world bank document · date achieved 10/01/2007 09/30/2007 09/30/2007 09/30/2009 comments (incl. %...

Document of The World Bank

Report No: ICR00001459

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-33040 & IDA-3304A; P049838)

ON A

CREDIT

IN THE AMOUNT OF SDR 33.30 MILLION (US$45.90 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR A

PRIVATIZATION AND PRIVATE SECTOR DEVELOPMENT PROJECT

June 29, 2010

Finance and Private Sector Department Eastern Africa 1 Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2010)

Currency Unit = TSh 1.00 = US$ 0.00075

US$1.00 = 1,354 TSh

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

ATCL CAS CHC

Air Tanzania Company Limited Country Assistance Strategy Consolidated Holding Corporation

DAWASA DAWASCO DCA DSE EWURA FCC FCT

Dar-es-Salaam Water and Sewerage Authority Dar-es-Salaam Water and Sewerage Corporation Development Credit Agreement Dar es Salaam Stock Exchange Water and Energy Utilities Regulatory Authority Fair Competition Commission Fair Competition Tribunal

FDI GDP

Foreign Direct Investment Gross Domestic Product

GOT IBRD ICT ICR IDA IIRT IPO ISR KPI

Government of Tanzania International Bank for Reconstruction and Development Information and Communications Technology Implementation Completion Report International Development Association International Investor Round Table Initial Public Offering Implementation Status and Results Report Key Performance Indicators

LART Loans and Advances Realization Trust NBC NMB

National Bank of Commerce National Microfinance Bank

NPAs NPV PAD

Non-Performing Assets Net Present Value Project Appraisal Document

PaPF PDO PEs PMR

Parastatal Provident Fund Project Development Objectives Public Enterprises Project Management Report

PPF PPI PPP

Project Preparation Facility Private Participation Infrastructure Public-Private Partnerships

PPRP Parastatal and Public Sector Reform Project PSAC PPSDP

Programmatic Structure Adjustment Credit Privatization and Private Sector Development Project

PPSRP Parastatal and Public Sector Reform Project PSRC PSR QAG RAHCO

Presidential Parastatal Sector Reform Commission Project Status Report Quality Assurance Group Railway Asset Holding Company

RRP RITES

Railways Restructuring Project Rail India Technical and Economic Services Ltd

SAC SUMATRA

Structural Adjustment Credit Surface and Marine Transport Regulatory Authority

TA Technical Assistance TCAA TANESCO

Tanzania Civil Aviation Authority Tanzania Electricity Supply Company

TCCIA Tanzania Chamber of Commerce, Industry & Agriculture TCFB TCRA TICTS TNBC TPA TPSF TRC TRL

Tanzania Commercial Freight Board Tanzania Communications Regulatory Authority Tanzania International Container Terminal Services Tanzania National Business Council Tanzania Port Authority Tanzania Private Sector Foundation Tanzania Railways Corporation Tanzania Railways Limited

TRP TTCL

Telecommunications Restructuring Project Tanzania Telecommunications Company Limited

USRP Urban Sector Rehabilitation Project

Vice President:Obiageli K. Ezekwesili

Country Director:John Murray McIntire

Sector Manager:Michael Fuchs (Acting)

Project Team Leader:Francois Nankobogo

ICR Team Leader:Francois Nankobogo

TANZANIA Privatization and 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..............................................12. Key Factors Affecting Implementation and Outcomes .............................................43. Assessment of Outcomes ............................................................................................94. Assessment of Risk to Development Outcome........................................................215. Assessment of Bank and Borrower Performance ....................................................226. Lessons Learned.......................................................................................................267. Comments on Issues Raised by Borrower/Implementing Agencies/Partners..........27Annex 1: Project Costs and Financing.........................................................................28Annex 2: Outputs by Component ................................................................................29Annex 3: Economic and Financial Analysis................................................................38Annex 4: Bank Lending and Implementation Support/Supervision Processes ...........39Annex 5: Beneficiary Survey Results ..........................................................................42Annex 6: Stakeholder Workshop Report and Results..................................................43Annex 7: List of PE transactions carried out from 2000-2009 .....................................44Annex 8: Entities under divestiture as of March 31st 2010..........................................58Annex 9: Tanzania - Residual Portfolio of Public Enterprises .....................................69Annex 10: Summary of Borrower’s ICR and/or Comments on Draft ICR ................. 71Annex 11: Comments of Cofinanciers and Other Partners/Stakeholders .................... 78Annex 12: List of Supporting Documents ................................................................... 79Annex 13: Map ............................................................................................................ 80

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A. Basic Information

Country: Tanzania Project Name: Privatization & Priv Sec Dev

Project ID: P049838 L/C/TF Number(s): IDA-33040,IDA-3304A

ICR Date: 06/30/2010 ICR Type: Core ICR

Lending Instrument: SIL Borrower: UNITED REP. OF TANZANIA

Original Total Commitment:

XDR 33.3M Disbursed Amount: XDR 25.5M

Revised Amount: XDR 25.5M

Environmental Category: C

Implementing Agencies: Min. of Finance & Economic Affairs

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 05/12/1998 Effectiveness: 07/20/2000 07/20/2000

Appraisal: 04/26/1999 Restructuring(s): 09/24/2007

Approval: 12/14/1999 Mid-term Review: 12/08/2006

Closing: 09/30/2004 09/30/2009 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Unsatisfactory

Risk to Development Outcome: Moderate

Bank Performance: Unsatisfactory

Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Unsatisfactory

Government: Moderately Unsatisfactory

Quality of Supervision: Unsatisfactory Implementing Agency/Agencies:

Moderately Unsatisfactory

Overall Bank Performance:

Unsatisfactory Overall Borrower Performance:

Moderately Unsatisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 87 85

General finance sector 9 9

General industry and trade sector 3 4

Law and justice 1 2

Theme Code (as % of total Bank financing)

Other financial and private sector development 33 9

Regulation and competition policy 34 38

State enterprise/bank restructuring and privatization 33 53 E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: John McIntire James W. Adams

Sector Manager: Michael J. Fuchs Demba Ba

Project Team Leader: Francois Nankobogo Paul Ballard

ICR Team Leader: Francois Nankobogo

ICR Primary Author: F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project will support implementation of Tanzania's private sector development strategy, notably through its public enterprise (PE) privatization program, banking restructuring, and infrastructure and utilities' regulation, which are aimed at improving economic efficiency through expanded private investment and production in the economy and reduced drain upon scarce fiscal resources.

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Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Reduction of the role of the State in commercial activities

Value quantitative or Qualitative)

235 PEs to be divested from the original total of 385.

Number of PEs Privatized: -20 strategic/large -180 small/medium Share of PE sector privatized by 2004: -80% of sector by total employment & turnover

Privatization transactions affected 87 PEs, mostly small/medium size and about 7 strategic/large (Container Terminal, NMB, DAWASA, TTCL, ATCL,, TANESCO, TRL). Divested PEs represent less than 80% of total employment & turnover of the original portfoli

Date achieved 09/11/2000 09/30/2007 06/25/2009 Comments (incl. % achievement)

Indicator 2 : Facilitate and promote private sector participation in the economy.


FDI levels are % of GDP representing US$282 million in 2000.

60% increase private sector contribution to GDP. 10% expansion of employment. 20% increase in labor productivity. 20% increase revenue flows to

Change in these indicators could not be attributed to this project.

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government. Date achieved 09/11/2000 09/30/2007 09/30/2009 Comments (incl. % achievement)

Indicator 3 : Widening of involvement of Tanzanians in business; broaden this ownership.


Involvement of Tanzanians in the privatization process increased through share ownership, through spin offs, local businesses supplying privatized companies

Tanzanian ownership of privatized PEs is estimated to be about 66 percent of the portfolio

Date achieved 09/30/2007 09/30/2009 Comments (incl. % achievement)

Indicator 4 : Provision of an effective and efficient mechanism for the recovery of NPAs of banks and financial institutions


Reduction in the number and % of NPAs in the banking/financial system: >90% of NPAs recovered by 2004.

Date achieved 07/20/2000 Comments (incl. % achievement)

Indicator 5 : Facilitate the development of private sector debt management services capacity.


Creation of competitive debt management market industry: at least 3 agencies, including privatized LART, functioning by 2004.

LART was not transformed into a private sector entity. However, there are private debt collectors in the market.


Indicator 6 : Establish institutional structures and build capacity to implement light, effective

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regulation for infrastructure and utilities regulation. (PAD/DCA). Value quantitative or Qualitative)

All sector specific institutions established

All sector specific institutions have been established.


Indicator 7 : Stable regulatory systems (PAD)


All regulatory disputes presented by operators resolved within 18 months

For TCAA, TCRA, FCC, and SUMATRA, disputes have been handled within 18 months, often more quickly given regulatory requirements are stricter. This is even in the case of FCC, handling mergers and competition cases.


Indicator 8 : Improvement of business environment and removal of obstacles to investment and improvement of country's image as a local and foreign investment Destination



LART was not privatized. More than 3 private agencies emerged without specific support from the Project.


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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Additional PEs divested on "fast track"

Value (quantitative or Qualitative)

Nil 35 PEs

35 PEs privatized through fast track procedures, between 2007-09

Over 140 PEs privatized. However, there were only 5 PEs divested (instead of 35 targeted) during the second two year extension period.

Date achieved 10/01/2007 09/30/2007 09/30/2007 09/30/2009 Comments (incl. % achievement)

Indicator 2 : Post-privatization monitoring and advisory unit established


Nil

Staff appointed and trained by December 2008

Staffs were trained by end September 2009.


Indicator 3 : Regulatory bodies in place, organizational capacity strengthened


Nil

Six agencies (EWURA, SUMATRA, TCAA, FCC, FCT and TCRA) in place; strategic and business plans developed

Six agencies (EWURA, SUMATRA, TCAA, FCC, FCT and TCRA) in place; strategic and business plans developed.


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G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 06/21/2000 Satisfactory Satisfactory 0.00 2 12/28/2000 Satisfactory Satisfactory 3.62 3 06/28/2001 Satisfactory Satisfactory 4.92 4 12/20/2001 Satisfactory Satisfactory 7.14 5 05/17/2002 Satisfactory Satisfactory 8.92 6 12/12/2002 Satisfactory Satisfactory 11.10 7 06/17/2003 Satisfactory Satisfactory 13.84 8 11/26/2003 Satisfactory Satisfactory 15.67 9 05/27/2004 Satisfactory Satisfactory 16.99

10 12/20/2004 Satisfactory Satisfactory 17.87 11 06/24/2005 Satisfactory Satisfactory 19.74 12 12/28/2005 Satisfactory Satisfactory 21.18 13 06/28/2006 Satisfactory Satisfactory 23.39 14 12/22/2006 Satisfactory Satisfactory 24.10 15 06/28/2007 Satisfactory Satisfactory 26.89 16 12/20/2007 Satisfactory Satisfactory 26.89 17 06/26/2008 Moderately Satisfactory Moderately Satisfactory 28.57 18 12/30/2008 Satisfactory Moderately Satisfactory 31.86

19 06/30/2009 Moderately

Unsatisfactory Moderately

Unsatisfactory 33.62

20 09/30/2009 Unsatisfactory Moderately

Unsatisfactory 34.83

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

09/24/2007 N S S 26.89

There was in fact no restructuring. In September 2007, the action was limited to a second extension of the closing date.

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. The Privatization and Private Sector Development project was designed in early 1999, appraised in October 1999, taken to the Board on December 14, 1999, and became effective on July 20, 2000. The original closing date was September 30, 2004. However, in light of outstanding activities and Credit balance, the project had two extensions (September 2004 and 2007 respectively, for a cumulative period of 5 years) and closed on September 30, 2009. The original credit was in the amount SDR 33.3 million (US$45.9 million equivalent). A total amount of SDR 25.5 million (US$ 36.3 million equivalent) was disbursed, and the balance of SDR 7.8 million (US$ 9.9 million equivalent) was canceled. The project was designed to support the strategic CAS objective of enhancing economic efficiency and improving the quantity and quality of services in Tanzania. Tactically, the operation sought (i) to accelerate the divestiture of inefficient, underperforming and financially burdensome Tanzanian parastatals a process started in 1993, (ii) to recover public banks’ non-performing assets, (iii) to set up effective infrastructure/utilities' regulation, and (iv) to foster public-private sector dialogue around private sector competitiveness issues. The project was meant to be a follow up to the Parastatal and Public Sector Reform Project (PPSRP, 1993-1999), which supported both privatization and debt collection. It also supported the structural adjustment program then in place (“Programmatic Structural Adjustment Credit”, PSAC, 2000-2004), in the context of which the excessive role of the state in productive sectors (a heritage of the previous socialist period in the country) was being rolled back. 2. Prior to the project, between 1994 and 1998, about 150 public enterprises (PEs) out of a portfolio of 385 PEs were privatized. Even though the process had moved slowly, the project sought to build on this track record to provide support to the Government of Tanzania (GOT) in addressing key issues that had arisen during the process, and in dealing with the substantial challenges pertaining to infrastructure reform. Delays in divestiture of PEs were contributing in a number of cases to deterioration of fixed assets and created uncertainties limiting private investment in certain sectors. Moreover, in late 1996 the GOT had taken the decision to expand the privatization program to divest all major utility and infrastructure PEs (ports, railways, electricity, telecommunications, etc.), banking, agriculture and mining PEs. This project was intended to improve the quality and accelerate the implementation of the privatization program to reap the benefits of greater efficiency and more dynamic private investment and economic growth. 3. At the same time, the Government of Tanzania, encouraged by the success of the Loans and Advances Realization Trust (LART) which had been created in 1991 and had succeeded in collecting non-performing assets (NPAs) of the state-owned banks, decided to extend the provision of debt collection services to all financial institutions. This would be achieved through the establishment of permanent commercial courts and by moving LART into the private sector. Specific issues to be addressed by the project at the time included (i) how to ensure effective handling of the flow of work resulting from the privatization of National Bank of Commerce, and (ii) how to facilitate growth in private sector capacity in the debt collection business. 4. In the area of infrastructure, GOT needed to develop competitive regulatory frameworks and institutional arrangements (regulatory bodies) in the utility and transport sectors, following adoption (in 1996/97) of a policy to attract private operators and investors into major utility and transport sectors (telecoms, power, water, ports and railways). Improved legal and regulatory frameworks were needed to protect consumers from the misuse of monopoly power. Moreover, by creating credible and predictable

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rules, private operators would be encouraged to invest in infrastructure sectors with a reasonable prospect of earning a fair return on investment. 5. Finally, in order to expand private investment and operations, Tanzania needed to improve the business environment through removal of regulatory and other constraints particularly in the areas of investment regulations, business licensing, property rights (land ownership), labor regulation, business law, judicial training, investment incentives and taxation. To that effect, a public-private sector consultative mechanism was deemed necessary to facilitate the dialogue leading to improved business environment so as to boost private investments.

1.2 Original Project Development Objectives (PDO) and Key Indicators 6. The PDO, as stated in the PAD, was to “support implementation of Tanzania's private sector development strategy, notably through its public enterprise (PE) privatization program, banking restructuring, and infrastructure and utilities' regulation, which are aimed at improving economic efficiency through expanded private investment and production in the economy and reduced drain upon scarce fiscal resources”. In the Development Credit Agreement (DCA), the formulation was as follows: “The objectives of the project are to assist the Borrower in carrying out of its privatization program and private sector development program”. Throughout the implementation period, the PAD formulation of the PDO prevailed. 7. The project’s key outcome indicators were as follows: (i) contribution to growth of GDP through privatized sectors; (ii) investment in privatized enterprises; and, (iii) post-privatization growth in employment. These outcomes would be made possible by the achievement of a series of output indicators detailed component by component and reflected in annex 2 of this report. The privatization component would allow the divestiture of 180 small/medium public enterprises (PEs) and 20 strategic/large PEs, a 10 percent expansion in employment and a 20 percent increase in revenue flows to the government. The debt collection component would allow the recovery of a least 90 percent of banks’ non-performing assets (NPAs), and the creation of at least 3 private debt management agencies including privatized LART. Performance in the area of regulation would be measured by the establishment of relevant institutions, the training of at least 80 percent of the staff and the resolution of regulatory disputes within 18 months. Finally, the improvement in the business environment would be measured by at least 100 firms investing private funds and a cumulative US$5.0 billion of investment.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 8. The PDO and key performance indicators (KPI) were not formally revised during the implementation period as there was no formal restructuring. The information reflected in the December 2008’s ISR stating that there was an RVP approved restructuring was inaccurate. What did occur is that in September 2007 there was an extension of the closing date, from the originally stipulated September 30, 2007 to September 30, 2009.

1.4 Main Beneficiaries 9. Main project beneficiaries were the Government, the private sector and domestic consumers. The Government would obtain (i) fiscal benefits, consisting of lower subsidies, lower investment expenditures in areas where divestiture would occur and higher tax revenues generated by a growing private sector, and (ii) development benefits associated with increased services and efficiency in the economy. The private sector would benefit from new investment opportunities created by the divestiture program, and higher

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competitiveness resulting from lower cost intermediate goods (e.g. electricity, water, telecommunications) and more reliable infrastructure services (e.g. rail, ports). The consumers would benefit from increased access to products and services at more affordable prices induced by increased competition, and they would be protected by regulatory and competition institutions from the misuse of monopoly power. 1.5 Original Components 10. Privatization Support (US$26.27 million): This component aimed at:

• streamlining the PE divestiture process and procedures in order to facilitate accelerated implementation of Tanzania’s privatization program and improved efficiency and transparency in its execution. This was to be achieved through : (a) more timely policy decisions by Government coupled with greater delegation of execution of transactions through the agreed "fast track" mechanism, and (b) use of clearer, simplified procurement procedures, based upon outsourcing to competitively selected investment advisors, and generally using price as final selection criterion, with investor technical capacity and credentials for larger transactions determined through pre-qualification; and

• implementing consistent overall policies for PE employee retrenchment and treatment of PE debt to ensure fiscal sustainability and equity and expanded stakeholder awareness and public communication concerning Tanzania’s privatization program.

11. Debt Collection (US$4.36 million): The component aimed at strengthening repayment discipline in Tanzania’s banking system, through (1) expedited collections from defaulters on non-performing assets of public sector commercial banks; and (2) expansion of Tanzania’s fledgling private market capacity for debt collection through transfer of LART in the medium term to the private sector as part of an overall market-based strategy. 12. Utilities Regulation (US$13.92 million): The component was designed to help (i) create an institutional framework for private participation in infrastructure (PPI); and (ii) establish an effective overall institutional framework for infrastructure and utilities regulation across the sectors, supported by capacity building and public awareness raising efforts. Sectors of focus were: telecommunications, energy, water, civil aviation, surface and marine transport (roads, rail, ports and seas). 13. Business Environment Improvement (US$1.35 million): This component was limited to the creation of a government-private sector consultative mechanism so as to foster policy dialogue on competitiveness-improving reforms in Tanzania’s business environment.

1.6 Revised Components 14. Project components were not revised during the implementation period. At the time of the second extension in September 2007, two components (Debt Collection and Business Environment) were closed: the debt collection component was considered to have largely achieved its objective and the executing agency had already ceased to exist; and the support to business environment was to be continued under the new “Private Sector Competitiveness Project”. The two remaining components pertaining to privatization and regulation would continue to be implemented until September 30, 2009.

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1.7 Other significant changes 15. While the project design, scope and scale did not change, the implementation time was doubled, spanning over a period of ten years as a result of two consecutive extensions of the closing date, the first one in 2004 for a period of three years and the second in 2007 for a period of two years.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 16. Previous sector experience and preparatory studies. Project preparation and design were influenced by the fact that this project was a follow-up to PPSRP, under which IDA supported both privatization and debt collection. In light of the Government’s decision to expand privatization to infrastructure, the need for regulation had become imperative. The need to improve the business environment was also acknowledged. Project design benefitted also from a series of studies funded under the project preparation facility, which helped articulate, inter alia, modalities for streamlined privatization retrenchment and PE debt policies, as well as communication with stakeholders.

17. Adequacy of regulatory reform approach. The PPSDP design promoted many worthwhile reforms, badly needed in the Tanzanian context:

• Consider “light-handed” contract-based versus full-fledged regulations, with a clear preference to start with light-handed regulation given capacity considerations;

• Implement a program of extensive public education and awareness;

• Given the high fixed start-up costs related to the establishment of such institutions, and the uncertainty of funding until such institutions gain stronger grounding and demonstrate relevance, finance some of the operational costs for the initial years for the nascent regulators; and

• “Focus on the institutional issues”, leaving the design of industry-specific regulatory rules to separate industry-specific (e.g. Bank, other) projects.

18. Insufficient consideration of internal and external risk factors. The design failed (i) to address sufficiently the issue of strengthening executing agencies, particularly the key PSRC, in the wake of the new type of challenges including utility reforms; and, more importantly, (ii) to define the right sequence between the creation of regulatory rules and agencies and private sector involvement in infrastructure1.Also, in the aftermath of the 1997/8 Asian crisis, the Bank could have and should have identified (much earlier than it did) the risk that the private sector’s interest for investment in infrastructure in a frontier market like Tanzania had largely evaporated.

19. In the area of regulation in particular, it was quite unrealistic to expect well functioning multi-sector regulatory authorities to be established in less than a two-year time frame. Due consideration had not been given to the amount of time that it could take for the relevant legislation to pass through

1 Ideally, regulatory rules and bodies should be in place and tested prior to the transfer of ownership of a monopoly or monopolistic infrastructure firm to private hands. In reality, few developing countries have had the time or resources to enact the ideal approach. Second-best but accepted practice is to put in place a strong program of regulatory policy and agency development in parallel with private sector participation. The project’s attempts to follow the second path were, in retrospect, inadequate; see para.19.

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parliament for such politically and economically sensitive sectors, especially as the institutional structure (e.g. which sectors would fall under which regulator/ line ministry) had not been previously agreed.

20. In the area of business enabling environment, project activities were not fully aligned to the identified business constraints: no specific actions defined to improve investment regulations, business licensing, property rights (land ownership), labor regulation, business law, judicial training, investment incentives and taxation.

21. Poor quality of the log frame and monitoring and evaluation system. The formulation of the PDO was unclear and was never made consistent in project documentation: the wording of the PDO in the PAD’s main text is different from the one in Annex 1 (log frame) as well as in the DCA; these differences in PDO wording were never reconciled. The project’s logical framework, including KPIs, was deficient as it defined key outcomes that were somehow beyond the direct influence of the project, such as increase in private sector contribution to growth of GDP, and increase in labor productivity. No baseline was defined for the various performance indicators in the log frame. Despite these flaws, this project was timely and relevant in its different components. 22. Risks faced by the project were adequately identified and rated; both policy and political risks and business environment risks were acknowledged as high. However, the measures taken to mitigate these high risks were insufficient to fully address the issues. For example, while the PAD discussed the policy, political and governance risks associated with sustainable implementation of the privatization program, particularly in the area of infrastructure, the only mitigation factor proposed is the adoption of streamlined and transparent procedures. This was not an adequate response, given the weak technical and managerial capacity available to handle the large range of new and more complex privatizations about to be launched, the risk of wavering government commitment to privatization in light of their long-standing socialist tradition and the opposition to the program of some academics and NGOs, the power of vested interests among managers, workers and suppliers of the large infrastructure PEs, etc. With respect to the privatization of utilities in particular, there was little experience of massive private sector participation on the continent; and general global private capital flows had dwindled as a result of the 1998 financial crisis, let alone private financing of infrastructure in a frontier market like Tanzania. There were also risks associated with the establishment of multi-sector regulators as discussed above (para. 18 and 19). 23. The proposed mitigation measure for the business environment risks was the set-up of the public-private dialogue mechanism. The project should have taken the thinking a bit further to define more precisely the kind of business environment issues needed to be tackled and what would be the indicators of progress. 24. Given the multiple sectors in which this project had an involvement (e.g. economic management, telecoms, energy, water, etc.), the PAD should have emphasized the need for cross-project communication and knowledge sharing; and it could even have specified plans to that effect. This could have entailed parallel and complementary projects in the financial, transport, energy and water sectors for instance. These aspects remained salient during project implementation.

2.2 Implementation 25. A variety of factors affected project performance, including changes in government, disruptions in implementation arrangements, and insufficient pro-activity on the Bank team’s side during some periods of the project’s implementation period.

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26. Government commitment, changes in leadership and discontinuation of executing agencies.During project preparation and at the beginning of the implementation phase, Government commitment was strong. However, it started waning with the first attempts to secure private participation in infrastructure, a trend that continued until 2005 when the President commissioned a report taking stock of the infrastructure privatization experience. On the other hand, apart from foreseeable changes at the helm of the Ministry of Finance, the 2005 elections slowed down implementation and new appointments ensued, including a new manager for PSRC. The mandates of the two main executing entities were discontinued during the project extension period: LART in June 2006 and PSRC in December 2007. In both cases, the mandates were transferred to CHC. The substantial effort made under the project to build the capacity of the PSRC came to naught, as few if any of the trained staff were taken on by the new privatization authorities. 27. Failure to set up a Steering Committee. A high-level steering committee, whose composition was spelled out in the DCA, was supposed to be set up to ensure coordination of all project activities at the Government policy level. It was to be chaired by the Permanent Secretary, Ministry of Finance, and would comprise the Permanent Secretary Planning Commission in the President’s Office, the Permanent Secretary, Attorney General’s Chambers, the Executive Chairman of PSRC, and the Executive Administrator of LART. This steering committee was never set up; and, as a result, PSRC and other executing agencies did not get organized operational guidance that would have facilitated project implementation.

28. Insufficient proactivity on the Bank side. The Bank team was not proactive enough. The flaws in project design did not trigger the necessary restructuring and even implementation modalities provided for in the DCA such as the Steering Committee were not followed upon enough. In light of the low disbursement rates and particularly once the PSRC was dismantled and it was clear that the new administration would take considerable time to devise a new set of privatization policies, it would have been better to have attempted a restructuring, or failing that, a partial cancellation of Credit funds. On another score, while it should be recognized that many of the factors leading to the poor set of results (e.g. utility reforms) are political in nature and could not be easily resolved by the sole assistance this project could have provided, it also appears the project had not sufficiently prepared PSRC (and subsequently CHC) to get the expertise required to handle these complex transactions in case they came under stress.

29. Lack of candor in project reporting. Although the project lagged in the implementation of its activities, carried a disbursement flag for most of its life in addition to a country record flag, had no working M&E system, and failed to comply with the legal covenant of quarterly reporting, it was not labeled as a “problem project” at any point. In fact, it was systematically rated “satisfactory” from the start of the operation in 2000 until June 2009. The only substantive corrective action taken was the revision of the disbursement profile (in June 2006) and reallocations among categories. Even a “mid-term review” carried out in December 2006, more than two years after the expiration of the original closing date and less than a year before the end of the first closing date extension period, failed to tackle key issues at hand.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 30. As discussed earlier, the M&E design had weaknesses stemming from lack of clarity and consistency in both the PDO and KPIs. In the log frame, what appears to be the “main objective” (“reallocation of national resources to achieve development goals and improve the quality of goods and services”) should have rather read “Sector-related CAS goals” to which the project would contribute but not responsible for. However, the KPIs listed in front “Main objective” should have been put in front of the “Project development objective”. The log frame also provided a long list of performance indicators, thus promising much more than the PDO in the main text would have required.

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31. The project coordination agency – PRSC and subsequently CHC– were to regularly collect information on the KPIs and any other progress and produce quarterly reports. However, this practice was never enforced. The only report which was routinely produced by PSRC was an annual review and an action plan (for the following year) of the privatization program. This annual report had some elements of information on the regulatory work, but nothing else on the rest of the project. 32. It should be noted that some regulatory agencies undertook benchmarking exercises, beyond the standard project M&E framework. EWURA (energy and water multi-regulator) has initiated a benchmarking exercise, including collecting performance information on access and efficiency gains. TCAA (the air safety regulator) established benchmarks to gauge its own performance, although less information is available on the entities it is regulating. TCRA (ICT regulator) has a good grasp of the sectors it regulates, and notes the decline in prices for ICT services and an increase in quality, with data available in its annual reporting and on its website. SUMATRA (surface and marine transport regulator) has been closely monitoring sub-sector performance (e.g. road accidents, vehicular traffic), and the results have varied.

2.4 Safeguard and Fiduciary Compliance

33. The project was classified as category C as it was designed to primarily provide institutional support to the implementation of the divestiture program, debt collection, regulation, and business environment improvement. However, the PAD indicated that environmental assessments would be undertaken whenever there would be a need to do so in the context of PE privatization process. In actuality, no environmental assessment was conducted during project implementation as such a need never arose. 34. With respect to social issues, the PAD discussed the need for GOT to define a coherent retrenchment policy. The project helped GOT, under the PPF, define a retrenchment policy which was adapted in early 2000, prior to project effectiveness. The policy called for any severance payments beyond the statutory allowance to be determined based upon a market-based assessment of a retrenchee’s reemployment prospects and anticipated resulting future wage losses. In practice, due to labor unions’ pressures for generous payments based on old precedents, the new policy was never implemented.

2.5 Post-completion Operation/Next Phase 35. Project institutional arrangements were altered on a number of occasions during implementation, notably the phasing out of both the PSRC and the LART whose functions were passed over to the Consolidated Holding Corporation (CHC). It appears that most of the institutions in place at the time of its closure can be sustained. Indeed, CHC has its own income stream that guarantees the continuation of operations until the Government decides to alter or discontinue its operations. 36. Currently, both the privatization and post-privatization (i.e. contract monitoring, impact evaluation) functions lie with CHC. Still, uncertainties about the term of CHC continue to exist, even though issues pertaining to infrastructure reform and privatization will be around for a long period of time. The number of experts able to handle these issues within CHC remains limited, however, and with the closing of the PPSRP there is no ongoing mechanism to strengthen and broaden such expertise. 37. The debt collection component was closed without transforming LART into a private entity as planned. CHC still handles the collection of a few NPAs, and some private debt collectors have emerged, but the expected broad capacity development of a private sector debt collection market did not develop. LART was shut down; and there are no plans for further work on this objective in CHC.

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38. Sector-oriented regulatory agencies are sustainable inasmuch that they have oversight and authority regarding the regulation of fees. Agencies dealing with competition issues (FCC and FCT) as well as the TNBC are more dependent on government resources. The four sector-oriented regulatory institutions established through the course of this project are functioning in a financially sustainable manner, with operational costs fully funded through license fees and levies: EWURA, TCRA, TCAA, and SUMATRA. See Table 1 below, Financial Information for Regulatory Agencies Under PPSDP. It should be noted that EWURA moved from mostly Bank-PPSDP support of 71 percent of operating costs in 2007 to largely own funding (e.g. license fees) in FY 2008 and 2009. Operating income support from the Bank-PPSDP for EWURA, FCC and FCT ended in September 2009 and the agencies moved to own-funding (EWURA) or GOT budget support (FCC and FCT). As stated above, no operating support was provided to SUMATRA, TCAA and TCRA, although SUMATRA benefited from initial design support and TCAA benefited from a costing study. Information on the effectiveness and impact of these agencies is provided in section 3.2.

Table 1: Financial information on Regulatory Agencies

Exchange rate: US$1=TSh.1350; Income and Cost in USD 1000 Agency PPSDP 2005/06 2006/07 2007/08 2008/09

Support Costs (USD)

Income (USD)

Costs (USD)

Income (USD)

Costs (USD)

Income (USD)

Costs (USD)

Income (USD)

TCRA NO 5,825.5 13,638.4

8,995.3

14,126.8

TCAA NO 10,921.2 12,897.7

15,152.0 17,662.4 15,122.8

17,580.2 17,574.8 18,249.8

SUMATRA NO 3,246.5

4,994.8

3,983.2

6,026.0

6,157.5

6,523.8

8,762.8

9,715.5

EWURA YES -- -- 3,077.8

3,467.2

5,489.7

6,316.0

7,444.9

8,685.7

FCC YES 1,225.0

1,448.5

2,023.7

2,391.2

FCT YES -- -- -- -- * * 817.4

1,296.0

Source: Regulatory and Competition Agencies. Notes TCRA: Annual Report 2007; SUMATRA: from 2006 - 2009, 45 percent from import fees and 27 percent from service provider annual fees; TCAA: adjustment made to include agency costs in total costs; EWURA: PPSDP contributions from FY07-09 = 71 percent, 16 percent, 21 percent; from 2009/10, only first quarter, from then, mainly own financing; FCC: in 2008, 95 percent of FCC income came from the PPSDP; in 2009, 85 percent; in 2010, only first quarter income; FCT: *Funds from PPSDP started Jan 2008. 2008/09 figures encompass Jan 2008- Dec 2009. Funds from PPSDP = 65 percent, GoT 35 percent.

39. All of the agencies are well staffed -- although FCT only recently (well after PPSDP closure) (re)appointed Tribunal Members, and so is able to hear cases after almost a one-year lapse. Of all of the six regulatory institutions, only EWURA, FCC and FCT received staff training through the PPSDP. TCRA, TCAA and SUMATRA did not receive staff training (nor operating cost support for hiring staff) from the PPSDP. Training was provided in regulatory issues as well as in competition economics. 40. At the moment, there is no follow-up operation planned this area in the pipeline. However, some of the activities may be supported under different sector operations as well as under the budgetary support instrument, the PRSC. For example, the dialogue on the set up of a Public-Private Partnership unit and possibly its future operation is continued under the Financial Sector Development project. The dialogue on the role of the state in various infrastructure areas and the operation of the utilities will have to be sustained in the context of each relevant sector’s engagement with the Government, combining all instruments available.

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3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation 41. The relevance of the objectives, design and implementation is rated moderately unsatisfactory.While the project objectives were relevant to country and global priorities as well as to Bank assistance strategy from the lending phase throughout the implementation period, both the design and the implementation were deficient in supporting this relevance. 42. The project aimed at supporting the Government’s strategy to reduce the role of the State in productive sectors and to promote private sector development. These objectives were also aligned to objectives set out in the Government’s 2005 development strategy (“Mkukuta”) as well as to sector strategies, particularly those pertaining to utilities and infrastructure (e.g. energy, water, communication and transportation). Clearly, PPSDP appears to be aligned to Tanzania’s development priorities insofar that the deepening of structural reforms initiated in the early 1990s has been the key driver of the intervention. The decision to engage reforms in large enterprises, particularly in utilities and infrastructure, was a bold step to help boost Tanzania’s competitiveness. On the regulatory front, the focus “on institutional issues, leaving the design of sector-specific regulatory rules to separate industry-specific projects, also funded by IDA…(p.22).”, was appropriate and reasonable. The collection of banks’ NPAs through LART and the set up of new institutional mechanisms to interface with the private sector were relevant objectives too. 43. In addition to the issues of quality at entry, the project documentation did not point to any specific action that would have engaged the Government to add new enterprises to the list of those “specified” at the beginning of the project, even though there were important ones that were not specified (see Annex 9). Since the focus was on support the divestiture of the stock of specified enterprises, even those that got “de-specified” in the course of project implementation did not trigger an active policy dialogue to eventually engage a new privatization effort. Overall, the devised KPIs could have been more precise. For example, “80 percent of staff trained” leaves too much room for “box-ticking”, and does not emphasize the quality and type of training to be provided, nor does it indicate or demonstrate the strength of the organizational and operational capacity of the regulatory institution. 44. The lack of proactive implementation, particularly during the outer years of project life, adversely affected the relevance of this project to Tanzania’s development priorities. The role of the State in the economy was not reduced as much as it could have been; and the project’s achievement in terms of institutional capacity building remained limited. On the private sector development front, the dismal implementation of the policy recommendations reached in the context of the public-private sector dialogue is an intrinsic limitation to the potential acceleration of the much needed increase in private investment levels.

3.2 Achievement of Project Development Objectives 45. The achievement of the project development objective was unsatisfactory as it had a number of shortcomings in achieving the development objective, as well as mixed across the different project components, with unsatisfactory rating for the two one that are at the core of the PDO, namely privatization and business environment. Annex 1 provides the full set projected and actual

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outcome/output performance indicators. While the momentum for state divestiture was maintained during the project life, the component fell short of achieving all its objectives: (i) stricto sensu (i.e. not taking into consideration activities pertaining to non-core assets), the numeric transaction targets were not achieved as privatization activities involved only 87 PEs (a total of 121 transactions, see table in annex 7); (ii) the privatization outcomes were also mixed as discussed below ; and (iii) institutional capacity to manage privatization matters was not sustainably built. When looking at the second largest component of the project – the Regulatory Component – the project was rather successful in achieving the KPIs, even though the ultimate rating is slightly less favorable for the reasons described in this ICR. 46. The evaluation of the overall project outcomes achievement is made difficult by the fact that the choice of indicators in the log frame was deficient and they was no restructuring to revisit them. Moreover, the various indicators were not informed during the implementation period. While it is hard to attribute the aggregate economic indicators to this project, there is a fair assumption that it did contribute somehow to GDP growth and foreign direct investment (FDI) as well as to investment and employment (see paragraphs on privatization outcomes below). 47. While the average Tanzanian GDP growth rate was about 6.7 percent during the project implementation period, the performance cannot be attributed to the project, even though, overall, most divested companies experienced an output increase after the private sector took over. Regarding foreign direct investment (FDI), Tanzania’s sustained economic reforms involving privatization allowed private capital to flow into the country at an annual average of US$424 million a year during the period of 2000-2007 as shown in the table below.

Table 2: Foreign Direct Investment, 1997-2007

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 FDI US$ Mn 157.8 172.2 516.7 463.4 467.2 387.6 308.2 330.6 447.6 474.5 512.5 Cumulative FDI US$ Mn

N/A N/A N/A 463.4 930.6 1318.2 1626.4 1957.0 2404.6 2879.1 3391.6

Source: Tanzania Ministry of Finance and Economic Affairs, Economic Survey 2007, p.97. 48. Total cumulative FDI during the project implementation period for which date is available (2000-2007) was US$3.4 billion. Although data is not available for 2008 and 2009, assuming the same historic average, the total cumulative FDI up until end 2009 would be about US$4.2 billion (though it is quite likely that FDI significantly declined in 2009 due to the crisis). This estimated amount for a ten year period, and which is not attributable to the project alone, is still below the original target of US$5 billion. Privatization Component 49. The outcome of the privatization component is unsatisfactory because of many shortcomings in the achievement of the development objectives. While privatization contributed to reducing the role of the State in commercial activities, its expected impact on economic growth remained limited as issues posed by key sectors such as energy, water, railways, and even insurance remained unresolved. The effort to introduce private participation in infrastructure was certainly deployed, but most of transactions unraveled, as discussed below. In the financial sector, the PPSDP helped the privatization of the National Microfinance Bank, but failed to make progress on the National Insurance Company and Tanzania Posts Corporation which has financial services. In other areas, most of the divested PEs in which the Government had a majority shareholding were small companies (e.g. units in agriculture sector such as tea and rice, small commercial and transport firms), the sale of which had little impact on the economy as a whole. Although most of the divested PEs that are still in operation have managed to increase their

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productivity as measured by revenue per worker, these results seem to be driven more by the large retrenchments that took place than by revenue gains. 50. In retrospect, it can be seen that project results, as measured in terms of privatization proceeds, were somewhat inflated. Both the PSRC and the Bank reports usually combined proceeds of both divestitures and sale of non-core assets to produce a total figure. In fact, there was a total of 87 PEs affected by divestiture operations, partial or complete, covering a total of 121 units (see detailed table in annex 7)2. There was also a sale of about 600 non-core asset items during the PPSDP implementation period warehouses, residential houses and motor vehicles, usually disposed of through auctions. Technically, this sale of items to private owners can be called privatization, but it was small scale and tangential to the main thrust of the project.

Graph1: Privatization transactions from 2000-2009

Source: Compiled from PSRC and CHC annual reports.

51. Despite some administrative delays, and public outcry over the sale of firms to foreigners, the privatization of commercial and industrial PEs was mainly completed and handled in an effective manner. Post-privatization performance in these sectors has generally been satisfactory. Assistance rendered by the project can claim some of the credit for privatization successes in the tradables and financial sectors. 52. Reversals in infrastructure reforms and lack of significant service improvement: The experience of infrastructure privatization was meant to help the private sector and the consumers access better, more reliable and more affordable infrastructure services. As shown below, most of the attempts unraveled. This is the largest disappointment in the project. In a report on infrastructure privatization produced by the Bank in 2005 at the Government’s request3, it was noted that by 2003, five key infrastructure enterprises (TANESCO, power; DAWASA, water; TTCL, telecom; TICTS, the container terminal; and ATCL, Air Tanzania) had some form of private participation, with some showing

2 From the original target of privatizing 200 PEs, 87 PEs were affected by any privatization effort under the Project, 34 are under privatization and 56 PEs are still in the Government portfolio. The difference is due to liquidations handled outside PSRC and CHC.

3 Tanzania Infrastructure : Privatization Impact Assessment, July 21, 2005

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operational and financial improvements compared to their dilapidated status prior to reforms. At that time, it was hoped that this process would deliver the expected results (though even then, as the report noted, the DAWASA lease had been cancelled, the Air Tanzania privatization was in difficulty, and there were apparent problems in both the TTCL and TANESCO private participation schemes). Private participation in the railways, TRC, was also being sought. The report highlighted the fact that weak institutional capacity was a key factor explaining the slow and complex interactions with private operators which involve drafting, negotiating, monitoring and enforcing contracts.

53. To summarize:

¾ The 2002 Privatization of Air Tanzania (ATCL), much lauded at the time and directly assisted by IFC underwent a reversal and re-nationalization in 2006, when the strategic partner (South African Airways) departed after a period of significant losses. Efforts since then to secure a new private sector strategic investor have not yielded results. The company persistently makes losses and its net worth is negative (about TSh 25 billion).

¾ Tanzania Railways Ltd (TRL) is a second case of failed privatization. Following a decade of Bank-assisted effort to prepare the firm for private participation, a 25 year lease contract was finally concluded with an Indian firm, RITES, in 2006. The private operator has not succeeded in meeting any of the major performance targets and the Government intends to terminate the lease in the near future. Losses continue and the financial burden on government is very great.

¾ Partial privatization of the Tanzania Telecommunications Company (TTCL) also produced poor results. Once again, preparation of the sector for private entry proved long and tortuous. A first partial privatization became mired in a dispute over the actual value of the firm. A second partial privatization proved equally unsuccessful as the partner, Zain which owns 35 percent of the shares is not keen to sustain the partnership. The company is currently making losses; considerable funding for new investments is needed. With the withdrawal of the Canadian firm SASKATEL from its management contract, the Government has retaken the management of the company.

¾ A lease contract in the water sector with a private consortium was terminated in 2005, after only 18 months of operation. Government called the performance bond and cancelled the lease, claiming that the private operators were not meeting performance targets nor paying the lease fees.4 Subsequently, a public body, DAWASCO, has been running operations. However, it has not succeeded in overcoming the operating problems of the firm, and it is faced with grave financial pressures stemming from poor revenue collection.

¾ The management contract awarded to Net Group Solutions of South Africa in 2002 in TANESCO, the electric utility produced significant financial improvements, but was nonetheless terminated in 2005 (against the advice of the donors), for reasons more political than technical in nature. TANESCO was eventually “despecified” (i.e., removed from the list of firms slated for private participation) and is now once again directly run by the Government. Technical and financial performance following the return to public management has deteriorated.

¾ The private sector became involved in port operations with a lease contract for the container terminal to a private operator (TICTS), for a period of 10 years in 2000. Initial results were

4 The principal private operators, Bi-Water of the U.K. and Gauff of Germany, sued the GOT in a British commercial court (for breach of contract) and the International Court for the Resolution of Investment Disputes (for expropriation of property). It is important to note that both courts ruled in favor of Tanzania, concluding that the GOT had not acted illegally.

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highly positive. In the first 5 years of TICTS’s management, container throughput doubled, waiting times declined greatly, and container transshipments increased significantly. However, in 2005, the lease was extended for 15 years, and IDA questioned the transparency and terms of the extension. Performance declined greatly in the following years, with, however, some improvement being seen in the last 12 months as a result of major changes in the management of the storage space and the improvement of equipment. It should be noted that the parent Tanzania Port Authority (TPA) plays the dual role of landlord and port operator (general cargo and some container handling operations). Overall, the operational and financial situations in the port as a whole are very poor and widely seen as a major obstacle to Tanzanian development5.

Table 3: Performance of infrastructure enterprises under PPI and current status Infra Enterprise Modality UNDER PRIVATE

OWNER/OPERATOR STATUS NOW

Fixed-line telephony (TTCL) Partial divestiture (35 percent)

No increase in fixed lines; Increase in mobile lines; Decline in average tariffs

Reverted back to public management and control with the end of Saskatel’s management contract in 2009; and Private partner seeking to exit

Electric Power (TANESCO)

Management Contract

First phase: improved revenue collection; Second phase: Decline in revenue collection

Reverted back to public management and control in 2005 and was “de-specified”

Water Supply and Sanitation (DAWASA/DAWASCO)

Lease contract Decline in overall performance Reverted back to public management and control in 2005

National Airlines (Air Tanzania –ATCL-)

Tanzania Railways (TRL)

Partial Divestiture

25-year lease contract in 2007

Limited initial improvement and then losses leading to South African Airways’ withdrawal. No improvement under RITES’ management as the required investment was not made

Repossessed by the Government in 2007

Contract under stress and Government is likely to repossess the company as RITES offered for sale its 51 percent stake in the company.

Container terminal (TICTS) Lease contract Significant initial improvement On-going and potentially successful private participation.

Source: Compiled from various sources.

54. At the closing of the project, there were 34 entities, fully or partially controlled by the Government, which the Consolidated Holding Corporation (CHC)6 was attempting to divest (see annex 8). At the same time, there is a residual PE portfolio of over 50 companies in which the Government has invested either with majority or minority control as shown in annex 9. Some of these enterprises were not “specified”, i.e. declared subject to restructuring and divestiture by PSRC for purposes of implementation of the Public Corporations Act 1992, and the Bank did not seek to get them on the list during project implementation. Noteworthy is also the Government’s decision to “despecify” (i.e. take off the list of

5 Tanzania, Privatization Impact Assessment, 2005.

6 CHC was designated by the Government to take over from PSRC as of January 2008. Two senior staff from the PSRC team remained on board and are still with CHC. While project implementation was de facto coordinated by CHC, the Bank amended the credit agreement only in July 2009.

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PEs to privatize) six PEs including TANESCO, Tanzania Port Authority (TPA) Mbozi Maize Farm Ltd, and Mbagala Sheet Glass Factory.The de-specification was done on “strategic” ground justifying Government ownership. However, there was no consultation with the Bank on this course of action.

55. Results on other aspects pertaining to privatization revenues, investment and employment, Tanzanian ownership in divested PEs, reduction of the fiscal burden, and institutional capacity were mixed as discussed below. 56. Overall net receipts from privatization during the project life were about US$207 million as shown in the table below. Heavy debts, poor condition of assets after years of mismanagement and under-investment (cf. DCDM, 2004) and large retrenchment costs claimed a large share of the transaction revenues.

Table 4: Privatization revenues (US$ Mn)

Year Transaction Revenues

Expenditures (incl. PE debts & retrenchment costs)

Net revenues

2000 46.31 12.86 33.45 2001 44.41 25.37 19.04 2002 12.61 10.98 1.63 2003 38.36 13.68 24.5 2004 25.09 31.18 (6.09) 2005 17.20 16.47 0.74 2006 68.53 4.55 63.98 2007 23.71 8.44 15.28 2008 44.66 1.51 43.15 2009 13.10 1.79 11.31 Total 333.99 127.02 206.97

Source: CHC The surge in 2006 is related to the sale of 49 percent shares in National Microfinance Bank to Rabobank Nederland in September 2005.

57. Investment and employment: By the end of the 1990s, GOT was generally unable, because of financial constraints, to make needed repair or expansion investments in its PEs (and in the few cases where it did these often proved to be wasteful and ineffective). Post-privatization, the new private owners generally increased investments in divested companies. While data is limited and firms are reluctant to disclose information, a survey carried out during this ICR preparation showed that ten divested PEs have invested about US$100 million since 2000. On the employment front, many divested companies were not operating when the assets were sold to the private sector. Due to overstaffing, retrenchment occurred in most PEs (85 percent according to a 2004 DCDM report). Despite data limitations, net employment is however estimated to have increased in only 11 percent of the firms in total.7

58. The objective of promoting Tanzanian ownership of divested PEs was largely achieved. As shown in the table in annex 7, this happened through direct sale of PEs (usually the small ones which were of little interest to international investors) or through the Dar-es-Salaam stock exchange. It is estimated that, of all firms divested since the beginning of the privatization program, about 66 percent were sold to Tanzanians, 21 percent were sold to joint-ventures among Tanzanians, foreigners and the Government, and the remainder (about 13 percent) to foreigners. It has also been observed that PEs sold to foreign investors and joint ventures between foreign investors, local investors and/or Government, have

7 Nilgun Gokgur, Lessons learned privatizing competitive and non-competitive state-owned enterprises in Tanzania (1993-2006), May 2007

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fared better in the competitive marketplace; they represent the bulk of privatized firms that remain in operation. A number of Tanzanians have also participated in public offerings by buying shares through the Dar-es-Salaam Stock Exchange: four out of 121 transactions completed during the period were done through initial public offering (IPO).

59. Reduction of the fiscal burden: Overall, the divestiture program allowed the Government to reduce the fiscal burden of PEs. The privatization program supported by the PPSDP sought to pursue the effort of stopping the US$ 300 million annual losses and US$ 100 million subsidies, advances and other recurrent and capital transfers from the Treasury at the beginning of the 1990s. Progress was made towards the achievement of this objective. Even though there is still a number of PEs getting Government subsidies, many divested PEs, which were loss-making before, were divested were turned around and are now paying taxes instead. As shown in the table below, net fiscal effect of PEs has shifted from a negative net outflow of US$ 100 a year in subsidies before the project to annual net revenue of US$234 million in 2008.

Table 5: Fiscal Effect of PEs (in US$ million)

1998 2008 Tax Revenues - 275 Subsidies (100) (41) Net Fiscal Effect (100) 234

Source: Tanzania Ministry of Finance and Economic Affairs, Treasury

60. The above 2008 data is based on information about companies that have paid more than TSh. 1 billion in taxes during the period of 2005-2009, from which it is estimated that the 13 largest tax payers generated US$1.4 billion in government revenues over a period of 5 years, representing an average of US$275 million per year. On the other hand however, the Treasury paid in 2008 the equivalent of US$41 million to 13 PEs that cannot meet their debt obligations and/or require recapitalization.

61. Lack of adequate capacity and institutional arrangements to handle complex privatization, post-privatization and public-private partnership issues. The plan of project designers was that the PSRC would complete the divestiture of firms on the privatization list and then transition into a post-privatization monitoring and evaluation unit, with capabilities to handle PPP transactions. Instead, PSRC was simply terminated. CHC took over PSRC’s mandate and is attempting to manage the issues as they arise but its expertise is limited, and only a limited number (two senior staff) of the relatively experienced PSRC staff were taken on by CHC. The process of creating a PPP Unit has not yet made meaningful progress. This is a serious obstacle to the prospect of sustaining what modest institutional progress was achieved under this project. Debt Collection Component 62. The debt collection component is rated as moderately satisfactory. This component was intended to strengthen repayment discipline in Tanzania’s banking system through (i) expedited collections from defaulters on non-performing assets of public sector banks; and (ii) expansion of Tanzania’s fledgling private market capacity for debt collection through the transfer of LART, in the medium term, to the private sector.

63. In relation to this latter option, consideration was given at the time of the PAD to the alternative of privatizing Loans and Advances Realization Trust (LART). However, this suggestion was rejected as it would have disrupted LART’s ongoing collection efforts, in a context in which alternative equally effective debt collection services in the private sector had yet to be established, and where the regular

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court system lacked the capacity to handle such cases as expeditiously as the Tribunal. LART handled NBC NPAs as well as liquidation of non viable PEs. The good performance observed under the PPSRP was sustained and most of the unencumbered debts were collected in a timely manner. Although the future options study recommended that LART be privatized for reasons which are unknown the Government declined to accept this recommendation. By the time of its phasing out in June 2006, LART officials were still expecting the Government to extend its mandate.

64. The component was quite successful until its closing in September 2007, which had been preceded by the GOT’s decision to end the mandate of the Loans and Advances Realization Trust in June 2006, with a transfer of the residual activities to CHC. LART recovered 80.7 percent of non-performing assets amounting to TShs 21.8 billion - a very satisfactory result by international debt collection standards. Although LART did not achieve the project target figure of 90 percent, in hindsight that target was probably unreasonably ambitious. However, once LART ceased to exist, outstanding debt collection cases fell into a legal limbo, and dismal progress was made under CHC. This detracts from the overall success of the past performance of this component. LART was not privatized, the LART Tribunal was not merged into the Commercial Court system that was developed in the early 2000s and the project did not directly result in the development of a private debt collection industry. While this component performance can be criticized, it is difficult, however, to assert that LART’s recovery rate might have been higher had any or all of these three measures been taken. Infrastructure Regulation Component 65. With respect to utility regulation, the performance of the project in relation to the two original PDO was moderately satisfactory. Performance of the project on the PDO varies greatly depending on the regulatory institution in question, ranging from highly satisfactory in the case of EWURA, to non-existent involvement in relation to TCRA, to mediocre performance in relation to the FCC and FCT in the last two years of the project when strong implementation support was most needed vis-à-vis these two competition authorities. The above rating is supported by the actual project achievements under this component as well as the long time required to implement the project against its design objectives (“efficiency” in relation to achievement of PDO) taking into consideration the total five-year extension.

66. Due to the delayed enacting of the legislation, regulatory agencies were made officially effective well into the project, in some cases, only after the first extension in 2004 as shown in Table 5 below. These delays have partially contributed to the rating attributed to this component, although the KPIs were achieved.

Table 6: Establishment and Effectiveness of Regulatory Agencies

Regulatory Agency Legislation Passed Regulator considered “effective” and PPSDP able to disburse *

TCRA (ICT) 2003 2003 TCAA (civil aviation) 2003 2003 SUMATRA (surface and marine transport) 2001 2004 EWURA (water and energy) 2001 2005 FCC (competition commission) 2003 2006

FCT (competition tribunal) 2003 2006 Source: Project files and interviews. *Effectiveness noted through e.g. notice published in Gazette, Director General or equivalent appointed, etc. The date is not clear for EWURA, FCC and FCT – and is not necessarily when the project did actually start to disburse to the regulatory entity in question.

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67. Although the KPI were met in relation to the TCRA, TCAA, and SUMATRA, the PPSDP project cannot take much credit for strong performance vis-à-vis the PDO for the regulators to whom the project gave very little (e.g. TCAA, SUMATRA) or no support (e.g. TCRA).

68. It could be argued that TCRA, TCAA and SUMATRA did not need as much support since they were able to build on the more solid backgrounds (staffing, management, mandates) that existed before the PPSDP came into force. However, in that case, the extension of the project in 2007 should not have continued to purport to work with them, for example, requesting training/capacity plans from all six authorities, to which TCAA and SUMATRA did respond. Further, there are areas, such as in training and benchmarking of regulated entities, that could have used additional support, as was indicated by the November 2007 Aide Memoire. 69. EWURA, FCC and FCT are the three regulatory entities that received the most support from the project, in particular their initial start up costs (e.g. office space, computers), operating costs including salaries, and training. The amounts varied from 30 percent of EWURA’s operating costs in the initial years of operation, to 90 percent for FCT. Therefore, the fact that these authorities are now established, up and running with well-qualified staff can in large part be attributed to the PPSDP. Regulations have been developed, rules and guidelines published, and cases/appeals and tariff applications have been heard, often in a speedy manner, mostly within 18 months. 70. EWURA is now often cited as an example of a strong multi-sector regulatory agency in SSA. EWURA is doubly challenged with the regulation of both public and private utilities, and so far is handling this adeptly, meeting the KPI for the project, including those proposed in the extension log-frame which were not formally adopted. EWURA was also financially sustainable by the close of the project – a highly satisfactory achievement given that the regulator was not effectively in place until 2005. In terms of impact on sector performance by EWURA, it is much too early to attribute a trend in improved performance to the regulatory success of EWURA. Many of the regulated entities have not yet completed a full regulatory cycle of tariff reviews and comparative competition which is then followed by a period of performance that can been fully monitored and benchmarked. EWURA is gathering data on access to basic services, as well as efficiency gains achieved by the regulated entities. Another potential gauge of regulatory success (by providing a stable and consistent regulatory environment) could be the demonstrable interest of the private sector to take risk and engage, for example through management contracts, concessions or other PPP arrangements. But since EWURA was established, there has not been a concerted effort to tender for extensive private sector involvement in the water or energy sector; therefore, this litmus test cannot yet be applied. However, the project did support EWURA in the establishment of a framework for the development of small power projects, including the development of a standardized small power purchase agreement, which is expected to pave the way for more investment in generation. 71. Rules appear generally clear and consistent. Regulated entities have noted that there is some method in the regulatory processes that did not exist before, providing advantages (e.g. on predictability). Notably several water utilities are not satisfied with EWURA’s performance, and do not feel they can maintain their systems without more financial support. It is expected, however, that there will be tension between a regulated entity and the regulator, and therefore some dissatisfaction expressed is not necessarily a cause for concern. In the case of electricity, satisfaction is higher, and EWURA is seen to protect customers and “investors”/operators. 72. FCC and FCT were the two other regulatory/competition entities that received substantial support from the PPSDP. From 2006/7, FCC started to receive operational income from the project to hire qualified staff, secure office space and furniture and develop material for dissemination and rule making. FCT received such support at a slightly later date. Both entities can be seen, as in the case of several of

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the Tanzanian regulatory authorities discussed here, at the forefront of regulation and competition for Sub Saharan Africa. Consistent rules have been established, and cases have been managed within the required 18 month period – often well before hand – except after FCT’s Member appointments lapsed in late 2008. Training was also provided through the PPSDP, but often in a much delayed manner when such training required Bank prior approval. Both entities complained in ICR interviews that training provided was often regulatory in nature, as opposed to competition oriented. Competition-oriented training was provided to FCC and FCT in June 2009 prior to project close. 73. Senior appointments have not always been made sufficiently expeditiously by Government: for example, in the case of FCT, after appointments had expired in 2008, Tribunal Members were not appointed or reinstated until early 2010. This lead to a lapse in the ability of the FCT to hear cases. In terms of financial sustainability, these agencies do not have sectors from which to levy license fees as is for other regulators, and so rely on annual decisions from Government regarding their funding. The 2008 Finance Act eliminated the 2.5 percent of business licensing fees that were funding the FCC in a more predictable manner, and the Government replaced that fee with an annual Government budget allocation. Business Environment Component 74. The outcomes of the fourth component pertaining to business environment are unsatisfactory.This component was intended to provide assistance as follows: (i) establishment and operation of a consultative body for discussion, consideration and addressing constraints to investment, employment, output, exports and competitiveness of the private sector; (ii) design and implementation of a public awareness and communication program about the issues to be dealt with by the consultative body; and (iii) strengthen the capacity of the consultative body to carry out its mandate through training, advisory services, and technical studies. 75. Under this component, efforts were made to facilitate removing impediments to domestic and foreign private investment. An innovative public-private sector dialogue mechanism in the form of a “Presidential Investor Council”, known as Tanzania National Business Council (TNBC) was set up in 20028. The Tanzania Private Sector Foundation (TPSF) participated in the design of TNBC. Between 2002-2009, TNBC has organized seven International Investors Roundtables and three Local Investors Roundtables.

76. Through eight working groups, TNBC’s work has expanded from business regulatory issues (e.g. business licensing and registration, Doing Business Indicators), governance and legal sector reforms, to sector-specific issues (e.g. agriculture and ICT). The Roundtables have helped sustain a much needed dialogue between the public and the private sector on issues that matter for private sector-led growth. Pro-business policies, strategies and regulations have been developed. However, results remain below expectations as a “big push” to improve the business environment has not happened. For example, Tanzania’s ranking on the Doing Business comparative table did not improve for many years; and, in the latest Doing Business Report (2010), it slipped from 126 to 131 out of 183 economies. The Report states that no single reform was completed in the period under review (May 08-May 09), despite the support available from the ongoing Private Sector Competitiveness Project since 2007.

8 Tanzania was, along with Ghana and Senegal, one of the three countries that pioneered the mechanism consisting of putting together a forum, under the chairmanship of the Head of State, of Government officials, domestic private sector actors, and international private sector (both invested and not invested) representatives to discuss issues that would foster the acceleration of private sector development and investment. Other counties eventually followed (e.g. Uganda, Mali, Benin, Mauritania, Burkina Faso).

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77. Capacity building in this component was supported by the PPSDP which extended over US$0.5 million for the salaries of three key staff, training and to cover the costs of the Roundtables. TNBC is decentralizing to ensure national coverage; and the Government has started funding the institution from its own budget. However, budgetary constraints are likely to slow down the pace of work plans implementation. Accomplishments under this component are modest, at best.

3.3 Efficiency 78. Project efficiency is rated moderately unsatisfactory, considering that the performance could have been much higher, should implementation have been properly managed. Considering the technical assistance nature of the project, there was no economic analysis carried out. Indeed, many of the most important economic benefits are indirect and difficult to impute with accuracy. There was simply a discussion of the various types of benefits to which the project would contribute. No net present value (NPV) was calculated because it was infeasible. 79. Project efficiency can be looked at by comparing the resources spent with the results achieved. The project disbursed SDR 25.5 million (US$36.3 million equivalent), and the activities financed allowed financial returns in the areas of privatization, debt collection and foreign direct investment. Privatization allowed the government to reduce substantially the fiscal burden as divested PEs that were viable or have been turned around since are generating revenues for the Government; net privatization proceeds were about US$ 207 million; and there was some increase in firm productivity. The debt collection effort allowed a recovery of about US$14.2 million for a cost of about US$4.36 million. Cumulative FDI during the implementation period exceeded US$4 billion over a period of ten years (as opposed to US$5 billion in five years), not even considering the issue of attribution. On all these fronts however, the performance could have been higher if (i) the flaws of project design had been readily addressed through a restructuring and (ii) implementation had benefitted from collaboration between the Bank and the Government at all stages.

3.4 Justification of Overall Outcome Rating Rating: Unsatisfactory 80. The project overall rating is unsatisfactory. Although the project was relevant to the country’s needs and to the Bank’s assistance strategy, the overall performance during the ten year implementation period was uneven, and it declined substantially following the second extension of the closing date. Policy dialogue on issues such as infrastructure reforms, a public-private partnership unit, a competitive debt market, and investment climate reforms, was not carried out in a sustained manner. The pace of efforts to deliver the defined outputs declined steadily during the later years of the project. The problems of the project were sufficiently serious and sufficiently evident that restructuring should have been attempted. This step was, evidently, never considered even though the project was not disbursing properly, never managed to shift from transaction-based to report-based disbursements, capacity building efforts and communication campaigns remained rather shallow, and a substantial amount of resources remained unused at the closing of the project. Although the project managed to produce some positive outputs, it failed to achieve its more important objectives in the area of infrastructure reforms. 81. Had the project been closed in September 2007 (at the end of the first extension), performance might have been better rated. That is, almost no progress of substance took place during the second two year-extension period in the areas of infrastructure reforms and investment climate activity; an opportunity was missed to address these key strategic issues and provide effective implementation support.

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82. The extension of the project in 2007 did benefit the regulatory component. Because of the initial delays in creating the regulatory institutions and making them effective, operating support from the project had not yet been fully (and in some cases hardly) disbursed to the entities. The operating income support proved critical to the establishment of well staffed and equipped agencies (Table 1). Had the project closed in September 2007, the regulatory component would surely have received an unsatisfactory rating. Unfortunately, even in this component the implementation support provided in the 2007-2009 period cannot be highly rated since the executing entities could wait for months before receiving appropriate approval from the Bank to train and equip staff. This indicates that bureaucratic delays and inaction were not always limited to the borrower, but were problem within the World Bank after the change of TTL in 2007.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

83. The project had no specific poverty, gender or social development aspects. The impact on consumers and the issue of retrenchment are discussed in the relevant sections. (b) Institutional Change/Strengthening 84. The project’s contribution to institutional change/strengthening was uneven, tending towards weak. In the area of privatization, the expertise built over time to handle privatization transactions has been mostly lost with the disbanding of the PSRC. Only two senior staff from the previous team is still with the PSRC successor, CHC. 85. In the area of regulation, staffs were trained, albeit over a short period, given the late operationalization of the component, compounded by the slow Bank response during the last two years of project life. However, all agencies are likely to continue their operations, though they need capacity strengthening. 86. With respect to the debt collection activity, the original objective of converting LART into a private sector debt collection entity was not achieved. Instead, LART’s legal mandate was allowed to lapse in June 2006, despite a Bank Aide-Memoire of 2005 which recommended (i) an extension of the LART mandate for 12 months; and (ii) that LART be encouraged to submit a recommendation on its future status to the Minister of Finance together with a draft Cabinet paper and a draft Resolution for the National Assembly. As no action was taken on the above recommendations, by process of law, the LART Act expired on June 30, 2006. As a consequence, a number of cases were left in limbo. CHC did take over the debt collection role, but it lacked the ability to operate as effectively as LART. The idea of developing a competitive private debt collection market is no longer being considered as such a market has arisen as a result of the general growth in commercial activity over the past few years. The status of the remaining uncollected debts is not known. 87. Little was done to promote the business environment. There is now an institution in charge of public-private sector dialogue that reports to the Prime Minister’s Office. It appears, however, that its resources are limited and that it is largely inactive. (c) Other Unintended Outcomes and Impacts (positive or negative)

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88. Even though most of the transactions (one management contract, two partial sales and three leases) dealing with private sector participation in infrastructure were reversed or came under stress, some benefits did emerge from the process. They include:

(a) changes made to the market structure by separating asset-holding authorities from operating companies have established some checks and balances in the respective sectors;

(b) the introduction of regulators has improved the operation of the respective sectors and increased consumer protection; and

(c) there is a sense that, despite past problems, private sector involvement in these sectors should be sought in the future. As the responsible Minister said at the time of the cancellation of the water lease, “This is a contract failure; not a concept failure.” Private operators are still being sought in air transport, water and telecommunications.

89. The regulatory component has established what are likely to be lasting institutions that can help support further sector reform, including privatizations when appropriate, and should help bring increased efficiency and build increasing confidence in Tanzania as a country in which to invest stability and consistency.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 90. A stakeholder workshop was undertaken during the preparation of this ICR. Stakeholders indicated that the project was a very useful support tool for the implementation of Tanzania’s private sector development strategy. Through its assistance to the privatization program and the public-private sector dialogue, the project helped the public understand the respective roles of the Government and the private sector. The support provided to various institutions, particularly the set up and the capacity building of regulatory agencies is considered as very beneficial. However, the stakeholders were very critical of the weak support received from the Bank during the last two years of project implementation after the change of the TTL in 2007.

4. Assessment of Risk to Development Outcome Rating: Moderate 91. The risk to development outcome is rated moderate because there is a good likelihood that most of the development outcomes will be maintained. Even though privatization reversals have occurred in infrastructure sectors, it is also clear that privatization in other sectors is no longer questioned. Utility regulation and competition enforcement should remain as well, notwithstanding challenges pertaining to capacity and financial resources in some cases. The effectiveness of the public-private sector dialogue mechanisms hinge on future leadership on both sides, but can hardly be weakening than at present. 92. Though the PPSDP was highly relevant, there were significant shortcomings in the achievement of its development objectives and in its efficiency. The trend of good performance toward the achievement of the development objective was satisfactory during the first few years of project implementation during which most of the transactions producing private participation in infrastructure were achieved. As noted repeatedly, after 2005 most of these experienced severe problems. Subsequently, the institutions that could have helped manage the complex transactions and assisted in finding solutions to troubled infrastructure contracts and post-privatization problems and debt collection issues, namely PSRC and LART, were closed. The successor CHC took over the mandates but the skills and systems built over time were lost; and there is currently a major need for capacity building within the Tanzanian Government to handle the critical issues at hand. In order to address the most pressing constraints to private sector development, the availability, cost and reliability of infrastructure services must be addressed, and this will require reforms in the various utilities.

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93. This project contributed to a changed perception of the role of the Government in the Tanzanian economy over the last decade. The state now leaves most commercial activities to the private sector; and, there are lasting reforms even in infrastructure sectors where the Government had to retake a direct role again after an attempt to involve the private sector in their operation. Moreover, notwithstanding severe capacity challenges and the complexity of public-private partnerships in infrastructure, the Government is still designing a policy that would involve the private sector in the management of these issues in the future. The public-private sector dialogue is an ongoing process, slow and with many reverses, that will need to be associated with a robust implementation mechanism to ensure that recommendations translate into changes that encourage private investment policy.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory 94. Although project preparation and quality at entry benefitted from the implementation experience of the PPSRP, there were several shortcomings. The project’s strategic approach and content were relevant to both the country’s priorities and the Bank’s assistance to GOT; but the formulation of the PDO remained unclear and the selection of KPIs should have been focused on those that could be easily measured and legitimately attributed to the project. The log frame had a poor quality baseline. While implementation arrangements, fiduciary aspects and risk assessment were broadly adequate, an effort could have been deployed to ensure that critical actions (e.g. appointment of the Steering Committee, adoption of the quarterly report format). Many operational aspects could have been better defined, particularly in the area of privatization and regulation. 95. The privatization component did not consider the complexity of a new phase of privatization entailing utilities so as to build capacity and institutions accordingly; and the set up of regulatory institutions should have been planned to occur early enough during project implementation to increase the chances of private sector participation in infrastructure. Planning should also have properly taken into account the amount of time that can be required to make any sweeping reforms in sensitive sectors that require extensive Government ownership and support. Risk mitigation measures should have been more forcefully defined in the project design as well with respect to infrastructure reform, particularly in light of the East Asia crisis that had just started when the project was being designed. (b) Quality of Supervision Rating: Unsatisfactory 96. Supervision effort was well deployed during the initial years of the project, but declined during the two periods of project extension of the closing date. Although progress in the implementation of major project activities was not on schedule, which translated into large disbursement lags, some legal covenants were not met (e.g. no steering committee, no quarterly reports), Bank’s supervision reports remained over-optimistic with satisfactory ratings. Had supervision reports been more accurate in flagging the problems, corrective actions might have been taken while there was still time to fix this effort. The fact that supervision was carried out from the field since 2005, i.e. at the beginning of the first project extension, should have helped improve substantially the Bank’s supervision performance. However, this opportunity was missed since (i) key problems affecting the project performance could have been more squarely addressed (e.g. stepped up dialogue on infrastructure reforms, restructuring, improved M&E and reporting); and (ii) the management of the second extension period was particularly

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deficient. On the contrary, it is during that period that there were reversals, “de-specification”, undesirable changes in implementation arrangements, etc., and it is not clear how much the Bank attempted to advise in those processes. 97. Although the respective project teams regularly reported on implementation progress, the focus on development impact could have been sharpened. For example, the same amount of effort deployed to inform the impact of privatization in infrastructure in 2005 could have been applied to other aspects of the project as well. In some instances, ISRs were simply updated every six months so as to meet the regional reporting requirements, without field visits (e.g. second semester of 2005 and from September 2007 to May 2009). 98. Management’s comments on project status reports (PSRs)/implementation status and results reports (ISRs) were not systematically taken into account. For example, comments on the June 2005 ISR recommended the team to (i) provide support to the GOT to take the infrastructure privatization impact assessment study on board, (ii) prepare an issues paper prior to the September mission, and (iii) provide systematic information on project performance and actions required. No action was forcefully taken on any front. Infrastructure contracts continued to unravel; no position paper was prepared to flesh out the issues and eventually revisit the project design; and information on project performance remained partial. From 2006 onwards, Management flagged the need to take action to ensure a faster disbursement pace and avoid cancellation of funds, but little was done. While the second extension was necessary to support the nascent regulatory entities, the Bank should have engaged the Government to be more focused on that component and then provide the required intensive implementation support. On the latter front however, the team leadership’s presence in the field did not result in intensified interactions with the client and reporting, and, as mentioned above, there were long periods of time without any supervision. 99. The lack of periodic reports from the Borrower made it difficult to establish whether (i) there was consistency between funds disbursed and project’s implementation progress, particularly on critical activities, and (iii) budgeted costs were being executed as planned and on schedule. Ratings were consistently overoptimistic, and Management questioned the candor of the ratings particularly in 2007 and 2008. It was only in 2009, a few months before the project closing that the team better aligned the project ratings with the observed performance, downgrading the project to marginally unsatisfactory. Moreover, the project team failed to make a necessary Credit Agreement amendment requested by the Borrower in early 2008 to replace PSRC with CHC as the implementing agency and this amendment occurred only in July 2009. This was a very weak supervision performance on the part of the Bank. 100. On the financial management front, issues were well addressed throughout the project life. Financial accounting, reporting, disbursement and external auditing arrangements for the project worked normally throughout. However, it had been agreed during project negotiations in 1999 that action would be taken swiftly to shift to project management report (PMR)-based disbursements system by end June 2001. However, the project never shifted to a PMR9-based disbursement. The only attempt to do so, in late 2002, was unsuccessful because the executing agency failed to prove that the Government’s contribution to project costs was being adequately made and accounted for. Later, even though the issue of counterpart funding was resolved, PSRC decided not to shift to PMR-based disbursement and to continue with statement of expenditures. Should the project have migrated to PMR-based disbursements, it would have eventually migrated to the Financial Management Report (FMR)-based disbursements when they were introduced by the Bank. Annual financial statement reports were prepared annually for external audits which were performed always on schedule by the National Audit Office (NAO). Overall, the Bank team should have encouraged and provided support to the executing agency to submit PMRs.

9 Project Management Reports (PMR) changed to Financial Monitoring Reports (FMR) in 2002.

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101. The procurement function during the project life covered two main categories of consultancy services and equipment (goods). Other categories of the project included training, and incremental operating costs. Major part of the project constituted of consultancy services since the project supported institutional reforms and capacity building in privatization, banking restructuring, and utilities’ regulation.

102. Major delays were observed in the issuance of no-objections by the Bank, particularly during the last two years of project life, which caused slippages in implementation and slowed down the disbursement pace. Moreover, the Bank could have been more proactive in settling the change with executing agency once PSRC had been terminated and the Government introduced a formal request. Considering the above series of shortcomings, Bank’s overall quality of supervision is rated unsatisfactory. (c) Justification of Rating for Overall Bank Performance Rating: Unsatisfactory 103. The shortcomings observed during project supervision were severe enough to trump the relatively good quality of project design and early implementation efforts. Threats that were noticeable and occasionally flagged by management remained unaddressed; and this translated into a deterioration of the project’s performance. In 2007, two components were closed on the ground that they had achieved their development objectives: debt collection and business environment. As this report shows, the judgment that the objectives had been achieved was questionable. More proactive actions could have and should have been attempted, particularly those focusing on strengthening the foundations for public-private partnerships in infrastructure.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory 104. The Borrower’s contribution to project preparation was initially of satisfactory quality, based on the fact that the track record in key areas covered by the project (privatization and debt collection) was sufficient to justify a follow up operation. At first, key executing agencies (PSRC and LART) were performing well even though there were delays in meeting some of the operational requirements such as the production of quarterly and annual reports covering all aspects of the project. Actions required for project preparation and effectiveness (e.g. formulation of the privatization program scope, development of a retrenchment policy, etc.) were taken in a timely manner, but the momentum declined as implementation proceeded, particularly during the two consecutive extension periods. 105. Noteworthy shortcomings in Government performance that hindered the achievement of project outcomes include: (i) the spate of problems in the contracts with private sector operators in various infrastructure areas; (ii) lack of transparency in the extension of the concession contract for the container terminal of the Dar-es-Salaam port; (iii) the termination of LART and LART Tribunal which left a number of cases in limbo; (iv) the failure to set up a Steering Committee; (v) the termination of PSRC in 2007 (while what had been recommended was the transformation of its mandate to better manage post-privatization issues and PPP transactions); (vi) the delays in passing the legislation and making the regulatory agencies operational; and (vii) the repeated delays in appointing FCT staff. Some legal covenants (e.g. Steering Committee to oversee the supervision of the project, quarterly project management reports) were not complied with.

(b) Implementing Agency or Agencies Performance

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Rating: Moderately Satisfactory 106. The overall project coordination and the implementation of the privatization component were under PSRC’s responsibility from the preparation phase until end 2007 when the responsibility was transferred to CHC. Debt collection was implemented by LART and LART Tribunal until June 2006. The regulatory component was implemented by the various regulatory agencies as well as by FCC and FCT; and the business environment component was implemented by the Tanzania National Business Council. 107. According to the various aide-memoires and PSRs/ISRs, implementing agencies performed reasonably well on most of the project activities, particularly during the first phase of project implementation. By 2005, the overall project performance was positive and there was a legitimate sense that the project development objective was being achieved. However, there were also several weaknesses that limited implementation success and swift achievement of development objective: (i) beneficiary/stakeholder consultations and involvement remained rather limited, even though there was a communication function built in the project design; (ii) the executing agencies failed to submit periodic project reports; (iii) the plan to shift to a PMR-based disbursement mechanism was not implemented as agreed upon with the Bank; (iv) although PSRC reported on privatization progress and the LART on debt collection in their respective annual reports, there was no reporting on the project’s log frame by way of monitoring and evaluation. 108. The change of executing agencies that occurred at the end of LART and LART’s Tribunal in June 2006, and of PSRC in December 2007, led to the transfer of the respective responsibilities to CHC. This new agency had not been prepared to fulfill this dual role. The administrative change had an important disruptive impact on project performance. The issue of weak capacity coincided with a deterioration in the intensity and quality of Bank implementation support during the two last years of the project, and performance suffered. As a result, many of the targets that were set for the second and last extension of the closing date were not achieved. Nevertheless, progress made during that period should be credited essentially to CHC and the regulatory agencies. 109. On the fiduciary front, the overall assessment of the PSRC’s and CHC’s performance with regard to the implementation of the procurement function was considered as moderately satisfactory. Some procurement issues arose during implementation: (i) inadequate procurement planning whereby most of the procurement plans were overly ambitious in terms of the number of activities proposed in a financial year, and the plans were also prepared late; inadequate preparation of the individual annual work plans and budget by the various beneficiary entities (LART, EWURA, FCC, FCT, TCAA, etc); (ii) inadequate filing and record keeping and in some cases not all procurement documents of a specific contract are kept in the same file; (iii) slow procurement implementation with activities lagging behind original planned dates; and (iv) procurement sections not adequately staffed for efficient implementation. In the area of financial management, the executing agencies performed their work satisfactorily, even though they did not embark on PMR-based disbursement arrangements as initially planned. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory 110. The overall Borrower performance is rated moderately unsatisfactory. Like the Bank, it generally performed relatively well in the first implementation phase, but it failed to make decisions and appointments in a timely manner, leading to delays and difficulties. In spite of the adoption of a “fast track procedure”, the time between the conclusion of the bidding process and the signing of the sale contract remained too long (over a year on average). Moreover, multiple changes in Government (oversight Ministry and 2005 elections) and in implementation arrangements (end of both LART and

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PSRC, and hand-over to CHC) broke periodically the implementation momentum. Quarterly reports on project performance were not submitted and there was no M&E system in place.

6. Lessons Learned

113. Realism in setting performance targets is key to achieving results in weak capacity contexts. In the areas of privatization (infrastructure in particular) and regulation, it would have helped to recognize politically sensitive sectors and topics that would take time and more high level Bank and development partner dialogue with the Government, and set less ambitious/more realistic timetable for the completion of infrastructure reform as well as the creation and strengthening of regulatory/competition agencies.

114. Specificity in project design is essential to facilitate implementation. More specificity and consistency between the broader project design discussion (e.g. importance of awareness-raising, relationship of PPSDP to other Bank and sector initiatives) with KPIs and implementation plans would have generated more commitment on the executing agencies.

115. Systematic and candid reporting on project performance should be required from the Borrower and the Bank task team should be required by management to maintain a systematic follow up and support mechanism. In the case of this project, reports were mostly limited to outputs pertaining to privatization transactions and NPAs recovered and very little attention was paid to outcome aspects. Although recommendations made by management in some PSRs/ISRs were often not taken on board, more realistic project rating should have been required earlier than at the end so as to trigger timely corrective actions.

116. Intensity of implementation support with the right expertise and resources is key to project implementation success and achievement of development objectives. In the case of PPSDP, the less the supervision effort, during the extension periods, the more the project performance deteriorated. In some instances, the location of the team leadership in the field did not translate into more effective and sustained interaction with the client.

117. Timely project restructuring represents an opportunity to revamp project design and implementation which was missed in the case of this project, in spite of obvious design shortcomings and difficulties to report on the project’s outputs and outcomes.

118. Sustained Borrower’s commitment rather than on the length of project implementation is essential to the achievement of development objectives. The more the life of this project increased, the more adversely the positive results of the early years were affected. The existence of a large undisbursed balance until the ultimate closing of the project invited the Government to continue requesting the extension of the closing date even though the infrastructure for successful implementation had been weakened.

119. Due diligence in privatization processes is essential to make sure the Borrower gets the right private sector partner in a privatization transaction. There is a critical need to do thorough checks on the solidity of any financial commitments in the bid, and to have a full understanding of the structure of consortia and the corporate strategy of the different partners in each consortium. If this had been done systematically, there are some contractual arrangements that would not have ended up failing. This due diligence is also needed to get the best out of transaction advisors.

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7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

The Borrower, through CHC, reviewed and provided comments on Bank’s draft ICR. The following key points were made: (i) The termination of both LART and PSRC occurred at the end of their legal existence, and CHC was identified as capable of taking over the respective roles; (ii) CHC integrated a small number of experienced PSRC staff because of the diminishing privatization activities; (iii) the issue of PPP Unit is currently being handled by the Prime Minister’s Office, and a policy has been approved.

(b) Cofinanciers

There were no cofinanciers.

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

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Annex 1: Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)10

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

PRIVATIZATION SUPPORT 39.43 26.55 67.33 DEBT COLLECTION 11.88 4.06 34.17 UTILITIES REGULATORY DESIGN 18.24 18.92 103.72

BUSINESS ENVIRONMENT IMPROV. DESIGN 3.29 0.87 26.44

Total Baseline Cost 72.83 50.40 69.20

Physical Contingencies 1.98 0.00 0.00

Price Contingencies 2.00 0.00 0.00

Total Project Costs 76.81 50.40 65.62 Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.00 0.00 0.00

Total Financing Required 76.81 50.40 65.62

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 13.80 11.50 83.33 International Development Association (IDA) 45.90 38.3011 83.44

Other Donors 17.11 0.60 0.04 Total 76.81 50.40 65.62

10 Original cost table assumed funding from both the Government and other donors. Since there was no agreed upon co-financing arrangements, very little of the expected other donors’ funding of project activities did not materialize. Only the United Kingdom’s Department for International Development (DFID) supported the project’s communication activities for about US$600,000.

11 The Bank disbursed the equivalent of SDR 25.5 million and canceled SDR 7.8 million after the project closing date. The exchange rate applied is SDR 1 = US$ 1.5

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Annex 2: Outputs by Component

Log frame & Key Performance Indicators (Based on PAD ,1999; DCA, 200012; and Draft Extension Log frame, 200713)

Narrative Summary Key Performance Indicators

Result Comments

Main Objective Reallocation of national resources to achieve development goals and improve the quality of goods and services (PAD)

To assist the Government of Tanzania in the carrying out of its privatization and private sector development program (DCA and Extension Log frame).

Contribution to growth of GDP thru privatized sectors

Investment in privatized in enterprises

Post-privatization growth in employment

Increased private sector investment in water, rail, power, surface and air transportation sectors (Extension Log frame)

The average GDP growth rate during project implementation was 6.7%. However, the contribution of the project is hard to isolate. There was an overall increase in the output of privatized sectors.

Overall private investment in privatized companies remained modest. .

Employment moderately increased in privatized companies as many of them are no longer in operation.

Private sector participation in most infrastructure sectors was not successful: out of six sectors where PPI was initiated, only two (telecom and port) still hold, and railways (TRL) are under stress.

The Government’s commitment to reforms, the complementarily between the structural adjustment program and the technical assistance provided under this project allowed important progress during the first phase of the project. It was during the extension periods that the performance slowed down and eventually declined as a combined result of institutional changes and reduced momentum in project management.

Project Development Objectives:

1 Reduction of the role of the state in commercial activities

Reduction of PE portfolio Reduction of government assistance to PEs

Number of PEs Privatized: -20 strategic/large(*) -180 small/medium (*)

PE portfolio by reduced and government assistance to PEs reduced. Privatization transactions affected 87 PEs, mostly small/medium size and about 7 strategic/large (Container Terminal, NMB, DAWASA, TTCL, ATCL,, TANESCO, TRL). Divested PEs represents less than 80% of total employment and turnover of the original portfolio.

Divestiture of and private participation in infrastructure has proven to be a challenge. Several contractual arrangements have failed and the Government has had to take over the operation of the PEs (e.g. TANESCO, DAWASA and ATCL). TRL repossession is also looming.

12 The wording of the project objectives in the DCA are also used here as they are more aligned to the broader objectives described in the PAD than the PAD’s own PDOs and KPIs.

13 The draft Extension Logframe has been circulated amongst some key stakeholders of the PPSDP, but has never been officially issued by the Bank. They are included here to provide additional insight into the project’s performance.

30


Result Comments

Share of PE sector privatized by 2004: - 80% of sector by total

employment & turnover(*)

Notwithstanding the failure of some contractual arrangements, some of them due to market difficulties, the privatization program had been carried out in a sustained manner.

2 Facilitate and promote private sector participation in the economy

(This objective and related indicators were dropped from the September 07 Project extension log frame)

60% increase private sector contribution to GDP.(*) 10% expansion of employment.(*) 20% increase in labor productivity.(*) 20% increase revenue flows to government.(*)

Change in these indicators could not be attributed to this project.

There was a double problem of attribution and measurement from the outset.

3 Widening of involvement of Tanzanians in business; broaden this ownership.

Involvement of Tanzanians in the privatization process increased through share ownership, through spin offs, local businesses supplying privatized companies -Value of shares listed

Tanzanian ownership of privatized PEs is estimated to be about 66 percent of the portfolio; and the opening of a number of economic sectors through divestitures allowed the entry of new private operators.

The statistical base remains weak to track this, but the M&E Unit of CHC is working on addressing the issue.

4 Provision of an effective and efficient mechanism for the recovery of NPAs of banks and financial institutions

Reduction in the number and % of NPAs in the banking/financial system: >90% of NPAs recovered by 2004.(*)

A large fraction of non- performing assets (NPAs), estimated at over 80%, was recovered by LART, a bit less than the target.

LART was terminated in 2006 before finishing collection; and CHC, as a successor, does not have the benefit of a dedicated tribunal (the equivalent of LART Tribunal ) to recover residual NPAs.

5 Facilitate the development of private sector debt management services capacity.


LART was not transformed into aprivate sector entity. However, there are private debt collectors in the market.

The privatization of LART was never seriously considered by the Government. Its mandate was simply let lapse.

6. Establish institutional structures and build capacity to implement light, effective regulation for infrastructure and utilities regulation. (PAD/DCA).

All sector specific institutions established

All sector specific institutions have been established. Legislation passed to establish the regulators as follows: EWURA, 2001 SUMATRA, 2001 FCC and FCT, 2003 TCRA, 2003 TCAA, 2003 Regulatory authority not able to operate until Act “comes into force” (e.g. notice published by Government in Gazette) and a Director General or equivalent is appointed: TCRA, 2003 TCAA, 2003 SUMATRA, 2004 EWURA, 2004/5 FCC, 2005/6 FCT, 2005/6

Verified mainly through official regulatory websites and publications. Also reviewed several consultant reports, reports from PSRC/CHC, Bank AMs, and interviews with regulatory institutions during ICR mission. TCRA and TCAA, and to some extent SUMATRA, inherited many staff and resources from their predecessors (units/departments) dating back before this project, and thus were able to be operational fairly immediately after the laws were enacted. Delays related to SUMATRA include for example discussions around which sectors would be included. The time lag between legislation and Act

31


Result Comments

“enforcement” for EWURA is largely attributed to the time required for Government to decide which Ministry would be the “responsible” Ministry.

7. Stable regulatory systems (PAD)

All regulatory disputes presented by operators resolved within 18 months

For TCAA, TCRA, FCC, and SUMATRA, disputes have been handled within 18 months, often more quickly given regulatory requirements are stricter. This is even in the case of FCC, handling mergers and competition cases. For EWURA, technically all disputes (e.g. related to tariff applications) were handled close to within 18 months. However, one water utility application although officially closed within about 18 months (after an FTC hearing) in effect dragged on for over 2 years on substantive discussions around the indexation of tariffs (as provided for in the operator’s lease contract) until a tariff indexation (of 30% to cover the three year period) was agreed. In the case of FCT, only those appeals heard by its appointed Tribunal Members before October 2008 were handled within 6 months (4 out of 9 appeals registered). The remaining 5 appeals have not been completed because of the lapse of Tribunal Member appointments in October 2008, but since appointment in early 2010, the Tribunal is back in operation.

Evidence from interviews with staff, documentation from supervision missions, and in some cases Annual Reports. Part of the explanation from EWURA regarding why they did not accept the tariff proposal in 2007/8 included that the utility (DAWASA) had not seriously attempted to reduce technical and financial losses, and that the tariff application had not been prepared with sufficient processes, evidence and justification for the requested increase. The utility argued that the request was simply the tariff indexation allowed for in the lease arrangement. The Bank’s sector teams and other DPs subsequently started providing the utilities (water and electricity) with greater support (e.g. technical assistance) to improve the quality of tariff applications. Another important KPI demonstrating regulatory system stability would be the financial sustainability of the institutions. See new “Output” on Sustainability added through Extension Log frame below. Further, such a KPI would have been more in line with the project objectives described in the PAD.

8. Improvement of business environment and removal of obstacles to investment and improvement of country’s image as a local and foreign investment Destination

Over 100 firms investing private funds into the economy.(*)

Over US$5.0 billion of investment.(*)

During the project life, there have been largely more than 100 firms investing private funds in the economy (new businesses registered). The volume of investment over the project life has exceeded US$ 5 billion, though such a performance cannot be directly attributed to the project. Numeric target achieved but implementation lagging as

Information from TNBC and the Tanzania Investment Commission.

32


Result Comments

Over 50 policy recommendations to government.(*)

reflected in the small number of investment climate reforms made over the last few years

Reported reforms in the annual “Doing Business” report and information from TNBC.

Outputs: A Privatization 1. PEs divested on “fast track” More than 140 PEs privatized Over 140 PEs privatized.

However, there were only 5 PEs divested (instead of 35 targeted) during the second two year extension period.

Roster of transactions maintained by PSRC and CHC.

2. Carryout public awareness and stakeholders' communication.

At least 70% of target group made aware through the use of mass media, workshops, seminars.(*) At least 50% of the masses made aware of the privatization actions.(*)

Numeric targets (70% of target groups and 50% of the masses) reached in terms of sensitization of target groups and the masses through the use of various media.

The sensitization has remained rather too general to address the core concerns of the general opinion.

3. Capacity building on privatization of PEs

Over 70% of staff trained and courses attended. Focus of the training program will be on specific “hands-on-training” for privatization practitioners in PSRC and related individuals in other Government stakeholder institutions.(*)

Training of PSRC technical staff and related individuals in other Government institutions (over 70%) on privatization issues was carried out. However, the disbanding of PSRC in 2007 has caused a loss of most skills.

Capacity building is needed more than ever in this area, particularly on issues pertaining to infrastructure privatization and public-private partnerships.

B Loans and Advances realization Trust (LART)

1. NPA accounts with a face value of Tshs. 40.2 billion transferred to LART from banks for recovery.

Tshs. 14 billion recovered by 2002: Collection 20%, 35%, 45% in 2000, 2001 and 2002 respectively.(*)

TShs. 17.8 billion collected during the project life (LART’s phase 3, from 1999-2006).

Performance criteria exceeded even though there was an unrecovered amount of about TShs. 6.5 billion.

2. Liquidate PEs transferred to LART

20%, 35%, 45% of assets of PEs sold in 2000, 2001, 2002 respectively.(*)

16 PEs liquidate and disposal of assets of 11 additional PEs (out of 41 transferred by both PSRC and the Treasury Registrar).

About 14 liquidations transferred to LART were uncompleted.

3. Recycling of idle/unproductive assets

Number of assets recycled into the economy from idle PEs and productive: 20%, 35%, 45% sold in 2000, 2001, 2002, 2003 respectively.(*)

Idle assets were sold and recycled in the economy through the liquidation process.

4. Facilitate development and implementation of transition of LART.

Study on the LART and LART Tribunal completed by December 1999.(*)

Transition strategy developed and adopted by June 2000.(*) Transition arrangements and implementation completed by December 2002.(*)

A study was carried out and completed by PriceWaterhouseCoopers in 2002. Transition strategy was never adopted. LART and LART Tribunal were closed in 2006 without transitioning to the private sector.

C Institutional

33


Result Comments

Framework for Infrastructure and Utilities Regulation

1. Strengthening organizational and operational capacity of regulatory body(ies). (PAD)

More than 80% of staff trained. (PAD) Strategic Plan and Business Plans in place for agencies with plans published. (This KPI added in draft Extension Log frame.)

No training was provided by the project to the TCRA, TCAA or SUMATRA. In the case of TCAA and SUMATRA, training had been requested by the regulator (after the Bank AM of March 2007 had suggested ALL the regulators submit capacity building/training plans to the PPSDP) but the request had not been fulfilled. All of these regulators trained their staff through their own budgets, so no attribution to the PPSDP. Substantive training was provided to EWURA, and [more than 80%] of professional staff have been trained with relevant regulatory training. In addition, in the first couple of years of EWURA’s operations, the project supported about 30% of its operating costs, mainly in the form of salaries used to higher qualified trained staff. Training to FCC and FCT was limited, and when provided, was largely very tardy, such as the critical competition economics training provided during the last few months of the project. However, a substantial portion of the operating costs of these two authorities was covered by the project – in the case of FCT, sometimes 90%. These costs were used to higher well-qualified staff. Strategic Plans have been produced by all of the regulatory institutions and published by TCRA, TCAA, SUMATRA either on the respective websites or as printed documents. Annual business plans or annual reports have been prepared by most of authorities, based on the longer-term strategic plans.

Percent of staff trained needs to be qualified with a) quality and type of training and b) efficient use of training funds that do not abuse travel abroad which keep staff from performing duties for long periods of time. Another important KPI that should have been used is “hiring of well-qualified staff”. This would have also been more in line with the project’s funding mechanism which mainly supported operating costs (e.g. salaries) for EWURA, FCC and FCT in the first few years of their operation. The hiring of well-qualified staff was key to the “strengthening of organizational and operational capacity” of the authorities. The project was intended to provide such operational support for up to the first three years of the authorities’ operation, but because of delays in project implementation (e.g. delays in Government enforcing the regulatory acts or making appointments; Bank delays in providing No Objections and time for transition to new implementation agency CHC), not all of the funds related to operating costs could be availed in a timely manner. The project extension from 2007 to 2009 was specifically aimed at strengthening EWURA, FCC and FCT, and clearly the support provided on training through the project was extremely limited for FCC and FCT. TCRA, TCAA and SUMATRA did not receive any operating cost support from the project as they had been assessed to have sustainable funding sources from, for example, licenses and

34


Result Comments

levies. It is unfortunate that when training was provided in Dar es Salaam itself (where all the regulatory authorities are located) to one of the regulatory authorities, the other regulators were not invited, except when combining FCC and FCT together. Training provided to EWURA as well as the limited training provided to FCC and FCT could have been provided to all of the regulators in most cases. On Strategic Plans and Business Plans, note that TCRA and TCAA did not receive any operating cost support or earmarked technical assistance from the project in the development of their plans. SUMATRA did benefit from the initial study undertaken which helped develop project implementation plans, but this is the only clearly documented support that was provided to SUMATRA through the PPSDP.

2. Agree with regulators on benchmarks for improvement, efficiency, and productivity in the affected sectors (PAD) Benchmarks established for all regulatory agencies on regulatory performance (e.g. timely, clear and credible regulatory decisions based on transparent processes) and sector performance (e.g., operational efficiency, cost recovery and technical and commercial quality of service) (Added in draft Extension Log frame)

Performance Benchmarking strategy agreed and in place for all agencies (added in the draft Extension Log frame). Timely response of the regulatory bodies (PAD and Extension Log frame). Depending on the sector in question, improved quality and/or lower costs to the consumer. (Removed in Extension Log frame)

TCRA and TCAA have established benchmarks/key performance indicators for their own performance (e.g. see TCAA Strategic Plan 2004-2009), and have a good grasp of performance of the sectors they regulate, for example with sub-sector divisions and monitoring and evaluation teams that collect data on key indicators. For example, in the case of ICT, access in the sector has improved, prices have gone down, and competition is increasing. A universal access fund to connect the poor has been developed. Further, both authorities respond to complaints in a timely manner. However, the ICR does not think the positive performance by these regulators can be attributed in any way to the project, given that little or no support was provided by PPSDP to these entities.

The draft Extension Log frame correctly removed the KPI related to “improved quality and lower costs” of utility and infrastructure services that was included in the PAD. It became clear that the regulators the PPSDP was supporting and that needed the most support -- EWURA, FCC and FCT -- were nascent at the time of extension in November 2007, and it would be very difficult to attribute improved sector performance to the regulatory framework at the time of project close in 2009. TCRA, TCAA and SUMATRA received no funding through this project except for one costing exercise for TCAA at the very end of the project, and the initial design study which included recommendations on the initial establishment and operations of

35


Result Comments

SUMATRA has been closely monitoring sector performance. The results have varied depending on the sub-sector. For example, the number of marine accidents has decreased dramatically from 2005 to 2009, while road accidents have increased dramatically, although these numbers need to be adjusted for population growth and the increase in vehicular traffic. SUMATRA has not undertaken a benchmarking exercise of its own performance – and could have benefited from support from the PPSDP on this. EWURA has not established the requisite benchmarks for itself. However, benchmarked performance standards for the utilities it regulates are being established, and EWURA is collecting information on access and efficiency. Performance in the sectors regulated has varied, although in both water and electricity, losses have reduced, and access has increased. FCC and FCT have not established the requisite benchmarks against which their respective performance will be evaluated.

SUMATRA. No operating costs (e.g. salaries) were funded. Therefore the ICR did not conduct much analysis on these KPI for these regulators/sectors.

FCC and FCT fully operational and sustainable (Added in draft “Extension Log frame”)

A policy to sustain FCC and FCT approved by December 2008 (Added in draft “Extension Log frame”) Legislation to sustain FCC and FCT developed and submitted to Parliament (Added in draft “Extension Log frame”) Economic analysis on anti-competitive behaviors of Firms conducted from December 08 (Added in draft “Extension Log frame”)

FCC is currently able to operate, given a fairly full complement of staff and commissioners which have received limited competition economics training. Rules (for example on “rulemaking”) have been developed by the regulator, and cases are being heard. FCT was finally operational (although rules have been made) as in early 2010 when Tribunal Members were (re) appointed. The 2008 Finance Act eliminated the 2.5 percent of business licensing fees that were supposed to sustainably fund FCC. The Government has replaced that license fee with an annual Government budget allocation. FTC is also to be

This is a critical PDO with appropriate KPIs which should have been included from the outset. This PDO is consistent with the broader project objectives as outlined in the PAD. Another related KPI which could have been included is whether public awareness campaigns were undertaken. Public awareness was seen as a pillar of the Regulatory Component of the PPSDP at design stage. With proper awareness campaigns (supported by appropriate studies) to all key stakeholders, in particular to MPs and

36


Result Comments

funded through government budget allocations (whereas during PPSDP received almost 90% of its operating costs from the project). Neither entity therefore has secured sustainable funding mechanisms.

The economic analysis on anti-competitive behaviors has not yet been conducted.

other top level government officials, the case for secured sustainable funding as well as the need for timely appointments could have been made. Ultimately, no substantive public awareness campaign was separately funded through the PPSDP, except for a small one close to the end of the project. Some limited public awareness has been undertaken by EWURA, FCT and FCC. These may be attributed to the project through the operational support (e.g. salaries) provided to the authorities.

D. Private Sector Consultative Body

1. Establishment of a consultative body

One consultative body to be established

2. Impact of Consultative Body on improvement in business environment

50% increase in the number of Consultative Body recommendations presented to and approved by Government.(*) 60% increase in stakeholders responding positively to the Consultative Body effectiveness.(*)

Project Sub-components:

C Institutional Framework for Infrastructure and Utilities Regulation

Regulators are created, staffed and funded

Technical assistance support was provided in three ways:

a) Design stage, where a consortium of consultants worked with PSRC on the development of the multi-sector regulators, EWURA and SUMATRA. Project Implementation Plans, staffing and other resource recommendations including training/capacity building requirements. b) Implementation stage, where consultants assessed the nascent regulatory

Most of the funding for the regulatory authorities came in the form of supporting operating costs in the initial years (mainly salaries) for EWURA, FCC and FCT. (See discussion above.) Technical assistance for design stage was not provided to TCRA and TCAA although one costing study was undertaken for TCAA at the very end of the

37


Result Comments

institutions and provided guidance on specific areas that needed strengthening, particularly in terms of guidelines, training/capacity building, and sustainable funding mechanisms. An activity-based costing exercise for TCAA was undertaken in the last few months of the project. c) Actual training and capacity building activities (not covered within operating costs). See output component “remarks” above on public awareness.

project. More detailed guidance could have been provided in relation to the creation and strengthening of FCC and FCT, but the majority of technical assistance support went to EWURA. Recommendations on more independent and sustainable sources of funding were made in relation to EUWRA, FCC and FCT. The other three authorities were deemed to be financially sustainable. Training came to FCC and FCT very late in the project (e.g. 2009). No training was provided to TCAA or SUMATRA despite requests made after a Bank supervision mission that requested all six regulatory authorities to submit training/capacity building plans, despite the fact that local training to EWURA or FCT/FCC could have easily included other regulators.

( *) Indicators discussed and agreed upon during negotiations. In addition to the above, it is worthwhile to note that privatization procedures and approval process were streamlined already during the first year of project implementation (2000). During the same period, a retrenchment policy was developed, even though implementation never followed. Over the years, privatization strategies were developed and implemented for various utilities as well as the necessary legislation required to set up regulatory mechanisms. However, capacity to handle complex privatization transactions, with will be required for any future infrastructure reform, is still lacking.

38

Annex 3: Economic and Financial Analysis

N/A.

39

Annex 4: Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Paul Ballard Task Team Leader Private Sec. Dev./Privatization

Elizabeth Adu Principal Counsel Lawyer

Hovsep Melkonian Sr. Disbursement Officer Financial Specialist Brian Falconer Principal Financial Specialist Financial Specialist Luke Haggarty Privatization Specialist Economist Michael Warlters Regulatory Specialist Economist Rey Castro Operations Specialist Economist Vedasto Rwechungura Operations Specialist Economist Alfonso Revollo Senior Adviser, Private Sec. Dev. Economist Olivier Fremond Privatization Specialist Economist Alberto Chong Labor Market Specialist Economist Mercy Sabai Financial Management Specialist Financial Specialist V. Krishnakumar Procurement Specialist Pascal Tegwa Procurement Analyst

John Nellis Privatization Specialist, Quality Assurance Team Economist

Yves Duvivier Regulation Specialist, Quality Assurance Team Economist

Arvind Gupta Private Sector Development Specialist, Quality Assurance Team

Iain Christie Lead Private Sector Specialist, Quality Assurance Team Economist

Fannie E. Goll Task Team Assistant

Supervision/ICR Aijaz Ahmad WBIRP Infrastructure Specialist Mavis A. Ampah Senior ICT Policy Specialist CITPO ICT Specialist Sherri Ellen Archondo Senior Operations Officer AFTFE PSD Specialist Yeshareg Dagne Program Assistant AFTFE Bella Lelouma Diallo Sr Financial Management Specialist AFTFM Finance Specialist Lucy M. Fye Sr Private Sector Development AFTFW Task Team Leader Katharina B. Gassner Senior Economist FEUFG Regulation Justina Kajange Program Assistant AFCE1 Rughvir K. Khemani Consultant QAG Competition Policy Sunita Kikeri Adviser GCMCG Privatization Gisbert Joseph Kinyero Procurement Specialist AFTPC Peter R. Kyle Consultant AFTFW Debt Collection/Lawyer Donald Paul Mneney Senior Procurement Specialist AFTPC Francois Nankobogo Senior Operations Officer AFTFE PSD Specialist/TTL John R. Nellis Consultant QAG Economist/Privatization Adam Nelsson Country Officer AFCE1 Paul Noumba Um Lead Economist MNSSD Infrastructure Specialist

40

Onno Ruhl Country Director AFCW2 PSD Privatization Specialist Vedasto Rwechungura Consultant COCPO Economist Mercy Mataro Sabai Sr Financial Management Specialist AFTFM Dieter E. Schelling Lead Transport Specialist AFTTR Infrastructure Specialist Ruth T. Selegebu Team Assistant AFCE1 Peter Silarszky Senior Economist CITPO Telecommunications Bernard W. Tenenbaum Consultant AFTEG Dileep M. Wagle Consultant QAG PSD Specialist Michael D. Wong Sr Private Sector Development SASFP Task Team Leader

41

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs) Lending

FY98 12 55.16 FY99 52 176.96 FY00 46 117.72

Total: 110 349.84 Supervision/ICR

FY00 6 18.32 FY01 36 92.46 FY02 46 175.19 FY03 50 182.80 FY04 27 89.50 FY05 36 119.08 FY06 46 155.43 FY07 57 269.07 FY08 37 142.18 FY09 23 0.00 FY10

Total: 364 1245.34

42

Annex 5: Beneficiary Survey Results N/A

43

Annex 6: Stakeholder Workshop Report and Results

1. A stakeholder workshop was held during the preparation of this ICR. While the overall assessment is that the project was very useful to make inroads in the implementation of Tanzania’s private sector development strategy, there is also a marked sense that the project could have achieved much more, should the design have paid attention to a number of issues and, more importantly, should implementation have been more client-oriented and sought to address some important issues including the set up of an adequate monitoring and evaluation system. 2. On the privatization front, the project was instrumental in supporting the reduction of the Government’s role in commercial activities and expanding the role of the private sector. As a result, the Government can now continue implementing its residual privatization program without much resistance from the general opinion. 3. The implementation of the privatization program over the last decade with the support of the project has allowed the Government to reap fiscal benefits consisting in lower subsidies, lower investment expenditures in areas where divestiture occurred and higher tax revenues generated more vibrant private firms. On the other hand, the private sector has received new investment opportunities created by the divestiture program, and a culture of competition has been initiated. However, results were mixed on the competitiveness front as private participation experiences in several infrastructure areas failed. Therefore, the expected improvements in the quality and cost of goods and services, including electricity, water, telecommunications, transportation and shipment (e.g. railways and ports services) did not materialize. 4. On the institutional front, the workshop underscored that neither LART nor PSRC were disbanded. Their legal term had expired and the Government decided not to extend them. In both cases, it was considered that CHC could take over the outstanding tasks; and that is what is in place today. 5. With respect to regulation, the stakeholders indicated that the support in the set up of regulatory agencies and their capacity building was instrumental. However, results could have been more important if implementation support had not been deficient during final years of the project life, a time when more proactive support to capacity building efforts was needed. 6. The project impact on the consumers is not clearly identifiable. There is little information on whether there is increased access to products and services at more affordable prices induced by increased competition or not. However, the new institutions including the regulatory agencies and FCC are engaged in the prevention from the misuse of monopoly power.

44

Annex 7: List of PE transactions carried out from 2000-2009

S/N. Company Name

UnitsS/N.

Unit Name RegionDive-stituremethod

Year ofDivestiture

% ofsharespurchased byinvestor

Name ofStrategicInvestor

% ofsharesretainedby Govt. REMARKS

AGRICULTURE

1.-Tanzania SisalAuthority

1

TSAMuhezaKitisa SisalEstate

Tanga/Muheza Asset Sale Feb 03

Agro TangaLtd.

Resold. SAsigned 19/12/05

2 KingolwiraSisal Estate Asset sale Oct 07 100

HighlandEstates Ltd. 0

SA signed on30/10/07

2.-TanzaniaDairiesLimited

3

TDL - DairyTechnologyTrainingInstituteTanga(DTTI) Tanga Liquidation 4/00 -

Abdalla M.Nahdi -

Salesagreement25/4/00

3.-

TanganyikaPyrethrumBoard Mahenyeand LudodoheloFarms

4

TanganyikaPyrethrumBoardMahenyeandLudodoheloFarms Iringa Asset Sale Jan 04 -

RomanCatholicDiocese ofNjombe -

Sales Agreementsigned 22/2/04(N/A indatabase)

4.-Kagera SugarLimited

5 KageraSugarLimited Kagera Share Sale Oct-01 89.47

Kagera SawMills Ltd. 0

Sales Agreementsigned on 3 Dec2001, rest ofsharesowned bysame investor

5.-

Rotian SeedCompanyLimited

6Rotian SeedCompanyLimited Arusha Share Sale 2000 100

Mr. S.Bruisma 0

Sale agreementsgned on Jan2000

6.-National MillingCorporation

7 NMCMzizima

Dar esSalaam Asset Sale Jan 04 -

MaunguSeed -

SA signed on 1stSept 04

45

Maize Mill Company(T) Ltd.

8NMC IsakaRice MillComplex Shinyanga Asset Sale 2003 -

Anwar B.Karim -

Sales Agreementsigned on 9thNov 04

9

NMCTabora RiceMillComplex Tabora Asset Sale May 04 -

ExportTradingCompanyLtd. -

Sales Agreementsigned on 1stNov 04

10

NMCShinyangaRice Millcomplex Shinyanga Asset Sale May 03 -

Best LintTanzaniaLtd. -

SA Signed on20/4/05

11

NMC -KurasiniWheatComplex

Dar esSalaam Asset Sale Jan-00 -

21st CenturyFood &PackagingLtd -

SA signed 16thNov 05 (Debtswap)

7.-

National Foodand AgriculturalCorporation(NAFCO)

12 NAFCODakawaRice Farmassets Morogoro

Trans-ferredto CoopSociety -

DakawaProgrFarmers &Agr MktgPrimaryCoop Soc.Ltd. -

13

NAFCODakawaRice MillComplex Morogoro Asset sale July 04 -

QualityGroup Ltd. -

Sales Agreementsigned on25/1/05

8.-NAFCO WarretFarm Ltd

14NAFCOWarret Farm(Hanang) Manyara

Trans-ferredto Wananchi 2004/5 -

Transferredto Wananchi -

Transferred toWananchi

9.-NAFCO GawalLtd

15NAFCOGawal(Hanang) Manyara

Trans-ferredto Wananchi 2004/5 -

Transferredto Wananchi -

Transferred toWananchi

10.-

WestKilimanjaroFarms Ltd

16 NAFCOMatadi Farm

Kili-manjaro Asset Sale Jan 06

Mr. H. H.Mosha

SA signed20/6/07

11.-Kapunga RiceProject

17 KapungaRice Project Mbeya Asset sale May 06 100

ExportTrading Co.Ltd. 0

SA signed17/8/06

46

12.-Mbarali RiceFarmsLtd.

18MbaraliRice FarmsLtd. Asset sale Nov 04 100

HighlandEstatesLtd. 0

SA signed18/8/06

13.-TanganykaPackersLtd

19ShinyangaMeatProcessingPlant Asset sale

March07 100

Gary Stowe(Tripple SBeef Ltd) 0

Was the saleagreementsigned (notlocated indatabase)?

14.-Tanzania TeaAuthority

20TTA -MlangalaliTea Estate Iringa Asset Sale Dec 02 -

DhowMercantile(EA) Ltd. -


21TTA -LupembeBranch Iringa Share sale Dec 02 70

DhowMercantile(EA) Ltd. 0


22

TTARungwe(address tolocate) Mbeya Asset Sale 2000 -

CDC andRungweSmallholders -

Sale Agreementsigned inSeptember 2000

15.- TANICA23

TANICA Kagera Share sale Sept 03 53.43

KageraCoop Union(1990) Ltd. 0

Sales Agreementsigned on 7thDec 04

16.-Mufindi TeaCompany

24 Mufindi TeaCompany Iringa Share Sale 2000 100

AfricaPlantationsT Limited 0

Sale Agreementsigned in August2000

17.-Kagera Tea Co.Limited

25 Kagera TeaCo. Limited Kagera Asset Sale Jul-00 -

Spear ShieldAfrica Ltd -

Sales Agreementsigned on 25thSept 01

18.-

CashewnutBoard ofTanzania

26

MasasiCashewnutProcessingFactory Mtwara Asset Sale July 04 -

BucoInvestmentHoldings (T)Ltd. -

Sales Agreementsigned on 27thJan 05

27

KibahaCashewnutProcessingFactory Coast Asset Sale July 04 -

SafaPetroleum &Mineral Co.Ltd. -

Sales Agreementsigned on 25thFeb 05

28

Newala ICashewnutProcessingFactory Mtwara Asset Sale July 04 -

Agro Focus(T) Ltd. -


47

29

LikombeCashewnutProcessingFactory Mtwara Asset Sale July 04 -

MicronixSystemsLtd. -

30

LindiCashewnutProcessingFactory Lindi Asset Sale July 04 -

BucoInvestmentHoldings (T)Ltd. -

Sales Agreementsigned on 21stMay 2005

31

Newala IICashewnutProcessingFactory Mtwara Asset Sale July 04 -

MicronixSystemsLtd. -

Sales Agreementsigned on 10thMay 2005

32

TunduruCashewnutProcessingFactory Ruvuma Asset Sale Oct 05

ExportTrading Co.Ltd.

33

MtamaCashewnutProcessingFactory Lindi Asset Sale Feb 05

LindiFarmers Co.Ltd.

SA signed 16thJune 2006

34

NachingweaCashewnutProcessingFactory Lindi Asset Sale Feb 05

LindiFarmers Co.Ltd.

SA signed 16thJune 2006

19.- TANITA

35

TANITA ICashewnutProcessingFactory

Dar esSalaam Asset Sale June 04 -

CielmacLtd. -


36

TANITA IICashewnutProcessingFactory

Dar esSalaam Asset Sale Jun-06

Bunda OilIndustriesLtd.


20.-

MtwaraCashewnutProcessing Co.Ltd

37MtwaraCashewnutProcessingFactory Mtwara Asset Sale June 05

EqualOpportunities for AllTrust Fund(EOTF)

SA signed on28th Nov 05

21.-

ManawaGinneriesCompany

38 ManawaGinerry Share Sale Dec-07 33

NyanzaCotton OilCompany

S.A Signed inDec 2007.Handed over in

48

limited Limited May 2008

INDUSTRY,TRADE ANDMARKETING

22.- TBL FarmsLtd.

39TanzaniaBreweriesLtd (TBL)

Dar esSalaam/Arusha/Mwanza Share Sale 2000 SABIA

40TanzaniaBreweriesLtd (TBL)

Dar esSalaam/Arusha/Mwanza Share Sale Oct-00

Fedha FundthroughDSEbroker=Rasilimaliltd. 2m shares

41

TanzaniaBreweriesLtd (TBL)(1,124,934shares)

Dar esSalaam/Arusha/Mwanza Share Sale Apr 01

DSE sold byRasilimaliLtd. 1,124,934 shares

42

TanzaniaBreweriesLtd (TBL)

AfterEABLentryshare-holding July 02 20

East AfricanBreweriesLtd. 20%

After EABLentry in 7/02sharesareSABIA=51.8%,Public =8.2%,UTT =8%,IFC=7%,EABL=20%

43TanzaniaBreweriesLtd (TBL) 7.00

InternationalFinanceCorporation 13%

44TanzaniaBreweriesLtd (TBL) 8.00

Unit Trustof Tanzania 5%

23.-

TanzaniaCigaretteCompany

45TanzaniaCigaretteCompany

Dar esSalaam Share Sale 2000 24

JTInternationalHold BV

46 TanzaniaCigarette

Dar esSalaam IPO 2000 19.5

TanzaniaPublic 5.5

49

Company

24.-Tanga CementCo.

47 TangaCement Co. Tanga IPO Oct 02 32.5 IPO 0 IPO

48 TangaCement Co. Tanga Share Sale Oct 02 7.5

HolcimMauritiusLtd.

Salesagreementon 25/9/02

25.-

TanzaniaPortlandCement Co.

49TanzaniaPortlandCement Co.

Dar esSalaam Share Sale ’Apr 03 9.41

ScancemInternationalANS 35.59

Sale Agreementsigned on02/09/98

50 TanzaniaPortlandCement Co.

Dar esSalaam IPO Aug 06

Dar esSalaamStockExchangeIPO

26.-Mbeya CementCo.

51ImaraSecurityCompany Closed 2000 - -

27.-FarmsProductLimited

52FarmProductsLtd.

Divestitureby CentralGovt 2000 - -

27.-Steel RollingMills

53SteelRollingMills Tanga Asset Sale 2001 -

UniqueGroupLimited -

Sale Agreementat the close stage???

28.-Ubungo FarmImplements

54UbungoFarmImplements

Dar esSalaam Asset Sale Dec 03 -

TanzaniaSteel PipesLtd. -

Sales Agreementsigned 20th Dec03

29.-

NationalPrinting Co.Ltd.

55NationalPrinting Co.Ltd.

Dar esSalaam MEBO Apr 01 100

KIUTA(1998) Ltd. 0

MOU Apr 01;SA 12/4/02

30.-

TanzaniaLeatherAssociatedIndustriesLtd.

56

TanzaniaLeatherAssociatedIndustries

Dar esSalaam Closed 2002 - -

Closed/WoundUp

31.-

NationalChemicalIndustriesLtd.

57NationalChemicalIndustries


Closed/WoundUp

32.-Board ofInternal Trade

58 Board ofInternal


Closed/WoundUp

50

Trade

33.-

PesticidesManufacturersLtd.

59PesticidesManufacturersLtd. Moshi Share Sale Mar 02 100

TwigaChemicalsLtd. 0

SA signed11/2/05

34.- LRT MotorsLtd.60 LRT Motors

Ltd.Dar esSalaam Share Sale 58

LRT (2000)Ltd. 42

Share sale agrmtsigned on10/1/03

35.-

HouseholdSupplliesCo.Ltd.

61

HouseholdSupplies Co.Ltd.(address tolocate)

Dar esSalaam MEBO Oct 03 100

Hosco(2000) Co.Ltd. 0

MEBO SAsigned on 10thOct 03

36.-

Dar esSalaamRegionalTrading Co. Ltd.

62

Dar esSalaamRegionalTrading Co.Ltd.(address tolocate)

Dar esSalaam MEBO Oct 03 100

DRTCTrading Co.Ltd. 0

MEBO SAsigned on 10thOct 03

37.-

MorogoroPolyesterTextilesLtd.

63MorogoroPolyesterTextilesLtd. Morogoro Asset sale Oct 03 -

21st CenturyTextilesLtd. -

Sales Agreementsigned on …

38.-Southern PaperMills Ltd.

64SouthernPaper MillsLtd. Iringa Asset Sale Jan 04 -

Rai GroupLtd. -


39.-

Stationery andOffice SuppliesCo. Ltd.

65

Stationeryand OfficeSupplies Co.Ltd.

Dar esSalaam MEBO Feb-03 100

S&O (2001)CompanyLtd. 0

MEBO SAsigned on 7/1/04

40.-Tanzania SarujiCorporation

66TanzaniaSarujiCorporation

Dar esSalaam Closure Oct-02 - N/A Closure -

Closed/WoundUp

41.-

TanzaniaKaratasiAssociated Ind

67

TanzaniaKaratasiAssociatedInd.

Dar esSalaam Closure Oct-02 - N/A Closure -

Closed/WoundUp

42.-State MotorCorporation

68 State MotorCorporation

Dar esSalaam Closure 2003 - N/A Closure -

Closed/WoundUp

51

44.-Arusha RegionalTrading Co. Ltd.

69

ArushaRegionalTrading Co.Ltd.(address tolocate) Arusha

Asset sale(MEBO) May 03 -

BiasharaArusha Ltd. -

SA signed on7//9/04

45.-

MwanzaRegionalTrading Co. Ltd.

70

MwanzaRegionalTrading Co.Ltd.(address tolocate) Mwanza

Asset sale(MEBO) May 03 -

MzartcTrading Co.Ltd. -


46.-

BiasharaConsumerServicesCo.Ltd.

71

BiasharaConsumerServices Co.Ltd.

Dar esSalaam

Asset sale(MEBO) Dec 02 -

BCS (2000)Co. Ltd. -

Sales Agreementsigned on 6/1/05

47.- TOL Ltd.72

TOL (TzOxygen)Ltd.

Dar esSalaam Share Sale Oct 04 60

SAAMIHoldingsLtd. 0


48.-National SteelCorporation

73NationalSteelCorporation

Dar esSalaam Share Sale Jan-01 100

NewNationalSteel (2000)Ltd. 0

Sales Agreementsigned 16 May05

49.-WazoEngineering Ltd.

74WazoEngineeringLtd.

Dar esSalaam Share sale Dec 06 46.5 0

SA signed Dec06 ???

50.-

MangulaMechanical &Machine Tools

75

MangulaMechanical& MachineTools

Morogoro/Mang’ula Asset Sale June 05 100

St. Mary’sInternationalSchools 0

Investor hasdeclined offer.Nevercompleted?

51.-

ManawaGinneriesCo.Ltd.

76ManawaGinneriesCo. Ltd. Mwanza Share Sale May 07 33

NyanzaCotton OilLtd. 0?


INFRA-STRUCTUREDEVELOPMENT

52.-Tanzania PortsAuthority

77TPA -ContainerTerminal

Dar esSalaam Concession May-00 0

InternationalContainersServices Ltd 100

Operator payslease fee asperconcession-lease

52

period = 10yrs

53.-

DSM AirportHandling Co.Ltd.

78DSMAirportHandlingCo. Ltd.

Dar esSalaamairportshandlingco. Share Sale 2000 51 Swissport 49

Sale Agreementsigned 30/5/2000

79DSMAirportHandlingCo. Ltd.

Dar esSalaam IPO 2003 49

IPO, 49%shares(=8,820,000shares @Shs. 450) 0

IPO costs=Tshs.660,160,000)

54.-

Mbeya RegionalTransport Co.Ltd

80

MbeyaRegionalTransportCo. Ltd Mbeya Share Sale 2000 100

KumbeCompanyLtd 0

Sale Agreementsigned inSeptember 2000

55.-

TanzaniaTelecomCo.Ltd.(TTCL)

81

TanzaniaTelecommunicationsCo. Ltd.

Dar esSalaam/branches Share Sale 2001 35

Consortiumof Detecon& MSI 65

SA signed in Feb2001

56.-

Rukwa RegionalTransport Co.Ltd

82

RukwaRegionalTrans. Co.Ltd Rukwa Share Sale Aug-00 100

RukwaRETCO(2000)Limited 0

Sales Agreementsigned on 29thOct 01

57.- Iringa RETCO

83IringaRETCO Iringa Share Sale Jul-00 100

IringaRETCO(2000)Limited 0

Sale Agreementsigned in 2001

84

TTCLMotorVehicleRepair Shop

Dar esSalaam Asset Sale Aug-00 -

YudikaMremi -

Sales Agreementsigned on 12thNov 01

58.-

Kampuni yaUchukuziRuvuma(KAURU)

85

Kampuni yaUchukuziRuvuma(KAURU) Ruvuma Asset Sale 2001 -

New KauruLtd. -

Sales Agreementsigned on 2001

59.-

Kampuni yaUchukuziKagera

86Kampuni yaUchukuziKagera Kagera Share Sale Sept 02 100

KageraTransCo.Ltd. 0


53

60.-

Air TanzaniaCorporation Ltd(ATCL)

87

AirTanzaniaCompanyLtd.

Dar esSalaam/branches Share Sale Dec 02 49

SouthAfricanAirways 51

SA 212/02,Repurchasedback at $1 on29/8/06

61.- MIC (T) Ltd.

88MIC (T)Ltd.

Dar esSalaam Share Sale Nov 03 26.04

MilicomInternatioanal CellularS. A.

Sale of all Govtshares

62.-

InternationalHouse PropertyLtd. (sold topublic co. PPF)

89

InternationalHousePropertyLtd.

Dar esSalaam Share Sale

31stOct 02 19.6

PublicServicePensionFund 0

Sale of all Govtshares

63.-Celtel TanzaniaLtd.

90CeltelTanzaniaLtd.

Dar esSalaam Share Sale Aug 05 25

MobileSystemsInternationalCellularInvestments(Tanzania)BV 40

SA signed 5thAug 05

64.- MECCO91

MECCODar esSalaam Share Sale May-00 75

SisiConstructionLimited 25


65.-

TanzaniaRailwaysCorporation(TRC) a newCo. was formednamelyTanzaniaRailwaysLtd.TRL to takeoveroperationsofTRC and aRailwaysAssetsHolding Co.-RAHCO to dealwith residualassetsof TRCand supervisethe Concession.

92

TRL sharecapital$16m, Rites(51%), GOT(49%), GOTpaid in full

shareholdingagrmnt 24/5/07

TRL sharecapital$16m, Rites(51%), GOT(49%), GOTpaid in full

Share-holdingagreementsigned on24/5/07

54

(address tolocate)

93

TRCDodomaHotel(address tolocate)

Dodoma(workingwell) Asset Sale May 02 -

WorldwideManagement Group -

Sales Agreementsigned on 16thOct 02

94TRC TaboraHotel

Tabora(IMOct 01,working) Asset Sale Jan 03 -

OrionHoldingsCo. Ltd. -


95TRC NewKigomaHotel Kigoma Asset Sale Nov 03 -

G. H. N.Enterprises -

Sales Agreementsigned on 4thMay 04

66.- PEHCOL96 Core Assets

of PEHCOL Asset Sale Jun-05

67.-WazoEngineering

97

ENERGY ANDMINERAL

68.-Oryx OilCompany Ltd.

98Oryx OilCompanyLtd.

Dar esSalaam Share Sale Jan 04 50

Oryx Oil &GasS. A. 0

Sale of all GovtsharesSAtsigned on 11thJune 2004

69.-Pugu KaolinMinesLtd

99Pugu KaolinMines Ltd

Coast/Pugu Share Sale Feb-06 100

IndianOceanKaolinLtd./RobertDamian 0


LANDS,HOUSING ANDURBANDEVELOPMENTNATURALRESOURCESAND TOURISM

70.-Sao Hill SawMilLS

100 Sao HillSaw Mills Iringa Asset Sale Apr 03 -

TreeFarmsAS -

Salesagreementsigned on 30th

55

Ltd. Apr 03

71.-Lobo WildlifeLodge

101LoboWildlifeLodge Arusha Asset Sale Jun-00 -

HotelsandLodgesLimited -

Hotel handedover 15/12/03

72.-SeroneraWildlife Lodge

102SeroneraWildlifeLodge Arusha Asset Sale Jun-00 -



73.-NgorongoroWildlife Lodge

103NgorongoroWildlifeLodge Arusha Asset Sale Jun-00 -



74.-Lake ManyaraHotel

104LakeManyaraHotel Manyara Asset Sale Jun-00 -

Sold toHotel andLodges -


75.-KilimanjaroHotelsLtd.

105 KilimanjaroHotelsLtd.

Dar esSalaam Asset Sale Feb 03 -

ASBHoldingsLtd. -


76.-Mafia IslandLodge

106 Mafia IslandLodge Coast Asset Sale Oct 03 -

CoastalTravel Ltd. -

SA signed20/2/03

77.-Mount MeruHotel Ltd.

107 Mount MeruHotel Ltd. Arusha Asset Sale July 04 -

Blue JewelCompanyLtd. -

Sales Agreementsigned on 29thDec 04

78.-Tabora MisituProductsLtd.

108

TaboraMisituProductsLtd. Tabora Asset Sale May 04

SalumMotorTrans. Co.Ltd.


79.-Hotel SeventySeven Ltd.

109HotelSeventySeven Ltd. Arusha Asset Sale 5/4/07

ASBHoldingsLtd.

SA signed 5thApr 2007

80.-

EnterprisesTanzania Ltd(Embassy Hotel)

110EmbassyHotel

Dar esSalaam Share Sale Sep-08 40%

KARMALIJUMA ANDSONSLIMITED Signed in 2008

FINANCE

81.-

NBC (1997)Limited (Directtransactionbetween 2

111NBC (1997)Limited

Dar esSalaam/branches Share Sale Feb 04 15

InternationalFinanceCorporation

IFC bought 15%from ABSA

56

parties)

82.-Tanzania AuditCorporation

112TanzaniaAuditCorporation

Dar esSalaam

Asset sale(MEBO) Dec 02 -

TACAssociates -

MEBO SAsigned on 11thFeb 2004

83.- Bima Motors

113BimaMotors

Dar esSalaam Asset Sale 2001 100

TanzaniaMotorassembliesCo. Ltd. 0


84.-

NationalMicrofinanceBank (NMB)

114

NationalMicrofinance Bank(NMB)

Dar esSalaam/Branches Share Sale Sept 05 49

Consortiumled byRabobankNederland 51

NMB115

Sale of 16%GOT sharesin NMB

Dar esSalaam Share Sale Sep-08 16

IPO -Sale toPublic 16

PRIMEMINISTER’SOFFICE

85.- CDA Units

116 CDA ZuzuFactory(Movable?) Dodoma Asset Sale

April04

HighlandEstate Ltd.

SA signed on2nd Sept 05,bank guaranteefor bal payableon 15th July 06

117

CDA ZuzuFacotry(Main BrickFactory,CeramicFactory &Brick PilotPlant)Landedproperty Dodoma Asset Sale Nov 06

HighlandEstate Ltd.

SA signed on9/11/06

118

CDAIntegratedConcreteIndustriesLtd.(Movable?) Dodoma Asset Sale May 02

HighlandEstate Ltd.

SA signed on2nd Sept 05,bank guaranteefor bal payableon 15th July 06

57

119

CDAIntegratedConcreteIndustriesLtd.(LandedProperty) Dodoma Asset Sale Nov 06

HighlandEstate Ltd.

SA signed on9/11/06

MINISTRY OFWATER

86.-

Dar esSalaamWater andSewarageAuthority(DAWASA)

120

Dar esSalaamWater andSewarageAuthority

Dar esSalaam/Coast Concession Feb 03 0

City WaterServices 100

LeaseAgreementterminated

JUSTICE &CONSTITUTIONAL AFFAIRS

87.-Tanzania LegalCorporation

121TanzaniaLegalCorporation

Dar esSalaam Jan 06

Tanzania LawChambers

SAsigned. SA signed.

TOTAL

58

Annex 8: Entities under divestiture as of March 31st 2010

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME

PROGRESSTODATE/STATUS

REMAINING TASKS

1. NMB Limited 1. NMB Limited CHC is working on disposingthe remaining 1.78% of theshares reserved for the publicthrough the Dar es SalaamStock Exchange. A total 5% ofthe shares were earmarked forthe public.

(N.B.: 49% of the shares weresold in 2005 to a consortiumof strategic investors led byRabobank, 16% to thepublicin 2008 and 3.22% toemployees in 2009).

TheGovernment willkeep 30% of the sharesin NMB, as providedin the law.

2. National InsuranceCorporation

2. NIC TheGovernment approved arestructuring of NationalInsurance Corporation inNovember 2008; and the planis to privatize NIC after it hasestablished a track record ofprofitability.

Separation of the twobusinesses of NIC i.e.Lifeand Non-Lifeinsurances into twoindependentcompanies.

3. Tanzania PostsCorporation

3. TPCTanzania Post Corporation isto berestructured. Thecorporation is in financialdifficulties and hasdifficultiesin securing bank credit.

CHC to engage aconsultant (i) to do astudy on theprofitability of TPCbusinessunits andrecommend

59

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

improvements; (ii) tostudy TPCorganizational andmanagement structureand proposeastructure that wouldmake it more efficient.

4. TTCL 4. TTCL TheGovernment owns 65%and MSI –now Zain-owns35% of the shares in TTCL.Zain Group wants to divest itsinterest in TTCL. The twoparties are negotiating and avaluation report is beingfinalized.

CHC to coordinateshareholdersnegotiations regardingthe Zain Groupintention to divest itsinterest in TTCL.

5. TDFL 5. TDFL

The Government owns 32% ofthe shares in TDFL.

CHC to handle the saleof Government shares(32%) after the issueon unaudited financialaccounts has beenresolved (betweenGovernment andAfrican BankingCorporation HoldingCo.)

6. Air Tanzania CompanyLimited (ATCL)

6. ATCL The company is not specified.But CHC has been handlingits restructuring as directed bythe Ministry of Finance andEconomic Affairs (MOFEA).As of June 2007 it had a

CHC to oversee therestructuring andfurther privatization ofATCL as directed byMOFEA.

60

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

negative networth of Tshs25.236 bn and its performancehave continued to deteriorate.

7. Maize Farm -NamtumboProject Valuation process in progress

CHC to finalize theon-going privatizationprocess.

8. WestKilimanjaroJourneys endfarm

9. WestKilimanjaroFosters farm

10. WestKilimanjaroHarlington farm

7. National Food Corp.(NAFCO)

11. WestKilimanjaroKanamodo farm

The farms were advertisedseveral times and no good bidsfor commercial farming werereceived. The procurement ofthe consultancy services isunderway.

Proceed withprivatization once thestudy will havespecified the options.

8. Mbozi Coffee farms 12. Mbozi Coffeefarms.

The farms have beensubdivided and allocated tosmallholders but the smallholders have failed to pay thepurchase price.

CHC to follow up onpayments of therespective farms fromMbozi MunicipalCouncil.

9. Mikumi Wildlife Lodge 13. MikumiWildlif L d

Privatization was delayed by a Consultations witht k h ld i

61

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

Wildlife Lodge court caserelated to a claimfiled by the former lesseebutit has now been resolved.

stakeholders are inprogress to undertakeprivatization.

10. New Africa Hotel 14. New AfricaTheGovernment owns 23% ofthe shares in New AfricaHotel (77% of the shares areowned by Holiday and ResortInvestment Limited, HRI).

Negotiations with theCo-shareholder havebeen completed andthe proposal to sell theshares to the Co-shareholder isbeingexamined by theGovernment.

11. Plant Equipment HireCo Ltd (PEHCOL)

15. PEHCOL Advertise the few remainingassets whose offers werebelow reserve price– Aproperty in Tabora andequipment in Morogoro.(N.B.: Sale of mostPEHCOL’s assets occurred in2007).

Tanzania BuildingAgency received theyards transferred toGovernment.

12. MECCO 16. Sale of MinorityInterest (GOT)Shares

The Government holds 25% ofthe shares in this company andintends to sell them. AConsultant has been hired, andthe valuation of theGovernment shares is inprogress.

Government approvalto negotiate with theCo shareholder oncethe valuation of sharesis completed.

13. Shirika la Usafiri DSM(UDA)

17. Shirika laUsafiri DSM(UDA)

The Government owns 49% ofthe shares in UDA and the Dares Salaam Municipal Councilowns 51% of the shares. CHCis in the process of

Sell centralGovernment shares.

62

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

undertaking valuation of GOTshares with a view toadvertising their sale.

14. Aluminum Africa 18. Sale of MinorityInterest (GOT)Shares TheGovernment holds 22.5%

of the shares in thiscompany.

CHC to conductvaluation of the sharesand sell theshares.

15. Kisarawe Brick Co. 19. Sale of MinorityInterest (GOT)Shares

TheGovernment holds 30% ofthe shares in thiscompany andthe company is notperforming.

CHC to conductvaluation of the assets,determine the value ofGovernment’s interestand sell.

16. Marine ServicesCompany Ltd (MSCL).

20. Marine ServicesCompany Ltd.

This company providesmarine transport services inlakes Victoria, Tanganyikaand Nyasa serving regions ofMwanza, Kigoma, Bukoba,Songea and Mbeya. Itsoperations were spun-off fromthe Tanzania RailwaysCorporation (TRC). CHCintends to commission adiagnostic study to identifyoptions/strategies forprivatizing the marine servicescompany.

Lack of funding hasstalled the undertakingof the diagnosticstudy, but now theprocurement of aconsultant has started.

63

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

17. General Tyre EastAfrica Ltd.

21. General TyreEast Africa Ltd.

TheGovernment own 74% ofthe shares and Continental AGof Germany own 26%. In lightof the bad financial situationof the company (based on theunaudited balance sheet asof31st August 2007, theliabilities were of USD 19.323million and the assets USD5.236 million), theGovernment decided toliquidate thecompany in2009. Funds for StaffRetrenchment were providedby the Government and theretrenchment wasimplemented in early August,2009.

CHC to handleliquidation.

18. Tembo Chipboards Ltd 22. TemboChipboards Ltd TheGovernment sold its

majority stake (80%shareholding) to Meljon BV,but the handover of sharecertificate is still underway.

CHC is in the finalstage of processing thehandover of the sharecertificate. Theprocess took longbecause the processrequired under theLaw.

19. BPTanzania Limited 23. BPTanzaniaLimited

TheGovernment owns 50% ofthe shares in BPTanzania andvaluation of Government is inprogress.

CHC to coordinate thesaleof Governmentshares (50%) in BPafter the Governmenthas approved the salestrategy.

64

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

20. Mbeya Cement Co. Ltd 24. Mbeya CementCo. Ltd

TheGovernment owns 25% ofthe shares in Mbeya Cementwhich intends to dispose itvide Initial Public Offering inthe Dar Es Salaam StockExchange (DSE) Market. IPOprocess is scheduled in 2008.Theremaining shares areowned by Lafarge.

CHC to initiate andcoordinate thesale ofGovernment shares(25%) in MbeyaCement after theGovernment hasapproved the salestrategy; and procureconsultant toundertake valuation ofGovernment shares.

21. TPC Ltd (SugarFactory-Moshi)

25. TPC Ltd (SugarFactory-Moshi)

TheGovernment owns 25% ofthe shares in TPC Ltd which itintends to dispose throughwider ownership.

CHC to initiate andcoordinate thesale ofGovernment shares(25%) in TPC Ltdafter the Governmenthas approved the salestrategy; andundertake valuation ofthe GOT shares.

22. Kilombero SugarCompany Ltd.

26. KilomberoSugar CompanyLtd.

TheGovernment owns 25% ofthe shares in Kilombero Sugarwhich intends to disposethrough wider ownership.

CHC to initiate andcoordinate thesale ofGovernment shares(25%) in KilomberoSugar after theGovernment hasapproved the salestrategy; andundertake valuation ofGovernment Shares.

65

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

23. TANSCAN 27. TANSCAN TheGovernment holds 49 %of the shares in thiscompany.A recommendation has beenmade to the Government tosell GOT shares toManagement (MEBO).

CHC to follow up onGOT approval andhandleimplementation.

24. TANGOLD 28. TANGOLD Sale of assets of the Companyin Korogwe to bere-advertized after the failureof aprevious investor to meet theprice required.

CHC to readvertise.

25. Morogoro LeatherGoods

29. MorogoroLeather Goodsfactory building

The factory building is for salebut it is still encumbered asthe plot was subdivided byMorogoro Municipal withoutproper mandate.

CHC to advertisefor sale aftersorting out landproblems.

26. Songwe WaterCompany Ltd.

30. Songwe WaterCompany Ltd.

Thecompany supplies waterto Mbeya Cement Company,MbeyaTextile and Songwecommunity, but it is in badfinancial situation.

CHC to prepare adivestiture strategyafter consultationswith Mbeya WaterAuthority.

27.Keko PharmaceuticalIndustries

31. Sale of MinorityInterest (GOT)shares

TheGovernment holds 25% ofthe shares in thiscompany.Theshareholdersareexpectedto inject funds to enableupgrading of the machinery inorder to comply withregulatory requirements. Thecompany is highly leveraged

CHC to sell the GOTshares.

66

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

hence it isdifficult to secure abank loan. The Governmentintends to sell its interest inthe company; and valuation ofGovernment shares is inprogress.

28. Buhemba Mine 32. Buhemba Mine In November 2008,Consolidated HoldingCorporation wasbeen directedto sell the mine.

Request forspecification orderthen prepare the Minefor Sale.

29. Tanzania GemstoneIndustries

33. TanzaniaGemstoneIndustries TheGovernment owns 100%

of the shares in TanzaniaGemstone Industries (TGI).

CHC to research on anumber of companyissues and itssubsidiary -Mundarara(Longido Mine) andadvice on wayforward.

34. TPL Mbeya This unit was advertisedseveral times but no good bidswere received.

Valuation to beundertaken andthereafter the propertywill be re-advertised.

30. Tanganyika PackersLtd.

35. Kitaraka Farmin Singida,

This is a ground holdingcompany belonging toTanganyika Packer Limited. Itis about 35,000 acres. Theproperty was advertised forsale. Three (3) bids werereceived. Bid valuation is inprogress.

Decision to bemadeon theevaluation ofthe bids.

67

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

36. TanganyikaPackers Dar esSalaam

TheGovernment approved asaleof Tanganyika Packersunit in Dar es Salaam to AlGhurair, but companyemployees have filed acourtcaseclaiming to be givenopportunity to acquireresidential houses located inthe unit.

To finalize thesaleafter resolvingimpending court case.

31.

NBC Limited

37.

30%shareholding inNBC

TheGovernment owns 30% ofthe Shares in NBC, ABSAGroup Limited own 55% andInternational FinanceCorporation (IFC) owns 15%.Government has decided tosell 20% out of its 30% NBCshares.

To complete the saleof 20 % shareholdingin NBC

32. TanzaniaTea Authority 38. TTA - Dabaga In August 2007 the Cabinetresolved that the farm berepossessed from KigangaTeaEstates Limited who failed tofulfill theconditions for saleand be handed over to smalltea farmersof Dabaga inKilolo district in Iringa. CHCawaits guidance of theMinistry of Agriculture tohandover the farm to smallholders.

CHC to hand over toKilolo MunicipalDistrict.

68

S/NOPARASTATALS/PAR

TICULARS SUBITEMNO.

SUB-ITEMNAME


REMAINING TASKS

33. Tanzania SisalAuthority

39. Remaining sisalfarms

Remaining sisal farms are tobe advertised and CHC is tofinalise partially completedtransactions. Farms belongingto Tanzania Sisal Authoritywere privatized to KataniLimited. AsKatani Limitedfailed to pay full purchaseprice and after negotiations, itwas resolved that some of thefarms be repossessed by theGovernment and leased out.

CHC to finalize thesaleof the farms to thelessees.

34. TanzaniaMotorServices

40. Riddoch MotorsBuilding

TheBuilding is part of theassets of TanzaniaMotorsServices. CHC has not beenable to dispose it becausethere is impending court case.

CHC to sort out thebid bond issue withM/s Abood.Negotiations areunderway.

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Annex 9: Tanzania - Residual Portfolio of Public Enterprises

Parastatal Name GovernmentShare % Comments

1. Abood Soap Industries Limited 20 Joint Venture2. Air Tanzania Company Ltd. 100 Parastatal3. Arusha International Conference Centre (AICC) 100 Parastatal4. Bank of Tanzania (BOT%) 100 Parastatal5. BP(T) Ltd. 50 Joint Venture with BPAfrica Ltd.6. Carmatec 100 Parastatal7. Zain/Celtel Tanzania Ltd. 40 Joint Venture with CELTEL International Ltd. (Now Zain)8. ChineseTanzania Shipping Company Ltd. 50 Joint Venture with ChineseGov. (Account audited after every 2 yrs.)9. Datel Tanzania Limited 35 Joint Venture (privatization)10. DAWASCO 100 Operator11. East African Cables 29 Joint Venture with E.A. Cables Co. Ltd. Kenya (51%), TDFL (10%) and

TANESCO (10%)12. Friendship Textile Co. 49 Joint Venture: Dleqlu Textile Dyeing and Printing Group Co. Ltd. 51%13. General Type EA Ltd. 74 Joint Venture with Continental NA(26%) Specified and under liquidation

by CHC as directed by theCabinet.14. In flight Catering ServicesCo./LGSSkey Chef 21 Joint Venture15. Kariakoo Market 100 Parastatal16. Keko Pharmaceuticals Ltd. 40 Joint Venture with DiocareLtd. (60%)17. Kilimanjaro Airport Development Company

Ltd.24 Joint Venture

18. Kilombero Sugar Co. 25 Joint Venture with Illovo & ED & F. Mar____(75%)19. KiwiraCoal Mines 30 Joint venture with TAN Power Resources Company. Government to

repossess shares of the Company20. Mbeya Cement Co. Ltd. 25 Joint Venture21. Mbinga CoffeeCuring 43 Proposed to sell GOT shares22. Mbozi Coffee Curing 32 Proposed to sell GOT shares23. Mikumi Wildlife Lodges 100 Not operating. Under privatization24. MOSHI LEATHER 25 25% of shares are held by TIB on behalf of the Government25. National Bank of Commerce (NBC) 30 Joint Venture26. National Housing Corporation 100 Parastatal

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27. National Insurance Corporation 100 Under restructuring.28. National Micro Finance Bank (NMB) 30 Joint Venture29. TANALEC Limited 30 Joint Venture with TRANSCENTURY Ltd of Kenya (70%)30. TANICA 10 Joint Venture. Other sharesheld by Unions31. TANSCAN TIMBER COMPANY Ltd 49 Joint Venture. Other sharesheld by Unions. Government is in theprocess

of selling its Shares32. Tanzania AutomobileTechnol.Centre

(NYUMBU)100 Parastatal

33. Tanzania Breweries Co. Ltd. 4 Joint Venture with Indol International BV34. Tanzania Building Agency 100 Accounts for year 2007/08 are still with the auditors35. Tanzania Cigarette Co. Ltd 2.5 Joint Venture with RJ ReynoldsTobacco Ltd. (51%). JT International

Hold BV (24%), Tanza. Public (22.5%)36. Tanzania Development Finance Ltd. 32.1 All Government shares to be sold37. Tanzania electric supply Co. Ltd. (TANESCO) 100 Parastatal38. Tanzania Elimu Supplies 100 Under Liquidation. The processof Liquidation hasbeen completed.39. Tanzania Fertilizer Company 100 Accounting year : 1st July – 31 June.40. Tanzania Fishing company (TAFICO) 100 Not operating. Repossessed by Government41. Tanzania Ports Authority (TPA) 100 Parastatal42. Tanzania Investment Bank (TIB) 99 Parastatal43. Tanzania Oxygen Ltd. 11 Joint Venture44. Tanzania Petroleum Development corporation 100 Parastatal engaged in Oil and Gas exploration45. Tanzania Pharamaceutical Ltd. 40 Joint Venture with Pharamaceutical Investment Ltd. (60%)46. Tanzania Planting Co. (TPC) 25 Joint Venture with Sukari Investment Co. Ltd. (75%)47. Tanzania Postal Bank 45.3 To be restructured48. Tanzania Posts Corporation 100 Specified49. Tanzania Railways Limited 49 Joint venture with RITES50. Tanzania Standard Newspapers (TSM) 100 Parastatal51. Tanzania Telecom Company Ltd. (TTCL) 65 Public Corporation (35% Privatized)52. Tanzania Zambia Railways Authority

(TAZARA)50 Joint venture with Zambian Government

53. TAZAMA Pipelines Ltd 33 Joint venture with the Government of Zambia54. TIPER 50 Joint venture with Oryx Oils55. Usafiri Dar-Es-Salaam (UDA) 49 To be privatized56. Williamson Diamond Mines 25 Joint venture with Willcraft Co. Ltd. (30%)

Source: Tanzania, Ministry of Financeand Economic Affairs, Treasury Registrar: Statement of Government Investment and Public Interest as of June30, 2009.

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Annex 10: Summary of Borrower’s ICR and/or Comments on Draft ICR

CONSOLIDATED HOLDING CORPORATION

IMPLEMENTATION AND CLOSING REPORT ON THE PRIVATISATION AND PRIVATE SECTOR DEVELOPMENT PROJECT (PPSDP)

DECEMBER, 2009

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IMPLEMENTATION AND CLOSING REPORT ON THE PRIVATISATION AND PRIVATE SECTOR DEVELOPMENT PROJECT (PPSDP)

1. INTRODUCTION

The USD 45.9 million five- year Privatisation and Private Sector Development Project (PPSDP) was launched in early 2000 to support Tanzania’s private sector development through: (i) Privatisation of public enterprises; (ii) Restructuring the banking and financial sector; (iii) Regulation of infrastructure and utilities in order to improve overall economic efficiency;

and (iv) Creation of an independent forum for public –private sector consultation/dialogue.

The Project’s specific objectives were to:

(i) Continue the institutional support to the Parastatal Sector Reform Commission (PSRC)

which was established in 1992 to prepare and implement public enterprise restructuring and privatisation;

(ii) Continue the support to the Loans and Advances Realisation Trust (LART) created in1991

to collect non-performing assets (NPAs) of state owned banks; convert LART into a private debt collection company and the LART Tribunal into a commercial court;

(iii) Design and establish an institutional framework to regulate infrastructure and utilities

(transport, telecommunications, water, electricity, ports, railways and airports etc); and (iv) Create an independent platform where the Government and the private sector can

dialogue/consult to remove regulatory and business environment bottlenecks to local and foreign private investment.

2.0 INSTITUTIONAL SUPPORT TO PSRC

2.1 Privatisation Component

The privatisation component of PPSDP sought to continue institutional support to PSRC to complete about 200 divestiture transactions by December, 2004. Since PSRC could not finish the job at hand by the given deadline of 31st December, 2004. Parliament extended the Project and PSRC’s tenure for another three years, ending December 2007. However by June, 2007 it was obvious that PSRC would not complete the divesture of the remaining 37 entities still on its register. So on 15th November, 2007 Parliament amended the Public Corporations Act 1992 and the National Bank of Commerce (Re-organisation and Vesting of Assets and Liabilities) Act 1996 to transfer all the residual functions of PSRC to Consolidated Holding Corporation (CHC). PSRC’s legal tenure expired on December 31st 2007.

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The move empowered CHC, like PSRC before it, to undertake all divestiture tasks. Section 6(A) (b) of the Act specifically empowered CHC to conduct post-privatisation monitoring and evaluation.

2.2 Privatisation Progress Under PSRC The privatisation status of the various entities at the end of PSRC’s tenure was 340 divestiture transactions and a cumulative total of 670 non-core assets sold.

3.0 Privatisation Achievements

Among notable privatization achievements include the following: a drastic reduction of subsidies to PEs; increased Government revenue through taxation; increased foreign direct investments; establishment of capital and financial markets and the creation of the Dar es Salaam Stock Exchange; liberalisation of the banking and financial sector; increased production of goods and services in virtually all sectors; introduction of new technology in production and service delivery; establishment of an effective and vibrant regulatory regime as well as creation of more employment opportunities within privatised entities and the economy as a whole. 3.1 Revenue Generation

In a nutshell, in the area of Revenue Generation, figures show that as of December 31st 2007 when PSRC ceased to exist, privatization proceeds amounted to TZS 122.1 billion and US Dollars 293.3 million.

Similarly, a good number of formerly closed or loss making PEs has been turned round after privatisation and is generating substantial revenue to the Government mainly through taxation.

3.2 Capital and Financial Markets

It should also be noted that one of the key objectives of the PPSDP was to stimulate and facilitate the development of capital and financial markets and diversify the sources of investment capital. It is gratifying to note in this respect the creation of the Dar es Salaam Stock Exchange (DSE ) which effectively became operational in April 1998.

The DSE is currently dealing in the following products:

a) Stocks (15 listed companies--- almost all of them are divested entities); b) Seven corporate bonds; c) Eight Treasury bonds; and d) Four Unit Trusts.

The financial sector reform initiative which began in year 1991 when Tanzania had only six deposit taking financial institutions has shown a tremendous positive impact to the economy. By the end of year 2008, the sector comprised 24 commercial banks ( including subsidiaries/branches of major international banks); 10 non-bank financial institutions; numerous foreign exchange bureaus; pension funds; insurance companies; and several hundred savings and credit cooperative societies (SACCOS).

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3.4 People’s Participation in the Economy

One of the basic objectives of the privatisation programme was to give the opportunity to the ordinary Tanzanians to actively participate in the ownership of business and benefit from dividend payments of TZS 5.2 billion capitalisation of the DSE. The listing of ex-PEs on the DSE is a deliberate Government policy to hold some shares in privatised enterprises for some time and later offload them to the ordinary citizens.

The participation of citizens in share ownership through the DSE is a humble but very vital beginning in achieving that objective.

3.5 Increased Production and Economic Growth The above record underscores the truth that privatisation is a strategy for improvement in the overall efficiency in the mobilization and allocation of resources for investment and economic growth. Although it would not be correct to attribute the performance of the economy over the past nine years exclusively to privatisation it would not be right either to completely ignore its contribution to the strides the economy has so far made in practically every sector. 3.6 Challenges Faced

Although implementation of the privatiation programme under PPSDP has generally been “ smooth “, a number of challenges were encountered, the most notable ones being:

a) TANESCO – which operated quite successfully under a management contract to

NetGroup Solutions of South Africa between 2002 and 2005, was de-specified in 2007 and the earlier decision to unbundle and divest its generation and distribution businesses as separate entities was abandoned. The utility, therefore, reverted 100 percent to Government ownership;

b) Tanzania Railways Corporation(TRC)---earlier restructured to create a new joint

venture company named Tanzania Railways Limited (TRL) with a share ownership ratio of 51 percent (RITES of India) and 49 percent (Government of Tanzania). TRL was given a 25-year concession of the former TRC assets effective October 2007. The concession has not been a success story and the shareholders are currently reviewing the Agreement.

c) TTCL---Saskatel International of Canada were contracted to manage the

telecommunications company with effect from July 1, 2007. Saskatel terminated the contract two years later because TTCL’s shareholders could not make funds available as required under the contract to finance the company’s business plan. The company continues to make huge losses.

d) ATCL---The shares of South African Airways in Air Tanzania Company Limited

(ATCL ) were repossessed by the Government in 2006 following the failure of the joint-venture to operate commercially/profitably. ATCL is currently 100 percent owned by the Government of Tanzania which is making every effort to secure another strategic partner.

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4.0 INSTITUTIONAL SUPPORT TO LART

4.1 Non-Performing Assets (NPAs) LART and the LART Tribunal’s tenure ended on 30 June, 2006 but LART activities, involving nonperforming assets, were taken over by CHC a year and a half later in January, 2008, with the Treasury Registrar taking charge during the intervening period.

The number of NPAs handed over to CHC was 26 worth TZS 14,919,014,675. The number of pending LART cases in law courts on the closing dated and which were handed over to CHC was 71 involving a total amount of TZS 112,741,763,668.80. Six cases have been cleared so far by CHC, leaving a balance of 65 cases which are at different stages of litigation.

4.2 Conversion of LART and LART Tribunal

The other objective of the PPSDP was to continue to support LART in the collection of NPAs, convert it into a private debt collection company and the LART Tribunal into a commercial court. These objectives have not been wholly met because there does not appear to be any compelling need for creating the two organs, especially since there are many private liquidators in the Tanzanian market as well as a functioning commercial court.

5.0 ESTABLISHMENT OF A REGULATORY FRAMEWORK

5.1 The third specific objective of PPSDP was to design and establish an institutional framework to regulate infrastructure and utilities (transport, telecommunications, water, electricity, ports, railways and airports).

The objective of this component of PPSDP has largely been realised as evidenced by the establishment of regulatory Authorities and Competition Commissions which are now fully operational and functional.

The Regulatory Authorities and Competition Commissions are: the Energy and Water Utilities Regulatory Authority (EWURA); Surface and Marine Transport Regulatory Authority(SUMATRA); Tanzania Communication Regulatory Authority (TCRA); Tanzania Civil Aviation Authority (TCAA); Fair Competition Commission (FCC) and the Fair Competition Tribunal (FCT).

The Regulatory Authorities and Competition Commissions are keenly involved in both technical and economic aspects of regulation, fully aware of the pressing need to squarely address the needs and expectations of consumers as well those of other key stakeholders.

6.0 CREATION OF AN INDEPENDENT FORUM FOR DIALOGUE

The fourth and final objective of the PPSDP was to create an independent forum where the Government and the private sector could dialogue to remove regulatory and business environment bottlenecks to local and foreign private investment.

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6.1 The Tanzania National Business Council (TNBC)

In 1999 the Tanzania Private Sector Foundation (TPSF) formed a task force to study and make recommendations on the modalities to create the proposed forum. The team reported its findings and recommendations at a stakeholders’ workshop on 8th March, 2000, coinciding with the launch of the PPSDP. The workshop endorsed the proposal to form the Tanzania National Business Council (TNBC).

All the development partners’ representatives interviewed clearly acknowledge that the Council is the second most credible party that they speak to, after the Government because:

• It represents a huge constituency whose role is critical to economic growth and the

alleviation of poverty;

• It has developed a critical mass of human resource capacity to access donor funding to be able to deliver on its mission and strategic objectives; and

• It is enjoying unequalled good will and support from the Government, the donor community and its members.

6.2 Achievements and outstanding challenges

A number of reform initiatives that have been implemented in recent years to create an enabling environment for the private sector are not unrelated to the persistent collective voice of the private sector at TNBC’s forums.

From the business policy and regulatory reform standpoint, Tanzania has been identified as one of the best reformers in the world14. Nevertheless as reported in the Geneva-based World Economic Forum’s Africa Competitiveness Report for 2009, the Tanzania’s business climate is still far from ideal; with poor infrastructure leading on the list of bottlenecks to doing business in the country.

7.0 POST-PRIVATISATION MONITORING AND EVALUATION UNIT (PPU)

A post-privatisation monitoring and evaluation directorate has been established in the Consolidated Holding Corporation in accordance with the law. So far over 100 privatized enterprises have been monitored and evaluated.

1. A World Bank report on business indicators , Doing Business 2007 (World Bank, 2006) for 2005/06 placed Tanzania in 10th place out of several countries surveyed.

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8.0 PUBLIC-PRIVATE PARTNERSHIP (PPP) UNIT

Efforts to establish a PPP Unit are underway. These are being coordinated through the Prime Minister’s Office. However, it is not yet clear as to where the PPP Unit will be based. It is expected that the Parliament will soon decide on this issue.

9.0 CONCLUSION

Considering what is happening on the ground, there is no doubt that the PPSDP has, to a large measure, achieved the envisaged objectives. It should, however, be stressed that more and better data and information is required to objectively assess the success or failure of the multi-purpose Project. Evaluation of its performance until now has been unsystematic and incomplete; only systematic further research, therefore, can help to assess and clarify its impact on the economy and society of Tanzania as a whole.

It is recommended that: a) an in-depth study be commissioned by the Government and the World Bank to look into the

downside to the PPSDP, especially employee retrenchment, loss of income and the accompanying social hardships, foreign vs local ownership, possible areas of corruption etc;

b) mechanisms are established that will help to broaden and deepen business ownership by employees and the general public. Both privatised entities and family-owned enterprises should be encouraged to list on the DSE where they can sell shares to the broader public;

c) efforts are made to link privatisation with broader development and private sector promotion strategies, including capacity building for Tanzanians to effectively participate in the economy; and

d) the Consolidated Holding Corporation be converted into a post-privatisation monitoring and evaluation entity in line with Section 6(A)-(1) (b) of the National Bank of Commerce (Reorganisation and Vesting of Assets and Liabilities ( Amendment No. 2) Act 2007 which gives it the mandate to conduct post-privatisation monitoring and evaluation activities taken over from the residual functions and powers of the defunct PSRC.

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Annex 11: Comments of Cofinanciers and Other Partners/Stakeholders

N/A

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Annex 12: List of Supporting Documents

- Project Appraisal Document and Credit Agreement, 1999

- Supervision Missions/Implementation Support Aide-mémoire 1999-2009

- Project Status Reports and Implementation Status and Results Reports

- DCDM Consulting, A performance Assessment and Privatization Impact Study in Tanzania, March 2004

- World bank, Infrastructure Privatization Impact Assessment Report, 2005

- PRSC’s Annual Reviews 1999/2000 to 2006/2007 and Action Plan 2007/2008

- CHC, Cumulative Divestitures at Sales Agreement Stage as of 3/31/2010

- CHC, Monitoring and Evaluation of Privatized Companies

- Nilgun Gokgur, Lessons Learned Privatizing Competitive and Non-Competitive State-Owned Enterprises in Tanzania (1993-2006), May 2007

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Annex 13: Map