Document of The World Bank

Public Disclosure Authorized Report No: ICR1776

IMPLEMENTATION COMPLETION AND RESULTS REPORT

ON A

Public Disclosure Authorized GRANT

IN THE AMOUNT OF US$65.00 MILLION

(TF-54462)

FROM THE WORLD BANK IRAQ TRUST FUND

TO THE

MINISTRY OF PLANNING AND DEVELOPMENT COOPERATION OF THE REPUBLIC OF IRAQ Public Disclosure Authorized FOR AN

EMERGENCY PRIVATE SECTOR DEVELOPMENT PROJECT

December 30, 2012

Public Disclosure Authorized Finance and Private Sector Development Group Middle East Department Middle East and North Africa Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 13, 2012)

Currency Unit = Iraqi Dinar 1,145.98 = US$1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CBI Central Bank of Iraq CPA Coalition Provisional Authority DA Designated Account DARM Diwan Al Rikaba el Malia (Iraqi Supreme Audit Institute) EDF Economic Development Fund EPSD Emergency Private Sector Development Project ESSAF Environment and Social Safeguards Framework EU European Union FBS Fee-Based Services FDI Foreign Direct Investment FMA Fiduciary Monitoring Agent GDP Gross Domestic Product GOI Government of Iraq ICB Iraqi Central Bank IFR Interim Financial Report IMF International Monetary Fund IQD Iraqi Dinar IRTF Iraq Reconstruction Trust Fund ISRB Iraqi Strategic Review Board ITF Iraq Trust Fund (administered by the World Bank) ITPC Iraqi Telecommunications and Post Company KRG Kurdistan Regional Government MDG Millennium Development Goals MIGA Multilateral Investment Guarantee Agency MOC Ministry of Communications MOF Ministry of Finance MOPDC Ministry of Planning and Development Cooperation P&S Payments and Settlements PDO Project Development Objective PMT Project Management Team PSD Private Sector Development RP Restructuring Paper RVP Regional Vice President SCIS State Company for Internet Services SME Small-Medium Enterprise SOE State Owned Enterprise TA Technical Assistance

TFTA Trust Fund Technical Annex TOR Terms of Reference UK United Kingdom UN United Nations UNDG United Nations Development Group UNIDO United National Industrial Development Organization US United States USD US Dollars

Vice President: Inger Andersen Country Director: Ferid Belhaj Sector Manager: Simon C. Bell Project Team Leader: Stephen Rimmer ICR Team Leader: Stephen Rimmer

REPUBLIC OF IRAQ Emergency Private Sector Development Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 5 3. Assessment of Outcomes ...... 10 4. Assessment of Risk to Development Outcome ...... 18 5. Assessment of Bank and Borrower Performance ...... 19 6. Lessons Learned ...... 20 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 22

Annex 1. Project Costs and Financing ...... 23 Annex 2. Outputs by Component ...... 24 Annex 3. Economic and Financial Analysis ...... 25 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 27 Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 29 Annex 6. List of Supporting Documents ...... 46

A. Basic Information IQ-EMERGENCY Country: Iraq Project Name: PRIVATE SECTOR DEVELOPMENT Project ID: P091344 L/C/TF Number(s): TF-54462 ICR Date: 12/30/2012 ICR Type: Core ICR Lending Instrument: ERL Grantee: REPUBLIC OF IRAQ Original Total USD 55.00M Disbursed Amount: USD 61.48M Commitment: Revised Amount: USD 65.00M Environmental Category: B Implementing Agencies: Ministry of Planning and Development Cooperation Iraq Telecommunications and Post Company Ministry of Communications Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/16/2004 Effectiveness: 12/06/2004 03/31/2010 Appraisal: 11/23/2004 Restructuring(s): 03/31/2012 Approval: 11/30/2004 Mid-term Review: 06/30/2008 02/29/2008 Closing: 06/30/2007 06/30/2012

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Grantee Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes Moderately Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General finance sector 20 20 General industry and trade sector 20 20 General information and communications sector 60 60

Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction 50 50 Infrastructure services for private sector development 50 50

E. Bank Staff Positions At ICR At Approval Vice President: Inger Andersen Christiaan J. Poortman Country Director: Ferid Belhaj Joseph P. Saba Sector Manager: Simon C. Bell Zoubida Allaoua Project Team Leader: Stephen Rimmer Mohammad A. Mustafa ICR Team Leader: Stephen Rimmer ICR Primary Author: Stephen Rimmer Marc Jean Yves Lixi

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The overall project development objective (PDO) is defined in the TFTA as "To lay the foundation [for private sector development] by addressing certain key priorities in institutional capacity building and essential communications infrastructure to help foster the development of the private and financial sectors. A secondary objective of the project is to generate job creation through the development of the private sector".

Revised Project Development Objectives (as approved by original approving authority)

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years 1. Strenghthening of the following institutions: (a) Investment Promotion Agency Indicator 1 : (b) Export promotion Agency (c) Economic Development Fund and (d) Development plans for two industrial zones at Arbil and basra. Successful strengthening of export promotion, effective The first three Value operation of objectives were not quantitative or 0 0 Economic fully achieved, Qualitative) Development Objective (d) was Fund and achieved. development of two industrial zones Date achieved 12/01/2004 12/01/2004 06/25/2010 06/30/2012 Comments 25% achieved. UNIDO is taking forward the component to establish industrial (incl. % zones. achievement) Support of (i) Export Promotion Fund at the Ministry of Trade which will channel TA to 100 eligible firms to develop export plans; (ii) Economic Indicator 2 : Development Fund at the MOPDC to channel TA for Iraqi private enterprises to develop feasibility studies. 30 firms have 75export ready developed export firms have plans. 0 eligible firms have developed export 30 private sector developed export plans. Value plans. firms assisted to 0 private sector firms quantitative or 50 private sector develop feasibility assisted to develop Qualitative) firms assisted to plans to seek feasibility plans to seek develop feasibility financing financing. plans to seek assisted to develop financing. feasibility plans to seek financing Date achieved 12/01/2004 12/01/2004 06/30/2012 Comments The capacity building component was abandoned in 2009 due to lack of capacity (incl. % by relevant ministries but provides a platform to implement an access to finance achievement) for SMEs program. Export market development continued by Ministry of Trade.

48% achieved Connecting the Central Bank of Iraq (CBI) with two Government owned Banks Indicator 3 : (Rafidein and Rasheed) and the headquarters of 20 private banks in Iraq with high capacity and reliable communications infrastructure. Value quantitative or 0 % achieved 20 banks in Iraq 52 banks in Iraq Qualitative) Date achieved 12/01/2004 06/25/2010 12/20/2011 Comments Target surpassed by 250%. 52 Iraqi bank headquarters connected to CBI's (incl. % network and services achievement) Rehabilitation and upgrading of three of five national background microwave Indicator 4 : routes: (i) Baghdad-Trabil, (ii) Baghdad-Mosul and (iii) Baghdad-Ammara- Basra. Value All routes All routes quantitative or No route rehabilitated rehabilitated and rehabilitated Qualitative) operational Date achieved 12/01/2004 06/25/2010 06/25/2010 Comments 100% achieved. All three microwave routes have been rehabilitated and are (incl. % operational. achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Development of Institutional Framework: 1. Industrial zones development plans; Indicator 1 : 2. Public awareness campaign to promote investment; 3. Endorsement by the government of business plans developed for public institutions to support PSD 2 Industrial Zone 2 Industrial Zone plans developed; 0 Industrial Zone plans plans developed; 1 public awareness developed; 0 public awareness campaign to 0 public awareness campaigns to promote campaigns to promote promote investment Value investment investment conducted; conducted; (quantitative conducted; 0 business plans 0 business plans or Qualitative) 3 business plans developed for public developed for developed for institutions to support public institutions public institutions PSD endorsed by to support PSD to support PSD Government. endorsed by endorsed by Government Government. Date achieved 12/01/2004 06/25/2010 06/25/2010 Comments 100% for Industrial Zone development plans for Erbil and Basra and legislation (incl. % for Industrial Zones. 0% for public awareness and Government endorsement of

achievement) business plans. This indicator has been achieved at 50% . Private Sector Opportunities: 1- Number of private sector export ready firms assisted to develop viable export Indicator 2 : plans. 2- Number of private sector firms assisted to develop feasibility plans to seek financing 100 export ready 0 export ready 0 export ready firms firms assisted to firms assisted to assisted to develop viable develop export develop export Value export plans. plans. plans. (quantitative 0 private sector firms 50 private sector 0 private sector or Qualitative) assisted to develop firms assisted to firms assisted to feasibility plans to seek develop feasibility develop feasibility financing. plans to seek plans to seek financing. financing. Date achieved 12/01/2004 12/01/2004 06/30/2012 Comments The capacity building element was formally abandoned in 2009 because of (incl. % insufficient capacities and commitment by Ministry of Trade, but export market achievement) research and development continued. Not achieved. 1. Ten Capacity connectivities in the three routes Indicator 3 : 2. Training of 25 staff members in technical, legal, management, procurement and financial management affairs. Value 1. 0 capacity connectivity 1.10 1. 10 (quantitative 2. 0 staff member trained 2. 25 staff trained 2. 40 or Qualitative) Date achieved 12/01/2004 06/25/2010 06/30/2012 Comments The project has trained far more than 25 ITPC employees and extended the (incl. % training to MoC. All routes are high capacity and operational. Fully achieved. achievement) Availability of 1,200 lines of interconnection and two megabits per sec-leased Indicator 4 : lines Value (quantitative 0 or Qualitative) Date achieved 12/01/2004 Comments (incl. % No information about this indicator. achievement) Indicator 5 : Roll-out of 2,050 Km digital microwave routes Value (quantitative 0 km 2050 km 2050 km or Qualitative) Date achieved 12/01/2004 06/25/2010 06/30/2012 Comments Fully achieved. The project financed the rehabilitation/construction of 1,200 km (incl. % of microwave lines and successfully interconnected with the 850 km of already achievement) existing lines. Indicator 6 : Ten Corporate users and service providers. Value

(quantitative or Qualitative) Date achieved Comments (incl. % No information about this indicator achievement) Indicator 7 : Improvement of the ICT sector as a result of technical assistance Value (quantitative 0 3 3 or Qualitative) Date achieved 06/25/2010 06/25/2010 06/30/2012 Comments The activities related to the institutional framework implemented after 2010 have (incl. % been fully achieved. achievement) Access to telephone services (fixed mainlines plus cellular phones per 100 Indicator 8 : people) Value (quantitative 66.7 73.4 79.8 or Qualitative) Date achieved 06/25/2010 06/25/2010 06/30/2011 Comments (incl. % Target exceeded at 110%. achievement) Indicator 9 : Access to internet services (number of subscribers per 100 people) Value (quantitative 4.0 4.4 10.4 or Qualitative) Date achieved 06/25/2010 06/25/2010 06/30/2011 Comments (incl. % Target exceeded by more than 200%. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 12/20/2004 Satisfactory Satisfactory 0.00 2 03/04/2005 Satisfactory Satisfactory 0.00 3 08/24/2005 Satisfactory Satisfactory 0.10 Moderately Moderately 4 03/07/2006 0.20 Unsatisfactory Unsatisfactory Moderately Moderately 5 11/08/2006 4.15 Unsatisfactory Unsatisfactory Moderately 6 08/07/2007 Unsatisfactory 4.32 Unsatisfactory 7 10/31/2007 Unsatisfactory Moderately 4.35

Unsatisfactory Moderately Moderately 8 06/17/2008 8.50 Unsatisfactory Unsatisfactory 9 11/21/2008 Moderately Satisfactory Moderately Satisfactory 23.91 10 06/26/2009 Moderately Satisfactory Moderately Satisfactory 48.06 11 05/13/2010 Satisfactory Satisfactory 55.40 12 01/03/2011 Satisfactory Satisfactory 57.44 13 07/17/2011 Satisfactory Satisfactory 58.43 14 02/08/2012 Satisfactory Satisfactory 59.60 15 07/04/2012 Satisfactory Satisfactory 60.38

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions The Project was restructured in March 2010 to accommodate: (i) additional capacity building and TA for the Private Sector Development (PSD) and Telecom component respectively (US$10 million funding came from additional 03/31/2010 N MS MS 54.21 financing "savings," resulting from the stabilization of the euro vs. dollar exchange rate); (ii) reallocation of proceeds (including replenishment of the operating budget of the PMT); and (iii) extension of the closing date to March 31, 2012. The closing date was extended by three months from March 31, 2012 to June 30, 2012 in order to allow the two main 03/31/2012 S S 59.87 consultancies to be completed (Iraq Telecom Policy and Telecom Asset Inventory and HR Assessment).

I. Disbursement Profile

1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Background 1. Iraq’s command economy and the international sanctions imposed on it for decades left a major mark on almost all the country’s economic sectors, leading to a very significant deterioration of the economy, and further entrenched the structural problems that have impeded job creation and inclusive growth levels. Just before the 2003 political transition, Iraq was a country in considerable distress, having experienced a marked fall in almost all human development indicators over the past decade (e.g. material poverty, health standards, life expectancy and literacy). Despite the country’s rich resource endowment, Iraq’s human development indicators were among the lowest in the region and the country had deviated drastically from the Millennium Development Goals (MDGs) in 2004. With low income levels and high unemployment rates 1 , the immediate key objective of this and related programs of support was to create new jobs by stimulating the private sector.

2. Relative to the size of the Iraqi economy, the formal private sector was quite small. The private sector was then characterized by a very few large companies, a number of small- medium enterprises (SMEs), and a very large number of informal micro-enterprises. Furthermore, most large enterprises were situated in the state public sector comprised of 180 state-owned enterprises. The sanctions that were imposed on the Iraqi economy for more than a decade greatly weakened institutions and governance, depleted exports and other services, and therefore further weakened the private sector in Iraq.

3. It was clear that the private sector could not develop and gain competitive advantage if it did not have rapid access to a vibrant financial services industry, providing access to finance for small and medium sized enterprises and based on a digitized network of branch banks, etc. Lack of access to capital was one of the most important impediments to private sector growth and job creation. Furthermore, modern financial systems depend on computerized information processing and settlement mechanisms to move money through local and global telecommunications networks. During the post-2003 reconstruction era, Iraq did not have a national payments and settlements (P&S) system, and its financial service industry was out of date compared to the requirements of the global economy. Therefore, the Iraqi Central Bank (ICB), supported by the Government, prioritized the establishment of a proper P&S system by connecting some 80 nodes/locations across the country. However, building these connections to enable the effective functioning of the banking system required a modern, reliable, secure, and high-speed telecommunications infrastructure.

4. In addition, most aspects of a trade regime’s modern supply chain are heavily dependent on telecommunications. Trade facilitation systems, including customs management, general logistics management, and inventory controls require efficient and reliable data communications systems. It was envisioned that as Iraq eliminated its telecom networking bottlenecks, it would be able to acquire its imports more cheaply, organize its primary and secondary production more efficiently, operate its markets more rationally (goods, assets,

1 IMF, UN/World Bank Watching Briefs, and other Iraqi sources estimate per capita GDP at US$840 for the year 2003. The official unemployment rate was 28%, while some estimates placed this number at 50% or more.

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labor, capital), and exploit its intellectual and human capital more effectively. In addition the country would be able to improve its capacity to attract and retain foreign direct investment (FDI). Therefore, modern telecommunications was identified as a fundamental necessity for Iraq’s trade facilitation in specific and private sector development and job creation more broadly.

Rationale for Bank Assistance 5. After 2003, the international community was quick to recognize the need for a multilateral approach to the reconstruction and development of Iraq. At the request of the international community, the World Bank and the United Nations Development Group worked closely to produce an assessment of Iraq’s reconstruction needs and established the International Reconstruction Fund Facility for Iraq to channel resources from 25 donors for Iraq’s reconstruction and development needs. This project arose from this broader strategic needs assessment, which identified private sector development to spur job creation as a key aspect of Iraq’s reconstruction, and was financed by the World Bank Iraq Trust Fund. Capacity building for ministries overseeing private sector development and modern telecommunications infrastructure was seen as a crucial foundation for private sector development.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 6. The Trust Fund Technical Annex (TFTA) is the equivalent of the “Project Appraisal Document” (PAD). The overall project development objective (PDO) is defined in the TFTA as “To lay the foundation [for private sector development] by addressing certain key priorities in institutional capacity building and essential communications infrastructure to help foster the development of the private and financial sectors. A secondary objective of the project is to generate job creation through the development of the private sector.”

7. In order to reach the overall PDO, the TFTA presents three sub-PDOs as follows: (i) to provide the foundation for sound investment climate from a financial and institutional perspective; (ii) to develop a pipeline of opportunities for the private sector that would lead to job creation; and (iii) to make essential infrastructure for the survival of a modern private sector, namely a reliable payment system, supported by necessary telecommunications infrastructure.

8. Additionally, the following specific outcomes were listed to complement the above- mentioned sub-PDOs: (i) Development of key enabling public institutions that support the private sector; (ii) Improving the competitiveness of Iraqi private firms by increasing their access to financial and foreign markets; (iii) Building reliable telecommunications infrastructure to interconnect key parts of the Central Bank's payments and settlements system; (iv) Building a section of a high capacity national communications network capable of supporting corporate needs; and (v) Financing expenditures directly related to project management.

9. Although the project’s original performance indicators (Annex 1 of the Technical Annex) were not well specified (they were not specific enough and lacked baselines and target values), they still provide a basis for understanding and assessing the project’s intended results. The assessment of achievement of indicators is presented in the Data Sheet and in Section 3.2 below.

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1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

10. The overall PDO as well as the sub-PDOs were never formally revised.

11. However, the Restructuring Paper (RP) of March 2010 added the following key sector indicators to further measure the results in the telecommunications sector :  Improvement of the telecom sector as a result of technical assistance (score 1-5, 1 = low impact, 5 = high impact). Baseline 2010 = 0; target for 2012 was 3.  Access to telephone services (fixed mainlines plus cellular phones per 100 people). Baseline 2010 = 66.7; target for 2012 was +10%.  Access to internet services (number of subscribers per 100 people). Baseline for 2010 was 4. Target for 2012 was +10%.

1.4 Main Beneficiaries 12. The beneficiaries include the private sector in Iraq and all Iraqis via improved access to services, opportunities, and jobs. More specifically, direct beneficiaries included Iraqi businesses needing access to capital and foreign markets and Iraqi and foreign businesses needing access to industrial zones as a base for their operations. In addition, beneficiaries include private banks, which could connect to the IIBN and could benefit from an enhanced service. Direct beneficiaries also included telephone users in provinces covered by the new infrastructure. Indirect beneficiaries were the clients of the private banks (firms or individuals), who benefitted from much faster and more reliable services. Overall, more than 12 million people directly benefitted from this project, as well as many SMEs across the country.

1.5 Original Components (as approved) 13. The project originally combined the following four components:  Component 1: Development of the institutional framework to enable private sector development (PSD) (US$7 million). This component would help establish and/or strengthen institutions that support or encourage the private sector and financial sector in Iraq, to enable them to play their appropriate role. The institutions targeted for assistance were the Investment Promotion Agency, the Export Promotion Agency, and Industrial Zones.

 Component 2: Private Sector Opportunities (US$5 million). This component was a pilot to address two elements of market failure that the export and private sectors were facing in Iraq. The first was related to the inadequate knowledge the Iraqi export sector has when it comes to accessing export markets. The second market failure referred to the inability of Iraqi private enterprises, especially SMEs, to obtain credit for new projects or businesses through the Economic Development Fund. Feasibility studies were required by financial institutions before extending credit for a proposed project.

 Component 3: Payments System Supporting Infrastructure (US$3 million). This component was to fund the critical physical communications infrastructure for providing enhanced capacity for interconnecting the Central Bank of Iraq (CBI) Headquarters with CBI’s Mosul and Basra branches (at project launch connected via VSAT) and for networking CBI with the two Government owned banks, Rafidein and Rasheed and the headquarters of 20 private banks in Baghdad. Based on the successful implementation of this phase, CBI would then establish a communications network to interconnect with banks throughout Iraq.

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In this regard, the expanded CBI network would make effective use of good and reliable bandwidth capacity that would become available from the Iraqi Telecommunications and Post Company (ITPC) beginning April 2006 under this project and augment it with appropriate state of the art technologies to establish transmission links to banks in other provinces/districts of Iraq.

 Component 4: Telecommunications National Backbone Network (US$40 million). This component supported ITPC’s rehabilitation program for 2004-2007 approved by the Iraqi Strategic Review Board (ISRB) to build a modern and integrated international digital backbone microwave network to improve delivery of communications services to the government and to the people of Iraq. In particular, this component was to focus on rehabilitating and upgrading three of the five national backbone microwave routes and associated spur routes that have been severely damaged. The three routes were: (i) Baghdad - Trebil, (ii) Baghdad - Mosul, and (iii) Baghdad - Ammara - Basra.

1.6 Revised Components 14. Component 2 was slightly revised in 2009. The sub-component which focused on export market research and development was abandoned due to lack of commitment and capacity of the Iraq Ministry of Planning and Development Cooperation (MOPDC) and the Ministry of Trade which was the implementing Ministry. When the project was launched in 2004 MOPDC was the lead ministry in coordinating and implementing economic and private sector development reforms, but its role and influence has diminished significantly since 2004.

1.7 Other significant changes 15. The grant from the World Bank Iraq Trust Fund (ITF) in an initial amount of US$55 million was approved in November 2004 to support a comprehensive private sector development in Iraq. The amount of ITF funds allocated to the Emergency Private Sector Development Project (EPSD) was increased to US$65 million in October 2008 to cover cost overruns resulting from fluctuations in the USD/Euro exchange rates (the grant is in dollars but some major contracts were in Euros) and contract variations as well as for contingencies.

16. The project was restructured in March 2010 to accommodate: (i) additional capacity building and technical assistance (TA) for the PSD and telecom components respectively (US$10 million funding came from "savings" resulting from the stabilization of the euro vs. dollar exchange rate in October 2008); (ii) reallocation of proceeds (including replenishment of the operating budget of the MOC Project Management Team (PMT)); and (iii) extension of the closing date to March 31, 2012. A second restructuring was approved by the Regional Vice President (RVP) on March 31, 2012. The changes from that restructuring were as follow:

 Reallocations: A total of US$1.7 million was reallocated from the PSD components to the telecom components, including a reallocation to the Ministry of Communications’ Project Management Team (MOC-PMT), which needed additional funds to attend the series of workshops on telecom policy, law, and regulation organized abroad for security reasons.  Closing date: The closing date was extended by three months from March 31, 2012 to June 30, 2012 in order to allow the two main consultancies to be

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completed (Iraq Telecom Policy and Telecom Asset Inventory and HR Assessment).

17. During the 2010 restructuring, the Project Management Team (PMT) under the Ministry of Communications (MOC) was reorganized in two parts: (i) PMT MOC to lead implementation of technical assistance for telecom sector reform; and (ii) PMT-ITPC to lead implementation of physical telecom components. A number of additional activities were proposed and financed by the reallocation of undisbursed funds from the PSD components which included the Asset Inventory and Human Resources Assessment of Government- owned telecom assets in Iraq. This was a necessary deliverable to help the Government of Iraq (GOI) in planning for the privatization of ITPC and the State Company for Internet Services (SCIS), two Government-owned telecom companies. This study compiled information about all the physical assets owned by MOC either directly or through ITPC and SCIS. These assets were spread throughout the country and they were physically verified and compiled into a standardized database in which they can be better managed. In addition, MOC agreed to conduct a follow-on assignment to prepare a strategy for the best use of these assets, including the 22,000 government employees of ITPC.

18. Several other activities were included such as building regulatory capacity, with technical assistance (TA) programs on regulatory issues. This TA involved several stakeholders, including the Communication and Media Commission (CMC), the Kurdistan Regional Government (KRG) MOC, and the MOC, and was a necessary input to the development of the telecommunications sector policy. This assistance was to contribute to putting in place vital institutional building blocks for the transformation of the sector, such as the new draft telecom law, the restructuring of the incumbent operator, strengthening of CMC and MoC, etc., also indirectly serving as a pilot for a possible future Reimbursable Advisory Services (RAS) instrument that is being developed as part of the Bank’s engagement with Iraq in the forthcoming Country Partnership Strategy.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. The EPSD Project was prepared as an “emergency” response project in 2004, after the Iraq political transition in conditions on the ground characterized by chaos, a growing armed insurgency, and growing armed conflict between various groups and factions in Iraq. The preparation was fast-tracked and based on a very ambitious program of reconstruction and capacity building. Although the overall project objective was to lay key foundations for the development of a vibrant private sector, most of the funds were allocated to the reconstruction of the destroyed telecom network and the construction of the Iraq inter- banking network (IIBN), which was perceived as a prerequisite to private and financial sector development. The project preparation and design demonstrated shortcomings outlined in the following three paragraphs.

20. The preparation of the project did not benefit from robust data and a detailed analysis of the actual situation on the ground, particularly regarding institutional issues and constraints. The logistics on the ground were very difficult at that time and did not allow the team to carry out all the necessary assessments as normally done during project preparation and rollout. Also, the project preparation was completed within a few months (from June to November 2004).

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21. The indicators listed in the original Results Framework (Annex 1 of the TFTA) are statements of outputs or outcomes rather than actual measurable indicators. The results framework was not revised until 2010, and only then to include telecom-related indicators, including key sector indicators. However, the original “indicators” were not changed. The lack of actual indicators is a major shortcoming of the project preparation and it has indirectly affected project implementation (see Sections 2.2 and 2.3). Given the considerable uncertainty in Iraq over this period it was not possible to address these issues in an early restructuring.

22. The overall design of this project was based on statements such as “(…) there will be large reconstruction flows; there are export-ready SMEs based on a proud and vibrant arts and crafts manufacturing past; and there are potential comparative advantages in the oil and agricultural sectors. The SOE sector is ripe for reform, the religious tourism industry is increasing, and information technology opportunities are on the rise.” These assessments were overly optimistic and speculative and did not take into account the complex and evolving security, political, and religious environment in Iraq. The implementation of the project was eventually deeply affected by growing conflict and security concerns and constant political tensions (see next section). Overall, the situation on the ground did not allow for a thorough review of the opportunities, risks, and potential mitigation measures. Furthermore, with the progressive deterioration in the security situation from 2005-2008, costs and time taken for implementation increased significantly, making it much more difficult to implement some elements of the original program.

23. However, the project design benefitted from “decentralized” institutional arrangements, with MOPDC (and Ministry of Trade for export market research) being the counterparts for Components 1 and 2. MOC had the responsibility to implement the telecom aspect of the project (Components 3 and 4). The set-up of two PMTs to ensure implementation in parallel had a positive impact on project implementation and was a demonstration of the ministries’ willingness and capacity to effectively implement agreed reforms (see next section and lessons learned).

2.2 Implementation 24. The project was approved on November 30, 2004 and became effective on December 6, 2004. Project implementation started in earnest and was boosted by the following factors:

 Level of commitment of the PMTs and implementing agencies. Throughout the project implementation, our counterparts have demonstrated a strong and constant commitment. Despite many institutional obstacles, PMT staff has regularly attended fiduciary, project management, and other relevant technical training. The project benefitted from the assistance of a private contractor for financial management aspects. The outsourcing of the project’s financial management aspects allowed the PMT to focus on the technical and substantial aspects. That said, MOPDC at times struggled to focus on project implementation and did not prepare its own assessment of the project, despite the assistance and advice provided to guide preparation (such as the ICR Manual, examples of recent Iraq ICRs in Arabic, etc.).  Strong commitment at the highest level of the Iraq administration. The project benefitted from a strong commitment at the highest level of the Ministry of Communications. After the restructuring in 2010 and once the infrastructure and the project outputs were achieved, project implementation involved all telecom sector stakeholders (operators,

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Ministry of Communications, ITPC, the Central Bank, the regulator CMC) in order to ensure a strong buy-in and the sustainability of the project outcomes (see Section 2.5). At the highest level of the Iraq administration, the Minister of Communications, the head of CMC, and the CEOs of the three mobile operators were directly involved in project implementation (either as part of the decision-making process, or as active stakeholders of the project). MOPDC also displayed a high level of commitment, but at times identified a different vision and path to project implementation, which resulted in the termination of some parts of the program including export market research and development (2007) and strengthening of the Economic Development Fund (2011). This commitment was demonstrated by the personal involvement of the Ministers in workshops, in implementation-related issues, and in a rapid decision-making process to resolve issues very quickly.  Adaptation to changing circumstances. The constant political tensions directly affected the project (see paragraphs 25, 64, and 66 below). When the infrastructure part of the project was achieved, the PMT for the project’s telecom component shifted from ITPC to MOC to allow for a more hands-on approach to implementation. The project benefitted from an additional US$10 million financing in October 2008 and funds reallocation of US$1.7 million in March 2012 that made it possible to consolidate the its achievements by focusing more on the institutional aspects of the sector. This additional funding resulted in unexpected outcomes that exceeded initial expectations (see Section 3.6).

25. Despite these positive factors, the project encountered considerable delays as a result of external factors (adverse local, national, and regional environment) outside the control of the implementing agency. These factors, among others, include:

 Constant political tensions and evolving violent conflict. The project implementation spans from 2004 to 2011; it began shortly after the conclusion of the Iraq political transition in 2004. In this very difficult context, implementation was constantly slowed down and sometimes completely stopped (2006 - 2008), which considerably delayed the achievement of project outcomes.  Terrorist acts on project-funded infrastructure and assassination of project counterpart. In 2008 one of the CBI backbone nodes was destroyed by a bomb. This damaged the network and deeply affected key services between CBI and Iraqi banks. It cost the Government money and time to replace it. In a separate incident one of the main counterparts for this project was assassinated.  No full-time staff in PMTs. Although staff of both PMTs were clearly skilled and dedicated to the project, they were not appointed full-time on this task. The heads of PMT-MOC and PMT-MOPDC were very senior civil servants with many responsibilities. These positions helped the project by having a close relationship with the Minister and other senior stakeholders, but the PMTs were also under a lot of pressure to carry out other tasks besides those of the project. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 26. Monitoring and Evaluation suffered from a hectic implementation, a difficult and ever changing environment, and a poorly designed M&E framework. The original indicators were not specific enough to measure the project’s expected outcomes. Monitoring and Evaluation reports were submitted by the PMT-MOC only toward the end of the project after the restructuring of 2010, which introduced more specific indicators measuring the impact of the operating infrastructure, in particular the IIBN.

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27. Overall, the day-to-day difficulties of project execution prevented both PMTs from focusing on the M&E aspects of the project, despite several requests by the Bank task team. However, from 2010 to 2012, the project benefitted from new indicators for Components 3 and 4 and the figures obtained clearly illustrate significant results arising from the project.

2.4 Safeguard and Fiduciary Compliance Safeguard compliance 28. During the launch of this project in Amman in January 2005, a training session was conducted on the full World Bank safeguards set, with examples of other places where some of them were triggered. Following the safeguards presentation, the Bank’s Environment and Social Safeguards Framework (ESSAF) was explained in detail with all its attachments. All works under the project were rehabilitation of existing infrastructure. Although the various Aide Memoires do not provide any information on the monitoring of the safeguards triggered, safeguards has never been an issue since the disclosure of the partial assessment in 2004. As stated in the ISRs, all infrastructure activities were successfully completed in compliance with the recommendations of the ESSAF Therefore, safeguards compliance is rated Satisfactory.

Fiduciary compliance 29. Financial management. Financial management was outsourced to a private company as the Bank's Fiduciary Monitoring Agent for the ITF- and IDA-financed projects. This was very helpful, as the contractor became familiar with Bank procedures and was able to allocate the required resources when necessary.

30. At the beginning, the project suffered from frequent turnover of the MOPDC staff with FM responsibilities and lack of commitment at ITPC that caused ineligible expenditures due to lack of understanding of the World Bank guidelines, inaccurate accounting records, significant delays in replenishing expenditures from the World Bank, and delays in reconciling project records with the World Bank Client Connection. However, the overall performance of the financial management team improved during the second half of the project implementation period. During the 2010 restructuring, the PMT under MOC was reorganized into two parts without any changes on the financial management arrangements: (i) PMT-MOC to lead implementation of technical assistance for telecom sector reform; and (ii) PMT-ITPC to lead implementation of physical telecom components.

31. Interim Un-audited Financial Reports (IFRs) were satisfactory and were submitted in a timely manner. Audit reports have been regularly submitted to the Bank but with some delay, except for the 2010 audit report which was submitted on time. The auditor issued unqualified “clean” opinions on the audited financial statements except for 2009. The 2009 audit report was qualified due to an insignificant ineligible amount of US$197 and incorrect classification of expenses by the PMTs in one submitted withdrawal application. Both issues were rectified by the PMTs. The next and last audit report will cover the period from January 1, 2012 until closing date plus a four-month grace period and is due by December 31, 2012.

32. Due to the absence of Designated Accounts (DAs), project payments above the threshold of US$10,000 were made by the World Bank directly into the bank account of the contractor, supplier, or consultant. Payments below the threshold of US$10,000 were made by the MOPDC and ITPC from their own resources and were reimbursed, on a periodic basis, by the

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Bank to the MOPDC and ITPC upon presentation of proof of payment and a signed withdrawal application.

33. The project suffered from payment delays, especially payments in Iraqi Dinars (IDQ), mainly due to: (i) the weak banking system in Iraq, (ii) lack of familiarity of consultants and contractors with internationally accepted business practices, especially the monthly submission of invoices and full documentation of invoices, (iii) limited capacity within MOPDC and ITPC for management, and (iv) unavailability of DAs for the project. Therefore, the project faced delays as direct payment to vendors was not authorized. Moreover, the project did not benefit from electronic signature and had to send hard copies of documents to Europe. This heavy administrative process affected the payment to vendors, particularly for large amounts.

34. The fiduciary monitoring agent (FMA) hired by the Bank for fiduciary purposes, was effective. FMA staff visited the PMTs two to three times per month on average to: (i) review the PMTs’ IFRs and reconcile their records with the Bank records; (ii) monitor unclaimed expenditures; (iii) verify disbursement plan updates; and (iv) provide on-the-job training in FM matters. The FMA included the PMT-prepared IFRs in their quarterly reports, as well as the adjusted IFRs (with their review comments and recommendations for the PMT IFRs). IFRs were usually submitted in a timely manner. The FMA also conducted, on a sample basis, pre-screening and post-review of withdrawal applications for direct payments and reimbursements.

35. Payment of very large contracts. As mentioned above, the direct payment method was not authorized by the Legal Agreement/Disbursement Letter. Large infrastructure contracts such as the rehabilitation of ITPC backbone for more than US$30 million were paid through a Letter of Credit issued by a local bank. Such a long procedure cost MOC more than US$400,000 in penalty fees because of delays. This could have been avoided by authorizing the direct payment method. Overall, financial management was rated Satisfactory.

36. Procurement. Procurement was rated Satisfactory. Procurement was monitored closely by the Bank team since the commencement of the project and counterparts were provided with detailed training in World Bank procurement requirements to implement the procurement plan. They were given ongoing support on procurement throughout the project. Procurement was also monitored by the FMA who audited, monitored, and reported on the rollout of the project on the ground. The counterparts complied with all Bank procurement requirements (with one or two very minor technical exceptions). Where deficiencies were identified (e.g., construction of a substandard telecom tower) these were corrected by the counterpart. Procurement was often delayed over the 2006-2008 period because of the level of conflict in Iraq at that time, the cost of some initial bids exceeding available budget, and the difficulties experienced by counterparts over this. Consultants hired delivered on all agreed outputs for the industrial zones, export market research, and the Economic Development Fund (EDF). Also, despite the security situation and lack of interest on the part of international suppliers generally to work in Iraq during the implementation of IIBN and microwave backbone contracts (2004-2008), there were very good responses from international companies for those contracts, resulting in good competition in the tendering process.

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2.5 Post-completion Operation/Next Phase 37. After 2010, the project activities were essentially telecom-related. The PSD aspects had been already implemented and UNIDO will take forward the Industrial Zones activity (Component 1) as part of an Italian Government-funded project to support Industrial Zones and Special Economic Zones in Iraq.

38. The remaining funds were reallocated in 2010 to telecom-focused components, in particular, to build the institutional capacity of the key telecom stakeholders. During the last year of project implementation, the intensity of engagement on the part of the sector stakeholders increased significantly. Through activities such as the draft of a sector policy and the Human Resources and Assets Assessments as well as training for both the regulator CMC and MOC/ITPC, all telecom stakeholders became involved and used these opportunities to talk openly to each other for the first time, to share their views, and to address many issues pertaining to the roles and responsibilities of the operators, CMC, and MOC. It was also an opportunity to get a clearer picture of the current state of the national incumbent ITPC.

39. This was a major breakthrough in the sector dialogue, which will have long-term impact on the sector and help ensure the sustainability of the telecom-related outcomes. For instance, the Human Resources and Assets Assessments laid the ground for a strategic repositioning of ITPC and will be very useful for the valuation of the company. On these two items, the Government of Iraq has already requested Bank assistance through fee-based services (FBS). This could lead to major reform in the sector, including the adoption of a new telecom law, the restructuring of ITPC, and eventually the liberalization of the backbone and international gateway.

3. Assessment of Outcomes 40. The unusual nature of this project (an emergency project prepared and implemented shortly after the political transition in Iraq, a large scope covering very distinct sectors, an implementation in the midst of a civil war, etc.) led the ICR team to carry out the assessment in a way that considers the achievements of each of component separately and measures at the end their respective contributions to the overall project development objective. This task was challenging, as the TFTA was drafted in 2004 when Bank standards regarding project results and monitoring and evaluation (M&E) were not as clearly defined as today. Also, a secondary objective of the project, which was to “generate job creation through the development of the private sector" has not been included in the assessment for the simple reason that no indicator or outcomes were associated with this particular objective, and also because information related to jobs and unemployment are not available in Iraq. However, it is now recognized that the development of broadband has a positive impact on net job creation. For instance, the development of broadband services in Australia resulted in the creation of 25,000 jobs. But more importantly, several studies have shown that the indirect creation of jobs with the development of broadband services is even higher2: 10% annual broadband penetration increases the annual GDP growth by 0.24-1.5 p. p., and creates 1.5 to 4.5 indirect jobs for each job created.

2 Several studies have demonstrated the linkage between development of broadband and job creation: http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/2012-02- ICTPolicyNotes.pdf http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/1221302_NewFro ntier_PolicyNote_LowRes.pdf 10

3.1 Relevance of Objectives, Design and Implementation 41. In 2012, eight years after the appraisal, the PDO is still relevant. The private sector in Iraq still needs support to continue its development, with for example Iraq’s ranking in the Doing Business 2013 Report being 1653.Although the communications infrastructure funded by the project has been successfully implemented, this created a backbone only from Baghdad to three main provinces and the further expansion of a reliable national backbone is still necessary to ensure communications across the country. Moreover, it is needed to connect all the Banks’ branches across the country in order to enable a rapid development of the private sector outside the capital city. In addition, the development of communications and the transformation of the telecom sector in Iraq are a priority for the Iraqi government, and are also included in the new Bank Country Partnership Strategy.

42. At project closing, and based on the implementation history and the successive political crises in Iraq, the design and implementation are still relevant, although with some nuances. The first reason is that the four components cover several very distinct sectors (private sector development, including financing of small and medium sized enterprises and the establishment of Industrial Zones in Erbil and Basra, banking and finance, and telecom). The coordination of such a project requires expertise in different domains and complicates day-to- day management. The second reason is that each of these sectors faces very specific issues that could be resolved as part of a stand-alone or more focused project. Overall, the relevance is High.

3.2 Achievement of Project Development Objectives 43. In order to assess the achievement of project outcomes, this ICR uses the PDO mentioned in paragraph 6 and both lists of objectives mentioned in paragraphs 7 and 8 (taken from paragraph 26 in the main text of the TFTA and the Logical Framework in Annex 1). The list of all project objectives can be summarized in the table below. This table describes the hierarchy of objectives and their linkages (see also paragraph 44).

OUTCOMES Assessment To lay the foundation [for private sector development] by addressing certain key priorities in institutional capacity building Overall and essential communications infrastructure to help foster the MS PDO development of the private and financial sectors. A secondary objective of the project is to generate job creation through the development of the private sector. To provide the foundation for sound investment climate from a Sub PDO-I MS financial and institutional perspective. To develop a pipeline of opportunities for the private sector that Sub PDO-II U would lead to job creation. To make essential infrastructure for the survival of a modern Sub PDO- private sector, namely a reliable payment system, supported by III S necessary telecommunications infrastructure. Development of key enabling public institutions that support the Objective-1 private sector, including support for establishment of Industrial MU Zones in Erbil and Basra.

3 The recent Investment Climate Assessment (2012) and the new ILO-MSME analysis report points out progress over the past few years, but many challenges remain for the investment climate and the private sector in general. 11

Improving the competitiveness of Iraqi private firms by increasing their access to financial and foreign markets, including Objective-2 identifying export market opportunities for Iraq business and U support for the Economic Development Fund to provide finance for SMEs. Building reliable telecommunications infrastructure to Objective-3 interconnect key parts of the Central Bank's payments and S settlements system. Building a section of a high capacity national communications Objective-4 HS network capable of supporting corporate needs.

44. Each Objective (numbered 1 to 4 at the bottom of the list) represented the direct outcome of each component of this operation. We will assume, for the purpose of this evaluation that: Objective-1 contributed directly to Sub-PDO I, that Objective-2 contributed directly to Sub- PDO II, and that Objective-3 and Objective-4 contributed directly to Sub-PDO III.

45. For Objective-1, MOPDC hired consultants to prepare detailed diagnostics and proposals for the establishment of Industrial Zones in Erbil and Basra and also to prepare draft legislation to strengthen legal certainty for Industrial Zones in Iraq. These outputs were delivered at a workshop in 2010 and were well received by MOPDC, the Prime Minister’s Task Force for Economic Reforms, Kurdistan Regional Government (KRG) (for the Erbil Industrial Zone), and Basra Governorate (for the Basra Industrial Zone). However, the Government of Iraq and KRG have been slow to implement these proposals. In 2011 UNIDO agreed to take forward these reform proposals as part of a new three-year project launched in collaboration with the Government of Iraq in 2011, which is funded by the Italian Government. As shown in the table below, Objective-1 was achieved at 50 percent and is rated Moderately Unsatisfactory.

PDO Indicator 1 Baseline Target Actual Strengthening of the following 0 Successful The first three institutions: strengthening of objectives were not (a) Investment Promotion export promotion, fully achieved, Agency effective operation Objective (d) was (b) Export Promotion Agency of two industrial achieved (c) Alternative Dispute zones Resolution Capacity, and (d) Development plans for two industrial zones at Erbil and Basra. Intermediate Indicator 1 Baseline Target Actual Development of Institutional 0 Industrial Zone 2 Industrial Zone 2 Industrial Zone Framework: plans developed; plans developed; plans developed; 1. Industrial zones 0 public awareness 1 public awareness 0 public awareness development plans; campaigns to campaign to campaigns to 2. Public awareness campaign promote promote investment promote to promote investment; investment conducted; investment 3. Endorsement by the conducted; 3 business plans conducted; government of business plans 0 business plans developed for 0 business plans developed for public developed for public institutions developed for

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institutions to support PSD public institutions to support PSD public institutions to support PSD endorsed by to support PSD endorsed by Government. endorsed by Government. Government

46. For Objective-2, for the Economic Development Fund (EDF) which was established prior to 2003, detailed proposals and training workshops were provided to transform the administration of the EDF by introducing and adopting modern systems for assessing risks and administering loans for SMEs. Over this period 30 feasibility studies to seek finance were prepared. Unfortunately, over this period various Ministers had different visions for the EDF and wanted to allocate these monies for other purposes. The EDF was formally closed by MOPDC in 2011. However, the Government of Iraq recognizes that access to finance is a considerable constraint on the private sector and has focused on that topic in its National Development Plan. The capacity building for EDF provides an institutional platform for the Government to implement programs in this area in the future. Regarding the element of Objective-2 “improving the competitiveness of Iraqi private firms by increasing their access to financial and foreign markets, including identifying export market opportunities for Iraq business”, the program results in the preparation of 30 export development plans. The capacity building component for export market research was abandoned in 2009 due to lack of capacity and commitment by Ministry of Trade. However, the export market research component launched by the project continues to be undertaken by Ministry of Trade. Therefore, the achievement of Objective-2 is rated Unsatisfactory.

PDO Indicator 2 Baseline Target Actual Support of (i) Export Promotion 0 eligible firms 75 eligible firms 30 firms have Fund at the Ministry of Trade which have developed have developed developed export will channel TA to 100 eligible firms export plans. export plans. plans. to develop export plans; (ii) 0 private sector 50 private sector 30 private sector Economic Development Fund at the firms assisted to firms assisted to firms assisted to MOPDC to channel TA for Iraqi develop develop develop private enterprises to develop feasibility plans feasibility plans feasibility plans feasibility studies to seek to seek financing. to seek financing financing. Intermediate Indicator 2 Baseline Target Actual Private Sector Opportunities: 0 export ready 75 export ready 30 export ready 1- Number of private sector export firms assisted to firms assisted to firms assisted to ready firms assisted to develop viable develop viable develop export develop export export plans. export plans. plans. plans. 2- Number of private sector firms 0 private sector 50 private sector 30 private sector assisted to develop feasibility plans firms assisted to firms assisted to firms assisted to to seek financing develop develop develop feasibility plans feasibility plans feasibility plans to seek financing to seek financing. to seek financing.

47. Objective-3 has been fully achieved. At project closing, the Iraq Inter-Banking Network (IIBN) connected the headquarters of all banks in Iraq (52 banks across the country – PDO indicator 3) to the ICB in Baghdad. The target objective was 20 banks at project closing; the

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project therefore exceeded this target. As a result, the project positively impacted the following services of the Central Bank: (i) the Real Time Gross Settlement system, (ii) the Automated Clearing House, (iii) the Government Securities Registration system; and (iv) the Checks Enablement Project. The indicator below shows clearly the impact of the project on the inter-banking payment system and the achievement of Objective-3, with a more than 500% increase in number of transactions in four years. Objective-3 is rated Satisfactory.

PDO Indicator 3 Baseline Target Actual Connecting the Central Bank of Iraq (CBI) with two 0 20 52 Government owned Banks (Rafidein and Rasheed) and the headquarters of 20 private banks in Iraq with high capacity and reliable communications infrastructure

Year 2008 2009 2010 2011 2012 Currency IQD USD IQD USD IQD USD IQD USD IQD USD # of trans 5,844 1,276 11,145 2,695 20,746 4,289 30,234 5,275 30,740 6,898

48. Regarding Objective-4, the microwave network has been successfully rehabilitated (see Annex 2 on Outputs per Components). The project rehabilitated three routes departing from Baghdad (2,050 km): Baghdad-Ramadi-Trebil, Baghdad-Kirkuk-Mosul, and Baghdad- Amara-Basra. These three links are now fully operational and allow telecommunications between the capital city and other provinces of Iraq. This objective has been achieved 100 percent.

PDO Indicator 4 Baseline Target Actual Rehabilitation and upgrading of three of five national 0 3 3 background microwave routes: (i) Baghdad-Trebil, (ii) microwave Baghdad-Mosul and (iii) Baghdad-Ammara-Basra routes rehabilitated

In the case of Objective-4, the project went much further than the simple construction of the microwave network. At the request of the Government of Iraq, and following the allocation of an additional US$10 million to the project in October 2008, the Bank proposed to use the undisbursed PSD amount of that allocation (some US$1.7 million at the time of the March 2010 restructuring) to build the capacity of the telecom stakeholders (MoC, ITPC, CMC, and the operators) thus helping the sector consolidate the project’s recent achievements. The telecom sector is the second largest sector of the Iraq economy after oil in terms of shares of GDP, and activities financed after 2010 had a significant impact on this sector. In 2010, the core sector indicators “Improvement of the ICT sector as a result of technical assistance4”, “Access to telephone services”, and “Access to internet services” were added to the Results Framework. It is difficult to attribute the increase in access to telephone and internet services

4 This indicator measures the extent of the impact of World Bank TA activities on the sector. It is intended as a meta-indicator. This measure is a composite measure comprising five key areas of Bank work (with no special weighting among them). These show the impact of the project on: a) making the legal and regulatory framework more effective at delivering sector performance. b) Improving the capacity of the regulatory institution(s) to deliver on their mandate(s). c) Increasing the level of competition in the ICT sector. d) Improving the ICT policy environment in the country. e) Reforming state-owned assets in the ICT sector. The indicator is measures on a 1-5 scale with 1 indicating low impact and 5 indicating high impact. 14

to the project. However, the improvement of the ICT sector as a result of technical assistance was clearly an outcome of the project. Among other things, the project financed the development of the sector policy and the audit of all technical and human resource assets of ITPC, laying the ground for the effective transformation of the state-owned operator, and many highly technical training courses for MOC and CMC in order to improve the capacity of the regulatory body to deliver its mandate. According to the OPCS website, the first core sector indicator in the table below reaches the value of 3 if “a project results in guidelines addressed to regulators and policy-makers that cover a modest share of the sector and/or which may result in changes to the existing regulatory environment”, or if “a project makes a modest impact on the capacity of the regulator, such as participation by regulatory staff in a regional training program, or the provision of fellowships for study”, which was clearly surpassed by the project. The OPCS website also states that this indicator reaches the value of 3 if the project has a significant impact on the sector policy environment, for example by helping drafting a universal access policy through engaging relevant stakeholders”. The project has clearly achieved that level of impact by financing the development of the new telecom sector policy. The Objective-4 is rated Highly Satisfactory.

Intermediate Indicators (added after restructuring) Baseline Target Actual Improvement of the Telecom sector as a result of technical 0 3 3 assistance Access to telephone services (fixed mainlines plus cellular 66.7 73.4 79.8 phones per 100 people) Access to internet services (number of subscribers per 100 4.0 4.4 10.4 people)

49. To summarize, Objective-1 is rated MU and contributed directly to Sub-PDO I. Based on the indicator measuring the number of transactions to and from the Central Bank of Iraq (CBI) (following paragraph 47), it is clear that the infrastructure built under Component 3 made a difference and improved significantly the efficiency and effectiveness of the inter- banking payment system, and hence contributed directly to the development of the financial and private sector. The success of the Central Bank network, a prerequisite to financial sector development, contributed directly to Sub-PDO I. Therefore, Sub PDO I is rated Moderately Satisfactory. Objective-2 is rated U and contributed directly to Sub-PDO II. Therefore Sub- PDO II is rated Unsatisfactory. Finally, both telecom-related Objectives-3 and -4 are respectively rated Satisfactory and Highly Satisfactory, have delivered (sometimes exceeded) the expected outcomes, and generated measurable results on the ground. Therefore, Sub-PDO III is rated Satisfactory. Overall, in this assessment, those parts of the project that were successful in the uncertain political environment had important impact on the financial and private sector in Iraq, such as the Central Bank inter-banking network, and the excellent performance of the telecom sector. In addition, in the improved enabling environment facilitated by the project, telecom companies are the best hope of depth on the Iraqi stock market, thus aiding the deepening of the securities market through non-government issuers5. Therefore, the overall achievement of outcomes rating (efficacy) is rated Moderately Satisfactory.

5 http://www.reuters.com/article/2012/10/02/iraq-zain-idUSL6E8L2IMW20121002

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3.3 Efficiency 50. The efficiency of Components 1 and 2 are difficult to measure given the evolving context on the ground, and the outputs that were delivered. For Component 1, the detailed legislation and plans for Industrial Zones were prepared and transmitted to the Government of Iraq and there is ongoing work being undertaken by UNIDO and the Government of Iraq. For the outputs of Component 2, the identification of export market opportunities by the Ministry of Trade and assistance in developing feasibility studies from MOPDC, the Ministry of Trade closed in 2009 the capacity building element, although its focus on export market research and development continues. MOPDC received detailed support for EDF which was closed in 2011. Because of the security context and uncertainty on the ground the cost of engaging consultants was very high, including their need to hire security protection and life support while in Iraq, typically comprising over half (or more) of the contract amount. On a number of occasions only one bid was received for contracts, resulting in delays. In addition, capacity building activities for ministries usually involved workshops being conducted outside Iraq, because secure and safe facilities for in-country workshops were unavailable. This also increased costs significantly. Given the unique situation in Iraq, it is therefore not possible to benchmark Component 1 and 2 with other countries. Rather, the approach taken here is to indicate the outputs delivered and the cost. See Annex 2 for further information.

51. For Component 1 (Industrial Zones) detailed plans for industrial zones in Basra and Erbil were prepared and submitted to the Government of Iraq in 2010. The plans included pre- feasibility analysis design, feasibility and design, an assessment of the legal, regulatory, and institutional framework (including preparation of draft legislation for Industrial Zones in Iraq), plans and manuals for development, management, and operation of Industrial Zones (including use of public-private partnerships) and case studies. In addition, the MOPDC received significant capacity building and support through several workshops and seminars. The total cost of this component from 2004 to 2010 was US$6.6 million. See Annex 2 for further information.

52. For Component 2 (Strengthening the Economic Development Fund and increasing access for Iraqi business to financial and foreign markets, including identifying export market opportunities), a series workshops for MOPDC meant to strengthen the capacity of the EDF was held from 2005 to 2009 (see also paragraph 46). As noted above (paragraph 46), capacity building for identifying export opportunities was abandoned by Ministry of Trade in 2009. However, the export market research and development component continued to be implemented. The total cost of this component from 2004 to 2010 was US$5 million.

53. Comparison with unit costs of physical outputs in-country. The cost of the IIBN infrastructure financed by the Bank was EUR 30,738,445. The World Bank imposed the use of a Letter of Credit for the payment of the supplier Alcatel-Lucent. This procedure was very long and cost the Government of Iraq more than US$400,000 in penalties. In addition, it resulted in the contract coming into force only a year after signing. Due to the political situation in 2006 and 2007, the supplier had to wait until 2008 to start the work and completed the infrastructure only in 2009. Overall, the construction of the three microwave links with a total length of 2,050 km took more than three years between contract signing and completion of works. This comes to a cost per kilometer of about EUR 15,000. In Lebanon, another post-conflict country of the MENA region, the cost of the two fiber optic backbones recently built were respectively EUR 24,000 per kilometer and EUR 25,000 per kilometer. Taking into account the higher severity of security issues in Iraq, the cost of EUR 23,000 was very reasonable. However, for reference, in Europe, the current cost of this technology is

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between EUR 2,000 and EUR 4,000 depending on the landscape and the bandwidth. So it is clear that the difficult environment on the ground was a key factor in the price increase.

54. Cost per beneficiary. The cost per beneficiary is difficult to measure. But a proxy could be the total cost of the infrastructure divided by the population of the regions reached outside Baghdad (although inhabitants of Baghdad also benefit from this network when making calls to other regions). The total population in the South, West and North regions reached by the new infrastructure exceeds 12 million.6 Hence the new infrastructure is estimated to bring reliable communications to 12 million inhabitants at an average cost of EUR 3 per beneficiary, which corresponds to the average in other telecom backbone infrastructure projects (e.g., Congo CAB: US$19 million for 4 million inhabitants).

55. Overall costs of goods and services. The unit costs take into account the security costs that usually more than double the unit price. In the case of the infrastructure contracts, and based on the fact that the works were outside Baghdad, in isolated regions, and at the peak of the political crisis (2006-2008), the cost per beneficiary is reasonable. The efficiency of the project outcomes is rated Moderately Satisfactory.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 56. The relevance of the PDO, design, and implementation at the end of the project is rated High. The achievement of outcomes (efficacy) is rated Moderately Satisfactory. Regarding the efficiency, comparators for infrastructure show that the project has been efficient despite a very challenging environment and rated Moderately Satisfactory. Overall, the outcome is rated Moderately Satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development 57. Not applicable.

(b) Institutional Change/Strengthening

58. For Components 1 and 2 institutional strengthening included enhancing the capacity of MOPDC to implement industrial zones and administer programs to support provision of finance for small and medium sized enterprises. In addition, Ministry of Trade continued with the export market research component launched by this program. As mentioned above, the project shifted its focus in 2010 toward institutional strengthening for MOC and other actors in the telecom sector through a series of workshops suggested by the Bank. The results are spelled out in paragraph 62 below.

(c) Other Unintended Outcomes and Impacts (positive or negative)

6 July 2011 population in Iraq by Governorate. http://www.citypopulation.de/Iraq.html

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59. Not applicable.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 60. Following the restructuring in 2010, the Bank organized a series of workshops for each component involving all stakeholders, in order to address institutional issues that were deeply affecting the development of the telecom sector: lack of clear strategy (no sector policy), absence of a modern telecom law, confusion of roles and responsibilities among the stakeholders (e.g., MOC, CMC, and the operators). In order to avoid political interference during these workshops, the first four were held outside Iraq (Istanbul and Beirut). The “neutral” environment and the assistance of the Bank as an “honest broker” helped break the ice and encouraged the different parties to engage actively in the sustainable transformation of the sector.

61. The first outcome of the stakeholder workshops was the draft sector policy that benefitted from the technical expertise of international consultants, and includes best practice elements on regulation and on distribution of roles and responsibilities. The second outcome of the workshops was the potential strategic repositioning of ITPC. The workshops were an opportunity to openly address issues pertaining to the national operator: a staff of 22,000, the ongoing loss of technical expertise through “brain drain”, and its money-losing status, making ITPC a huge liability for MOC. The workshops helped MOC understand the issues and the different options to transform ITPC into a profitable communications carrier. The third outcome was the revision of the law. For the past five years, and in the absence of a clear strategy, different telecom stakeholders have pushed different versions of a new telecom law. The workshops helped the Government pick the best elements from the different versions and form a modern law, aligned with international best practice. Finally, the workshops allowed all telecom stakeholders, including parliamentary commission and prime minister’s office to get involved in the discussion and bring another perspective to the debate.

4. Assessment of Risk to Development Outcome 62. Rating: moderate. Risk to development outcomes is moderate, given the commitment level of GOI and in particular MOC and the operators, as well as the level of infrastructure development that has taken place in project intervention areas.

 Institutional risks to development outcome are moderate. With the numerous trainings and workshops carried out by the project, mainly focused on building capacity of both MOC and the regulator, as well as members of parliament (the Telecom Commission), the project reinforced the capacity of the key institutions. One of the main achievements is the draft sector policy, developed by MOC and presented to all stakeholders for input and recommendations. This led to a better definition of roles and responsibilities among the telecom stakeholders. The risk of having this positive momentum reversed is moderate, as only a strong political crisis between MOC and the other players would change the cooperation between them.

 Infrastructure risk to development outcomes is moderate. The infrastructure built under the EPSD project is now integrated into the institutions they support: ITPC and CBI. Their maintenance and management is mainstreamed in ITPC and CBI budgets. Therefore, a deterioration of this infrastructure in the short term may be due to the lack of maintenance or an act of terrorism to damage the infrastructure and affect the institutions. The risk of the former is low for CBI and moderate for ITPC as both institutions need the

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infrastructure to operate. The risk of the latter is moderate but the currently tense political situation may increase such a risk. Overall the infrastructure risk to development outcome is moderate. 5. Assessment of Bank and Borrower Performance (a) Bank Performance in Ensuring Quality at Entry

63. Rating: Moderately Satisfactory. The project preparation was carried out in the context of an emergency in a very difficult, rapidly evolving, and unusual context. With the benefits of hindsight Components 1 and 2 were perhaps too ambitious, although it would have been difficult to predict in 2004 the extent to which the security situation in Iraq would deteriorate in the coming years and have such an adverse impact in achieving identified outcomes. There was also little room to maneuver given the constraints imposed by the reconstruction program, the deteriorating security, political, and institutional situation on the ground, and the considerable uncertainties these generated for the project team. The preparation had a few shortcomings including having to launch the project with a lack of available data to inform project design, very tight timelines, and absence of a developed results framework (in particular good results indicators with baseline and target values).

(b) Quality of Supervision 64. Rating: Moderately Satisfactory. The Bank conducted several regular supervision missions between 2004 and 2009. Several workshops were conducted, including a Project Launch Workshop (January 11-19, 2005) involving 32 representatives from the Government of Iraq and private sector; From 2010 with the presence of the task team leader in Baghdad toward the end of project implementation, significant progress was achieved for Components 3 and 4. Furthermore, the lack of an effective M&E reporting framework was a major shortcoming. Indicators for the telecom components were only introduced in the Results Framework in 2010.

(c) Justification of Rating for Overall Bank Performance 65. Rating: Moderately Satisfactory. Bank supervision took place in an extremely difficult environment which was physically dangerous for much of the project’s duration. Even so, the Bank’s efforts (as described in the previous paragraph) were crucial to obtaining significant positive outcomes. The failure to restructure Components 1 and 2 in the face of their non-performance and the failure to revise the project’s original inadequate results framework are a significant shortcoming. Indicators for the telecom components were only introduced in the Results Framework in 2010.

5.2 Borrower Performance (a) Government Performance 66. Rating: Moderately Satisfactory. The Government of Iraq, and in particular the Ministry of Planning and Development Cooperation and Ministry of Communications, played a crucial role during the lending phase. By mobilizing their own resources in very difficult and challenging conditions, these two Ministries showed their clear commitment. In particular, MOC proved to be an effective counterpart through its intensive focus on implementing Components 3 and 4.

(b) Implementing Agency or Agencies Performance

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67. Rating: Moderately Satisfactory. During the supervision phase the MOPDC and MOC were clearly committed to high quality preparation and implementation. All formal Agreements were complied with, notwithstanding some understandable delays in implementation especially during the period 2005 to 2008 when widespread violence and conflict impeded implementation. The performance of MOC and related agencies was clearly superior to MOPDC. (c) Justification of Rating for Overall Borrower Performance 68. Rating: Moderately Satisfactory. While Components 1 and 2 were progressively abandoned by MOPDC (and Ministry of Trade for the export market research) it is important to note that this was a result of decisions taken at the political level rather than by senior officials. For Component 1 there was clear commitment but a lack of capacity to rapidly implement, mainly because implementation of the industrial zones component in particular could not be facilitated solely by MOPDC and required effective coordination of several parts of the Government of Iraq, including at the sub-national level. Such wide-ranging coordination over this period was beyond the capacity of GOI. For Components 3 and 4 MOC remained strongly committed throughout the duration of the program and was able to implement without the need for coordination and cooperation from other parts of the Government of Iraq.

6. Lessons Learned 69. The lessons derived from the project can be summarized below:

 The overarching lesson is that the project was too ambitious in its scope and objectives from the beginning. Nearly all the other lessons can be derived from this. The first one is that in similar post-conflict settings, project preparation should proceed from as robust data as it is possible to obtain, along with a detailed analysis of the actual situation on the ground, particularly institutional issues and constraints. Any assessments carried out should take the time necessary to put together such an accurate picture in order to lay the best possible foundation for the project and this process should not be influenced by pressures for quick project preparation.  The decision to launch a project of this type with various components covering distinct sectors should be made only if there is a basic implementation capacity available in the respective ministries and preferably if champions in those ministries can be identified during preparation. In addition, the reforms to be undertaken should not be too complex for the available capacity. Finally, such a multi-sectoral project requires skillful, hands- on management from the Bank side to promote the needed coordination, collaboration, and communication across sectors and Bank unit teams. If these factors are not in place, it is better to go with several simpler stand-alone projects and coordinate across sectors through regular interactions between task teams. Synergies should be identified during project preparation, and regular workshops involving both projects should be held regularly to promote coordination between sectors.  In this regard, it is unclear whether a project based on World Bank investment lending procedures was appropriate so soon in the post-conflict and fragile conditions evident in Iraq after 2003. Especially in the first few years after 2003, the capabilities of the MOPDC in particular were so weak that they were challenged to effectively implement and administer their own internal policies, systems, and processes. But the instrument employed here required MOPDC to adopt WBG policies, procedures and systems to administer the funds and implement the agreed program. This is necessary to ensure

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probity and proper monitoring and evaluation. However, given that capacities of MOPDC at the beginning of the project were so weak, this model of support may have kept MOPDC from strengthening their own internal policies, systems, and processes. This may generate costs which are largely hidden. In addition, the proposed PSD reforms were too complex for MOPDC’s and the Ministry of Trade’s available capacity (paragraphs 14, 33, 46, and 68). In a similar post-conflict situation in the future, it may be more useful to find ways to help the public sector strengthen its internal policies, systems, and processes first through Bank-provided or –financed training despite pressure for quick project implementation. Indeed, as mentioned above it is important to note that the most successful institutional strengthening initiatives of the project were those carried out with MOC and related agencies through a series of Bank-provided and –financed workshops.  To remark further on the telecom/ICT-related TA, it is worth noting that the original design of the overall telecom component focused on infrastructure only, whereas the 2010 restructuring and aftermath clearly demonstrated that this additional TA had a significant impact on overall ICT sector development and on laying the foundation for further private sector development in Iraq. This has also been demonstrated in regional connectivity projects (e.g., WARCIP, CAB, RCIP). Indeed, this combination of connectivity investment and enabling environment TA was the principal reason for the rating of Highly Satisfactory for Objective-4. Therefore, especially in similar post- conflict settings, telecom infrastructure investment should always be complemented with this type of TA in order to maximize impact (increased usage, penetration, etc.) and economic gains.  With hindsight small highly flexible operations (that are expandable if things work out) with a mix of Bank and recipient execution calibrated to the capacities of the recipient (instead of complex cross-sectoral operations from the outset requiring coordination across both Bank units and government ministries) is the way to go in similar post- conflict situations. Where there were appropriate conditions on the ground, rapid response from the Bank project staff, based in Iraq to a large degree, contributed to the success of key components of this project. They were able to provide quick response to problems when they arose and facilitated relationship building with counterparts and project restructuring as needed.  The success of the project is linked to the overall effort that was sustained over time, in a context of political turmoil and uncertainty. While focusing on emergency needs, the project was also able to address capacity building issues and to set the basis for effective institutional strengthening. Such an approach can only be developed and implemented over time; it is essential for establishing meaningful reforms and achieving concrete progress on the ground.  In countries with an unstable political environment such as Iraq, keeping the scope of projects straightforward and simple is essential. Whether they deal with PSD or other sectors, having a clear focus and at the same time including some forward looking, developmental elements, and allowing for maximum feasible flexibility of implementation greatly facilitates successful implementation. If a project is overambitious in such an environment, the ability to restructure as soon as possible is key.  PSD should be included in the Bank’s initial support for fragile and post conflict environments. A focus on reconstruction and capacity building for PSD institutions and the establishment of functioning markets can play a key part in development of the

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private sector and generate jobs on this ground. In such contexts, PSD can provide a platform for rapid expansion of the private sector. Associated job generation can play an important role in helping fragile countries or regions recover from conflict and achieve stability. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies MOPDC provided minor drafting comments which were incorporated into this report. MOC submitted their own assessment report, included in Annex 5 to this ICR.

(b) Cofinanciers N/A

(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) N/A

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Dev. of enabling public institutions that support the 6.80 6.60 97 Private Sector. Improving the competitiveness of Iraqi private firms by improving 5.00 5.00 100 their ability to access finance and foreign markets. Building reliable telecommunications infrastructure to interconnect key parts of the 3.00 3.20 106 central bank’s payments and settlements system Building a high capacity national backbone communications network capable of supporting 39.50 49.60 125 corporate needs and develop human capacity to operate it Financing expenditures directly related to project management - 0.20 0.20 100 MOPDC Financing expenditures directly related to project management – 0.50 0.70 140 ITPC

Total Baseline Cost 55.00 65.00 118

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00 Total Project Costs 55.00 65.00 118 Project Preparation Costs 0.00 0.00 .00 0.00 0.00 .00 Total Financing Required 55.00 65.00 118

(b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Trust Funds 0.00 0.00 Iraq Reconstruction Trust Fund 55.00 65.00 118

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Annex 2. Outputs by Component

Component 1: Development of the institutional framework to enable PSD ($6.6 million).  Basra Industrial Zone Legal and Regulatory Assessment  Erbil Industrial Zone Legal and Regulatory Assessment  Draft Industrial Law on Industrial Zones  Operating manuals and evaluation manuals

Component 2: Private Sector Opportunities (US$5 million).  Feasibility studies - 30 completed and delivered  Export plans – 30 completed and delivered  Review and assessment reports and program design and implementation plan reports for EDF and Export Promotion Fund (EPF)  8 training workshops  Operating manuals and evaluation manuals and final report  EDF Study and training tour  Training of EDF and EPF staff

Component 3: Payments System Supporting Infrastructure (US$3.2 million).  Three distribution Sites connected with STM-1 and the two Central Bank Sites  28 participant Banks sites in Baghdad connected with three distribution sites  26 participant Banks Sites outside Baghdad connected with the main Central Banks.

Component 4: Telecommunications national backbone network (US$49.6 million).  Supply, installation and commissioning of three backbone microwave routes and the associated spur microwave routes on a single responsibility basis utilizing tried and tested technologies (2,050 km).  Provision of training and operational telecommunication services.

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Annex 3. Economic and Financial Analysis

1. Project beneficiaries and benefits. The project benefited MOPDC and MOC (and related agencies). More broadly, the Iraq private and financial sectors benefited from the provision of telecom infrastructure and support services described in this report.

2. Methodology. The EPSD IDTF was an emergency project and did not require a rigorous economic and financial analysis in accordance with Bank’s operational guidelines and procedures (OP.8.50). Therefore, an ex-ante conventional cost benefit analysis (CBA) was not conducted at appraisal. Although the ICR team was unable to ascertain cost efficiency for Components 1 and 2, the team was able to estimate cost efficiency for the main telecom infrastructure by comparing the project’s unit cost with similar projects in the MENA region. The ICR team examined various economic aspects (macro and micro) to assess the impact of the investment on the Iraqi economy and the telecom sector.

3. Macro-economic aspects

Although no economic analysis (macro or micro) was carried out during project preparation or implementation, the impact of the telecom infrastructure at the macro-economic level can be assessed broadly. This new infrastructure brings broadband services to the Iraqi population. Raul Katz has established in his “Impact of Broadband on the economy” (ITU, 2012), that a 10% increase in a country’s broadband penetration rate results in an increase of at least 0.24 p.p. of the GDP. A McKinsey study suggests an even higher estimate, with an average increase of 0.7 p.p. 7 Similarly, an increase of 10% of mobile penetration results in a 0.8% increase of the GDP.

The backbone infrastructure funded by this project re-connected 3 regions to the broadband network, covering 12 million people (one third of the population), when it became operational in 2008. Also, the infrastructure provided bandwidth and connectivity to the three mobile operators, adding several million indirect beneficiaries through interconnection with ITPC. Between 2008 and 2012, the number of mobile subscribers in Iraq grew from 17.8 million to 29.2 million, a 50% increase, of which almost one third were in the regions re-connected by the project investment. This increase in mobile penetration is an indication that infrastructure funded by the project could have contributed to an increase in Iraq GDP by as much as 1.33 p.p.8. We cannot directly attribute the growth in mobile and broadband subscribers to the backbone investment only: the backbone infrastructure has contributed, with other factors, to the growth in subscribers. But while data on increase in broadband subscription in the project regions is unknown, it can be assumed that the backbone funded by the project increased broadband and mobile penetration, and could thus have a positive impact on GDP growth.

4. Micro-economic aspects

The project’s impact on sector revenues can be estimated using ARPU 9 . A simple integral calculus shows total revenue for the operators of more than $2.8 billion with an EBITDA of $300 million in 2011. In the case of Iraq, the ARPU was at $33 in 2004, when the project started (mobile/broadband services were mainly in Baghdad and other big cities), and dropped to $12.19

7 Average of 5 country studies, including the UK, Australia, New Zealand, Malaysia, and a Middle Eastern country, from various sources (2003 and 2004) and Qiang and Rossotto 2009 study 8 Using the assumption that a 10% increase in mobile penetration increases GDP by 0.8 p.p. and that one third of the 50% increase in mobile penetration occurred in the project areas: (5*.33)*0.8=1.33. 9 Average Revenue Per User 25

in 2007, and has since remained stable ($13.33 in 2011).10 In the case of component 4, the market of 12 million people reached by the infrastructure forms roughly 30% of the total mobile/broadband market in Iraq, which means that the share of the direct beneficiaries in the total net profit (EBITDA) of the sector is roughly $100 million in only one year. So, it is clear that the investment of $36 million in telecom infrastructure has been very cost efficient.

Finally, by comparing the cost of the investment with similar investment in other countries (Africa and Middle-East), it can be seen that, taking into account the enormous cost of security for contractors, the unit costs have been reasonable.

Table 2.1. Comparison of unit costs of project outputs by country Output Iraq (EPSD Grant) Congo (USD) DRC (USD) Lebanon (USD) (USD) Backbone/km 25,000 14,000 19,000 24,000

Source: Figures obtained from PAD CAB Congo APL3, study report on infrastructure cost in DRC, and most recent works implemented by the Ministry of Communications in Lebanon.

5. Cost per beneficiary. With a cost per beneficiary of approximately $1, the investment in telecom infrastructure has been cost-efficient. The impact on the sector revenues far outweighs the initial investment.

Table 3.1. Project Cost per beneficiary by type of project

Cost per Total Cost Total Cost per Indirect per Activity Direct Indirect Total Direct Beneficiar Beneficiar cost Beneficiari Beneficiarie Beneficiarie Beneficiar y y Activity (US$) es s s y (US$) (US$) (US$) 36 12 Backbone million11 million12 23 million13 33 million 3 1.56 1.1

10 Typically, the ARPU drops asymptotically while infrastructure is being developed. This is because an operator reaches wealthy consumers first, who can pay for more added-value services (high ARPU). As infrastructure develops, an operator extends its market toward more modest consumers (lower ARPU in less wealthy regions). 11 Total cost of the infrastructure contract with Alcatel-Lucent 12 Estimated population of the regions reached by the new infrastructure outside Baghdad 13 Population of Iraq outside the regions covered by the new infrastructure. Potentially, the whole population of the country will benefit from the backbone. 26

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending General Project Tufan Kolan Iraq Trust Fund Manager MNACS Oversight Lead Private Sector Development Mohammed Mustafa MNSIF Task Team Leader Specialist Private Sector Lead Private Sector Development Development John Speakman MNSIF Specialist (Procurement, FM, implementation) Nazaneen Ali Procurement Consultant MNACS Procurement Senior Financial Management Financial Ayman Abou Haija MNACS Specialist Management Hiroko Imamura Senior Counsel LEGMS Legal Environmental Kanta Rigaud Senior Environmental Specialist MNACS Safeguards A. Shanmugarajah Principal Telecom Engineer CITPO Telecommunications Rajesh Pradhan Lead Operations Officer CITPO Telecommunications

Supervision/ICR Lead Private Sector Development Mohammad Mustafa MNSIF Task Team Leader Specialist Lead Private Sector Development John Speakman MNSIF Task Team Leader Specialist Lead Private Sector Development Stephen Rimmer MNSF1 Task Team Leader Specialist Operational Steve Wan Yan Lun Operations Analyst MNSF1 Support/Quality Assurance David Satola Lead Counsel LEGPS Legal Carlo Maria Rossotto Lead ICT Policy Specialist TWICT Telecommunications Doyle Gallegos Lead ICT Policy Specialist TWICT Telecommunications Svetoslav Tintchev Sr. Telecommunications Engineer TWICT Telecommunications Rajendra Singh Sr. Regulatory Specialist TWICT Telecommunications Marc Lixi Senior Operations Officer TWICT Telecommunications Zaid Safdar Operations Officer TWICT Telecommunications Mather Pfeiffenberger Operations Analyst TWICT Telecommunications Joulan Abdul Khalek Consultant TWICT Telecommunications Ndeye Anna Ba Program Assistant TWICT Telecommunications

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget and Trust Fund) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending

FY05 313,347

FY06 18,960 Total: Supervision/ICR FY05 125,216 FY06 264,290 FY07 154,305 FY08 206,892 FY09 301,987 FY10 198,521 FY11 279,018

FY12 269,669 FY13 22,541

2,154,752 Total:

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Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR

Draft ICR was shared with MOPDC and MOC for comments. MOPDC provided a number of suggestions which were incorporated into this draft.

Implementation Completion Report ICR

Emergency Private Sector Development Project (EPSDP) Telecom Components

Republic of Iraq Ministry of Communications Project Management team (PMT)

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Acronyms

MoC Ministry of Communication PMT Project Management Team EPSD Emergency Private Sector Development ITF Iraq Trust Fund IDA International Development Association ICR Implementation Completion and Results report ITPC Iraqi Telecommunication and Post Company IIBN Iraqi Inter Banking Net work CH Cheques SVPO Small Value Payment order

Preamble

This report is issued by Project Management Team (PMT) at the Ministry of Communication (MoC) evidencing of achievements on the ground the Implementation Completion and Results of the Emergency Private Sector Development Project /Telecom Components, as an integral part of the World Bank's drive to increase development effectiveness, by focusing in achievements (Results) rather than implementations (process) through a continuous process of self-evaluation, lesson learning and application, sharing of knowledge, and being accountable for results. The lessons learned from ICRs improve the quality and effectiveness of Bank loans/credits, especially for follow-on operations, while borrower/stakeholder participation in the ICR process enhances later designs, preparation, and implementation.

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Introduction

The infrastructure of Iraq and particularly telecommunication sector exposed to the mass destruction in the last war on 2003, over 150 telecom sites were destroyed. Within the rehabilitation program in 2004 through community (World Bank, United Nations agencies and donor States or other bilateral) based on International donors’ Conference on the Reconstruction of Iraq held in Madrid in October 2003, a package totaling up to USD 55 million then became USD 65 million was allocated towards a project of Emergency Private Sector Development (EPSD) financed from the Iraq Trust Fund (ITF) Trust Fund, Grant No.: TF 054462, Project ID: P091344, within the International Reconstruction Fund Facility for Iraq (IRFFI) and is administered by the World Bank (WB).

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The Ministry of Planning & Development Cooperation (MPDC) is the Government’s designated donor coordination agency for Iraq’s reconstruction program. The Iraqi Emergency Private Sector Development project is being implemented to provide priority building blocks to facilitate private and financial sector development and ensure its growth leading to sustainable employment generation in Iraq

Of the total allocated budget mentioned above, USD 51million of grant aid was allocated towards Telecom Sector Projects with the Ministry of Communication through its subsidiary as one of the beneficiaries, the Iraqi Telecom and Post Company (ITPC), and up to USD 14 million to meet the needs of Ministry of Planning & Development Cooperation.

The Telecom Sector Projects objective is to provide a resource or an environment for Private Sector Development through rehabilitant or building a nationwide backbone or infra-structure communications network capable of supporting corporate needs, and developing the human capacity to operate it efficiently.

Telecom Sector Components The Telecom Sector comprised three components that being funded by grant of World Bank Iraq Trust Fund mentioned above are: 1- Microwave Transmission System for the three main back bone routes of Iraq. 2- Iraqi Inter Banking Network (IIBN). 3- Technical Assistance for telecom sector reform in Iraq (added within project restructuring in March 2010).

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Component 1: Microwave Transmission System The “Microwave Network Project” is one of the components dealing with telecommunications infrastructure development within the Iraqi Emergency Private Sector Development project is being implemented to provide priority building blocks to facilitate private and financial sector development and ensure its growth leading to sustainable employment generation in Iraq. The component of the overall Project contributes to the building of a high capacity national backbone communications network, capable of supporting corporate needs and of developing the human capacity to operate it efficiently.

The overall Project addresses the rehabilitation and upgrading of three of the five microwave routes included in ITPC’s rehabilitation Program.

The remaining two routes (North-West and South-West) are slated to be developed under a Japanese Government Assistance Program to Iraq.

The microwave network component supports ITPC’s rehabilitation program for 2004 – 2007 approved by the Iraqi Strategic Review Board to build a modern and integrated national digital backbone microwave network to improve delivery of communications services to the government and to the people of Iraq. In particular, this component focuses on rehabilitating and upgrading three of the five national backbone microwave routes and associated spur routes that have been severely damaged.

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Figure 1., Country-wide Map, Microwave Routes, shows the original five microwave routes being undertaken by ITPC’s rehabilitation program. Our Microwave Project three routes (the ones specifically adressed by this present document) are the West route (Baghdad-Ramadi-Trebil), the North-East route (Baghdad-Kirkuk-Mosul) and the South-East route (Baghdad-Amara-Basra).

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These microwave links providing immediate voice and data connectivity for the key cities in the districts of Baghdad, Baquba, Kirkuk, Arbil, Mousa, Sulaimaniya, Dohuk, Ramadi, Hadetha, Alquaim, Kut, Ammara, Basra and Um Qaser, and improve national and international connectivity. The microwave network component consists of two parts: (i) supply, installation and commissioning of the above three backbone microwave routes and the associated spur microwave routes on a single responsibility basis utilizing tried and tested technologies that can be rapidly rolled out in the current Iraq environment; and (ii) provision of training and operational telecommunication services. ITPC provide interconnecting with all interested telecommunications and data service providers and provide transmission capacity at cost-based prices in line with the principles of transparent regulation and fair competition. Project Procurement Aspects  Under guidelines and management of World Bank Task Team with Project Management Team (PMT) from MoC/ITPC Tender announced in closed date in  About 30 bidders submitted their proposals, 7 bidders where short listed.  After evaluation process in 21st June 2006, ITPC awarded the contract for the microwave network component to Alcatel-Lucent (ALU).  Contract price 30,738,445 Euro.  Contract came into force June 22nd 2007 after ALU confirming the letter of credit (LC).  Contract Amendment Jan 10th 2008 (+ 619 k Euro).  ALU split between equipment part 24 Million Euros to ALU Italia and the services part 7 Million Euros to Egypt.  On June 22, 2007, a letter of credit was confirmed and the contract came in force.  Contract validity was 72 weeks.

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 Completion of the project for all components of the microwave network was by November 2009.

Project Technical Aspects The Microwave Project is a transmission project addressing the supply and installation of digital microwave routes . These routes interface with other facilities of the telecommunications system (local plant, switching, other microwave routes and fiber optics transmission routes) at the Digital Distribution Frame (DDF) level. The routes will be supported by a Network Management System (NMS) connected to the Management Systems of the other facilities just mentioned. All traffic routing, including the one in support of service restauration, is controlled at the switching system level and is not part of the functionality of the Microwave Project. However, the Microwave-Project NMS Center shall be colocated in Baghdad (Mamoon) with other network management facilities in order to facilitate service protection and restauration switching. Using the ring topologies established by the combined five routes and the existing fiber-optics routes, the sevice interruptions arising from the failure of any of the transmissison routes may be restored by looping around the complemnentary path offered by an eventually available ring structure.

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Challenges MW Backbone  Security

- Most Areas were under US army control. - Sites not secured in middle of nowhere. - Difficulties in movement of Employees due to sectarian. - Curfews in Baghdad, North and west Areas from time to time. - Site access difficulties due to security forces. - Road closing by side road explosives.  Custom Clearance due to procedure difficulties

 Return back of two shipments (power equipment) due to Turkish army.

 Delay in Frequency Plan approval (CMC)

 Delay in construction of the New Towers due to Soil Tests Readiness & redesigning of its Foundations.

 Access difficulties to BAQUBA site due to owner of the Site.

 Mosul under curfew.

 Difficulties in coordination between Kurdistan Administration and Governmental Administration which caused non -commissioning of Kelek Site till now.

West Route  Area under US army control.  Sites not secured in middle of nowhere.  Area still under pressure.

The following are the Top Issues facing the project:  Site Readiness.

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 Completing the project on time and on budget.  Poor communication during the weekly conference call.  Lack of monthly project meetings (face to face).  Custom Clearance for all routes  Site Readiness  Frequency Plan approval (CMC)  Recovery of lost time  Completing the project on time and on budget  Poor communication during the weekly conference call  Lack of monthly project meeting (face to face)

Risk  -Transportation of materials from warehouse to various Sites.  Difficulties in following – up the construction of the New Towers.  - Environment disasters and terrorists action.  - Physical attack from the inside of main sites, the --- Participating Banks and core sites (Switches Sites).

Inter-Banking Network  contract turn-key project (Goods, Services, Consultant Services), signed on 24th September, 2007 with Alfa-Consult Company, US$ 2.8m, period 180 days.  Accomplished on February 2009 (LC activation 6 months delay)  The project is for networking the 28 Banks head quarters sites with CBI (Central Bank of Iraq) for supporting Interbank Payment System (IPS) and other applications operated by the Central Bank of Iraq such as monitoring money transactions ...etc.

The Network is formed by two main Layers, Link Layer and Routing with security Layer:-

 Link Layer composed:-

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* Microwave links to connect three distribution Sites (WiMax Base Stations) with STM-1 and the two Central Bank Sites (CBI-1&CBI-2) also with STM-1 * WiMax to connect the (28) participant Banks sites in Baghdad with three distribution sites (Mammon ITPC Communication Center, Rafidain Bank, Alweyia ITPC switching) at 2Mb/s with redundant by connecting them through two distribution Sites . * V-Sat to connect the (7) participant Banks Sites out Baghdad at 1Mb/s with main Central Banks.   Routing and Security Layer is formed of L2, L3 switches Firewalls, and Crypto Routers. This Layer is operated on top of the Link Layer with maximum level of independency

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 The Project Outlets  Real Time Gross Settlement system - RTGS  Automated Clearing House - ACH  Government Securities Registration system - GSRS  Checks Enablement Project - CEP 1) Number of Participate Banks (PBs) in IIBN i. IIBN has been started on 2009 with 27 banks; full expected capacity of the IIBN is 75 participants. ii. 2010, 39 participant iii. 2011, 45 participant iv. 2012, 54 participant 2) RTGS

No of Year Currency Tran. Values Trans IQD 42,841,645,741 5,844 2008 USD 1,365,141,680 1,276 IQD 94,846,327,246 11,145 2009 USD 2,431,705,458 2,695 IQD 115,166,494,611 20,746 2010 USD 3,630,470,693 4,289 IQD 122,474,675,455 30,234 2011 USD 3,580,087,050 5,275 IQD 147,653,079,692 30,740 2012 USD 3,837,121,290 6,898

i. Yearly values and Number of transactions in IQD

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Values of Trans. IQD No. of trans. IQD 160,000 35000 IQD 140,000 30000 120,000 25000 Millions 100,000 20000 80,000 15000 60,000 10000 40,000

20,000 5000

0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

ii. Yearly value and Number of transactions in USD

Values of Trans. USD No. of trans. USD 4,500 8000

USD 4,000 7000 3,500 6000 3,000 Millions 5000 2,500 4000 2,000 3000 1,500 1,000 2000 500 1000 0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

iii. Total Value and number of Transaction in Billions IQD,( equivalent the USD to IQD with exchange for 1 USD=1200 IQD)

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RTGS Total Values of Transactions RTGS/ No of 5,000 4,500 Transactions

Billions 4,000 40000 3,500 35000 3,000 30000 2,500 25000 2,000 20000 1,500 15000 1,000 10000 500 5000 0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

3) C-ACH (Cheques – Automatic Clearing House )

Year Trans. type currency No. of trans. Values of Trans 2009 SVPO IQD 1,172 6,704,152,111 2009 SVPO USD 20 399,380 2010 SVPO IQD 7,159 102,232,185,490 2010 SVPO USD 126 1,100,863 2011 SVPO IQD 3,727 2,133,776,488 2011 SVPO USD 44 798,770 2011 CH IQD 1,507 105,279,791,583 2011 CH USD 281 62,172,512 2012 (*) SVPO IQD 6,336 4,127,413,016 2012 (*) SVPO USD 107 5,793,164 2012 (*) CH IQD 10,772 1,181,368,623,168 2012 (*) CH USD 1,221 137,088,786 (*) estimation number based on the results of the first 8 months (Jan -Aug./2012)

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i. Yearly value of transactions in IQD for SVPO (small value payment orders) and Number of transactions.

Values of Trans. IQD No. of trans. IQD 120,000 8,000 7,000 100,000 Millions 6,000 80,000 5,000 60,000 4,000 3,000 40,000 2,000 20,000 1,000 0 0 2009 2010 2011 2012 2009 2010 2011 2012

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ii. Yearly value of transactions in USD for SVPO (small value payment orders) and Number of transactions.

Values of Trans. USD No. of trans. USD 7,000,000 140

6,000,000 120

5,000,000 100

4,000,000 80

3,000,000 60

2,000,000 40

1,000,000 20

0 0 2009 2010 2011 2012 2009 2010 2011 2012

iii. Yearly value of transactions in IQD for Cheques and Number of transactions.

Values of Trans. CH. IQD No. of trans. CH. IQD 1,400,000 12,000

1,200,000 10,000 Millions 1,000,000 8,000 800,000 6,000 600,000 4,000 400,000

200,000 2,000

0 0 2011 2012 2011 2012

44

iv. Yearly value of transactions in USD for Cheques and Number of transactions.

Trans. Values CH/USD No. of trans CH/ USD 160,000,000 1,400

140,000,000 1,200 120,000,000 1,000 100,000,000 800 80,000,000 600 60,000,000 400 40,000,000 20,000,000 200 0 0 2011 2012 2011 2012

i. Total Value and number of Transaction in Millions IQD,( equivalent the USD to IQD with exchange for 1 USD=1200 IQD) for the SVPO+ Cheques

Total Values of trans (CH+SVPO) for Total No. of trans USD+IQD 1,600,000 (CH+SVPO) 1,400,000 20000

Millions 1,200,000 1,000,000 15000 800,000 10000 600,000 400,000 5000 200,000 0 0 2009 2010 2011 2012 2009 2010 2011 2012

45

Annex 6. List of Supporting Documents

Basra Industrial Zone Legal and Regulatory Assessment

Erbil Industrial Zone Legal and Regulatory Assessment

Draft Industrial Law on Industrial Zones

Investment Climate Assessment 2012

ILO – MSME analysis

CAB APL3 Congo P128398

CAB APL1B – Chad and CAR – Economic and Financial Analysis

46

IBRD 33422R IRAQ

SELECTED CITIES AND TOWNS MAIN ROADS GOVERNORATE CAPITALS RAILROADS NATIONAL CAPITAL GOVERNORATE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES

40E 42E 44E 46E 48E

TURKEY To Urmia

To Urmia ZakhuZa- kh-u 0 50 100 150 Kilometers - To - DAHUKDAHUK Al Qamishli T ig r is - R DahukDahuk 'Aqrah'Aqrah 0 50 100 Miles . HajiHaji IbrahimIbrahim - - - RayatRayat (3,600(3,600 m)m) SinjarSinja- r MosulMosul ARBILARBIL ArbilArb-il 36N 36N Eup hrate - s R To Dayr NINAWÁN I N AW Á . az Zawr AsAs SulaymaniyahSulayma- n-iy ah ISLAMIC AlAl HadrHadr - - KirkukKirku- k ASAS SULAYMANIYAHSULAYMANIYAH REPUBLIC SYRIAN OF IRAN To Dayr KIRKUKKIRKUK az Zawr BayjiBayj-i ARAB J a b a REP. l TikritTikr-it H - - a 'Anah'Anah m SALAHSALAH ADAD r AlAl Qa'imQ-a 'im - - - i n To Kermanshah- - DINDIN Samarra'Samarra' 34N AlAl HadithahHad-it hah 34N - - Tharthar To Hims - - Lake Ba'qubahBa'qu- bah 'Akashat'Akashat - ArAr RamadiRama- d-i DIYALÁDIYALÁ AlAl FallujahFallu-j ah - - BAGHDADBAGHDAD Habbaniyah BAGHDADBAGHDAD - Lake ALA L AANBARN B A R Razzaza - TrebilTrebil WASITWA S I T To SyrianS y r i a n Lake - - T KarbalaKarbala BABILBABIL AlAl KutKu- t igris Amman R. - AlAl HillahHillah KARBALA'KARBALA' To Dezful-

JORDAN DesertD e s e r t - - - AlAl HayyHayy 32N AdAd DiwaniyahDiwaniyah 32N NukhaybNukhayb AnAn NajafNajaf - - AlAl 'Amarah'Amara- h ALAL QADISIYAHQADISIYAH - Eu ph MAYSANMAYSAN rat es R . - AshAsh SShatrahhatrah To Ahvaz- AsAs SamawahSamawah AlAl 'Uzayr'Uzayr S ANAN NNAJAFAJAF - - a DHIDHI QARQAR h - - r AnAn NasiriyahNasiriyah a ' a l H AlAl BasrahBasrah i j AsAs SSalmanalm- an a AALL AzAz ZubayrZubayr r a UmmUmm h ALAL MUTHANNÁMUTHANNÁ BASRAHBASRAH QasrQasr 30N 30N

To Ad IRAQ Damman KUWAIT SAUDI ARABIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 28N endorsement or acceptance of such boundaries.

40E 42E 44E 46E 48E

APRIL 2012