemational Development

Vice President: Jean-Louis Sarbib Country Director: Mahmood A. Ayub Sector Director: Emmanuel Forestier Task Team Leader: Nicole Glineur/Jim Reichert EGYPT, ARAB REPUBLIC OF PRIVATE SECTOR TOURISM INFRASTRUCTURE & ENVIRONMENTAL MANAGEMENT PROJECT

CONTENTS

Page No. I Project Data I 2 Principal Performance Ratings I 3 Assessment of Development Objective and Design, and of Quality at Entry 2 4 Achievement of Objective and Outputs 7 5 Major Factors Affecting Implementation and Outcome 9 6 Sustainability 10 7 Bank and Borrower Perfomiance 11 8 Lessons Learned 12 9 Partner Comments 13 10 Additional Information 18 Annex I Key Performance Indicators/Log Frame Matrix 19 Annex 2 Project Costs and Financing 20 Annex 3 Economic Costs and Benefits 22 Annex 4 Bank Inputs 23 Annex 5 Ratings for Achievement of Objectives/Outputs of Components 25 Annex 6 Ratings of Bank and Borrower Performance 26 Annex 7 List of Supporting Documents 27 Annex 8 List of People Consulted 28

Project ID P005168 Project Namle PVT SEC TOURISM INF & ENV Teamii Leader. Douglas I Graham TL Unit MNSIF ICR Tvpe Core ICR |Report Date March21, 2003

1. Project Data Name PVT SEC TOURISM INF & ENV L/C/TF Number CPL-35450, TF-2593 1, SCL-36050 Countrv/Department ARAB REPUBLIC OF EGYPT Region Middle East and North Africa Region Sector/subvector Roads & highways (24%), General water/sanitation/flood protection sector (24%), Power (24%), Telecommunications (24%), Central govcrnment administration (4%)

KEY DATES Original Revised/Acttual PCD 04/28/1989 Effrctive 12/27/1993 03/27/1995 Appraisal 05/01/1992 MTR 02/15/1996 04/22/1998 Approval 05/18/1993 Closing. 12/31/2000 10/17/2002

Borrower/lnplenientingAgency Tourism Development Authority (TDA)/TDA Other Partners Abu Soma Development Company

STAFF Currcnt At Appraisal Vice President Jean-Louis Sarbib Caio Koch-Weser Count, Manager' Mahmood A Ayub Ram K Chopra Sector Manager Hedi Larbi Alastair J Mckechnie Team Leader at ICR Jim Reichert Arun BanerJee ICR Primary Autl7or Douglas I Graham

2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, I-UN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome U Sustainability L Instit ttional Development Impact M Bank Performance S Borrower Performance S

QAG (if available) ICR Quality at Entm)y U Project at Risk at Any Tune Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3 1 Original Objective 3.1.1 In the early 1990s, the Government of Egypt (GOE) was poised to embark on a major program of privatization. The tounsm sector, with its potential for growth in terms of underutilized natural and cultural resources and its ability to generate employment and foreign exchange earnings, was a particularly strong candidate to lead the program. It also had the advantage of having no strongly entrenched interests opposed to pnvatization. At the time, Egypt's evolving tourism strategy focused on the need to diversify to new areas of beach tourism, while strengthening infrastructure facilities in existing areas of cultural tounsm and involving the private sector in the environmentally sustainable development of all areas.

3.1.2 To help meet the overall goals of the Government's tounsm development strategy, the objectives of the project, as stated in the Staff Appraisal Report (SAR), were to

(a) support the Government in improving the policy environment for the tourism sector through further investnent rationalization, deregulation and privatization of the tounsm portfolio;

(b) provide catalytic financial support for infrastructure development in major tourist areas sponsored by the prnvate sector in order to mobilize long-term financing from commercial banks and venture capital for equity investments; and

(c) ensure sound environmental management of the Red Sea coast with the support of the GEF.

Assessment of Original Objective and Design

3.1.3 The tourism sector in Egypt had, and continues to have, great development potential in terms of well located, underutilized natural and cultural resources, which can be relatively easily developed to generate employment and foreign exchange earnings. The project objectives, combining the main thrust of development through the private sector with sound environmental management, were appropriate to help the Government reach its goals in the sector. They were also consistent with the Bank's Country Assistance Strategy, which gave high priority to projects that increased employment and foreign exchange earmings, and which encouraged a shift from public sector to private sector development of tourist infrastructure.

3.1.4 The project was ambitious and complex in the range of reforms it sought to accomplish, and risky in its institutional structure, channelling proceeds from the Bank Loan through the relatively new and untried Tourism Development Authority (TDA), which then onlent the proceeds to private developers. The TDA, which was established in 1991 and charged with managing private investment in the tourism sector, had little experience in private sector management. In addition to changes in the policy and regulatory environments, the project also sought to facilitate a wide range of private sector investments as examples of investor participation in sector related activities. The investment components were not always appropriate for profitable operation by the private sector, and they were too many and too diverse to be handled by a new and inexperienced institution like TDA.

3.2 Revised Objective

N/A

3 3 Original Comnponents-

-2 - 3.3.1 The onginal project components as stated in the SAR were

(a) rinplementation of measures to improve the policy environment In the tourism sector consistinig of (i) development of an overall framework for public and private sector investments; (n) liberalization of prices for tourism related services, (iii) development of land allocation and ownership policies for plivate investments; and (iv) improvements in the regulatory framework affecting the operation of the tourism sector,

(b) Financial support through loans for: (i) development of infrastructure for two integrated area development sub-projects on greenfield sites on the Red Sea coast at Ras Abu Somna and Sal Hasheesh, sponsored by two private companies; (ii) development of infrastructure to provide water supply, sewerage and solid waste collection and disposal facilities for tourist developments on the Red Sea Coast (South Hurghada to Safaga area) by the private sector; (iii) Nile cruise infrastructure - the provision of berthing facilities for Nile cruise vessels in Luxor and Aswan and the provision of a navigation system ( the Nile cruise infonnation and safety system, NCISS); (iv) improved access to tourism sites in upper Egypt,

(c) A GEF grant financed component to maintain Red Sea blo-diversity and protect its natural environment through the development of a coastal zone management plan, and initiate the implementation of a plan for the Red Sea coast, particularly as it affected the protection of the marnne habitat in tounst areas to be developed under the project; and

(d) Provision of technical assistance and training for staff at TDA and the Egyptian Enviromnental Affairs Agency (EEAA) to strengthen capacity in: (i) tourism plaining and marketing; (n) procurement and financial management; (iii) development of enviromnental guidelines and capacity for monitoring and enforcement of environmental rules and guidelines in tourism zones; (iv) preparation of projects to promote further tourism development.

3.3.2 The components were reasonably related to the Governuent's policy objectives, which were broadly achieved. The first component responded to the objective of supporting the Governmnent in improving the policy environment for the sector, while the second component responded to the second objective of providing catalytic financial support for infrastructure development by the private sector. The third component related specifically to the third objective of ensuring sound environmental management of the Red Sea coast, while the fourth component was intended to strengthen the implementing agencies to carry out the first three components

3 3 3 The capacity of the implementing agency, the TDA, was not sufficient to implement all the components, and in particular, to manage the complex financing arrangements involved in the large number of investments with the pnvate sector. The TDA was also not equipped to handle the complex inter-ministerial agreements needed for the Nile valley components The project relied heavily on public/private interaction, but failed to take account of lessons learned from previous projects regarding public sector attitudes towards the private sector.

- 3 - 3 4 Revised Componients

3.4.1 Major changes to the project took place durmg its implementation. The most notable of which is that the majority of investment was centered around the Abu Soma Development Project Changes are chronologically summarized in the following paragraphs.

3 4.2 After approval of the Loan by the Board in November 1992, the option of single currency loans became available. As the receipts to be generated by the main tourism infrastructure components were almost entirely in foreign exchange and the Egyptian pound was tied to the US dollar, the beneficiary and the Bank team decided that a single currency dollar denominated loan would be a better option Accordingly, the project was re-presented to the Board in June 1993 as the first single currency loan, which was subsequently approved by the Bank. This did not in any way alter the objectives of the project. The foreign exchange risk was bome by the borrowing institution, TDA, and passed on to sub-borrowing entities, which had to repay sub-loans in US dollars.

3.4.3 After the second Loan was approved by the Board and signed in September 1993, a series of events delayed effectiveness:

o the Minister of Tounsm changed in a Govenmnent reshuffle and the new minister needed time to become acquainted with the project;

o there was opposition in the Egyptian People's Assembly to one of the beneficiaries of a sub-loan for integrated area development on the Red Sea coast; and

o there was opposition in the People's Assembly to the govenmment providing a guarantee for a loan that was to be onlent to the private sector.

3 4.4 After a year of delayed effectiveness, these issues seemed likely to prevent implementation of the project and it was decided to separate the GEF grant from the Loan, so that at a minimum, the GEF component could be implemented. This was done by amendment to the Legal Agreement, and the GEF component became effective in December 1994. It closed on June 30, 2002 and is the subject of a separate ICR. However, it is worth noting that the two projects continued to be supervised together by the same Bank team, thereby maintaining the environmental anid social integrity of the main project.

3.4.5 Near the end of 1994, support for the project began to grow once again. To overcome any remaining opposition in the People's Assembly, the Government and the Bank agreed that private beneficiaries should obtam counter guarantees from private banks to backstop Govenmment guarantees, and the Bank agreed to change the beneficiary to whom the People's Assembly had objected. With these changes and strong Ministerial support, the project was approved by the People's Assembly and became effective in March 1995.

3.4.6 In the meantime, the subsidiary loan agreement between the TDA and the Abu Soma Development Company (ASD) for the first area development scheme at Soma Bay was approved by the Bank. ASD went ahead with infrastructure construction using bridging loans from the National Bank of Egypt. World Bank guidelines were followed for procurement to make reimbursement possible at a later stage However, obtaining satisfactory counter guarantees proved to be a slow process, despite loan effectiveness, and the Bank informed GOE that it would close the Loan if no disbursements were achieved by June 30, 1996. Project management was able to develop a satisfactory guarantee and prepare a withdrawal request ahead

- 4 - of this deadline, whlch enabled developments at Soma Bay to proceed, as planlled

3 4.7 The Nile Cruise berthing component was not so fortunate During 1995 and 1996, TDA sought to persuade pnvate consortia of cruise vessel owners to take a sub-loan from the project to build berthling facilities The main obstacle was always the need for counter guarantees, the conditions of whichi were too severe to interest the potential beneficianes.

3.4.8 The component for a commercial desalinationi plant for south Hurglhada was rendered superfluous by the construction of a new water line from the Nile to Hurghada, but the solid waste component was kept alive at the request of the Govemor of the Red Sea (see 3 4.12 below).

3 4 9 The second integrated area development scheme on the Red Sea at Sal Hasheesh progressed favorably dunng 1996, and negotiations between TDA and the new beneficiary company seemed destined to succeed An extension of the grace period was requested by GOE to enable the new Sal Hasheesh Company time to make its investnents and generate positive cash flow The fonnal request for extension was presented to the Bank's Board in November 1996, which approved an extension to June 30, 2002 However, when foreign exchange became more abundant to Egyptian investors and the Bank's procurement procedures came to be seen as restrictive, the Sal Hasheesh development company declared that they did not, after all, want a subsidiary loan under the project TDA then asked the Bank to consider financing other reliable tourism developments and several alternative projects were considered, to no avail.

3.4.10 Eventually, restructunng of the project and cancellation of a major part of the Loan became inevitable. In September 1997, US$57 5 million was cancelled, representing the amounts envisaged for financing the second area development scheme, the Nile cruise berthing facilities, improvements in access to tourist sites in upper Egypt, the desalination and waste water treatment plants in south Hurghada and the consultancy services, for which the client did not wish to take a loan, as grants had become available.

3.4 11 In the meantime, ASD had asked for an additional $10 million, loan which was approved by the Bank after a review of their accounts and forecasts by independent accountants In 2001, ASD expressed further interest in an additional loan, but this was not considered by the Bank.

3.4.12 A bidding process was launched for the South Hurghada solid waste component in 1998 and a concession agreement drawn up for the winning bidder However, the Governor of the Red Sea did not ratify the agreement (costs were considered too high) and the US$2 million set aside for this component was cancelled in December 1998.

3.4.13 The tendering process for the Nile cruise navigation system went ahead and a winning bidder was selected in November 1999. A subsequent bid by a Dutch promoter was put forward by the Ministry of Tounsm, but this was rejected by the Bank on the grounds that it was contrary to procurement policies This further delayed the project A condition of making the system financially viable was achieved in early 2001, when the Minister of Tourism signed a Decree requinng cruise vessels to install navigation systems as a condition for renewing their licenses. This Decree was sent to the State Council for consideration, but by the time approval was granted, there was not enough time to complete the installation of the system before the revised project completion date of December 31, 2003. As no further extension was considered feasible, this last component was cancelled.

3 4.14 The revised components of the project were therefore (a) the policy enviromnent components; (b) the investment component of ASD's integrated tourism development, and (c) the Red Sea environmental component which was successfully implemented as a separate project.

- 5 - 3 5 Quiality at Entry

3.5.1 Although the Govenmment's policy objectives were substantially achieved, Quality at Entry is rated unsatisfactory On the technical side, the design of the project represented a state of the art model for an integrated approach to the tourism sector. However, on the processing front, there was a lack of readiness, capacity and mechanisms to implement such an approach. The project was also considered to be highly innovative in its attempt to involve the pnvate sector in all aspects of implementation Private sector involvement in Bank projects was then very much in vogue, although both the Bank and the client were not well prepared to undertake such initiatives, and the means for doing so were experimental. This resulted in a number of problems dunng implementation, which should have been foreseen during preparation.

3.5.2 The need for counter guarantees from private sector banks was an aspect that should have been reviewed beforehand. The practical difficulties in obtaining these guarantees were such that only the largest implementing agencies could negotiate deals with Egyptian commercial banks, and only the Soma Bay developer and the Nile Cruise implementing company were successful in doing so This was a major reason why other developers could not participate in the project.

3.5.3 A second problem encountered was that some components, notably those in upper Egypt, were expected to be undertaken by the public sector. However, mechanisms for financing these activities had not been identified, let alone secured. The borrower, TDA, was not able to implement projects in its own right as it could only onlend to other implementing agencies. This effectively meant pnvate companies, as Goverimment agencies were not willimg to borrow, and ruled out the component for Improving access to temple sites in upper Egypt.

3.5.4 The inclusion of a component for consultancy services, which was an important part of the institution building aspects of the project, was not realistic given the Govemment's reluctance to borrow for Technical Assistance (TA), while vast amounts of grant aid were available. Under the circumstances, bilateral donors, particularly the United States Agency for Intemnational Development (USAID), provided the TA for capacity building at TDA.

3.5.5 A final matter that should have been investigated was the law limitmg the profitability of public utilities, which made it impossible, initially, to establish a profitable private sector water supply, sewerage and solid waste collection utility in South Hurghada. This law was modified during implementation, which enabled the solid waste component to proceed, but which failed for other reasons (see above).

4. Achievement of Objective and Outputs 4 1 Outcome/achievement of objective

4.1.1 The outcome/achievement of the Project's objectives is rated as unsatisfactory. The project's objectives as presented in the SAR were to: (i) support improvements in the policy enviromnent for the tourism sector through investment rationalization, deregulation and privatization; (ii) provide catalytic financial support for infrastructure development in major tourist areas sponsored by the private sector; and (hii) ensure sound environmental management in the Red Sea coast with the support of the GEF. While the important policy objectives were achieved early in implementation, the second objective was not fully achieved because so many components had to be cancelled. The third objective was achieved, but not as part of this project.

-6 - 4.1 2 The unsatisfactory rating for outcome/achievemiienit of objectives is based mainly on the failure to achieve so many of the investments originally envisaged As a result, the project was not able to achieve the desired demonstration effect of private sector build/own/operate (BOO) projects in water supply, sewage treatment, solid waste management, or Nile berthing and Nile Cruise navigation On the other hand, the Bank's presence in the tourism sector did have a positive effect on deregulation and developments in the policy environment, especially the implementation of sustainable environmental practices. During project implementation, enviromnental policy changed dramatically with the passing of new environmental laws requinng Environmental Impact Assessments for tourism-related activities, guidelines for which were developed in collaboration with USAID. Pnvate investors in the sector developed a greater appreciation of the importance of protecting the environment, and fonned their own environmental protection association 4.1.3 The project did help to attract private investment to the sector through (a) the demonstrative effect of the development at Soma Bay; and (b) the Bank's continued presence in the sector throughout the many difficulties that occurred during implementation, which provided comfort to investors The number of private projects in the sector increased from a handful to over 600 at closure, while private sector investment in tourism increased from LE865 million per year at the start of the project to LE2,500 millioni per year when the project closed The monitonng indicators developed during implementation show good results in terms of employment creation and foreign exchange earnings (see Annex I).

4.1.4 The objective of sound environmental management was separated in the GEF financed project where it was satisfactorily implemented (see separate ICR). Within the Private Sector Tourism Infrastructure project, an outstanding example of enviromnentally sustainable development was provided in the Abu Soma integrated tourism development, which serves as a model for other integrated tourism development projects and has contributed to the overall "greening" of the sector Particularly noteworthy is the environmental sustainability of the infrastructure, including the power generation facilities, the desalination plant and water supply system, the sewage treatment plant, the marina and employee housing, which received several prizes for environmental management Specific to project investments, an independent environmental audit found the Bank funded desalination plant to be a model for well managed plants, with no adverse effects on surrounding coral reefs

4 2 Ouitputts by components (a) Implementation of measures to improve the policy environment (S). The project sought to improve the policy environment in three particular areas: (i) investment programuning, (ii) pncing policy; and (111) land allocation policy Where investment programming was concerned, the issue was one of the public sector crowding out private investment and of unfair competition between public and private sector companies. From the beginning of the project, the Govemment largely withdrew from the provision of infrastructure for the sector, leaving private investors to compete among themselves In tenms of pricing policies, early in project implementation, hotel rates were deregulated and the majority of public sector hotels were privatized. Finally, TDA developed rational land allocation policies for the numerous interested private investors, which coupled with other deregulatory actions, greatly increased pnvate sector investment These achievements strengthened the policy environment and facilitated pnvate sector investment.

(b) (i) Infrastructure for area development schemes (S). The Abu Soma Development Project was successfully implemented and although financing for a second area development scheme at Sal Hasheesh was cancelled, it is being implemented without Bank involvement. The successful development at Abu Soma provided a catalytic example of financial support for integrated tourism development, and was followed by numerous integrated developments elsewhere, most notably in Taba, east Sharm El Sheikh and Marsa Alem.

-7 - (b) (ii) Infrastructure in South Hlurghada (U). The water supply component for south Hurghada was rendered superfluous by the construction of a supply line from the Nile and the sewage treatment component was eventually constructed by the Govermment. The solid waste disposal facility for the rapidly expanding tourism areas of Hurghada and Safaga has not been constructed, leaving a serious environmental issue that remains to be addressed. All of these investments were supposed to demonstrate pnvate sector BOO utility projects, and their failure to do so detracted from project objectives

(b) (iii) Nile Cruise Infrastructure (U). Of the Nile components, only some of the berthing facilities were constructed by the private sector without Bank financing (see 3.4.7), leaving the majority of berthing facilities in the same dangerously unsatisfactory position as they were in 1990. The failure to implement the Nile Cruise navigation component senously affects safety on the Nile, and negatively impacts tourism.

(c) Maintenance of Red Sea Biodiversity and Protection of Natural Environment. (See separate ICR Report No: 25252).

(d) Technical Assistance and Training (U). Funding for the technical assistance component for the Tounsm Development Authonty had to be cancelled because of the Ministry's refusal to use Loan proceeds for this purpose. The component was implemented by USAID, which provided grant funding

4.3 Net Present Value/Economic rate of return. 4.3.1 The project generated significant employment and substantial amounts of foreign exchange However, the economic rate of return (ERR) for the Abu Soma Development Project is likely to be less than expected over the full twenty year evaluation period (1993-2012). This is due to delays in constructing hotels, partly in reaction to the downtum in tounsm, and consequent shortfalls in hotel revenues. At appraisal, the ERR was estimated at 22.6 percent for ASD's first phase, under assumptions that have not been met. On the basis of actual results dunng the first ten years of the project, and revised assumptions regarding the next ten years, the ERR is now estimated at 10.3 percent over the twenty years 1993-2012 (see Annex 3).

4 4 Financialrate of return: 4 4.1 Given the delays incurred and the interruptions to tourism resulting from terrorist activities, the financial rate of return (FRR) for the Abu Soma Development Project is also less than expected. While infrastructure was completed with major delays, there were even greater delays in completion of hotels. Assumptions at appraisal were that two hotels would be open in 1995 and four in 1996. In reality, the first hotel opened in 1998 and a second in 1999. A third hotel is expected to open in 2003, followed by a fourth sometime in 2004. These unexpected changes are beyond the realm of sensitivity analysis that was carried out during appraisal, and have seriously affected the financial viability of the project.

4.5 Institutionaldevelopment impact 4.5 1 The project was instrumental in transforming the tourism industry from one dominated by the public sector, to one that is more dynamic, sustainable, and dnven by the private sector A number of public sector institutions were transformed from investment agencies to regulatory authorities. The TDA developed into an effective regulatory body that now assists and guides private sector development using the project's proposed approach to institutional development. However, this was achieved, not with the use of Bank funds, which were cancelled, but through grant assistance provided by USAID.

5. Major Factors Affecting Implementation and Outcome 5 1 Factors outside the control of govemnnient or inipleinenting agency 5.1.1 The project was affected by terrorism. Each time an event occurred, as they did in 1993, 1997 and

- 8 - 2001, the numiiber of tourists decreased dramatically, staff of noni-S star hotels were laid off, and investors held back. As a typical example, hotel occupancies would drop from around 80 percent to below 20 percent in the immediate aftermath of an event, and then gradually build up again over the next two to three years, although in many cases room rates were discounted to such an extent that profits were minimal.

5 1.2 The reluctance of commercial banks to issue counter guarantees for sub-loans to companies proposing to implement project components, was a major hindrance. The first integrated tourism development was delayed by over a year because of this, and the Nile Cruise berthing component had to be abandoned due to lack of counter guarantees.

5 2 Factorsgeuierally stlbject to government control 5.2.1 Implementation of the Soma Bay Development Project was slowed by disputes with customs authorities over tariffs on a number of occasions, and by the introduction of new taxes by the Red Sea Govemorate. Despite several appeals to the Government, these issues took many months to resolve.

5 2.2 The delays imposed by the State Council in approving the Nile Cruise Infonnation and Safety System (NCISS) contract effectively led to the cancellation of this component Better coordination between Government departments in terms of sharing infonnation and following-up on decisions might have avoided this situation.

5 3 Factorsgenerally suibject to iniplenienting agency control 5.3.1 At the outset of the project, the implementing agency, TDA, was relatively inexperienced and not fully able to master all of the intricacies of such a complex project. This changed during project implementation as TDA obtained a cadre of experienced and well qualified staff who were able to supervise major private investments in a multitude of developments in the sector.

5 4 Costs and financing 5.4.1 The IBRD single currency, dollar denominated Loan signed in September 1993 amounted to US$130.0 million. An amount of $57.5 million was cancelled in October 1997, a further $2.0 million cancelled in December 1998, and $8.0 million was cancelled in October 2002 (see paras 3.4 6 - 3.4 15) The balance of $62.5 million represents the Loan to TDA, which has an equivalent sub-loan to ASD, including capitalized interest during construction. This compares to an appraisal estimate of costs for ASD's infrastructure of US$50.0 million The difference represents an additional amount of $5 5 millioni onlent for additional infrastructure, including a fourth diesel generation unit, a marina and employee housing, as well as $7.0 million for capitalized interest during construction.

6. Sustainability 6 1 Rationalefor suistainabilityrating: 6.1.1 Sustainability of the project is rated likely, especially the institutional changes brought about with the assistance of the project The deregulation process, involvement of the pnvate sector and finn enforcement of environiental regulations are all considered irreversible changes, whlich will have an impact on the pattern of future tourism development in Egypt. Sustainability of the integrated tounism development at Soma Bay is rated as likely. This rating is based on the continued maintenance of the facilities and the growing demand for tourism in the Red Sea area, combined with its unique location, respect for environmental standards and carrying capacity, the high quality of facilities, and efficient management at Soma Bay. The possibilities of terrorism or war do pose risks, but these are likely to be temporary.

6 2 Transition arrangenment to regular operations.

-9- N/A.

7. Bank and Borrower Performance Bank 7 1 Lending:

7.1.1 Bank preparation is rated as unsatisfactory, although the Bank correctly identified the tourism sector as one which was npe for development and institutional change. Dunng preparation, an analysis of integrated tourism development sites was made, as well as detailed studies of the Nile Cruise needs. However, at appraisal, there were serious weaknesses in the overall financing plan, and no consideration was given to the need for counter guarantees, how they would be obtained, or how the flow of funds to proposed public sector investments on the upper Nile would be channelled. These issues were fundamental to the successful implementation of the investment components of the project. Further, serious consideration should have been given to cancelling the project, which was signed in September 1993, but did not disburse until June 1996.

7.2 Supervision

7.2.1 Supervision of the project is rated as satisfactory. There was a high degree of continuity in the team supervising the project, which was carried out in conjunction with, and by the same team as, the GEF-funded Red Sea Coastal and Marine Resource Management Project (originally a component of the project). This helped to maintain consistency of approach and ensure that environmental and social issues were highlighted. Also, from 1996 to mid-1999, the most active period of implementation, supervision was carried out from the Bank's Cairo Office, which greatly facilitated the resolution of problems, and provided a responsive attitude to client needs. For example, in the early stages of project implementation there were frequent issues involving procurement procedures. Bank specialists went to great lengths to assist the client in resolving these problems, and the Regional Procurement Adviser spent several days on site and in the client's offices reviewing complex contracting issues The close working relationship with the Intemational Finance Corporation (IFC) and USAID was important in integrating the private sector's perspective, and in getting technical assistance funded with grants The quality of supervision was assessed twice by the Bank's Quality Assurance Group, once in 1998 and again in 2002. Both assessments were considered satisfactory, and recognized the strong staff continuity, high quality of documentation and follow-up, and the good relationships with other stakeholders/donors.

7 3 Overall Bank performance

7.3.1 Overall Bank perfonnance is rated satisfactory. Although performance during preparation was unsatisfactory, the Bank provided extensive support during implementation, which helped to establish the major institutional changes taking place and to strengthen capacity to undertake more complex projects.

Borrower 7 4 Preparation.

7.4.1 The Borrower's perfonnance during preparation is rated satisfactory. The Govemment's commitment to the project was indicated by the establishment of TDA to implement the changes proposed under the project. During preparation, both TDA and private sector compames were closely involved with the Bank team preparing the project.

7 5 Government implementation performance.

- 10 - 7 5.1 The Govenunent's implementationi perfonnance is rated unsatisfactory for a couple of reasons The Government could have accelerated the Council of State's consideration of the NCISS to make it possible to implement the Nile cruise navigation system before closure. A solution to financing the Nile Cruise berthing component should have been facilitated, given the serious safety issues involved A solution could also have been found to the solid waste disposal problems in Hurghada and Safaga to enable this component to be implemented. Both of these activities might have been salvaged by resolving the issue of counter guarantees.

7 6 Implenmenting Agency

Perfonnance of the implementing agency is rated as satisfactory. Althouglh TDA was initially inexperienced and understaffed, it quickly grew to become an effective development agency for the tourism sector. The private sector implementing agency, ASD, also camed out its functions efficiently and transparently.

7 7 Overall Borrower peifornniance

Overall borrower perfonmance is rated satisfactory. Within the limitations of a complex Govemment structure, major institutional refonns were successfully undeitaken and the capacity of the implemenitinig agency was strengthened to enable it to play a leading role in shaping the development and implementation of Egypt's tounism strategy.

8. Lessons Learned 8.1.1 Project Design

* The promotion of new models of development needs to be accompanied by careful design of the implementation processes, particularly regarding methods of financing and cost recovery Several of the project's mvestnent components, while techlnically well designed, failed because of incomplete financing plans.

o In countnes which are known for slow implementation and compliance of undertakings, up-front completion of key actions before effectiveness would improve quality at entry by reducing uncertainties. In the case of this project, the required Ministenal decrees and counter guarantees should have been required before effectiveness.

8.1.2 Project Implementation

* The degree of flexibility required in a project must be carefully considered and not exceed the limits imposed by Bank and Govenunent requirements and regulations This project called for a high degree of flexibility, whlich sometimes went beyond what was acceptable to both the GOE and the Bank. With regard to extension of the grace penod and debt rescheduling, the nature of the project and the extraneous nsks involved called for a more flexible approach, as recognized by the World Bank's Presidency in the aftermath of the September I1th attacks.

* When there are significant changes to a project's component's, project objectives should be fonnally revised. o Promoting environmental awareness can have far reaching beneficial impacts on investors and operators in the sector, especially when the clientele themselves (tourists) are highly conscious of environmental issues. Environmental state-of-the-art infrastructure can become a tourist attraction in its own right.

8 1.3 Future Activities

o Tourism has proven to be an effective sector for creating employment opportunities, generating income, alleviating poverty, and generating foreign exchange eamings. The Govemment appears to have requested further Bank assistance in the sector If the Bank were to follow-up with another project in the sector, a key lesson leamed would be to focus more on sectoral analysis and systemic policy and institutional issues (where improvements would help upgrade the sector as a whole), and on accompanying infrastructure and environmental investments that would promote sound tourism development.

o The suitability of on-lendmg proceeds from Bank Loans to private investors should be carefully considered in light of the stringent procurement procedures and financial risks involved.

9. Partner Comments (a) Borrower/limplementing agency

Tourism Development Authority Introduction

9.1 The Tourism Development Authority (TDA) and the Intemational Bank for Reconstruction and Development (The World Bank) concluded a Loan Agreement for the Private Sector Tourism Infrastructure and Environment Management project on September 28, 1993 amounting to USS 130 million bearing a maturity of 20 years including a 5 year grace penod. The closing date was December 31, 2000

Project Objectives

9.2 The overall objectives of the project were to:

(a) Support the govemment of Egypt in improving the policy environment of the tourism sector through further investrnent rationalization, deregulafion and privatization of the tounsm sector;

(b) Provide catalytic financial support for infrastructure development in major tourist areas sponsored by the private sector in order to mobilize long term financing from commercial banks and venture capital for equity investment and;

(c) Strengthen the institutional capacity of TDA

Project Description

9.3 The project included the following:

(a) Implementation of measures to improve the policy environment of the tourism sector consisting of: (i) development of an overall framnework for public and prnvate sector investments; (ii) liberalization of prices for tourism related services; (iii) development of land allocation and

- 12 - ownership policies for private investments; and (iv) improvements in the regulatory framework affecting the operation of the tourism sector.

(b) Financial support for (i) the development of infrastructure for two integrated area development sub-projects on the Red Sea coast (Ras Abu Soma and Sahl Hasheesh) sponsored by two private companies; (n) improvement of water supply and wastewater services in South Hurghada and provision of solid waste collection and disposal facilities for the area between Hughada and Safaga; and (iii) improvement of Nile Cruise operations, through construction of additional berthing facilities at Aswan, Luxor, Dandara, Isna, Edfu and Kom Ombu, establishment of a traffic and navigation control center and upgrading of tourist areas, including improvement of access roads from the Nile to the antiquity sites and provision of food and parking facilities.

(c) Strengthen the institutional capacity of TDA.

Items plained to be financed out of the loan proceeds were as follows-

Category Amount Allocated (US$) 1-(a) Works for infrastructure Ras Abu 40.000.000 Soma Development (b) Sahl Hashesh Development 40 000.000 2- improvement of water, wastewater and 12.000.000 solid waste services in South Hurghada 3- improvement of Nile cruise operation 13 000.000 4- consultation' services 3.000.000 5- interest and other charges on loan 22.000 000 Total 130.000.000

Major Project Events

* On January 22, 1995 TDA concluded a guarantee agreement with the National Bank of Egypt (NBE), where NBE agreed to guarantee the obligations of the private sector in respect to the Sub-loan agreements executed between TDA and the companies. NBE also assumed the financial loan administration duties.

* The loan Agreement was approved and sanctioned by the presidential Decree No. 185 for the year 1994 and further ratified by the People Assembly on March 21, 1995

* TDA and Abu Soma Development Company (ASD) Sub-Loan Agreement was signed on July 27, 1966 amounting to US$ 50 million to finance infrastructure and other related components of the development, customs duties, sales taxes, interest and other charges during construction. The Sub-loan agreement also financed the reimbursement of the bridge loan contracted by ASD from NBE for the purpose of financing eligible infrastructure components of the project.

* Per the request of TDA, the Loan Agreement was amended on Apnl 30, 1998. The grace period was extended to July 15, 2002. The closing date was extended till December 31, 2003 and the Loan amount was reduced, effective of December 31, 1997, from US$ 130 to US$ 110 million.

- 13 - o On July 20, 1998 the loan amount was further reduced by an amount of USS 38 million and as of august 3, 1999 by an amount of US$ 1.5 million.

O The TDA and ASD sub-loan agreement was amended on November 30, 1998 to increase the sub-project amount from US$ 50 to US$ 60 million. This increase was to assist in financing the expansion of the infrastructure capacity in phase I of the project.

O The World Bank refused to extend the closing date by 6 month to enable the execution of the Nile Cruise Infonnation and Safety Center; accordingly the US$ 8.0 million amount allocated for this project was cancelled on October 17, 2002.

O Total amount of the loan has thus been reduced by US$ 67.5 million. The breakdown of the remaining amount among the items stipulated in the loan agreement between TDA and the World Bank is as follows:

Item US$ Million

Ras Abu Soma Development 55.5

Interest capitalized and other charges 7.0

Total 62.5

Achievement of Project Objectives

9.4 The overall objectives of the project were achieved with the exception of the development of infrastructure for Sahl Hasheesh area, provision of water supply, sewerage, solid waste collection and disposal facilities for existing tourist resorts on the Red Sea coast (South Hurghada), construction of additional berthing facilities for Nile Cruises and improvement of traffic and navigation facilities and access to tounst sites m the Nile valley.

Support to the government of Egypt in Improving the Policy Environment for the Tourism Sector

9.5 The objectives of the project to improve the policy environment were fully in line with govenmment priontles. The achievements included:

o Implementation of various market liberalization measures to extend the participation of national and international investors in tounsm sector;

o Changing the role of public sector from that of the owner-operator to planner-regulator and promoter-facilitator;

o Deregulation the tounsm industry to allow the private sector to operate freely in a competitive environment;

o Promoting a large role for the private sector in the design, finance, implementation, ownership and operation of tourism facilities; and

- 14 - * Setting regulations govenming the allocation of lands assigned to TDA (Ministerial decree No 2908 of t 1995 and TDA's guide for investors)

Ras Abu Soma Development

9 6 The project financed the provision of all basic infrastructure facilities for the developed area. This included (a) about 17 km of roads, (b) water desalination plant with a capacity of 4500 m3 per day and associated storage and distnbution network; (c) three diesel generators with a total capacity of 12 MW; (d) electrical and telecommunications networks (e) sewage treatment plant with a capacity of 2500 rn3 per day with the associated collection system, pumping stations and force mains; (f) earth work and irrigation system for landscaping 18 hole golf course; (g) 70 boat marina; (h) central laundry; and (i) an employees village.

9.7 Beside the basic infrastructure facilities, the development company was engaged in superstructure building to expedite and enhance the promotion of the area from its own resources In this respect, the construction of Robinson Club Hotel (300 rooms) has been completed and is operating since May 1998 The Sheraton Hotel (340 rooms) is fully operating since January 1999 and the Cascades Golf Resort Hotel is scheduled for opening in early 2003 The opening of a fourth Hotel (Hyatt Regency Soma Bay) is scheduled for 2003 Contracts have been signed for Movenpick and Four Seasons hotels and negotiation for the seventh hotel (Club Mediterranne) is in progress. ASD also started the construction of 30 chalets and villas. In addition, a diving center and a wooden jetty have been completed aind shall be expanded to a 150 rooms hotel in two years time. Also currently under construction are the marina commercial and recreational center, including a number of sea-front residential apartments, restaurants, shops, casino and sport facilities is in progress, to be completed by 2003.

9 8 At the completion of the area development, the area will boast a high quality and prestigious mix of sea-oriented holiday resorts, and villas, complemented by a range of amenities and facilities.

Strengthen the Institutional Capacity of TDA.

9.9 At the time of signing the Loan Agreement TDA was a small organization with a small number of pennanent staff depending mainly on contracting out specific tasks to outside consultants Currently, TDA is organized into the office of the chief executive officer (CEO) and four departments. The CEO office including infonnation management, public relations, planning and follow up, security, technical and legal units and the four departments which include: personnel, administrative, financial control, procurement, economic affairs and financing, investment, planiing, environment management, infrastructure, and project implementation and momtoring units. Most of these departments and units are headed by high caliber professionals recruited outside the civil service system.

Reasons for Unachieved Objectives.

* The implementation of the project was complicated by the need of coordination between a broad range of parties ministries, agencies govemorates, commercial banks, customs, investors, contractors and the World Bank. The required coordination was in several cases beyond the capacity of TDA.

* The substantial delays encountered by the State Council in reviewing the legal aspects of NCISC contract and the World Bank refusal to extend the loan closing date led to cancellation

- 15 - of the component.

O The Nile water scheme launched by the Ministry of Reconstruction and New Communities which provides Hurghada with 34000 m3 of potable water per day rendered the improvement of South Hurghada water and waste water systems unnecessary.

o The rejection of the services charges offered by the bidder for the Hurghada-Safaga solid waste system by the Red Sea Govemorate led to the cancellation of the component.

o The lengthy and the strict procurement procedures of the World Bank and high interest rates on the subsidiary loans (Libor + 0.5%+2%) made it difficult to replace the Sahl Hasheesh company by another investor.

Bank Performance

Satisfactory

TDA Performance

Satisfactory

Lessons Learned

o Improvement of the policy environment for the tounsm sector and strengthening the institutional capacity of TDA encouraged pnvate investments in tounsm development and services The number of Hotel rooms has been increased from 58,755 in 1993 to 120,720 in 2002. Moreover, 95,955 rooms are currently under construction.

o The previously experienced mismatches between public investments in infrastructure and private investments in superstructure would be mitigated by the concept of designing the area development as an integrated package, to be fully undertaken by the private sector

o Potential environment problems could be avoided through integrated land use plan for development area and close monitoring of development standards.

Proposed arrangements for sustaining the project results.

9.10 TDA suggests that the World Bank would continue the environment audit for the Abu Soma desalination plant to avoid potential senous impacts to the marine environment. (b) Cofinanciers

(c) Other partners (NGOs/private sector)

Abu Soma Development Company

9.11 Our assessment of the performance effectiveness of the financing made available to our company for the purpose of funding part of the infrastructure works which have been executed at Soma Bay is that the availability of this financmg was critical in permitting the project to move forward to the point at which

- 16- It curTently stands Today, Soma Bay has the potential to become Egypt's pre-eminenet tourism destination on the Red Sea Coast

9 12 However, in retrospect it is clear that the project has suffered from a number of structural flaws, many of which ansing from the nature of the financing made available by the World Bank. Among these are the following

* The project consists of developing what was at the outset an and desert peninsula into a master-planned integrated and self-sustaining tourism destination.

* In order to be financially viable this requires a carefully balanced investment program between infrastructure facilities and the downstream tourism superstructure facilities to be serviced by the fonmer.

* At the outset proceeds of the World Bank loan was intended to help fund both infrastructure and superstructure elements of the project.

* We understand that due to objections by the IFC the proceeds of the Loan was eventually limited to funding only infrastructure project components

* Due to the long lead times for the construction of hotel facilities, and to the unsettled political climate in the region, the availability of long tenn debt financing is a vital prerequisite for this sector.

* Regrettably both the size and the tenor of debt available from the IFC did not match project needs. Commercial sources of debt financing, whether local or international, also did not respond to project needs.

* As a result, the project at Soma Bay currently suffers from a fundamental imbalance between its upstream infrastructure investments and the downstream superstructure facilities serviced by the fonmer.

* It is our assessment that the fundamental rules and constitutions of both the IFC and the Word Bank are inimical to projects of this nature

9.13 Among the issues specific to the World Bank:

(a) The constitutional requirement for a sovereign guaranty raises a nearly prohibitive hurdle in front of the private sector;

(b) Procurement procedures, tailored to conditions applicable to large sovereign loans are overly cumbersome and costly in relation to the size of disbursements typically applicable to private sector projects; and

(c) Implementation rules are overly rigid, and do not take into account that there is a fundamental difference between a sovereign borrower with potentially multiple sources for debt repayment, and a pnvate sector borrower witlh a vastly more limited range of debt repayment options.

- 17 - 9 14 These fundamental inconisistenicies were higlhlighted when our Company requested a one year extension of the repayment grace period in the afternath of the events of September 11, 2001, a request which was first approved in principle in writing, only to be denied in extremis a few days before the expiration of the relevant grace period.

10. Additional Information

- 18 - Annex 1. Key Performance Indicators/Log Frame Matrix

Key Performance Indicators: Actual versus Target Objective Key Performancc Indicators Baseline Mid-term End of roLect Project Outcome/impact Target Actual Target Actual Target Actual 'I'arget Actisal Development Indicator Objective Please seethe I Increased enployment 1 130,000 12/31/1999 I S00000, 1 145,000, 12/31/2000 I 180,000 I 15(,(10( Developotient fron tounrisn 2(a) 29nmllhon I 180,000 I 145,000 2(a) 40 2(a) 408 I 2(a) 45 2(a) 46 Objective Statement 2 Increased foreign 2(b) USS2 3 2(a) 40 million 2(a) 40 million, million, 180000, 147,000., million. 2(h) million, 2(b) above exchange earningsfrom billion 2(b) USS3 2 nillion 2(b) USS23 2(b) USS32 2(a) 4 0 2(a) 5 5 USS32 S4 3 billion, tounsm--(a) Toainst 3 LE 865 million billion 2(b) USS3 2 billion, billion, million, nillion, billion, 3 LL 2,50)0 amvals, and (b) Foreign 3 Lk 1,500 billion 3 LE 1,500 3 Lb 500 2(b) 2(b)4 3 3 -LE1,510 million exchange eamings from nmillion 3 LE 1,250 million nidllion US52 3 billion, millon Tourism timllion billion, 3 LE 3 liicreased pnvate sector 3 Lb 1,598 investimtentin tounsna 1.500 nillioii 4 Maintatit Red Sea million Biodiversity Pleasesee the Developnment Objective Statement above Pleasesee the Developnment Objecive Statenient above Pleasesee the Developmoent Objective Statenient above Project Outputs OutpuIt Indicators I Privatmictioni l&2 <50% 12/31/1999 1&2 >75% 1&2 >90% 1&2 >75% 1&2 >90% 2 Pnce deregulation pnvate prices l&2 >75% 1&2 >90% private private private private 3 Land allocation regulated private pnces pnvate prices prices prices prices 4 Ehavironnental 3 Deficent deregulated pnces deregulated deregulated dereglaited deregiilated regulation allocation system 3 Trainsparent deregtilated 3 3 3 3 4 Inadequate conipetitive 3 Transparent Transparent 'I ransparemt Tramisparent environmental bidding systeni Transparent competitive conipetitive competitive competitive protection 4 Legislation competitive bidding bidding bidding bidditig passedand bidding systemii systeni systens system inmplemented system 4 4 4 4 4 Legislation Legislation L.egislaiions Legislatioi Legislation passedand passedand passedand passedatid passedanid inipleniented impleniented implemented implemented inipleilsented

I Completion of I Green field 12/31/1999 infrasinicture site I Completed T I Conipleted development I development

I Colispleltoti of I Congested atid 12/31/1999 Navigatioit Systetii potentially I Nem I Delayed, dangerous navigation expected navigation system in place isipleiiientatt on by 2002

19 - Annex 2. Project Costs and Financing

Project Cost by Component (in USS million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Infrastructure at Abu Soma Bay 50.00 62.50 125

Total Baseline Cost 50.00 62.50 Total Project Costs 50.00 62.50 Total Financing Required 50.00 62.50

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICBCB B Other2 N.B.F. Total Cost

1. Works 84.40 35.50 7.10 0.00 127.00 (84.40) (35.50) (7.10) (0 00) (127.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (O00) (0.00) (0.00) 3. Services 0.00 0.00 3.00 0.00 3.00 (0.00) (0.00) (3.00) (0.00) (3 00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (O00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 84 40 35.50 10.10 0.00 130.00 (84.40) (35.50) (10.10) (0.00) (130 00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other2 N.B.F. Total Cost

1. Works 40.00 10.00 5.50 0.00 55.50 (40.00) (10.00) (5.50) (0.00) (55 50) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (O00) (0.00) (0.00) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 7.00 0.00 7.00 (0.00) (0.00) (7.00) (0.00) (7.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00

- 20 - (O00) (0.00) (0.00) (0.00) (O00) 6. Miscellaneous 0.00 0.00 0.00 0 00 0.00 (0.00) (O 00) (0.00) (0.00) (0.00) Total 40.00 10.00 12.50 0 00 62 50 (40.00) (10.00) (12.50) (0 00) (62 50)

Figurcs in parenthiesis are the amounts to be financed by the Bank Loan All costs include contingencies ' Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistancc services, and incremeital operatimg costs related to (i) managing the project, and (ii) re-lending project funds to local govenmilent units

Project Financing by Component (in US$ million equivalent) | | | ~~~~~~~~~~~~~~~Percenitageof Appraisal| Component Appraisal Estimate | Actual/Latest Estimate l Bank . Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. Abu Soma Development 50 00 0 00 0 00 62 50 0 00 0 00 125 0 00 00

- 21 - Annex 3. Economic Costs and Benefits In overall terms, the project has helped generate employment and foreign exchange earnings. It is estimated that employment in the tourism sector rose from 130,000 at the project outset to 150,000 at closure, while foreign exchange eamings increased from EL865 million annually to EL2,500 million over the same period. Where specific investments are concerned, the economic rate of return on the Abu Soma Development (phase I) was estimated at 22.6 percent at appraisal. In reality, the phasing of investments did not occurred as expected, nor did the revenue flows. The initial Phase I infrastructure, financed by the Bank Loan, was completed with a time lag of approximately three years. However, hotel building was even slower, partly in reaction to the downtum in tourism. Thus, instead of opening two hotels in 1995 and a further two in 1996, as assumed at appraisal, one hotel was opened in 1998 and another in 1999. A third hotel is expected to open early in 2003 and a fourth in 2004. These delays have postponed the benefits stream and reduced the likelihood of the ERR achieving the postulated 22.6 percent over the twenty year period assumed (1993 to 2012) Current estimates, based on actual costs and revenues to date, and a revised forecast of hotel construction and villa sales up to 2012 calls for an ERR of 10 3 percent.

Abu Soma Development, Phase I Internal Rate of Return Egyptian Pounds, millions Developed Utility Investment Operating Net Land Sales and costs and Maint Cash Sales Other Rev costs Flow 1993 0.00 0.00 0.00 0.00 1994 0.00 0 00 0.00 0.00 1995 0.00 0.00 0.00 0 00 1996 0.00 87 20 0.00 -87.20 1997 0.00 90.10 0.00 -90.10 1998 27.20 1 00 64.30 19.99 -56.09 1999 30.80 6.00 3.60 21.62 11.58 2000 1.29 10.00 0 00 22.80 -11.51 2001 1.38 15.00 0.00 15.60 0.78 2002 2.94 20.00 0.00 16 00 6.94 2003 45.66 25.00 0.00 7 67 62.99 2004 58.16 30.00 0.00 9.50 78.66 2005 19.76 30.00 0 00 9.50 40.26 2006 69.60 36.00 0 00 10.80 94.80 2007 73.16 38.00 0 00 11.00 100.16 2008 22.88 39.00 0.00 11.00 50.88 2009 23.92 40.00 0.00 11.00 52.92 2010 12 48 42.00 0.00 11.00 43.48 2011 0.00 42.00 0.00 11.00 31.00 2012 0.00 42.00 0.00 11.00 31.00 IRR 10.26%

- 22 - Annex 4. Bank Inputs (a) Mvssions Stage of Project Cycle No of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc) Implementation Dcvelopment Month/Year Count Specialty Progress Objectivc Identification/Preparation 1991-1992

Appraisal/Negotiation 1992-1993

Supervision

01/27/1994 3 SR MUNICIPAL ENGINEER 1 2 (1); SR FINANCIAL ANALYST (1), PRIVATE SECTOR SPEC (1) 04/30/1994 2 CONSULTANT (I), SR 3 3 FINANCIAL ANALYST (I) 10/10/1994 3 PVT SECTOR DEVT (1); U HU CONSULTANT (I), TASK MANAGER (1) 06/19/1995 4 FINANCIAL OFFICER (1), S U CONSULTANT (1); PROCUREMENT ADVISER (1), SR FINANCIAL ANALYST (1) 02/01/1996 3 FINANCIAL OFFICER (1), U U CONSULTANT (I), SR FINANCIAL ANALYST (I) 07/21/1996 1 PROJECT FINANCE & (I) S U 03/06/1997 4 TEAM LEADER (1), S U ENGINEER/PROCUREMENT (1); PVT SECTOR FIN EXPERT (I); OPERATIONS OFFICER (1) 07/10/1997 2 TEAM LEADER (1), PVT S S SECTOR FIN EXPERT (1) 10/15/1997 2 TEAM LEADER (I); PVT S S SECTOR FIN. EXPERT (1) 06/27/1998 2 PVT SECTOR FIN EXPERT S U (1); TEAM LEADER (I) 11/05/1998 5 MISSION LEADER (1); S S MANAGER (1), SR FIN OFFICER (1), OPERATIONS OFFICER (1), CONSULTANT (1) 03/31/1999 3 MISSION LEADER (1), SR S S FIN OFFICER (1),

- 23 - OPERATIONS OFFICER (I) 09/24/1999 3 DIRECTOR (1), FINANCIAL S S ANALYST (1), ENVIRONMENTAL SPECIALI (1) 02/18/2000 2 FINANCIAL ANALYST (I); S S ENVIRON SPECIALIST (1) 07/20/2000 3 FINANCIAL ANALYST (I); S S ENVIRONM SPECIALIST (1); OPERATIONS OFFICER (1) 03/07/2001 2 FINANCIAL ANALYST/TTL S S (1), ENVIRONMENTAL SPEC (1) 05/24/2001 1 FIN MGT. SPEC/TTL (I) S S 10/30/2001 2 FIN. MGT. SPEC./TTL (1), SR S S ENVIRONMENTAL SPEC (1) 04/10/2002 2 FIN MGT SPEC/TTL (1), SR. S S ENV. SPEC (1)

ICR 10/28/2002 2 FIN MGT SPEC/TTL (1), S S SR. ENV. SPEC (1)

(b) Staff

Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation n/a 140 0 Appraisal/Negotiation n/a 217 1 Supervision n/a 778 7 ICR n/a 20 2 Total n/a 1156 0

- 24 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Ncgligible, NA-Not Applicable) Rating O Macropolicies O H O SU * M O N O NA El Sector Policies O H *SUOM O N O NA 0 Physical O H O SU * M O N O NA 2 Financial O H O SU * M O N O NA ;i Institutional Development 0 H 0 SU 0 M 0 N 0 NA f Environmental 0 H 0 SU 0 M 0 N 0 NA

Social O Poverty Reduction 0 H 0 SU 0 M 0 N 0 NA Gender O H OSUOM O N * NA O Other (Please specify) O H OSUOM O N O NA O Private sector development 0 H 0 SU 0 M 0 N 0 NA F Public sector management 0 H 0 SU * M 0 N 0 NA O Other (Pleasespecify) O H O SU O M O N O NA

- 25 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6 1 Bank performance Rating

Z Lending OHS OS OU OHU Z SZupervision OHS OS OU OHU [ Overall OHS OS OU O HU

6 2 Borrowerperformance Rating

2 Preparation OHS OS OU O HU Z Government implementationperformance O HS O S 0 U 0 HU N Implementation agency peiformance 0 HS OS O U 0 HU Z Overall OHS OS OU O HU

- 26 - Annex 7. List of Supporting Documents I Staff Appraisal Report, Egypt, Private Sector Tourism Infrastructure and Environmental Management Project, November 20, 1992, report number II 107-EGT.

2. A Priority Action Plan for Infrastructure and Tourism Development in Egypt, Cruiseship Tourism, New berthing at Aswan, by Arthur D. Little, Shankland Cox and Arab International Consultants

3. Environimenital Impact Assessment for Soma Bay Development, EQI, 1992.

4. Environmental Impact Report for Sal Hashesh Development, EQI, 1992.

5. Traffic Management and Control on the Nile River, SAIC, 1996.

6. Aide Memoires, Back-toOffice Reports and PSRs

- 27 - Additional Annex 8. List of People Consulted

General Saad Abu Reeda, Governor, Red Sea Governorate

Tourism Development Authority (TDA) Eng. M. Magdy Kobeicy, Chief Executive Officer Mr Khaled Fares, Director Finance and Investments (former Head of Project Umt) Eng. Khaled Makhlouf, Head of Technical Department Dr. Nabil Saba, Senior Technical Adviser Mr. Hossam El Sherif, Red Sea Mr. Mohamed Baghdady Aly, Red Sea

United States Agency foir International Development (USAID) Ms. Holy Ferrette, USAID Red Sea Project Manager

Abu Soma Development Company Dr. Farid Saad, Chairman Mr. Noman Hakim, Financial Controller Mr. Jimmy Saad, Manager

National Telecom Company Dr. Hussein Elkholy, Chairman

International Finance Corporation Mr. Kamal Barakat, Investment Analyst

Samir El-Sadek, Managing Director, Taba Tourism Development Company Mr. Tarek Sabek, Director of Sales and Marketing, Le Meridien, Makadi Bay Mr. Isheen, Manager, Fort Arabesque, Makadi Bay

- 28 -