D)ocumentof The World Bank FOROFFICIAL USE ONLY Public Disclosure Authorized Report No: 18056 Public Disclosure Authorized IMPLEMENTATION COMPLETION REPORT U:RUGUAY PUBLIC ENTERPRI:SEREFORM LOAN (PERL) (Loan 3517-0 UR) Public Disclosure Authorized June 30, 1998 PovertyReduction & Economic Management Latin America& the CaribbeanRegion Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - New Uruguayan Peso (UR$) UR$I = US$0. 1002 US$1 = UR$9.98 (as of December 18, 1997) FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ANC National Postal Administration ANCAP - State Petroleum, Alcohol and Cement Entity ANP - National Port Administration ANSE - National Stevedoring Services Association ANTEL - State Telecommunications Entity GARE - Advisorv Group for State Reform GDP - Gross Domestic Product ,MERCOSUR - "Conimon Market of the South", a customs union of Argentina, Brazil, Paraguay and Uruguay, with Bolivia and Chile as associate members. MGAP - Ministry of Cattle. Agriculture and Fishing MTOP - Ministry of Transport and Public Works OPP - Office of Planning and Budgeting OSE - State Water and Sewerage Company PCU - Project Coordinating Unit (assumedby GARE) PERL - Public Enterprise Reform Loan PLUNA - State Commercial Aviation Company PPF - Project Preparation Facility UTE - State Power Entity UNDP - United Nations Development Program 8 ~~~~~~VicePresident: Shahid JavehdBurki Director, SMU:- Guillerrno Perrv Director, CiMU: Myrna Alexcander Task Manager: Luis-Jos_eMeiia FOR OFFICIAL USE ONLY IMPLEMENTATIONCOMPLETION REPORT URUGUAY PUBLICENTERPRISE REFORM LOAN (PERL) (Loan3517-0 UR) TABLEOF CONTENTS Paue No. PREFACE EVALUATIONSUMMARY ......................................................... i-viii PARTI: PROJECTIMPLEMENTATION ASSESSMENT . ......................................................... 1 A. ProjectObjectives .......................................................... 1 B. Achievementof Objectives......................................................... 2 C. MajorFactors Affecting the Project.......................................................... 6 D. ProjectSustainability .......................................................... 7 E. BankPerformance .......................................................... 7 F. BorrowerPerformance ......................................................... 8 G. Assessmentof Outcome.......................................................... 8 H. FutureOperations .......................................................... 9 I. Key LessonsLearned .......................................................... 9 STATISTICALTABLES 1. Summaryof Assessments......................................................... 10 2. RelatedBank Loans ......................................................... 12 3. ProjectTimetable ......................................................... 12 4. LoanDisbursements: Cumulative Estimated and Actual ......................................................... 12 5. Key Indicatorsfor ProjectImplementation ......................................................... 13 6. ProjectCosts ......................................................... 18 7. ProjectFinancing ......................................................... 19 8. Statusof LegalCovenants and Conditionally ......................................................... 20 9. BankResources: Missions ......................................................... 23 APPENDIX Map of Uruguay Thisdocument has a restricteddistribution and may be usedby recipientsonly in the performance of their officialduties. Its contentsmay rLototherwise be disclosedwithout world Bank authorization. IMPLEMENTATrIONCOMPLETION REPORT URUGUAY PUBLIC ENT7ERPRISEREFORM LOAN (]Loan3517-0 UR) Preface This is the ImplementationCompletion Report (ICR) for the Public Enterprise Reform Loan (PERL) to Uruguay (Loan 3517-0 UR) in the amountof US$11 million equivalent, which was approved in September 1992 and made effiectivein November of the same year. During implementation,US$3.2 millionwere canceled from the amount originallycommitted by the Bank. The PERL was closed on June 30, 1997, six months later than originally scheduled. Final disbursementsoccurred on November 26, I1997,and the balance of US$1.18 millionthat remained undisbursedwas canceled. Thus, total disbursementsunder PERL reached US$6.62 million. Cofinancingfor the Project was provided by two Japanese grants (PHRD) for 318.2 millionyen, of which 245.8 millionyen were actually disbursed. This ICR was prepared by Luis-Jose Mejia, PovertyReduction and EconomicManagement Department of the, Latin America and the CaribbeanRegion, assisted by Claudio Pardo (consultant), and reviewed by Aura Garcia and Alfredo :Dammert. Preparation of this ICR began during a Bank missionthat took place in May/June 1997. It is based on material in the project files and on perspectives gained during the Bank's extended involvementin structural reforms and associated activitiesin Uruguay. ii IMPLEMENTATION COMPLETION REPORT ILJRUGUAY PUBLIC ENTERPRISE REFORM LOAN (Loan 3517-0 UR) EVALUATIONSUMMARY i. Statement/Evaluation of Objectives. TheUS$11 millionequivalent Public Enterprise ReformLoan (PERL)to Uruguaywas a technicalassistance operation geared to support the Government'spublic enterprise reforfm/privatization program. The assistancefrom PERL was aimedat supportingits initialphase, specifically"To support, the Borrower's efforts to: (a) improveservices and reduce the size of the public sector,specifically the areas of telecommunications,transport and power; fb) developsectoral policies and appropriateregulatory frameworksin such areas; and (c) implemejitrestructuring and privatizationof PEs." To implementthe Project the Governmentcounted on the PublicEnterprise Law and the Port ReformLaw. The first was for the partialprivatization of ANTELand PLUNAand to include privateparticipation in futurepower systemexpansions by UTE. The secondpermitted private concessionsinstead of the direct servicesprovided by ANP and implementthe deregulationand demonopolizationof stevedoringservices. ii. However,the PE reformmomentum was lost followingthe December 1992 referendum that voidedthe clausesin the PublicEnterprise Law allowingthe partialprivatization of ANTEL and the transfer of its managementto a private operator. Thisweakened the reform effort since the Governmentconcluded that it had marg;inalsupport amongthe population,and there was a retrenchmentand slowingdown privatizationin particular. Cancellationsand reductionsin Project componentsfollowed -only US$4.23 millionout of the $11 millionapproved for PERL were used for originalcomponents. Of the originalaims onlythe PLUNAprivatizationand the Port Reform achievedtheir originalmain objectives.However, other componentswee added: a) the partialprivatization of the insurancebusiness, b) the redefinitionof the sanitationsector strategy,c) the improvementin the state postal services,and d) the rationalizationof the medical facilitiesof the armed forces. iii. Achievement of Objectives PERI, had muchmore narrowlydefined objectivesthan the ambitiousprogram it supported. It providedfunding for a specificset of technicaltasks. Assistanceunder PERL in many instanceswvas provided as expected,even thoughthe privatizationsand restructuringit supportedultimately did not take place -as in the case of ANTEL,UTE and ANCAP. The slow pace and lack of depth of the PE reformalso limitedthe ultimatesuccess of PERL. On balance,though, perceptionis that the Project was marginally satisfactoryin wining its objectives. iv. Assistancefor the strengtheningof OPPwas by and large satisfactorywith the help of consultantsOPP's Project CoordinatingUnit (PCU) contributedmuch to the design and day-to- day administrationof the Project. The responsibilitiesof both the OPP and the PCU were satisfactorilymet. iii v. The politicaldifficulties encountered by the telecommunicationssector reform did not stop the assistancefor the privatizationof ANTELfrom being implemented,except for the consulting necessaryto completeits partial sale. Loan funds were also spent in the developmentof the regulatoryframework. However,the latter remainsextremely weak and practicallyunchanged, while state-ownedANTEL remains basically the sole providerof telecommunicationsservices, except for cellulartelephony. ANTEL traditionally has shown reasonablygood operating standardsand its performancehas continuedto improvein recent years. However,the test is whether telecommunicationsin Uruguaywill remaincompetitive in the mediumand longrun, in the increasinglyintegrated regional context and in this rapidlyevolving, technologically and capital-intensive sector. vi. The airlinessector reform componentprovided assistance for the developmentof a regulatoryframework and the partialprivatization of PLUNA. Legal and technicalproblems delayedthe actualtransfer until 1995. Today,PLUNA operating losses are much smallerand its financialaccounts appear to be headingin the right direction.On the other hand, some 1,700 formerPLUNA employees still remain on the publicpayroll. Moreover,lack of agreementwithin the Governmenton transferringregulatory responsibilities from the Ministryof Defenseto MTOP led to the cancellationof the componenton the regulatoryframework. vii. The support providedto the port sectorreform was the most successfulof