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Documentof The Wcrld Bank FOR OFFICIALUSE ONLY Public Disclosure Authorized P-53 cc -P'1AU MEMORANDUMAND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONALDEVELOPMENT ASSOCIATION Public Disclosure Authorized TO THE EXECUTIVEDIRECTORS ON A PROPOSED DEVELOPMENTCREDIT OF SDR 7.7 MILLION TO THE ISLAMIC REPUBLICOF MAURITANIA FOR A Public Disclosure Authorized PUBLIC ENTERPRISESECTOR INSTITUTIONALDEVELOPMENT AND TECHNICALASSISTANCE PROJECT May 30, 1990 Public Disclosure Authorized TiUs document bas a restricted distributon and may be used by recipients only in the performance of their ffida! duties. Its contents may not otberwise be disclosed withouxWorld Bankauthorization. CURRENCYECUIVALENTS Currency Unit - Ouguiya (UK) USS 1.00 - UM 84.8 1/ Ouguya 1 million US$ 11,790 SYSTEMOF WEIGHTSAND MEASURES: METRIC ABBREVIATIONS AIR MAURITANIE - National Airline CRSP - Cellule de Rehabilitationdu Secteur Publique OPT - Office des Postes et T4l4communications PANPA - Port Autonome de Nouakchottdit Port del'Amitie SMCP - SocieteMauritanienne de Commercialisationdu Poisson SMCPP - Socidt6Mauritanienne de Commercialisationdes Produits Petroliers SOHAGAZ - SocieteHauritanie du Gaz SOMIR - SocieteNationale des Industriesde Raffinerie SONELEC - SocieteNationale d'Eau et d'Electricite SONIMEX - SociOtdNationale d'Import-Export FISCAL YEAR January - December 11 Exchange rates as of March 1990 FOR OMCIAL USE ONLY ISLAMIC REPUBLICOF MAURITANIA PUBLIC ENTERPRISEINSTITUTIONAL DEVELOPMENT AND TECHNICALASSISTANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of the Republic of Mauritania Beneficiaries: Ministriesof Plan, Finance and Commerce,Directorates of Energy,Mines and Geology,and key public enterprisesin the energy,telecommunications and transportsectors Credit Amount: SDR 7.7 million (US$10.0million equivalent) Terms: Standard,with 40 years maturity FinancingPlan: Local Foreign Total -S_------.--¢US$million)---------- Government 0.5 0.5 IDA 0.5 9.5 10.0 1.0 9.5 10.5 Economic Rate of Return: Not applicable Staff AppraisalReport: Not applicable MaP: IBRD No. 22261 This documenthas a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contents may not otherwisebe disclosedwithout World Bank authorization. MEXORANDUMAND RECOMMENDATIONOF THE PRESIDENT OF THE INTERNATIONALDEVELOPMENT ASSOCIATION TO THE EXECUTIVEDIRECTORS ON A PROPOSEDCREDIT TO THE ISLAMICREPUBLIC OF MAURITANIA FOR A PUBLIC ENTERPRISEINSTITUTIONAL DEVELOPMENT AND TECHNICALASSISTANCE PROJECT 1. The followingmemorandum and recommendationon a proposed developmentcredit to the Republicof Mauritaniafor SDR 7.7 million (US$10.0Million equivalent)is submittedfor approval. The proposed credit would be on standard IDA terms with a maturity of 40 years, and would help finance a public enterpriseinstitutional development and technicalassistance project. 2. Background. After independence,Mauritania pursted a deliberate policy of parastatalintervention to promote economic developmeut. As a result,the parapublic sector grew rapidly. Mauritania currentlyhas 80 parapublicenterprises which are involvedin virtuallyall economic sectors. They account for more than one-fourthof modern sector employment (12,000workers), use up over 50 percent of public investment,and receive almost one-fifth of the credit disbursed through the domestic banking sector. The overall performanceof the PE sector,however, has not been satisfactory. It has been characterizedby high losses,mounting arrears, reliance on monopoly privileges, a rising debt burden and increasing illiquidity. 3. In view of the sector'sunsatisfactory perfor.iance and the emergenceof unsustainablefinancial disequilibria, the governmenthas formulatedand begun the implementationof a comprehensivepublic enterprisesector adjustmentprogram (PESAP). Actions under the proposed programwould include; (i) a modificationof the legal and institutional frameworkwith the objectiveof eliminatingstate monopoliesand facilitatingincreased private sector participation;(ii) a program of divestiture; and (iii) financialrestructuring programs for key enterprisesremaining in the sector,particularly SNIM, the iron ore mining company,which is by far the largestenterprise in the country. 4. Overall responsibilityfor the implementationof the reforms in * the public enterprisesector lies with the Ministry of Plan. The 'Cellule de Redressementdu SecteurPublic' (CRSP),within the Ministry of Plan, will coordinateactivity and monitor progress of the reformsand will be * responsiblefor privatizationand liquidationof enterprises. A division in the Ministry of Financewill also assist and extend the information system developed,help introduceand standardizebudgetary and accounting procedures,and monitor the financialperformance of all PEs. To adequatelydischarge their responsibilities,both CRSP and the unit in the Ministry of Finance,will need technicalassistance. Although qualified, the staff has little experiencewith the variety of complex tasks to be undertaken in a number of sectors. In addition,it is proposed that technicalassistance be providedto enterprisesin the energy, telecommnicationsand transportsectors, sectors of vital importanceto the Mauritanian economy. 5. Rationale of IDA involvement. The origins of the credit stem from the Goverpment's exforts, dating back to 1983, to redress the situation of t.te PE sector. These efforts were supported by a Rehabilitationproject for SNIM (Ln. 2643-MAU),a DevelopmentManagement Project (Cr. 1865). a Rural Sector TechnicalAssistance Project (Cr. 1414- MAU), and a Public EnterpriseTechnical Assistance and Rehabilitation Project (Cr. 1567-MAU),which are either fully disbursedor almost fully committed. Through its past involvement,IDA has built up an intimate working knowledge of the public enterprisesector and has been asked by the Governmentand other financinginstitutions to take a lead in supporting the proposed adjustmenteffort. The proposedproject will complement technicalassistance activity being financed by the Bank and other donors. Experiencewith such technicalassistance has been good. The projectwill help ensure successfulimplementation of the reforms at the same time that it helps develop the institutionalbase for sound managementof the sector. IDA's continuedinvolvement in the energy, telecommunicationsand transport sectors is needed in order: (i) to maintain a dialogue in these sectors which will ensure that appropriatepolicies agreed to by the Government will continue to be implemented;(ii) to ensure that the sector investments are directed to projects of high priority;and, (iii) to ensure that prices and tariffs reflect both economiccosts and fiscal considerations. 6. Proiect oblectives. The objectivesare to provide the technical assistancesupport the Governmentneeds to extend and deepen its PE reform efforts,which would be supportedby the companionPE Sector Adjustment Credit. The project is also to address the long term issue of strengtheningthe government'sability to devise and implementPE reforms as well as to monitor the sector'sperformance and manage its future development.In the energy, transportand telecc-municationssectors, the objectivesare to help the Governmentbetter manage the sectors, to encouragethe creation of a subsidiaryin the 'Officedes Postes et T6lecommunications'(OPT) that would mobilize savings, to put air transport back on a sound financialfooting, to help implementa householdenergy strategy,and to attractprivate companiesto explore for petroleumin Mauritania. 7. Project description. The projectwould provide a specialunit "Cellulede Rehabilitationdu Secteur Public", (CRSP)created to oversee parastatalreform with the (local and foreign)technical expertise (about a.30man-months), logistical support and reso'rcesneeded to execute the reform'smain elements. These include: (a) monitoringsector performance; (b) implementingliquidation, privatization, and other divestiture measures; (c) carryingout externalaudits of enterprises;(d)providing counselingand advice on labor retrenchment;(e) implemientingstudies of subsectors(insurance, fisheries) or enterprises(SOMLR and SOMINEX). The technicalassistance to the Ministry of Financewill consist of short term consultancyservices (about50 man-months)and some trainingto deal with the accountingand budgetaryprocedures and monitoring of financial performanceof PES, as well as servicesof an expert agency to certify the quality, quantity and price of each shipmentof goods to be financed under the PESECAL. The technicalassistance for energy would consist of 180 man- months of long-termexperts to assist SONELEC,about 70 man-monthsof short-termconsulting services to assist with seismicdata processing,data reinterpretationand reprocessingand petroleumexploration promotion, and about 30 man-monthsof experts to help implementthe householdenergy strategy,including the promotionof improvedcharcoal and kerosene stoves and the promotionof gas for householdcooking. The technicalassistance to the Ministry of Commerce is to help it fully liberalizeprices, set up a * regulatoryframework for private insurancecompanies, and to demonopo3ize SONDMEX. OPT would requireabout 50-man-monthsof consultantservices, includingthe servicesof a coordinator,to update the rehabilitationplan, prepare a performancecontract, complete the introductionof a new computerizedbudgeting and accountingsystem, includingfull separationof accounts of the postal checking servicesand the national savingsbank. The technicalassistance to Air Mauritanieand