Document of The World Bank

Report No: 32653

IMPLEMENTATION COMPLETION REPORT(SCL-46750)

ON A

LOAN

IN THE AMOUNT OF US$ 300 MILLION

TO

ROMANIA

FOR A

SECOND PRIVATE SECTOR ADJUSTMENT LOAN

JUNE 16, 2005

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 16, 2005)

Currency Unit = Romanian Leu (ROL) ROL 1 = US$ 0.0000339

US$ 1 = ROL 29,540

FISCAL YEARJanuary 1 December 31

ABBREVIATIONS AND ACRONYMS

ANRE - Agency for Electricity and HeatANRGN - Agency for Oil and GasAPAPS - Authority for Privatization and Management of State OwnershipAVAB - Autoritatea pentru Valorificareaa Activelor Bancare

(Bank Resolution Authority)BCR - Romanian Commercial BankCEC Bank - Casa de Economii si Consemnatiuni (the Savings Bank)CNVM - National Securities CommissionDGF - Deposit Guaranty FundEBRD - European Bank for Reconstruction and DevelopmentEU - European UnionFIAS - Foreign Investment Advisory ServiceGDP - Gross Domestic ProductISC - Insurance Supervision Commission IAS - International Accounting StandardsISA - International Standards on AuditingMIG - Minimum Income Guarantee MoPF - Ministry of Public FinanceNBR - National Bank of RomaniaPSAL - Private Sector Adjustment LoanPIBL - Private Sector Institution Building LoanPPIBL - Private and Public Sector Institution Building LoanRASDAQ - Romanian Electronic Trading SystemRICOP - Enterprise Restructuring and Employment Conversion ProgramRTGS - Real Time Gross SettlementSMEs - Small and Medium EnterprisesSOEs - State-Owned EnterprisesSOF - State Ownership FundTA - Technical Assistance

Vice President: Shigeo KatsuCountry Director Anand Seth

Sector Director Fernando Montes-Negret Task Team Leader/Task Manager: Arabela Aprahamiam

ROMANIASecond Private Sector Adjustment Loan

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 55. Major Factors Affecting Implementation and Outcome 136. Sustainability 157. Bank and Borrower Performance 158. Lessons Learned 179. Partner Comments 1810. Additional Information 18Annex 1. Key Performance Indicators/Log Frame Matrix 19Annex 2. Project Costs and Financing 20Annex 3. Economic Costs and Benefits 22Annex 4. Bank Inputs 23Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25Annex 6. Ratings of Bank and Borrower Performance 26Annex 7. List of Supporting Documents 27

Project ID: P067575 Project Name: Second Private Sector Adjustment LoanTeam Leader: Arabela Sena Aprahamian TL Unit: ECSPFICR Type: Core ICR Report Date: June 30, 2005

1. Project DataName: Second Private Sector Adjustment Loan L/C/TF Number: SCL-46750

Country/Department: ROMANIA Region: Europe and Central Asia Region

Sector/subsector: General industry and trade sector (27%); Oil and gas (22%); Banking (17%); Power (17%); Compulsory pension and unemployment insurance (17%)

Theme: State enterprise/bank restructuring and privatization (P); Social safety nets (S); Improving labor markets (S); Social risk mitigation (S)

KEY DATES Original Revised/ActualPCD: 10/03/2001 Effective: 10/01/2002 10/01/2002

Appraisal: 10/05/2001 MTR:Approval: 09/12/2002 Closing: 12/31/2004 12/31/2004

Borrower/Implementing Agency: GOVERNMENT OF ROMANIA/MINISTRY OF FINANCEOther Partners:

STAFF Current At AppraisalVice President: Shigeo Katsu Johannes LynnCountry Director: Anand K. Seth Andrew N. VorkinkSector Director: Fernando Montes-Negret Paul J. SiegelbaumTeam Leader at ICR: Arabela Sena AprahamianICR Primary Author: Arabela Sena Aprahamian

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: HL

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

Background and context. After three years of real Gross Domestic Product (GDP) decline, the Romanian economy began growing in 2000. To ensure a sustainable growth, strong actions were needed to complete the divestiture of the enterprise sector, restructuring and privatization of state-owned banks, and the reduction of losses of utility enterprises. To this end, the Government requested World Bank assistance to design and implement the Second Private Sector Adjustment Loan (PSAL II).

PSAL II was designed to build on and complement the financial and enterprise sector reforms already undertaken by the Government and supported by the World Bank under the Private Sector Adjustment Loan (PSAL I). The loan pursued five key development objectives:

(i) The exit of public banks from government ownership through privatization and other options acceptable to the Bank, accompanied by measures to strengthen the overall environment for private sector banking and financial sector modernization;

(ii) divestiture of the largest public sector industrial and commercial loss-makers from the government portfolio. This divestiture was accompanied by other measures to complete privatization of pools of enterprises and joint ventures, to ensure the privatization procedures were transparent, fair and properly scrutinized so that the residual effects of privatization did not serve as an obstacle to future privatization transactions;

(iii) reform of the energy sector to introduce modern management principles and sound regulation to ensure that utility companies (e.g., electricity and gas) were not used as sources of cross-subsidization and soft credit (through arrears) that forestalls needed restructuring of enterprises. This reform was accompanied by the adoption of the necessary legal and regulatory framework for private sector participation, increasing prices towards cost recovery levels, ensuring consistency and transparency in tariff structures, and increasing collections for sustainable operations, needed reinvestment, and higher quality services delivery;

(iv) strengthening of the business environment by the removal of the administrative barriers that impede investment and trade, the removal of most special funds for fiscal consolidation and transparency, and a strengthening of accounting, governance and bankruptcy standards and practices for a more competitive private sector-oriented economy; and

(v) provision of meaningful social protection for those displaced by restructuring and privatization and strengthening the effectiveness of the social safety net in the long-term.

The structural reforms in the enterprise and financial sectors envisioned under the loan were designed to enhance Romania's prospects for growth and reinforce the sustainability of its macroeconomic stabilization. Resources from this and other Bank loans were provided to mitigate the social costs for those displaced by restructuring and privatization. These measures were consistent with Romania’s quest to accede to the European Union (EU), a goal which provided an important incentive for the Government to pursue difficult reforms.

The project development objectives reflected the Government's long term goals and strategic priorities. In particular, the objectives supported many of the most difficult structural reforms necessary to lay the

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foundation for a market-based economy. They were also clearly focused and well targeted, particularly as a result of the Government's experience under PSAL I.

The objectives also were well aligned with the Bank's Country Assistance Strategy (CAS), which envisioned (i) supporting and accelerating economy-wide structural and institutional reforms, and (ii) alleviating the social consequences of reform.

3.2 Revised Objective:

The project objectives were not revised.

3.3 Original Components:

The PSAL II was a two-tranche operation of EUR 339.8 million (US$ 300 million equivalent). The first tranche of EUR 169.9 million was disbursed on October 15, 2002 upon loan effectiveness. The second tranche of EUR 169.9 was floating and was disbursed on July 7, 2004 upon successful completion of the agreed reform program.

The project had five main components:

Financial Sector ReformElimination of state ownership of banks. The Government's program included measures to strengthen lthe overall environment for private sector-based financial intermediation and banking, and financial sector modernization. In particular, the details included full privatization of the banking sector; improved enforcement of the legal and regulatory framework in the banking sector; development of the Government securities market; introduction of an adequate legal and regulatory framework for capital markets, and more active use of these markets for debt and equity financing and strengthening of the National Securities Commission; strengthening of banking sector infrastructure (i.e., movement to Real Time Gross Settlement and general modernization of the payment and settlement system, use of International Accounting Standards (IAS), a sustainable Deposit Guarantee Fund, introduction of a comprehensive Credit Scoring System for more active use of the Credit Information Bureau by the banks and National Bank of Romania (NBR) for credit risk monitoring; and strengthening of the Insurance Supervision Commission.

Privatization and Divestiture of Large State-owned EnterprisesDivestiture of the largest public sector industrial and commercial loss-makers from the Government lportfolio, more rapid exit of the state from the enterprise sector as a whole, and implementation of privatization transactions under more transparent conditions that strengthen rather than harm Romania’s reputation at home and abroad. The Government aimed to achieve this objective by finalizing the privatization process started under PSAL I, including of several large enterprises (i.e., ALRO and ALPROM); introducing and completing the restructuring and workout of state-owned enterprises (SOEs) and pools of SOEs, including some large enterprises such as TAROM (the state airline) that will operate under a loss-containment plan with the hope of being offered for sale and privatized; and closing out virtually all of the portfolio of Authority for Privatization and Management of State Ownership (APAPS) to rid the state of residual interests in some large and most small- and medium-scale enterprises. Equally important in PSAL II were the modalities of privatization being set by the Government. Recognizing that past transactions had often been the subject of criticism due to non-disclosure, reports of private deals, insider transactions, and related charges, the Bank set out to monitor closely the progress of implementation without directly influencing the decision-making

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process.

Energy Sector ReformReduction of the quasi-fiscal activities of energy utilities. The Government aimed to achieve this lobjective by introducing major reform of the gas and oil sector (i.e., selling controlling stakes of gas distributors and Petrom to strategic international buyers, rationalizing tariff structures, increasing payables and receivables turnover to contain arrears, reviewing the tax regime); introducing a modern legal, regulatory and institutional framework to encourage private sector competition of network industries; and undertaking a full-scale reform of the power sector for efficiency, reliable service, fair pricing, and proper regulatory oversight.

Business EnvironmentImprovement of the business environment, mainly through adoption of a unified corporate income ltax law that creates a level playing field for domestic and international investors. In addition to adoption and implementation of this critical piece of legislation, the Government aimed to remove administrative barriers (i.e., permits, licenses, inspections, visa); rationalize and consolidate institutional fiscal responsibilities and special extra-budgetary funds; improve the tax environment for businesses to encourage more permanent hires; strengthen corporate governance standards (including minority shareholder rights); implement sound, internationally recognized accounting standards and financial audit requirements; and introduce a more effective system of bankruptcy and liquidation to assist in enterprise restructuring.

Strengthening the Social Protection SystemMitigation of social costs of adjustment, more efficient social protection, and effective poverty lreduction. Particular objectives included the provision of adequate yet sustainable income support to laid-off workers without undermining work incentives; assisting laid-off workers in obtaining alternative employment; strengthening the social safety net for the long-term unemployed and the poorest within society; pursuing comprehensive reform of the pension system by improving the equity of the public system in a financially sustainable way, while introducing and regulating the private pension scheme; and improving implementation of public policy coordination between central and local administrative units for poverty reduction programs.

The loan included two categories of conditions for each of the five policy components: 25 core conditions provided in a policy matrix and additional non-core conditions and benchmarks provided in the implementation plan attached to the Government’s Letter of Development Policy (LDP). The loan was front-end loaded with 13 core conditions and additional non-core conditions already completed prior to the Board presentation and for releasing the first tranche. Another group of 12 core conditions were triggers for release of the second tranche.

The loan was also supported by two loans, the Private Sector Institution Building Loan (PIBL) and Public and Private Institution Building Loan (PPIBL), which provided the Government with technical assistance resources to implement its ambitous reform program.

3.4 Revised Components:

The components of the loan were not revised.

3.5 Quality at Entry:

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Quality at Entry is rated satisfactory based on the following considerations: (i) consistency of objectives with the CAS and government priorities; (ii) the overall project design; and (iii) technical strength of the program and incorporation of best practices, particularly related to privatization.

The PSAL II operation was envisioned under the high case lending scenario in the CAS which was discussed by the Board of Executive Directors on June 19, 2001. The program was consistent with the CAS and its objectives of promoting structural adjustment through enterprise and financial sector reforms. The loan provided balance-of-payments support that the Government needed to undertake necessary, yet costly restructuring of its enterprise and financial sectors. In addition, the loan supported reforms that enhanced Romania’s long term prospects for macroeconomic growth and development and improved Romania's prospects for EU accession.

The operation was a direct continuation of the PSAL I program and benefitted substantially from the experience gained under the first operation. In particular, this continuity allowed the project preparation team to gain an understanding of local dynamics related to bank and enterprise sector reforms and thus tailor international best practices to the Romanian context. The social protection program was also well designed and comprehensive in order to help mitigate the costs of adjustment.

Despite the broad reform program supported by PSAL II, the project team was also able to be identify twelve most critical actions as core conditionalities and define them in a such a manner as to allow effective monitoring of their implementation.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

The achievement of the objectives and outputs is considered satisfactory. In accordance with the loan conditionality, the Government made major achievements in all focus areas in a relatively short period of time. In less than two years from the loan effectiveness, the operation was fully disbursed.

Highlights of main achievements include:

Privatization and liquidation of more than 54 SOE, substantially reducing annual fiscal losses to the lGovernment, and laying the groundwork for a private-sector led economy.

Significant reduction of government influence and ownership over the banking sector through ldivestiture of Banca Comerciala Romana (BCR), and restructuring of Casa de Economii si Consemnatiuni (CEC Bank), the savings bank.

Reform of the energy sector as a result of increased collections and privatizations of large state-owned lenterprises.

Improvement of the business environment through strengthening of company and the transparency llaws, the insolvency regime, and auditing and accounting practices.

Strengthening of the social protection system though increased budget allocations to support for llaid-off workers and amendments to the pension system.

The only areas where performance was less than expected concerned the level collections in the energy sector. In spite of a very tight monthly monitoring system Termoelectrica’s collections – for bulk electricity supply and for bulk heat supply was only substantially met. The agreed target of 100 percent collection for bulk electricity supply and 97.5 percent collections for bulk heat supply proved to be optimistic. Two

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factors contributed to less than expected rates of collection in the energy sector, significant price increases and an unusually cold winter season. Especially in the district heating, the target appeared to be very difficult to be achieved due to the nature of the final consumers, mostly households. Apart from these deviations, the Government achieved or exceeded objectives, met all conditions six months earlier than the closing date of December 31, 2004 and demonstrated full compliance with the loan agreement.

4.2 Outputs by components:

Financial Sector Reform

Until 1999, Romania’s financial sector was mostly state-owned, with state-owned banks accounting for about three quarters of the assets of the banking system and about 70 percent of total loans. State-owned banks suffered from years of Government interference, directed lending, and a host of management and institutional weaknesses. By 1998-99, these weaknesses made the situation in the financial sector untenable in the face of the economy’s overall deterioration. Against this backdrop, the Government launched comprehensive institutional and structural reforms in the sector with the support of PSAL I. The reforms were accelerated under PSAL II as the Government focused on the elimination of state banking, strengthening bank infrastructure, improving insurance supervision, and developing the capital and equity markets.

State bank privatization and restructuring. With support of PSAL II, the Government managed to reduce its influence over and ownership of the financial sector through the partial privatization and establishment of a new governance structure of BCR and restructuring of CEC bank. These achievements represented major milestones in financial sector development in Romania and have helped lay the foundation of a more vibrant and stable banking sector.

BCR. With the support of the loan, in October 2003 the Government sold a 25 percent stake plus ltwo shares to the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC). The sale represented a major achievement given the difficult market conditions that prevailed at the time the bank was offered for sale. The conditionality under PSAL II envisioned the 51 percent privatization of BCR. However, market conditions became very difficult shortly after the first tranche of the loan was disbursed, and it became clear that the prospects for attracting a strategic investor were poor. With Bank support, the Government was able to achieve a highly favorable alternative solution with the sale of the stake to EBRD and IFC and of 8 percent to BCR staff. Following these transactions, the shareholdings were as follows: Government of Romania 36.8 percent; Financial Investment Companies 30.2 percent, IFC 12.5 percent; EBRD 12.5 percent and BCR employees 8 percent.

These actions put roughly one-third of ownership in private hands. In addition, it also put in place a new governance structure–one that separated the Board and management–as well as a new risk evaluation and internal audit compliance functions. These actions were considered very important steps in improving the governance of the bank, making it easier to be fully privatized with a strategic investor in the future. Privatization of the bank with a strategic investor is now being re-launched under the Bank-financed Programmatic Adjustment Loan (PAL) program in a better international environment from the investor point of view.

CEC Bank - the Savings Bank. As part of its financial sector reform program, the Government ltook measures to restructure CEC Bank, the national savings bank, in preparation for

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privatization. This was one of the most difficult challenges in the sector given the weak infrastructure and poor condition of the bank. In accordance with PSAL II conditionality, the Government developed a comprehensive restructuring plan for the bank with the support of an international consultant. This included a work plan for applying the 2002–2005 CEC’s strategy. In order to accelerate implementation of the operational work plan, the Government engaged a consulting service in a twinning arrangement with the bank. The technical assistance was aimed at supporting the management of five main departments within CEC (treasury, accounting, IT, network, cards) in the restructuring process. The PIBL financed contract was completed in June 2004. In addition, the Government decided to proceed with privatization earlier than initially intended, thus exceeding the agreed benchmarks for CEC Bank.

This restructuring has been a key element of preparing the CEC Bank for privatization. It has supported changes in the bank's management structure, product development, marketing strategies, human resources management and IT. The privatization process has now been launched with Cabinet approval in April 2004. The Government also has hired a privatization advisor and expects that the privatization transaction will be completed by end 2005.

Bank infrastructure support systems. As part of its reform program, the Government has taken important steps to strengthen the country's financial sector infrastructure. In particular, the NBR implemented an Electronic Payment System (EPS) including the Real Time Gross Settlement System (RTGSS), the Automated Clearing House (ACH), and the Government Securities Registration and Settlement System (GSRSS). During the implementation of the system, the NBR: (i) verified the on-going progress of the EPS according to the timeline benchmarks and schedule negotiated with the provider; (ii) ascertained the individual banks’ readiness to participate in the LVPP, including computer back-up and a disaster recovery plan; (iii) instituted a training program on the management and operations of the EPS; and (iv) verified and monitored progress of the EPS in compliance with the timeline and benchmarks stipulated in the program. These reforms are essential building blocks of a bank infrastructure support system that will serve the financial sector's long term developmental needs.

Strengthening insurance sector supervision. In line with the loan conditionalities, the Government has improved the supervision of the insurance sector. In particular, in July 2001 the Parliament appointed the members of the Council of the Insurance Supervision Commission (ISC), and the Government hired an advisor (funded by a Dutch grant) to assist in strengthening the institutional capacity of the ISC to supervise and provide regulatory oversight of the insurance sector.

Capital and equity market development. The Government has pursued measures to strengthen the institutional capacity of the National Securities Commission (CNVM) to supervise and provide regulatory oversight of the capital and equity markets. In addition, it has developed a comprehensive strategic plan to support this effort and has hired two consultants – a capital market development international advisor and a local law firm to jointly work on (i) revising the capital market legal framework, and (ii) draft a CNVM statute and assist CNVM in preparing a draft strategic plan. In addition, a set of new laws and regulations governing the capital and equity markets, consistent with EU acquis and directives, have been adopted.

Privatization and Divestiture of Large State-owned Enterprises

The enterprise sector reform was geared toward strengthening the financial discipline of the state-owned enterprise, cutting losses in the economy by liquidating loss-making state owned enterprises and privatizing most of the state-owned enterprises. With the support of PSAL II, the Government succeeded in privatizing some of its largest and complex state-owned enterprises, which has been instrumental in helping to reduce

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fiscal losses and lay the groundwork for a more competitive economy. For second tranche release, the loan included core conditions related to (i) pool privatization and workouts, and (ii) large scale SOE privatization, as well as a set of non-core conditions.

Pool privatizations and workouts. The Government successfully completed the privatization, workouts, restructuring, liquidation of SOEs carried forward from PSAL I. Core conditions for first tranche release related to selection and issuance of Requests for Proposals (RFPs) for selection of privatization/workouts advisors for: 10 SOEs grouped in three pools for privatization and 10 SOEs grouped in four pools for workout. For second tranche release, the loan required the Government to offer eight of the 10 companies for sale and work out eight of the 10 companies in the workout pool. The Government fully fulfilled the conditionality. Out of these 20 SOEs, 16 SOEs were privatized and one is engaged in a process of selling assets, and three SOEs are under a voluntary/ judicial liquidation.

Large-scale SOE privatization. The core condition for the second tranche release was the privatization of two large SOEs in the aluminum industry, ALRO and ALPROM. These were included in the case-by-case privatization category that began under PSAL I. ALRO was sold on April 30, 2002 to a consortium that included Conef, Marco Acquisition and Marco International, and ALPROM was sold to the same consortium on December 19, 2002.

Non-core conditions. The non-core conditions specifically included: (i) case-by-case privatizations and workouts of large SOEs carried forward from PSAL I, privatization to be undertaken by APAPS and restructuring of TAROM: (ii) new pools privatization and workouts; (iii) reform of the communications sector to introduce competition and increase private sector participation; (iv) development and implementation of a five-year plan to ensure loss reduction in the mining sector; (v) liberalization and reform of the utilities sector by establishing the legal, regulatory and institutional framework for competition and private participation in the utilities sector. Following are the main achievements:

APAPS Privatizations and Liquidations. In total 54 SOEs were privatized; two SOEs are under lprivatization; for one enterprise a stake of shares was ceded to SIF Transilvania, a private investment fund; and four SOEs are under voluntary/judicial liquidation.

In addition, APAPS sold 51 large enterprises, far surpassing the target of 10 SOEs; 215 small and medium enterprises with a majority state-owned stake compared with the target of 300 enterprises; and 451 enterprises with state-owned residual shares compared with the target of 100 enterprises. The Government met or exceeded objectives for this component, despite delays in several cases resulting from the need to mitigate the social impact of certain privatizations, the lack of interest of investors (in certain SOEs of which privatization had to be re-launched three or four times), and non-compliance by investors with contractual obligations. The specific benefits for the Government from the privatizations included: (i) sale revenues amounting about EUR 985 million; (ii) the sale-purchase agreements provide the obligations of the investors for technological investments of about EUR 580 million, (iii) environmental investments of about EUR 170 million, and (iv) working capital of about EUR160 million.

TAROM. Due to a more severe restructuring plan implemented in 2003, TAROM reduced its losses to labout USD 19 million as compared with USD 35 million in 2002. An appropriate medium-term restructuring plan reducing losses to zero by 2005 was submitted to the Bank.

Mining sector reforms. In 2004 a new strategy for mining sector was developed covering all key laspects of this sector reform including institutional and regulatory reform; eliminating financial losses

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by restructuring production; closing non-viable mines and financial restructuring; improving environmental and safety performance; mitigating social impacts by social protection measures and by economic reconstruction of the mining regions.

Utilities Sector Regulation. Significant progress was made in liberalization and reform of the utilities lsector to increase the competition and private participation through decentralization and privatization. (This is described further in the energy sector reform section below.)

Energy Sector Reform

In the energy sector, the main focus of the Government's reform program was to reduce the arrears, thus eliminating the use of the electricity and gas sectors as sources of quasi-fiscal loans and cross-subsidization of inefficient and un-restructured SOEs. This target was achieved both by restructuring and privatizing large SOEs, and through the use of a tight monitoring system for the collections in the sector. The energy sector reform program proved to be highly ambitious – particularly with regard to the targets that were set at the outset of the reform program.

Privatizations and restructuring. The government actions supported by the loan have helped transform ownership and improve the financial performance of the energy sector. First tranche release conditions focused on three areas: (i) restructuring of Electrica and Termoelectrica; (ii) actions related to privatization of Petrom – the largest enterprise in the oil sector and for the two electricity distribution companies); and (iii) improvement of collections in the gas and power sectors. The core conditions for the second tranche release were related to (i) privatizations – completion of Petrom and the two electricity distribution companies, and launching the privatizations of the two existing gas distribution companies (Distrigaz Nord and Distrigaz Sud); and (ii) continuation of improving the collections. Main achievements include:

Electrica and Termoelectrica. The Government reorganized Electrica into eight entities and lTermoelectrica into two business units. In 2003 the Government also approved a Road Map for the Energy Sector. In addition to the restructuring of Termoelectrica, this addresses the privatization of two of its four subsidiaries. The process was launched and is currently being supported by the PAL program. A similar restructuring and partial privatization also will be carried out for Hidroelectrica, the main hydropower generator.

Banat and Dobrogea. In accordance with the loan, the Government privatized Banat and lDobrogea – two electricity distribution companies. The contracts for both enterprises were signed ENEL (from Italy) on July 19, 2004. The Government also started the selling processes for another two electricity distribution companies, Moldova and Oltenia. At the beginning of April 2005, the privatization contracts were also signed with E.ON of Germany, for Moldova (electricity distribution company), and CEZ of the Czech Republic for Oltenia (electricity distribution company). The privatization of these two companies and the remaining four are supported under the PAL program.

Petrom. The GOR successfully privatized Petrom – the largest enterprise in the oil sector. The lprivatization advisor (consortium including Credit Suisse First Boston and ING Barings) finalized the privatization strategy, which was approved by a Governmental Decision. The sale announcement was published on August 26, 2003 and 15 expressions of interest were received. The winning bidder was announced on May 21, 2004 and the privatization contract was signed with OMV-Austria on July 23, 2004.

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Distrigaz Nord and Distrigaz Sud. The Government successfully privatized Distrigaz Nord and lDistrigaz Sud – the two existing gas distribution companies. Credit Suisse First Boston served as the privatization advisor for the transactions. The privatization strategy was completed and submitted to the Government for its approval on October 24, 2003. By January 23, 2004 the following companies submitted preliminary and unbinding offers and were qualified for the next stage:

Distrigaz Nord: Wintershall - Germany, Gazprom - Russia, Gaz de France - France, E.ON/ Ruhrgas-Germany and ENEL - Italy.Distrigaz Sud: Gazprom - Russia, Gaz de France - France, E.ON/ Ruhrgas-Germany and ENEL - Italy.

The negotiations took place and the privatization contracts were signed on October 21, 2004, with E.ON/Ruhrgas – Germany for Distrigaz Nord, and with Gaz de France for Distrigaz Sud.

Collections and reducing arrears in the power, oil and gas sectors. One of the most critical and difficult challenges for the Government was to improve its collections in the energy sector and reduce losses. Due to difficulties the government previously faced with achieving targets in this area, collections and reducing arrears in the power, oil and gas sectors were subject to a tight monthly monitoring under the loan. The targets set were highly ambitious and supported at high levels of Government.

For the power sector, the core conditions required the Government to submit evidence that: (i) the cumulative monthly rate of collection for payments to Electrica has reached at 97.5 percent of the total billings for the period commencing from January 1, 2002; (ii) the monthly rate of collection for payments to Termoelectrica has reached 100 percent of the total electricity billings for each month commencing from October 1, 2001; and (iii) the cumulative monthly rate of collection for payments to Termoelectrica for district heating supplies reached at least 97.5 percent of the total billings for the period commencing from January 1, 2002. The primary performance measure was a 12-month rolling average to smoothen the impact of seasonal variations.

The achievements at end-April 2004 on 12- month rolling average basis were:Electrica - 99.0 percent Termoelectrica for electricity - 97.0 percent Termoelectrica for district heat - 95.3 percent

Electrica collections collections from electricity consumers. During the 12 months of 2003 lElectrica achieved 98.0 percent collection level, meeting the agreed 97.5 percent target. From May 2003 until April 2004, the collection rate was slightly higher at 99.0 percent. While these are highly satisfactory collection rates, challenges remained in collections from some SOEs and government agencies. The Government acknowledged that it was ultimately responsible for these nonpayment, and in May 2004 approved an ordinance under which it undertook to make payments from the state budget in cases where utilities are obliged to continue to supply defaulting state-owned enterprises and other government agencies. Bill collection from non-government consumers was satisfactory and remained the responsibility of the utilities without budgetary back-stopping. During the gas and electricity distribution privatization processes, agreements were negotiated with the investors under which such arrears were replaced by long-term government bonds. These arrangements reflected the Government's acknowledgement that it is responsible for these arrears.

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Termoelectrica's collections - for bulk electricity supply. The agreed target of 100 percent lcollection proved to be optimistic. Termoelectrica's collections at 97 percent closely reflect those of Electrica's. Termoelectrica collected 93.1 percent of its bill from Electrica and another 4 percent through a system of offsets. Instead of the Government paying Electrica for governmental electricity consumption, Electrica paying Termoelectrica, and Termoelectrica paying taxes, the Government and Termoelectrica offset these liabilities (i.e., government payments for electricity consumption and Termoelectrica's tax payments to the Government were offset). In view of Electrica's collection accomplishments and Termoelectrica's achievement of collections at 97 percent, the condition was considered substantially met.

Termoelectrica's collections - for bulk heat supply. The agreed target of 97.5 percent collections lproved to be optimistic given the poor financial and operational condition of most of the Termoelectrica's bulk heat clients--district heating utilities selling heat to final consumers, mostly households. However, Termoelectrica was able to improve its collections substantially to 95.3 percent through a combination of measures: (i) intensified pressure on the clients, and (ii) by transferring a number of its smaller district heating facilities to the local authorities which are then also directly in charge of their heat production, in addition its distribution.

For the gas sector reforms the core conditions required the Government to submit evidence that the cumulative year to date rate of collection for payments to Distrigaz Sud and Distrigaz Nord reached 97.5 percent of the total billings and that the accounts payable to the gas producers and gas transmission companies, resulting from gas delivery will be paid within sixty days, commencing on January 1, 2002.

The achievement by end-April 2004 was a cumulative year-to-date rate of collection for payments to Distrigaz Sud and Distrigaz Nord of about 105 percent of the total billings, exceding the target of 97.5 percent. To eliminate seasonal variations, collection performance was also assessed on a 12-month rolling basis. The collection rate on a 12-month rolling basis (May 2003 - April 2004) was about 100 percent of 12-month billings. The company-by-company breakdown of year-to-date (and 12-month) collection rates as of end-April 2004 was:

Distrigaz Sud - 104.8 percent (12-month rate 101.9 percent)Distrigaz Nord - 105.4 percent (12-month rate 98.1 percent)

The accounts payable to the gas producers and gas transmission companies, resulting from gas delivery, was paid within 55 days of sales, commencing on January 1, 2002, which was a better performance than the goal of 60 days.

Business Environment

In the area of business environment, the Government pursued a number of reforms that were designed to improve business entry, operation and exit. Although the reforms in this area were not considered core conditions for second tranche release, their achievement has substantially strengthened the legal environment for business and helped to reduce administrative barriers that firms face. Following are some of the Government's main achievements in this area:

Administrative Barriers. The Government took steps to implement its plan to improve the business lenvironment in Romania. To this end, it completed 67 out of the 71 actions outlined under the Government's the Action Plan for the Removal of Administrative Barriers. As a result, several key pieces of legislation have been enacted: the Sunshine Law (Transparency Law), Silent Approval

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Law, Fiscal Code, and Fiscal Procedure Code. Other important draft laws are at various stages of the approval process including the Bankruptcy Law and Corporate Governance Principles Law. The new agency dealing with foreign investors (ARIS) is currently fully functioning.

Tax and fiscal reform. In order to improve the tax and fiscal regime, the Government amended the lFiscal Code and the Fiscal Procedure Code to unify the previously scattered regulations and incentives under a single and clear piece of legislation, in line with the EU and OECD practices.

Auditing and accounting. Strengthened audit and accounting standards and procedures are lessential for the production and disclosure of accurate financial information for internal and public purposes. In line with PSAL II, the Government required that a set of companies begin to implement the Government's updated system of regulations and be audited according to international standards. The Accounting and Auditing Review of the Report on the Observance of Standards and Codes, published in September 2003, confirmed the progress made by the government during its transition from compliance with national standards to compliance with International Accounting Standards (IAS), International Standards on Auditing (ISA), and the Directives. However, while the report stressed major improvements in the legal and regulatory framework, it highlighted deficiencies in compliance with the legal and regulatory requirements and enforcement mechanisms and recommended that the Government continue to focus on implementation.

Bankruptcy. The Government has taken and is currently pursuing a number of important actions to l

modernize its insolvency system. Specific actions include: (i) with regard to commercial insolvency, the Government amended the Law on Judicial Reorganization and Bankruptcy to address a number of shortcomings in the insolvency procedures; (ii) the Government developed a draft new law to introduce a "preventive concordat" procedure with the aim of streamlining the restructuring of viable enterprises; (iii) the Ministry of Public Finance prepared an amendment to the Law on Judicial Reorganization and Bankruptcy of Credit Institutions to bring the existing provisions in line with EU Directive 24/2001; and (iv) the National Union of Reorganization and Liquidation Practitioners has begun organizing seminars and training programs for insolvency practitioners.

E. Social Protection

The inclusion of specific measures to mitigate the social costs of the enterprise sector reforms were considered a key element of the loan. Thus, the loan included several core conditions in this area. Government efforts were essential to strengthening the social safety net for the long term unemployed, ensuring adequate income support to laid off workers, and reforming the pensions system. The Government met these conditions. The main achievements include:

The Government allocated sufficient resources in its budget to finance the targeted Minimum lIncome Guarantee (MIG) program and has maintained a sufficient level thereafter. The Government enacted legislation regarding unemployment insurance and employment lincentives, promoting a system of measures stimulating employment and ensuring the financial viability of the unemployment insurance budget. In particular, it approved procedures regarding access to employment incentives, financing means and instructions for their implementation. Through new legislation (Law 76/2002), the unique level of unemployment indemnity was established for unemployed persons at 75 percent of the country’s gross minimum wage and at 50 percent in the case of graduates unable to secure employment. Thus, discrepancies in the system of

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establishing the unemployment indemnity were eliminated, and the indemnities were correlated with the level of the minimum wage.Through Law 333/2002, the Parliament approved amendments to Law 19/2002 on the continuation lof the reform and consolidation of the public pension pillar, establishing transparent and financially viable indexation rules.

4.3 Net Present Value/Economic rate of return:N/A

4.4 Financial rate of return:N/A

4.5 Institutional development impact:

The institutional development impact of PSAL II was substantial. In combination with the package of TA that accompanied the loan, PSAL II has helped to strengthen a number of agencies and institutions that play a major role in the financial, enterprise and infrastructure sectors. Specifically, this package of support included the Bank-financed PIBL and PPIBL, as well the Irish and Canadian Consultant Trust Funds that were accessed for the duration of the project. (See section 5.4 for more details.)

This package of support significantly helped strengthen APAPS (the privatization agency), the CNVM (the securities market regulator), and the Asset Resolution Agency which was established to deal with non-performing bank assets. It also helped supported the Romanian Agency for Foreign Investment, which was created to offer a one-stop-shop to foreign investors. In addition, the regulators for the Agency for Electricity and Heat (ANRE) and the Agency for Oil and Gas (ANRGN) received support and technical assistance in connection with the reforms in the energy sector.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Poor market conditions including a lack of investor interest. The poor international market conditions that prevailed in 2003 had a negative affect on the pace of privatization of both banks as well as enterprises. In several cases, the APAPS had to offer the enterprises for sale more than once, or such as in the case of BCR, the Government had to develop alternative solutions when it failed to attract a strategic investor.

5.2 Factors generally subject to government control:

Government commitment. A high degree of Government commitment was a key factor in the success of the program. PSAL II was highly ambitious program – and much more far reaching than the first PSAL, in that it included many difficult energy and business environment reforms in addition to the financial and enterprise sector reforms. The scope of the program thus required top level Government commitment as well as strong coordination of the various ministries to be successful.

Government support of a broad economic reform program. The Government's efforts to pursue a broad reform program that included economic, institutional and governance reforms in preparation for EU

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accession created positive conditions for implementing the reform program outlined under PSAL II. By pursuing broad economic reforms, the Government managed to achieve GDP growth of 4.9 percent in 2003, led primarily by investment and exports. Good macroeconomic performance contributed to reaching a record level of official reserves of over US$7 billion in 2003 – an impressive increase of US$3.5 billion since 2000. The Government also worked closely with the IMF to develop an adjustment program that aimed to maintain macroeconomic stability, reduce inflation, and support continued divestiture of state-owned enterprises.

5.3 Factors generally subject to implementing agency control:

Performance of the PMU. Although there was no Project Management Unit for PSAL II, the solid performance of the staff of the PMU for the accompanying PIBL and PPIBL projects contributed to the Government's overall success in implementing its reform program. The staff of the PMU were well trained in procurement through their experience under PSAL I, and were familiar with Bank procedures as well as the overarching goals of the Government's reform program. This enabled them to work effectively with the relevant ministries to develop specific terms of reference for technical assistance in all the various sectors covered under the loan.

5.4 Costs and financing:

PSAL II was a two tranche operation of EUR 339.8 million (US$300 million equivalent). The first tranche was disbursed upon loan effectiveness and the second tranche was floating, to be disbursed based on evidence satisfactory to the Bank: (a) with the progress achieved by the Government in the carrying out of the Program; (b) the macroeconomic policy framework is satisfactory; and (c) that the core actions related to the financial sector, energy sector, privatization and social protection have been taken.

The disbursement of the second tranche was originally planned to take place by end-2003, however, was actually disbursed on July 7, 2004. Despite the good progress in achieving the results agreed in the PSAL II program, by end 2003 there were still questions related to the macroeconomic environment, more specifically regarding the deficit target for 2004. Reflecting its concern about the size of quasi-fiscal deficits, the IMF insisted that all investment spending, including the large planned road projects be kept on budget regardless of the financing mechanism. After the Spring Meetings, when agreement between the Government and the IMF was reached on the new Stand-by agreement, the Bank was more confident that the macroeconomic situation and policy framework in Romania is satisfactory. The disbursement was still within the agreed timeframe of the project and the project closed on its original closing date on December 31, 2004.

The project also benefitted from a set of trust funds and additional Bank financing which enabled the government to access top level international expertise and technical assistance. This included the PIBL of US$25 million, the PPIBL of US$18.51 million, a Japanese PHRD grant of US$397,800 for project preparation, as well as Irish and Canadian Consultant Trust Funds (for FY03-FY05). This package of support enabled the Bank to provide a high level of support throughout project preparation and supervision. It also helped the Bank ensure that the Government received policy advice and technical assistance based on international best practices, particularly related to privatizations in the banking, enterprise and energy sectors.

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6. Sustainability

6.1 Rationale for sustainability rating:

The project sustainability is rated highly likely. The reforms – particularly the privatizations and liquidations in the financial and enterprise sector – are not reversible since the assets have been sold to private investors, thus permanently reducing the fiscal demands on the Government budget. In the energy sector, the Government has achieved many improvements in the financial performance of the key state-owned enterprises and has also taken important steps to reduce government arrears.

The reforms in the other sectors including energy, business environment and social protection as well are considered likely to be sustainable given the Government's demonstrated commitment to structural reform in the sector particularly under the PAL program (see description in 6.2 below), but also in other sectoral projects as the Partial Risk Guarantee for the Privatization of Banat and Dobrogea electricity distribution companies. The legislative changes to reduce administrative barriers, improve the framework for insolvency and creditors' rights, strengthen auditing and accounting are all long term development changes, but the Government has clearly shown its interest in harmonizing its legal framework with EU directives.

The intensive collaboration with the IMF in designing the structural agenda supported by the sixth stand-by agreement and the reinforcing conditionality in the content of the PAL program provided a good framework for ensuring the sustainability of the overall reform process.

6.2 Transition arrangement to regular operations:

PSAL II was the fourth in the series of adjustment operations supported by the World Bank in Romania's enterprise and financial sectors, after the Structural Adjustment Operation (SAL), the Financial and Enterprise Sector Adjustment Loan (FESAL) and the Private Structural Adjustment Operation (PSAL I). The reform agenda supported by adjustment lending was typically comprehensive and covered most of the important issues, although there were shifts in emphasis and approaches over time. The importance of macro-economic stability and its links with structural reforms in state owned enterprises and banks was recognized early on. All the loans focused on privatization and restructuring of state-owned enterprises, and reforms to tighten financial discipline. Liberalization of prices and trade and exchange rates was part of the agenda of the SAL (1992) and FESAL (1994), but they were no longer an issue for later operations. Reforms of the financial sector was an important component of FESAL in the mid - 1990s, and became a central focus in PSAL I in 1999 and PSAL II to rid the source of the financial crisis at that time. Energy prices reforms were supported in all operations, but comprehensive energy sector reforms took center stage only in PSAL II in 2002.

The PSAL II built on the largely satisfactory achievement of the outcomes envisaged under PSAL I reform program. The restructuring /privatization process of banks and enterprises was continued, with special focus on reforms in the energy sector which remained a major source of subsidization of state owned enterprises. The loan also supported the implementation of an action plan to remove administrative barriers to private business, drawn up on the basis of recommendations of a FIAS study under PSAL I.

The reform program outlined under the PSAL II directly supported and fed into the Government's broader development agenda aimed at laying the foundation for EU accession and was driven by the accession time-table. Thus, no transition to regular operations was necessary, as the Government line ministries and related agencies which implemented PSAL II are also spearheading Romania's broader reform program.

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The PAL Program. Bank support for Romania's structural adjustment has been picked up under the PAL program, which is a series of three loans designed to support the Government's reform program through 2007 with the objective of establishing solid economic growth, reducing poverty and joining the European Union. The PAL provides continuity in Bank assistance by ensuring sustained progress on the structural reforms begun under PSAL I and II, while at the same time introducing a new program of phased public sector and regulatory reforms that emphasizes institutional development and effective implementation.

7. Bank and Borrower Performance

Bank7.1 Lending:

Bank performance in project identification and preparation is rated satisfactory. The reforms supported under PSAL II were the centerpiece of the Government's privatization strategy and represented a direct continuation of the program that began under PSAL I. The reform program was exceptionally well developed and specific in nature, due in part to the Bank's experience with and relationship with Government counterparts.

The strategic relevance of the operation was clear. The reforms were designed to deepen and strengthen the financial sector, reduce the government's fiscal liabilities to state-owned enterprises, and improve the business environment.

The Bank drew on a broad mix of technical staff to prepare the project, including privatization experts with a high degree of experience in other Eastern European countries, senior financial sector specialists, private sector development specialists, and operational staff. It also mixed headquarters staff with field staff who continually monitored implementation as well as provided technical assistance and guidance to the government in carrying out the program.

Client engagement in identifying the reforms was excellent. The team worked closely with the key counterparts from the Ministry of Public Finance and other line ministries to identify their specific goals and objectives in the short and medium term. Further the reforms fit in clearly with the CAS in that they were designed to stimulate private-sector led growth in Romania and also help pave the way for EU accession by reducing fiscal liabilities and helping to create a sound, stable financial sector.

7.2 Supervision:

Bank performance during supervision is rated satisfactory. Supervision combined both field based and headquarters staff. The Bank team also drew heavily on the expertise of several senior financial specialists and privatization consultants to monitor the Government's progress with implementing the core conditionalities. Supervision missions were regular and well-targeted, complementing the ongoing monitoring of field staff. Often the missions were used as an opportunity to continue to apply pressure on the Government continue with its reform program.

The Bank also maintained continuity of its staff, which contributed to the project's overall success. Not only were staff the same that had worked on preparation, but they had worked closely on the PSAL I as well. It also engaged senior banking and privatization consultants to serve as advisors to Bank team and provide high level technical support. The Bank team not only developed close working relationships with Government counterparts, but also knew very well the financial conditions and technical aspects of many of the larger banks and enterprises that were to be privatized with support of the PSAL II and PIBL. As a

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result, they were able to make important contributions to help the Government develop effective restructuring and privatization strategies.

7.3 Overall Bank performance:

Bank performance is rated as overall as satisfactory.

Borrower7.4 Preparation:

Borrower performance in project identification and preparation is rated satisfactory. The Government demonstrated a high level of commitment to its overall reform program. This was shown by its preparation of PSAL II on the heels of the first PSAL program, helping to sustain the momentum of the reform process. The Ministry of Public Finance worked very closely with the Bank team to identify the next generation reforms that would have the most significant impact.

The Government also displayed good cooperation with the Bank team during preparation. Specifically, key counterparts from the Ministry of Finance, APAPS, and the National Bank of Romania worked very closely with the Bank team to identify priorities in each sector as well as clarify specific conditionalities to be supported. This cooperation helped ensure that the reforms identified were both timely and effective, feeding into the Government's overarching goals and helping the country make its transition to a market economy.

7.5 Government implementation performance:

Government implementation performance is rated satisfactory. The close collaboration demonstrated by the Borrower with the Bank during implementation was a primary factor in the overall success of the PSAL II. Another important factor leading to the successful implementation of this project was the willingness of the Government to utilize loan funds to procure technical expertise lacking in-country through the PIBL project.

7.6 Implementing Agency:

Implementing agency performance is rated satisfactory. There was no single implementing agency for the project, given that it was an adjustment loan. However, implementation of the conditionalities required the active support of a number of institutions. In particular, the staff from Ministry of Public Finance, the Ministry of Economy and Trade, and APAPS demonstrated an exceptional level of efficiency and commitment to the program. The PMU of the PIBL also demonstrated solid administrative capacity for procurement and monitoring the TA support for this very complex project.

7.7 Overall Borrower performance:

Overall Borrower performance is rated satisfactory.

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8. Lessons Learned

Following are some of the major lessons learned.

Adjustment lending is successful when Government commitment is strong. PSAL II reform agenda deepened and broadened the financial and enterprise sector reforms undertaken by the Government and supported by PSAL I since 1999. Despite the slower than envisaged implementation of the PSAL II, the Government commitment to advance the reforms, especially in more difficult areas as the energy and mining sectors, remained strong all through.

The synergy between the IMF and WB in supporting the structural agenda is key for ensuring the sustainibility of the reforms.The intensive collaboration between the Bank and the IMF during the design and the implementation of the structural agenda supported by PSAL II and the fifth and sixth IMF stand by agreements, as well as the reinforcement of the conditionalities in the context of the PAL I program provided a good framework for ensuring the sustainibility of the overall reform process.

Clear regional integration goals, such as EU accession, provide strong incentive for reform. The approval by the EU Council of Ministers in December 1999 of starting accession negotiations with Romania marked a new pace of reforms in Romania. The committments made by the Government during the negotiations and reflected in the accession chapters, as well as the Romania's goal to join EU by 2007 contributed significantly to an increased awareness and committment of all stakeholders in Romania on the needed reforms, as well as of their sense of urgency. In its October 2004 Report on Romania, as a consequence of the good progress in implementing the reform agenda, largelly supported by the PSAL II, the EU Commission recognized Romania as a "functioning market economy". This status paved the way to conclude the negotiations by end 2004 and to sign the accession treaty by April 2005.

Importance of adequate and timely technical assistance. A key factor in the success of the PSAL II was the availability of substantial technical assistance to carry out the reforms and privatizations. PSAL II envisioned restructuring and privatization of some of the largest, most complex banks and enterprises in the country, such as BCR, TAROM, ALRO and ALPROM. In order to carry out these and other transactions, the Government needed easily accessible funds to finance top level international privatization advisors and other technical experts. The fact that the Government was willing to borrow for such support appears to have made a big difference in the end result – allowing the Government to move much more quickly in implementation.

Need for flexibility to adjust strategies based on market conditions. PSAL II contained a number of conditionalities related to privatization of large state-owned banks and enterprises. At the time of project implementation, however, market conditions deteriorated and the Government found it difficult to find strategic investors in some cases. However, the Bank was able to work closely with the Government in order to maintain the momentum and also help identify acceptable alternative solutions to full privatization, as in the case of BCR.

Importance of specific, easily monitored conditionalities. Despite the broade scope of the project, the loan included a detailed policy matrix that was easily monitored. This specificity contributed to the success of implementation, as it set clear goals for the Government. This approach was also in contrast to some previous adjustment loans in Romania (ie. FESAL) which included much more general conditionalities.

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Importance of a strong field presence of Bank staff to assist the Government in a highly complex reform program. PSAL II benefitted from a strong field presence of Bank staff. This was combined with periodic missions involving teams of technical experts. The constant field presence proved to be an essential element of success given the depth and complexity of such an ambitious reform program.

9. Partner Comments

(a) Borrower/implementing agency:

This ICR was prepared with the contribution of the PSAL II project coordinator in the Ministry of Public Finance.

The Ministry of Public Finance provided data for the report and worked closely with the Bank team to assess the outcome of the project and draw the main lessons.

Written comments on the draft were provided to the Bank team on June 9, 2005 and have been largely incorporated into the text.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1 End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ million

Total Baseline Cost 0.00 0.00Total Project Costs 0.00

Total Financing Required 0.00 0.00

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

3. Services 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

3. Services 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

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Total 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.

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Annex 3. Economic Costs and Benefits

N/A

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation08/22/2001 5 SENIOR FINANCIAL

SPECIALIST (1); LEAD OIL AND GAS SPECIALIST (1); SENIOR OPERATIONS OFFICER (1); CONSULTANTS (2)

11/27/2001 2 LEAD OIL AND GAS SPECIALIST (1); SENIOR OPERATIONS OFFICER (1)

Appraisal/Negotiation12/17/2001 4 PROGRAM TEAM

LEADER (1); COUNTRY MANAGER (1); SENIOR FINANCIAL SPECIALIST (1); SENIOR OPERATIONS OFFICER

03/11/2002 5 TASK TEAM LEADER (1); LEAD OIL AND GAS SPECIALIST (1); SENIOR FINANCIAL SPECIALIST (1); SENIOR OPERATIONS OFFICER (1); LEAD INFRASTRUCTURE SPECIALIST (1)

Supervision

01/17/2003 1 TASK TEAM LEADER S S03/03/2003 6 PROGRAM TEAM LEADER

(1); PRIVATE SECTOR SPECIAL (1); ENERGY SECTOR (3); PRIVATIZATION (1)

S S

09/28/2003 5 MISSION LEADER (1); PSD SPECIALIST (2); FSD SPECIALIST (2)

S S

01/24/2004 6 SECTOR MANAGER (1); (SR. OPERATIONS OFFICER (1); LEAD FINANCIAL SECTOR SPECIALIST (1), FINANCIAL SECTOR ADVISOR (1), PRIVATIZATION ADVISOR (1), PRIVATE SECTOR DEV. CONSULTANT (1)

S S

ICR

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Prepared from the field

Please note that field based staff carried out ongoing monitoring and supervision of loan conditionalities. Such supervision is not reflected in the above table

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 1,470Appraisal/NegotiationSupervision 326ICR 30Total 1,826

Note: The figure of US$1,470,000 includes Appraisal/Negotiation as well as Identification/Preparation.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

PSAL II Memorandum of the President PSAL II Board Release MemoProject Status ReportsMission TORsAide memoires (PSAL II and PIBL)

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