Eighth Annual Review of Project Performance Audit Results

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Report No. 4101

Eighth Annual Review ofProject Performance Audit Results

September 9, 1982

Operations Evaluation Department

FOR OFFICIAL USE ONLY

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4or consideration oLl

'October 28, 1982

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R82-270

FROM: Vice President and Secretary September 13, 1982

EIGHTH ANNUAL REVIEW OF PROJECT PERFORMANCE AUDIT RESULTS

Attached hereto is a copy of a memorandum dated September 9, 1982 from

Mr. Weiner together with its attachment "Eighth Annual Review of Project

Performance Audit Results" (Report No. 4101).

The Annual Report on Operations Evaluation (R82-269), issued on

September 10, 1982, will also be considered at the Executive Directors'

meeting to be held on October 28, 1982.

Distribution:

Executive Directors and AlternatesPresidentSenior Vice PresidentsSenior Management CouncilVice Presidents, IFCDirectors and Department Heads, Bank and IFC

-cument ldscd by orly m 1,ho pcrforrn

I - InccW LiII-111 can&-n-its re-av ri(,t ot ie %kiie 0C disclosed wiihoui W orld Bank authoriz ition.

FOR OFFICIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

Offke of Director-GeneralOperations Evaluation

September 9, 1982

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

Subject: Eighth Annual Review of Project PerformanceAudit Results

Attached, for information, is a copy of a reportentitled "Eighth Annual. Review of Project Performance AuditResults", prepared by the Operations Evaluation Department.It represents an overview of an eighth group of 108 projects

on which performance audit reports were issued by the depart-ment through the end of December 1981.

Mervyn L. Weiner

by Shiv S. Kapur

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY


TABLE OF CONTENTS

Page No.

HIGHLIGHTS ........................ . . . . . . . . . . . . . . . .

I. INTRODUCTION o... . . . . .. . . . . .. . . ................ 1** * o * o o o # o * * o s oThe Projects Reviewed ............................ ........ 3

II. SUMMARY OF OVERALL RESULTS ............................ . 5

Objectives and Approach .................. . . 5Effectiveness ............ . ............................ 6

(1) Economic ..o.o ...... o.o... ..... ...... ......... 6(2) Financial ... ............. ... o............ 9(3) Social ............. ...... ........... ...... .... 9(4) Sector Policy and Institutions o............. 11

Process Efficiency ......... . ....... ...... ... . ..o.. . 15(1) Project Preparation, Design and Change 15(2) Project Implementation: Time and Cost ........... 17

III. CONCLUDING COMMENTS ..................................... 19

Addressing Sector Issues Through Project Lending ..ed... 19New Approaches to Lending and Use of Novel Technology..... 22Effects of Rapid Changes in Prices ...................... 24

IV. SECTOR REVIEWS AND SUMMARY FINDINGS ... o................... 25

A. AGRICULTUREIntroduction ................. ... .. . ............... 25

I. EFFECTIVENESSA. Economic Impact 28B. Social Impact .... ........ 35C. Technology and Productivity ............... 38D. Institutional Impact ........................ 40

II. PROCESS EFFICIENCYA. Project Preparation and Design ............ 44B. Project Implementation: Overview ......... 47C. Project Implementation: Changes and Causes.. 48D. Project Implementation: Time and Cost 50E. Project Implementation: Supervision 54

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Cont'd)

Page No.

III. FACTORS OF EFFECTIVENESS AND IMPLEMENTATION ..... 57

A. Interaction of Projects withSector Policies and Institutions .......... 57

B. Agricultural Research ....................... 67

IV. SUMMARY FINDINGSA. Performance by Subsector .................... 70B. Reaching Small Farmers ...................... 71C. Project and Sector Interaction .............. 72D. Implementation and Project Design ........... 73E. Agricultural Research ....................... 73F. Follow-up ................................... 74

B. PUBLIC UTILITIESIntroduction ......................... 74

I. OBJECTIVESA. Physical, Economic and Social .............. 75B. Sector Policy and Institutions ...... 76

II. EFFECTIVENESSA. Operations and Output ............... 78B. Economic and Financial ...................... 82C. Sector Policy and Institutional ............ 85

III. PROCESS EFFICIENCYA. Project Implementation: Overview ........... 87B. Project Implementation: Time and Cost 88

IV. SUMMARY FINDINGSA. Demand Forecasting .......................... 89B. Changes in Project Scope .................... 90C. Financial Performance, Covenants and Tariffs. 91D. Sector Policies and Institutional Change .... 93E. Environmental Aspects ....................... 94

C. TRANSPORTATION AND TOURISMIntroduction .......................................... 95

HIGHWAYS .............................................. 96Objectives ......................................... 96Effectiveness: Economic and Institutional ......... 96Process Efficiency: Time and Cost ................. 98

RAILWAYS 9.................. ......... .. . .... .. 99Effectiveness ........ ti........ 99A. Economic and Financial .................... o... 99B. Institutional .................................. 101Process Efficiency: Implementation Time and Cost... 102


Page No.

OTHER ................................................. 102A. Economic and Financial ......................... 103B. Institutional .................................. 104Process Efficiency: Implementation Time and Cost... 104

SUMMARY FINDINGS(i) Sector Policy Environment ...................... 105

(ii) Traffic Forecasting and Design Standards ....... 106(iii) Institutional Development and

Technical Assistance ........................ 108(iv) Loan and Credit Covenants ...................... 109(v) Operational Efficiency ......................... 110

(vi) Project Supervision ............................ 110(vii) Tourism Issues ................................. 111

D. DEVELOPMENT FINANCE COMPANIESIntroduction .......................................... 11

I. OBJECTIVES ....................................... 112

II. EFFECTIVENESSA. Institutional ............................... 113B. Industrial Sector Development ............... 114C. Operational Results and Sectoral Impact 116D. Deepening of the Financial Structure .117E. Resource Mobilization Effort ................ 119

III. PROCESS EFFICIENCYA. Commitment and Disbursement of Bank Funds 120B. Cost and Time Overruns ...................... 121C. Financial Performance of Subprojects ........ 121

IV. SUMMARY FINDINGSA. Approach to Lending ......................... 121B. Institution-Building ........................ 122C. Industrial and Financial Deepening .......... 122D. Resource Mobilization ....................... 122E. Financial Performance ....................... 123F. Evaluation of Experience .................... 123

E. INDUSTRYIntroduction .......................................... 125

I. OBJECTIVESA. Physical and Technological .................. 125B. Sectoral and Policy Concerns ................ 126C. Institutional ............................... 126


Page No.

II. EFFECTIVENESSA. Operations ............ .... ..... .... .... 127B. Economic and Financial ..................... 128C. Policy and Institutional Ipact o........... 130

III. PROCESS EFFICIENCYA. Project Preparation and Design ............. 131B. Project Implementation ...................... 132

IV. SUMMARY FINDINGSA. Institutional Development .................. 135B. Policy and Sectoral Impact .................. 135C. Procurement ..................... ........... 136D. Covenants ............. .... ............... 136E. Environmental Aspects ................... 136F. Lessons of Experience ....................... 137

F. PROGRAM LOANS

Objectives .... 138Effectiveness and Impact ...................... 139Remarks ........ 140

G. EDUCATION

I. POLICY AND INSTITUTIONAL OBJECTIVES ............ 141

II. EFFECTIVENESSA. Educational .........o...a................... 141B. Institutional ... 143C. Employment and External Efficiency .......... 144

III. PROCESS EFFICIENCYDesign, Construction, Time and Cost ............ 145

IV. SUMMARY FINDINGSA. Sector Objectives and Attainment . 147B. Project Design si. 148C. Technical Assistance ....................... 148D. Supervision ........................... 149E. Impact Evaluation 149F. Feedback .................................. 150

H. POPULATION ....................... .................. 150


Page No.

ANNEX I: Classification of Projects by Year of Final Disbursement,Agreement Date, Sector, Region and Size. Tables 1-5 ...... 153

ANNEX II: Tables

1 Projects for which project performance audit reports wereissued .............................. . ............. . 159

2 Estimated and actual project costs and reasons for majorcost changes .... ............................ .......... . 165

3 Estimated and actual times for completion and reasonsfor major extensiors of time ............................. 169

4 Estimates of economic returns at time of appraisal andaudit ........................... ............... .... 174

5 Indicators of financial performance of revenue-earningentities ................................................. 179

6 Institution building: cases where Bank made specialefforts to strengthen borrower's administrative andtechnical capabilities ................................... 181

7 Summary of project results ............................... 187

ANNEX III: Follow-Up ................................................ 194

HIGHLIGHTS

This Review covers 108 operations representing approximately $3.2billion in World Bank loans and credits and around $11.3 billion in totalinvestments. The operations covered by this series of eight Reviews now total709, for loans and credits of $14.8 billion and total investments of $48.7billion.

With the exception of urban development, all major sectors of Bankoperations are represented in this Review. Four population projects comein for special comparative analysis and comment, as do the 40 agricultureprojects which, once again, comprise the dominant group. Like its predeces-sor, this Review is primarily focussed on the effectiveness of operationssupported by the World Bank.!/ Effectiveness is assessed in terms of theeconomic, financial, social and institutional outcome of the projects fi-nanced. Since project effectiveness is frequently a function of its policyenvironment, an effort has been made to identify interactions between projectsand policies, especially in agriculture, industry and public utilities.Process efficiency - the preparation, design and implementation of projects -is related to the outcome and is also commented upon separately.

All but one of the projects (2% of Bank lending) have been imple-mented. Sixteen projects (9% of Bank lending and 8% of total investments)yielded results at audit that were either uncertain or unsatisfactory. Onthe basis of information available at audit, 85% of the completed projectsrepresenting around 91% of Bank lending and 92% of total investments appearto have achieved their major objectives, or were well on their way to doingso, and remained worthwhile. These results are broadly in line with thoseof the last several Reviews: in terms of the total investments representedby the 709 projects whose performance has been audited, around 90% have beenadjudged worthwhile.

Of 62 completed projects in this Review for which economic returnswere estimated at appraisal, all but 16 offered reestimates of 10% or more.The corresponding figures for IDA-financed projects alone were 31 and 8.Agricultural projects yielded a weighted average economic return reestimateat audit of over 21%. This is in line with the reestimated rates of returnranging between 20% and 23% for 117 agricultural projects that have beenaudited in the last four years and for which rates of return were available.

One hundred and twenty-six agricultural projects reviewed in theabove period benefited appro:.imately 22.5 million people. On the basis ofinformation available on 32 of the 40 agricultural projects in the present

1! Includes International Development Association (IDA).

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group, some 830,000 families comprising 4.6 million rural people are estimatedto have benefited in varying degrees. Eight agricultural projects supportedthe irrigation of 1.2 million ha, and had a substantial impact on production.Thirty-five of the 40 projects under review were directly designed to increasefood production; at completion, they generated an estimated total of 5.3million tons of additional foodgrains a year.

Sector policies and institutions received special attention. Nearlyall the projects in public utilities showed a clear concern for the widersub-sector framework within which the enterprises operated. Efforts weremainly directed towards improving overall sector policies, especially thecoordination of planning, operations and tariff structures within the varioussub-sectors. Lending operations for development finance companies were usedto help advance sector objectives within the framework of national developmentstrategies and policies. Sector policy and institutional concerns wereequally strong in the Bank's lending for industry. The strongest effortwas probably made in the agricultural sector where the impact of govern-ment policies on project outcome remains a dominant factor. While much wasachieved from these efforts, individual projects emerged as relatively weakinstruments for substantial policy or institutional change, needing reinforce- /ment from a broader understanding between Bank and borrower on sector policiesand priorities.

One agricultural credit project could not be completed and had tobe canceled due to lack of agreement on sector policies between the Bank andthe borrower. The 16 projects with uncertain or unsatisfactory results ataudit included eight in agriculture, five in transport and tourism, and oneeach in education, development finance companies and industry.

The reasons for unsatisfactory outcome were of the stuff of thedevelopment process. They were not very different from those in the previousyears, and what is noteworthy in all this is the fact that it frequently tooka conjunction of reasons to bring a project down. Some of these reasons couldhave been foreseen, others not. Eight agricultural projects suffered fromdeficient project preparation and design, lack of full understanding onproject objectives and approach between Bank and borrower, weak managementduring implementation, and changes in the political and economic environmentwhich seriously affected project outcome (paras. 2.11-2.15, 4.50, 4.53, 4.55,4.68, 4.73 and 4.96). The four transport projects experienced substantialtime and cost increases and traffic shortfalls, both induced in part bythe unforeseeable impact of oil price increases and the development of reces-sionary conditions in the world economy. The same reasons influenced theunsatisfactory outcome of the solitary tourism project (paras. 2.18, 4.194,4.201, 4.204, 4.216 and 4.242). The project in education had poorly de-signed facilities and substantial time and cost overruns, and was affectedby continuing differences of view between the Bank and borrower (paras.4.344, 4.346, 4.351). The DFC project had severe institutional problems;

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there were modifications in project design and bureaucratic delays leading totime and cost overruns, and the entity had serious and persistent arrears andcollection problems (paras. 4.249, 4.253 and 4.271). In the industrialproject, production buildup was seriously affected by extensive delays inproject execution, commissioning and stabilization of production, and inabi-lity to secure adequate and timely deliveries of raw materials. The noveltechnology employed in the project taxed the technical capabilities of itsmanagement (paras. 2.17, 4.286, 4.296, 4.300 and 4.304).

Two projects, one in agriculture and the other in industry, weresuccessful in achieving their major objectives even though they had reesti-mated returns at audit of 8% - 9%. The returns for the former were affectedby lower than expected on-farm productivity, higher investment and a sharpdrop in beef prices. The industrial project was an ambitious "green field"undertaking in a remote and undeveloped area. The initially low capacityutilization has subsequently improved and the project has contributed directlyand indirectly to the development of infrastructure in the region which couldbecome an important growth pole in the country (paras. 2.15, 2.17, 4.18, 4.50,4.293, 4.298, 4.301 and 4.310).

Some 61% of the projects were changed during implementation andexperienced time and cost increases. This proportion is in line with thatof the previous three years. Most of these projects were affected by acombination of inadequate project design, shifts in beneficiary preferencesfrom those anticipated, and changes in government policies or the economicenvironment. Another major reason for changes in project scope was the highrate of inflation experienced during project implementation in the mid andlate 1970s. To the extent that the changes had adverse consequences in termsof reduced project scope and deferred or reduced benefits, and were avoidable,they stressed the lessons of previous Reviews. These include the importanceof full understanding and agreement between Bank and borrower on project Vobjectives and the institutional arrangements for achieving them, projectdesigns which are realistic and responsive to local conditions, and borrowerpolicies which are conducive to the success of the project.

Following upon some areas of special concern in this Review, somecomments are offered in Chapter III on the interaction between sector issuesand project lending, the use of novel technology, and the effects on projectsof rapid changes in prices.

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I. INTRODUCTION

1.01 This report is the eighth of an annual series. It reviews theexperience of 108 World Bank!! supported projects whose performance wasaudited in 1981. The series started with the project performance auditreports (PPARs) completed prior to March 31, 1975; by the end of 1981, per-formance audit reports had been issued for a total of 709 projects.

1.02 PPARs have been issued by the Operations Evaluation Department (OED)

soon after completion of each project for which Bank finance has been pro-vided. They now consist of an audit memorandum, prepared by the OperationsEvaluation Department, and a project completion report (PCR) prepared by theoperating department in the Bank directly concerned with the project imple-mentation. The PCR is the final report in the supervision process; it reviewsthe implementation experience and the project results in the light of theoriginal expectations as set out at the time of appraisal. Borrowers arebeing encouraged to prepare the PCRs with the Bank's help as exercises in

self-evaluation which, it is hoped, will expand into or reinforce existingevaluation mechanisms in developing countries. Eleven of the PPARs in thepresent group had the PCRs prepared by the borrowers, with additional comments

provided by the Bank operating staff.

1.03 To improve the effectiveness of the resources applied to the Bank's

operations evaluation system, the Board of Executive Directors decided toadopt, starting in fiscal 1983, a selective system of project performanceauditing. Under the modified system the Bank's operating departments continue

to prepare PCRs for all completed projects, but only about 60% of theseprojects are subjected to performance audit by OED. Borrowers' comments will,

however, continue to be sought for all completed projects..Z The criteriafor selectivity and their application are subject to continuing review by theJoint Audit Committee of the Board.

1.04 The new system of selective auditing does not jeopardize the integ-rity of the Bank's project evaluation system. There is ample evidence thatproject completion reporting by operational staff is now firmly established in

the Bank and that major inadequacies in completion reporting or in identifying

issues of general interest are being spotted by OED's evaluation officers, who

continue to scrutinize all PCRs. The ultimate objective of Bank evaluationcontinues to be to identify and disseminate lessons that can contribute

to improvements in the design and implementation of future Bank-supportedprojects.

1.05 The Bank's Regional and Operations Policy Staff and the borrowershave the opportunity to comment on the draft of every PPAR before it is issued

in final form. In 55% of cases in this Review, comments on the draft PPAR

1/ This includes the International Development Association (IDA).

2/ All PCRs, whether or not subjected to OED performance audit will continue

to be circulated to Executive Directors and covered by future AnnualReviews.

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were received from the borrower; in 50% of cases 0ED staff visited the countryand the project and held extensive discussions with borrower staff. The com-bined borrower input, through OED country visit or by written comment, totals78% of audits completed last year. Borrower views and comments receivedduring OED staff visits are taken into account and reflected in the conclu-sions of the audit; the written borrower comments on draft PPARs are furtherreproduced in the document in full. The views of Bank staff are similarlytaken into account and, more recently, comments have also been invited frommultilateral and bilateral co-financiers. It is the aim of each PPAR to reachan objective evaluation of the project experience. Differing views are notedand discussed; in the final analysis, however, the audit incorporates OED'sindependent judgment.

1.06 An important aspect of the process is to relate past experiencewith the present Bank effort. This Review aims to summarize the experiencewith 108 projects in the same context. It notes the objectives set for theseprojects, seeks to measure the level of achievement or failure, and points torecurring patterns in the process of project preparation, design and imple-mentation which might have contributed to that achievement or failure, andhave implications for the future.

1.07 As in last year's Review an attempt has been made, where feasible,to extend the perspective farther back into the past, to look at patterns ofexperience not only in this group but also in groups reviewed in earlieryears. This helps identify changes in trends over time. It may also leadto the questioning or qualification of conclusions based on the limitedexperience of this group of projects, or to reinforce them.

1.08 The primary emphasis of the Review is on project effectiveness:economic, financial, technological, social, and institutional. In thiscontext, wider sector issues are considered as they interact with individualprojects. Process efficiency is then examined bearing in mind two separateconsiderations: (i) project design and implementation are central to itssuccess and a major failure in any aspect of the process can irreparablydamage the project objectives; (ii) important elements of the process and ofproject design - the original rate of return estimates, institutional objec-tives, schedules of implementation - are frequently marked by over-optimism,justified by a need for target setting, and a project outcome which may fallshort of expectations yet may, by objective standards, turn out to be aworthwhile operation.

1.09 Two frames of reference are thus used in project performance evalua-tion and in an aggregative review of this kind. The primary frame remainsthe objectives set for the project at the time it was approved. Deficienciesin achievement against those objectives, whether in the design and implementa-tion process or in the project results, are noted and commented upon. Inthe aggregate, however, it is necessary to discount some of the target-settingand also assess the effectiveness of aid in terms of objective criteria: ratesof return measured against the opportunity cost of capital, and institutionaland other developments which it would be reasonable to expect within thetime horizon of the project. In sectors like education, where quantitative

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measurements are not available, qualitative assessment of project performanceis made against the originally set objectives. Project results which weresubstantially uncertain at audit are discounted.

1.10 Seventy-four percent of the 108 projects represented here wereapproved by the Bank during fiscal years 1972 and after, and most of themwere completed in the years FY78-82. They reflect new approaches to raisingproductivity and income, and a mounting concern with the institutional andpolicy context in which individual projects are undertaken. The implementa-tion of a number of projects straddled the years of sharp price increases, andtheir costs and benefits were affected accordingly. This Review, as the onelast year, seeks to be sensitive both to the nature of project benefits andtheir beneficiaries. Equally, it is sensitive to the risks that attend changeand innovation in the process of development, and to the costs and benefitsthat might follow (Chapters III and IV).

1.11 The results of the present Review have been summarized in ChapterII, and some comments on a few selected topics are offered in Chapter III. Amore detailed sector-by-sector analysis is presented in Chapter IV. Theresults are also tabulated in different groups in the five tables of Annex Iand seven tables of Annex II. Annex III offers an unusual window into thefollow-up on the lessons emerging from the project performance audit process.The annex reproduces a sample of seven of the 25 memoranda issued by theAgriculture and Rural Development Department of the Operations Policy Staffbetween December 1980 and August 1982. Each memorandum carries lessons ofexperience and relates them to the present and future Bank practice forsimilar projects (paras. 4.123 and 4.124). The extension of this system toother sectors is under consideration by the Operations Policy Staff.

The Projects Reviewed

1.12 Unlike the group reviewed last year, these 108 projects reflect amore mature group of Bank-borrower relations; the proportion of first loansmade to different countries in different sectors was only 35% (60% last year)of the projects reviewed.

1.13 Agriculture again predominates with 40 projects (37% of total).Special attention in this Review has been given to the agricultural sectorand, subject to availability of information, the effectiveness of this groupof projects has been closely examined. DFCs and industry represented thesecond largest group (21 projects or 19%) closely followed by public utilities(20 projects) and transport (17 projects). Together, these sectors accountedfor 91% of the projects reviewed which was even higher than last year'sproportion (84%).

1.14 The group includes a number of projects which developed newapproaches to lending or promoted the use of novel technology. Examples arefound among the DFC loans, in industry, agriculture and education. Furthercomments on the subject are offered in Chapter III. The distribution bysector, together with the volume of lending and the costs of projects forwhich finance was provided, are shown in the table below. The projects arefairly evenly distributed between Regions. The comparative 'distribution ofprojects by sector, size and Region for this and the seven previous Reviewsappears in Annex I, Tables 3-5.

1.15 About 31% of the projects reviewed are the first of a series inwhich subsequent loans have since been made; another 4% are first loans whichhave not been followed by a second operation. The remaining 65% representsecond or subsequent loans to the same borrower and project entity.

Table: PROJECTS BY SECTOR

Number Amount of Re-estimatedof Lending/a Project Costs.b

Sector Projects -------- US$ millions-------

Agriculture 40 816.9 1,920.3of which

Irrigation 8 234.7 744.8Treecrops 6 73.7 197.8Livestock 5 48.2 112.4Fisheries 3 12.4 15.8Credit 8 359.7 670.0Agricultural Development 5 36.5 52.6Agricultural Support 5 51.7 126.9

Industry 21 947.5 5,035.1of which

DFCs 14 533.0 1,975.7Industry 7 414.5 3,059.4

Public Utilities 20 527.2 2,162.3of which

Power 12 363.5 1,646.2Telecommunications 2 36.0 116.8Water Supply and Waste Disposal 6 127.7 399.3

Transportation 17 437.3 1,553.2of which

Highways 9 120.7 238.3Railways 5 247.6 1,056.7Others 3 69.0 258.2

Education 5 50.8 162.4

Population 3 46.8 66.9

Program Loans 2 400.0 400.0

TOTAL 108 3,226.5 11,300.2

/a Before cancellations.

/b Total cost of project/program to which loan/credit contributed; somefigures quite approximate.

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II. SUMLAARY OF OVERALL RESULTS

2.01 A brief description of each project reviewed and a summary ofperformance experience are set out in the tables in Annex II. In view of thelarge number of projects covered, Annex II includes material to support thebrief commentary on individual projects in Part Two and in the text thatfollows.

Objectives and Approach

2.02 The projects continued to reflect the broadening of the Bank'soperational objectives in the 1970s. Increasing emphasis was given to thedevelopment of local manpower and indigenous resources, especially in agricul-ture, energy and manufacturing. There was also growing concern with widersector and subsector issues and how they relate to Bank-financed projects.Moreover, many operations sought to extend benefits to the less privilegedpopulation groups in rural and urban areas. The pursuit of these objectiveshas affected the design of Bank projects in several ways, seeking newapproaches to often very intricate and deep-rooted problems.

2.03 Increased food production has been the primary objective of mostagricultural projects. Of the 40 projects under review, 35 were directlydesigned to increase food production. One other project, India Wheat Storage,was intended to prevent storage losses, while two others, India Bihar Agricul-tural Markets and Spain Agricultural Research, were expected to contribute toincreased food production indirectly. The most important means for expandingfood crop production was to raise yields through increased water supply,improved control of water and the use of higher yielding seeds and plant mate-rials, fertilizers and pesticides. Livestock production was to be expandedthrough improvements in breeding stock, disease control, improved rations, andpasture or range development. Only a few projects would increase food produc-tion through development of new land. These included the Sri Lanka MahaweliGanga Project and the Ivory Coast Fourth Oil Palm and Coconut Project. Thethree fisheries projects were designed to increase fish catch through the useof high technology boats and fishing equipment.

2.04 Aside from the transfer of resources, the DFC projects reflected theBank's growing concern with industrial sector policy issues and the deepeningof the borrower's financial structure. The pursuit of these objectives hasinfluenced the design of projects and has led to "directed" lending, in thesense that priority segments of industry to be promoted or end-users werelargely pre-identified. Financial intermediation, in the form of promotingequity participation, flotation of securities, co-financing, resource mobili-zation and apex institution lending, has also received greater attention.Institution-building continued to figure prominently in DFC lending, partic-ularly for new borrowers and relatively weaker institutions, while for somemature DFCs the focus was more on consolidating earlier efforts.

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2.05 Public utilities projects were designed to provide, in the mosteconomical way, new capacities to meet the estimated growth in demand, andto improve existing facilities. The projects were typically segments oflong-term development programs of the utilities concerned, and were almostinvariably characterized by a concern for wider subsector policy issues. Inthe case of all the power projects, a clear strategy was also discernible toassist the countries in developing their indigenous hydroelectric resourcesand to plan the expansion of generation facilities as a whole on a national or

regional rather than local basis; this strategy assumed greater importanceafter the major increases in international oil prices which took place fol-lowing 1973. Furthermore, as in past reviews, the public utilities projectsshow a shared Bank and borrower concern to extend the benefits of theseservices to the less privileged groups in urban and rural areas.

2.06 All transport projects under review, except one, dealt with thebasic trunk transport networks of the countries; project design was, there-fore, mostly determined by national and international considerations ratherthan local or regional factors. In several cases, the project provided thebasis of a wide-ranging policy dialogue between the borrowers and the Bank.Among topics included were sector planning, transport coordination, and roaduser charges. Policy matters were addressed through financing of studies,training, technical assistance by experts, and loan covenants. A number ofprojects also had important technical assistance (feasibility and engineeringdesign studies) or institution-building components.

2.07 The group of education projects audited this year is small and theproject experiences reveal no discernible pattern. The usual efforts atcurriculum change and reform were made, with mixed results. The remainingfive projects include three in population and two program loans. The popula-tion projects illustrate the shift towards an integrated strategy combiningfamily planning with maternal and child health care, and the beginnings of acommunity outreach strategy based on home visits and primary rural health carebacked up by a clinic-based family planning service delivery system.

Effectiveness

(1) Economic

2.08 In assessing the value of a project, an internal rate of return isgenerally used as a summary indicator of its overall merit. The estimation ofbenefits, however, varies with different types of projects. It is most

straightforward where the project is intended to produce an output which istraded and whose economic value can therefore be observed. Where the value ofthe project lies in saving costs or creating opportunities for new economicactivity, as in transport, the estimation of benefits is less direct. Wherethe price of the product is controlled by government and there is no otherready measure of its economic value (public utilities projects), the economicworth of the service is difficult to determine and financial revenues arenormally used as a minimum measure of benefits. Finally, there are projectsfor which benefits cannot readily be compared with costs; their merit must

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therefore be judged qualitatively in relation to the objectives set for them.Education and population projects belong to this category.

2.09 After the project has been completed, economic returns are reesti-mated. These reestimates are based upon actual investment costs and suchrevisions of the streams of benefits and operating costs as the experiencesince the project appraisal may require. The reestimated return is thus ameasure of changed expectations for the project in the light of the imple-mentation experience and changed external circumstances.

2.10 Of the 64 projects in this Review for which economic rates of returnwere estimated at appraisal, one was not implemented. Of the rest, 25 hadreestimated returns equal to or better than appraisal expectations, and allbut 16 of them had reestimates of 10% or more. A loan for an agriculturalcredit in Argentina was fully cancelled about two years after loan signingbecause the project could not have been successfully implemented due tosuppressed demand for credit caused by the availability of finance bothnationally and internationally at more favorable terms.

2.11 The 16 projects with reestimates below 10% included nine in agricul-

ture, two in industry, four in transport and one in tourism. The nine agri-cultural projects included two in agricultural development, two rehabilitation

projects, one tea project, one credit project, two in livestock and onefisheries project. Of the nine low-return agricultural projects, eight wereclear cases of failure either completely or to a large extent (Rwanda, Zambia,Sudan, Ghana, Mauritius, Jamaica, Chad and Ecuador). Rwanda agriculturaldevelopment (reestimated return marginal) suffered from slow progress in agri-cultural production and higher investment per hectare as well as unforeseenmigration of cattle to other regions and countries. Bank staff ignored theinstitutional environment under which similar settlement projects had beensuccessfully implemented in the past. Zambia integrated family farming(negative return) yielded much lower benefits than estimated as fewer farmersparticipated and yields remained unsatisfactory, while costs turned out to besubstantially higher than expected.

2.12 Production under Sudan's agricultural rehabilitation project (rees-timated return of 1%) fell short of appraisal targets except for the coffeecomponent; without the latter, the rate of return would have been negative.Project implementation suffered from a combination of adverse factors includ-ing a severe shortage of skilled manpower, a weak regional administration,lack of infrastructure and a harsh physical environment. Ghana sugar rehabil-itation (negative return) suffered from a multitude of implementation problemsas a result of which sugar production reached only 18% of the target in thelast year of the project.

2.13 In the case of the Mauritius tea project (negative return) theproject design was deficient, there were labor disorders and poor management,and the economic situation of the tea industry deteriorated. Jamaica's secondagricultural credit project (negative return) suffered from several adversefactors, including low incremental production, shortage of inputs, abandonmentof farms, and a generally deteriorating economic climate.

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2.14 A livestock project in Chad (negative return) was affected by civil

war which prevented maintenance of wells. Ecuador fisheries (negative return)suffered from cost increases and a low implementation rate: only four purseseiners were constructed instead of twelve as planned, and not more than twowere continuously operational.

2.15 The Sudan project was over-ambitious and failed to reach most of its

targets; but there were some accomplishments: substantial infrastructure hasbeen constructed, research stations have been established, and the foundationsof an effective extension service were laid. The experience in Mauritiusprovided valuable lessons for the design of a subsequent SAL operation.Returns from Panama livestock were reduced to 8% due to lower than expectedon-farm productivity, higher investment cost and a sharp drop in beef prices.The project was adjudged as having been marginally successful in achieving itsoverall objectives.

2.16 An analysis of the reestimated returns on projects in agriculturalsub-sectors suggests that irrigation, agricultural support, and most credit,livestock and fisheries projects did substantially better than crop productionand on-farm development. The returns for irrigation and agricultural supportprojects ranged between 11-35%, with an 18% average and no project failures.Tree-crop and agricultural development projects, on the other hand, resultedin several failures while the remaining projects in those sub-sectors yieldedreturns ranging between 1-25% and averaging 13%.

2.17 Five out of the seven industrial projects covered by this Reviewyielded economic returns of 12-16%, four of them coming close to the appraisalestimate. Two projects (India Sindri fertilizer and Mexico Las Truchas steel)had rates of return of 5% and 9%, respectively, both reflecting low productiv-ity levels. The Indian project suffered from shortages of heavy fuel whilethe Mexican project faced technical and managerial constraints in building-upproduction to the targeted levels. A fertilizer project in Pakistan showedmuch lower returns than estimated (15% instead of 34%) due to cost overrunsand slow production build-up.

2.18 Twelve out of 16 transport projects offered reestimated rates ofreturn ranging between 13% and 50%. The remaining four yielded returns ofless than 10%. These included the Upper Volta cotton roads project which hada return at audit of only 4% due to significantly increased construction cost.The reestimated return for the Kenya highway maintenance project was lessthan 10% mainly because it failed to achieve substantial maintenance improve-ment due to an over-ambitious project design and inadequate engineering.Yugoslavia's third railway project (return of 6-9%) and Kenya's airportproject (return of 5%) suffered from substantial cost increases and trafficshortfalls. A tourism project in Yugoslavia has experienced losses since itsopening in 1976 and may not break even before 1983. In a highly competitivemarket the project authorities have been unable to compensate through higherprices, a substantial increase in cost and a loss in patronage.

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2.19 For 27 projects, returns were not estimated at the time of apprais-al; for 23 of them, qualitative assessments were made at audit. Theseincluded one project in agricultural research, five in education, fourteen insupport of development finance companies, and three in population. Theperformance of all but two of these was judged to be satisfactory at audit.The outcome of one education and one DFCs project was considered uncertain.In the education project, carriculum improvements were not realized andplanned output was below requirements. The DFC project suffered from weakmanagement and generally ineffectual implementation of sub-projects. The fourpower projects included in the above 27 belonged to the group of 20 projectsin public utilities. All the project facilities under these 20 were adjudgedat audit to have been the least cost solutions for meeting physical objectivesand most have been operating satisfactorily since completion.

2.20 As a whole, 16 projects representing around 15% of the total numbercompleted and around 8% of the total investments in this group were eitherunsuccessful in their major objectives, or uncertain at the time of audit.These results are broadly in line with those of the previous Reviews.

(2) Financial

2.21 As a group, the revenue earning enterprises - electric power,telecommunications, water supply, railways, pipeline, airport and industries -showed a mixed but overall somewhat better financial performance than thegroup reviewed last year. Self-financing goals were reached in 46% of thecases (38% last year), reflecting an effort on the part of the utilities andthe governments to mobilize additional resources. On the other hand, earningsmet or exceeded targets set at appraisal in only 27% of the cases (50% lastyear); a meaningful comparison, however, cannot be made between these tworesults partly because the earnings were measured against revalued assets in alarger number of cases in this year's review.

2.22 As in previous years, the financial performance of a number ofenterprises was adversely affected by price controls, inadequate tariffincreases, fast rising operating expenses and investment cost and, in somecases, by shortfalls in expected demand and sales. Price and tariff policieswere influenced by extraneous considerations, often political. The experienceof each enterprise in this group is summarized in Annex II, Tables 4 and 5.

(3) Social

2.23 Projects are linked to beneficiaries through the direct provisionof credit, productive inputs, such as irrigation and electric power, orservices, such as education and rail service. Individuals and organizationsalso benefit from projects indirectly through improvements in public infra-structure such as highways. This Review concerns itself only with directbeneficiaries, to the extent information was available at audit.

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2.24 The evidence is strongest in the agricultural sector and smallfarmers are the largest group of identified beneficiaries. Small farmers wereincluded as potential beneficiaries in 26 agricultural projects, and wereintended to be the principal beneficiaries in 19 of these. Taken together,the projects are estimated to have reached about 830,000 families, or some4.6 million rural people (paras. 4.26, 4.115). These figures represent allpersons affected by the projects, whether intensively or extensively. As inpast reviews, most of the beneficiaries are attributable to a few largeprojects: four irrigation projects and three agricultural credit operationstogether accounted for 88% of total beneficiaries.!/

2.25 One hundred and three agricultural pro .ects reviewed in the lastthree years had about 20 million beneficiaries.21 While there is no cleartrend in the total number of beneficiaries, it appears that most of themare found in two sub-sectors: irrigation and agricultural credit. In thisyear's group, these sub-sectors accounted for 94% of total beneficiariesreached. Over time, the Bank's irrigation and credit projects have beenincreasingly designed to disseminate simple input packages and low-cost croptechnology to large numbers of farmers.

2.26 Efforts to reach weaker sections of society while maintainingproject viability were also evident in other sectors. In the Ivory Coast, forexample, the Bank financed the first stage of a long-term development programfor the sewerage and drainage system of Abidjan (a prime focus of urbangrowth), including immediate measures to reduce pollution in the lagoonssurrounding the city, to eliminate flooding in densely populated parts of thecity and to provide sewerage infrastructure for fast-growth or low-incomeresidential and industrial districts. The project also included a small pilotscheme for the construction of public showers and toilets in low-income areas.The Gabon Water Supply Project was one of the earliest attempts by the Bankto incorporate concrete undertakings, as an integral part of the project,designed to increase the supply of potable water to the lower-income urbanpopulation. Further examples can be found in the power sector where a projectin Sri Lanka supported rural electrification and two others (Colombia andBrazil) provided for wider electricity distribution to low-income urbanconsumers.

2.27 Information on employment and income effects is more limited thanfor the other dimensions evaluated. Also, the conclusions may in some casesbe subject to modification on closer examination, as several impact evaluationreports - which follow some years after the regular performance audits inselected cases - have revealed.

1/ Bangladesh Second Chandpur Irrigation, India Pochampad Irrigation,Sri Lanka Mahaweli Ganga, Romania Giurgiu-Razmiresti Irrigation, SenegalSecond Agricultural Credit, India Second ARDC Credit and India BiharAgricultural Credit.

2/ About 4.5 million in the sample covered by the Sixth Annual Review;11 million in the Seventh Annual Review; and 4.6 million in the presentreview.

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2.28 With the above qualifications, information on farmers' income wasavailable at audit for 15 ag-ricultural projects, but for three of these nobase income estimates were made at appraisal. For the remaining 12 projects,income comparisons in real terms show increases ranging from 10 to 600percent. In seven cases these income increases exceeded the appraisal esti-mates largely due to substantial increases in real prices. Although specificfigures are not available in other cases, there are indications that otherprojects had significant impact on family income. This is, for example, truefor two Indian projects which involved groundwater irrigation and accountfor the bulk of the beneficiaries in this year's sample.

2.29 Information on employment gains is available, or can be inferred,for 31 out of the 39 completed agricultural projects (paras. 4.31-4.33). Ofthese 31, almost two-thirds achieved or exceeded their employment targets setat appraisal. The largest impact came under the India Second ARDC CreditProject, which created an estimated equivalent of 600,000 man-years annually,and under the India Bihar Agricultural Credit Project, with an estimatedequivalent of 125,000 annual man-years. This is in line with last year'sexperience of substantial employment creation under the India agriculturalcredit projects. Other projects, which are estimated to have provided from 40to 80 thousand annual man-year equivalents each, are the Bangladesh SecondChandpur Irrigation, India Pochampad Irrigation and Sri Lanka Mahaweli Gangaprojects. In total, the 31 projects, for which employment information isavailable, are estimated to have created over one million annual man-yearequivalents of permanent incremental employment.

(4) Sector Policy and Institutions

2.30 Ninety-five of the 107 completed projects were implemented byborrowers who received some kind of Bank institutional assistance (Annex II,Table 6). About 36% of the effort achieved substantial success, 51% werepartially successful, and in 13% of the cases the results have been negli-gible. The rate of success has been particularly high with public utilityprojects. In agriculture, the overall impact of Bank-financed projects oninstitutional development was significant, strengthening the basis for longerterm sectoral gains.

2.31 Institutional or other development objectives at the project levelare increasingly linked to wider sector objectives as both the Bank andborrowers have become aware that the effectiveness of projects and of institu-tions which they help to establish or to strengthen, often depend on a sectorenvironment supportive of these objectives. Thus, price structures and levelsfor agricultural products are crucial to the success of farm projects as aremarketing arrangements, taxes, manpower training or infrastructure invest-ments. Tariff policies can have a major impact on the viability of institu-tions operating in transport or public utilities while appropriate interestrate policies may be essential for the development of DFCs. Sector issues are

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therefore addressed through project lending where such initiatives are con-sidered essential to the attainment of basic project objectives. The experi-

ence of this year's group of projects in this regard is further explored inChapter III (paras. 3.02 ff). In addition, the Bank frequently maintains anactive sector dialogue through special economic or sector reviews. More

recently, structural adjustment loans have also become an instrument toaddress important policy issues at the sector level.

2.32 The relationship between institutional achievement and the attain-ment of other project objectives, especially economic rates of return, wascloser than in last year's group. About 82% (77% last year) of the projects

which achieved substantial or at least partial success in institutionaldevelopment yielded returns of 10% or more whereas 73% (71% last year) of theprojects with negligible institutional achievements produced low or evennegative returns. There were, however, a few cases where projects with poorrates of return registered substantial institutional progress. One suchexample is the power project in Bolivia which had inadequate returns due tolow tariff levels reflecting serious political constraints. Yet, this opera-tion as well as previous ones sponsored by the Bank have substantially con-tributed to rational sector planning on the basis of economic criteria; to thecoordination of sector entities; and to an improvement in the structure ofbulk supply tariffs. Other examples in this category are provided by thewater supply project in Morocco, the sewerage project in Ivory Coast, afertilizer project in India, and the livestock project in Chad. The Chadproject established a rural water supply agency which has become very effec-tive notwithstanding serious political difficulties. On the other hand, twoprojects (agricultural development in Senegal and agricultural processing inKorea) showed high rates of return yet failed substantially in their institu-tional objectives. The Senegal project was designed to assist a local agencyin accounting and data processing; but the agency went bankrupt and the tech-nical assistance effort was lost. The project also endeavored to strengthenanother agency's extension service and evaluation system; these efforts wereonly partially successful. For the Korean project, a foreign consultantwas engaged to help the project entity improve its ability to appraise sub-projects. The consultant, however, lacked the necessary expertise and theeffort failed.

2.33 The ingredients of success in institutional development were thesame in this group as in those reviewed in previous years. These included aprogram developed in full understanding and agreement between the Bank and theborrower, implemented over time, and sensitive to the problem of staffingand the need for training of local staff at different levels. Cases ofoutstanding success in this group conformed fairly closely to the essentialsof this pattern; the failures did not.

2.34 The experience of the highway project in the Dominican Republic isparticularly noteworthy. The project included both construction and main-tenance components which were deliberately kept small in order to allow asmooth introduction of new concepts and procedures under this initial Bank

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project in the country's highway sector. The construction component wasa modest first attempt to improve road design and bidding procedures andto demonstrate the advantages of adequate construction supervision. Theproject's main emphasis (in terms of effort and money) was on maintenance.The maintenance improvements were instituted in accordance with a systematicapproach and a longer term program which envisioned a gradual build up of thecountry's maintenance capacity. The general success of this project hasresulted in continued and expanding Bank participation in the country'stransport sector. Greece education provides another example of successfulinstitution-building at a sector level. The project unit was expanded duringthe course of project implementation and was eventually absorbed into theDirectorate of Implementation of Education Projects, responsible for imple-menting all projects with external financing, including all Bank-supportedprojects. Not only this, but a completely new type of educational institutionwas created using new curricula developed in association with a technicalassistance and fellowships program.

2.35 Several agricultural projects also achieved important institutionalobjectives, some of them with unique features that are worth noting. Underthe Second Livestock Project in Turkey, for example, a Directorate for Live-stock Development Projects has been established in which veterinarians andagronomists now work closely together to promote livestock development,fostered by both overseas and local training of its staff. The ArgentinaBalcarce Livestock Project assisted in broadening the scope of the Agricul-tural Research Institute. As a result, the Institute, which previously hadprovided technical assistance for ranch investments only, began to include allranch activities in its research program. Under the Spain AgriculturalResearch Project the research institute's effectiveness was improved byestablishing six specialized, commodity-oriented research centers, and by alarge overseas scholarship program for the institute's staff. Institutionaldevelopment efforts for two credit projects were also successful. The StateLand Development Bank in Bihar, India has become substantially more effectivethrough the establishment of new regional offices and training of its staff,and, partly as a result of this, loan appraisals greatly improved, and pro-cessing time was considerably reduced. Similarly, the executing agency'sappraisal procedures for medium- and long-term investments were improved underthe Peru Fifth Agricultural Credit Project. This objective was accomplishedby establishing a core unit of five professionals headed by a consultantadviser.

2.36 By contrast, the Indonesian railway project offers a strikingexample of difficulties encountered in institutional development. TheIndonesian railways had suffered a long period of neglect and decline and theloss of skilled and experienced staff on several occasions. It was ultimatelymelded into one organization from a large number of smaller, privately-ownedcompanies and converted into a government department. The project attemptedconcurrently a program of physical rehabilitation and a program of orga-nizational and managerial improvement. However, neither program was fully

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detailed when the loan was made and both the Bank and Indonesia were facedwith the choice of delaying urgently needed rehabilitation or of improvingproject preparation. Moreover, the Bank and the Government had not reachedagreement on the objectives of railway operations particularly with regard tothe appropriateness or otherwise of subsidies. The agreed project objectivesthus lacked realism and full acceptance by both sides. In addition, the timespecified to achieve them was very short and the project design sought tocompensate for this by increasing the number of consultants. This trade-offdid not in fact work, with the result that a very large consulting effortproduced disproportionately small results.

2.37 Disappointing also was the experience with the project authority foragricultural development in Rwanda, and with the Industrial Bank of Sudan(IBS). In Rwanda, an autonomous and self-financing project authority was tobe established; but the concept had to be abandoned because of the refusal byfarmers to pay settlement fees and uncontrolled occuption of land. In Sudan,IDA provided substantial support to IBS acting as executive agency for aUNDP technical assistance program, arranging for training at EDI and Bank-associated DFCs, and through appraisal and supervision missions. Despitethese considerable inputs, the institution-building objectives, particularlythe setting up of sound appraisal and follow-up practices, were not achieved.IBS's lack of receptivity and, generally, the fact that a close workingrelationship between the two institutions apparently was never achieved, seemto account for the disappointing outcome.

2.38 Political and economic dislocations created problems in someinstances (highway projects in Iran and Guyana, sugar project in Ghana, teaproject in Mauritius) while the institutional objective of another project(Kenya highway maintenance) was frustrated by the sheer size and complexity ofthe problem. Less ambitious project designs appear to be more successful asis shown in the case of the Dominican Republic (see para. 4.198) or the Kenyanpipeline project. Another important factor which determines the success ofinstitutional change is the degree of institutional' autonomy. Two Kenyanprojects (pipeline and airport) provide contrasting examples: the pipelinemanagement was given a great deal of leeway and developed a strong independentstyle while the aviation authority had incomplete delegation of authority fromthe parent ministry.

2.39 A recurring problem in institutional improvement has been theshortage of qualified staff coupled with difficulties in recruiting andretaining people. Typically, the Bank looked to the development of trainingprograms and centers, overseas training and fellowships, and the transfer ofexpertise from consultants through on-the-job training. Not unexpectedly, thedegree of success varied among the projects but the results were in generalsatisfactory in Thailand, Gabon and Morocco Water, Ivory Coast Sewerageand Drainage, and Colombia, Bolivia and Afghanistan Power. However, whereasthe number of expatriates at all levels, especially senior levels, was reducedin Gabon, dependence on expatriates remains considerable in the Ivory Coast.Efforts in Swaziland Water Supply and Sewerage and Sri Lanka Power IV were

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less successful: in the former, due to difficulty in locating students withan adequate high-school education, and more attractive opportunities outsidethe subsector; in the latter, due to the loss of trained staff through emigra-tion. In the case of the education project in Sudan, the fellowship programdid not achieve its objective as returning fellows were not employed in theposts for which they had been trained. The Sudan Southern Region AgriculturalRehabilitation Project has performed credibly under difficult circumstances,but has suffered from lack of staff, due largely to the isolation of theregion, lack of policy guidance by an executive committee and diversion ofequipment and vehicles to other uses.

2.40 Past Reviews have underlined the lesson that institutional changefrequently takes time, especially in the face of political and social prob-lems; it requires careful planning, perhaps through a series of lendingoperations, and realistic targets which take into account staffing and otherconstraints peculiar to the country. In addition to the cases cited above,several other examples emerged this year. In Afghanistan Power, the strength-ening of the national power authority could not be divorced from the issue ofoverall public administration; in Pakistan Power, new management concepts werenot accepted easily and while progress was made it will take time to changedeeply-rooted methods and procedures. The Swaziland Water Supply and Sewerageaudit concluded that a more modest effort to introduce commercial accountingwould have been appropriate, with the introduction of sophisticated reportingsystems being staged over several years, based on proven performance inmaintaining existing systems. The two power projects in Turkey illustrateparticularly well the need for a long-term approach towards autonomy andsoundly-based sector finances; an approach that would recognize the factthat many problems are related. to the broader economic, social and legalstructure of the country. In retrospect, the Bank was over-optimistic aboutthe achievements possible through these two projects. However, by remainingactive in the subsector, the 3ank had the opportunity to respond to thesituation flexibly, to address the structural problems as far as it could(through its macro-economic work and structural adjustment loans), and to lookfor institutional and subsector policy improvements through a series oflending operations.

Process Efficiency

(1) Project Preparation, Design and Change

2.41 More than half the projects under review were changed during imple-mentation. As in previous years, these changes were caused by changes in theattendant sector or macro-economic environment, by cost increases which forcedreductions in project scope, and by initially deficient project preparationand design.

2.42 The proportion of projects with clearly defined physical contentwhich were changed during implementation was 71% in this year's group; thisis somewhat higher than the average of the previous three years. Of 91projects1/ in this Review with clearly defined physical content, 65 were

1/ Excludes DFC projects, program loans, and one cancelled project.

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changed in the course of implementation: 24 expanded, 32 reduced, and 9 hadsome components expanded and others reduced. Of the 33 which were expanded,or both expanded and reduced, 27 also had increases in cost and, in severalcases, in the time taken for completion.

2.43 The sector incidence of projects with changes in scope is led bytelecommunications and highways (100% and 89% respectively), followed byindustry (86%), railways (80%), agriculture (74%) and population (67%);changes were less frequent in education projects (60%), electric power (58%)and water supply (50%). The incidence of change in agriculture is at aboutthe same level as in previous years, reflecting the nature of the sector andthe need to adjust to changing circumstances. The proportion of projectschanged in education shows a decline and, probably, better project prepara-tion, while the proportion changed in highways has doubled over that of lastyear. These substantial shifts in proportions of projects changed duringimplementation will be reviewed next year to see if a trend has emerged.

2.44 A major reason for changes in project scope in this group was thehigh rate of inflation experienced during project implementation in the midand late 1970s, although in a number of cases the impact of inflation wasmitigated by currency realignments which often came out in favor of theborrower. Still, the cumulative effect of unforeseen price changes was suchthat it led to reductions in project scope in many of them in order to keepdown total expenditures.

2.45 Not all changes in project scope were, however, the result of infla-tion. In public utilities, for example, changes often represented appropriateresponses to altered conditions which, for the most part, could not realis-tically have been foreseen. Clear benefits from the changes accrued to powerprojects in Colombia, Brazil, Bolivia, Malaysia and Sri Lanka V and the watersupply project in Gabon, through an increase in the benefits and the number ofbeneficiaries; and to the telecommunications projects in Colombia and Burma,through an increase in the number of rural areas served and a further improve-ment in the project concept respectively. The increase in scope of BrazilPower, which followed completion of a regional development plan, was thedirect and logical outcome of the Bank's efforts to encourage regional powergeneration expansion according to least-cost principles. The reduction inpower demand and the failure of negotiations with the municipality whichrespectively caused deletion of the gas turbines in Sri Lanka Power IV and thesanitary blocks in Ivory Coast Sewerage and Drainage could not reasonably havebeen anticipated.

2.46 In agriculture, the most important causes for change during projectimplementation were inadequate project design, cost overruns, shifts in bene-ficiary preferences from those anticipated and changes in Government policiesor the economic environment. Most projects were affected by a combinationof these factors. Inadequate design was an important factor in all threefisheries projects (para. 4.53), in most irrigation projects, and to a lesserextent, in the treecrop and livestock projects. Cost overruns affectedthe treecrop and agricultural development projects - and to a lesser extent,

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livestock and fisheries projects - and almost invariably led to reductions inproject scope, such as in the Cameroon and Ivory Coast rubber projects. Forthe same reason, the number of markets was reduced under the India BiharAgricultural Markets Project, as was the number of silos and godowns under theIndia Wheat Storage Project. Variation in beneficiary acceptance was a majorreason for portfolio changes in credit projects, but also affected some otherprojects. Due in part to changed Government marketing policies, farmers underthe Senegal Second Terres Neuves Resettlement Project concentrated on millet,sorghum and groundnuts rather than on cotton and maize, as had been originallyenvisaged. Changes in Government policies or the economic environment seri-ously affected both Ghana projects and the Jamaica Second Agricultural CreditProject, and led to the cancellation of the loan for the Argentina Agricul-tural Credit Project.

(2) Project Implementation: Time and Cost

2.47 The excess time required to complete these projects, while sub-stantial, was on average somewhat less than that for the projects reportedupon in the previous Review. Seventy-four percent of the 91 projects forwhich completion was measured required over 25% more time than estimated; 54%required over 50% additional time; and 26% took at least twice as long asoriginally estimated. The corresponding figures in last year's Review were86%, 56% and 31%. Eighteen projects overran their schedule by four years, andone of them - Nigeria Second Education - was delayed almost 200% of theoriginal estimates (Annex II, Table 3). Only eight projects were completed ontime or slightly ahead of time.

2.48 Apart from the intrinsic difficulties attending the developmentprocess, two factors were dominant in explaining these delays. First, origi-nal time schedules were unrealistic1/, as in previous groups reviewed.Thus, 18 of the 24 projects which required 100% or more time than estimatedwere originally scheduled to be completed in four years or less, a relativelyshort time in terms of Bank experience. Second, delays were caused by thegenerally unsettled economic conditions (in a few cases, also political condi-tions) under which many of these projects were implemented, and which couldnot have been foreseen. These included rapid inflation resulting in aninteracting pattern of sharp increases in project costs placing additionalfinancial burden on the countries concerned, leading, in turn, to changes inproject scope, insufficient local financing, and further delays. Otherfactors included inadequate project preparation and deficient design,resulting in technical problems and changes in projects; organizationalproblems reflected in weak management; and delays and difficulties in procure-ment resulting from lack of familiarity of the borrowers with the Bank'sprocurement procedures,2/ especially in the large proportion of projects

1/ See "Operational Policy Review; Delays in Project Implementation", OEDReport No. 2946 of April 11, 1980.

2/ See "An Interim Report on Procurement Issues in Bank-Financed Projects",OED Report No. 3557 of July 15, 1981.

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which were the first Bank operations in the sector/country concerned. Esti-mated and actual completion times, together with the main reasons for differ-ences, are shown for each project in Annex II, Table 3.

2.49 Cost overruns in these Reviews are defined as expenditures in

excess of those visualized for the project at appraisal. They need to beseen in terms of their causes, their budgetary effects and in relation toexpected project benefits. They often tend to strain limited budgetaryresources and cause delays in project implementation, with reductions inproject scope and deferment of project benefits.

2.50 Expenditures on about 46% of the 91 projects for which final costfigures are known, were less than appraisal estimates or exceeded them by lessthan 10%. This compares with a proportion of 40% in the group reviewed lastyear, and 32% the year before. The improvement results partly from the factthat an increasing proportion of projects reviewed in the last three years wasappraised and approved after the sharp 1973 oil price increases whose infla-tionary impact could not have been foreseen. About 41% of the present groupshowed cost increases of 25% or more, and 25% (almost similar to the 26% oflast year) exceeded estimates by 50% or more. In terms of cost increases of10% or more, the highest incidence took place in industry (85%) and education(80%), followed by population (67%), public utilities (55%), agriculture (49%)and transport (47%). In a number of cases, overall expenditure increasesresulting from higher than anticipated unit costs have been kept down byreductions in project scope. Details of the cost experience for each projectappear in Annex II, Table 2.

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III. CONCLUDING COMMENTS

3.01 The preceding chapter presented an overview of the effectiveness andprocess efficiency of operations in this group. Certain other aspects of theproject experience, however, deserve special comments, which follow.

Addressing Sector Issues Through Project Lending

:3.02 Project lending by the Bank, especially its institution-buildingobjectives, is increasingly linked to wider sector objectives which usuallyaim at strengthening sector management, programming and policies. About onethird of the projects reviewed pursued such objectives, with higher concentra-

tions in public utilities and agriculture. However, the measure of success inachieving sector objectives has often been limited.

3.03 In agriculture the Bank appears to have been more successful whereit supported sectoral objectives set by governments. In India, for example,Bank support for the agricultural sector has underpinned gradually evolvingand changing Government strategies. Thus, when the fourth Five Year Plan(1969-74) was launched it was recognized by Government that new irrigationprojects should be based upon an integrated plan for water and agriculturaldevelopment. This not only would provide opportunities for intensifiedirrigation but also would take into account the need for on-farm development,provision of credit and supporting services. The Kadana Irrigation Project,which was approved in 1970, was the first of such projects, where emphasis wasplaced not only on investments in irrigation to guarantee assured water supplybut also on the timely supply of the necessary inputs for increased yields.The Pochampad Irrigation Project, approved in 1971, continued this emphasiswith further attention being given to systematic on-farm development, therebybecoming a pilot scheme to test what was later known as the command areadevelopment program.

3.04 In support of the fourth plan the Bank also embarked upon a seriesof agricultural credit projects, as it was felt that medium- and long-termloans to farmers would enable them to use the new agricultural technology moreeffectively. By the time the Bihar Agricultural Credit Project was appraisedand approved in 1973, the Government's preliminary proposals for the fifthFive Year Development Plan, with increasing emphasis on the alleviationof poverty, were reflected in the design of the project. The project wasexpected to contribute to a better regional balance of agricultural growth byextending the new agricultural technology into the relatively neglected anddepressed rural areas of Bihar. This policy continued with the Second ARDCProject, which was expected to channel 25% of the funds on-lent to nineless developed states with small farmers receiving 50% of available funds.Similarly, in keeping with overall Government policy aimed at achievingself-sufficiency in foodgrains, both the Wheat Storage and the Bihar Agricul-tural Markets Projects reflected these goals in their efforts to reduce wasteand spoilage of foodgrains through the provision of modern wheat silos and thedevelopment of major market centers.

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3.05 On the other hand, the Bank was less successful where it triedto achieve major changes in sector policies without full government support.Under the Senegal Second Agricultural Credit and Malawi Third Lilongwe LandDevelopment Projects, the Bank sought to influence sector policies mainly inthe areas of pricing, marketing and credit. In both cases the Bank's effortsfailed. In Senegal, the size of the project was too small to give the Banksufficient influence for insisting on a substantial change in national creditpolicies. In Malawi, the Bank had maintained a continuous policy dialoguewith the Government on agricultural pricing, but without success. It wasconcluded at audit that the issue of sectoral change had not been pursuedvigorously enough. But even in cases where the Bank suspended lending toinduce policy changes it considered necessary, such change did not occur(Peru Fifth Agricultural Credit, Ghana Cocoa Project, Argentina AgriculturalCredit). Lending was later resumed in Peru and Ghana without the respectiveGovernments having changed their policies while in the case of Argentina, the

Government cancelled the loan because it felt that the benefit to be obtainedfrom the project did not outweigh what was perceived to be the drawbacks ofBank intervention in sector policies.

3.06 On the basis of experience, it would seem reasonable to concludethat individual projects in general are inefficient instruments for inducingpolicy change. They are effective in reinforcing policy agreements or, whenused in series, to provide the basis for a dialogue leading to substantialpolicy and institutional changes. The experience of projects in this groupbears out these conclusions.

3.07 Ten out of 20 public utility projects contributed to a wider sectoreffort. There was considerable progress in the coordination of planning andoperations, through the preparation of national or regional development plansfor generation and transmission, in the power sub-sectors of Colombia andBrazil, although not without setbacks (sometimes serious) in the former case.Results were less satisfactory in Turkey and Iceland Power. Consultants werenot employed in Iceland to carry out studies which would have led to closerintegration of generation and transmission facilities and greater consolida-tion of the power sector, as envisaged at appraisal, although several govern-mental studies had been made, some limited interconnection had taken placeand plans were under way for consolidation at the time of audit. In Turkey,a national authority was established, during the course of the two powerprojects, with responsibility for generation and transmission, subject to onlyminor exceptions. The authority has, however, failed to achieve autonomy andhas not been placed on a sound financial footing, due to management problems,a persistent shortage of experienced staff, and inadequate control overtariffs.

3.08 The group of projects reviewed this year shows closer attentionto the rationalization and improvement of tariff structures than has been thecase in past years, with generally good results. Studies of power and watertariffs were carried out as part of the projects in Kenya and Morocco respec-tively and new tariff structures were introduced, incorporating the principle

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of long-run marginal cost, with provisions in both cases for lower-incomeconsumers. The consultants' tariff study required under the Iceland PowerProject was not implemented but a general revision of the tariff.structure wasnevertheless being prepared at the time of audit. Tariff structures were alsorevised under the Gabon Water Supply and Afghanistan Power Projects (to makeexplicit provision for the needs of lower-income consumers), the Burma Tele-communications Project (to ensure that commercial rates were charged todifferent subscribers) and the Bolivia Power Project (to differentiate betweendemand and energy charges for bulk customers). In connection with otherlending activities, the Brazilian authorities completed a study of bulk powertariffs based on long-run marginal cost and they are extending these studiesto the retail level.

3.09 The Bank's attention to basic sector issues has recently been givensharper focus by the seminar on Public Utility Management which was organizedfor the Bank's water supply staff. This seminar, held in January 1982,examined the experience of several successful water supply authorities in bothdeveloped and developing countries, using case studies to analyze some of theimportant lessons which could be drawn for institutional development.

3.10 Transport sector policy was a major feature of only five of thecurrent year's projects (Iran, Guyana, Senegal, and two in Korea). As indi-cated last year, some types of projects and some environments lend themselvesmore readily to sectoral concerns than others and this year's experienceconfirms that observation. Strengthening of institutions to plan and coor-dinate transport was attempted in each of these five cases but fell short ofthe mark except.in the two cases in Korea. As indicated in last year'sreview, which included a series of transport projects in Korea, the Bank hasapplied a well coordinated effort in assisting sectoral reform. The twoKorean railway projects in this year's group further exemplify this point andshow how the country and the Bank collaborated in pursuit of an overall plan.In the other three instances political difficulties stood in the way ofachievement.

3.11 As indicated in earlier reviews, DFC lending has proven a poorinstrument for adjusting interest rates and, more generally, for effectivelyaddressing sectoral issues. However, significant progress was achieved inspecific areas. Thus, the more mature DFCs of the group under review, withthe Bank's encouragement, took on promotional activities which have had asignificant impact on the development of the industrial sector. An example isKDFC (Korea) which has been quite innovative and successful in its efforts todeepen the industrial structure in that country. To promote technologydevelopment, KDFC was instrumental in the establishment and funding of acompany (KIST) which helps set up ventures using indigenously developedtechnologies, and in extending financial support to such projects. Other KDFCinitiatives included assistance to the machinery sector, particularly small-and medium-scale industry, and support of agro-industries.

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3.12 ICICI-India, an established borrower, set up a project promotionunit which is expected to identify projects promoting forward and backwardlinkages, eliminating production bottlenecks, locating in backward areas, orundertaken by new entrepreneurs. In Colombia, a novel element in DFC lending

involved the establishment of a Technology Fund to be used for the establish-ment of laboratories, financing of technology improvement programs, purchaseof licenses for technologies or processes, acquisition of pollution controlequipment, hiring of foreign technicians, etc.

New Approaches to Lending and Use of Novel Technology

3.13 As borrowing countries diversify their institutional structures andreach higher levels of technical sophistication, the Bank has found it neces-sary and useful to develop new approaches to lending and to promote the use ofnovel technology. The present group of PPARs contains a number of examplesof this trend. Interesting new features have been introduced in DFC projects'design. This is particularly evident in DFCs which have had a somewhat longerassociation with the Bank, and have reached a certain level of sophisticationand maturity. These features included promotional efforts in the industrialsector through "directed" lending aimed at supporting export-oriented indus-tries, promoting regional diversification, or channelling funds to pre-identified priority sectors. Other objectives of DFC lending related tothe deepening of the financial system through the establishment of leasingarrangements, co-financing, and equity investments. To enhance the effective-ness of the new approaches the Bank has increasingly resorted to apex lendingwhich aims at increasing the number of financial institutions which wouldparticipate in the implementation of the new features.

3.14 The education project in Greece introduced new curricula, and indeeda new type of educational institution altogether. In this case both the Bankand borrower worked in close collaboration over a considerable period of timeand succeeded in creating a number of multidisciplinary post-secondary insti-tutions of a new type which, after an initial period of hesitant publicacceptance, are now highly regarded (para. 4.334). A new approach was alsopioneered in Spain, where a Bank-sponsored project upgraded the standard ofagricultural research through establishment of six commodity-oriented researchcenters. Further examples of innovative lending are the project for inte-grated agricultural products processing in Korea, and the Bihar agriculturalmarkets project in India. The latter was designed to improve marketingefficiency by reducing handling and storage losses, improving product qualityand reducing municipal expenditures and time lost due to market congestion.The project provided for the establishment of 50 market centers throughoutthe State of Bihar. The Korean project aimed at developing agriculturalprocessing through lending to small farmers for production of off-season cropsand to food processors for modernization and diversification of productionfacilities.

3.15 In some cases, the Bank also fostered the introduction of new andcommercially untested technology. Although this carries obvious risks, the

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experience so far has demonstrated that potential benefits can outweigh theserisks, provided certain precautions are taken and the necessary institutionalcapacity exists in borrowing countries. The four fertilizer projects in thisyear's sample (Cochin II, Nangal and Sindri in India and Multan in Pakistan)illustrate this point. In all cases, transfer of technology was a majorproject objective. The choice of technology, however, involved importantpolicy considerations such as utilizing domestically produced feedstock (e.g.,natural gas in Pakistan), production of fertilizers with special qualities(e.g., high water solubility in Multan), switch from lower to higher specificgravity hydrocarbons (e.g., from methane and naphtha to fuel oil and coal)dictated by changes in the relative prices of feedstock or the availability ofpreviously acquired process licenses (Nangal). These considerations, aswell as the attempt to integrate new and existing facilities and processes,suggested project designs and necessitated combining subprocesses which hadnot been tried before on the same scale. This tended to enhance projectrisks, even while offering the benefits of new technology.

3.16 Borrowers and the Bank played a major role in the preparation anddesign of these projects. The agencies involved, assisted by consultantswhere necessary, prepared the feasibility studies which formed the basis forthe Bank's appraisals. Alternative technologies were considered and subjectedto rigorous technical, economic and financial analysis. The final projectconfiguration was the result of protracted exchanges between the Bank, theGovernment and the companies involved; of evaluations regarding the technicalfeasibility and economic viability of proposed alternative processes; and ofconcern that particular processes were not commercially proven, or thatthe process licensors lacked commercial expertise (Cochin, Nangal, Multan).Production of certain intermediate inputs had to be dropped either becauseanalysis showed that they were uneconomical, or because problems arose inscaling up the technology (Cochin). These modifications led to laboriousproject preparation efforts by both sides, in certain instances taking up tofour years.

3.17 In the end, all four projects were, by and large, successfullyimplemented although with significant delays and cost overruns. The companiesinvolved acted as their own engineering, procurement and construction con-tractors (usually through affiliates), with assistance from foreign engineer-ing firms. Difficulties arose mainly because the companies had never beforeexecuted such large and complex projects involving sophisticated technologies.The lessons emerging from these projects suggest (a) the need for carefulconsideration of the trade-off in terms of delays, higher costs and, possibly,loss in operating efficiency when introducing commercially unproven tech-nologies; (b) the need, when procuring locally produced equipment, to ensurethat technical assistance is contracted as appropriate, to ascertain thedelivery capability of the supplier, and to assess the trade-off between theexpected benefits of technology transfer and the potential cost in terms oflonger delivery periods and higher costs in supplying such equipment indige-nously; (c) the need for thorough project preparation exploring possiblealternatives and their relative costs and benefits.

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Effects of Rapid Changes in Prices

3.18 Most of the projects evaluated in this review have been implementedduring the mid and late 1970s which was a period of rapid increase in interna-tional prices for crude oil and related products. These price increases inturn contributed to the acceleration in the pace of inflation both interna-tionally and within many of the borrowing countries. As was pointed out inpara. 2.44 above, such inflation had usually not been anticipated at thetime of project preparation and appraisal and thus became a major cause ofcost overruns. Projects which have been brought to the Board after January1974 were generally more conscious of the higher rates of inflation and theircost estimates proved to be more realistic.

3.19 Many of the projects experiencing cost overruns also produced lowereconomic rates of return than had originally been anticipated. To thatextent, the increase in project costs affected the economic viability of thoseprojects. In a few cases, however, the effect was just the opposite. Higheroil prices caused fertilizer prices to rise sharply and substantially improvedthe returns on fertilizer projects financed by the Bank (para. 4.288).Increased savings in estimated operating costs contributed to improved returnson highway projects.

3.20 The unexpected increase in oil prices affected the capacity utiliza-tion of some projects. Higher fuel prices in Kenya reduced consumer demandand left the annual throughput of the pipeline that had been financed by theBank, substantially below the levels forecast at appraisal (see para. 4.288).The sharp rise in oil and other prices also dampened demand for tourismthus becoming a major factor responsible for the shortfall in the number ofarriving passengers at the Nairobi airport (see para. 4.216) and the lowoccupancy rates of the Yugoslav tourism project (see para. 4.242). In atleast one case (Sri Lanka Power IV) the change in oil prices caused theborrower to redesign the project substituting hydroelectric for thermal powergeneration.

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IV. SECTOR REVIEWS AND SUMMARY FINDINGS

4.01 This part of the report offers a brief review of the project experi-ence in each sector. An attempt has been made to identify recurring patternsof success and failure, and to locate their causes. The findings at the endof each sector review summarize the lessons of experience and relate them tothe remedial action taken or proposed.

4.02 In its two essential aspects, this Review follows the pattern setlast year. It sees present experience in a longer perspective of the pastwhere such correlation reinforces the conclusion. The Review emphasizesproject effectiveness: economic, financial, technological, social and insti-tutional. In addition, a special attempt has been made to seek out theinterrelations between projects and sector policies and institutions. Theobjective is to get a measure of the project as an instrument of broaderchange.

A. AGRICULTURE

INTRODUCTION

4.03 Agriculture accounts for 40 projects or 37% of a total of 108projects reviewed this year, a proportion identical to that of last year. Ascan be seen in Table 1, irrigation and credit projects each account for 20% ofthe agricultural projects reviewed, followed by treecrop1/ projects (15%)and livestock, agricultural 6evelopment.Z/ and support projects (each 12.5%).Fisheries is the smallest group accounting for only 7.5% of the projectsreviewed.

4.04 The regional distribution this year is uneven, with 22.5% of theprojects reviewed concentrated in the Western Africa Region for example andonly 7.5% in the East Asia and Pacific Region. However, over time annualdifferences in regional distribution even out, and the cumulative regionaldistribution of projects is less skewed. Another point should be noted inthis year's review. There is a strong correlation between subsector andregional distribution: except for one, all treecrop projects were in theWestern Africa Region; all agricultural development projects were situated in

1/ Unless otherwise noted, the treecrop category also includes estatedevelopment projects even though they did not produce perennial tree-crops. In this case a mostly sugar estate project has been included.Its estate orientation makes it similar to the treecrop projects, andit can, therefore, in most cases usefully be analyzed with this group.

2/ The agricultural development category covers area development projects.

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sub-Saharan Africa; almost all irrigation projects were in the South Asia andEurope and Middle Eastern Regions; and half of the credit and most of thelivestock projects were situated in the Latin America and Caribbean Region.This link between region and subsector is important as it may be one factor inexplaining differences in subsector impact and effectiveness. There is also aheavy country concentration: almost a quarter of the projects under reviewwere concentrated in two countries, six in India and three in Korea, butunlike last year this is not an explanatory factor for project performance.

4.05 However, the distribution changes if total reestimated costs orlending is taken into consideration (see Table 1). Only 20% of the projectswere in South Asia, but they accounted for about half the Bank's lending inthis group and just under 60% of the total recalculated costs. About twothirds of the investments were for irrigation development and credit; lessthan 1% was spent on fisheries development.

4.06 In the analysis of the groups and sub-groups of projects thatfollows, an attempt has been made to relate the conclusions to those of thegroups reviewed in earlier years. This review, therefore, shifts back andforth between the more immediate perspective of the projects audited incalendar year 1981 and the longer perspective of those which have gone before.

4.07 Including the projects in this report, a cumulative total of 201agricultural projects have been evaluated as of December 31, 1981. Almost 40%of these 201 projects were located in sub-Saharan Africa.l/ Of the 201projects audited, rates of return at project completion have been reestimatedfor 180. As many as 135, or 75% of the total, offered rates of return of 10%or more.

4.08 Eighty-five percent of the present group of 40 projects wereapproved in the years FY72 and later; 72.5% are concentrated in FYs 72-75.The three most recent projects covered in this report were approved in FY77.2/

On average, influenced by a few very old projects, this group of agricultural

1/ See also Rural Development Projects: A Retrospective View of BankExperience in Sub-Saharan Africa, OED Report No. 2242, dated October 13,1978, and Accelerated Development in sub-Saharan Africa, An Agenda forAction, the World Bank, 1981.

2/ Ivory Coast Fourth Oil Palm and Coconut, India Second ARDC Credit andKorea Second Agricultural Credit. Argentina Agricultural Credit (ap-proved FY78) is not mentioned here as it was not implemented, but it isincluded in the average.

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Table 1: BREAKDOWN OF AGRICULTURAL PROJECTS, COSTS AND LENDING BY REGION AND SUBSECTOR

NUMBER OF PROJECTS REESTIMATED TOTAL AMOUNT OFPROJECT COSTS/d BANE LENDINad~ /eSubsector EA WA EAP SA EMENA LAC TOTAL

IRRIGATION - 1 - 4 3 - 8 (20%) 744.8 (38.8%) 234.7 (31.0%)TREECROPS.La 1 5 - - - - 6 (15%) 197.8 (10.3%) 73.7 (9.7%)LIVESTOCK - 1 - - 1 3 5 (12.5%) 112.4 (5.9%) 48.2 (6.4%)FISHERIES - - - - 2 1 3 (7.5%) 15.8 (0.8%) 12.4 (1.7%)CREDIT - 1 1 2 - 4 8 (20%) 670.0 (34.9%) 299.7 (39.6%)AGDEVb 4 1 - - - - 5 (12.5%) 52.6 (2.7%) 36.5 (4.8%)SUPPORT/c - - 2 2 1 - 5 (12.5%) 126.9 (6.6%) 51.7 (6.8%)

TOTAL 5 9 3 8 7 8 40 (100%) 1,920.3 (100%) 756.9-- (100%)

(12.5%) (22.5%) (7.5%) (20%) (17.5%) (20%) (100%)REESTIM4ATEDTOTAL PROJECT 69.3 207.2 90.7 1,113.1 274.3 165.7 1,920.3COSTS/d (3.6%) (10.8%) (4.7%) (58.0%) (14.3%) (8.6%) (100%)

AMOUNTOF BANK 39.7 90.4 40.0 367.0 145.0 74.8 756.91LENDINGd (5.2%) (11.9%) (5.37) (48.5%) (19.2%) (9.9%) (100%)

/a Treecrop and estate development projects, including an estate sugar project./b Area development projects./c Includes marketing and processing and other agricultural support services./d US$ million; one project, which was cancelled in total before implementation began,

not taken into account in these figures although it has been counted as a project./e Before cancellations./f Of which IDA credits--US$505 million; IBRD loans--US$252 million.

EIGHTH ANNUAL REVIEW OF PROJECTPERFORMANCE AUDIT RESULTS - AGRICULTURE

REGIONS

NUMBER OF PROJECTS

SOUTHASIA EMENA WEST AFRICA LAC EAP EA20% 17.5% 22.5% 20% 7.5% 25%

TOTAL PROJECT COSTS

SOUTH ASIA EMENA A LAC EAP EA58.0% 14.3% 10.8% 8.6% 4.7% 3.6%

BANK LENDING

SOUTH ASIA EMENA WA LAC EAP EA48.5% 19.2% 11.9% 99% 53% 5.2%

SUBSECTORS

NUMBER OF PROJECTS

I RRIGATION CREDIT TREECROPS SUPPORT LIVSTOCK AGRICULTURAL FISHCRIES20% 20% 15% 12.5% 12.5% DEVELOPMENT 75%

TOTAL PROJECT COSTS

IRRIGATION CREDIT TREECROPS SUPPORT38.8% 34 9% 10.3% 6.6%

LIVESTOCK FISHERIES5 9% 0.8%

AGRICULTURALDEVELOPMENT

BANK LENDING 2.7%

IRRIGATION CREDIT TRCECROPS SUPPORT310% 39.6% 9.7% 68%

LIVESTOCK FISHERICS6.4% 1.7%

AGRICULTURALDEVELOPMENT

4.8%

0% 100%

Vorld Bak-23829

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projects was approved around March/April 1973, only 3 months later than thegroup reviewed last year.!/

4.09 Thirteen projects represented first Bank operations in the agricul-tural sector in the countries concerned. Fourteen projects - mostly involvingonlending for agriculture - had been preceded by, and 23 projects followed by,similar Bank-financed operations; among the latter, 15 projects were first ofa series. In some cases (Ghana Sugar and Jamaica Second Agricultural Credit),follow-on projects were seriously considered but eventually dropped.

I. EFFECTIVENESS

A. Economic Impact

(a) Overview

4.10 The 40 agricultural and fisheries projects included in this year'sreview provided US$757 million of financial support to projects which, atcompletion, cost just over US$1.9 billion. At appraisal, total project costswere estimated at about US$1.5 billion; thus, on the average, the cost overrunwas 26%. Individual project costs ranged from US$2.6 million (Chad Livestock)to US$488 million (India Second ARDC Credit). In total, 14 projects providedirrigation for 1.9 million ha (8 irrigation projects and 6 others with irriga-tion components, mainly groundwater development). At full development, foodproduction from these irrigated lands would amount to about 4.6 million tonsper annum. Annual food production on non-irrigated lands would amount toabout 670 thousand tons (19 projects).

(b) Rates of Return

4.11 At audit, the average rate of return for 38 projects!/ was around15.5%. The weighted average (by total project cost at completion) for the 38projects was almost 21.5%21/. This higher rate was the result of larger

1/ Deleting the two oldest projects, Argentina Balcarce (FY68) and EcuadorFisheries (FY69), improves this statistic to June/July 1973.

2/ Does not include Spain Agricultural Research, for which an ERR was notestimated at appraisal, and Argentina Agricultural Credit, which was notimplemented.

3/ As for previous Annual Reviews, it was assumed that -5% is the bestestimate of the ERR's for the six projects with negative reestimatedrates of return (no numerical values had been given). The weighted ERRis only slightly lowered if -10% is assumed, see Table 2. For the 32projects with positive rates of return the simple and weighted averageERR's would be about 20% and 23% respectively.

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projects having higher rates of return. Re-estimated economic rates of returnof the 117 agricultural projects (for which economic returns were calculated)audited in the last four years, 1978-81, showed weighted averages that rangedfrom 20 to 23%..!/

4.12 The re-estimated rates of return by subsector are presented inTable 2. The four sub-sectors (24 projects) providing the best returns werecredit, agricultural support, livestock and irrigation. The two fisheriesprojects that were successful also averaged high rates of return of 23%.

/aTable 2: RE-ESTMATED RATES OF RETURN BY SUBSECTOR--

All Projects AssumingERR Projects With Positive Negative ERRs are:Range ERRs Only -5% -10%

Av. Av. Av.Projects ERR Projects ERR Projects ERR

% No. % No. % No. %

1. Credit/b neg. -36 6 33 7 33 7 332. Fisheries neg. -43 2 23 3 10 3 13. Agricultural

Support.L 11-35 4 20 4 20 4 204. Livestock neg. -36 4 20 5 19 5 195. Irrigation 12-33 8 17 8 17 8 176. Tree Crops neg. -15 4 14 5 12 5 127. Agricultural

Development neg. -25 4 12 5 6 5 48. Sugar neg. 0 - 1 -5 1 -10

Total oraveragei 32 23 38 22 38 21

/a Weighted by total project cost at completion./b Does not include Argentina Agricultural Credit which was not implemented./c Does not include Spain Agricultural Research for which no rate of return

was calculated./d Simple average rates of return for projects with only positive rates by

sub-sector are: Credit, 25%; Fisheries, 28%; Agricultural Support, 21%;Livestock, 20%; Irrigation, 19%; Tree Crops, 12%; and AgriculturalDevelopment, 11%.

1/ Fifth Annual Review - 26 agricultural projects with a weighted ERR of23%; Sixth Annual Review - 43 and 21%; Seventh Annual Review - 24 and20%; and Eighth Annual Review - 38 and 22%, respectively.

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4.13 The 33% rate of return for credit projects.i/ is almost as high asthe level two years ago (36%) and significantly above the average rate oflast year (26%). Thus, this year's experience supports the conclusions ofearlier years, namely that crop credit projects have the highest averagerates of return, lowest cost overruns.!, in most cases effective financialinstitutions and strong farmer demand for subloans and, if adequately de-signed, a clear advantage in reaching small, poor farmers than other projectsin the agricultural sector.

Table 3: COST OVERRUN AND COMPLETION DELAYS BY SUB-SECTOR

Cost Overrun Completion DelayNo. of Ave- Ave-

Group Projects Range rage Range rageNo. % % % %

1. Irrigation 8 -10 to 175 58 15 to 102 492. Tree Crops 5 -12 to 186 30 -18 to 73 233. Livestock 5 -21 to 17 5 11 to 157 694. Fisheries 3 - 7 to 47 14 49 to 110 785. Credit 7L.a -21 to 23 3 - 2 to 70 426. Agricultural Develop-

ment 5 -15 to 24 9 0 to 35 137. Agricultural Support 5 8 to 75 27 25 to 157 568. Sugar 1 66 66 0

Total or average 39 26 44

/a Does not include Argentina Agricultural Credit which was not implemented.

1/ Senegal Second, Korea Second, India Second ARDC, India Bihar, Peru Fifth,Costa Rica Second and Jamaica Second Agricultural Credit Projects.Argentina Agricultural Credit not included as it was not implemented.

2/ Credit projects as a rule do not include price or physical contingenciesand have an automatic cut-off which, for example, reduces the numberof subloans financed under inflation or mis-estimation of unit quantitiesor costs. Cost and time experience in credit projects are not reallycomparable to other projects because of the former's inherently greaterflexibility. The methodology for estimating economic rates of returnin different types of agricultural projects is also somewhat biasedin favor of credit projects.

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4.14 IrrigatiodY, the other sub-sector for which a large number ofprojects were financed (eight), also performed well, with an average rate ofreturn of 17% and no project with a return below 12%. However, cost overrunsaveraging 58%, are the largest of the sub-groups, while time overruns are alsoamong the highest (Table 3). Even though the average rate of return is high,experiences varied. One project, Romania Giurgiu-Razmiresti Irrigation, wascompleted at below estimated cost and another, Turkey Irrigation Rehabilita-tion, at just 10% above the appraisal estimate. The final costs of twoprojects were more than double the appraisal estimates: Bangladesh SecondChandpur and India Kadana Irrigation Projects (para. 4.59). However, improve-ments in commodity prices in real terms helped to offset higher project costsand implementation delays. In the case of the Bangladesh Second ChandpurIrrigation Project, higher than expected yields also contributed.

4.15 Surface irrigation projects, which provided irrigation for 475,000ha, cost US$745 million at completion_2/ or on average US$1,568 per ha. Theseper hectare costs compare favorably with those of the six irrigation projectsreviewed in the Sixth Annual Review (US$1,700) but are considerably higherthan those of last year (US$570), mainly due to the fact that a large numberof irrigation rehabilitation projects were included in that group. Sixother projects, Ghana Sugar, Sudan Agricultural Rehabiliation, Senegal SecondAgricultural Credit , Korea Second Agricultural Credit, India Second ARDCCredit and India Bihar Agricultural Credit, provided irrigation for approx-imately 1.4 million ha. The bulk of the irrigation acreage was supportedthrough the two Indian agricultural credit projects, which provided credit for

groundwater development.

4.16 Only one of the eight irrigation projects in this year's group(Turkey Irrigation Rehabilitation) involved rehabilitation, compared with fourof the nine projects last year. As with last year's irrigation rehabilitationprojects, this project had the highest return (at 33%) of the irrigationprojects, twice as high as expected at appraisal due to the fact that farmgateprices, yields and cropping intensities reached higher levels than expected.

4.17 Four further sub-sectors in this year's group (agricultural support,livestock, tree crops and rural development) each cover five to six projects.Of these four, agricultural support and livestock sub-sectors provided thehighest economic benefits with re-estimated rates of return of 20%. The fiveagricultural support-/ projects cover a wide range of activities: Korea

1/ Bangladesh Second Chandpur, India Kadana and Pochampad, Romania Giurgiu-Razmiresti, Mali Mopti Rice, Sri Lanka Mahaweli Ganga, Turkey IrrigationRehabilitation and Yemen Arab Republic Tihama Projects.

2/ Project costs only (current dollars); no information available about sunkcosts.

3/ Korea Integrated Agricultural Products Processing, Korea Seeds, IndiaBihar Agricultural Markets, India Wheat Storage and the Spain Agricul-tural Research.

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Integrated Agricultural Products Processing covers fish, mushroom and horti-cultural crop processing; Korea Seeds, development of improved seeds togetherwith their replication, processing and distribution; India Wheat Storage, con-struction of both conventional and high technology grain storage facilities;and India Bihar Agricultural Markets, construction of 50 modern agriculturalmarket centers. All of these projects have acceptable re-estimated rates ofreturn, although that for Bihar Markets is low (11%) and uncertain, as theproject's primary objective has not yet been achieved due to the reluctance oftraders to move to the new markets. No rate of return has been calculated forSpain Agricultural Research, but the project was successfully implemented.

4.18 The main instruments to promote development in the five livestockprojectsl/, were sub-loans (credit) to livestock producers. The one proj-ect, Chad Livestock, that did not involve credit to proOucers2/ did notachieve its economic objectives mainly because of the civil war which occurredduring implementation. Of the remaining four livestock projects, two hadre-estimated rates of return above appraisal estimates (Turkey Second andParaguay Fourth Livestock) and two below (Argentina Balcarce and PanamaLivestock). The livestock projects in Turkey and Paraguay were especiallysuccessful because they benefitted from the experiences of preceding projectsand also because they promoted profitable technological packages. On theother hand, the Balcarce Livestock Project did not achieve its full objec-tives, the rate of return at audit being about one-half the level estimatedat appraisal, partly because the technical package did not turn out to befinancially as attractive to producers as expected. Panama Livestock, thefirst project in the sector, did not achieve its full economic benefitsbecause it required the establishment of an efficient implementing unit, whichtook time, and also because of a cyclical downturn in beef prices.

4.19 The average rate of return of this year's tree-crop projects2!/stands at 12%, which is substantially below both the 17% of the same grouplast year and the consistently good performance noted in previous years.The Mairitius Tea Project failed due to various factors, both internal andexogenous (para. 4.50). Three of the other four projects did not reach theirplanting targets: Cameroon Niete Rubber, Ivory Coast Grande Bereby Rubberand Ivory Coast Oil Palm IV. The fourth, Ghana Eastern Region Cocoa, fellbelow its anticipated yield target, an experience not uncommon in other cocoaprojects in Western Africa. The Ghana Cocoa and the two rubber projectsbenefitted from improving economic prices in real terms, which offset produc-tion shortfalls. As a result, returns were still acceptable, although lower

1/ Chad Livestock, Turkey Second Livestock, Argentina Balcarce Livestock,Panama Livestock, and Paraguay Fourth Livestock.

2/ This project provided funds to rehabilitate and maintain pastoral wellsin the Sahel Zone.

3/ Mauritius Tea, Cameroon Niete Rubber, Ivory Coast Grande Bereby Rubber,Ghana Cocoa and Ivory Coast Fourth Oil Palm and Coconut.

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than estimated at appraisal. The Ivory Coast Fourth Oil Palm and CoconutProject did not reach its planting and production targets. As a result,the re-estimated rate of return was 15% compared with the 17% estimated atappraisal.

4.20 The five agricultural development projects1/ yielded the lowestaverage rate of return. However, the range of ERRs was wide, from negative to25%. Only two projects offered satisfactory rates of return, Malawi ThirdLilongwe Land Development and Senegal Terres Neuves Resettlement. The formerperformed better than expected (ERR 25% at audit versus 13% at appraisal)mainly because it was the third in a series, benefitting from existing insti-tutions as well as experience. The latter project also exceeded its economicobjective (ERR 18% at audit versus 14% at appraisal) mainly because of higheryields and lower than expected on-farm costs (para. 4.53).

4.21 The other three agricultural development projects, which must beregarded as economic failures, faced numerous problems. The Sudan SouthernRegion Agricultural Rehabilitation Project was overly ambitious in terms ofthe quantity and diversity of the components involved and in the light of therecognized risks. However, some components, such as infrastructure andresearch, have been successfully implemented, laying the groundwork forfurther follow-up. The Rwanda Mutara Project failed to produce acceptableeconomic results due to slow progress in agricultural production and higherinvestment costs per ha, but it did have a considerable social impact, whichmight facilitate significant economic benefits under future projects. TheZambia Integrated Family Farming Project, primarily because of inadequatemanagement, failed by every criterion of success (para. 4.50), as did itspredecessor, the Commercial Crops Farming Development Project, discussed inthe Sixth Annual Review.

4.22 Of the three fisheries projects, Tunisia Fisheries performed verywell economically with a 43% ERR at audit; Yemen PDR Fisheries performedacceptably with a 13% ERR. For the third project, Ecuador Fisheries, there-estimated ERR is negative. Tae first two projects benefitted significantlyfrom rising real prices rather than increased production. All three projectsfailed to reach their investment objectives and experienced significant timedelays, the longest delay (110%) being experienced by Ecuador Fisheries (para.4.57). This experience is similar to that of fisheries projects covered inthe two preceding Annual Reviews. None of the earlier four fisheries projectshad been successful, although one (Indonesia Fisheries) has improved sincecompletion after provision of better management. As noted last year,2/failure of fisheries projects was the result of inadequate fishery expertisewithin the Bank at the time, which hampered both review of project preparationand supervision of project implementation.

1/ Malawi Third Lilongwe Land Development, Sudan Southern Region Agricul-tural Rehabilitation, Rwanda Mutura, Zambia Integrated Family Farming andSenegal Terres Neuves Resettlement.

2/ Seventh Annual Review of Project Performance Audit Results, Report No.3640, dated October 9, 1981, section on fisheries, paras. 3.81-3.86.

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4.23 One remaining project, Ghana Sugar, which for economic analysispurposes was not classified under any of the seven groups considered above,was not successful; its re-estimated rate of return is negative, as only 18%of its production target was achieved. Problems included country-specificpolitical and economic problems, erratic weather, disease, low productivity,rising costs, inadequate electricity and water supplies, and, especially,insufficient foreign exchange allocations for essential imports (para. 4.50).

(c) Food Production

4.24 Almost 88 percent (or 35) of the 40 projects under review weredirectly designed to increase food production. One other project, India WheatStorage, was expected to protect food supplies (prevent storage losses), while

two others, India Bihar Agricultural Markets and Spain Agricultural Research,were expected to increase food production indirectly.!/ The marketing projectwas to encourage farmers to increase their rice and other food crop productionthrough higher prices as a result of reduced marketing costs. The research

project would increase food output through the impact of research. Themost important means for expanding food crop production under this group ofprojects were intensification through increased water supply, improved controlof water and the use of higher yielding seeds and plant materials, fertilizersand pesticides. Livestock production was to be expanded through improvementsin breeding stock, disease control, improved rations, and pasture or rangedevelopment. Only a few projects would increase food production throughdevelopment of new land. These included the Sri Lanka Mahaweli Ganga Projectand the Ivory Coast Fourth Oil Palm and Coconut Project. The three fisheriesprojects would increase fishery catch through the use of high technology boatsand fishing equipment.

4.25 At completion, 16 of 33 projects.! attained or exceeded food produc-tion goals. Additional food produced on completion of all 33 projects wasestimated at 5.3 million tons a year (para. 4.10). Project management was animportant factor in the achievement of food production goals in a number ofprojects. Korea Second Agricultural Credit, India Second ARDC Credit, IndiaBihar Agricultural Credit and Malawi Lilongwe Third Land Development allbenefitted from experienced and well established executing agencies. On theother hand, under-achievement of production goals may be attributed largely toinexperienced or ineffective project management in the case of the Costa RicaSecond Agricultural Credit, Zambia Integrated Family Farming, and Panama Live-stock Projects. Another factor contributing to success in reaching foodproduction goals was technical design. This was good in the Bangladesh SecondChandpur Irrigation and Sri Lanka Mahaweli Ganga Projects but poor in projectswhich did not reach their production goals: Mali Mopti Rice, ArgentinaBalcarce Livestock, and Korea Integrated Agricultural Products ProcessingProjects. Unfavorable Government policies inhibited the success of the Cocoaand Sugar Projects in Ghana and the Second Agricultural Credit Project inJamaica.

1/ The remaining two projects covered rubber development only. Thus 38projects had direct or indirect food production objectives.

2/ Data at completion are only available for 33 of the 38 projects withdirect or indirect food production objectives.

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B. Social Impact

(a) Beneficiaries

4.26 One hundred and twenty-six agricultural projects which have beenreviewed in the last four years reached almost 22.5 million beneficiaries.!/On the basis of information available on 32 of the 40 projects of the presentgroup, these 32 projects aimed to reach about 850 thousand families, or about4.5 million rural people. At audit, available information pointed to justover 4.6 million people having benefitted from these projects.2/ Thesefigures, it should be kept in mind, represent all persons affected by theproject, whether intensively (e.g. through credit for on-farm development andthe purchase of highly productive inputs) or extensively (e.g. through market

center improvement or the opportunity to purchase improved seeds). Project

cost per beneficiary is estimated at US$540 for irrigation projects (surface)and about US$200 for credit projects; the Indian credit projects, largelysupporting groundwater development and other minor irrigation, incurred asomewhat higher average cost estimated at US$235 per beneficiary.

4.27 The number of beneficiaries per project varied widely, by size,

scope or type of project involved. For example, the smallest number of bene-

ficiaries in this year's group was 2,500 (Yemen People's Democratic RepublicFisheries Project) and the largest, 1.6 million (India Bihar AgriculturalCredit Project). Furthermore, as in earlier years!/, a large number of bene-

ficiaries was concentrated in relatively few projects. Thus seven projectsA!

1/ From information available in the Fifth Annual Review, 23 projectsreached 2.4 million beneficiaries; Sixth Annual Review, 39 projects and4.5 million beneficiaries; Seventh Annual Review, 32 projects and 11million beneficiaries; and. Eighth Annual Review, 32 projects and 4.6million beneficiaries.

2/ A number of the other eight projects aimed to benefit relatively fewpeople, while others, like Korea Seeds and Spain Agricultural Research,can be expected to have a significant impact on the income of a largepart of the people of the rural sector.

3/ For earlier years the concentration of beneficiaries was as follows:in the Fifth Annual Review, 8 of the 23 projects designed to benefitindividual farmers accounted for as many as 95% of the total number ofbeneficiaries; in the Sixth Annual Review, 22 projects (out of 39)

reached 93% of the beneficiaries, with maximum concentration in 6 pro-jects which accounted for 57% of the beneficiaries; in last year'sreview, the concentration was in 9 projects (out of 32), which accountedfor over 95% of the beneficiaries.

4/ Bangladesh Second Chandpur Irrigation, India Pochampad Irrigation,Sri Lanka Mahaweli Ganga, Romania Giurgiu-Razmiresti Irrigation, SenegalSecond Agricultural Credit, India Second ARDC Credit and India BiharAgricultural Credit.

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(out of 32 for which data are available) accounted for 88% of the totalbeneficiaries. These seven were more specifically designed to reach smallerfarmers, and offered average economic rates of return (22%) somewhat higherthan those for the group as a whole (20%).1/

4.28 In terms of their outreach, irrigation, agricultural credit andagricultural development projects - not surprisingly - seem to do best. Thisis especially so when such projects are designed to disseminate low-cost cropimprovement technology to a large number of farmers. Irrigation and creditprojects in this year's group accounted for 94% of total beneficiariesreached.

4.29 Of this year's group, nineteen were designed specifically to improvethe welfare of small farmers2/; most were among those 'that reached thegreatest proportion of beneficiaries. About one half of the projects werethus aimed at reaching the small farmer; one-third (13) aimed to help familiesliving in absolute poverty.

(b) Income

4.30 Information on farm and family income is sparse, mainly becauseincome is difficult to estimate prior to full project development (which maybe some time after final disbursement), but also because of the geographicaldispersion and diversity of beneficiaries within each project. At audit,income estimates were available for only 15 projects, but for three of theseno base income estimates were made at appraisal. For the remaining 12 pro-jects, income comparisons!/ in real terms show increases ranging from 10 to600 percent. In seven cases these income increases exceeded the appraisalestimates largely due to substantial increases in real prices. Althoughspecific figures are not available in other cases, there are indicationsthat other projects had significant impact on family income. This is, forexample, true for two Indian projects which involved groundwater irrigationand account for the bulk of the beneficiaries in this year's sample. As mightbe expected, farm income increases, both actual and anticipated, were higherin the more advanced developing countries.

1/ The simple average rate of return for projects with a positive rate ofreturn (para. 4.11).

2/ Owners, tenants and share-croppers of a land area usually less than5 ha.

3/ Income comparisons have been done in real terms. This is needed asthe projects were implemented in a period of high inflation. The actualincome increase is measured at completion as income at full developmentcompared to pre-project income inflated to the completion year.

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(c) Employment Creation

4.31 Information on employment creation is available, or can be inferred,for 31 out of the 39 completed projects. Of these 31, almost two-thirdsachieved or exceeded their employment targets set at appraisal. The largestimpact on employment creation came under the India Second ARDC Credit Project,which created an estimated equivalent of 600,000 manyears annually, and underthe India Bihar Agricultural Credit Project, with an estimated equivalentof 125,000 annual manyears.1/ This is in line with last year's experienceof substantial employment creation under the India agricultural credit pro-jects. Other projects, which are estimated to have provided from 40 to 80thousand annual manyear equivalents each, are the Bangladesh Second ChandpurIrrigation, India Pochampad Irrigation and Sri Lanka Mahaweli Ganga projects.In total, the 31 projects, for which employment information is available, areestimated to have created over one million annual manyear equivalents ofpermanent incremental employment.

4.32 There is great variation in terms of cost per annual manyear equiv-alent of employment created. Irrigation projects tended to have lower thanaverage costs, especially those involving groundwater development. Forexample, it is estimated that project cost per annual manyear equivalent ofemployment created was less than US$1,000 for the two Indian agriculturalcredit projects which provided for groundwater development. For two otherprojects, Bangladesh Second Chandpur Irrigation and Sri Lanka Mahaweli Ganga,the cost ranged between US$1,000 and US$1,500.

4.33 Except for the Chad Livestock Project, which mainly provided pasto-ral wells, the four remaining livestock projects in this year's review were,in general, not as effective in generating annual manyear equivalents ofemployment, because they usually financed larger scale capital intensiveoperations. Costs per annual manyear equivalent of employment created areestimated to have ranged from an annual US$25,000 to US$70,000.2/ Thesecosts are also relatively high for estate treecrop projects: for example,between US$10,000 and US$15,0001/ for the Fourth Oil Palm and Coconut andGrand Bereby Rubber Projects in the Ivory Coast respectively. Similarly,fisheries projects in this year's group involved relatively high cost perannual manyear equivalent of employment created.

1/ Equivalent annual manyears consists of permanent positions created, inaddition to aggregated incremental employment created on farms or otheragricultural enterprises; thus it combines positions with incrementalmandays in one figure.

2/ For the Chad Livestock Project this figure is about US$3,500.

3/ Information on employment creation is not available for the CameroonNiete Rubber Project.

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C. Technologyi! and Productivity

4.34 Given the scarcity of arable land, especially in Asian countries,any increases in crop and livestock production must result largely from theadoption of new technologies or techniques of production which-increase yieldsof crops or output per unit of breeding stock. Bank-assisted projects inagriculture focus strongly on promoting technological improvements whichincrease production, economic efficiency and incomes. Some twenty-four of thepresent group of projects supported a technological package that was new tothe beneficiaries and/or to the country.

4.35 Four irrigation projects (Bangladesh Second Chandpur, India Kadanaand Pochampad, and Sri Lanka Mahaweli Ganga) introduced similar technologicalpackages. These consisted of assured and controlled water supplies to permitdouble cropping in areas that have distinct wet and dry seasons, augmented byhigh-yielding varieties, fertilizers and usually disease and pest control bychemicals. Of the three treecrop projects, the Ivory Coast Grand BerebyRubber and Fourth Oil Palm and Coconut Projects, were plantation projects,while the Ghana Cocoa Project focused on smallholder development. Althoughdifferent crops (rubber, cocoa and oil palm) were involved, the technicalpackages introduced in all three were similar; all involved the use ofimproved plant material, fertilizers, and disease and pest control.

4.36 As with irrigation and treecrop development, livestock projects usedtechnical packages in their efforts to improve productivity. Three of thelivestock projects (Turkey Second, / Argentina Balcarce, and Panama Livestock)and two of the credit projects (Peru Fifth and Costa Rica Second AgriculturalCredit), which included large livestock components, promoted technical pack-ages that sought pasture improvement - through use of fertilizers, herbicides

1/ From an economic development viewpoint technological improvement isdefined in terms of an increase in output (adjusted for quality improve-ments) with the same amount of resources (total land, human and capital),or no change in output with a smaller amount of resources. In analyzingprojects it is not always possible to determine if a change in productiontechniques represents a technological improvement or simply a shift inthe technique of production. Profitable changes in production techniquesusually represent an improvement in technology. For example new highyielding varieties may cost the farmer more than traditional varietieswhich he saves from his own crop, but the increase in output more thanpays for the increased cost. This relationship usually holds for use ofchemical fertilizers and improved livestock breeds. In this section,discussion focuses on such indicators as yields, milk production per cowand livestock off-take rates per breeding unit or land area.

2/ Although this was the second livestock project in Turkey, it introducednew methods in a remote agricultural region.

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and improved seeds - and animal disease control. Four out of these fiveprojects also focused on herd improvement through cross breeding or purchaseof improved breeds. All these projects thus aimed at improving livestockratios, breeding stock and animal health in order to increase output ofanimal products - meat, milk, eggs, wool, etc. - per unit of basic herd-breeding stock and, ultimately, per unit of land area 1/

4.37 The Korea Second Agricultural Credit Project financed sub-projectsemploying both new and established technologies. The new technologies pro-moted were sprinkler irrigation for apples and plastic greenhouses forvegetables and small fruits. Three of the agricultural development projectsintroduced new technologies. The Rwanda Mutara, essentially a settlementproject, aimed to introduce improved methods of crop and livestock productionamong the settlers. Senegal Terre Neuves, also a settlement project, aimed tointroduce a crop production package which included improved seeds, animaldrawn cultivation, rotational ploughing, heavy fertilization, timely plantingand strict weed control. The three fisheries projects (para. 4.22) providedfor investments in new fishery technology (new boat designs and fishingmethods) expected to increase catches per boat.

Table 4: PRODUCTIVITYLa AND TECHNOLOGY

Projects for WhichProductivity Achievement Was:

Over On Above and Below Info. Not TotalProject Technology Target Target Below Target Target Available Projects

With NewTechnologies 4 6 3 6 3L.b 22

Without NewTechnologies 2 4 3 6 0 15

Both Old and NewTechnologies 0 0 1 1 0 2

Total 6 10 7 13 3 39

/a Productivity is defined at crop yield (output per unit of land area)milk production per cow, gain per unit of feed, or offtake (slaughterto herd ratio or to unit of land), or catch per fishing boat.

/b Three agricultural support projects (Korea Seeds, India Bihar Agricul-tural Markets and India Wheat Storage) for which productivity impact isnot known.

1/ Although land use efficiency is not so critical in Africa and the Westernhemisphere countries, improved livestock production methods ultimatelyincrease output of animal products per hectare. Other components of thelivestock technical packages noted in this year's group of projects arewater supplies, fencing, and mechanical equipment. The latter two aremore likely to increase labor than land efficiency.

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4.38 Projects in which new technologies were introduced did somewhatbetter than those without, judging by the number that achieved or exceededtheir targets, 68% for new technology projects versus 60% for traditionaltechnology projects (Table 4). This achievement is somewhat less than lastyear, when the figures were 73% for new technology projects and 33% for thosewith traditional technologiesl/. As has been observed before, major factorsinfluencing the adoption of new technologies are the profitability and risk ofthe technological package recommended, as well as the efficiency of thesupport services (research, extension and input supplies) and rational pricepolicies for both inputs and outputs. For example, in the four agriculturalprojects in which productivity targets under new technology were not achieved,the main reason for short fall was (i) lack of assured and timely water supply-- Kadana and Pochampad Irrigation Projects in India -- and (ii) low producer

prices -- Eastern Region Cocoa Project in Ghana and Balcarce Livestock inArgentina.

D. Institutional Impact

4.39 New government agencies were established to implement 11 of the 39(28%) completed projects in this year's group. This result is in contrastwith the experience of last year (where all 32 projects were implemented byexisting agencies) but comparable to the experience of the year before (35% ofthe 49 projects were implemented by new government agencies).

Table 5: NEW PROJECT EXECUTING AGENCIES

PerformanceVery

Type of Agency No. Satisfactory Satisfactory Unsatisfactory

1. Project Unit 2 0 1 1

2. Project Unit inExecuting Agency 1 0 1 0

3. Government Agency 5 1 2 2

4. Government Corpora-tion 3 0 2 1

Total 11 1 6 4

1/ However, it must be remembered that the distribution between new and

traditional technology is not always clear-cut. What may be a new tech-nology to some beneficiaries may be standard or traditional technologyto others.

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4.40 The establishment of these 11 new agencies was clearly unsuccessfulin only four of the projects (Table 5). Although the project unit for theSudan Southern Region Agricultural Rehabilitation Project has performedcreditably under the circumstances, it has suffered from lack of staff, duepartly to the isolation of the region, lack of policy guidance by an executivecommittee and shortage of resources due to procurement delays and diversion ofequipment and vehicles to other uses. On the job training was not undertaken,and the intended merger with the Ministry of Agriculture was totally unreal-istic. The implementation unit is heavily dependent on expatriates (some 23staff positions were filled by expatriates at one time or another), and theproject probably weakened the Ministry of Agriculture. The newly establishedTea Development Authority under the Mauritius Tea Project failed to developinto an effective institution primarily due to shortcomings in product design,deteriorating economic conditions in the tea industry, rising wages ofworkers, low labor productivity and labor disorders, political interference inTDA's operations, and poor management by TDA itself (para. 4.50). Theperformance of the new project unit in the Rwanda Mutara Project has not beensatisfactory for several reasons. There were managerial start-up difficul-ties due to similar terms of reference for both the director and the deputydirector (an expatriate), resulting in lack of a clear line of authority, ofcareful planning and adequate and timely budget development. A governmentcorporation was established to execute the Ghana Sugar Project and expatriatemanagement agents were employed. The corporation has, however, been a finan-cial failure, and no viable sugar industry was established, mainly due to ahost of country specific and other external factors (para. 4.23). In summary,these four new project agencies failed mainly due to factors other thandeficiencies in management or organizational design.

4.41 In addition to establishing project implementing agencies, signif-icant project resources were also used for other types of institutionaldevelopmentl/. These objectives were substantially or partially achievedin 72 percent of the 33 projects for which such institution building wasattempted (Table 6). The most significant failures (seven), have been inattempts to develop the sector, Government departments or ministries andproject units. Four of these failures relate to the projects discussedabove!/ that involved establishment of an implementing agency or a projectunit.

1/ These include management support, sector development, ministry or depart-mental improvement, project unit development, development of researchcapacity, technical assistance and extension for farmers, development ofagriculture credit institutions, cooperative development, and introduc-tion of new construction methods.

2/ Mauritius Tea, Ghana Sugar, Sudan Southern Region Agricultural Rahabili-tation and Rwanda Mutara.

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Table 6: INSTITUTION BUILDING, ACHIEVEMENT BY OBJECTIVE

Type of Effort AchievementNo.La Substantial Partial Negligible

Management Support 8 1 7 0Sector Development 7 0 4 3Ministry or Departmental Improvement 7 3 2 2Project Unit Development 2 0 0 2Research Capacity Development 2 2 0 0Technical Assistance or Extension

for Farmers 2 0 2 0Agricultural Credit Institution

Development 3 2 0 1Cooperative Development 1 0 0 1New Construction Method 1 0 1 0

Total 33 8 16 9

/a One project, Bangladesh Second Chandpur Irrigation, focused on agencymanagement and farmer extension service development.

4.42 There were eight projects for which institutional development objec-tives were substantially achievedl/. Some unique features of these achieve-ments are worth noting. Under the Turkey Livestock Project a Directoratefor Livestock Development Projects had been established in which veterinariansand agronomists are working closely together to promote livestock development,fostered by both overseas and local training of its staff. Under the ArgentinaBalcarce Livestock Project a specific unit was established in the AgriculturalResearch Institute which was responsible for providing technical assistance incarrying out and supervising ranch development investments. As a result ofthis infusion of new personnel, the institute began to focus on the entireranch instead of strict commodity development (para. 4.108). Under the SpainAgricultural Research Project, the research institute's effectiveness wasimproved by the establishment of six specialized, commodity oriented researchcenters and by a large overseas scholarship program for personnel. Institu-tional development efforts for two credit projects were also successful. TheState Land Development Bank under the India Bihar Agricultural Credit Projecthas become substantially more effective through establishment of new regionaloffices and training of its staff, and, partly as a result, loan appraisalsgreatly improved, and processing time was considerably reduced. Similarly,

1/ Sri Lanka Mahaweli Ganga, Chad Livestock, Turkey Second Livestock,Spain Agricultural Research, Argentina Balcarce Livestock, India BiharAgricultural Credit and Peru Fifth Agricultural Credit.

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the executing agency's appraisal procedures for medium and long-term invest-ments were improved under the Peru Fifth Agricultural Credit Project. Thisobjective was accomplished by establishing a core unit of five professionalsin the executing bank's central office headed by a consultant adviser.

4.43 Nine different identifiable methods or agentsl/ were employed toeffect institutional developments in this year's group of projects (Table 7),although in a number of projects more than one of these methods was used. Inthree cases (Korea Integrated Products Processing, Peru Fifth AgriculturalCredit and India Wheat Storage) expatriate consultants were expected to behired, but local consultants were eventually appointed after long delays,either because borrowers were unable to find, or simply refused to consider,expatriate consultants.

Table 7: INSTITUTION BUILDING, ACHIEVEMENT BY METHOD

Method AchievementNo.Z-a Substantial Partial Negligible

Consultants, Expatriate 13 1 10 2Consultants, Local 3 1 1 1New Agency or Unit 11 1 6 4Reorganization of Agency or Unit 3 2 1 0Training 14 4 10 0Studies 4 0 4 0Bank Technical Assistance 1 1 0 0Staff Improvement 1 0 0 1Establishment of Cooperative 1 0 0 1

Total 51 10 32 9

/a Only 32 projects, two or more means or methods were used in 17 projectsfor institutional development.

4.44 Most of the expatriate staff were moderately successful in theirefforts. Training was generally successful in promoting institutional devel-opment in all projects in which it was a component, underlining its importancein institutional development The most successful cases were the ArgentinaBalcarce Livestock, India Bihar Agricultural Credit and Spain AgriculturalResearch Projects. A training program carried out by UNDP for staff respon-sible for the Chad Livestock Project was also very successful. Special

1! Expatriate consultants, local consultants, establishing a new agency orunit, reorganization, training, studies, Bank technical assistance, staffimprovement, and cooperative development.

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studies carried out under four projects were all more or less successfullycompleted and led to useful results. A study under the Mali Mopti RiceProject was prepared for a second phase irrigation project. A study of harbordevelopment was successfully completed under the Ecuador Fisheries Project,though significantly delayed. Five studies were planned under the SenegalSecond Agricultural Credit Project. The monitoring and evaluation, fertilizerand feasibility studies were successfully completed and provided results thathave had a beneficial impact. The seed storage study was financed mostlyoutside the project, due to confusion resulting from cancellation of a consul-tants contract and agency reorganization. The study provided some usefulresults but did not meet the original objectives of providing a seed storagepolicy for Senegal. A feasibility study of sugar industry rehabilitation wasplanned under the Jamaica Second Agricultural Credit Project. Although notfinanced under the loan, it was successfully completed and led to the Bank'sfinanced Sugar Rehabilitation Project (Loan 1517-JM).

4.45 In summary, significant institutional development was financedand promoted by this year's group of projects. For the most part it wassuccessful, having a significant impact on the projects, or provided forlonger term benefits in agricultural development. Among the methods employed,the proportionately heavy use of expatriate as against local consultantsprobably reflected general institutional weakness in the countries concerned.The provision of training reflected efforts to reduce this dependency. Thelevel of success achieved by creating new agencies and units was modest and inline with previously observed experience. There was significant effort todevelop and improve implementing agencies and, where these efforts failed,was mainly caused by extra-mural factors.

II. PROCESS EFFICIENCY

A. Project Preparation and Design

4.46 Borrowers and the Bank, again as last year, played the major rolein the identification of projects (80% of the projects); Borrowers and FAO/CPwere mainly responsible for project preparation (78%). The regional distribu-tion (see Table 8) of identification and preparation, although not as reveal-ing as the subsectoral distribution, nevertheless confirms some of the trendsnoted last year. The classification, however, shows only the major respon-sible agency, although in most cases there was substantial interaction betweenagencies with, for example, the Bank providing significant project preparationassistance to Government. Sometimes more than one agency was involved. Forexample, in the case of the Korea Seeds Project, a detailed feasibility studyfinanced by the Bank under an irrigation project was first prepared by consul-tants. Subsequently, and to resolve various controversies, a second prepara-

tion study was done by FAO/CP. Although the Mauritius Tea Project is listedas identified and prepared by the Government, the first draft preparationreport was primarily prepared by an FAO-seconded advisor, while redrafting ofthe preparation report was done with substantial support from the Bank'sRegional Mission in Eastern Africa.

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Table 8: PROJECTS IDENTIFIED/PREPARED BY REGION AND AGENCY

Borrower Bank FAO/CP Consultant Total(id./prep) (id./prep) (id./prep) (id./prep) (id./prep)

Eastern Africa 3/2 1/2 1/1 / 5/5Western Africa 2/3 6/1 1/1 -/4 9/9East Asia/Pacific 2/2 1/- -/- -/1 3/3South Asia 4/4 4/- -/3 -/1 8/8EMENA 4/3 -/- 2/4 1/- 7/7LAC 4/4 1/- 3/4 -/- 8/8

Total 19/18 13/3 7/13 1/6 40/40

4.47 Thus, although some caution is required on broad conclusions, it isnoteworthy that Borrowers and the Bank predominated in project identificationand preparation in both Eastern and Western Africa. A closer look revealsthat the Bank closely supported and assisted project preparation through itsregional missions in Abidjan and Nairobi. On the other hand, the Bank was notso directly involved in project preparation in the other regions, where either

Borrower institutions or FAO/CP undertook full project preparation. Morerevealing, perhaps, is the sub-sectoral division of preparation. FAO/CPprepared all three fisheries projects (it had identified two of them), and italso identified and prepared three out of five livestock projects.-V Incontrast, Governments or their agencies prepared almost all credit projects,!/to a large extent due to the fact that most were follow-on projects. FAO andconsultants prepared most of the irrigation projects, and consultants orexpatriate staff in the Government agencies concerned prepared most tree-crop/estate development projects.

4.48 Identification and preparation require substantial time; the processis often begun long before the Bank's attention is drawn to such projects.It is thus not always easy to define with exactitude identification andpreparation intervals, especially in the case of follow-on projects; further-more the terminology between various PCRs is not always fully consistent. Asa result, arithmetical interpretations have limitations. With this caveat,time required for identification and preparation:3 of this group averaged 28

1/ The other two, Turkey Second Livestock and Paraguay Fourth Livestock,were follow-on livestock on-lending operations and were prepared by theGovernment agencies concerned.

2/ Except for the Argentina Agricultural Credit Project which was preparedby FAO/CP.

3/ Preparation and identification intervals have been assessed on the basisof a careful review of data provided in individual PPARs.

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months (last year's average was calculated at 21 months). Although there arevariations, subsector averages,!i especially given the small subsectorsample size, do not reveal significant deviations from the overall average.It is clear, however, that time required for preparation is clearly less withthe existence of precursor projects. Also, more time is required in preparingthe more complex projects, such as irrigation and plantation projects, whichnormally require detailed technical feasibility studies. However, there arewide differences in identification/preparation time needed for individualprojects, from a low of nine months for the Sudan Southern Region AgriculturalRehabilitation Project to eight years for the Sri Lanka Mahaweli GangaProject. In the former case, the Bank and the Government decided that, after17 years of civil strife, a project should be set up to provide quick andtangible assistance to low income farmers in the war-torn Southern Region. Inthe latter case, following a major study started in 1958 of irrigation andpower potential of major rivers in Sri Lanka, the Bank identified the projectin 1961. Immediate follow-up was not possible due to the Bank's pre-occupa-tion with economic management and nationalization. The Mahaweli Ganga basinwater study was subsequently undertaken with UNDP/FAO assistance during1965-68 and stage 1 of phase 1 appraised in 1969. Grand Bereby Rubber andYemen Agricultural Development are further examples where substantial regionaland/or sector studies were required before proper project preparation couldstart.

4.49 Appraisal (defined as the period between preappraisal and approval)took an average of 11.6 months.!/ From the total of 40 projects underreview, 29 projects (or 73%) were appraised in one year or less (of which, 60%- or 17 projects -were appraised in less than nine months). The remaining 11projects took more than a year, of which three required more than two years.Chad Livestock required 40 months and 3 missions; Peru Fifth AgriculturalCredit, six years and five missions; 24 months and five follow-up missionsafter appraisal were required for the Rwanda Mutura Agricultural DevelopmentProject, mainly to resolve institutional issues which arose after whatappeared to be successful negotiations. In nine cases substantial changes inproject design have been recorded at appraisal, usually due to insufficientpreparation or the need to reduce costs or to bring projects more in linewith existing management capabilities. In 16 other cases, moderate changeswere made; the latter involved more the "normal" type of changes, i.e.modifications which did not challenge the underlying project concept. In the

1/ Subsector averages have been calculated as follows: irrigation projects,36 months; treecrop/estate development projects, 34 months; livestockprojects, 23 months, fisheries projects, 20 months; credit projects, 21months; agricultural development projects, 22 months; and agriculturalsupport projects, 32 months.

2/ The completely atypical six-year appraisal period for the Peru FifthAgricultural Credit Project was not taken into account in this average.

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remaining cases few changes were recorded.l/ In all cases except two2/where substantial or moderate changes were made at appraisal, further changesbecame necessary during implementation../

B. Project Implementation: Overview

4.50 Project implementation encountered difficulties in many cases:18 out of 40 projects reviewed were rated problem projects for part or mostof of their implementation life (para. 4.64). In 10 cases, problems wereresolved satisfactorily and the projects were completed successfullyA/. Inseven other cases--Mauritius Tea, Ghana Sugar, Chad Livestock, EcuadorFisheries, Jamaica Second Agricultural Credit, Rwanda Mutara and ZambiaIntegrated Family Farming--problems could not be satisfactorily resolved, andthe projects ended in failure as measured by their reestimated economicoutcome. Results in the final case, Panama Livestock, were marginal. TheGhana Sugar, Zambia Integrated Family Farming and Mauritius Tea Projectsundoubtedly encountered the most serious problems. Although the ZambiaIntegrated Family Farming Project started promisingly due to intensive manage-ment by experienced staff, conditions rapidly deteriorated after key manage-ment changes in the first year. Thereafter management was inadequate, inputsnot provided effectively, equipment and vehicles misused and financial controllacking. The executing agency was in breach of almost all covenants and theproject failed by virtually every criterion of success. Implementation of theGhana Sugar Project suffered from a multitude of problems (paras. 4.23 and4.40), including political and economic difficulties, erratic rainfall andovercast weather, borer infestation, frequent breakdowns of equipment, laborproblems, cost escalation, inadequate electricity and water supplies and,particularly, lack of foreign exchange allocation. This project also ended infailure with production at only 18% of appraisal targets. Mauritius TeaProject was afflicted by the shortcomings of project design, deteriorating

l/ The fact that no mention was made in the PCRs of design changes atappraisal can, in general, be interpreted to mean that there were noserious issues at that stage.

2/ Bangladesh Second Chandpur Irrigation and Malawi Third Lilongwe LandDevelopment.

3/ It should be noted that many changes also occurred during implementationof projects where no changes were made during appraisal.

4/ These are: Bangladesh Second Chandpur Irrigation, India Kadana Irriga-tion, Yemem Arab Republic Tihama, Ghana Cocoa, Tunisia Fisheries,Yemen Peoples Democratic Republic Fisheries, Senegal Second AgriculturalCredit, Korea Integrated Agricultural Products Processing, India BiharAgricultural Markets and India Wheat Storage.

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economic situation of the tea industry, labor disorders and low labor input,poor management of the executing agency and political and bureaucratic inter-ference in its operations. The field target was significantly reduced and thefactories cut from two to one.

4.51 The group reviewed this year also includes two atypical cases: theloan for the Argentina Agricultural Credit Project was fully cancelled beforeimplementation began (para. 4.92); and physical completion of the Ivory CoastFourth Oil Palm and Coconut Project occurred nearly two years before effec-tiveness; as a consequence, the loan was disbursed in one single payment.

C. Project Implementation: Changes and Causes

4.52 Few projects were fully implemented as appraised. Of the 40 proj-ects reviewed, 34 were changed formally or implicitly during project implemen-tation. Profound and serious changes in project scale and design were some-times averted by approval of supplementary loans/credits during projectimplementation (Mali Mopti Rice, Yemen Arab Republic Tihama AgriculturalDevelopment, and Yemen People's Democratic Republic First Fisheries). Thecredit for the Mali Mopti Rice Project (US$6.9 million) was approved in early1972. Mainly as a result of the devaluation of the dollar, a moderate costoverrun of only 15% (but 39% in US dollar terms) led to financing difficul-ties, and, as a result, a supplementary credit of US$2.6 million was approvedin 1975. In Yemen Arab Republic Tihama Agricultural Development Project,unprecedented inflation worldwide and especially in the country, improvementsupon the feasibility design necessitated by greater knowledge of foundationconditions, and initial delays resulting in a prolonged construction periodall gave rise to substantially higher costs. These factors were recognizedearly during project implementation, and, after detailed engineering of theproject had been carried out, the project was reappraised and a supplementarycredit approved for US$10.3 million (original credit was for US$10.9 million).Again, mainly due to inflation (foreign and domestic) which far exceeded priceand physical contingencies of the Yemen People's Democratic Republic FisheriesProject, costs were expected to rise substantially. As there were onlylimited possibilities for scaling down of project items without affecting itseconomic viability, a supplementary credit of US$1.6 million (original creditUS$ 3.5 million) was approved.

4.53 The most important causes for changes during project implementationwere: poor or insufficient design (23 cases), impending cost overruns(18 cases), shifts in beneficiary preferences from those anticipated (16cases) and poor management or changes in Government policies and strate-gies (each 6 times). Most projects were affected by a combination of thesefactors. Poor or incomplete design was an important factor in all threefisheries projects (para. 4.22). For example, boat unit costs in the TunisiaFisheries Project turned out to be 57% more than appraisal estimates, becauseof lack of design as a basis for cost estimates as well as project start-upand implementation delays and inflationary pressure. Poor design was also animportant factor to explain changes in the irrigation projects, and to alesser extent in the treecrop and livestock projects. Cost overruns affectedthe treecrop and agricultural development projects - and to a certain extent

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the livestock and fisheries projects - and almost invariably led to reductionsin project scope (Cameroon and Ivory Coast rubber projects). For the samereason the number of markets was reduced under the India Bihar AgriculturalMarkets Project, as was the number of silos and godowns under the India WheatStorage Project. Changes in anticipated beneficiary acceptance was a majorreason for portfolio changes in credit projects, but also affected some otherprojects. Due to Government marketing policies and rainfall problems, farmersunder the Senegal Second Terres Neuves Resettlement Project concentrated onmillet, sorghum and groundnuts rather than on cotton and maize. Despite theserelative changes, project benefits were better, and average farm incomes twicethat expected. Changes in Government strategies/objectives and/or the eco-nomic environment seriously affected both Ghana projects and the JamaicaSecond Agricultural Credit Project and led to the cancellation of the loan forthe Argentina Agricultural Credit Project. The opposite is also true: fullGovernment commitment was a decisive factor for the timely completion of theRomania Giurgiu-Razmiresti Project (para. 4.61).

4.54 There were design changes in almost all irrigation projects: amatter calling for special attention. The Mali Mopti Rice Project neededsupplementary funding (para. 4.52). In the case of the India PochampadIrrigation Project, field channels were ultimately constructed by the CommandArea Authority rather than by the farmers themselves as originally intended.Several design changes were made during implementation of the Romania Giurgiu-Razmiresti Project, the most important being the elimination of one repumpingstation. This change resulted in a net decrease of costs, but unforeseenconditions during construction of the Cama Canal increased excavation costs.Two main design problems arose during the construction of the Kadana dam(India Kadana Irrigation Project) which resulted in significant delays andincreased costs. It seems from the limited review that changes in the phy-sical infrastructure of projects are treated in much more detail in completionreporting than are beneficiary changes in credit type projects. To a certainextent this is a reflection oE the nature of the latter, which have morebuilt-in flexibility. In fact, however, there were also substantial changesin most credit/onlending type projects.

4.55 Thus, changes occurred in almost all projects. Design shortcomingsappear, in retrospect, to have resulted from projects being appraised andapproved with insufficient prior preparation and/or insufficient knowledge ofthe sector environment. In other cases, beneficiaries' acceptance varied dueto their rational adaptation to a changing economic environment. Projectchanges during implementation are not necessarily undesirable or avoidable:projects must of necessity be designed with sufficient flexibility to respondto the changed circumstances which arise during implementation. But there isa. fine balance here: projects should be sufficiently well developed to allowfor immediate and straightforward project implementation, but flexible enoughto allow for adequate adaptation without causing undue delay, wasted expendi-ture, or cost increases, all of which might contribute to reduce/defer bene-fits. It is also interesting to note that the Bank did not approach projectimplementation changes uniformly. In some cases, it went along with the

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changes even to the extent of making the corresponding changes in the legaldocuments: supplementary credits are the--primeexample. In other cases - suchas Ecuador Fisheries and Argentina Balcarce Livestock (para. 4.57) - itallowed projects to drag on for considerable periods of time while in factdisbursements are minimal, causing considerable administrative costs bothto the Bank and the Borrowers. As part of the risk analysis at projectappraisal, it may be possible to identify areas most vulnerable to subsequentchange so as to alert supervision missions and facilitate changes in a timelyfashion when the need arises.

D. Project Implementation: Time and Cost

4.56 Delays in implementation!! of agricultural projects under revieware slightly lower than last year. Seven out of 39 projects (18%, as com-pared to 16% last year and 30% and 42%, respectively, in the two years before)were completed without delay or with delays of 10% or less. The remaining 32projects were substantially delayed: 15 (39% as compared to 44% last year) byless than 50%; 13 (33% as compared to 18% last year) by 50%-100%; and 4 (10%as compared to 22% last year) by 100% or more. Average time overruns were44%, while average cost increases in current US dollar terms were only 26%;the latter is due to the fact that it is easier to scale projects down tocope with cost increases than to combat time delays. More than half, or 21projects (54% as compared to 50% last year) were completed without costincreases or with increases of 10% or less; 9 (23% as compared to 15.5% lastyear) were in the range of 10%-50%; 4 (10% compared to 19% last year) were inthe range of 50%-100%; and 5 projects registered increases of 100% or more.

4.57 Four projects suffered implementation delays of 100% or more:Turkey Irrigation Rehabilitation (102%), Ecuador Fisheries (110%), ArgentinaBalcarce Livestock (157%), and India Wheat Storage (157%). An outstandingfeature of the Argentina Balcarce Livestock Project was the long delay indisbursement of loan proceeds, which required about 13 years. Extremelyhigh rates of inflation, major shifts in Government livestock policies, aswing of the cattle cycle and frequent changes of interest rate levels andmethods of calculating these rates inhibited project execution and severelyaffected its performance. The Ecuador Fisheries Project took about 12 yearsto implement, seven years longer than expected. Initially, effectiveness wasdelayed due to a dispute about 200 mile territorial waters at a time when thiswas not widely accepted internationally. Other causes of delay were lack ofinterest on the part of possible beneficiaries, revision and delay in comple-tion of the training component and, most importantly, stretching out thecompletion of the harbor studies. On-farm development and land levellingsuffered considerable delays in at least one of the three areas under theTurkey Irrigation Rehabilitation Project. With high cotton prices, especially

1/ For time and cost statistics, the Argentina Agricultural Credit Project,for which the loan was cancelled before implementation began, has beenexcluded, and the group therefore consists only of 39 projects.

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AGRICULTURE PROJECTSPERCENTAGE INCREASE/DECREASE OF COSTS AND

TIME OVERRUN COMPARED WITH APPRAISAL ESTIMATES

RORat Audit

IRRIGATION PROJECTS

- MALI, Mopti Rice 17

- BANGLADESH, Chandpur II Irrigation I8 AM- w

- INDIA, Kadana Irrigation 12 - ---s-s

- INDIA, Pochampad Irrigation 14

- SRI LANKA, Mahaweli Ganga Development 20a

- ROMANIA, Giurgiu-Razmiresti Irrigation 1V "

- TURKEY, Irrigation Rehabilitation 32

- YEMEN A.R., Tihama Agricultural Devlopment 22 - avan *'

TREECROPS PROJECTS

- MAURITIUS, Tea Neg. M L

- CAMEROON, Niete Rubber Estate 12

- IVORY COAST, Grand Bereby Rubber 110- GHANA, Sugar Rehabilitation Neg

- GHANA, Eastern Region Cocoa 12 -a-m-

- IVORY COAST, Oil Palm IV 15 a

LIVESTOCK PROJECTS

- CHAD, Livestock Neg. ana-m\\W t akianaw

- TURKEY, Livestock II 23 -0

- ARGENTINA, Balcarce Livestock 14 n

- PANAMA, Livestock 8 a'anuS-w- PARAGUAY, Livestock IV 36 0

FISHERIES PROJECTS

- TUNISIA, Fisheries 43 n 6\na%tW\ MM%l

- YEMEN, P.D.R., Fisheries 13 -

- ECUADOR, Fisheries Neg. -11111111 ja Lananu' anuri

CREDIT PROJECTS

- SENEGAL, Agricultural Credit II 20 a

- KOREA, Agricultural Credit II 23

- INDIA,ARDC II 36

- INDIA, Bihar Agricultural Credit 28 a a 'a armans

- PERU, Agricultural Credit V 30

- COSTA RICA, Agricultural Credit II 12- '' 'anawmanun

- JAMAICA, Agricultural Credit II Neg.

- ARGENTINA, Agricultural Credit n.a.-

AGRICULTURAL DEVELOPMENT PROJECTS

- MALAWI, Lilongwe Land Development III 25 -war

- SUDAN, Southern Region Agricultural Rehab. 1

0- RWANDA, Mutara Agricultural Development 00

- ZAMBIA, Integrated Family Farming Neg.

- SENEGAL, Terres Neuves II Resettlement and

Technical Assistance 18 na

AGRICULTURAL SUPPORT PROJECTS

- KOREA, Agricultural Products Processing 35

- KOREA, Seeds 22 -

- INDIA, Bihar Agricultural Markets 11 -

- INDIA, Wheat Storage 15 - ananan aaa 5an S anr

- SPAIN, Agricultural Research n.a. -

--25 0 25 50 75 100 125 150 175 200

Percentage Cost OverrunPercentage Time Overrun

0 Zero Cost or Time OverrunWorld Bank-23733

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in the early years of the project, farmers did not allow the project to leveltheir land or construct drains in their fields during the cotton growingseason and could not be legally obliged to do so. A number of problems aroseduring implementation of the India Wheat Storage Project, all of which causeddelays: initial slowness in appointing consulting engineers and acquiringsites, subsequent non-suitability of sites requiring search for alternativelocations, inexperience of parties involved with silo construction, nationalshortages of steel and cement, labor problems and adverse weather. Even withthese long delays, three out of these four projects were still economicallyviable at audit. The rate of return for the Ecuador Fisheries Project wasestimated to be negative; for the India Wheat Storage and Argentina BalcarceLivestock projects the rates of return were still acceptable although lowerthan estimated at appraisal, while that for the Turkey Irrigation Project wasactually much higher than estimated at appraisal (see para. 4.16).

4.58 The principal reasons for delays in project implementation, as inlast year's review, were poor performance by borrowers, contractors or execut-ing agencies (19 cases); complex or inadequate bidding and procurement proce-dures (5 cases) and unanticipated technical problems (4 cases). In a largenumber of cases, there is more than one reason to explain the delays.Important secondary reasons were: greater technical problems than anticipated(7 cases) and procurement problems, in particular delivery (6 cases). Amongsubsector averages for completion timing, treecrop/estate development projectsagain did very well (19% overrun).!/ as did agricultural development projects(13% overrun), reflecting to a large extent substantial scaling down andrefinancing under follow-on projects. There are no significant differencesbetween the other subsectors (all in the 40%-60% range); most serious delayswere encountered in the fisheries subsector (78%). Although there are varia-tions, there is no significant regional concentration of implementationdelays, and neither are any specific country related implementation delaysapparent, as the six projects in India and three projects in Korea have widelydifferent implementation delay and cost increase statistics.

4.59 Five projects suffered from cost increases of 100% or more:Bangladesh Second Chandpur Irrigation (116%); Yemen Arab Republic Tihama(124%); Ghana Cocoa (148%); India Kadana Irrigation (175%); and Mauritius Tea(186%). Underestimation at appraisal, delays and the combined effect ofconstruction costs and substantial wage increases were the major causes ofcost overruns, even though the Mauritius Tea Project (para. 4.50) was scaleddown to about 50% of original targets. Cost increases for the Ghana CocoaProject are due to a substantial time overrun (4 years) accompanied by massiveinternal inflation in the country; costs escalated particularly for staffingand administration. Delays in project implementation during a period of highinflation contributed significantly to the cost overrun for the Bangladesh

1/ Percentage of actual over estimated implementation period.

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Second Chandpur Irrigation Project, while substantial increases in dam con-struction costs under the Ka.ana Irrigation Project were due to geologicaldifficulties and the need for additional spillways because of higher peakfloods, both not anticipated at appraisal (para. 4.54). Underestimation ofcosts at appraisal was exacerbated by rapid inflation, and the Yemen ArabRepublic Tihama Agricultural Development Project was reappraised three yearsafter it had started, and a supplementary credit approved; actual costs are,in fact, in line with these reappraisal estimates (para. 4.52).

4.60 As in last year's review, the major reasons for cost increases wereinflation and higher unit costs (72% of projects); other, sometimes overlap-ping, reasons included increases in input units (20%) and project scope(15%). Delays in project implementation aggravated the effects of inflation.Analysis of the data also reveals that reduction of project scope (58% ofprojects) and/or lowering of unit quantities (20%) took place in most casesand although this resulted in substantially reducing the impact of inflation,it did not remove cost increases altogether. Furthermore, not all projectscan be easily subjected to substantial reduction in physical scope. Thesubsector incidence of cost increases showed again, as in the last few years,the largest increases (58%) were in irrigation projects. There is someregional concentration of cost increases, mostly explained by the sectoralcomposition of the regional portfolio. Time and cost overruns in EasternAfrica tended to be low (17% and 9%1, respectively), a reflection of thesubstantial scaling down of projects. Given the resource constraints in thecountries concerned, projects had to be trimmed to available funds. Even withthese substantial redesign efforts, the economic impact of four out of fiveprojects was negative or very marginal at best. In contrast, projects inLatin America were completed with substantial time overruns (68% average timedelay) but with only marginal cost increases (3%). The latter is due tothe time slice, onlending nature of most of the projects, while the formerreflects sector influences on loan demand and/or sometimes protracted discus-sions about onlending terms. In terms of economic impact, the results weredisappointing: two projects negative, one marginal and two much lower thanexpected at appraisal.

4.61 Time and cost overrun aggregations must be interpreted with care.The circumstances surrounding each project, more than any common subsectorcharacteristics, are the major explanatory factor. As in the groups pre-viously reviewed, good project preparation and implementation performance inthe present group resulted in good project outcome, which was reflected incost and time statistics. This is illustrated by the Giurgiu-RazmirestiIrrigation Project in Romania, the first agricultural project in that country,which was completed with only a six-month delay but at a cost level 10% beloworiginal estimates. Engineering designs suitable for proceeding with con-struction for this project had been prepared before appraisal. Costs were

1/ Mauritius Tea Project not included in cost overrun percentage.

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kept in line by a strictly controlled national pricing system and the factthat Romania's comparatively well advanced industry was very successful inbidding for project contracts, thus eliminating imported inflation to a largeextent. The main construction was to be carried out by domestic contractorswho had long experience, were well known to Government, and did not need longmobilization periods. Furthermore, minor delays in the first year due tounfamiliarity with ICB procedures were offset by assigning additional con-struction forces and funds to the project. It was the Government's determina-tion to complete the project on time that proved to be the most decisivefactor.

E. Project Implementation: Supervision

4.62 As a whole, and in line with the experience of projects reviewedlast year, the supervision experience with these projects was satisfactory,noteworthy for neither special successes nor failures. Supervision tookplace, in most cases, at regular intervals, the average being a little oversix months. Deficiencies observed bear out the conclusions of earlierreviews:.!/ the importance of staff continuity and of well-structured andtimely borrower reporting, and the opportunity and limitations for technicalassistance that supervision can provide to projects in distress. Again,there are indications that specific technical expertise is often missing inproject supervision. Some of the projects also offer an insight into both theuseful role and the limitations that resident staff have in project supervi-sion. The paragraphs that follow offer illustrative comments on these aspectsof the supervision experience.

4.63 Lack of continuity was noted, for example, in Turkey IrrigationRehabilitation, India Kadana Irrigation and Paraguay Fourth Livestock Proj-ects, and was mostly related to the Bank's reorganization in the early seven-ties or to the rearranging of agricultural responsibilities within regionsat a later stage. Good continuity was an important factor in institutionbuilding under the Korea Integrated Agriculture Products Processing Projectbut does not always imply effective supervision, as is demonstrated by theEcuador Fisheries Project. The importance of supervision early in the projectcycle was also not sufficiently borne in mind in certain cases. The firstsupervision missions took place 14 months after Board approval of the SpainAgricultural Research Project, 12 months after Board approval of the KoreaSeeds Project, and 16 months after Board approval of the Ecuador FisheriesProject. All these projects had serious start-up problems.

4.64 Supervision, however, has its limitations, and there is a pointbeyond which supervision apparently may not be able to alter substantiallythe course of the project. Eighteen projects were rated as having had prob-lems for shorter or longer periods during implementation (para. 4.50). Insome cases the problems were resolved, such as for the Bangladesh Second

1/ See also "Operational Policy Review: The Supervision of Bank Projects",OED Report No. 2858, of February 22, 1980.

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Chandpur and India Kadana Irrigation Projects, while in other cases problemscontinued to beset the projects, which ended as failures. The latter wasclearly the case in the Zambia Integrated Family Farming (para. 4.50) andGhana Sugar Projects. Problems relating to procurement or technical designappear to be more easily resolved, with positive impact on future projectimplementation, than problems which relate to the wider sector environment orinefficient management in executing agencies. As measured by economic impactat audit, of the 18 problem projects, 10 were estimated to have turned out tobe successful in the end, while 8 projects were judged to have had a negative,or at best marginal, impact (rate of return below 10%).

4.65 A somewhat disturbing conclusion from a review of average supervi-sion intervals is that there are no significant differences between problemprojects and well performing projects or between subsectors or regions. Theoverall impression is of a standardized approach, not particularly linked toproject implementation performance. However, this finding is somewhat miti-gated by the fact that supervision scheduling still poses problems, and amaximum interval between two supervisions of about a year or more has beencommon in almost all cases; at the extreme there was an 18-month intervalbetween the second and third supervisions for the India Bihar AgriculturalMarkets Project and a 22-month interval between the second and third supervi-sions of the Argentina Balcarce Livestock Development Project. The MauritiusTea Project (para. 4.50) was a problem project for six years, and supervisionmissions were unable to cope uith basic design errors and fundamental changesduring implementation. Reappraisal, although warranted, was never carriedout. The retrospective view on the Ghana Sugar Project also concurs that itshould have been reappraised or subjected to an in-depth review. A lesson canbe drawn from this experience:: whenever a project continues to be a problemfor some time, reappraisal should be called for.

4.66 Resident staff again played a useful role in the supervision ofsome of the projects under review, and this, for example, greatly benefittedimplementation of the Bangladesh Second Chandpur Irrigation Project. Butthere are limitations also. All five Eastern Africa projects were supervisedfrom Nairobi. Three of these projects faced serious problems for most oftheir implementation period and ended in failure. Supervision intervals forthese projects were only slightly below the average for the group as a whole.The audit of the Malawi Lilongwe Third Land Development Project found thatmany of its supervision missions were short, one-man missions, which con-centrated on attaining quantifiable targets and did not have enough time forfield visits or to discuss wider conceptual issues.

4.67 The expertise mix in staffing supervision missions was somewhat of aproblem in certain cases. Many, times a choice is required between continuityand expertise which needs to be recognized but can be resolved with teamsupervision -- at higher cost, of course. An issue in the Korea Second Agri-cultural Credit Project was the lack of demand for sericulture and sprinklerirrigation. The question is whether this could have been anticipated. Theaudit's conclusion was that this could at least have been more thoroughlyinvestigated by the Bank employing personnel or hiring consultants who had

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sufficient expertise related to the enterprises that were being promoted bythe project, including knowledge of the local ecology. Experience with theTunisia Fisheries Project (para. 4.53) also suggests that the Bank shouldbuild in allowances for short-term (few weeks) technical consultancies.Although an FAO naval architect regularly accompanied supervision missions,which proved very useful, other specialists, such as an engineer, were sorelymissed. No agriculturalist or processing engineer was involved in supervisingthe Mauritius Tea Project during its first two years, and no sugarcane culti-vation or processing specialists were engaged to supervise the Ghana SugarProject. Of the seven agro-industries financed under the Second AgriculturalCredit Project in Costa Rica, four either failed or encountered seriousdifficulties (three of the four failed ventures accounted for 90% of thedisbursements under this category); one was marginally, and two completely,successful. The common denominator explaining this was the absence (orpresence) of professionally conducted marketing studies. Of course, allinvestment proposals had to be reviewed by the Bank. However, the fact thatno professional marketing expertise was called upon to review these planswould appear to have been an omission of project supervision. For the SpainAgricultural Research Project, the Bank originally intended to recruit, onretainership, a group of three long experienced scientists to supervise theproject at six-month intervals together with Bank staff. Only one such visitwas organized, however, and the project was thereafter supervised as areother, more traditional projects in the Bank's portfolio. The Bank, there-fore, failed to make a special effort to learn from its first research proj-ect; substantial benefits could have been derived from such supervision forensuing research projects. The problem is not always with the staffing ofsupervision missions, however. The audit of the Jamaica Second AgriculturalCredit Project pointed to lack of systematic follow-up on supervision missionrecommendations. In the Yemen People's Democratic Republic Fisheries Project,there were enough recommendations on which to act, but the Bank failed to doso.

4.68 Supervision sometimes showed excessive optimism. This was certainlythe case in the Zambia Integrated Family Farming Project, where the Bankcontinued to think that the project could be put back on the right track. Itwas also the case in the Argentina Argricultural Credit Project. FollowingBoard approval in May 1978, ten missions visited Argentina (for a total of 18staffweeks) to try to convince the Government to continue with the project,although the project could not be implemented given the high liquidity of theArgentinian banks and availability of other international financing on morefavorable terms; the availability to subborrowers of funds offered on moreattractive terms than Bank subloans;and the depressed demand for agriculturalcredit in general due to the agricultural policies prevailing at the time.The importance of good reporting by project units is beyond doubt. Thiscannot be a substitute for supervision missions, however, as shown by theGhana Sugar Project, where there was too much reliance on reports by themanaging agents which invariably turned out to be too optimistic.

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4.69 However, supervision clearly also has a beneficial impact. TheBorrower expressed appreciation for valuable assistance received from Bankpersonnel during appraisal and supervision of the Romania Giurgiu-RazmirestiIrrigation Project and remarked that its project staff are now better equippedto plan and execute future projects and to cope with international procurement.Also, technical supervision was of particularly high standing and contributedmaterially to the Turkey Second Livestock Project's success. In the case ofArgentine Balcarce Livestock, on the other hand, unit staff found many super-vision missions repetitive during the 13-year implementation period, and thelack of fluency in Spanish of some Bank staff was seen as a major drawback incommunicating their problems to the Bank. Project staff of the Rwanda MutaraProject found supervision too short without enough reporting back to projectstaff. Thus, while the overall impression is satisfactory, more attention tosupervision detail might improve its impact.

III. FACTORS OF EFFECTIVENESS AND IMPLEMENTATION

A. Interaction of Projects with Sector Policies and Institutions

4.70 The importance of project compatibility with the sectoral contexthas generally been recognized as an intrinsic part of the development process.The first step in such a process requires identification of national goals,usually comprising a Development Plan, in which projects are considered theprimary vehicles for translating goals into action. Agricultural developmentrequires not only that farmers perceive and then respond to opportunities, butalso that constraints which operate to limit their response are lifted. Thus,within a specific area or region, it is essential that the actions of public/private agencies with responsibility for taxation, prices, input supply andmarketing be coordinated; while these factors are often "external" to theproject, they can and do exert significant influence on project outcome.

4.71 This section, therefore, examines, first the importance of sectorpolicies, in particular prices, marketing and cost and loan recovery, onproject outcome and, second Bank efforts to influence sector policies and thedegree of success or failure associated with its respective strategies.

(a) Impact of Sector Policies on Project Outcome

(i) Prices

4.72 Previous reviews have stressed the importance of adequate pricingpolicies to the achievement of project objectives. This year's set of proj-ects is no exception: farmers continue to demonstrate their sensitivity toprice signals. In the Sri Lanka Mahaweli Ganga Project, a favorable pricepolicy was a major factor contributing to project success. Cropping inten-sities, yields and production of paddy exceeded appraisal expectations in partbecause of the Government's decision, during project implementation, to shiftfrom Government marketing channels with fixed prices to a free market.

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4.73 In four other projects - Ghana Sugar, Ghana Cocoa, Senegal SecondAgricultural Credit and Costa Rica Second Agricultural Credit - poor pricingwas a principal reason for project failure or delay. Moreoever, in the caseof Ghana Sugar, Ghana Cocoa and Senegal Second Agricultural Credit Projects,the importance of adequate pricing was known at appraisal and was highlightedin the respective President's Reports. While these examples illustrate theoverall impact of inadequate pricing policies on the projects as a whole, thedetermination as to what constitutes "correct" pricing policies can vary,depending on whether the prices are being viewed from the perspective of thefarmer, the Government or the Bank, each of which may perceive the project tohave different, and in some cases, conflicting objectives.

4.74 While farmers normally maximize returns to their most scarce pro-duction factor and quickly adapt to changes in the economic environment,this conflicts from time to time with productivity goals set at appraisal.The irrigation system under the Turkey Irrigation Rehabilitation Projectwas designed to deliver water for wheat production, a principal Governmentobjective. But farmers switched to higher value crops (such as vegetables);although at full development such crops will not permit maximum area utiliza-tion, they maximized returns to farm labor. The Costa Rica Second Agri-cultural Credit Project was designed to boost livestock production with a"cautious" expansion into dairy and field crop production. In fact, livestockabsorbed almost all the project loans until international beef prices droppedin 1974. Only then was dairy development taken up, not in the Central Plateauarea, as was expected, but principally by beef farmers as a hedge againstfluctuating international beef prices. Under the Malawi Third Lilongwe LandDevelopment Project tobacco, maize and groundnut production was to be inten-sified, with a relative shift away from tobacco toward the latter two cropsand with maize becoming a cash rather than a subsistence crop. However,farmers already cultivated two familiar cash crops -- tobacco and groundnuts-- and were not interested in a new cash crop. Furthermore, at the relativeprices and returns to labor which prevailed at the time, shifting away fromtobacco into maize and/or groundnuts was unattractive. As a consequence, theaverage yield of tobacco increased by about 150% while that of maize increasedby 20%, and that of groundnuts declined by about 20%. Finally, although theSenegal Terres Neuves Resettlement Project obliged settlers to follow certainrecommended practices and cropping patterns or face expulsion from the settle-ment scheme, the crops produced tended to be groundnuts, millet and sorghum,since pricing policies favored these crops, rather than maize and cotton asenvisaged in the farm plans.

4.75 The Bank's perspective regarding pricing policies as a principalmeans to stimulate or intensify production can also be at variance withGovernment political objectives in respect of income distribution or foodsecurity. The Argentina Balcarce Livestock Project was to introduce advancedpasture production technologies to beef ranches. The project did not achievethe level of productivity expected at appraisal largely as a result of inter-action of several factors, notably Government price policies and beef/fertilizer price ratios. Beef is a major food item, and its price strongly

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influences real incomes of urban consumers. Moreover, most of the beef inArgentina is produced by large wealthy landowners who had lost politicalcontrol in the 1950s and 196 0s to urban industrial interests. In consequence,Government policies favored urban consumers and, at the same time, reducedincomes of the large ranchers. In the Mali Mopti Rice Project, farmgateprices have also been a major issue in Bank - Government discussions. Govern-ment's major concern has been to keep cereal prices for influential urbanconsumers low. Low producer prices for rice were to some extent mitigated byhigher prices on the parallel market, thus production did not suffer to theextent evident in Senegal.

(ii) Marketing

4.76 While sectoral policies in respect of pricing are crucial to stimu-lating production at the farm level, increased production alone is not suffi-cient to overcome the problems of feeding the developing world. Since almost88% of the projects under review were designed to increase food production, animportant component of these projects had to be the strategies employed toimprove the links between production and consumption. Perceptions of largetrader margins together with low farmgate prices are widely held, albeit ofteninaccurate, and in many projects marketing has, therefore, been deemed tooimportant to be left in the hands of the private sector. Given the degree andextent of public intervention, marketing strategies have increasingly assumedan important ranking in the hierarchy of Government sectoral policies.

4.77 In many of the projects under review, particularly Ghana Cocoa,Senegal Second Agricultural Credit, Malawi Third Lilongwe Land Development,Rwanda Mutara, Senegal Terres Neuves Resettlement and Turkey IrrigationRehabilitation, marketing strategies for both inputs and outputs have focussedon the creation of cooperative organizations. In at least one project, MaliMopti Rice, the absence of farmer institutions to cover credit supply andrecovery, marketing and extension was seen, during implementation and atcompletion, as a notable omission. In asssessing the performance of coopera-tives as instruments of marketing policies, the objectives of the organiza-tions must be borne in mind. The historical, developed country concept ofcooperatives generally perceives them as entirely voluntary self help organi-zations. In developing countries, however, cooperatives have been seen moreas a means of effecting change, particularly among the rural poor. Thus someform of external intervention in the cooperative movement is almost essential,if only to assist with management and with control of finances, as a step tomore voluntary and self-reliant organizations in the future. In general,therefore, cooperatives in developing countries will depend not only on localsupport and commitment but also on some form of external -- generally Govern-ment -- support based upon what the farmer expects to gain from participationin the organization.

4.78 An important objective of the Ghana Cocoa Project was strengtheningcocoa marketing cooperatives; all participating farmers would be members andmarket their cocoa through the cooperatives. Poor Government support and lack

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of marketing prefinancing resulted in the collapse of the cooperatives,

however. Similarly lack of Government support was also a factor in thefailure of group activities to develop communal facilities for village live-stock in Northeastern Turkey.

4.79 Government intervention and support must, however, be timed cor-rectly. While such intervention is generally seen as an effort to help

farmers adjust to changing circumstances, the need for such adjustments is notalways appreciated by both the Government and the farmers in the same way andat the same time. This was evident in Peru Fifth Agricultural Credit Project.The land reform in 1969 included consolidating small land holdings intocooperatives. However, the more that cooperative farming changed the pre-reform structure of production and the smaller the profits initially dis-tributed, the less willing farmers were to participate in these cooperatives.

4.80 Turkey Irrigation Rehabilitation is an example where cooperativessupplying both inputs and the necessary marketing channels worked well in onearea and less so in another, because farmer support in the latter was lesspronounced, mainly because marketing arrangements were not completely satis-factory. In Senegal Second Agricultural Credit Project, local initiativewas all but stifled, with cooperatives being regarded by farmers as localbranches of Government agencies. This was largely attributed to the fact that

cooperatives had not resulted from any spontaneous farmers' movement butrather one vast cooperative was established by the Government to facilitateits groundnut and cereal marketing and credit distribution activities.Farmers eventually withdrew from the system by refusing to repay their credit,and withdrew from the production process by reducing drastically the cultiva-tion of groundnuts -- which is Senegal's major cash crop -- in favor of food

crops for on-farm subsistency. This "top-down" approach to cooperativedevelopment has, in at least two of the projects - Senegal Terres NeuvesResettlement and Rwanda Mutara Agricultural Development - been encouraged bythe Bank in its design of the organization and management of cooperatives.In retrospect, much more emphasis should have been placed on encouragingself-help and self-administration by settlers.

4.81 Experience with this year's set of projects demonstrates that,without effective marketing of inputs and outputs, production potentials areunlikely to be realized. While cooperative movements have not demonstratedmuch success in contributing to successful marketing strategies, their poorperformance is largely due to the fact that principal ingredients for successhave been missing. Thus, what is required is the right degree and timing ofGovernment support together with sufficient farmer interest at the locallevel. If this combination is achieved, it is likely that cooperatives can beimportant vehicles to improve marketing policies.

(iii) Cost and Loan Recovery

4.82 The Bank has always held that capital invested in the course of aproject should generate sufficient income to amortize capital investment andprovide an adequate return. Thus, the Bank has generally required that strong

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Government support be evident for loan repayments in credit projects and thelevying of O&M and capital charges in irrigation projects to ensure that thecapacity provided by the project is maintained for future development.

4.83 In contrast to Korea Second and Costa Rica Second AgriculturalCredit Projects, where loan arrears were low, experience in India and Senegal,for example, indicates that, without renewed Government effort, the aboveobjectives are not likely to be achieved. In India, the proportion of overduerepayments of principal and interest to the cooperative state land developmentbanks as a percentage of loans collected has increased continuously and mostparticularly throughout the implementation of the Second ARDC Project. Aprincipal reason given in both the Second ARDC and Bihar Agricultural CreditProjects for the deterioration in recovery performance is the respective stategovernments' reluctance to take coercive steps against delinquents. Creditrepayment began well in Senegal but declined sharply after 1977/78 principallybecause of the failure of the cooperative system established by the Government(see para. 4.80) and the inability of the input supply and marketing organiza-tions to fulfill their responsibilities.

4.84 Experience with these projects under review also demonstratesthat Government commitment is an essential precondition if investment costsand/or operation and maintenance charges are to be collected satisfactorilyfrom project beneficiaries. In Mali Mopti Rice, despite generally poor yieldsand heavier taxation than initially foreseen, the recovery rate for annual O&Mcosts was reported as good. Under the Sri Lanka Mahaweli Ganga Project,farmer willingness to pay O&M charges, although at a level far below actualcosts, became evident once farmers were permitted to sell paddy on the freemarket. Government support to recover O&M charges has been less notable inthe other cases. Despite the fact that average income of most project bene-ficiaries is higher than the national average, assessment and collectionof water charges continued at a low level throughout the Turkey IrrigationRehabilitation Project. The Government, for political reasons, was unwillingto comply with the Development Credit Agreement's covenant. The Government ofBangladesh also failed to comply with the necessary covenant in respect ofrecovery of O&M.

4.85 While the Bank has been concerned to ensure that sectoral policiesare adopted which keep projects as far as possible from becoming a burdenon the recurrent budget, it failed in various ways in India Bihar Agricul-tural Markets, Mauritius Tea and Rwanda Mutara. In India Bihar Markets, theproject's primary objective was not achieved at audit because traders werereluctant to move to the newly constructed markets. One reason for theirreluctance was that the markets were designed as instruments to collect taxes.In Mauritius Tea, far from financing the development of smallholder teasettlements, the project established an unemployment relief agency with annuallosses amounting to US$8 million in 1981. In Rwanda Mutara, while the govern-ment wished project implementation to be undertaken by consultant firms,as was done previously, the Bank required that a permanent institutional

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structure be established whose buildings and personnel, including technicalassistance,.L absorbed 84% of total (US$4.3m) project costs, with only 16%being invested in the directly productive enterprises of farmers.

(b) Project Impact on Sectoral Policies

4.86 Since projects are generally regarded as a means to promote orreinforce sector/national goals and objectives, this set of projects has beenanalyzed to assess the extent to which individual project objectives werecompatible with such goals. From this review, however, it is difficult todetermine any particular pattern to Bank efforts. The record of success andfailure does, however, provide some indicators for future Bank policy.

(i) Bank Efforts to Reinforce Sectoral Goals

4.87 In this set of projects the Bank has generally taken pains to ensurethat its financing will support projects which are in keeping with nationalpriorities as expressed in the respective development plans. Almost allPresidents' Reports provide considerable detail of such priorities followed byan elaboration of Bank objectives, often summarized as follows: "The proposedproject would fit into the programs embodied in the new Development Plan beingformulated by the Government for the period 1977-81." (Korea Second Agricul-tural Credit Project, President's Report, para. 44), or "the case for con-tinued Bank lending rests on the need ... to support appropriate policiesin critical areas of the economy" (Jamaica Second Agricultural Credit Project,President's Report para. 10).

4.88 In India (six of the 40 agricultural projects reviewed were inIndia) the Bank's support for the agricultural sector has underpinned gradu-ally evolving Government priorities and strategies. Thus, the key changebetween the second and third Five Year Development Plan was the shift fromheavy industrialization towards agriculture in order to take advantage ofthe technological opportunities for substantial increases in the yields offood grains. At the same time it was felt that improvements in efficiencyshould be the overriding concern in Indian economic development; thus emphasisshould be given to food grain technology using high yielding varieties. Banksupport, therefore, began with irrigation in 1961, since three-quarters ofIndia's farmland is rainfed, and scanty and unreliable rainfall has long beenregarded the major constraint to increased agricultural production. By thetime of the fourth Five Year Development plan (1969-74) it was recognized byGovernment that new irrigation projects should be based upon an integratedplan for water and agricultural development. This not only would provideopportunities for intensified irrigation but also would take into account the

1/ It is likely that technical assistance did not absorb a large proportionof these costs, since the PPAR states that the Government, while recog-nizing the need for technical assistants had a generally negative atti-tude in this regard which was particularly acute in the Mutara Project.

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need for on-farm development, provision of credit and supporting services.The Kadana Irrigation Project, which was approved in 1970, was the first ofthese "second generation" projects, where emphasis was placed not only oncompleting past investments in irrigation to guarantee assured water supplybut also on the timely supply of the necessary inputs for increased yields.The Pochampad Irrigation Project, approved in 1971, continued this emphasiswith further attention being given to systematic on-farm development. Itbecame a pilot scheme to test what was later known as the command areadevelopment program. This shift in emphasis in irrigation, from focussingupon lifting identified constraints to encouraging farmers to perceive andtake advantage of opportunities available, was also apparent in the agricul-tural credit subsector. In keeping with the fourth Five Year DevelopmentPlan, the Bank embarked upon a series of agricultural credit projects./,since it was felt that medium- and long-term loans to farmers would enablethem to use the new agricultural technology more effectively. Early experi-ence with these projects, however, provided support for the command areadevelopment concept. Farmers were reluctant to incur expenditure for landdevelopment until water supply was assured. Following an IDA irrigationreview mission in December 1972, it was decided that future projects (whichincluded Pochampad), would take on the responsibility for distribution ofwater to farmers and that credit would only be available to the command areas.By the time that Bihar Agricultural Credit Project was appraised and approvedin 1973, the Government's preliminary proposals for the fifth Five YearDevelopment Plan, with increasing efforts focussed upon the alleviation ofpoverty, were reflected in the design of the project. Thus the project wasexpected to contribute to a better regional balance of agricultural growth byextending the new agricultural technology into the relatively neglected anddepressed rural areas of Bihar. This policy continued with the Second ARDCProject, which was expected to channel 25% of the funds on-lent to nineless developed states with small farmers receiving 50% of available funds.Similarly, in keeping with overall Government policy aimed at achievingself-sufficiency in foodgrains, both the Wheat Storage and the Bihar Agricul-tural Markets Projects reflected these goals in their efforts to reduce wasteand spoilage of foodgrains through the provision of modern wheat silos and thedevelopment of major market centers.

(ii) Bank Efforts to Change Sectoral Policies

4.89 In only one project was the fundamental question specificallyraised as to the desirability for the Bank to be involved in trying to changenational sectoral policies (Argentina Balcarce Livestock). The question,raised internally in the Bank, was never satisfactorily resolved. Projectstaff considered that the importance of the project lay in introducingadvanced pasture techniques; thus the project could be fitted into the exist-ing distorted economic structure. Programs staff, on the other hand, felt

1/ Agricultural Credit Projects: A Review of Recent Experience in India,OED Report No. 3415, dated April 8, 1981.

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that the project should be used as a tool to improve this structure, and thatif the Bank continued to press for indexing of subloans, adequate prices, etc.then the project would contribute to the introduction of sound economicpolicies. During implementation, the Bank position oscillated between thesetwo points of view.

4.90 Where the Bank was clear in its efforts to influence sectoralpolicies, two strategies became evident: first, interrupting or suspendingthe lending program if agreed actions were not taken by the borrower; andsecond, using the project as a lever, either by its design or through specificconditions, e.g., covenants. There is, however, no recognizable pattern as towhy the Bank chose to withdraw in some circumstances and to intervene activelyin others.

4.91 The Lending Program as Leverage. The President's Report (para. 20)for the Argentina Agricultural Credit Project describes how past Bank lendingto Argentina had been sporadic because of periodic macro-economic difficultiesand unsatisfactory sector policies, leading to a hiatus in lending between1971 & 1976. The interruption in the lending program in the case of Ghana wasnot as prolonged but was nevertheless explained, in the President's Report(para. 13) for the Sugar Project, on the basis of weak economic policies.Despite the fact that several projects were at an advanced stage of prepara-tion, no credits were made to Ghana following the change in Government inJanuary 1972, largely because of uncertainties regarding domestic economicpolicies, together with the precarious economic and financial situationprevailing in the country.

4.92 Interrupting the lending program was not only employed by the Bankbut also by one borrower as a defense mechanism against further Bank interven-tion in its economic policies. In the case of the Argentina AgriculturalCredit Project, the loan was cancelled by the Government of Argentina prior to

implementation but after almost eight years of preparation and negotiation(and the loan had already been effective for one year). The principal reasonfor cancellation was that the project did not fit the agricultural sector andeconomic context prevailing at that time. The audit report also points outthat, while Government wanted assistance from, and did not wish to cut itsties with, the Bank, it was at the same time wary of Bank involvement in itseconomic policies (Under a previous project, Balcarce Livestock, the Bankhad pressured Government to agree to indexing of subloans, employing thethreat that lending would cease if such policy was not implemented).

4.93 Projects as Vehicles for Changing Sector Policies. Under the

Senegal Second Agricultural Credit and Malawi Third Lilongwe Land Develop-ment Projects, the Bank sought to influence sector policies through these

individual projects; in the case of the Rwanda Mutara Project, such effortswere confined to a sub-sector. In all three cases, Bank efforts did not meet

with success.

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4.94 The President's Report for the Senegal Second Agricultural CreditProject highlighted that problems encountered under the first project wereaggravated by adverse Government policies (low producer prices, inadequatemarketing and credit systems,, and poor Government coordination amongstrelevant institutions). Institution-building was, therefore, an importantsecondary objective of the project, with the Bank adopting a strategy ofseeking improvement in performance through the implementation of a numberof covenants; only a small part of IDA funds was allocated to technicalassistance.

4.95 The Malawi Third Lilongwe Land Development Project, was part of awider rural development program to create a suitable environment for increasedcrop production. The appraisals of the three phases of the program choseincreased production as the means by which success of the program was to bemeasured. As a consequence, pricing assumed overriding importance to theeventual success or failure, since without the right price signals, intensifi-cation of production was unlikely. Thus pricing policy has been an issuesince identification of the program, with the Bank consistently advocating itsimportance as a means to increase production and change traditional croppingpatterns, without much success. Only in the framework of a recent SAL havesubstantial further efforts been agreed to improve pricing policy and pricelevels.

4.96 The Rwanda Mutara Project, the Bank's first agricultural project inthe country, was restricted to development efforts for settlements. Insteadof working within the existing institutional structures, and over the objec-tions of the Government, the Bank insisted upon the establishment of anautonomous project unit, which the Bank felt, would be more successful indeveloping local capacity. Funding for the unit was to be borne by projectbeneficiaries. In the end this turned out to be a major mistake.

4.97 The Ghana Cocoa Project erred on the other side, by not payingsufficient attention to the sector environment. In fact, it attempted toisolate the project from its sectoral context. It was recognized at appraisalthat the problems which plagued the cocoa industry were macro-economic. TheBank felt, however, that high taxes on exports were justified, in view of thecountry's poor fiscal position, and higher cocoa producer prices were thus notfeasible. However, a one-time producer price increase was agreed, and theBank felt that this, together with the subsidized inputs provided by theproject, would provide adequate incentives for efficient producers. Theproject, therefore, was designed to achieve its production objectives withoutany effort to resolve wider sectoral problems, this despite the fact thatcocoa exports constituted 70% of Ghana's foreign exchange earnings, shortageof which was identified as a principal constraint to Ghana's economic develop-ment. Furthermore, as the PPAR pointed out, the failure to achieve theobjective of the cocoa project contributed in part to the failure of GhanaSugar Project which had heavy requirements of foreign exchange, which was tobe generated by the cocoa sector.

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(iii) Results of Bank Efforts to Strengthen/Change Sectoral Policies

4.98 Experience with this set of projects demonstrates that the Bank hashad considerably more success where it has confined itself to strengthening orreinforcing national objectives rather than embarking upon change of sectoralpolicies in the context of the project. In cases where the Bank exercisednegative leverage, and interrupted or suspended the lending program to awaitmore favorable economic circumstances, no conditions were imposed when lendingresumed to ensure that future policies would prevent repetition of previousdifficulties. No real change in policy was, therefore, effected. In PeruFifth Agricultural Credit, despite a gap of six years, lending was recommencedwithout firm policy stipulations. As a consequence the Government, which hadintroduced land reform in 1969, was preoccupied with implementing that programand was unwilling to introduce any policy changes in respect of agriculturalcredit practices as the Bank wished. In Ghana, lending was resumed with theCocoa Project, but the Government was not required to change its sectoralpolicies to create a more suitable environment for the project; rather, theproject was virtually isolated from the sector. In the Argentina AgriculturalCredit Project, the Government demonstrated, by eventually cancelling theloan, that the benefit to be obtained from the project did not outweigh whatit perceived to be the drawbacks of Bank intervention in its economicpolicies.

4.99 There appear to be four distinct reasons why projects in this groupproved inadequate vehicles to change sectoral policies. First, the extent ofthe problem was such that it could only be addressed at the sectoral levelbacked by a series of projects. In the Senegal Second Agricultural Credit,the use of covenants to improve sector level institutions proved ineffective.Furthermore, once the extent of the institutional weakness was understood itwas also recognized that a project of this type was not the best medium foreffecting institutional improvement. Similarly, the PCR for Costa Rica SecondAgricultural Credit Project concluded that the investment, in terms of humanand capital resources, required to obtain the export diversification objectivewas such that it could only be met within "the framework of comprehensiveschemes or projects."

4.100 A second reason was that the size of the project was too smallto give the Bank sufficient leverage. In three credit projects, it wasconcluded that the extent of Bank influence on lending criteria was directlyproportionate to its contribution to such lending. In Senegal, the problemsof the credit sector could not be tackled effectively on the basis of oneagricultural credit project. In Costa Rica, the Bank was unable to preventmost of the funds from being on-lent at subsidized rates to large-scalefarmers. Under the Balcarce Livestock Project, the fact that the project wassmall in relation to the total demand for agricultural credit in Argentina wasalso a factor in the Bank's failure to secure adequate indexing and preventsubsidization. The evidence of the Indian Second ARDC and Bihar AgriculturalCredit Projects perhaps supports the contention that, the larger the programproportionate to the total agricultural credit program, the greater theinfluence which can be wielded by the Bank. The example of the Peru Fifth

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Agricultural Credit Project is an interesting counterpoint; even after aseries of four agricultural credit projects, the Bank was unable in this caseto exert any significant influence on national lending policies.

4.101 Third, in its project lending the Bank itself often did not pursuethe issues of sectoral change vigorously enough. In Malawi, it was concludedthat the Bank had not done all it could in the ten year period to assist theGovernment in shifting towards a pricing policy linked to production programsand targets. Finally, there was an apparent inability or unwillingness toapply lessons from past experience. In the Rwanda Mutara Project, the Bank,on the basis of little sectoral knowledge, endeavored to influence organiza-tion and management policies by the establishment of an enclave type ofproject, despite the fact that settlement had a considerable history ofoperation in Rwanda. Moreover, the Bank had sound evidence from, for example,the Malawi rural developmeant program that a strategy which includes theregion as a whole tends to be more appropriate and effective than one basedupon partial development in isolation from other regional land resources. Asthe Borrower's PCR for the Malawi Third Lilongwe Land Development Projectconcluded: "as a well conceived, integrated program, developing within afirm base of local support, this program has clearly fitted the contextand balanced the needs of development at a critical time in the history ofMalawi."

B. Agricultural Research

4.102 The Bank's support for agricultural research activities is rela-tively new, dating only from the late 1960s and early 1970s, and takes severalforms: (i) agricultural and rural development projects with research compo-nents; (ii) national and statewide research (mostly combined with extensionand training) projects; (iii) research components in education projects; and(iv) financial and administrative support of the Consultative Group forInternational Agriculural Research (CGIAR). The agricultural projects

reviewed this year offer insights into the first two types of Bank support foragricultural research: 12 projects included -- albeit sometimes small --research components; furthermore, the Bank's first full scale agriculturalresearch project is also included.

4.103 The Spain Agricultural Research Project was approved in late FY71.Four years later (in FY75), two further agricultural research and extensionprojects in Malaysia and Indonesia were approved and increasing numbersL/ ofsuch projects were approved in. the years thereafter. During the periodFY70-80, the Bank approved US$721 million for 29 agricultural research andextension projects and US$171 million to support research activities in 312agricultural and rural development projects.!/

1/ Two projects in FY76, six in FY77, eight in FY78, six in FY79 and four inFY80.

2/ For full details, see Agricultural Research Sector Policy Paper, datedJune 1981.

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4.104 The Spain Agricultural Research Project was a success. Majorfactors explaining this success were the thorough design and appraisal, fullGovernment support for the project approach, and Government commitment duringimplementation. As far as research components in agricultural and ruraldevelopment projects are concerned, while only a limited number of suchcomponents are included in this year's Annual Review, the experience withtheir implementation confirms the conclusions of the agricultural researchsector paper. The paper notes that, in general, "some of these componentsappear to have been poorly designed or are too small, either in scope or infinancial terms, to be effective. Some have neither specified clearly whatthe research problem is nor how the problem is to be tackled. Because of thetime lag between research work and practical results, research financedthrough some project components has not yet been available to provide theexpected technical underpinning for the main project. These components arefrequently less carefully supervised and the need for their timely implementa-tion receives less emphasis than do the main project components. Because theneed for adaptive research in these projects is great, research componentswill continue to be required. But their design, time phasing and linkages tonational research systems warrant greater attention."

4.105 The twelve research components included in the 40 projects reviewedwere mostly modest in scope. Two-thirds did not reach their full objectives,to a large extent due to insufficient design, lack of detailed planning andinsufficient attention by management and supervision during implementation.The link with existing research systems was absent in almost all cases.Applied research and demonstration of improved farming methods, particularlyforage production, was included under the Turkey Second Livestock Project.Consultants specialized in tropical pastures and in animal fertility were tobe appointed under the Panama Livestock Project. Both components failedsubstantially due to lack of detailed planning. As the audit report onthe Panama project noted: "training programs and the role of external consul-tants need to be worked out in considerable detail at appraisal otherwiseimplementation of these aspects is likely to be both delayed and haphazard."Agricultural research under the Mali Mopti Rice Project focussed on yieldresponses to various cultivation techniques (seed spacing, timing of plough-ing, intensity of weeding), on methods of eradicating wild rice and on laborrequirements of a 4-ha type model farm with varying use of equipment. Faultymethodology and lack of competent supervision prevented complete achievementof initial objectives. However, conclusive results have been obtained, inparticular on cultivating techniques, which are being used in the follow-onproject. The Malawi Third Lilongwe Land Development Project included agro-economic surveys, land resource surveys and crop trials. However, the post ofSenior Research Officer was not filled and the objectives of this researchand crop trial program could, therefore, not be realized. An expatriateagronomist undertook applied research at the estate under the Ghana SugarProject. Trials were, however, adversely affected by drought, fire, borerinfestation and mechanical breakdowns, and few convincing results emerged.

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4.106 However, well focussed and defined research components can besuccessfully implemented as shown by the Senegal Second Agricultural CreditProject. This project included two research components, both successfullyimplemented: (i) vehicles and equipment for the national agricultural re-search institute; and (ii) a study to provide information on fertilizerresponses at field level. Field work was done over a three-year period with32 fertilizer trials carried out each year on millet and groundnuts onfamers' fields and the results analyzed with assistance from the InternationalFertilizer Development Center. The study also included an analysis of allfertilizer research done in Senegal since the early 1950s. Although substan-tially delayed, this component of the Senegal Second Agricultural CreditProject has been successful in terms of impact. It has generated a livelydebate on the appropriateness of compound fertilizer use in Senegal aswell as questioned the economic or even social justification for uniformfertilizer prices and subsidies in Senegal. Study benefits were, therefore,very helpful for sector analysi's.

4.107 There is clear evidence that applied and adaptive research isessential for agricultural development. The lack of applied agriculturalresearch for new crops and cropping techniques in the area was an importantreason why farm development under the Rwanda Mutara Agricultural DevelopmentProject was only partially successful at audit. The project was intendedto increase the productivity of small farmers, who were traditionally orientedtowards subsistence crops and without an appealing technical package, sincemost productive inputs were either not available or could not be applied dueto physical constraints or Government policy.

4.108 Although the Argentina Balcarce Livestock Project faced seriousissues, it had a positive impact on the National Institute of AgriculturalTechnology, an important secondary effect. This Institute generally workedon a commodity basis both in research and extension. As a result of theproject, research efforts began to focus on problems of the entire ranchas the production unit. The same approach was adopted in extension, and bothtechnical and financial aspects were considered for on-ranch development.This was innovative for INTA and was subsequently adopted also at the nationallevel. Through the work of the project unit, INTA also came into closercontact with ranchers, became concerned with more practical issues, andstrengthened its extension staff. This demonstrated again that the linkbetween projects, existing research, and the extension structure and systemsis of utmost importance.

4.109 The two irrigation projects in India included small research compo-nents and various other measures to strengthen agricultural support programs.In fact, during the project implementation period, agricultural supportservices were greatly strengthened, due to the creation of command areadevelopment authorities and later Bank support for state-wide agriculturalresearch and extension projects. Similarly, the Bangladesh Second ChandpurIrrigation and the Sri Lanka Mahaweli Ganga Projects, benefitted considerablyfrom subsequent Bank supported projects to improve agricultural extension andadaptive research on a national scale. Such improvements did not take place

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in some other cases. The existing extension service in the three projectareas of the Turkey Irrigation Rehabilitation Project were to be strengthened.

However, other than the appointment of coordinators in each area and employ-ment of consultant extension specialists, the way in which extension activi-ties would be strengthened was not specified at appraisal. The coordinators

were appointed, but they were usually the extension directors for the regions,

and they had other responsibilities; transportation and equipment were always

inadequate and staffing of the extension service never complete. Consultantswere never appointed. The objective of developing a viable extension servicewas not attained in the three project areas. There was a lack of technicaland managerial assistance to sub-borrowers under the Peru Fifth AgriculturalCredit Project which substantially reduced the productive impact of theinvestment sub-lending program. The Ministry of Agriculture's extensionservice had been virtually dismantled during the early implementation phase ofthe agrarian reform, and the Government did not assign a high priority to thegeneration of new production technologies through public or private agricul-tural research institutions.

4.110 The lessons of experience with these research components and pro-jects are still valid today, but the conclusions must also be evaluatedtaking into account more recent Bank experience with research and extensionactivities.!/ The Bank continues to gain experience by increased lendingfor agricultural research and extension in more and more member countries.

IV. SUMMARY FINDINGS

A. Performance by Subsector

4.111 Agricultural credit projects, especially those supporting cropdevelopment and small irrigation, were again, as in the earlier years, econom-ically the most worthwhile. To a certain extent, this is a reflection of thecharacteristics of credit projects. Existing, and usually strong, financialinstitutions normally execute these lending programs; overheads are not,therefore, included in project costs, unlike many other projects. Further,the time slice financing normally provides for an automatic cut off when theloan is fully committed thereby precluding major cost overruns. The highreturns of this year's set of projects, however, also reflect strong demandfor project investments and the productive use to which they have been put.The financial institutions concerned performed well in most cases. Finally,as these credit projects reach farmers directly, they continue to be effectiveinstruments, if adequately designed and focused, for reaching small/poorfarmers. The failure of credit institutions to reach really small farmers insome countries does not invalidate this general conclusion.

4.112 Irrigation projects, again comprising the largest group of projectsreviewed, performed well with an average return of 17% and no individualproject with a return below 10%. The average return is lower than that of

1/ Strengthening Agricultural Research and Extension, The World Bank Expe-rience, OED Report under preparation.

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last year (33%), but higher than the year before. Last year's high returnswere, however, due to a large number of rehabilitation projects which had sunk

costs and generated high benefits on fresh investment. As a group, irrigationprojects averaged the highest cost overruns among the subsectors as well assubstantial time overruns, consistent with similar experience of irrigationprojects in earlier reviews. This is a pattern that calls for a review by theBank. However, improvements in commodity prices offset higher project costsand implementation delays, and, as a result, six out of eight irrigationprojects had higher returns than estimated at appraisal.

4.113 Agricultural support and livestock projects also offered sub-stantial economic impact, with average reestimated returns of 20% for eachgroup. Any further general conclusions are not possible in respect of thesupport projects, which covered a wide range of activities. Most livestockprojects covered on-lending to livestock producers; two were especiallysuccessful because they benefitted from the experience of preceding projects,and also because they promoted profitable technological packages. For iden-tical but opposite reasons, the two other livestock projects were lesssuccessful.

4.114 At the other end of the spectrum were the treecrop, fisheries andagricultural development projects. Treecrop projects had low, but stillacceptable, rates of return. Cost increases and time overruns resulted, inmost cases, in planting programs being scaled down below appraisal estimates.While this was partly offset by increased commodity prices, rates of returnwere invariably lower than those estimated at appraisal. While the threefisheries projects demonstrated a good average rate of return, this is largelya result of rising real prices rather than increased production impact. Allthree projects faced serious problems and failed to reach their investmentobjectives, an experience similar to that for the four fisheries projectscovered in the two preceding Annual Reviews!/. The five agricultural develop-ment projects experienced the lowest average rates of return; two were suc-cessful, but three must clearly be regarded as economic failures. For two ofthe latter, lessons learned have since been applied in follow-up projects, andthe longer-term perspective might, therefore, be somewhat better than theshort-term impact (paras. 4.12-4.23).

B. Reaching Small Farmers

4.115 The ability and efficiency of agricultural and rural developmentprojects in reaching small farmers has been highlighted in the last twoAnnual Reviews. A special analysis of these aspects, which was done forprojects included in the Sixth Annual Review, concluded that projects aimed atbenefitting small farmers reached eight times as many beneficiaries perproject as those aimed at medium and large farmers, in a more cost effectivefashion and with almost equally good economic return on investments. The

1/ For supplementary information see also: Fishery Development: SectorPolicy Paper, Report No. 3915, dated May 1982.

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projects reviewed last year and this year support these conclusions. Nineprojects in last year's group, which were more specifically designed thanothers for reaching small farmers, yielded average returns of 26% comparedwith 20% for the group as a whole. When other projects which also had smallfarmers components are included, 16 projects in last year's sample reached anaverage of 112,000 farmers at a cost of US$490 per farmer, much below the costof the year before last (US$2,900). The cost per small farmer of this year'sgroup of projects (19) which aimed at benefitting small farmers averaged aboutUS$1,700, or around the average of the two previous years. The number ofbeneficiaries per project for this group averaged 44,000. For the projects inthis year's group that were directed more specifically at medium and largefarmers, the average cost per farm amounted to over US$12,000 (seven timesthat for small farmers), with an average number of farms benefited per project

of 1,800. The economic rate of return for the small farmer projects in thisyear's group was slightly higher (23% weighted average) than for all projects(21.5%) and significantly higher than projects not specifically aimed atbenefitting small farmers (17%).

4.116 In summary, the experience of 52 projects directed mainly at smallfarmers and reviewed in the last three years, continues to indicate thatprojects aimed at benefitting small farmers combine both rates of return andcost effectiveness comparable to, or better than, other projects (paras.4.13; 4.26-4.29).-/

C. Project and Sector Interaction

4.117 The impact of Government sector policies on project outcome remainsa dominant factor in this set of projects, as in those reviewed in earlieryears. Adequate prices are clearly crucial to production increases and areincreasingly recognized as such by Bank and borrowers. Governments have alsofocused on development of agricultural markets, particularly with the wide-spread development of cooperatives perceived as bringing benefits both to theGovernment and to the farmers. In the projects reviewed, poor cooperativeperformance seems to be a result of failure to comprehend the need for ajudicious blend of public intervention and local initiative. Finally, theissue of cost and loan recovery has illustrated that, while a low level ofrecovery would not necessarily have an immediate effect on these individualprojects, future viability of the sector could be in doubt unless the issue issatisfactorily resolved. This judgement must clearly be tempered by therecognition of the politically sensitive nature of the issue; the Bank andborrower approach to it must be, therefore, carefully worked out, with imple-mentation planned and monitored over time.

4.118 There is thus often need for special effort to obtain sectoralpolicies which would provide the right milieu for individual projects; Ghana

1/ See also Sixth Annual Review, paras. 3.07-3.16; 3.127-3.131, and SeventhAnnual Review, paras. 3.92-3.94.

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Cocoa is an outstanding example of the consequences to a project of a perversesector policy environment. The analysis of experience here must, however,lead to two warnings, obvious as they would seem. First, the individualproject is a weak instrument for introducing policy change. It gains somestrength when used realistically and in series but, in the final analysis,project lending cries out for "external" help when dealing with issues ofsector policies and institutions. Even individual projects achieve a widerimpact if a movement for change has been already established; and even drasticremedies may not bring about a change if the change sought runs counter toaccepted national policies. Secondly, therefore, sector policy and institu-tional changes must be agreed between the Bank and borrower in a wider andcontinuing dialogue which would take into account longer term prioritiesand objectives. Individual projects would then serve as stepping stones inapproaching those objectives.

4.119 Experience with these projects would lead to the general conclusionthat, given the importance of sector policies on project outcome, current Bankefforts to support improved sector policies through SALs and through closerdialogue with borrowers concerning macroeconomic policies should help ensurethat project performance benefits from improved policy environment (paras.4.70-4.101).

D. Implementation and Project Design

4.120 Another conclusion which has become more evident throughout theseries of Annual Reviews is the importance of project design for successfulproject implementation. In a large number of cases failures, delays or otherproblems can be traced back to lack of appropriate project design prior toappraisal, including detailed implementation planning. This point was againunderscored by the experience of the Guirgiu-Razmiresti Irrigation Project inRomania for which designs suitable for proceeding with construction wereavailable before appraisal. The project was completed before the forecastdate. Further, if projects satisfied the requirements set forth in OMS 2.28,State of Project Preparation Necessary for Loan Approval, a much better recordin project implementation and achievement would result. Delays in effective-ness are often due to absence of a start-up plan, procurement problems oftenoccur because of lack of detailed planning, breaches in covenants often occurdue to a failure to understand what is feasible in the prevailing circum-stances, and changes during implementation often are due to insufficientproject design. Thus, design is a major factor in successful project imple-mentation. Nevertheless, there is a fine balance here. Project design shouldbe sufficiently well developed to allow for immediate and straightforwardproject implementation but flexible enough to allow for adaptation withoutcausing wasted expenditures or cost increases, all of which might contributeto reduce/defer benefits to the borrower (paras. 4.46-4.49; 4.52-4.55; 4.61).

E. Agricultural Research

4.121 The Bank's support for agricultural research is relatively new,dating only from the late 1960s and early 1970s. The first agriculturalresearch project ever approved by the Bank was included in this year's review.The Spain Agricultural Research Project was clearly successful, mainly because

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of very thorough design and appraisal, full Government support for the projectapproach adopted, and Government commitment during implementation. Since thisproject, the Bank has continued to gain experience through increased lendingfor agricultural research and extension in an increasing number of membercountries. Bank support for research and extension has recently been reviewedby OED in a special study!/.

4.122 The 12 research components included in the 40 projects reviewedwere mostly small, and almost all failed to reach their set objectives. Thiswas due, to large extent, to insufficient design, lack of detailed planningand insufficient attention to such minor components during implementation.The link with existing research systems was absent in almost all cases.Although only a limited number of research components are included in thisyear's Annual Review, they confirm the principal conclusions of the agricul-tural research sector paper./ (paras. 4.102-4.110).

F. Follow-Up

4.123 At the end of 1980, the Agriculture and Rural Development Departmentof the then Central Projects Staff (CPS) introduced a novel series of memo-randa addressed to all agricultural sector managers across the Bank. Eachmemorandum extracts the lessons of experience from an individual PPAR, or froma small group of PPARs, and relates these lessons to current and future Bankpractice in similar agricultural projects. In so doing, the memorandum notinfrequently draws upon CPS experience to build upon and further reinforce thelessons emerging from the particular PPARs.

4.124 Twenty-five such memoranda have been issued through the middleof August, 1982, not every PPAR having lessons of wider significance to offer.Seven of these twenty-five are reproduced in Annex III and constitute a mosteffective and so far a unique response to the problem of disseminating thelessons of the PPAR system. Other OPS sector departments are considering thepossibility of instituting a similar system.

B. PUBLIC UTILITIES

INTRODUCTION

4.125 The Review covers 20 public utilities projects implemented by 18different agencies. Whereas the projects were evenly distributed betweenthe power, telecommunications and water supply/waste disposal subsectors in

1/ Strengthening Agricultural Research and Extension, the World Bank Expe-rience, OED Report under preparation.

2/ Agricultural Research Sector Policy Paper, dated June 1981.

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last year's Review, this year they are noticeably concentrated in the electricpower subsector, which accounted for twelve projects; of the remaining eightprojects, six were in water supply/waste disposal and two in telecommunica-tions. The group is younger than that reviewed last year, with half the loansand credits being made after FY73 (24% last year); eight of them were madeafter FY74. Eleven utilities received Bank loans or credits for the firsttime; of these, six have received a subsequent loan or credit. There is thusa heavy preponderance of "first" operations. Of the seven others, fourutilities were relatively well established Bank borrowers, having receivedthree or more loans or credits each previously. As in the earlier Reviews,all loans to the utilities are treated together in this section in view of thecommon institutional and financial problems faced by them. Sub-groups andindividual projects are, however, separately identified wherever necessary.

4.126 The Bank's concern with broad sector objectives in public utilitiesprojects was evident in this review as in past years. The sector approach isespecially evident in power and telecommunications, where interconnectedsystem operation is the norm and where individual projects are routinelyset in the context of a sector development plan. Bank strategy paid closeattention to the creation of a. rational institutional framework to help reducefragmentation, increase coordination and provide adequate finances at thesector level. In all power projects, a clear strategy was also discernible toassist the countries in developing their indigenous hydroelectric resources -to reduce their dependence on imported oil - and to plan the expansion ofgeneration facilities as a whole on a national or regional rather than localbasis. This strategy assumed greater importance following the 1973 majorincreases in international oil prices. In water supply/waste disposal, too,the concern with broad sector objectives was present, and the projects alladdressed critically, at the time of project preparation, the adequacy of theexisting institutional and financial arrangements of the urban conurbations inwhich they were to be located. Furthermore, as in past reviews, the publicutilities projects show a shared Bank and borrower concern to extend thebenefits of these services to the less privileged groups in urban and ruralareas.

I. OBJECTIVES

A. Physical, Economic and Social

4.127 The projects were intended to provide, in the most economical way,new capacity to meet the estimated growth in demand for services and toimprove existing facilities. They were typically parts of the long-termdevelopment programs of the utilities concerned. More specifically, theirobjectives included: the provision of a modern telecommunications transmissionsystem between Burma's major population centers, along with subscriber trunkdialling and the conversion of exchanges from manual to automatic operation; asubstantial increase in the number of rural areas provided with telephoneservice in Colombia; improved telex facilities and local and long-distancetelephone service in urban areas (Burma and Colombia); providing an expanded

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and improved water supply service and reducing the proportion of unaccounted-for water (Gabon, Thailand, Morocco and Swaziland); and providing for thecollection and treatment of liquid wastes (Swaziland and Cyprus). In theIvory Coast, the Bank financed the first stage of a long-term developmentprogram for the sewerage and drainage system of Abidjan (a prime focus ofurban growth), including immediate measures to reduce pollution in the lagoonssurrounding the city, to eliminate flooding in a densely populated part of thecity and to provide sewerage infrastructure for fast-growth or low-incomeresidential and industrial districts; the project also included a small pilot

scheme for the construction of public showers and toilets in low-income areas.The Gabon Water Supply Project was one of the earliest attempts by the Bank -perhaps the first - to incorporate concrete undertakings, as an integral partof the project, designed to increase the supply of potable water to the lower-income urban population. One undertaking specified a time-based numericaltarget for installing public standpipes in the poorer sections of Libreville.Additionally, there was an undertaking to introduce a package of three finan-cial measures to encourage an increase in the proportion of the populationserved by house connections.

4.128 A major objective underlying all the power projects was to assistthe countries in developing their indigenous energy resources. Eleven of theprojects did so directly, by financing the addition of hydroelectric gener-ating capacity and associated transmission lines (Kenya, Iceland, Brazil,Colombia, Sri Lanka IV and Bolivia) or by financing main transmission anddistribution works, which would permit the improved utilization of existinghydroelectric stations (Turkey Keban Transmission, Turkey TEK Transmission,Malaysia, Pakistan and Sri Lanka V). For example, relatively low-cost hydro-electric potential was one of the few natural resources available in Icelandand through this and other generation projects the Government hoped to attractenergy-intensive industries to the island and thereby diversify and strengthenthe economy. The project was also expected to substitute hydroelectricenergy for oil in the important domestic space-heating market. The TurkeyKeban Transmission and Malaysia Power Projects were to provide essentialtransmission lines to link major hydroelectric stations to the principal loadcenters. The Sri Lanka IV and Bolivia Projects additionally included gasturbine units to help meet the rapid growth in demand which was expected inthe near term. In Afghanistan, the contribution to indigenous energy resourcedevelopment was indirect. Although the project facilities included onlythermal plant, the principal objective of this plant was to supplement hydro-electric energy generation during dry periods and hence allow the more effec-tive exploitation of the country's hydroelectric potential. Other objectivesof the power projects included: new or improved service to important agricul-tural and industrial consumers (Pakistan, Sri Lanka V and Brazil); support fora program of rural electrification (Sri Lanka V); wider electricity distribu-tion to lower-income urban consumers (Colombia and Brazil); and the reductionof system energy losses (Pakistan and Afghanistan).

B. Sector Policy and Institutions

4.129 Institutional and financial objectives were prominent. Specialemphasis was placed on the financial management and viability of the enter-prises and, perhaps more than in previous years, on the wider sector framework

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within which those enterprises operated. Since eleven of the borrowers werenew to the Bank - indeed, six were newly created under the projects themselves-- the setting of objectives was in general more comprehensive than with theseven more established ones, where projects essentially continued efforts atstrengthening and consolidating established institutions.

4.130 The main institutional and financial efforts centered upon: in-creased managerial and financial autonomy for the entities; improvementsin financial performance; the establishment and improvement of commercialaccounting systems and procedures; recruitment, training and retention oflocal staff able to handle more complex and expanding operations; and improve-ments in the internal organization, project execution and long-term planningcapability and management reporting systems of the enterprises.

4.131 Institutional development was placed in a broader framework byaddressing the adequacy of existing arrangements for preparing and imple-menting national or regional development plans for the subsectors. Attentionwas given to the effectiveness of coordination between different subsectorentities; the possibilities for consolidating subsector planning and opera-tions within fewer institutions; the capacity of the subsectors to generateadequate finances to support their development plans; and the revision oftariff structures to promote social or economic objectives.

4.132 The projects in Turkey and Sri Lanka (power), Morocco (water sup-ply), Swaziland (water supply and sewerage), Cyprus (sewerage) and the IvoryCoast (sewerage and drainage) were interesting examples of advance planningand efforts at establishing reasonably autonomous institutions prior to loanapproval or effectiveness. Given the scarcity of water resources in Morocco,the creation of a competent national institution to plan, execute and operatebulk water supply installations was regarded as essential and achieved shortlybefore Board approval. Similarly, legislation was passed during projectpreparation to establish new entities to develop and operate sewerage systemsin Cyprus and the Ivory Coast. In Swaziland, on the other hand, a Water andSewerage Board, within the Ministry of Public Works, was created by Governmentregulations; although given less autonomy than the public corporation type oforganization favoured by the Bank, it was accepted as a workable compromise atthe time of Board presentation. Two new national power entities were formedin Sri Lanka and Turkey, the latter case representing a particularly carefuland substantial effort - extending over two lending operations. As an initialstep, under the first loan (Keban Transmission), the project helped to bringabout an important administrative consolidation of power activities within anexisting institution and the drafting of legislation to create a new nationalpower authority; the Bank also made, as part of its earlier efforts, a tech-nical assistance grant to finance consultants to assist the Government inestablishing the new authority (TEK). The law was passed and TEK took overits responsibilities shortly prior to Board approval of the second loan (theTEK Transmission Project).

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4.133 Nearly all the projects this year - especially those in power andtelecommunications - showed a clear cern:--for-the-wider- subseetor--f_rame!-

work within which the enterprises operated. Several cases were continuationsof previous efforts, extending over many years; others represented freshinitiatives, accompanied by the setting up of new institutions. The Bankfurther pursued the consolidation of the telecommunications subsector inColombia, initiated under two previous loans, to improve efficiency andservice through the better utilization of trained manpower and economiesof scale. Bank involvement in the Colombian power subsector had been evenmore substantial. Under this and other projects, the efficient expansionand operation of the power subsector was encouraged through interconnection,the preparation of a national power development plan, the strengthening ofthe financial and institutional performance of the power entities and theestablishment of a Government agency to regulate retail tariffs. The caseof Brazil Power was similar: the project was one of several hydroelectricprojects supported by the Bank to satisfy demand in the South Central Regionat least cost, based upon a regional power development plan and the inter-connection of several regional utilities. The goal of an efficient powersector in Iceland was pursued under this and two previous loans, to sup-port the Government's macroeconomic policy, based upon the exploitation ofindigenous energy resources and industrial diversification. The two powerprojects in Turkey marked a change in the Bank's lending strategy; afterfinancing regional power projects, the Bank turned its attention to thecountry's main interconnected system and assisted the Government in reorga-nizing and consolidating the power subsector whereby bulk power facilitieswere integrated within a national power authority. The rationalization oftariff structures featured in five power projects (Afghanistan, Brazil,Bolivia, Iceland and Kenya), two water supply projects (Gabon and Morocco) andthe Burma Telecommunications Project.

4.134 In addition to the conventional objectives relating to financialperformance and procedures, particular attention was given to the establish-ment or improvement of commercial accounting systems and procedures in anumber of entities. One of the principal project objectives in Swaziland wasto improve the financial management of the water supply and sewerage subsectorthrough the introduction of a commercial accounting system. The projecttherefore provided for accounting consultants to design and assist in imple-menting a commercial accounting system as well as to provide related stafftraining. In Afghanistan, parallel cofinancing provided technical assistanceto help improve the power entity's financial and accounting work, includingthe training of local staff. A major financial objective in the Ivory CoastSewerage and Drainage Project was to consolidate the various entities'accounts in order to provide a complete overview of the subsector's finances.

II. EFFECTIVENESS

A. Operations and Output

4.135 All the project facilities were adjudged at audit to have been theleast-cost solutions for meeting physical objectives and most have beenoperating satisfactorily since completion. Some initial operating problems

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were encountered in the Morocco and Thailand Water Supply Projects, due topoor water quality in the reservoir (Morocco) and to remaining deficienciesin the distribution system (Thailand). The problem of water quality is beingovercome with additional treatment while ongoing investments in distributionshould correct the situation in Thailand. Operating problems in sewerageprojects were caused by foundation problems with a pumping station (IvoryCoast), now corrected after the construction of a new lagoon outfall, anda high proportion of non-domestic waste (Cyprus), which will be alleviatedas the volume of domestic sewage increases.

4.136 The service objectives of the water supply and sewerage projectswere for the most part achieved, although sometimes not to the extent anti-cipated or else over a longer time period. The increase in the percentageof the population served, although substantial, fell short of appraisaltargets on project completion in Thailand, Swaziland and Cyprus. The mainservice objective of the Morocco Water Project was achieved - a safe andreliable water supply to an area of major economic importance - but sincethe project was for bulk water supply it had no direct effect on distri-bution. Nevertheless, the audit reported that good progress seemed to havebeen made in improving the access of lower-income groups to piped watersupply. The drainage component of the Ivory Coast project substantiallyreduced flooding in Abidjan but unfortunately data were not available atproject completion on the number of new sewerage connections and the per-centage of the population served. An attempt to ensure the compilationof such data is being made under follow-on projects. It is too early toevaluate the project's impact on pollution in the lagoons surrounding Abidjan,as it constituted only the first stage of a three-phase program.

4.137 The results of the Gabon Water Supply Project were particularlyencouraging. The service objective of reaching 90% of the population ofLibreville was achieved, with only a short time delay. The policy of in-creasing the number of standpipes was successful and greatly improved serviceto poorer areas, although the numerical target was attained somewhat laterthan planned; the audit concluded that in future projects even better resultsmight be possible if numerical targets for standpipes are supplemented byobjective criteria to determine their most effective locations. House connec-tions were made to a higher proportion of the population than anticipated bythe original target date. The audit tentatively concluded that the role ofconnection charges for water supply may not have been as important as believedat appraisal. Such a conclusion does not appear to have general validity -the availability of credit facilities to finance house connections wasselected as a factor leading to a higher connection rate in the MoroccoWater Supply subsector - and in any case should be contrasted with pastexperience in the sewerage subsector, where charges for connections have beenfound to have a marked disincentive effect, as was the case in the SwazilandWater and Sewerage Project this year. The difference presumably is attribut-able to the higher level of connection charges for sewerage and explains apolicy now commonly followed in Bank sewerage projects, whereby the cost ofconnections is included in the projects at the time of appraisal and arrange-ments are made for consumers to pay for the cost of these connections over aperiod of time.

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4.138 Efforts to reduce the volume of unaccounted-for water were generallydisappointing, although less so than last year. Among the three water supplyprojects, only in Morocco was the reduction in line with the appraisal tar-get. Some decline in the proportion of unaccounted-for water took place inThailand - although it was still double the appraisal target on projectcompletion - while in Gabon the proportion of losses actually increased. Noinformation was available at project completion for the Swaziland project,which included a water supply component.

4.139 The power projects were an effective means for developing indigenousenergy resources in the eleven cases where this was a direct objective. InKenya and Sri Lanka IV, for example, the hydroelectric generating stationsfinanced under the projects contributed respectively 40% and 30% of the totalenergy generated by the systems in their first full year of operation, yield-ing substantial fuel cost savings. As a result of the Iceland project, a newenergy-intensive consumer was established and sales to existing large powerconsumers were increased; the economic benefits of substituting hydro-electri-city for oil exceeded expectations due to the dramatic increase in interna-tional oil prices which occurred after appraisal. The Afghanistan projectdiffered from the other eleven power projects in so far as it included onlythermal generating plant, intended to supplement the country's hydro-electricfacilities during dry periods. In the event, the role of the plant haschanged to that of base-load generation, due to the disturbed politicalconditions and the disruption of supply from hydroelectric stations.

4.140 Aside from their important contributions to the overall energysupply situation of their respective countries, the projects materiallyassisted economic growth through the provision of new or improved electricitysupplies to agricultural and industrial consumers in Sri Lanka V and Brazil.In the latter case, as well as in Colombia, progress was made towards in-creasing the proportion of the urban population served, with particularemphasis on lower-income consumers. After a slow start under the Sri Lanka Vproject, rural electrification schemes were being completed at an acceleratingrate. Results in Pakistan, however, were disappointing; delays in implementa-tion of the transmission and distribution works meant that the utilisation ofgenerating plant suffered and, rather than improving, the quality of servicedeteriorated. Those delays also were a major factor in causing energy lossesin Pakistan to rise rather than fall. In Afghanistan, on the other hand,energy losses declined rapidly. The gas turbine included in the Boliviaproject fulfilled an important need, given the sustained high growth rate ofenergy sales, in contrast to Sri Lanka IV, where the gas turbine was deletedafter it became apparent that demand was growing much more slowly than ex-pected.

4.141 The problem of demand forecasting has been a matter of concern inthe audits and in the Annual Reviews over the last five years. During thisperiod, telecommunications projects have shown a consistent record of under-estimation in their forecasts of demand. The record in water supply and

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power, on the other hand, shows some interesting variations; whereas theearlier two Reviews noted the tendency to overestimate demand in power andwater supply, experience in the projects reviewed last year and the yearbefore showed no consistent pattern. This year, there was a definite returnto the trend of overestimation,, due in no small measure to the high concen-tration of projects in the power subsector, where the rate of growth indemand is closely corelated- with the rate of growth in the economy as awhole, and the fact that more than half the appraisals were carried outbefore the oil crisis. Among the twelve power and four water supply projects,sales were overestimated in eleven cases (nine power, two water supply);actual sales were in line with forecasts in four cases (two power, two watersupply); while there was one case of modest underestimation (Bolivia power).

4.142 These summary comparisons of actual and forecast sales must beseen in context. First, the time horizons over which the forecasts weremade typically covered periods of six or seven years; accumulated shortfallsin actual sales compared with forecasts in the order of 10% or less oversuch periods of time may be regarded as reasonable. Secondly, the salesforecasts made at appraisal are intended only as initial estimates for thepurposes of planning; they should be and are revised periodically, sinceestimates of costs and revenues are also subject to revision. Hence, giventhe length of the forecast periods and the preliminary character of the fore-casts themselves, the important issue for demand forecasting is whether anyoverestimation of demand led to premature investment or whether the timing ofthe projects was appropriately modified to meet changing circumstances.

4.143 Considering the eleven cases of overestimation, the shortfall insales over the forecast periods accumulated to only 8% or less in seven cases;the exceptions were Sri Lanka IV (power), Turkey (two power projects) andThailand (water), where the shortfalls accumulated to 16%, 19% and 20% respec-tively. Sales forecasts for the Turkey Keban Transmission, Turkey TEK Trans-mission and Sri Lanka IV Power Projects were all made well before the oilcrisis and actual growth in power consumption was crucially affected by ageneral slowdown in economic activity, particularly industrial activity.Recurrent shortages of generating capacity in Turkey, caused by constructiondelays and outages, contributed to the shortfall in energy sales. The case ofThailand water was different. Although the overestimation of sales is partlyexplained by supply limitations due to constraints in the distribution system,the projected increase in average per capita consumption made at appraisalappears unrealistic, especially bearing in mind the fact that only smallincreases or even decreases in average per capita consumption are quite commonin water supply projects as the benefits of water supply are extended to awider population.

4.144 Despite the overestimation of energy and water sales, the conclu-sion of last year's review - that all in all the timing of the projectsappeared appropriate - remains valid, given the incidence of implementationdelays, the immediate fuel cost savings derived from the hydroelectric sta-tions and the need to increase the quality and reliability of service. Someminor overinvestment may have occurred in Swaziland Water Supply and Sewerage,

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where the construction of a textile mill was postponed. Although the conse-quences were minimized by a reduction in project scope, the audit recommendedthat in small countries, where demand is sensitive to the materialization ofan individual large consumer, the Bank should perhaps ensure that formalagreements are concluded before including the associated infrastructure in theproject. The Thailand Water Project was not premature since, in the event,its scope was constrained by financial resources and a significant part of theshortfall in sales was almost certainly due to a higher level of unaccounted-for water than projected. The slow growth in energy sales in Turkey and SriLanka IV was offset by delays in project implementation.

4.145 Experience in telecommunications was not different in this groupthan in earlier years, with demand projections again having essentiallythe characteristic of physical objectives and suppressed demand remainingunmet despite the projects. In both Burma and Colombia, physical objectiveswere largely met but actual demand increased at a rate above the historicaltrend so that the gap between supply and demand widened; waiting lists morethan doubled in Colombia and increased more than fourfold in Burma. Excessivetraffic and congestion led to service deterioration in some urban areasin Colombia but the extension of service to rural areas greatly exceededthe appraisal targets. Given the extremely poor level of service in Burmaprior to the project, service quality has improved despite the increase inwaiting lists. The project permitted the creation of a high quality modernnetwork linking the major population centers, together with the introductionof subscriber trunk dialling and a greatly improved service to all othercenters.

B. Economic and Financial

4.146 The calculation of economic rates of return in public utilitiesprojects is difficult because benefits are hard to quantify. An incrementalfinancial rate of return is therefore normally calculated, using the increasedrevenues accruing from the project as a minimum measure of a project's bene-fits, although adjustments are sometimes made in power projects to incorporatethe fuel-cost savings which may accrue in the early years of project opera-tion. In actual fact, consumers may value the service by more than they haveto pay for it, particularly since most utility tariffs are controlled bypublic authorities. In addition, there may be external benefits which cannotbe quantified. The incremental financial rate of return, therefore, providesmore information about the adequacy of tariff levels in the longer term thanabout the economic value of the investment.

4.147 Incremental financial rates of return were reestimated at auditfor 15 of the 20 projects under review. The reestimated returns for thetwo telecommunications projects (14% and 20%) were satisfactory even if lowerthan the appraisal projections (16% and 27% respectively). Among the powerprojects, three of the reestimated returns were higher than the appraisalprojections and five lower; in water supply and waste disposal, two werehigher, two were lower and one was similar. Of the unsatisfactory results,

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Afghanistan Power and Thailand Water Supply offered negative financial ratesof return, due mainly to inadequate tariff increases. Bolivia Power wasreestimated at 2% (inadequate tariffs); Turkey TEK Transmission at 3% (delaysin project implementation, growth in energy sales slower than projected andtariffs declining in real terms); and Swaziland Water Supply and Sewerage at3% (longer construction period, lower volume of water sold and inadequatetariff increases). Growth in sales below expectations, increases in capitalcosts and in construction time and operating costs, combined with inadequatetariff increases contributed to reduced reestimates. No rates of return werecalculated at appraisal or at audit for Malaysia Power, Pakistan Power, SriLanka Power V and Turkey Keban Transmission (benefits not separately quantifi-able from other investments in the sector).

4.148 A different approach to the economic rate of return calculation hasoccasionally been used by the Bank in waste disposal projects and the IvoryCoast Sewerage and Drainage Project was the second example of its kind to bereviewed (the Brazil Sao Paulo Pollution Control Project was reviewed lastyear). While the project's justification rested on a qualitative judge-ment concerning objectives, the appraisal supported this judgement with quan-titative estimates of the reduction in flood damages attributable to thedrainage component and, in the case of the sewerage component, the benefitsrelated to health, fishing, tourism and the savings in the cost of septictanks. A limited analysis of the project's impact on the environment wasalso made. The audit recognized that reestimation of the economic returnwas extremely difficult - the quality of certain statistics had deterioratedsince appraisal, the project had only just been completed and the seweragecomponent was in any case only the first phase of a long-term program - andemphasized that the justification still rested upon qualitative judgements.Nevertheless, tentative calculations suggested that the reestimated returnon the drainage component would reach the appraisal expectation while thaton the sewerage component would be lower, due to delays in the realizationof benefits and some possible overestimation at appraisal.

4.149 Although the reestimated incremental financial rates of return forthe group were, by and large, lower than appraisal forecasts, the resultssuggest that - for the 15 borrowers covered by the reestimates - tariff levelswere not unduly low in relation to the long-run incremental costs of supply.The financial performance of the various entities, on the other hand, duringthe period in which the projects were implemented, was more uneven, althoughtelecommunications and water supply/waste disposal showed distinctly betterresults than power.

4.150 The two telecommunications entities earned rates of return onassets better than those stipulated at appraisal and, in both cases, theassets represented fairly the real value. The two entities also managedto contribute, through internal cash generation, a larger proportion oftheir capital expenditures than expected at appraisal. Frequent tariffincreases and higher international traffic than expected at appraisal con-tributed towards these satisfactory financial results.

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4.151 Four of the six water supply and waste disposal entities were ableto finance similar or higher proportions of their capital expenditures byinternally generated cash. Three of these four entities also showed similaror higher rates of return on assets than projected at appraisal. As for thefourth entity (Ivory Coast Sewerage and Drainage), a rate of return on assetswas not included at appraisal and not calculated during the implementationof the project due to the absence of firm information on asset values.

4.152 The most disappointing financial results in the water and wastedisposal subsector were in Thailand and Swaziland. In Thailand, the entityhas incurred operating losses each year since 1975, due mainly to increasesin operating costs and the lack of tariff increases since 1972. Lower waterproduction following delays in project implementation and a high level ofunaccounted-for water also contributed to the unsatisfactory financialresults. In Swaziland, lower sales of water, after the construction of atextile mill was postponed, adversely affected revenues; inadequate tariffincreases to keep pace with inflation aggravated the situation.

4.153 In contrast to previous reviews, including last year's, which haveindicated that the financial performance of water supply and waste disposalentities tends to be the weakest in the public utilities sector, the financialperformance of the power entities this year was the least satisfactory amongthe subsectors reviewed. Eight out of ten power entities showed rates ofreturn on assets lower than those stipulated at appraisal, although in sevenout of the eight, assets fairly represented the market value; the exceptionwas Pakistan, where the rate of return was based on historical valuations.The utilities were not much more successful with regard to the resources whichthey were able to generate internally to finance their own capital expendi-tures. Only three of the ten matched or exceeded appraisal expectations; theremaining seven entities contributed less than a reasonable minimum standardfor power utilities (30%), including three entities which financed less than10% of their capital investments through internally generated cash. Thesecontributions, however, should be viewed in light of the unusually highinflation which took place during the period in which the projects wereimplemented, with higher operating costs and higher capital expenditures thanoriginally visualized.

4.154 Overall, the most disappointing financial results were in Icelandand Pakistan Power. In Iceland, some two-thirds of the entity's sales ofenergy are supplied under long-term agreements. Although the entity wassuccessful in renegotiating the power rates under one of the long-term con-tracts, the Government's general price stabilization efforts over the projectperiod prevented the entity from increasing its tariffs adequately to compen-sate for high local inflation. In Pakistan, excessive system energy losses

and inflated operating expenses - due mainly to higher fuel prices - contrib-uted to the deteriorating financial situation. Tariffs were increasedregularly, but the badly needed additional revenue which would have accruedfrom higher tariffs was denied the utility because of the increasing systemlosses.

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4.155 Efforts to establish and improve commercial accounting systemsand procedures met with mixed results. Progress was made in Pakistan Power,Sri Lanka Power and Swaziland Water Supply and Sewerage, although the systemsand procedures have not been functioning as effectively as originally expectedand further strengthening is needed. The financial arrangements of thesewerage and drainage subsector in the Ivory Coast remained fragmentedthroughout project implementation. The Bank is continuing to make representa-tions to improve the subsector's accounting under a follow-on project.

4.156 Marked improvements were shown in Thailand Water in the areas ofcomputerized billing, cost accounting, construction cost recording, internalauditing procedures and inventory control. In Morocco Water, the testingand adaptation of the relevant computer programs to the special requirementsof the utility took more time than anticipated, and the services of expertswere retained under subsequent projects for completing the implementationof the accounting system, including cost accounting. Progress was achievedin Afghanistan Power in improving the financial and accounting work of theentity which, during the implementation of the project, was able to prepareits accounts after a lapse of seven years. Results were good in Burma Tele-communications, where the entity adopted the accrual concept and improvedits accounting system by early 1975 as covenanted.

4.157 The level of accounts receivable and the late submission to theBank of audited financial statements have been matters of repeated commentin these Reviews. In this year's group, the level of accounts receivablein telecommunications and in the water supply/waste disposal subsectorsremained undesirably high, with the Governments involved being the majordefaulters. The situation was further aggravated, in some cases, by slowbilling and weak collection procedures. Similarly, with regard to the latesubmission of audited financial statements, the utilities in the telecommuni-cations and water supply/waste disposal subsectors were the worst offenders.The performance of the power subsector with respect to accounts receivable andthe submission of audited accounts does not seem to have been a problem,except for Afghanistan, Bolivia and Sri Lanka.

C. Sector Policy and Institutional

4.158 As was the case last year, progress towards the achievement ofinstitutional objectives in the group of projects reviewed has to be under-stood in light of the fact that over 60% of the entities involved were newto the Bank (11 out of 18 this year, 10 out of 16 last year) and that theinstitutional effort in respect of these entities receiving loans or creditsfor the first time was fairly elaborate, occasionally overambitious. The

results, therefore, did not always match expectations.

4.159 The efforts were mainly directed towards: (i) improving overallsector policies, especially the coordination of planning, operations andtariff structures within the various subsectors; and (ii) organizational

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changes to strengthen autonomy and local capability by providing staff train-ing. Good progress towards the consolidation of the telecommunicationssubsector was maintained in Colombia, as the borrower acquired smaller localtelephone companies which it could operate more efficiently; the number ofentities was in consequence reduced, but there remains a need for the borrowerto carry out a greater decentralization of authority to regional headquarters.Progress in the coordination of planning and operations, through the prepara-tion of national or regional development plans for generation and transmis-sion, was also seen in the power subsectors of Colombia and Brazil, althoughnot without setbacks (sometimes serious) in the former case. Results were lesssatisfactory in Turkey and Iceland Power. Consultants were not employed inIceland to carry out studies which would lead to closer integration of genera-tion and transmission facilities and greater consolidation of the power

sector. In Turkey, a national authority was established, during the course ofthe two power projects, with responsibility for generation and transmission,subject to only minor exceptions, but that authority has failed to achieveautonomy and has not been placed on a sound financial footing.

4.160 In contrast, achievements under the Morocco Water Project wereespecially good. The entity has achieved reasonable autonomy; expatriateswere reduced in number and the entity now has a well-qualified and competentstaff, due in no small measure to the enactment of an employment code whichlaid the foundations for realistic personnel policies covering staff recruit-ment, training and growth. The new institutions created under the wastedisposal projects in Cyprus and the Ivory Coast also made a good start interms of acquiring reasonable autonomy. In the Ivory Coast, an organizationwas put in place to plan, execute and maintain sewerage and drainage works,accompanied by satisfactory autonomy in procurement and staffing; however,dependence on expatriates remains high and weaknesses exist in the area ofaccountancy. Efforts to develop reasonably autonomous institutions in SriLanka and Afghanistan Power and Swaziland Water Supply and Sewerage on theother hand - all new borrowers - were disappointing. In these three cases,Government has intervened in personnel policies, causing difficulties inrecruiting and retaining staff. An important objective of the AfghanistanPower Project was to bring about a revision of the charter under which theborrower operated; the charter was never revised and the borrower continuedto operate in effect as a Government department.

4.161 The group of projects reviewed this year shows closer attentionto the rationalization and improvement of tariff structures than has beenthe case in past years, with generally good results. Studies of power andwater tariffs were carried out as part of the projects in Kenya and Moroccorespectively and new tariff structures were introduced, incorporating theprinciple of long-run marginal cost, with provisions in both cases for lower-income consumers. The consultants' tariff study required under the IcelandPower Project was not implemented but a general revision of the tariff struc-ture was being prepared at the time of audit. Tariff structures were alsorevised under the Gabon Water Supply and Afghanistan Power Projects (tomake explicit provision for the needs of lower-income consumers), the BurmaTelecommunications Project (to ensure that commercial rates were charged todifferent subscribers) and the Bolivia Power Project (to differentiate between

demand and energy charges for bulk customers). In connection with other

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lending activities, the Brazilian authorities completed a study of bulk powertariffs based on long-run marginal cost and they are extending these studiesto the retail level.

4.162 The Bank's attention to improvements in project execution capacityamong the borrowers was largely successful in Burma Telecommunications,Thailand Water, Pakistan Power and Malaysia Power. Long-term planning capa-bility improved in Bolivia Power and Burma Telecommunications but resultsare difficult to assess in Afghanistan Power, where completion of a long-term development study was delayed and the results will have to be reviewedin light of the disturbed political conditions. An urgent project for floodprotection and drainage was developed during the course of the ThailandWater Project, with the Bank's technical assistance, and water supply studiesfinanced under the Ivory Coast Sewerage and Drainage Project have led tothe Bank's first water supply project in that country, covering severalsecondary centers.

4.163 A recurring problem in institutional improvement has been theshortage of qualified staff coupled with difficulties in recruiting andretaining people, particularly in the financial and engineering areas. Lastyear's group was especially noteworthy for the effort given to the streng-thening of local capabilities through the provision of staff training, butthe effort was again prominent in the group of projects reviewed this year.Nine of the 20 projects reviewed had training components. Typically, theprojects looked to the development of training programs and centers, overseastraining and fellowships, and the transfer of expertise from consultantsthrough on-the-job training. Not unexpectedly, the degree of success variedsomewhat among the projects but the results were in general satisfactoryin Thailand, Gabon and Morocco Water, Ivory Coast Sewerage and Drainage,and Colombia, Bolivia and Afghanistan Power. Efforts in Swaziland WaterSupply and Sewerage and Sri Lanka Power IV were less successful: in theformer, due to difficulty in locating students with an adequate high-schooleducation and to more attractive opportunities outside the subsector; in thelatter, due to the subsequent loss of trained staff through emigration.

III. PROCESS EFFICIENCY

A. Project Implementation: Overview

4.164 The projects were, by and large, successfully implemented. However,as was the case last year, several were revised in scope or content. Thereasons for revision ranged from changes in the growth rate or locationalpattern of demand (Sri Lanka Power IV, Swaziland Water Supply and Sewerage andIvory Coast Sewerage and Drainage) to cost increases and impending overruns(Thailand Water and Pakistan Power), political upheaval (Cyprus Sewerage) andthe availability of additional resources (Malaysia Power and Gabon Water).Fairly substantial increases in the scope of the Brazil Power Project tookplace after completion of a regional development plan for the expansion ofgeneration and transmission facilities.

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4.165 Both the telecommunications projects underwent changes in scope, inpart to accommodate changes in the locational pattern of demand. Furthermore,additional resources were made available for rural service in Colombia whiletoll ticketing replaced bulk metering in Burma.

B. Project Implementation: Time and Cost

4.166 The incidence of delay was less than that in the group covered lastyear, although higher than the year before. Some 55% of projects were delayedby more than 20 months each. Three projects experienced delays ranging fromtwo to three years and seven were delayed in excess of three years. As agroup, the water supply and waste disposal projects faced the longest delays(telecommunications last year), varying from 18 to 65 months, but in nearlyall of these cases a significant proportion of the projects concerned wascomplete and yielding some benefits within one year of the appraisal estimate.

4.167 In Cyprus (65 months delayed), the sewerage project was almostcomplete at the time of the political events of 1974 but 'de facto' partitionof the island brought construction to a halt. Only after making complexarrangements, with Bank assistance, could the project be finished. The maincomponents of the Morocco Water Project were completed on time and the overrun(47 months) was due to delayed construction of staff housing and the trainingcenter. The drainage component of the Ivory Coast Sewerage and Drainageproject was also on time, but foundation problems at the pumping station,encountered after project completion, were largely responsible for delays inthe sewerage component amounting to 42 months. Power projects, too, encoun-tered delays: in Turkey Keban Transmission (52 months delayed) and Sri LankaPower V (42 months delayed) caused by contractor difficulties, the need torenegotiate contract prices after the 1973 oil crisis, management problems andstaffing problems; however, in both cases there were no adverse consequenceson demand, since the Keban generating plant was also delayed and demand grewmuch more slowly than forecast in Sri Lanka. In contrast, delays associatedwith the Pakistan Power Project (64 months) - caused by war, political unrestand major floods in addition to the same contractor problems and price renego-tiations seen in Turkey and Sri Lanka - led to an important loss of energysales and the corresponding economic benefits. Underlying the delay inColombia Telecommunications (57 months) were management and staffing problems,difficulties in acquiring land and the increase in the number of rural areasto be served; nevertheless, most of the project was completed and earningrevenues within one year of the target date.

4.168 The generalized causes of delay remain similar to those noted inprevious Reviews, with unrealistic scheduling as an important factor. Othercauses included: changes in project scope; strikes; delays and difficultiesin procurement; late delivery of equipment; shortages of materials; delaysin appointing consultants; and problems with contractors. Some of thesecauses could have been foreseen and alleviated, others not.

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4.169 The cost overrun picture also showed improvement this year andindeed maintained a trend which has become apparent in the recent past. Thus,55% of the projects, compared with 41% last year and 18% the year before, werecompleted with cost overruns of less than 20%. A major factor in improved costperformance was almost certainly that one half of the projects were approvedafter 1973 - 24% last year and none the year before - by which time theeffects of the general world-wide inflation and realignment of currenciesfollowing oil price increases had become apparent and were taken into accountin the overall cost projections. The largest increases over anticipatedexpenditures (100% or more) all occurred in the power subsector - TurkeyKeban Transmission, Turkey TEK Transmission and Brazil - in projects approvedbefore 1973. In Brazil, the overrun of about 60% in constant prices was due toa substantially increased scope. The cost overruns in Turkey Keban Transmis-sion (103%) and Turkey TEK Transmission (100%) were partly due to the samemangement and staffing problems which contributed to the implementationdelays. Increased duties and taxes paid to the Government, increased scopeand higher-than-expected bid prices largely accounted for the 91% expenditureoverrun in Burma Telecommunications. Increases in project scope, local infla-tion, underestimation of base costs at appraisal, extended project durationand currency realignments contributed to cost increases in other projects.

4.170 Actual costs were close to appraisal estimates (within 10%) insix projects while three projects experienced cost underruns. These under-runs, however, largely reflected reductions in scope which took place afterappraisal.


A. Demand Forecasting

4.171 Previous Reviews have underlined the problem of demand forecastingin public utilities and little needs to be added this year. It is recognizedthat in telecommunications underestimation of demand is partly due to the factthat projects are usually designed to increase supply within available re-sources, and demand projections more truly represent targets to be met ratherthan estimates of market potential; even so, since projects are typically for-mulated against a background of supply constraints, past as well as future,demand forecasts must give due consideration to existing suppressed or un-recorded demand, and forecast growth rates should normally exceed historicaltrends, as the experience in Colombia this year and Fiji and Guatemala lastyear demonstrates. In recent projects Bank appraisal missions have been at-tempting to persuade borrowers to assess their demand forecasts more realis-tically; the results of these efforts should show up in future audits. Exces-sive demand may also warrant greater recourse to price rationing, throughhigher tariff levels, the metering of calls and the elimination of free call-ing allowances. However, in view of the economic costs associated with excessdemand, the significant economies of scale which normally accompany a morerapid growth of supply and the subsector's considerable potential for revenuegeneration, a suitable strategy for narrowing the gap between demand and sup-ply should be formulated within the overall resource constraints in a country.

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4.172 In power and water supply, the overestimation of sales pointsto a continuing need to analyze the dimensions and causes of differencesbetween forecast and actual demand. For example, water conservation effortsby consumers in Swaziland Water Supply and Sewerage and Ivory Coast Sewerageand Drainage this year, prompted by tariff increases, and the dampeningeffects of a new conservation-based tariff in Haiti Power last year suggestthat demand forecasts for both power and water supply need to take moreexplicit account of the price elasticity of demand, as apparently is now thecase in Bank appraisals. While it is true that shortfalls in sales do not inall cases represent only demand overestimation - supply constraints alsoplayed a part in the two Turkey Power Projects and in the Thailand WaterProject - and while it can be argued, in the case of power, that undercapacitymay carry a heavier cost to the economy than overcapacity, unduly optimisticforecasts of demand do carry some potential for premature investment.

4.173 It is also necessary to anticipate with greater realism reductionsin unaccounted-for water and electrical system losses which provide thelink between demand and required production. The lack of success in reducingunaccounted-for water in the projects reviewed this year emphasizes the lessonthat expectations should be supported by more reliable estimates of theinitial volume of unaccounted-for water, a careful analysis of the causes, arealistic assessment of the impact of the project on such losses, and detailedleak-detection and survey programs. High levels of unaccounted-for waterlead not only to revenue losses and wasted expenditures on pumping, storageand treatment; they also to some extent affect the timing of the next invest-ment in source works. Similarly, high energy losses in Pakistan Power in-creased the need for investment in generating plant and adversely affected theutility's financial situation.

4.174 As reported last year, the Bank had initiated two research projects,covering the development of projection methodology for water demand and thecontrol of unaccounted-for water. Part of the first research project has beencompleted; the rest, along with the second research project, is expectedto be finished by the end of 1982. Currently, the Bank is engaged on theearly stages of preparing guidelines for staff on the determination andreduction of unaccounted-for water. In power also revised guidelines fordealing with system losses will incorporate the results of a research projectnow nearing completion and targets for system losses and other performanceindicators are being established (also see para. 4.180).

B. Changes in Project Scope

4.175 Most of the projects underwent changes in scope. The changes,however, represented appropriate responses to altered conditions which,

for the most part, could not realistically have been foreseen. Clear benefitsfrom the changes accrued to power projects in Colombia, Brazil, Bolivia,Malaysia and Sri Lanka V and the water supply project in Gabon, through anincrease in the benefits and the number of beneficiaries; and to the tele-communications projects in Colombia and Burma, through an increase in the

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number of rural areas served and a further improvement in the project conceptrespectively. To some extent the changes might have been foreseen at ap-praisal in Burma Telecommunications; in the event, the changes were broughtabout with modest negative effects. The increase in scope of Brazil Power,which followed completion of a regional development plan, was the direct andlogical outcome of the Bank's efforts to encourage regional generation expan-sion according to least-cost principles. The possibility of a change inscope was foreseen, since the plan was under preparation at the time ofappraisal, but the audit concluded that nothing would have been gained bydelaying the start-up of project implementation until the plan was prepared.The factors causing revisions in Pakistan Power, Swaziland Water Supply andSewerage and Thailand Water could not have been foreseen and were acceptedas necessary, even though it was known that the benefits of the projects wouldbe reduced. The reduction in power demand and the failure of negotiationswith the municipality which respectively caused deletion of the gas turbinesin Sri Lanka Power IV and the sanitary blocks in Ivory Coast Sewerage andDrainage could not reasonably have been anticipated. One further consequenceof changes in project scope is worth noting. In almost all cases, directcomparisons between estimated and actual costs and implementation periodsbecame difficult or impossible. Only rarely was it possible to make roughestimates of changes in unit costs, after allowing for changes in scale, inthe mix of components, and the replacement of some existing elements byentirely new ones.

C. Financial Performance, Covenants and Tariffs

4.176 In contrast to last year, the majority of public utilities inthis year's Review were not successful in meeting their earnings covenants,although other financial covenants were met in most cases. In those instanceswhere the earnings covenants were not met, difficulties were encounteredin raising tariffs to keep pace with inflation. Tariff increases for publicutilities must be approved by Governments; they were often delayed or deniedeither as an antiinflationary measure, or because the Government believedthat increased operating efficiency of the entities would be a more appro-priate prior response. The major difficulties in securing adequate tariffincreases, which were encountered in Thailand Water Supply, Turkey KebanTransmission, Turkey TEK Transmission and Iceland Power, show the limitedeffectiveness of earnings covenants in the face of strong opposition fromGovernments intent on controlling inflation. The situation was furtheraggravated in Iceland Power by the fact that tariffs charged to energy-intensive industries under long-term contracts could not be renegotiatedand this experience underlines the lesson that long-term contracts of thiskind should include provisions for periodic tariff increases which wouldreflect adequately the utility's cost of future power supply, includingexpansion. In Pakistan Power, resistance from Government to tariff increaseswas not surprising in view of the continuing high level of energy lossessustained by the entity; the case of Afghanistan clearly illustrates thescope which does exist for improving an entity's earnings position throughimprovements in efficiency; the successful measures which were taken to reduceenergy losses enabled the entity to increase its sales by about 62% with onlya 19% increase in generation.

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4.177 In recent years, the Bank has increasingly made efforts to assistpublic utilities with improving their tariff structures. Improvements intariff structures are concerned mainly with economic efficiency and directedat making tariffs charged to different consumers reflect more closely thelong-run economic cost of supply, subject to social and other objectives,such as providing a minimum supply of potable water to lower-income groups.In this context, it is important that a dialogue between the Bank, theGovernment and the project entity on pricing policies take place in theearly stages of project preparation, to reach agreement on acceptable changesand to establish a program of action on tariffs and other related matters.In this year's group, Morocco Water Supply and Kenya Power are good examplesof clearly articulated efforts by the Bank in which tariff studies havebeen required and new tariff structures have been successfully implemented,based on the long-term incremental cost of supplying different categories ofconsumers.

4.178 Although there was not a widespread failure by the borrowers inthis year's group of projects to submit audited financial statements withinthe stipulated time periods, sufficient instances were reported - includingboth the telecommunications projects and half the water supply/waste disposalprojects - to suggest that such covenants frequently continued to be unreal-istic and greater care was needed to establish time requirements for closingaccounts and completing audit reports, preferably in line with similar domes-tic requirements. Such requirements must give due consideration to pastperformance, the present and anticipated future ability of the entity, andthe local procedures used to obtain audits. The recommendations of a recentBank task force on auditing may be expected to ensure that these issues willbe addressed in future projects.

4.179 A comprehensive review of past experience with financial covenantsin the water supply sector has been initiated by the Bank. The first stagemade a preliminary examination of the effectiveness of particular financialcovenants, the difficulties experienced by different borrowers in complyingwith them, the causes of non-compliance, and the relationship of financialcovenants to alternative approaches to water supply tariffs. During thesecond stage, the review will consider these questions in greater detailand it is expected that future financial covenants will be designed in thelight of the conclusions of this review.

4.180 Earlier Reviews have emphasized the need to judge financial per-formance in the context of a variety of performance indices for the publicutilities sector in different countries, and for a systematic data collec-tion effort. It is understood that key monitoring indices, reflecting theparticular problems and potentials of borrowers, are now being identifiedin the appraisals for water and power projects, although not invariably.Where such indices are identified, this is done along with agreed year-by-year target values, which are then monitored during project supervision.The results are being used in part for a statistical overview of Bank-financedwater supply and waste disposal operations. Also, in electric power, sector

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data sheets for each borrowing country, including several performance indica-tors, have been prepared and are presently being updated; a review of suitablequantitative measures of management and operational performance in power hasbeen included in a research program which started in FY82.

D. Sector Policies and Institutional Change

4.181 Seven of the 18 borrowers in this year's Review had received pre-vious loans or credits and for the most part were already regarded as rela-tively strong institutions. In these cases, institutional objectives con-centrated more on the process of continuing and consolidating previous effortsrather than bringing about a basic change in approach. Of the eleven who werenew, including all the water supply/waste disposal entities, the setting ofobjectives - especially financial - was typically more comprehensive andincluded, in six cases (two power, four water supply/waste disposal), thecreation of new entities. Whether the borrowers were new to the Bank or not,the lending operations did not confine themselves to resolving questionsnecessary for the successful implementation of the projects themselves; theywere almost invariably characterized by a concern for wider subsector policyissues.

4.182 Past Reviews have underlined the lesson that institutional changefrequently takes time, especially in the face of political and social prob-lems; it requires careful planning, perhaps through a series of lendingoperations, and realistic targets which take into account staffing and otherconstraints peculiar to the country. Several striking examples emerged againthis year. In Afghanistan Power, the strengthening of the national powerauthority could not be divorced from the issue of overall public administra-tion; in Pakistan Power, new management concepts were not accepted easily andwhile progress was made it will take time to change deeply-rooted methods andprocedures. The Swaziland Water Supply and Sewerage audit concluded that amore modest effort to introduce commercial accounting would have been appro-priate, with the introduction of sophisticated reporting systems being stagedover several years, based on proven performance in maintaining existingsystems. The two power projects in Turkey illustrate particularly well theneed for a long-term approach towards autonomy and soundly-based sectorfinances which recognizes the fact that many problems are related to thebroader economic, social and legal structure of the country. In retrospect,the Bank was over-optimistic about the achievements possible through these twoprojects; by remaining active in the subsector, it became necessary for theBank to respond flexibly, to address the structural problems as far as itcould (through its macroeconomic work and structural adjustment loans), and tolook for institutional and subsector policy improvements through a series oflending operations.

4.183 Brazil and Colombia Power illustrate a somewhat different althoughrelated lesson: the need to pay continuing attention to basic subsectorpolicies, such as tariffs and long-term planning, even in comparativelywell-managed subsectors where the Bank has been active for many years through

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numerous lending operations. The pursuit of institutional change and thetackling of key subsector policies in a phased manner has indeed been re-cognized, since the Bank is continuing its involvement with 10 of the 18borrowers through follow-on projects and in two other cases (Kenya Powerand Thailand Water) involvement is being maintained through subsequent lendingto other entities in the subsectors; in these cases, previous efforts arebeing consolidated and many of the lessons learned are being applied.

4.184 One obstacle to progress which has emerged clearly in audits overthe years, and did so again in this year's group, was the shortage of quali-fied and experienced staff, technical and managerial. While considerableattention was given to staff training, high staff turnover, caused by unat-tractive salaries, political and social instability and occasionally politicalinterference, sometimes jeopardized the results. Weak staffing was identifiedas a significant cause of implementation problems and disappointing progresstowards institutional change in Turkey Power (two projects), Sri Lanka Power(two projects) and Swaziland Water Supply and Sewerage. By way of contrast,success in Morroco Water - a new institution - was in no small measure attri-butable to the existence of working conditions favorable to the attraction andretention of a capable and well-motivated staff.

4.185 The Bank's attention to basic sector policies has recently beengiven sharper focus by the seminar on Public Utility Management which wasorganised for the Bank's water supply staff. This seminar, held in January1982, examined the experience of several successful water supply authoritiesin both developed and developing countries, using case studies to analysesome of the important lessons which could be drawn for institutional deve-lopment.

E. Environmental Aspects

4.186 In conjunction with the Bank's Environmental Affairs Office, specialattention to environmental issues was given at audit of two public utilitiesprojects: Brazil and Colombia Power. In both cases, the reservoirs associatedwith the hydroelectric stations inundated a number of properties and dwellingsand involved the resettlement and compensation of the affected populations.While the new facilities eventually provided to the resettled populations areconsidered to be a considerable improvement over those in the inundated areasand there is no evidence so far of any health hazards resulting from thereservoirs, the two projects gave rise to useful lessons concerning theresettlement and compensation process.

4.187 In Colombia, the appraisal mission had reviewed some aspectsof resettlement and compensation and an environmental consultant, at Bankrequest, carried out an ecological reconnaissance mission shortly afterwards.While the consultant did not conclude that a change in the plans to constructthe project was required, he did express concern over the borrower's slowrecognition of the substantial difficulties likely to be created by resettle-ment. In the event, resettlement and compensation required lengthy negotia-tions, largely because the Bank and the borrower had failed to anticipate the

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complexity of the problems involved. The final cost of resettlement was morethan double the original estimate and the process took three years longer thanenvisaged. The lessons of this aspect of the project experience - concerningthe complexity and costliness of relocation programs and the need for realis-tic and systematic planning - have been reflected in a recent OperationalManual Statement. In Brazil, the environmental problems were studied in detailby a consultant prior to project appraisal; he concluded that no importantadverse ecological problems would result and recommended an appropriateresettlement and compensation plan. In the event, compensation and relocationwere carried out in a timely fashion, although with a cost overrun; however,due to a lag between the time when compensation was paid and the time when newfacilities were provided, some houseowners had spent a portion of theircompensation on other goods. The audit drew the lesson that a better syn-chronisation between the payment of compensation and the provision of newfacilities would be desirable.

C. TRANSPORTATION AND TOURISM

INTRODUCTION

4.188 This Review covers 16 projects in the transport sector: nine inhighways, five in railways, and one each for a pipeline and an airport. Thereview also includes one tourism project. The projects were located in 11different countries and six of the 17 represented the first Bank involvementin the particular transport mode in the country concerned. The overalldistribution between modes roughly corresponds to the Bank Group lendingpattern in the last ten years.

4.189 With one exception - the Yugoslavia Third Railway Project - theprojects were all approved during the first half of the 1970s and implementedby early 1981. They were, therefore, variously subject to (i) rapid world-wide inflation, (ii) significant growth of traffic in certain countries, and(iii) increased integration in most developing countries of planning andmanagement of their transport sectors. All projects under review, except one(Upper Volta Cotton Roads), dealt with the basic trunk transport networks ofthe countries; project design was, therefore, mostly determined by nationaland international considerations rather than local or regional factors. In atleast one of the projects (Indonesia Railways) in a country of new Bankinvolvement in the subsector concerned, opportunity was taken to supportsystematic and noteworthy institutional development.

4.190 The policy matters covered in this year's group varied widely. Insome projects sector policy issues were hardly addressed; in others, theproject was part of a wide ranging dialogue between the country and the Bank.Among policy areas covered were sector planning, transport coordination,and road user charges. Policy matters were addressed through financing ofstudies, training, technical assistance by experts, and loan covenants.

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HIGHWAYS

4.191 Loans and credits for highway projects were made to seven countries,all but three of them being repeater projects. The projects were spread over

all Regions, except South Asia, with some concentration in Western Africa.

Objectives

4.192 All but three of the nine highway projects concentrated on trunk

road construction and only one of the nine (Upper Volta Cotton Roads) hadsignificant secondary or feeder road components. The other two projects wereintended primarily to improve road maintenance. With one exception, allprojects had important technical assistance (feasibility and engineering

design studies) or institution building components. In three, substantialsectoral studies (Iran and Guyana) or urban studies (Ivory'Coast and Iran)

were included. Most projects focused on the highways subsector: managementof the network, maintenance, investment planning, engineering designs, and

their associated institutions.

4.193 The specific policy and institutional objectives varied widelyalthough policy concerns were emphasized relatively less than institutionalquestions. No specific policy issues emerged in any project other than roaduser charges which were covered by a study and covenant in one case (IvoryCoast) and improved transport coordination which was addressed primarilythrough support for studies (Iran and Guyana) and some training (Upper Volta).

Four projects (Kenya, Ivory Coast, Iran and Guyana) supported improved organi-

zation of highway authorities, and maintenance improvement (through the provi-

sion of equipment and training) was featured prominently in all of these andin the project in the Dominican Republic. Road transport regulations wereaddressed only sporadically, primarily in relation to controls on vehicleweights (covenants in all projects but Upper Volta and provision for weighbridges in Guyana).

Effectiveness: Economic and Institutional

4.194 Seven out of nine highway projects offered very satisfactory reesti-mates of rates of return ranging between 16% to over 50%. However, the KenyaHighway Maintenance Project had a return at audit estimated at less than 10%and failed to achieve substantial maintenance improvement due to an overambi-tious and incomplete project design. The Upper Volta Cotton Roads Project hada return at audit of 4%. It suffered from significantly increased construc-tion costs caused by both increased quantities and inflation, aggravated bycurrency fluctuations. As with highway projects in previous years, there were

large variations in the economic returns on subsections within the overallreevaluated economic returns.

4.195 At the institutional level, reasonably successful efforts appearto have been made to assist borrower capacity to plan, implement and operate

projects. Nevertheless, the scale of success varied widely. Some studies

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which were aimed at fundamental restructuring were stymied in implementationby major political or economic dislocations (Iran and Guyana) or by the sheersize and complexity of the problem (Kenya). On the other hand, local capacityto design simple projects was considerably enhanced in Upper Volta in theimplementation of a drainage works program which was added to the project inthe course of execution. All but three of the projects included the prepara-tion of feasibility studies and of final engineering designs. An importanteffort was thus made to lay the base for the further development of thehighway network in these countries.

4.196 Success in the maintenance aspect was mixed: limited in many coun-tries, considerable in two (Ivory Coast, Dominican Republic). In the formercase only some elements of the maintenance system were subject to reform,while in the latter the revised maintenance procedures were installed on apilot basis in a few selected localities. In these cases, less ambitiousproject designs appeared to be more successful. The success which wasachieved reflected in considerable measure the careful spelling out ofdetailed actions which were needed to implement improved maintenance and thetimely provision of budgetary funds required to put these actions into effect.

4.197 Training of technical staff was an element in six of the nineoperations. It was of major importance in Kenya, Ivory Coast and DominicanRepublic where the projects included the establishment of training facilitiesfor permanent use by the highway authorities. Success in training was alsohelped through the use of brigades in Ivory Coast and training productionunits in Dominican Republic which provided broad opportunities for on-the-jobtraining. However, the quality of training was deemed insufficient in manyinstances in Kenya and inadequate use was made of the training facilities,although the number of staff eventually trained was larger than planned. Morelimited training for highway personnel was carried out under the Iran project,and for transport planning staff under the Upper Volta and Guyana projects.

4.198 The institutional effort in the Dominican Republic was particularlynoteworthy. The project included both construction and maintenance componentswhich were deliberately kept small in order to allow a smooth introduction ofnew concepts and procedures under this initial Bank project in the country'shighway sector. The project correctly stressed institutional improvement androad maintenance in preference to large scale construction which would haveunduly taxed the highway authority. The construction component for improvingonly 19 km was a modest first attempt to improve road design and biddingprocedures and to demonstrate the advantages of adequate construction supervi-sion. The project's main emphasis was on maintenance. The maintenanceimprovements were instituted in accordance with a systematic approach and alonger term program which envisioned a gradual build up of the country'smaintenance capacity. The general success of this project has resulted incontinued and expanding Bank participation in the country's transport sector.

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Process Efficiency: Time and Cost

4.199 Implementation experience was generally somewhat better than thegroup reviewed last year, with increases in both time and cost being moremodest than last year. Inadequate project preparation and/or high inflationwere the main causes of time and cost overruns, often in an interactingpattern. The year 1973 continues to appear as a watershed, unusual in termsof its effects on the timing of project implementation. In respect of cost,the inflationary impact of the oil crisis could not have been foreseen in theprojects approved earlier; however, the earlier projects (those approved1970-72) also had longer anticipated implementation periods (mostly fouryears) and experienced longer delays, as against later projects (thoseapproved in 1973-76) which had shorter implementation schedules (about 2-3years) and experienced relatively shorter delays. As a rule, however, allprojects appear to have had overoptimistic implementation schedules. Whileno clear indication is available of the basis for these schedules, they pre-sumably represented primarily the judgment of staff appraising those projects.

4.200 Four of the nine projects were delayed by less than 20%; in two ofthe remaining five cases the delays in excess of 20% were due to new projectcomponents which were added to use up surplus funds. Six of the nine projectswere completed with expenditures less than or within 10% above appraisal costestimates, reflecting adequate cost projections and/or reductions in projectscope. Iran Fifth Road Project (2% underrun) gained from a bid evaluationsystem which enabled the Government to reject unrealistically low bids andwent forward with adequate contingency provision, thus staying close toestimated cost.

4.201 There were both substantial time and cost overruns in Ivory CoastIV Highway (75% time delay; 101% expenditure overrun) and Guyana Highway(146% and 39%). Serious delays were also experienced in Kenya HighwayMaintenance (100%) and substantial delays in Ivory Coast III Highway (40%)and Iran V Road (38%). The Iran project spanned a period of very rapid changein the country beginning with the sudden rise in oil revenues and followed bya fundamental change in Government. The major delay occurred when the Govern-ment requested that the residue in the loan be shifted to purposes which werenot included in the original project and which had become more relevant toIran's changed economic climate where the Bank's technical rather than finan-cial help had become more useful. However, disagreements between the Bank andthe Government and shifts in Government staff led to delays and eventuallyfrustrated this initiative. In the other projects, the most immediate causesfor delays appear to have been difficulties in construction due to contractorproblems or unusual contractor or force account arrangements (Ivory Coast IVHighway and Guyana), the inadequacy of engineering studies (Ivory Coast IIIand IV Highway and Kenya),-/ and problems with software components, partic-ularly training (Ivory Coast III Highways and Kenya). Problems with training

1/ Present Bank policy calls for detailed engineering and more advancedproject preparation before loan approval. The Project PreparationFacility, introduced in 1975, is also helping to advance preparation,especially in poorer countries, before a loan or credit is allowed to goforward.

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related mostly to difficulties in recruiting and keeping trainees (frequentlyexacerbated by low official pay scales) and in having suitable trainingfacilities ready on time. Training in Kenya was also delayed by the Govern-ment's desire to use bilateral grant funds in the IDA project which increasedproblems of coordination and timing in execution of the project.

RAILWAYS

4.202 Five railway projects are included in this Review: one in WestAfrica (Senegal); three in East Asia and Pacific (one in Indonesia and two inKorea); and one in Europe, Middle East and North Africa (Yugoslavia). Withthe exception of the Yugoslav project, the loans and credits were all made inFYs72-75 and the projects completed in FYs78-80; they therefore reflectrelatively recent experience. With the same exception, the projects werein support of national railway capital investment programs, with consider-able institutional objectives to be achieved with the help of consultants.Yugoslavia was unique not only because it was approved much earlier (1968) butalso because it concentrated on the construction of one major new line withrelatively minor attention to other aspects of the Yugoslav railways.

4.203 Policy objectives of the Senegal project included a study on thecoordination of road and rail transport which was thought to be inadequate.The Indonesia project did not include any sectoral objectives as such nor didthe Yugoslav project, although both were among several transport projectswhich did address broader policy issues in those countries. The two Koreaprojects were also part of such a dialogue and they both had covenantsrelating to transport planning and coordination.

Effectiveness

A. Economic and Financial

4.204 Four of the five projects offered satisfactory reestimates ofeconomic rates of return ranging from 13% to 25%. In Senegal, the return ontrack renewal declined from 13% at appraisal to 11% due to additional costsincurred to remedy defects in the renewal works; the return on delayed trackrelaying was estimated at only 9% but spare parts, which kept locomotives inoperation and prevented diversion of international traffic to and from Mali toanother longer route via Abidjan, had a return of 16%. The overall return wasthus 13% at audit (reduced from 18% at appraisal). In Indonesia, where theproject assisted a fundamental restructuring of the railway, the return wasbased on avoidance of traffic diversion to roads. Because of delays inproject implementation and overoptimistic estimates, traffic continued todecline and the recovery finally started later than forecast which resulted ina reduced rate of return. The reduced return being partly the result ofdelayed project execution may thus tend to understate the long-run economicpotential of the Indonesian railways. The PCR for the Korean projects reesti-mated the returns on some investments which had been analyzed separately atappraisal and several of these dropped somewhat. The industrial lines'

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electrification cost more than estimated, while the electrification of theSeoul suburban lines did not generate as many benefits when the costs of usingbuses (the alternative mode) did not rise as fast as projected. The firstyear return on import substitution of coal carried by rail was less becauseKorean coal production did not rise as much as foreseen. Nevertheless, thereturn on the investment as a whole remains attractive (slightly above projec-tions for the fourth project and slightly below for the fifth) and reflectsthe rapid growth in the Korean economy and in traffic during the 1970's andthe efficient operations of the Korean railway. The reestimated return forthe Yugoslav project at audit (below 8.5%) was affected by substantial timeand cost overruns and low traffic levels.

4.205 Operating efficiency improved significantly on the Korean railways,even though there were no specific targets either in the appraisal report orin the loan documents. Significant operating improvements also were achievedon the Yugoslav railways; targets had not been agreed on for that particularproject but were incorporated in the ongoing dialogue between the Bank and therailways over a long series of projects. In Senegal and Indonesia operatingtargets were generally not met but some improvements did occur. Managerialproblems were addressed in all projects except Yugoslavia and some improve-ments were achieved but in Senegal and Indonesia much still remained to bedone at audit. Traffic was overestimated in Senegal. In the other three casestraffic was both below and above forecast. Freight traffic forecasts were toohigh in Indonesia and both too high and too low, depending on the year, inKorea and Yugoslavia. Passenger traffic exceeded forecasts in Indonesia, wasbelow forecasts in the earlier period and above them in the later period inKorea, and the reverse in Yugoslavia, with actual traffic exceeding projec-tions in the early period and falling below them in the later period.

4.206 Financial results were below appraisal expectations in all fiveprojects. This resulted largely from lower than expected traffic growth(Senegal, Indonesia and Yugoslavia), higher costs (especially Indonesia, wherelarge wage increases were allowed in 1979), and lack of action on tariffincreases (all four railways). Moreover, subsidy payments from the respec-tive governments were not sufficient to compensate for inaction on tariffs(Senegal, Indonesia, Yugoslavia). The result was that Senegal and Indonesiasuffered overall losses throughout the period under review while Korea andYugoslavia had such losses only in some years.

4.207 The four railways present contrasting patterns in pricing policies.The Yugoslav railways charge relatively more per unit of passenger than perunit of freight traffic, while the Senegal and Indonesia railways do thereverse and these patterns have been maintained over the period under review.The Korean railways shifted their pricing patterns over the 1970's. Ini-tially, they followed the Yugoslav pattern but more recently freight revenuesper ton km have substantially exceeded revenues per passenger km. Over thissame period, the Korean railways reduced the profitability of their passengeroperations while converting the freight operations from loss to profit.Similar data are not available for the other three railways.

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B. Institutional

4.208 Significant improvements in the process of transport planning andcoordination were achieved in Korea, through reorganization of Governmentagencies and formal reviews of pricing decisions. The Senegal effort had onlylimited results; its main recommendation to create a National Commission onTransport was not implemented but the Division of Studies was strengthened inthe Ministry of Transport. A Yugoslav sectoral effort outside this particularproject was important and led to significant results. The project itself didnot address sectoral issues.

4.209 Even though neither the Korean nor the Yugoslav projects containedmajor institution building components, substantial improvement in staffperformance and maintenance operations occurred during the project periods inboth these railways as a result of improvement efforts under other Bankprojects in these countries. The Korea Railways V project did finance a majormanagement study which was defined under the Korea Railways VI project andwhose recommendations (primarily greater autonomy for the railway) wereagreed to be implemented in connection with Korea Railways VII. The lack ofappreciation of local conditions which was commented upon in last year'sreview in regard to Korea Railways III's attempt at managerial reform thusdid not occur in the follow--on projects. Significant improvements wereachieved in Yugoslavia: in decentralized management of the railways as wellas in transport coordination. In Senegal the Bank played a key role inenabling the railway to obtain more financial autonomy, while studies relatedto operations and workshops were less helpful for lack of follow-up. Despitesignificant improvements, the institutional changes attempted in Indonesiafell short of expectations due to the fact that the railways lacked autonomyover their staff and finances and due to inadequacies in the design andexecution of the improvement scheme.

4.210 The Indonesian project offers a striking example of difficultiesthat can face efforts at institutional development. The Indonesian railwayshad suffered a long period of neglect and decline and the loss of skilledand experienced staff. The railways had not long ago been melded into oneorganization from a large number of smaller, privately-owned companies andhad recently been converted to a government department. The project thusattempted concurrently a program of physical rehabilitation and a programof organizational and managerial improvement. However, neither was fullydetailed when the loan was made and both the Bank and Indonesia were facedwith the choice of delaying urgently needed rehabilitation or of improvingproject preparation. A Financial Recovery Plan was formulated duringappraisal and incorporated in the loan documents but was not based on a longerterm assessment of the railways' potential in the transport system. Moreover,the Bank and the Government had not reached agreement on the objectives ofrailway operations particularly with regard to the appropriateness or other-wise of subsidies. The agreed targets thus lacked realism and full acceptanceby both sides. In addition, the time specified to achieve the targets was

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very short and the project design sought to compensate for this by increasingthe number of consultants. This trade-off was, in fact, not feasible with theresult that a very large consulting effort produced disproportionately smallresults. While targets had been specified in adequate detail, the consensualframework and specific plans to achieve them had not. Success in institu-tional development thus not only depends on correctness of the diagnosisbut on timeliness and scale of the remedies applied and their fit with theenvironment.

Process Efficiency: Implementation Time and Cost

4.211 While the cost experience in this group was generally better thanthat of the group reviewed last year, implementation delays were only slightlyimproved, ranging from 38%-141%. Unrealistic implementation schedules con-tinued to be an important factor; expenditures of funds were subject to delayscaused by procurement and implementation difficulties and were affected, inaddition, by macro-economic factors (as in Korea). The completion schedulesalso did not pay sufficient attention to the complexities of physical con-struction or installation or rehabilitation components of the projects which,from experience, appear to be more prone to delays than procurement of equip-ment. Non-physical components such as training also occasioned exceptionallylong delays, especially in Senegal and Korea.

4.212 There are telling examples of major time losses associated withconstruction and installation in each of the five projects. In Senegal, trackrehabilitation in the quantities planned was much beyond the capacity of therailway and shop remodelling exceeded the potential of local contractors. InIndonesia, those components which required a substantial input of railwaylabor (rehabilitation of track, bridges and signalling) were implementedmore slowly. In the Korea projects, the greatest delays occurred in marshal-ling yard extension, building and lengthening of crossing loops and bridgestrengthening. The best example is provided by the Yugoslav project whichfinanced the construction of a new line through rugged mountain terrain.Delays were caused by construction problems, particularly in tunnelling, andpartly reflected inadequate experience and equipment of the local contractors.Fully qualified contractors available on the world market might have been ableto execute this project more promptly but the country would not have thengained valuable experience.

4.213 Cost estimates were somewhat uncertain for Indonesia and therewere significant overruns in the unit costs of some items; the new line inYugoslavia had an 87% overrun (about 50% in real terms). The other threeprojects had apparent cost reductions, resulting from significant reductionsin their physical content to keep the expenditures in line with availablefunds.

OTHER

4.214 The Kenya oil pipeline project was approved in FY1975 while theNairobi airport and the Yugoslav tourism projects came before the Board in

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FY1972 and FY1973 respectively. They each had unique historical features:the pipeline was the first such venture in Kenya; the Nairobi airport was theBank's first airport appraisal (though an airport project in Panama was thefirst airport financing authorized by the Board); and the Yugoslav project wasone of the first two specially directed at the tourism sector and introducingan integrated approach to tourism in Yugoslavia.

4.215 No particular policy objectives were formulated for the threeprojects even though important sectoral issues were implied in each. Thepipeline displaced much traffic from the parallel railway and roads and theallocation of oil traffic between the modes remains an issue, as does thepipeline's pricing policy. The main objectives of the airport loan were toestablish an independent airport authority. The Yugoslav. project had no clearsectoral objectives other than to install a more innovative tourism style.

A. Economic and Financial

4.216 Both the Kenya projects are serving traffic which is significantlybelow forecasts. This reflects the impact of the oil price increases of the1970's and the consequent reduction in petroleum consumption, and the effectof reduced economic growth which dampened world tourism and Kenya's domesticair traffic and also contributed to lower petroleum demand. Thus, annualthroughput in the opening year of the pipeline was 50% under expectations andwas still 33% under forecast in 1980. Annual passenger arrivals at theNairobi airport in 1979, the first full year after opening of the new facil-ity, were only 56% of the appraisal forecast. The Yugoslav tourism projectalso has not met appraisal expectations. The facility as built accommodatesonly 2,000 instead of the projected 5,000 guests, and the rate of occupancy ona year around basis fell substantially below appraisal forecasts. Thisreflects the cyclical dampening of growth and increased competition inMediterranean tourism, particularly in the high class market for which theproject was designed. These changes in the tourism market also followed uponthe effects of the oil price increases and consequent reduced growth in thedeveloped countries.

4.217 Reduced demand coupled with sharply increased costs caused a morethan one third decline in the economic rate of return for the pipeline to astill satisfactory 19%, and a two-third reduction in the airport and tourismprojects' returns to less-than-satisfactory 4% and 5%, respectively. Thepipeline project had a more robust design which allowed it to withstand betterthe erosion of demand. Its original rate of return was higher, it was morefully designed (in contrast to the Yugoslav project which had only preliminarydesigns and cost estimates), and its execution scheme was simple: .one con-tracting agency, one civil works contract and one consultant, in contrast tomuch more complex arrangements in the other two cases. The financial perfor-mance of the two Kenya operations is generally good because tariffs aremaintained at high levels, sufficient to compensate for cost increases andlower traffic, and taking full advantage of the relative insensitivity toprice of much of this traffic. The Yugoslav project has been suffering losses

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since its opening in 1976 but, under optimistic assumptions, could yield areturn of 0.5% by 1983. In the highly competitive tourism market, the projectauthorities were unable to raise prices to offset the loss in patronage andthe increases in costs.

4.218 The pipeline has achieved a financially sound operation but parallelroad and rail modes have maintained their hold and the coordination schemeremains to be fully worked out. The other two projects experienced onlylimited success in sector policy.

B. Institutional

4.219 All three projects had important institution building effortsrequiring the establishment of new enterprises and the initiation of endeavorsin new fields: an oil pipeline and an aviation authority as well as avastly more complex airport in Kenya, and an integrated tourism project inYugoslavia. While the oil pipeline was a signal success, the other twoinitiatives faltered. The pipeline, though a high technology enterprise, wasa less challenging organizational problem; it had only some 340 employees alllocated in a few concentrations along a fixed right of way. The aviationauthority had a much larger staff scattered all over Kenya, while the Yugoslavhotel company even in its scaled down version employed nearly 1,000 workers.The contrasting results of the two Kenya projects are partly attributed toalternative approaches to institutional autonomy; the pipeline management wasgiven a great deal of leeway and developed a strong independent style whilethe aviation authority had incomplete delegation of authority from the parentministry. The Yugoslav project suffered from dislocations incidental toorganizational changes being made throughout Yugoslavia during the projectperiod.

4.220 All three projects made large scale use of consultants and oftraining in their institution building efforts. The consultants attended notonly to organizational and technical issues but to such matters as accountingand personnel selection. Training played a major role in the successfulpipeline project and was organized by the consultants both in Kenya andabroad. Despite constant urgings by the Bank, training under the airportproject was delayed because the Government failed to release trainees fromother duties, Government pay scales were not high enough to attract easilytrainable staff, and loan funds provided for training were diverted to coverconstruction overruns. The Yugoslav tourism project organized its own train-ing program, with the help of consultants who prepared training manuals.Scholarships also were granted to study hotel operations. The projectauthorities considered these activities as generally helpful.

Process Efficiency: Implementation Time and Cost

4.221 While the pipeline was completed with only minor delays, both theairport and tourism projects suffered delays of over 40%. The main causeof the delay in the airport was contractor problems which started with con-tracts written in terms highly favorable to the contractors, and with cash

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flow problems of the principal contractor which resulted eventually in thetermination of contracts and renegotiation of new ones. The Yugoslav projectwas delayed due to insufficient preparation at appraisal and organizationalproblems. Land acquisition and completion of engineering design took threeyears after Board approval of the project.

4.222 All three projects had cost overruns. The pipeline cost over athird more primarily due to initial underestimation of construction costs,and by increases in labor and material costs after the oil price rise. Infact, the total overrun would have been much more but for a saving of nearly50% in the cost of the pipe. The rise in the value of the yen also was afactor as contracts denominated in yen used up relatively more of the loandenominated in dollars when the yen was appreciating vis-a-vis the dollar.Price escalation in construction contracts was the main reason for increasedcosts in the airport project, partly due to very generous escalation clausesin the contracts. The Yugoslav project had severe overruns due to inadequatecost estimates at appraisal - compounded by isolation, delays in implementa-tion and structural economic returns in Yugoslavia - with the result that thefinal project offered only 407 of the original accommodations at 47% highercost. While this project and the pipeline clearly confirm the need forreliable plans and cost estimates to be available before loan approval,the airport project demonstrates that all steps in execution are essential tocost containment including proper drafting, supervision and enforcement ofcontracts.

SUMMARY FINDINGS

(i) Sector Policy Environment

4.223 Transport sector policy was a major feature of five of the currentyear's projects (Iran, Guyana, Senegal, and two in Korea). As indicated lastyear, some types of projects (such as sector or other large scale operations)and some environments lend themselves more readily to sectoral concerns thanothers and this year's experience confirms that observation. Strengthening ofinstitutions to plan and coordinate transport was attempted in each of thesefive cases but fell short of expectations in all except the two projects inKorea. Even here some problems continue, in particular the co-equal rank inthe Government of the Transport Coordination Office in the Ministry of Trans-port and the national roads agency in the Ministry of Construction. Thisunresolved issue of precedence increases coordination problems. In the otherthree instances political difficulties stood in the way of achievement, eventhough a variety of approaches was employed ranging from placing the main onuson the Government and its agencies (Korea) to having outsiders prepare studies(Iran, Guyana, Senegal) and provide training (Guyana).

4.224 Other policy matters were addressed in other projects. The levy ofproper road user charges continued to be a major issue between Ivory Coast andthe Bank. The funding and organization of highway maintenance, which engagesthe attention of Government officials well beyond the highway sector, was amajor concern in three cases. Both road user charges and funding of highwaymaintenance are now being closely studied by the Operations Policy Staff inthe Bank. A recent OPS review examined Bank experience in sector work gen-erally and stressed areas of increased policy orientation.

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4.225 As indicated in last year's review, sectoral reform responds best toa well-coordinated effort. The two Korean railway projects in this year'sgroup exemplify this point. The effort in Guyana was pursued on a smallerscale and with greater expatriate help; it not only assisted in making a studyand formulating policies and a plan but in implementing them and training thetransport staff. However, due to adverse economic conditions most of thetrained staff left the country which set back an otherwise excellent effort.The absence of a proper transport policy framework may have been one of thereasons for the limited achievements in Indonesia where a major restructuringof the railway was attempted without full appreciation of the future role ofthe railway in the country's transport system.

(ii) Traffic Forecasting and Design Standards

4.226 Reliable traffic forecasting is crucial for the effective design oftransport facilities. The determination of potential traffic is equallycritical whether demand is derived from general economic activity or generatedby the existence of the facility itself. Various aspects and implications ofthis problem have been commented upon in the last four Reviews. It is under-stood that a number of studies in this area have been instituted by theOperational Policy Staff. Their results will be awaited.

4.227 It has been observed in the past that road traffic and rail passen-ger movements were generally projected to grow more slowly than actuallyoccurred, while rail freight traffic was typically overestimated. The currentgroup of projects provides partial confirmation of this pattern. Road trafficdid not rise more rapidly than projected in every case nor was the degree ofdiscrepancy the same in the cases where it did; and rail, pipeline andaviation traffic had quite indeterminate patterns.

4.228 Road traffic increased much faster than projected in Swaziland andIvory Coast, but it was close to the estimate in the Dominican Republic andGuyana. Detailed information was not available on Upper Volta and Iran roadtraffic but apparently the former grew no more than projected while theopposite is true for Iran. Frequently, local developments had a largerinfluence on traffic developments than general economic activity. There is asimilar absence of a consistent pattern in this year's railway projects. InSenegal, both freight and passenger traffic grew less than projected, withmost goods and passenger movement experiencing declines and the movement ofphosphates, the railway's most important commodity, increasing somewhat. TheIndonesian freight traffic also was much lower, partly because of diversionof equipment to passenger traffic, which exceeded expectations. Similardiversity of patterns appears in the year-to-year traffic performance of theKorean and Yugoslav railways.

4.229 Problems arose not only with forecasting overall volumes of trafficbut also with its nature and composition. In several instances, trafficforecasts were affected by unforeseen developments relating to a particulartype of traffic: cotton in the Upper Volta project, groundnuts in Senegal,

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coal in Korea, and low cost tcurism in the Kenya airport and Yugoslav tourismprojects. A more disaggregated analysis with sensitivity tests being applied

to major segments of traffic might have produced better results. This dis-aggregation would also permit improved project design; for instance, the

Yugoslav tourism project could probably have put more emphasis on certain

types of facilities to adapt better to the evolving structure of its tourismmarket. A disaggregated approach also is essential to effective marketing of

transport services; a point clearly illustrated in the Yugoslav Third Railway

Project. In that case most traffic on a new line was to come from diversion

from other modes or from other railway routes or through location of new

economic activities along the -route. The faltering marketing effort which was

noted in the audit was partly caused by insufficient knowledge regardingpotential clients. The need for disaggregated forecasting of traffic is

being recognized by the Bank. In some recent projects linkage was made witheconomic growth prospects, development trends in the transport sector, and

evolution of modal shares both nationally and for the main commodities andeconomic sectors. Railway projects are being designed to respond to possible

ranges of traffic growth.

4.230 A number of cases reviewed in this and previous years have referredto problems between the Bank and the borrower on road design. One partic-

ularly noteworthy example occurred in the Ivory Coast II and IV Highway

Projects where, after agreement between the Government and the Bank on the

design for pavement strengthening on a two-lane road and for reconstructing

a two-lane bridge, the Government proceeded with the work as part of an

expressway on the same alignment. This instance was part of an extended

dialogue, without clear agreement, between the parties on the pace and con-figuration for improving the country's road system in a period of rapidly

rising prosperity. Boom conditions in Iran also led to the Government's

adopting a new approach to improving its road system and to shelving thefeasibility studies it had agreed to include in the Fifth Road Project.

The Kenya airport project also was preceded by lengthy discussions betwen

the Kenya authorities and the Bank on the appropriate design horizon to beadopted. Expansion in stages would have been a more cost effective solutionnow that traffic is substantially below projections. However, purely economic

criteria cannot prevail throughout and the need continues to be of finding arealistic means of compromise between conflicting but legitimate ends. There

is also a continuing need on the part of the Bank to improve its interpreta-tion and judgment of the borrower's institutional and financial capabilitiesto undertake active maintenance or stage construction.

4.231 As stressed in previous years, it seems necessary that projectionsof future traffic growth on highways be attempted in the context of broadereconomic analysis and not by mere extrapolation of past experience. Further,

disaggregation of forecasts to the extent feasible for various transport modesneeds to be attempted and, since traffic forecasts influence design standards,the organizational and implementation consequences of various design optionsmay need to be explored further in the Bank's ongoing work on the highwaydesign model. Considerable attention in recent years has been given to the

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problem of improving rail traffic forecasts and the Bank has been makingprovision in many loans for special commodity studies. A recent draft opera-tional memorandum on railway projects includes a number of further specificrecommendations. That paper also notes the importance of a well organizedmarketing effort which, as illustrated above, is essential to realization oftraffic forecasts.

(iii) Institutional Development and Technical Assistance

4.232 This activity was defined in the Third Annual Review as support forstrengthening the borrower's capacity to plan, implement and operate projectsand enterprises. All but three projects (Swaziland II Highway, Upper VoltaCotton Roads and Yugoslavia III Railway) in this year's group of 17 includedsome elements of this activity. However, the scale of effort varied widely,ranging from reorganization of parts of ministries (Ivory Coast, Iran, Guyanaand Korea), to structural reform (highway maintenance in Kenya, Ivory Coast,and Dominican Republic and railways in Indonesia), and the establishment ofnew organizations (Kenya pipeline and Yugoslav tourism). The focus continuedto be primarily on subsector agencies although some attempt was made to dealwith sector-wide institutions, particularly in Iran and Korea.

4.233 The most frequently used devices were: a study of the organizationor management of specific areas (8 projects), independent or on-the-job train-ing as a means of improving staff performance (11 projects), and accountingstudies and assistance to strengthen financial control and management (4projects). Several projects also made use of schemes where the organization'sstaff undertook work partly as a training exercise (the design of drainagestructures in Upper Volta, the preparation of a transport plan in Guyana, theexecution of road maintenance in Ivory Coast and Dominican Republic and oflocomotive maintenance in Korea.) In every case foreign experts acted pri-marily as coaches or advisers.

4.234 The most comprehensive effort was probably undertaken on theIndonesian railways which attempted to execute a financial recovery plan foran enterprise that had suffered a long period of decline and neglect. Theproject was based on lengthy preparatory work. Nevertheless, many importantaspects of the project had not been articulated when the loan was approved,such as the financial policy of the railway and its role in the transportsystem as a whole. Moreover, the project did not choose among the variousproblems afflicting the railway and sought instead to address all of them atonce. This was implemented with massive amounts of technical assistance,valued at 7% of total investments, mostly concentrated in a short three years.Perhaps inevitably, the effort failed to meet the ambitious targets set in therecovery plan. The audit concluded, however, that a valuable contribution hadbeen made. In retrospect, it would appear that some elements in the projectcould have been better designed and executed; the targets could have been morerealistic and the consulting help spread over a longer time period. Thecontrast between this project and a similar large scale operation in Boliviadiscussed in last year's review is instructive. The Bolivian operation was

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deemed very successful; but it was smaller and less complex, it enjoyed amore thorough going commitment by the Government to its financial and policygoals, and it was assisted by consultants who were more familiar with theproblem because they had designed the project and had had a longer associationwith the railway. The borrower's concern over the cost of technical assis-tance which had been raised in the Bolivian case also recurred in Indonesia.There is clearly a continuing need to study.the dichotomy between effective-ness and cost of technical assistance in its various aspects.

4.235 The other feature of technical assistance that comes through in anumber of projects - as it has done in other Reviews and sectors - concerns acertain imbalance between the design and implementation of technical assis-tance and the hardware components. Not only do technical assistance and itsinstrumentation frequently become sources of discord between the Bank andthe borrower, but the coordination of timing of physical and technical assis-tance components has created problems. In several instances, the requisitephysical facilities were not in place to coincide with training activities(Kenya and Ivory Coast highway maintenance and Indonesia railways). In otherinstances, requisite administrative action had not occurred to allow trainingto proceed (Kenya airport). These points may reflect problems of preparationand design as much as those of implementation and supervision and deservespecial attention. Current emphasis in institutional development efforts inthe Bank transport lending is consistent with these findings.

(iv) Loan and Credit Covenants

4.236 Loan documents in the transportation sector routinely includecovenants to the effect that borrowers should maintain their highways, enforcelaws against overloading road vehicles, and in the case of revenue earningentities, have their accounts audited. Last year's review noted that theeffectiveness of these covenants suffered from the generality of the agreementand the weakness of the wording of the covenant with the result that borrowerswere often not clear as to what actions constituted compliance. On mainte-nance, for example, judgments made by Bank staff about the adequacy or other-wise of the borrowers' road maintenance were often used as measures ofcovenant observance: a case of imprecise tools used to make precise, legallybinding assessments. Also, compliance with such comprehensive covenants wasshown to be more than a matter of good will but required a plan, money,equipment and staff. The review thus questioned the usefulness of suchgeneral covenants. The same comments apply to some covenants in the projectsin this year's review.

4.237 In addition, this year's cases raise questions about the use ofcovenants in a series of projects over a span of years. An analysis of thecovenants in seven highway projects in the Ivory Coast shows that covenantswere used to cover a wide variety of concerns: from national transportplanning to payment of overtime to staff and control of equipment, and fre-quently addressed matters in varying terms under different projects. In thelight of these experiences the audit raised questions as to planning and

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consistency in the use of covenants, the trade-off between covenants and othermeans of achieving project objectives, the role of covenants in the dialoguebetween the Bank and the borrower, and the design and drafting of covenantsin relation to the realism of their objectives and formulation.

4.238 The Bank has been giving attention to the question of covenantsfor some time. OED as well has been studying the underlying issues andshortly plans to issue a paper based on experience.

(v) Operational Efficiency

4.239 As in last year's review, operational indicators for railwayprojects in the present group show varying impact of Bank assistance. InSenegal, locomotive and rail car availability declined while several indi-cators of locomotive and freight car use improved. In Indonesia, importantoperational improvements were achieved even though the ambitious targets ofthe project were not met. Even without targets in the appraisal reports,operating efficiency went up in Korea and in Yugoslavia. It is apparent thattrends in operating efficiency are affected by factors well beyond the Bank'sproject and that the key to effective intervention in this area remains to bedefined. The recently revised procedures for Bank Group lending to railwayswill undoubtedly help to promote a better understanding of the factors affect-ing operational efficiency.

(vi) Project Supervision

4.240 It is interesting to note from this group that the approach to andstyle of supervision varies between projects and Regions, and that no partic-ular combination of number of visits and number of staff had a strong correla-tion with project achievement. It also suggests that the concept and style ofthe supervision mission itself may be as important as the quantum of supervi-sion. Finally, the impact of the supervision effort is crucially determinedby the receptivity of the borrower which, in turn, may be a factor of thelonger term Bank-borrrower relationship and of the borrower role in thepreparation and design of a project.

4.241 Eleven out of this year's group of 17 projects involved supervisionof multiple projects. Joint supervision creates important time savings,sharpens the insight of the Bank's supervisory teams and synergizes the effectof individual projects in the same country provided supervision is accordingto a coordinated plan. Projects which stand alone, on the other hand, absorbrelatively more staff resources and their impact rapidly dissipates if super-vision is not strengthened through a follow-on project, or is otherwisecontinued for a period beyond project completion. This is particularly trueof stand alone projects with a large institution building component (such asGuyana highways, Indonesia railways and Kenya airport) or of an institu-tionally oriented project which is the last in a series (Iran).

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(vii) Tourism Issues

4.242 This year's group includes the third project in tourism (Babin KukTourism) for which an audit has been completed. It is the second audited

tourism project in Yugoslavia; the previous project, Bernadin Tourism, wasconceptually similar to but about half the size of the current project. The

Babin Kuk Project has been analyzed jointly with the transport cases because

the market forces which affected this project in a major way had a similar

impact in the transport sector. The increased price of petroleum created

serious economic down turns in the developed countries which dampened the

demand for travel and the growth of international tourism. The Bernadin

project also was affected by the slowing in the demand for tourism and, justas in Babin Kuk, financial results were negatively affected and the scale of

the project was substantially reduced. By contrast, the first audited tourismproject (Nepal Kathmandu Tourism Project, Credit 291-NEP, Report No. 2574,

SecM79-490) was less affected by the decline in tourism because businesstraffic supplemented the principal leisure market of the project.

4.243 While these three tourism projects do not yet constitute a repre-

sentative sample of the Bank's work in this sector, they exemplify two of the

main approaches adopted by the Bank. The Nepal project was for conventional

hotel space with an important element of business travelers and operated bythe private sector. While arrangements for expansion of an existing hotelwere not consummated, the project successfully achieved the construction of new

hotel capacity. The project ran into certain difficulties because the BankGroup dealt directly with the private sector hotels but otherwise demonstrated

the viability of this approach in tourism lending.

4.244 The two Yugoslav projects, on the other hand, attempted to introduce new

styles into the country's tourism sector, particularly in the scale of theprojects and in their concern with ancillary facilities. While these two

projects fell short of expectations, they should not necessarily be regardedas providing a final judgment on. the initiatives they attempted to introduce.They suffered from inadequate preparation in their organizational, financial,and engineering aspects, from large scale, country-wide changes in Yugosla-via's managerial system, and from adverse developments in the market they were

serving.

D. DEVELOPMENT FINANCE COMPANIES

INTRODUCTION

4.245 This review covers thirteen loans and one credit (IBS-Sudan) todevelopment finance companies (DFCs) in six countries. Except for KDB-Koreaand IBS-Sudan for which it was the first Bank operation, the other DFCs hadpreviously received a number of Bank loans and were regarded as well-estab-lished institutions. All operations were approved during FYs 69-76. With the

exception of IBS-Sudan, KDB-Korea and BDET-Tunisia, the intermediaries are

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privately-owned or controlled and cater to the needs mainly of private orprivately-controlled enterprises. In Colombia, the apex institution is thecentral bank but the participating financieras are private. The Bank's

increased concern with industrial sector policy issues in recent years hasled to "directed" lending, in the sense that priority segments of industry tobe promoted or end-users of funds were largely pre-identified. Financial

intermediation, in the form of promoting equity participation, flotation ofsecurities, co-financing, resource mobilization and apex institu tion lending,has received greater attention in relatively more sophisticated DFCs.

I. OBJECTIVES

4.246 Aside from the transfer of resources for industrial development, all

operations had institution-building objectives. These aimed essentially atimprovements in project appraisal/supervision capability, organizational

reforms and management practices. But since most of the DFCs involved in thisgroup were strong institutions, institutional objectives focused on continuingand consolidating previous efforts rather than initiating new approaches.Institution-building was particularly emphasized in IBS-Sudan and BDET-Tunisia. In most instances, Bank lending sought to advance broader develop-mental objectives, which led to the introduction of novel features in projectdesign, more so than in projects included in past reviews. This is particu-larly evident in DFCs which have had a somewhat longer association with theBank, had reached a certain level of sophistication and maturity, and hadattained high operating standards.

4.247 In the case of KDFC-Korea, such objectives included promotionalefforts in the industrial sector and deepening of the financial system throughthe establishment of leasing arrangements, co-financing, and equity invest-ments. In KDB-Korea, in addition to resource mobilization, major industrialsector objectives included support for export-oriented industries, heavychemicals, and intermediate goods industries. In ICICI-India, the focus wason geographical diversification of operations in designated backward areas,more active role in promotional activities, and foreign resource mobiliza-tion. In NIBID-Greece, the emphasis was on attaining greater institutionaland financial independence, while sectoral objectives included the regionaldispersion of industry and support of export-oriented and medium size in-dustries. Development of promotional capability and resource mobilizationwere BDET's primary objectives in Tunisia. In Colombia, through apex lending,the aim was to increase further the number of participating financieras, topromote industrial decentralization and export-oriented industries, to stresslending to medium size firms, to lessen the reliance of the financieras onofficial funding by mobilizing resources on their own, to encourage equityinvestment in new enterprises, and to introduce technology improvementprograms.

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II. EFFECTIVENESS

A. Institutional

Management, Organization, Procedures

4.248 As in earlier years, the Bank continued to place emphasis on build-ing up the appraisal/supervision capabilities and the management structure ofthe institutions it supported. However, since most of the DFCs in the grouphad achieved a relatively high degree of sophistication, the Bank's effort atpromoting organizational reform was most intensive in the case of IBS-Sudanand BDET-Tunisia. With the exception of IBS-Sudan, further progress was madein this direction during the time span of the loans under review.

4.249 IDA provided substantial support to IBS-Sudan, acting as executingagency for a UNDP technical assistance program, arranging for training at EDIand Bank-associated DFCs, and through appraisal and supervision missions.Despite these considerable inputs, the institution-building objectives,particularly the setting up of sound appraisal and follow-up practices, werenot achieved. IBS's lack of receptivity and, generally, the fact that aclose working relationship betwen the two institutions apparently was neverachieved, seem to account for the disappointing performance. Following areorganization and the appointment of a new management team at the Bank'ssuggestion, BDET's appraisal capability and management systems improvedmarkedly. Effective leadership, appointment of qualified people in keypositions, and recruitment of promising professionals appear to have greatlycontributed to this improvement. However, little progress has been made instrengthening BDET's follow-up capability.

4.250 In KDFC-Korea, KDB-Korea, ICICI-India and NIBID-Greece, the qualityof appraisal work was already high, except for the coverage and depth ofmarket and economic analysis and the evaluation of the ecological impactof the projects financed. These inadequacies have been since rectified.Deficiencies in project supervision, particularly insufficient staffing whichhad not kept pace with the growth of their portfolios, were also remedied andfollow-up capability has reached satisfactory levels.

4.251 In Colombia, effort focused primarily on building up the capacity ofthe central bank (Banco de la Republica - BR) to appraise and supervise theindividual financieras in order to take over the Bank's direct supervisionfunction over the participating financieras. To date, while the Bank hasreduced its involvement to important policy and institutional issues, progressin developing BR's capability to take over the appraisal and supervisionfunctions has been limited. BR has been reluctant to accept a greater role infinanciera supervision, partly because of concern with potential conflict withits statutory role of bank supervision and partly because excessive staffturnover had rendered such task very difficult to perform. Nonetheless,notable progress was made in furthering the quality of appraisal and follow-upwork of the participating financieras. Economic evaluation of projects has

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been further strengthened with the help of Bank-sponsored seminars, andeconomic rates of return are calculated as a matter of course.

Financial Position of DFCs

4.252 Except for IBS-Sudan, the profitability of the DFCs in the group washigher than projected, with rates of return on equity ranging from 8% (KDB-Korea) to 17% (KDFC-Korea). By and large, capital was relatively highlygeared in all intermediaries in the group. High levels of short-term opera-tions enabled several Colombian financiers to achieve returns surpassing 20%and, thus, a small positive real return on equity. But for most DFCs inthe group these returns were less satisfactory in real terms. Lending rateswere adjusted upward during most of the 1970s but the cost of borrowing rosefaster, thereby eroding spreads. Administrative expenses also rose substan-tially in absolute terms though, due to the increase in the volume of busi-ness, in most instances they rose only slightly in percentage of total averageassets and remained within acceptable limits. KDFC-Korea is the sole notableexception where administrative expenses declined dramatically - from 2.4% to0.9%.

4.253 The quality of the portfolio differed within the group but, on thewhole, it appeared satisfactory. Arrears in close to one-half of the DFCsunder review were virtually non-existent at audit while for the rest, exceptIBS-Sudan, they were well within acceptable limits. Following the reschedul-ing of a small number of subprojects, KDFC and KDB in Korea had negligiblearrears, and their respective collection rates at 99% were impressive.Prudent project selection has undoubtedly resulted in a very satisfactoryrepayment record. The Colombian financieras also appeared not to have appre-ciable arrears problems. At the other end of the spectrum, IBS-Sudan has hadserious and persistent arrears and collection problems and, despite IBS'sefforts, the situation has not improved perceptibly. Arrears showed a risingtrend in ICICI-India, NIBID-Greece and BDET-Tunisia. However, followingmodest rescheduling programs and stern collection measures, arrears werereduced to a level that is well within manageable proportions and theirportfolios remain sound. Most common reasons accounting for the prevailinglevels of arrears were adverse economic conditions, liquidity problems due tocredit controls, and structural problems, weak management and inadequatesupervision and collection efforts at the enterprise level.

B. Industrial Sector Development

4.254 Since the early 1970s, the Bank has been increasingly concernedwith utilizing its lending operations through DFCs to help advance sectoralobjectives within the framework of the country's development strategy andpolicies. To this end, the Bank has been progressively encouraging DFCs toproduce strategy statements setting specific lending objectives and, occasion-ally, targets, to follow discriminating lending patterns in favor of particu-lar activities, or to undertake specific promotional initiatives, therebyenhancing the developmental role of the financial institutions. The endorse-ment of such strategy statements produced by the more sophisticated DFCs

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(e.g., KDFC, ICICI) and the purposeful skewing of loan commitments by otherrecipients to pursue specific objectives has influenced the design of theBank's projects, and such "directed lending" has had tangible results.Priority activities generally included industries featuring export orienta-tion, production of intermediate or mass consumption goods, balancing/moderni-zation, location in backward areas, promotion of regional dispersion, orgeneration of new and productive employment opportunities.

4.255 The more mature DFCs undertook promotional activities which have hada. significant impact on the development of the industrial sector. KDFC hasbeen innovative and successful in its efforts to deepen the industrial struc-ture in Korea. To promote technology development, KDFC was instrumental inthe establishment and funding of a company (KTAC) which helps set up venturesusing indigenously developed technologies, and in extending financial supportto such projects. Other KDFC initiatives included assistance to the machinerysector, particularly small-to-medium scale industry, and support of agro-industries. KDB's promotional activity in heavy chemical and intermediategoods industries has had a similar effect.

4.256 ICICI-India established a project promotion unit which was expectedto identify projects promoting forward and backward linkages, eliminatingproduction bottlenecks, locating in backward areas, or undertaken by newentrepreneurs. To date, project promotion remains an activity for ICICI,which is still in need of further expansion. However, ICICI, in concert withother institutions, has contributed to the intital capital of several new con-sultancy organizations in four states, which aim at assisting state financialcompanies and commercial banks to prepare techno-economic evaluations ofprojects. Also, ICICI financed selected mixed ownership companies in whichthe Government has a minority share. ICICI has furthermore contributed toindustrial policy-making through the preparation of a number of studies whichraised important issues of sectoral and macroeconomic interest. On the otherhand, the Bank's efforts to persuade BDET-Tunisia to engage in promotionalactivities have been slow to bear fruit. Because of the lack of commitment onthe part of the management, inability to attract qualified staff, and lowprofit margins, BDET was not in a position to take up promotion in earnestuntil very recently.

4.257 In Colombia, a novel element in financiera lending involved theestablishment of a Technology Fund to be used for setting up laboratories,financing of technology improvement programs, purchase of licenses for tech-nologies or processes, acquisition of pollution control equipment, hiringof foreign technicians, etc. The objective of the component was to helpColombian enterprises to undertake technology improvement programs designed tobetter their production efficiency and product quality. Although the amountof subloans committed so far has been limited, mainly because of the noveltyof the scheme and insufficient promotional effort of the financieras, theusefulness of such a fund is beyond question and the experiment has alreadybeen replicated successfully in DFC loans to other countries. The experiencehas been less felicitous in the case of the Equity Investment Fund which theBank helped establish to allow the financieras to finance equity investmentsin new enterprises. The success of this scheme was frustrated because thefinancieras took a cautious approach in view of the higher risks involved, the

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depressed yields due to the tax system and the absence of fiscal incentives,the higher yields of safer short-time loans, and the illiquidity of suchinvestments.

C. Operational Results and Sectoral Impact

4.258 The Bank funds were utilized mostly to support medium and largeenterprises. In certain instances, wider distibution was ensured by settingupper limits for subloans or asset size for borrowing enterprises. Of the1050 subloans financed with Bank funds in the projects under review, 17% werenew firms, 61% expansion and 22% balancing/modernization projects. Thesectoral distribution of the subprojects financed by the group was in accor-

dance with each country's development strategy and sectoral priorities.

Except for KDB-Korea which allocated a disproportionate amount of Bank funds(45%) to support projects in one industrial segment (shipping), the sub-projects were sectorally well diversified. While BDET-Tunisia and IBS-Sudan

present a high concentration of subprojects in their respective capitals,sub-projects supported by the other institutions appeared well dispersedgeographically and generally in line with policies to locate industry in less

developed regions. ICICI's operations in areas designated by the Governmentas "backward" showed remarkable growth, although most of such financial

assistance tended to be centered in backward "pockets" located in the advancedstates. Ex-ante calculations of financial and economic rates of returnappeared satisfactory. On a small sample basis, ex-post calculations by KDB

and KDFC in Korea revealed that ex-ante calculations were optimistic - butstill returns exceeded the opportunity cost of capital.

4.259 The capital intensity of the subprojects financed, which is re-flected in the Table below, varied very widely among financial institutionsand within each DFC for individual projects.

Table

Investment Cost Per Job Created.a

(US $)

DFC Maximum Minimum Mean MedianKDB-Korea 207,600 1,800 15,100 40,800KDFC-Korea 165,100 1,700 21,200 21,600ICICI-India 136,500 2,200 22,700 15,900NIBID-Greece 800,000 29,200 74,000 69,400BDET-Tunisia n.a. n.a. 39,800 n.a.

IBS-Sudan 53,600 7,200 23,000 19,500Colombia Financieras

- CFNacional 180,000 1,000 27,000 25,000- CFSantander 299,500 5,600 20,000 24,100- CFOccidente 136,400 7,000 17,200 22,500- CFCaldas 194,100 4,500 19,000 28,200- CFNorte 234,600 1,800 37,800 10,300- CFAliadas 219,500 900 17,200 13,400- CFColombiana 122,000 500 17,600 11,800- CFValle 396,200 1,800 17,000 22,700

/a Actual.

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The investment cost per job created ranged from less than US$1,000 toUS$800,000, being closely associated with the type of industrial activityfinanced, and suggesting that most of the intermediaries financed both heavyand light industry and that co-financing arrangements made possible thefunding of large capital-intensive projects. The mean and median values seemto reflect the Bank's conscious effort to support medium size enterprises andrelatively more labor-intensive activites. Some 80,000 new jobs were gener-ated by the Bank-supported projects (of which 26% in Colombia) at an averagecost of US$25,000, which is reasonable considering the unusually high increasein world and domestic prices and the Government policies in certain countries(e.g., Korea, Greece, India) stressing the development of new and technologi-cally advanced facilities and the modernization and expansion of existingindustries, in order to diversify the sector, create plants of optimal sizeand increase efficiency and international competitiveness - policies whichwere sensible in each country's particular circumstances but which clearlyopted for higher capital intensity. Such policies also explain the much widerrange of mean values compared to earlier reviews.

4.260 In three countries (Colombia, Greece and Korea), promotion ofexport-oriented industries was an important objective which was met withconsiderable success. In Colombia, about 12% of the subborrowers exported atleast 10% of their production. About two-thirds of the subprojects NIBIDfinanced had a strong export bias. In Korea, actual exports by KDB's clients,though satisfactory, fell short of appraisal estimates, but in KDFC they werehigher than original projections by aboubt two-thirds.

D. Deepening of the Financial. Structure

4.261 The DFCs under review can be credited for a number of initiativesthat were important steps toward the long-term development and deepening ofthe financial system. In Korea, KDFC helped establish two financial institu-tions to supplement its own development banking functions. The first (KIFC),aimed at the institutionalization of the financial functions performed by thecurb market, deals in a variety of short-term credit instruments. In addi-tion, it is actively involved in underwriting and distributing corporatebonds. KIFC's performance has been remarkable and its success prompted theestablishment of fifteen additional short-term financing companies. Thesecond institution, KDLC, a joint venture between KDFC and a Japanese leasingcompany, writes financial leases and issues guarantees for leases of foreignequipment, primarily for small-medium scale industry. KDLC's operations havegrown rapidly and have also contributed substantially to the development ofthe domestic capital goods industry through the leasing of locally manufac-tured equipment. Furthermore, KDFC has entered into cooperative agreementswith four regional commercial banks to finance small enterprises in ruralareas. Through this arrangement, KDFC was able to improve the geographicdispersal of its lending, while it has effectively strengthened the termlending capability (both appraisal and supervision) of the cooperating banks.Finally, following its recent conversion into a long-term credit bank, KDFC isnow in a position to issue long-term debentures and to exercise some influence

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in the development of the capital market.!/ ICICI also was active in thisand established a merchant banking unit to expand the range of financialservices offered to its clients, including market research, management ofunderwritings, debenture and share capital issues. The unit, using ICICI'sexpertise, has contributed to the development of the capital market in India.Another way in which ICICI has participated in strengthening the financialsystem is as a key member of consortium financing arrangements. Since1974/75, over half of ICICI's financing (by amount) was done jointly withIDBI, SFC, or both. As ICICI is an important factor in foreign exchangelending under these joint financing arrangements, ICICI lines of credit havehelped mobilize a large amount of additional rupee funds for industrial termlending.

4.262 Apex lending, a DFC lending instrument now used extensively bythe Bank, was pioneered in Colombia in 1966 and has proved well-suited to theneeds of a multipolar economy organized around relatively autonomous geo-graphic regions. However, the attempt to expand the system met with limitedsuccess. During the period covered by the loans under review, only three ofthe twenty-four new financieras that were established in recent years haveparticipated. The introduction of simplified eligibility criteria for newparticipants did not produce the expected results, as the majority of the newfinancieras concentrated on the more lucrative and less risky short-termoperations. In addition, the requirement that the new entrants be subjectedto a detailed appraisal further discouraged participation. As a result, theobjective of promoting increased lending to medium-size enterprises andregional dispersion of industry fell short of expectations.

4.263 All financial intermediaries under review had equity and/or directsubscriptions to debentures issued by manufacturing firms. Though in absolutefigures the volume of such activies has been rising during the 1970s, inproportion to total lending in most instances it has been declining. OnlyKDB-Korea, NIBID-Greece and most of th Colombian financieras have had risingshares. Equity participations and subscriptions to debentures hover around12%-14% of total portfolio which is respectable. Yet, the observed decliningtrend may, to a certain extent, reflect an emasculated effort to promote newprojects. Thus, in KDFC, despite a six-fold increase of its equity basis,equity investments declined from 21% to 4% during 1971-79. The fact remains,however, that higher risks, the state of the economy, long gestation periods,potentially low profitability, difficulties in rotating such a portfolio,reluctance of family-owned enterprises to issue shares, statutory constraintsand the slow growth of the equity base, are potent factors circumscribingsomewhat narrowly equity participations.

4.264 Another facet of financial deepening is promotion of the trans-formation process carried out by certain financial intermediaries. NIBID'sannual renewable notes, being purchased mostly by institutional investors

1/ KDFC has been renamed Korea Long Term Credit Bank (KLB).

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out of resources already raised on the domestic market, did not amount strictosensu to tapping "new" savings. The same is true for funds originating frompostal savings. Nevertheless, the fact is that, through NIBID's inter-mediation, a substantial amount of short-term moneys was transformed intoinvestible funds. The issue of short-term certificates of deposit and subse-quent on-lending of the proceeds for investment purposes by the Colombianfinancieras (para. 4.268) has bad the same effect.

E. Resource Mobilization Effort

4.265 Depending on their degree of sophistication, the Bank has beenencouraging DFCs to raise local and foreign resources and thereby reduce theirdependence on official, usually concessional, sources. The resource mobiliza-tion effort of the DFCs under review, though on the whole commendable, hasbeen frustrated in many instances, at least initially, by the absence of asupportive policy framework. Although KDFC-Korea has been successful inraising domestic currency resources, this was achieved mainly through sharecapital increases as, until very recently, KDFC was not authorized to issuebonds or to accept deposits. Also, until 1974, KDFC had relied almost ex-clusively on the Bank for foreign currency resources because the Governmentdid not permit it to approach other international institutions. At the Bank'ssuggestion, however, this policy changed. Though initially unsuccessful inits efforts on country grounds,, within a few years KDFC was able to diversifyits sources of foreign currency substantially. KDFC has also been instru-mental in mobilizing foreign currency resources indirectly through co-financing arrangements. Similarly, KDB-Korea has made progress in mobilizingdomestic resources by issuing debentures, underwriting share issues, and byencouraging customers to go public. KDB's association with the Bank hasfacilitated its foreign currency resource mobilization effort and has enabledit to gradually reduce its dependence on official sources.

4.266 ICICI's efforts to diversify its sources of foreign currency havebeen successful, to a large extent due to difficulties in obtaining Governmentapprovals. As a result, ICICI continues to rely heavily on official loans,including those from the Bank. Also, ICICI has been at a disadvantage inmobilizing primary savings, as specialized institutions were permitted tooffer special incentives while its lending rates were fixed at levels thatcould not maintain an adequate spread at prevailing borrowing rates. ICICI,however, was able to increase the volume and broaden the demand for itsdomestic bonds from intitutional investors by obtaining Government guaranteeswhich conferred the status of an "approved security" on its debentures. ICICIhas also contributed to the development of the capital market in India bypersuading clients to make public offers of shares and debentures.

4.267 NIBID-Greee made good progress in reducing its reliance on bilateraland concessional resources and in attaining greater financial and institu-tional independence. Initially, NIBID's efforts to tap domestic resourcesfailed because of the deficient interest rate structure. A subsequent Govern-ment decision guaranteeing a gross spread enabled NIBID to become more activeand to increase dramatically its domestic issues. The growth of NIBID's

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equity participations and successful recycling of its equity portfolio, andthe successive increases in NIBID's share capital through the issue of common

shares in part to the public at large, have made an appreciable contributionto the development of the capital market. For reasons beyond its control,NIBID's record, though respectable, has been more modest in mobilizing foreignresources. The unattractive interest rate structure and convertibility of thedrachma (enabling sub-borrowers to pass on to the Government the foreignexchange risk) limited NIBID's ability to tap extensively the Eurodollarmarket. Nonetheless, NIBID was able to increase substantially its borrowingsfrom international official and commercial banks. NIBID's assocation with theBank had a catalytic effect in its foreign resource mobilization effort, byenhancing its "rating" in the international capital markets.

4.268 In Colombia, rapidly rising short-term intere,st rates; creditrestrictions; competition from high-yield, highly-liquid, tax-exempt publicsector instruments and from indexed instruments of the savings and loansystem; cumbersome reserve requirements and interest rate regulations, pre-vented the financieras from meeting the targets set for medium- and long-termresource mobilization. However, since the mid-1970s the financieras have beenable to mobilize considerable resources by issuing short-term certificates ofdeposit. The Bank supported this initiative because it increased the fundsavailable to the industrial sector, increased the profitability of the finan-cieras, and enhanced their experience in resource mobilization.

4.269 In recent years BDET has taken successful steps to increase itsshare capital and to obtain official foreign currency resources. However,BDET's efforts to raise local resources have had very limited success, as theprivate sector in Tunisia remains diffident, the legal framework inadequateand, in general, there is little incentive for the public at large to partici-pate in the private securities market. Resource mobilization was not an ob-jective for IBS-Sudan. Given its public ownership, IBS obtained the resourcesit needed from the Government and other foreign official sources and continuesto do so.


A. Commitment and Disbursement of Bank Funds

4.270 Commitment of Bank funds in this group was largely on schedule.The pace of disbursement was very satisfactory as in the majority of thecases, accounting for 95% of Bank lending, disbursements were on schedule orup to a year ahead of schedule. The longest delay was twenty months (IBS-Sudan) but for a nominal amount and largely due to non-project related rea-sons. Total Bank funding amounted to US$533 million and supported 1050subprojects for an estimated total of US$1,980 million investments.

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B. Cost and Time Overruns

4.271 Cost and time overruns among the DFCs under review varied consider-ably. The percentage of subprojects with cost overruns exceeding 20% wasnegligible in the case of KDB and KDFC in Korea, 12% in ICICI-India and 31% inthe Colombian financieras. In some instances, notably KDB, KDFC and ICICI,actual investment costs were below original estimates in as much as 50% of thesubprojects financed. Time overruns in excess of one year were limited, withthe exception of ICICI and the Colombian financieras. Cost and time overrunswere quite high in IBS-Sudan. The main reasons for cost and time overruns,which to some extent were beyond the institutions' control, were modificationsin project design, cumbersome administrative procedures, changes in procure-ment plans and delayed execution of procurement contracts, delays in obtainingimport licences and in the delivery of machinery, shortages of building mate-rials, weak management, and optimistic implementation schedules at appraisal.Though contingency provisions were normally made at appraisal, they turned outto be insufficient, primarily due to abnormally high inflation rates andfluctuations in foreign exchange rates. Cost overruns have in most instancesbeen financed through additional lending. Reduction in the scope of theproject and a draw-down of working capital have been additional sources. Themore intriguing question, namely, the impact of substantial cost overruns onthe financial performance of the projects, cannot be answered due to lackof data.

C. Financial Performance of Subprojects

4.272 On the basis of the limited data available, it appears that forthe most part the subprojects financed with Bank funds were sound. KDFC-Koreaestimates that in 1980 about two-thirds of the subprojects were operating atplanned capacity rates, while KDB-Korea reports that about 75% of the opera-tional subprojects had reached or exceeded projected capacity utilizationrates. Capacity utilization among the other institutions in the group seemsto have been lower than originally projected. Although profitability hassuffered, this does not necessarily imply financial losses in all cases sincethe enterprises affected in most instances operate in protected environments.In general, financial results were often below original estimates but, on thewhole, profitability remained satisfactory.


A. Approach to Lending

4.273 The Bank's strategy during the 1970s has been characterized by anemphasis on linking DFC lending to the advancement of industrial sectorobjectives and the deepening of the financial structure. The pursuit of theseobjectives has influenced the design of the Bank-supported projects whichreflected an increased reliance on "directed lending" and the introduction ofsignificant novel features. Institution-building continued to figure promi-nently in DFC lending, particularly for new borrowers and relatively weaker

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institutions, while for some mature DFCs the focus was more on consolidatingearlier efforts. The Bank's objectives and expectations were appropriate and

commensurate with the level of maturity of the institutions supported, haveencouraged the undertaking of consequential innovative activities, and haveresulted in satisfactory results in terms of aid effectiveness and processefficiency.

B. Institution-Building

4.274 Institution-building efforts were most intensive in the case ofIBS-Sudan and BDET-Tunisia, and focused on improving appraisal/supervisioncapabilities and strengthening the respective institutions through changes inmanagement and organization. They were reasonably successful in furtheringthese objectives in BDET but not so in IBS, despite considerble inputs.Tangible progress in this respect was also made in the case of the Colombianfinancieras (paras. 4.248-4.251).

C. Industrial and Financial Deepening

4.275 The more mature DFCs were quite successful in initiating a numberof innovative activities with significant sectoral impact. Promotion ofindigenously developed technologies, establishment of a technology fund tofacilitate the acquisition, improvement and application of more sophisticatedtechnologies, creation of leasing and other specialized banking institutions,contributed tangibly to the deepending of the industrial and financial sec-tors. Intensified efforts at financial intermediation, in the form of equityparticipations, flotation of securities and other financial instruments,co-financing, and apex institution lending have had a similar effect."Directed lending" in support of specific sectoral objectives (e.g., promotionof intermediate goods, engineering and export-oriented industries; support ofmedium size enterprises and less capital-intensive activities; encouragementof regional dispersion), have had reasonable success and have contributedeffectively to the promotion of broader developmental objectives, in line withcountry priorities (paras. 4.261-4.264).

D. Resource Mobilization

4.276 Resource mobilization efforts, though commendable, have at leastinitially been thwarted by the absence of a supportive policy framework,even in countries with more effective economic management. Deficient interestrate structures, lack of authorization or difficulty in obtaining Governmentapproval to issue securities, currency convertibility, discriminatory in-centives among specialized institutions or between private and public finan-cial instruments, cumbersome regulations, have frustrated the efforts bycertain DFCs to raise local and foreign funds and, as a result, have hamperedtheir effort to diversify their resources and to reduce their dependence onofficial sources. Policies changed subsequently in certain countries, notablyKorea and Greece, with satisfactory results. The association with the Bankhas had a catalytic effect in foreign resource mobilization, by enhancingthe DFCs' rating in the international capital markets (paras. 4.265-4.269).

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E. Financial Performance

4.277 The profitability of Bank-supported DFCs was not satisfactory inreal terms as a result of administered interest rate structures, risingprovisions for doubtful debts and increasing administrative costs. Arrears inmost instances have been rising but, following rigorous collection measuresand modest reschedulings, they were within acceptable limits. As a result,the portfolios of the respective DFCs most affected remained sound (para.4.252). A notable exception is IBS-Sudan. Similarly, on the basis of limitedinformation, it appears that, for the most part, the Bank-financed subprojectswere sound and the financial results on the whole satisfactory (para. 4.253).

F. Evaluation of Experience

4.278 Information on the subprojects financed by the institutions underreview is sketchy and unsystematic. As a result, a comprehensive and meaning-ful assessment of the various dimensions of their performance is not possibleand the conclusions drawn, particularly for the less sophisticated DFCs,should be viewed as tentative. The Bank has instituted a system of uniformdata collection, and a review and analysis of such detailed information on thesubprojects after they have been in operation for some time is likely toprovide a more solid basis on which to judge performance and impact.

4.279 The experience of DFC lending reviewed here suggests a number ofobservations.

(a) The Bank's flexible "directed lending" approach, as opposed to themore rigid "quantitative target lending", has been quite successfulin promoting an industrial, sectoral and regional distribution ofindustrial activity in conformity with Government and Bank devel-opment strategies and priorities. It is noteworthy, that thisapproach need not increase lending risks or adversely affect a DFC'sprofitability, and the Bank should continue with this approach.

(b) Since many factors are beyond a financial institution's control,the attainment of quantitative targets as a measure of responsibleresource mobilization effort has to be viewed in a larger context(para. 4.268).

(c) As indicated in earlier reviews, DFC lending has proven a ratherpoor instrument for adjusting interest rates and, more generally,for addressing sectoral issues. Although such issues should con-tinue to be pursued at the project level, the Bank should nonethe-less intensify its efforts to bring about changes in financial andindustrial policies in the context of its macro-economic and sectordialogue with the Government, to the end of developing the requisitepolicy framework that would enable financial intermediaries toimprove their profitability, mobilize local and foreign resources,reduce progressively their dependence on official sources, enhance

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their capacity for intermediation, and promote more efficient

allocation of resources. In view of the multifaceted importanceof the resource mobilization effort, OED proposes to undertake aspecial study to examine in some depth the Bank's experience hereto-

fore.

(d) In light of the experience gained from the initiatives of the

financial institutions under review, the Bank should continueits efforts to promote, depending on the surrounding circumstances,appropriate institutional forms and financial instruments that areconducive to the deepening of the financial and industrial sectors.Ensuring satisfactory real returns on financial assets is an im-portant contributory factor to financial deepening. Componentsaimed at designing technology improvement programs in manufacturingare particularly relevant. Availability of sector studies wouldgreatly facilitate the process and could help design projects moreclosely reflecting sectoral priorities.

(e) Projects which proceed in series are more likely to succeed inachieving institution-building and/or sectoral objectives.

(f) The experience with cost and time overruns points to the existenceof certain potent factors, to a degree beyond the control of thelending institutions, that tend to exacerbate overruns (para.4.271). However, this should not detract from the need for agreater effort by DFCs during project appraisal to assess morerealistically project costs, to allow for adequate price con-tingencies and to develop more reasonable implementation schedules.Significant underestimation of investment costs tend to upset thefinancing plan and the capital structure of the sponsoring projectenterprise and may severely undermine the financial and economicviability of the project. DFC management and Bank supervisionmissions could usefully attend to the matter more closely.

(g) In view of the fact that the level of arrears can be affectedby imponderable and precipitous factors relating to a country'seconomic environment and policy decisions (para. 4.253), closersupervision and early action is called for by DFCs - and the Bank -in order to contain the situation in time.

(h) In contrast to apex lending in other countries (e.g., Mexico,Honduras, Jamaica) where the Bank works almost exclusively with the"second-tier" facility, in Colombia the Bank deals directly with thefinancieras and in effect retains primary responsiblity on importantpolicy and institutional issues, although it is increasingly dele-gating greater responsibility for supervision to the central bank(para. 4.251). This approach appears to have worked well in theColombian circumstances. A comparison and evaluation,of the Bank'sexperience with these two approaches, as well as the use of apexlending, would be instructive for future Bank operations. OEDproposes to conduct an in-depth study of the subject.

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E. INDUSTRY

INTRODUCTION

4.280 This review covers seven industrial projects: three fertilizerprojects in India and one in Pakistan, and three steel projects in Brazil,Mexico and Turkey, respectively. They were approved in FYs7l-74 and, exceptfor Las Truchas--Mexico, all were expansion projects. The project sponsorswere Government owned or controlled enterprises (ERDEMIR de facto), andreceived Bank funding for the first time. Multan-Pakistan, COSIPA-Brazil andERDEMIR-Turkey were cofinanced by multilateral and bilateral agencies (ADB,IDB, the OPEC Special Fund, EXIMBANK, USAID) and foreign commercial banks. Inthe case of COSIPA and ERDEMIR, the Bank supported follow-on expansion proj-ects. A common feature of virtually all projects was that they were large,complex and technologically advanced--continuous casting in steel or processesuntested before on the same scale in the chemical fertilizer projects. Inboth sectors the projects were, by nature, highly capital-intensive. There-fore, employment considerations, with the exception of Las Truchas and COSIPA,were in effect limited to providing productive jobs to excess labor alreadyemployed in existing facilities.

I. OBJECTIVES

A. Physical and Technological

4.281 The fertilizer projects were intended to support the respectiveGovernments' expansion programs to meet the rising demand, and involved theerection of ammonia/urea complexes (Sindri and Nangal in India), the produc-tion of several grades of NPK fertilizers to diversify production from low tohigh analysis fertilizer (India--Cochin), and the expansion of nitrophosphateand nitrogenous fertilizer capacities (Pakistan--Multan). The Sindri, Nangaland Multan projects, aside from adding significantly to already installedfertilizer manufacturing capacity, intended to replace on completion outdatedand uneconomical facilities. In all cases, transfer of technology was a majorobjective. The choice of technology, however, involved important policyconsiderations such as utilizing domestically produced feedstock (e.g.,natural gas in Pakistan), production of fertilizers with special qualities(e.g., high water solubility in Multan), switch from lower to higher specificgravity hydrocarbons (e.g., from methane and naphtha to fuel oil and coal)dictated by changes in the relative prices of feedstock or the availabilityof previously acquired process licenses (Nangal). These considerations,aswell as the attempt to integrate new and existing facilities and processes,suggested technologies and project designs which necessitated combiningsubprocesses which had not been tried before on the same scale. This tendedto enhance project risks, particularly since the integration (with the excep-tion of Multan) was undertaken by the fertilizer companies themselves whichdid not have adequate experience with large and complex projects.

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4.282 Las Truchas involved the erection from the "green-field" stage of amodern integrated iron and steel works, including the development of iron oremines and the installation of steel making equipment and rolling facilities.ERDEMIR and COSIPA would increase production capacity to meet the rapidlygrowing domestic demand for finished products, would improve product qualityand would reduce unit costs of production by exploiting scale economies,installing modern equipment and making alterations in existing facilities.All projects utilized conventional blast furnace technology and, except forCOSIPA, continuous casting which in the state of the art in the early 1970swas considered as a relatively new and developing technology.

B. Sectoral and Policy Concerns

4.283 The fertilizer projects both in India and Pakistan supported highpriority sectoral programs formulated by the Government, which involved therationalization and expansion of existing plants to reduce dependence onimports. Specifically, in India the Government had been promoting vigorouslythe expansion of chemical fertilizer production with increasing reliance onthe public sector. During the 1970s, policy and market imperatives led to agradual shift of the product-mix from low-nutrient products to more complexfertilizers, and plant scales increased dramatically. Also, the earlierfeedstock pattern which emphasized the use of naphtha was diversified toinclude fuel oil, natural gas and coal, with the objective of reducing oilimports and reflecting more fully the country's resource base. Moreover, theGovernment's overriding concern in India was to use the projects as a vehicleto promote the development of the domestic capital goods industry, even at therisk of potentially less effective project implementation and operation. InPakistan, the main objective also was to expand the domestic production offertilizers based on locally available natural gas to meet the rapidly risingconsumption.

4.284 In Mexico, aside from the goal of achieving self-sufficiency, theestablishment, and particularly the location of a steel complex, reflected theGovernment's intention to use the project as a catalyst for the creation of agrowth pole in an undeveloped and sparsely populated region, triggering thedevelopment of other industries through intra- and inter-sectoral linkages,in order to bring about a more balanced regional development. In connectionwith the project, the Bank also considered it important that steel sectorplanning be initiated to coordinate future development policy and investmentdecisions. COSIPA's expansion was part of an overall program formulated bythe National Steel Council to increase Brazil's raw steel capacity; while inthe case of ERDEMIR, the expansion represented the first of a series designedto reduce import dependence as part of the import-substitution developmentstrategy of the country.

C. Institutional

4.285 The major institutional objectives in all fertilizer projects wereto expose the sponsoring companies to new and more sophisticated technologies,to build up their design and engineering capabilities and to develop their

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project management capability. The introduction of cost accounting andmanagement information systems were additional objectives in Multan andCochin. As a new entity, institutional objectives in the case of Las Truchassteel complex aimed at developing a company with an effective organizationaland management structure, capable of initially implementing and subsequentlyoperating the project. In COSIPA, the goal was to effect a general reorgani-zation of the company to enable it to cope with its expanded size aftercompletion of the expansion program. In ERDEMIR, an important institutionalobjective was the financial restructuring of the heavily leveraged company,which severely affected its cost: structure and limited its borrowing capacityfor future investment.

II. EFFECTIVENESS

A. Operations

4.286 Capacity utilization remained below projected levels in all fertil-izer projects in India. Initially, Cochin had been plagued by productionbottlenecks and difficulties in achieving commercial operation due to acombination of climatic factors, design errors and inadequate management. Theproduct-mix had to be curtailed substantially due to difficulties in producingcertain grades. However, modifications progressively implemented on the basisof a debottlenecking program, and continued improvement at plant level manage-ment, maintenance and operations, led to significant improvements in Cochin'sproduction performance. Capacity utilization which hovered around 50% during1976-79 rose to about 70% in 1981. Similarly, in Sindri, production build-upwas seriously affected by extensive delays in project execution, commissioningand stabilization of production, and inability to secure adequate deliveriesof raw materials of the requisite quality and quantity. But with the removalof constraints in the supply of critical inputs, capacity utilization in 1981,Sindri's second year of operation, increased substantially to 75% for ammoniaand 92% for urea. In 1981, the third year of its operation, Nangal reached acapacity utilization rate of 79% in urea but only 56% in ammonia, due toequipment failures and difficulties in stabilizing production after commis-sioning as a result of the inexperience of the company and foreign contrac-tors, power shortages, and irregular supply of raw materials. In Pakistan,Multan also experienced difficulties in building up production capacity in itsnew facilities as a result of design deficiencies, mechanical breakdowns dueto inadequate maintenance, the technologically advanced nature of the projectand poorly trained work force, and the low quality of raw materials. In1981, the third year of its operation, capacity utilization stood at about70%, up from 35% in 1979, following appropriate design modifications andimprovements in maintenance. Production performance is steadily improving inall fertilizer projects and the trend is expected to continue.

4.287 Steel projects, with the exception of COSIPA, were also slow tobuild up production and suffered from initial teething problems. Las Truchas'capacity utilization developed more slowly than projected at appraisal andreached 60% in 1980, the fourth year of its commercial operation; it hasimproved further since then. Once completed, COSIPA rapidly achieved and

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exceeded rated capacity levels, with production reaching 113% and 130% ofcapacity in the first and second years of operations, respectively. This wasachieved following the development of a more positive relationship with thecompany's technical consultants, modifications in existing equipment toincrease through-put and to eliminate bottlenecks, increased emphasis ontechnical training and improvement in production practices. ERDEMIR's utiliza-tion of the additional capacity provided by the project has remained low(36%). This was due to technical difficulties with the continuous casting andother facilities, lack of spare parts, and shortages of domestic coking coaland iron ore which could not be made up by imports because of the foreignexchange scarcity. Recently, the company has improved its operating perfor-mance but production has not built up due to increased competition fromimported products.

B. Economic and Financial

4.288 In view of the strong demand for fertilizer and efforts to improvemarketing and distribution both in India and Pakistan, no major problems areforeseen regarding the companies' ability to market their full capacityoutput. This in turn should help the projects achieve acceptable financialperformance during their life span, assuming reasonable Government pricingpolicies and operation at rated capacities. However, so far the overallfinancial performance of the Indian companies (FCI and FACT) sponsoring thefertilizer projects has been disappointing. In Pakistan, PFL showed a profitfor the first time in 1980, amounting to 5% return on equity. Despite thesubstantial increase in the world price of fertilizers, recalculated economicrates of return for all fertilizer projects were lower compared with appraisalestimates; however, except for Sindri, they were still satisfactory. Thelower reestimated returns were largely due to increased capital costs, fasterincreases in the prices of feedstock and other raw materials compared to out-put prices, and delays in start-up and slow production build-up. Recomputedfinancial rates of return, though below the original estimates, remained inall projects within acceptable levels.

4.289 The pricing policy for fertilizers was revised in India in 1977 toimprove ex-factory prices. On the basis of a formula which is recalculatedevery two years, prices are set at a level that ensures a reasonable rate ofreturn on investment at 80% of rated (and in certain instances of attainable)capacity utilization. This system is more realistic and is an improvement ina policy environment generally committed to price controls. In Pakistan,prices have not kept up with rising costs and a covenant stipulating thatprices be set at levels allowing an efficiently operating company a 15% returnon equity has only partially been abided by.

4.290 With the exception of ERDEMIR, the financial performance of thesteel projects under review has not been satisfactory. Price controls,operating problems, high financial charges due in part to unfavorable changesin the foreign exchange rate, and the decline in local demand were majorfactors that adversely affected Las Truchas' profitability in the earlyyears of operations. An action plan was implemented to improve the company's

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operational and financial performance, and the company showed a profit for thefirst time in 1980. Despite good production performance recently, COSIPA'sfinancial performance has been disappointing as a result of delays in projectimplementation, low levels of production in the past, disruptions in existingoperations due to the expansion program, high financial charges, and thedeterioration in the price/cost relationship due to lagging price adjustments.COSIPA's financial outlook remains uncertain due to the cumulation of lossesand insufficient equity contributions by the Government. Recently, theBank, COSIPA and the Brazilian Government reached an agreement ensuringprovision of adequate long-term funds (equity and debt) to the company andinstituting a more rational pricing policy for the steel sector. In contrast,ERDEMIR's profitability record has been satisfactory despite its poor pro-duction performance mainly because of the cost-plus pricing policy of theGovernment.

4.291 Recalculated economic rates of return were slightly higher in COSIPAdue to higher world prices and the larger final capacity of the project thanoriginally appraised. In the E'RDEMIR and Las Truchas projects, though some-what lower than estimated at appraisal, economic rates of return remainedsatisfactory. The decrease was due mainly to the higher capital invest-ment and delays in project start-up in the former, and weakened marketsand unfavorable prices in the early years of operation, in the case of LasTruchas. Recalculated financial rates of return were substantially lowerthan original calculations in all steel projects and, with the exception ofERDEMIR, unsatisfactory for the same reasons. However, steel prices in Brazilincreased about 10% in real terms during 1981 and this would raise the finan-cial rate of return on the COSIPA project to an acceptable level.

4.292 About one-third (US$66 million equivalent) of equipment procured bythe three Indian fertilizer projects was manufactured locally under technologytransfer arrangements. While inability to deliver on schedule resulted incostly delays in project completion, local technicians acquired valuableskills in the process. The COSIPA project also contributed to the developmentof the local capital goods industry in Brazil. Local manufacturers benefitedfrom technology transfers through consortia formed between Brazilian andforeign manufacturers. While delays in delivery adversely affected projectimplementation, 48% (US$152 million equivalent) of the equipment procured wasmanufactured locally. The figures for Mexico and Turkey were 16% (US$51million) and 2% (US$4 million), respectively.

4.293 The creation of a growth pole in Mexico proceeded less rapidly thanexpected. The project itself lacked the requisite critical mass to spark sucha regional growth, particularly since Stage II of the project was subsequentlypostponed by the Government. The lack of adequate social infrastructure wasanother major factor that deterred industries from moving into the region.Forward linkages were weak, and the principal impact of the project so far wasmainly confined to the demand of the company's employees for consumer goodsand services. Nonetheless, the project contributed directly and indirectly tothe development of physical infrastructure in the region (port facilities,railway link, roads, etc.) and to employment generation. There are indica-tions that major industrial plants may be located there in the future.

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4.294 The increase in population and construction activities, however,severely strained social infrastructure in the region. Budget constraints,poor planning and management and lack of coordination among the agenciesinvolved in the provision of sewerage, water, electricity, health and educa-tion, hampered the development of urban services. Social infrastructurerequirements were identified although too late to ensure timely implementa-tion. A multi-sectoral framework of analysis could have resulted in thecreation of a regional development body which might have been in a betterposition to coordinate and monitor the programs of the various agencies.Nonetheless, these shortcomings prompted the Bank to help design and financesubsequently an urban project for the locality.

C. Policy and Institutional Impact

4.295 The main institutional objectives of technology transfer and devel-opment of project management capability have been met, although at a cost. InIndia, affiliate engineering firms acted as prime contractors with fullresponsibility for design and construction and, as such, they became effectiveinstruments for the transfer of modern technology. Furthermore, their expo-sure to modern design and engineering techniques and the experience theygained in project management, were important steps in becoming competentand professionally recognized engineering firms. For Multan, the benefitswere limited in view of its heavy reliance on foreign engineering expertisewhile project management remained weak. In both Cochin and Multan, costaccounting and a comprehensive management information system have been intro-duced which should permit effective monitoring of operations; progress inimplementation, however, has been less satisfactory in the case of Multan.

4.296 As a result of its rapid expansion, the management capabilities ofthe parent company of the Sindri and Nangal projects had been overtaxed,and there was clearly a need for decentralized decision-making. In 1978,all existing units controlled by FCI were regrouped under four separate,geographically-oriented companies. This restructuring is expected to increasedelegation of responsibility and authority at the unit/project level and toimprove performance. Multan's parent company (PFL) has not been able to puttogether and maintain a satisfactory management team for its expanded corpo-rate structure. The fact that PFL has not been granted the requisite degreeof autonomy to run its project and subsidiary operations, in part explainsthis persistent weakness. Since project completion, and as a result ofintensive Bank discussions with the Government, the latter has authorizedmajor increases in PFL's salaries which have halted the loss of technical andskilled staff.

4.297 The Bank's effort to promote long-standing institutional arrange-ments to facilitate policy making and sectoral planning in Mexico met withlimited success. At the Bank's suggestion, the Government established theIron and Steel Coordinating Commission (CCIS) to formulate a national steelpolicy and to prepare a long-term program for the expansion of the industry.However, the study which CCIS commissioned failed to provide an adequateanalytical basis on which a strategy for the future growth of the sector could

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be based. Also, CCIS has not developed into the strong advisory body it wasenvisaged to become, and its role in the decision-making process of the steelsector has remained limited. Because of budget constraints and lack oftechnical staff, CCIS has also been unable to formulate a coordinated steelpolicy.

4.298 At the company level, the development of an organizational structureand adequate management systems in Las Truchas was not pursued with sufficientvigor in the initial stages. Recently, with the Bank's encouragement, thecompany took a number of steps toward rationalizing its organizational struc-ture and strengthening its cost and financial controls. The creation of aholding company (SIDERMEX), by grouping Las Truchas and two other Governmentcontrolled steel companies, should improve coordination of current and futureactivities in the sector. Foreign consultants designed, implemented andmonitored the reorganization of COSIPA's corporate structure and managementsystems in Brazil, to enable it to cope with its expanded size after comple-tion of the project and to promote efficiency. But changes and the develop-ment of new systems were slow to implement due to management resistance andthe fairly rigid design of the organizational structure along functionallines. However, with the change in top management in mid-1977 and additionaloutside technical assistance, the situation has improved considerably.Finally, despite a debt rescheduling program effected by the Government,ERDEMIR's financial structure has not improved significantly.


A. Project Preparation and Design

4.299 Borrowers and the Bank played a major role in the preparationand design of the fertilizer projects. The agencies involved prepared thefeasibility studies which formed the basis for the Bank's appraisals. Alter-native technologies were considered and subjected to rigorous technical,economic and financial analysis. The final project configuration was theresult of protracted exchanges between the Bank, the Government and thecompanies involved, in the course of which original project ideas based on agiven set of assumptions and desiderata had to be modified in the light ofchanging conditions and Government policies which affected the choice offeedstock and processes. Production of certain intermediate inputs had to bedropped either because analysis showed that they were uneconomical, or becauseproblems arose in scaling up the technology (Cochin). These modifications ledto laborious project preparation efforts by both sides, in certain instancestaking up to four years.

4.300 Unfamiliarity of both sides with each other's modus operandiresulted in time-consuming discussions of issues some of which were notcritical to the project design. Project preparation was affected by the Bankand the companies' decision to base the projects on a combination of sub-processes which were not proven in the same configuration. More generally,the insistence of the companies to maximize their involvement as project

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engineer and later on as prime contractor (Nangal, Cochin) without due consid-eration of experience and efficiency and, by extension, of the costs and risksinvolved, took its toll. These circumstances called for compromises, usuallyrequiring additional safeguards to ensure adequate implementation arrange-ments, e.g., employment of expatriate technical advisors, delegation ofsubstantial supervision functions to foreign firms, appointment of a projectmanager (Nangal, Cochin, Sindri). They also resulted in protracted anddifficult discussions over the selection of the appropriate technical pro-cesses and in extensive delays in project preparation.

4.301 The Bank also influenced substantially the design of the steelprojects. In one instance, Las Truchas, the feasibility study and proposedimplementation arrangements were found inadequate and had to be revised withthe assistance of foreign engineering firms. In general, preparatory work wascompleted without delays; but in the case of Las Truchas it lasted about threeyears because the project was ambitious in that it aimed at setting up a"green field" plant without the support of an existing corporate structure; itwas prepared and executed by a newly-established company; and the plant was tobe erected in a remote and virtually undeveloped area lacking most of therequisite infrastructure. The Bank was instrumental in ensuring that theGovernment took steps to meet the plant's infrastructure needs and in con-vincing the company to engage a team of technical advisors to assist inproject design and implementation. However, the Bank's framework of analysiswas confined mainly to the project per se, and limited attention was givento socio-economic factors which subsequently proved critical to projectperformance. Some changes in project scope were made during the implementa-tion of the COSIPA project. But in ERDEKIR, more rapid growth of demand thanforeseen at appraisal and the attendant possibility to achieve scale economiesand energy savings led to the installation of continuous casting and largerbalancing capacities, changes in the product mix from low-valued intermediateproducts to high-valued finished products, and an increase in the totaltonnage--all of which implied major changes in the project scope.

B. Project Implementation

(a) Overview

4.302 The fertilizer projects were, by and large, successfully implementedalthough with significant delays and cost overruns. The companies involvedacted as their own engineering, procurement and construction contractors(usually through affiliates), with assistance from foreign engineering firms.In general, difficulties were exacerbated because the companies had neverbefore executed such large and complex projects involving sophisticatedtechnologies. Although project managements made commendable efforts andshowed ingenuity in minimizing delays, their limitations proved to be muchgreater than anticipated to handle the magnitude of the problems that had tobe faced during implementation.

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4.303 The steel projects also experienced difficulties in project imple-mentation which led to substantial time (except Las Truchas) and cost over-runs. The companies assumed responsibility for project implementation andacted as general contractors with assistance from foreign engineering firms.With the notable exception of Las Truchas which had a strong and energeticmanagement team, the implementation of the other steel projects was not fullysatisfactory. While in Las Truchas the role of the technical advisors inproject implementation was positive, in COSIPA and ERDEMIR their impact waslimited. The use of management consultants, appointed at the Bank's sugges-tion, did not prove entirely effective because of the negative attitude ofCOSIPA's management at that time toward consultancy services and difficultiesexperienced by the consultants themselves in establishing a fruitful dialogue.The combination of weak management and inadequate external support in projectmanagement resulted in a poor implementation record. Frequent changes incompany and project management, interference of the Board in day-to-dayactivities, and unsatisfactory relationship between company and expatriatetechnical advisors, also delayed the implementation of the ERDEMIR project.

(b) Time Overruns

4.304 The fertilizer projects were implemented with time overruns extend-ing between 15 and 29 months. In India, the reasons typically were excessiveconfidence by the companies about their own technical capabilities whichprevented them from appreciating their limitations and the need to resort totechnical assistance more frequently; ineffective relationship with consul-tants, licensors and contractors, which resulted in their poor utilization andundermined the effectiveness of the technical support; frequent changes inproject design due to the novel technologies employed and inexperience offoreign contractors; delays in the preparation of process and detailed engi-neering, in submission of engineering specifications and in commissioning ofequipment; Government delays in approving contracts with licensors and inreleasing foreign exchange to pay for licenses; limited response to interna-tional bidding and the need in. some instances to rebid; delays in equipmentdeliveries by foreign suppliers; and inexperience of local contractors inmanufacturing sophisticated equipment. In Pakistan, deficiencies in thefeasibility study, frequent changes in the top management of the company,lack of strong leadership, inexperience in project management, politicaldisturbances, shortage of skilled manpower due to emigration, and marine andindustrial accidents, were additional factors.

4.305 Las Truchas was completed in three and a half years--about ninemonths behind schedule. But given the tight original schedule and thelocational hurdles, this was a remarkable achievement and is due to thedecisiveness of management, the positive role of the technical advisors andthe Government's support. The completion delay in COSIPA was 21 months andwas due to the weak management and their resistance to implement the recommen-dations of the outside firms in key areas; the deficient original organiza-tional set-up; the commissioning of detailed design to local engineering firmswith little experience; and delays in the supply of equipment. The ERDEMIRproject was completed with a delay of three and one-half years as a result of

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construction difficulties; major changes in project scope; delays in fabrica-tion and delivery of equipment; labor problems; unclear division -of-wo-rkbetween ERDEMIR and foreign consultants and unsatisfactory working relation-ship between them.

(c) Cost Overruns

4.306 Cost overruns varied substantially among the fertilizer companies;they exceeded original estimates in Sindri by 8%, in Nangal by 39%, in Cochinby 53% and in Multan by 102%. The reasons, some outside the companies' con-trol, were sharp increases in the prices of imported equipment, higher thananticipated domestic inflation rates, delays in project completion, increasesin import duties and taxes, equipment modifications, work unforeseen atappraisal, purchases of additional equipment, and insufficient allowance forprice escalations. Cost overruns were also substantial among the steelcompanies: 51% in Las Truchas, 65% in ERDEMIR, and 137% in COSIPA. Commonreasons, in addition to the above, included changes in project scope andexcessive claims on the capacity of the local construction industry. Althoughperhaps unavoidable, the award of "cost-plus" construction contracts alsocontributed to cost overruns in both COSIPA and Las Truchas, because suchcontracts are less amenable to effective cost control than other forms ofcontracts. The bulk of the cost overruns in all projects was related to thelocal cost component and was financed by Government funds.

(d) Supervision

4.307 The frequency of Bank supervision in all projects was quite high.It prompted changes in the project scope, changed attitudes towards installingpollution control facilities, helped in the provision of financial resourcesfrom the Government, contributed to reduction of time overruns and helpedidentify many issues in project management implementation and initiateremedial action. But in certain instances, the nature of the difficulties andthe attitude of the sponsors was such that the Bank could not always influencesubstantially the course of events. In particular, the Bank had very limitedimpact on pricing policies in the steel projects. The effectiveness of theBank's supervision was especially constrained in the case of COSIPA, largelydue to the lack of a capable top management team committed to implementing theproject efficiently. Following the replacement of the company's top manage-ment, project implementation improved dramatically. In ERDEMIR, while theBank was instrumental in reducing ultimately Board interference in thecompany's day-to-day activities, it was not fully effective in ensuringsatisfactory project management despite a protracted dialogue. The Bank'sinfluence at ERDEMIR's technical management level was also limited, althoughit played a useful mediation role when relations between project managementand technical advisors became strained. The Bank's dialogue with ERDEMIR alsocontributed to the adoption of a major reform relating to the financing ofState Economic Enterprises in Turkey. It is doubtful, however, that furtherincrease in the Bank's supervision effort would have eased the problems facedby these companies.

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4.308 The Bank played an important role in project formulation and design,in convincing most project sponsors of the need for technical assistance andin arranging for engineering services, in encouraging project financing bybilateral and multilateral agencies, in the infusion of additional financialresources by Governments and in project implementation management. Despitemany difficulties, all projects were fundamentally sound, are now workingreasonably well, their performance is improving and, except for Sindri,they turned out to be economically attractive. Findings of particular impor-tance are highlighted below.

A. Institutional Development

4.309 Progress in institution building, by and large, has been satisfac-tory. Interaction with the Bank during project preparation enabled the compa-nies involved to develop projects in a more critical way, including morerigorous economic analysis. Assistance from foreign engineering firms,training of staff in foreign and local facilities, exposure to modern designsand engineering techniques, and the experience gained as project managers andproject contractors, have contributed tangibly to this end. The local fabrica-tion of a good part of sophisticated equipment provided another opportunityfor technology transfer and the acquisition of skills by the capital goodsindustry. Furthermore, the implementation of the projects resulted in asignificant upgrading of manufacturing, safety and environmental standards.Efforts to build up managerial capability and to develop management informa-tion systems met with a varying degree of success, while the restructuring oflarge industrial complexes (e.g, FCI in India) should improve decision-makingand efficiency of unit operations. Promotion of long-standing institutionalarrangements to facilitate policy making and sect.oral planning met withlimited success (para. 4.297).

B. Policy and Sectoral Impact

4.310 The projects were basically supportive of the Governments' policiesof efficient import substitution. Although the achievement of this aimappears feasible in the steel projects, it is conditioned on marked improve-ments in operating efficiency and on attaining production levels close torated capacities. The fertilizer projects set in motion a rationalization andmodernization process, and ushered in important structural changes in thesector in the form of more economical plants, a shift from low to high nutri-ent product-mix, a feedstock pattern more conducive to utilizing local rawmaterials or reducing the foreign exchange cost of imported inputs. Theprojects were also convenient, if costly in terms of delays in completion,vehicles for the development of the domestic capital goods industry, particu-larly in Brazil and India where an adequate technological base existed. Theneed for more realistic pricing policies, an area where the Bank's influencehas been marginal, persits and continues to undermine the financial viabilityand performance of the steel. projects reviewed. Finally, in Mexico theexpected catalytic effect of the Las Truchas steel complex on the creation of

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a growth pole--a rather ambitious goal--has been limited. Nonetheless, theproject contributed directly and indirectly to the development of the infra-structure of the region which may attract industries in the future.

C. Procurement

4.311 The bidding, bid evaluation and award of the equipment packages wereon the whole satisfactory, although there have been delays due to improperpackaging (Cochin) or need for familiarization with procedures for smalleritems in cases of co-financing. The civil works and erection contracts werebid competitively to local contractors, on occasion with foreign assistance.The capital goods industry in India, Brazil and Mexico benefitted from theadopted procurement arrangements for local manufacture of equipment (para.13). An issue concerning the award of a contract through ICB by prequalifiedsuppliers (Sindri) led to the Bank's general practice thereafter that nosuppliers would be prequalified in the provision of equipment for industrialprojects, which could give them certain legal rights in the subsequent awardof contracts; instead, suppliers would be registered, which would permit apost-qualification to be undertaken on the basis of the merits of the offerssubmitted.

D. Covenants

4.312 Covenants in Loan/Credit Agreements were related to project manage-ment, the supply of critical raw materials, the observance of certain finan-cial ratios, the review of pricing policies, or limitations in undertakingother investments, and aimed at ensuring project success and financialviability of the company. The covenants were pertinent and unambiguouslyformulated. Borrowers and entities in the projects reviewed, with few excep-tions, complied only partially. However, non-compliance with financialcovenants (Sindri, Multan, Las Truchas, COSIPA, ERDEMIR) did not jeopardizethe success of the projects. Financial covenants were helpful in inducing theGovernments to make funds available to the companies to complete the projectsand to strengthen their liquidity position, to raise prices to more realisticlevels and, in certain instances (e.g., Multan, Sindri, ERDEMIR), to initiatea financial restructuring of the company.

E. Environmental Aspects

4.313 All projects included provisions for pollution abatement in majorproduction facilities, and provided a convenient vehicle for significantupgrading of environmental standards. The pollution control equipment wasdesigned to reduce air and water pollution to meet local standards. With fewexceptions, environmental aspects in the fertilizer projects were undercontrol, with no emissions discharged into the atmosphere and liquid effluentstreated properly before discharge. In Cochin, while sulfur ,emissions werewell within environmental standards and fluoride emissions from the phosphoricacid plant were neutralized, gypsum disposal remained a major problem as the

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present treatment was not effective. The company has been working on a solu-tion to this problem. Similarly, in the steel projects, pollution controlfacilities were functioning satisfactorily. However, there was no systematicmonitoring pollution control within COSIPA and the company was consideringforming a special group to coordinate all matters relating to pollutioncontrol and to ensure compliance with Government requirements.

F. Lessons of Experience

4.314 The issues that emerged during the preparation, implementationcommissioning and operation stages of the projects provide a rich experiencewhich is worth noting in some detail. The Bank's staff has become increas-ingly aware of these lessons and the experience has been usefully applied tosubsequent project work.

4.315 Lessons common virtually to all fertilizer projects suggest (a) theneed for careful consideration of the trade-off in terms of delays, highercosts and, possibly, loss in operating efficiency when introducing insuffi-ciently established technologies; (b) the need, when procuring locallyproduced equipment, to ensure that technical assistance is contracted asappropriate, to ascertain the delivery capability of the supplier, and toassess the trade-off between the expected benefits of technology transfer andthe potential cost in terms of longer delivery periods and higher costs insupplying such equipment indigenously; (c) project management arrangementsshould be designed in such a way as to ensure sufficient decision-makingauthority and adequate monitoring of contractors; (d) the Borrower should beconvinced of his specific needs in technical assistance in order to ensure hisfull cooperation; (e) responsibilities for project implementation, includingprocurement work, should be entrusted to a project manager on site and inde-pendent from the management of the existing firm; (f) project sponsors shouldhave sufficient autonomy, inter alia, in setting compensation scales in orderto attract and maintain qualified management and technical staff; (g) changesin top management positions midstream can be detrimental to the success of aproject; (h) the need for close cooperation among co-lenders and with engi-neering firms, particularly if they are financing separate engineering con-tracts, to avoid scheduling and budgetary problems; and (i) provisions shouldbe made for price escalations to ensure adherence of suppliers to contractualcommitments.

4.316 The principal lessons from the experience of the steel projectssuggest that: (a) operating companies, even those with experience in con-structing their own original plants, may still need significant technicalassistance inputs to implement a major expansion because of the extremecomplexity of the combined responsibility of operations and construction,and such technical assistance arrangements should be worked out well inadvance; (b) the caliber of a company's top management and their commitment toimproving weaknesses in the organizational structure and management systemsare important factors in successful project implementation, as is theirappreciation of the necessity for consultancy services and the importance ofbeing receptive to consultants" recommendations; (c) organizational structures

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of a matrix-type, where responsibilities are organized by facility as well asby function instead of strictly along functional lines, seem to be moreeffective in project management and control; (d) the functional responsibil-ities between company and consultants should be clearly defined; (e) neededmodifications in existing facilities and plant layout should be identified atan early stage, and the disruptive effects of an expansion project on existingoperations should be assessed carefully; (f) local construction, engineeringand manufacturing capabilities and capacities should be evaluated realisti-cally before the award of contracts; (g) where the risks of unstable manage-ment are high (e.g. frequent changes of key personnel in company and projectmanagement, Board interference in day-to-day activities), greater responsi-bility for implementation may be delegated to the engineering consultants; (h)special attention should be given to the development of adequate socialinfrastructure when projects are to be located in relatively small towns orremote areas; (i) when equipment is packaged for procurement, considerationshould be given to the aspects of coordination at the interface and themanagement resources required to carry it through; (j) detailed capital costestimates based on the engineering study should be prepared and continuouslycontrolled as project implementation proceeds in all areas concerned: engi-neering, procurement and construction; (k) as erection contracts on a cost-plus basis tend to lead to cost overruns, an effort should be made whenconstruction experience or capacity in the country is limited to enter intocontracts on the basis of a schedule of rates in order to induce greaterefficiency; (1) financial covenants as well as agreements on product pricing,even if enforced with difficulty, can be helpful in introducing financialdiscipline and in ensuring the financial viability of the company; and (m)continuous and effective supervision by the Bank (and co-financiers) playan important role in improving project implementation.

F. PROGRAM LOANS

4.317 This review considers the Tenth and Eleventh Industrial ImportsProgram Credits, approved in 1975 and 1976, respectively. They were the lasttwo of this type of non-project loans extended to India in the face of agrim balance of payments outlook, and intended to provide freely usable,quick-disbursing foreign exchange to help finance part of its essential importrequirements and, more generally, to improve overall industrial efficiency.

Objectives

4.318 Aside from contributing to the financing of India's chronic currentaccount deficit, non-project assistance aimed specifically at funding theimportation of raw materials and spare parts by pre-identified industries(capital goods, fertilizer and pesticide), which provided critical inputs tovital sectors in the economy (e.g., agriculture, transport, power). It wasintended to reduce the widespread underutilization of industrial capacity andpromote the export of non-traditional manufactured goods (e.g., engineeringproducts). Finally, the operation was designed to provide a basis for a

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continuing dialogue with the Government concerning the rationalization ofindustrial policies, particularly as related to import licensing and exportincentives.

Effectiveness and Impact

4.319 As intended, the credits were disbursed in a little over a year. Inthe short term, the credits helped alleviate the country's trade deficit andcontributed to the improvement of the capacity utilization of the industriesassisted and to the upturn of production in industry as a whole. In partic-ular, the Technical Development Fund, a novel feature of the Eleventh Credit,helped remove bottlenecks by allowing quick imports of urgently needed equip-ment through relaxed import licencing procedures. IDA-assisted industriesbenefited especially by virtue of their eligibility and priority which madefor less costly imports due to bulking, the availability of untied foreignexchange, and fewer formalities in obtaining import licenses.

4.320 In the medium term, on the whole IDA-assisted industries appeared tohave performed better in terms of output growth and export performance thantotal manufacturing. By the late 1970s, however, the growth of industrialproduction generally decelerated as long-standing infrastructure constraintsbecame more critical. The export performance of IDA-assisted industries, aswell as of the manufacturing sector as a whole, also could not be sustained inthe following years, the world recession and the protectionist policies of thedeveloped countries adding to more deep-seated domestic problems.

4.321 While the credits aimed at promoting international competitivenessand exports, they were not particularly equipped to bring about the array ofactions required to achieve this objective. Special sector studies undertakenby IDA had pointed to the need for policy changes, including the investmentand export incentive schemes; simplification of import control procedures andrationalization of import policies; improvements in efficiency involving,inter alia, the adoption of modern processes which was hindered by controlsover technology transfers; strengthening of training and design facilities;greater emphasis on marketing aspects; and expansion of the capacity ofefficient firms capable of gaining access to export markets. While thefindings and recommendations of the studies were discussed with the Govern-ment, the understandings reached concerning their implementation were vague,a link between the findings of the studies and the credits was not estab-lished, and the recommendations were not translated into implementable actionprograms. As the suggestions of the studies were not followed up effectivelyby the Government and IDA, they remained largely ineffectual.

4.322 Although the credits were not designed to induce specific changes ineconomic policies, the dialogue between the Government and the Bank resultedin some progress, particularly in streamlining the imports control regime.Changes in the late 1970s did result in a considerable simplification of theimport procedures, reduced discretion in their application, and liberalizedsomewhat imports of goods competitive with local producers; nonetheless, the

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import policy remained restrictive. Furthermore, changes in the regime ofimport regulations for exporters and the implementation of the import dutydrawback system appeared to have had a retarding impact on export promotion.Occasional bans on exports and intermittent gluts and shortages in productiontended to undermine further rational planning for export capacity expansion.Industrial capacity licensing appears to have also affected adversely exportperformace and to have hampered the mounting of a consistent export drive.

Remarks

4.323 The focus of the credits was basically short-term - to help financeIndia's foreign exchange gap. This they did very effectively. By design,therefore, the credits have not been instrumental in addressing structuralissues and constraints. This is unfortunate considering that they wereapproved following a decade of continued program lending, and that a series ofstudies had pointed up serious structural and institutional constraints in theindustrial sector and the trade regime. Similarly, limited progress was madein the course of the Bank-Government dialogue in improving institutionalarrangements affecting import controls, export promotion incentives andindustrial capacity licencing.

4.324 It would seem that export promotion policies need to be closelyrelated with the import and industrial capacity licensing regimes, and that amore courageous and imaginative approach was called for. The credits perhapscould have been more effective had they concentrated on narrower areas ofconcern and had been supported by specific action programs. The experiencewith the credits seems to suggest that program loans should be used sparinglyand only as vehicles for tackling specific short-term problems. Structuraland institutional hurdles may best be addressed through structural adjustmentlending, which represents an evolution of the program lending approach,following the development of well-considered action programs. In recentyears, the Bank has been moving in this direction.

G. EDUCATION

4.325 Five education projects are included in this Review - Nicaragua I(FY68), Sudan I (FY68), Greece I (FY71), Nigeria II (FY72) and Liberia I(FY72). The Nicaragua and Sudan projects were older than any of thosereviewed last year. Generally, however, there was not much difference in agebetween these projects and those reviewed during the last two years, when itwas noted that the Bank's interest had progressively moved from financingeducation hardware to cover curriculum reform, including the introduction ofpractical subjects, and institutional development. While all the projects hadinnovative aspects only one - that in Greece - successfully attempted tointroduce a completely new type of educational institution.

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I. POLICY AND INSTITUTIONAL OBJECTIVES

4.326 Although four years separate the first and last of these projects -Nicaragua I and Liberia I - they do not appear to indicate very much change in

Bank lending policies. Both these projects and those in Sudan and Nigeria

concentrated on the expansion of general secondary education - accompanied by

the improvement of curricula - and of primary teacher training. Two of these

projects (Sudan, Liberia) included post-secondary agricultural training. Theproject in Greece concentrated on higher technical education and financed atype of institution, providing post secondary, non-university education in

several fields, which was new to the country. This concentration on one typeof institute in a project is to be commended especially where a succession of

projects is envisaged in a country as it makes for simplicity and sharpness offocus in project design. However, none of the projects in this group can be

said to have suffered from overcomplicated project designs.

4.327 Most of the Bank financing was for physical infrastructure, mainly

civil works. However, the educational elements were also emphasized, with

four of the five projects (all except Nicaragua) including a technical assis-tance and fellowship component. The project in Nicaragua placed its educa-tional emphasis on a full-time teaching staff, a less rigid approach to

examinations, and career guidance for students. All the projects aimed atcurriculum improvement, with emphasis on more practical courses, improvement

in science education and so forth, with a view either to supplying the labormarket with readily employable manpower, or alternatively providing projectschool graduates with a suitable educational background on which furthertraining for specific occupations could be based.

II. EFFECTIVENESS

A. Educational

4.328 As noted in previous Reviews, the audits came too early to assessfully the educational impact of the projects concerned. However, some judge-

ments are possible on the quantitative side in terms of the places providedand the enrollments achieved in terms of appraisal expectations. A word of

caution is however necessary: the enrollments of new, developing schools canbe expected to be changing, and usually increasing, rapidly, in their firstyears of operation; secondly, enrollments can be doubled or tripled by usingschools multisessionally - this has happened with the project in Greece; andthirdly, that while in a primary school the number of places provided and theenrollment to be expected may be substantially the same, in institutions atthe secondary and post-secondary levels the number of places provided can beexpected to exceed the enrollment because all the places cannot be used allthe time.

4.329 With these considerations in mind, the picture regarding placesprovided and enrollments achieved at audit was as follows. In the Liberia Iproject the total enrollment in project schools was expected at appraisal to

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be 1,940; the actual 1979 enrollment was 2,575, achieved by some overcrowdingwhich was hampering the intended operation of some of the schools. In GreeceI, the appraisal expectation was for 6,660 places; in the event, some 10,000places were provided and the 1978/1979 enrollment was 14,753 achieved bysome overcrowding but mainly by multisessional operation. While the actualenrollments in the secondary schools financed under the Sudan I projectare not known (2,400 such places were to be provided originally, with 500deleted during implementation) the other institutions included in the projectwere severely underenrolled at the time of completion reporting - while some1,670 places were provided under the project, to make a total of 2,030 places,the enrollment was only 1,070.

4.330 The Nicaragua I project provided more places (nearly 17,000) thanhad been originally envisaged (11,540, of which 3,440 represented the replace-ment of unsuitable existing facilities). The enrollment of over 30,000 in theproject schools was made possible mainly by multisessional operation. InNigeria II, also a greater number of places (25,920) was provided than envis-aged at appraisal (24,090) and here again the actual enrollment (34,396) waseven greater, this time mainly due to the facilities being overcrowded.

4.331 In sum, with the likely exception of the project in Sudan, theproject facilities were being well used, indeed over-used. The Liberia auditspecifically mentioned that the enrollments should be limited so that theinstitutions could operate as planned, and the same could be said for theother projects where enrollments are above the planned figures and wherethe introduction of reformed curricula might be compromised by excessiveenrollments.

4.332 This difficulty in changing curricula, especially for example inthe case of introducing practical subjects, has been noted in several previousReviews, and the present sample again exemplifies the problem. In Liberia,the very curriculum of the multilateral high schools had not been officiallyapproved at the time of completion reporting, there were no examinationsresponding to the new curriculum, and it was not clear whether the schoolswere to provide terminal courses leading to employment or simply exposurecourses in industrial arts. The agricultural institutes in the Sudan projectwere originally intended to specialize, one in irrigated agriculture, and theother in rain-fed agriculture; these specializations were not achievedwhen the Government decided to unify the curriculum of both institutes, withless practical work.

4.333 The Nicaragua project pioneered such concepts as full-time teachingstaff, orientation and guidance services, a less rigid approach to schoolexaminations, and new teaching techniques. However, it was reported that theschools were experiencing considerable difficulties with the practical andscience courses, with a dearth of machinery, equipment and consumable ma-terials, in large part resulting from theft and vandalism during the period ofunrest, compounded by a shortage of practical subjects teachers. In Nigeriathe workshop courses could not be offered because of a lack of equipment, allthe Bank funding having been used for civil works, and the States not havingprovided the equipment needed.

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4.334 The greatest success in introducing new curricula, and indeed a newtype of educational institution altogether, was in Greece. In this case bothBank and Borrower worked in close collaboration over a considerable period oftime and succeeded in creating a number of multidisciplinary post-secondaryinstitutions of a new type which, after an initial period of hesitant publicacceptance, are now highly regarded.

4.335 In this group of projects, all approved by early 1972 at the latest,there seems to have been no particular effort made to reach disadvantagedgroups such as women or urban and rural poor. The Liberia audit specificallymentioned the low enrollment of women in the project institutions, and that in

the Sudan commented that the then IDA views on the level of priority attachedto women's education (i.e. a low priority) would be unlikely to be so stronglysustained today. The fact is that this batch of projects was approved beforethe Bank had begun to give serious attention to the problems of disadvantagedgroups in its member countries. Nevertheless, the Bank was already con-sidering questions of equity in the geographical provision of project schoolplaces, and it is likely that the project institutions have in fact reachednumbers of the educationally deprived. In the project in Greece it wasreported that 60% of the students came from the lower income urban/ruralgroup, 35% from the middle-income educated parent group, and 5% from the highincome group. However, it is difficult to read much into these figures in theabsence of definitions of what is meant by the groupings and the proportionsof the various socio-economic groups attending other post-secondary (e.g.university) courses.

B. Institutional

4.336 All the projects in the group had important institution-buildingobjectives, and all were implemented by project units established within thegovernment. Also in common with the projects reviewed last year, the projectsappear in general to have made considerable contributions to institutionaldevelopment efforts in the country concerned. The one project where theinstitution-building effort appears to have fallen well short of its objec-tives was in Sudan, where specialist services provided to help the developmentof agricultural and teacher-training institutions were deleted because ofdelays and cost overruns, and the fellowship program did not achieve itsobjectives as the returned fellows were not employed in the posts for whichthey had been trained. However, even here the project unit established toimplement the first education project, suitably strengthened, was givenresponsibility for implementing the second. In Nigeria, the idea of sharingschool facilities proved unsuccessful.

4.337 The project in Greece, on the other hand, was generally successfulin its institution-building aspects, even though the hoped-for collaborationwith employers in the design of training courses was not achieved. Theproject unit was expanded during the course of project implementation and waseventually absorbed into the Directorate of Implementation of EducationProjects, responsible for implementing all projects with external financing.

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A completely new type of educational institution was created using newcurricula developed in association with a project technical assistance andfellowships program. Such programs featured in all projects in the groupexcept that in Nicaragua, where the institution-building effort extendedacross the entire sector. Satisfactory progress was achieved despite diffi-cult country conditions, which included a major earthquake during the projectimplementation period.

4.338 Substantial institution-building was also reported in the Liberiaproject in the fields of manpower planning, educational (including university)planning, and project implementation. This was achieved by a substantialprovision of experts services (57 man-years, reduced to 44 during implementa-tion because of cost overruns) and fellowships (7 man-years, reduced to 5).The imbalance between experts services and fellowships was noted during audit,although it was considered that most of the experts had been needed andhad done a good job. In the Nigeria Second Education project the experi-ence was mixed: science education was improved but there were some difficul-ties in project implementation and, as usual, in the introduction of workshopsubjects. Some holders of fellowships did not return to the country.

C. Employment and External Efficiency

4.339 Given the timing of the audit reports, judgments on employment andexternal efficiency are scanty. Further, during the period when this group ofprojects was approved, studies to trace the employment of graduates were notgenerally incorporated into the project design.

4.340 Information regarding graduate employment was particularly sparsein regard to the three projects in Africa. This was perhaps due in part tothe fact that many of the project items, the expansion of secondary educationin particular, were not aimed directly at meeting manpower needs. In theLiberia project it was mentioned that the Rural Teacher Training Institute hadgraduated a total of 510 teachers. In 1978 a tracer study begun to follow theoutput, indicated that over 90% of the graduates preferred to be posted toclassroom duties and that 75% thought the training they had received wasadequate. It will be seen that this was more of an attitude survey than anemployment survey; it is presumed that substantially all of these teachergraduates were in fact employed.

4.341 In Nicaragua, the audit reported the employment of graduates fromthe project schools as among the more immediate problems. While detailedinformation was not available, in part because of the unsettled state of thecountry, it seemed that (i) graduates from teacher training schools had prob-lems in finding employment but this situation was expected to be alleviated bythe creation of 500 new teaching posts and the long-term recruiting policiesof the Government; (ii) project school graduates in Managua in general foundacceptable compatible employment; but (iii) prolonged unemployment amongstschool graduates in the interior was common.

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4.342 Considerably more information was available on the employment of the

graduates from higher technical education centers included in the project inGreece. Teachers in the centers had analyzed the employment of graduatingstudents since 1976 and found that nearly 100% of the nursing graduates and85% of those from business management and health services courses foundemployment within six months of graduation. Employment prospects of thosegraduating from the schools of agriculture and food technology had also beengood, but graduates from the schools of engineering and graphic arts haddifficulty in finding employment in the private sector. It appeared incertain cases that the Chambers of Commerce in the towns where the projectcenters had been built were not wholly familiar with the courses offered, butthe Chambers wished to support the centers as they saw the need for bettertrained technicians for their industries to become competitive with others in

Europe. It is clear that closer collaboration between potential employers and

the project schools is essential if the full benefits of the project are to beachieved.


Design, Construction, Time and Cost

4.343 All project designs responded well to the priority needs of theborrowers and all projects were implemented as designed save for minor changesin scope discussed later on. Last year's review mentioned that some projectshad a rather complicated, Christmas-tree, design: in the present group thedesigns were generally simple, except for Liberia I which was neverthelesswell implemented.

4.344 Construction designs appear in general to have been effective,except for the post-secondary institutions in Sudan where the design was foundnot to be fully compatible with local traditions and environment; the auditreport attributed this to the fact that the design work was basically preparedin the consultant's London headquarters. Consultants prepared designs for allthe projects; in the three projects in Africa these consultants were foreign,in the Nicaragua project both local and foreign consultants were used, whilein Greece the consultants employed were all local. Construction standardswere generally good; in Nicaragua, all but one of the newly completed schoolssurvived a severe earthquake. In several cases, however, deficiencies werenoted: in the Nigeria project poor construction led to a roof collapse; roofleakages affected most of the project institutions in Greece. In Sudan thestandards of construction were poor, because of shortages of materials, lackof skilled labor, and financial difficulties of contractors. Although all theloan or credit agreements originally specified international competitivebidding, in the Nigeria project local competitive bidding was used. Allconstruction was undertaken by local contractors.

4.345 In line with previous experience in education projects, furnitureand equipment suffered various procurement and utilization problems. Thesewere particularly pronounced in the Sudan project where inadequate warehousingfacilities and delays in construction resulted in some furniture and equipment

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being kept outdoors and having to be replaced without ever having been used.Some heavy equipment in the Liberia project arrived damaged and the electricalwiring in the project schools was inadequate to permit use of some electricalequipment. In the Nigeria project the loan funds were entirely expended inmeeting civil works cost overruns; borrower States undertook to purchaseequipment but delays and insufficiencies of workshop equipment supply havehampered workshop courses. In Nicaragua procurement problems appear not tohave been so severe; however, the schools have been looted and vandalizedduring the civil unrest. The problems in the project in Greece were seriousenough that even by the time of completion reporting in 1979 not all contractshad been let and some equipment was still in the process of delivery andinstallation. These problems of equipment procurement in particular have been,and are, so pervasive in education projects that they clearly require greaterattention than the Bank has so far given them. Attempts at their resolutionmay have important implications for the staffing of the Regional educationdivisions. In the longer term the only solution will clearly be to developborrower capacity through training.

4.346 On average, the physical facilities of these projects took over 110

months to be substantially completed against the average original estimate of45 months - an average delay of 145%. As a whole, the time overruns wereworse than those in any batch of projects previously reviewed. Only theLiberia project had a less than 100% time overrun, and even here the projecttook very nearly twice as long to implement as had been originally expected.A major factor in these serious time overruns, applicable to almost all theprojects in Africa, was unrealistic scheduling on the part of the Bank. Asmentioned in last year's Review, at the time of generating these projects Bankeducation staff based their implementation schedules on the assumption thatall would go well, the argument being that an ambitious implementation sched-ule would put pressure on the Borrower to achieve it. This has proved not tobe the case. Unrealistic scheduling was particularly apparent in the caseof the Nigeria Second Education Project, where less than three years wereexpected to elapse between loan signature and project completion. It isdifficult to explain this optimism in view of the delays the first educationproject was suffering in Nigeria. The greatest actual delay in projectcompletion (80 months) was in the Sudan project, which took over 11 years toimplement. It is clear that the Bank underestimated the difficulties ofworking in these vast African countries, and, additionally, made insufficientdistinction in its work coefficients between one project and another.

4.347 Apart from unrealistic scheduling, this group of projects sufferedmore than most from adverse country conditions. The Sudan project was se-verely affected by civil disturbances, and the outflow of trained Arabic-speaking construction workers to other wealthier countries in the Middle East,while a severe earthquake struck Nicaragua during project implementation.The Nigeria project was itself a rehabilitation project to remedy the effectsof civil war: its implementation, like the Nicaragua project and for similarreasons, suffered from shortages of labor and materials.

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4.348 This group of projects, despite the extended implementation periodsand attendant cost overruns, appears to have been little affected by changesin scope during implementation. The prospect of cost overruns and a reluc-tance to use technical assistance experts were, as usual, the principalreasons for reductions, which affected mostly the projects in Liberia andSudan, where the borrowers were not in a position to meet substantial costoverruns. In the Sudan project three secondary school extensions and allspecialist services were deleted; in Liberia the scale of equipment wasreduced. While the scope of the project in Nigeria was not reduced, severecost overruns in civil works caused all loan funds to be used for civil workswith the Borrower States undertaking to supply equipment from their ownresources.

4.349 In the Nicaragua project schools built prior to the earthquakecost less than appraisal estimates, and those built subsequently cost more.This was the only project where there was a genuine addition in scope inthe form of the financing of another general secondary school, althoughin the Liberia project facilities such as language laboratories not originallyenvisaged at appraisal were added to the project institutions. The projectin Greece was implemented with no substantial changes whatever.

4.350 All projects in the group suffered cost overruns which were borneentirely by the Borrowers: these ranged from 6% in the Liberia project -attributed to good cost control during implementation and some reduction inscope and space standards - to a massive 180% in Nigeria. It is notable andperhaps to be expected in a time of rapid price increases that the projectwith the greatest time overrun involved the greatest cost overrun. As in lastyear's review, the experience with the more recent projects is no better thanthat with the older ones. Unit cost increases, either by area or per studentplace, were calculated for the projects in Liberia, Greece and Sudan. Thepercentage increases ranged from 7.6% per student place in the secondaryschools in the Liberia project - an example of the good cost control alreadymentioned - to an 85% increase in boarding place costs per square meter in theproject in Greece.


A. Sector Objectives and Attainment

4.351 All the projects in this group were conceived on a sector-widebasis. In all cases except that of the second project in Nigeria, whichwas an outgrowth of the first, UNESCO was involved in project generation.Excluding Nigeria Education II, the average interval between first mention infiles and Board approval was no less than 50 months, with the Sudan projecttaking a record-breaking 77 months - nearly 6-1/2 years. These lengthyproject generation periods reflected the Bank's concern that educationprojects should fit into the broader context of educational development.However, in Sudan the excessively long generation period indicated profounddifferences of view between the Borrower and IDA. The Sudan audit concluded

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that not all the positions then taken by IDA on the economics of educationwould be as strongly sustained today. Nevertheless, the very existence ofthese discussions shows that even in the mid-1960s IDA had broad sectoralconsiderations in view in its lending for education.

4.352 The Sudan education project appears to have achieved the least inthis group. While there are many reasons for this the experience does indi-cate that in a sector such as education wholehearted Borrower commitment isneeded for success; and that if a Government needs to have pressure put uponit to "agree" to a project then the project is off to a bad start. Overall,and taking into account the difficult country conditions, particularly inNicaragua and Nigeria, this group attained its main objectives, which con-centrated for the most part on basic secondary education and teacher training,but with innovative elements which the Bank considered a prerequisite forlending. The Bank has at no time been very ready to lend for projectsdesigned purely and simply to expand an existing system, and has soughtquality improvement in its lending. This group of projects is no exception.

B. Project Design

4.353 The project designs were simple and straight-forward, and the pro-jects addressed fundamental needs. There were points of detail which can becriticised - for example the Bank's attempts, common during the periodsof project generation in this batch, to add agricultural streams to secondaryand post-secondary schools - which caused some difficulties in Greece andNicaragua. The Bank also underestimated the difficulties of curriculum changeand the time needed for it. However, these projects did not suffer to quitethe same extent as projects included in other Reviews from the Bank's fre-quently over-rigid views as to how persons can be trained for a specificoccupation.

C. Technical Assistance

4.354 Four of the five projects - all except Nicaragua - included financ-ing of technical assistance. In the projects in Greece and Liberia thistechnical assistance was utilized substantially as originally envisaged, theaudit noting in the Liberia case rather an inadequate fellowship component(seven man-years) in comparison with the 57 man-years provided for expertservices. Nevertheless, the technical assistance elements in both theseprojects were well utilized.

4.355 In the Sudan project the whole of the specialist services componentwas deleted because of delays and to meet cost overruns; returning holders offellowships were not employed in the posts for which they had been trained.In Nigeria, some of the expert services (for curriculum development) wereeliminated; others (for teacher training) were financed from bilateralsources. These experiences with technical assistance change and reduction aresimilar to those mentioned in several previous Reviews, which have pointed

- 149 -

out: (i) the often insufficient understanding between the Bank and the Bor-rower on the need for and management of technical assistance; (ii) thepressure to use funds provided for technical assistance to meet cost overrunson civil works components; and (iii) the availability of and general borrowerpreference for receiving technical assistance from bilateral sources, withwhich the Borrower has often an association already. In general, the Bank hasbecome more aware of some of the problems to be overcome and of the need for:(i) mutual agreement on detailed terms of reference for technical assistanceexperts; (ii) using short-term specialists and local experts in preference tolong-term assignments for foreign personnel; and (iii) providing more exten-sively for fellowships for local personnel in countries where the experiencewould be most relevant.

D. Supervision

4.356 Critical comment was offered on the Bank's supervision effort in allreports. These criticisms were the usual ones: lack of educators on supervi-sion missions; use of unsuitable specialists - ironically the technicaleducation project in Greece lacked supervision by technical educators, whilethe general and agricultural education project in Sudan was supervised duringits first years by a technical educator - and lack of continuity in staff. Inthe Liberia project, as in the Ivory Coast project audited the year before,the problem of ill-defined responsibilities between Bank headquarters andregional office staff arose. It was noted in the audit of the project inGreece that supervision became very perfunctory in the later stages of projectimplementation.

4.357 It is opportune particularly at a time when the Bank's overallstaffing is constrained to point out once again the possibility of savingstaff time by reducing the frequency of supervision missions and consolidatingthose that do take place. Such a move would be in line with the requestmade by borrowers at an April 1979 meeting in Paris between donor and bor-rower agencies. The Bank does not seem to be moving rapidly enough in thisdirection.

E. Impact Evaluation

4.358 Four of the audit reports (all except Liberia) point to the lack oftracer studies in the project design as a reason for the lack of knowledge ofproject impact. This does not, however, explain entirely why in severalcases, especially Sudan, so little information was available at audit inrespect of projects which had been supervised fairly intensively by Bank staffover a period of years. This is a problem which should be addressed by morein-depth supervision at less frequent intervals, with attention given toemerging project results.

4.359 In general, the project institutions are developing in such a way asto fulfill main project objectives, but the qualitative changes attempted inthe form of curricular change and the introduction of practical subjects

- 150 -

appear less certain of achievement, particularly within the time-frame origi-nally expected. As was mentioned in the last Review, Bank assisted projectsshould be of special and continuing interest to the Bank, especially if theseare broadbased and have an underlying strategy to be implemented over time.New projects in a series should make specific reference to those which havegone before and to what has been achieved. There seems at present insuffi-cient interest in a project once it has been completed and an audit reportissued.

F. Feedback

4.360 The Education Department of the Operations Policy Staff (OPS) hasconducted seminars or workshops during FY82 on the following topics which hadbeen identified in the Seventh Annual Review as persistent or importantissues: (i) institutional development; (ii) evaluation; (iii) procurement ofeducational equipment; and (iv) textbook development. Seminars or workshopsare scheduled on (i) recurrent costs in education; and (ii) development ofeducational specifications for the determination of physical needs.

4.361 The OPS Education Department has also conducted seminars or work-shops during FY82 on the following topics which had been identified as ofimportance during audit (i) maintainance of physical facilities; (ii) state ofproject preparation before loan approval; (iii) project management trends;and (iv) procurement practices. The follow-up study on the use of projectinstitutions reported to be under-utilized at audit, which was expected to beconducted in the second half of 1982, is now scheduled for the OPS Educationwork program for FY83.

H. POPULATION

4.362 This year's review includes the population projects in India, Kenyaand Trinidad and Tobago, all of which were approved during 1971-74. The threeprojects represent widely divergent situations in terms of country size andenvironment, institutional and sectoral context, lending strategy and relativesuccess or failure in achieving their objectives. Taken together with theJamaica First Population Project, which was covered in an earlier review,1!they illustrate the rapid shift in the Bank's earliest efforts in lendingfor population from a primarily post-partum motivation strategy, based inmaternity wards (Jamaica, Trinidad and Tobago), through an integrated strategycombining family planning with maternal and child health (FP/MCH) care,delivered through village health centers (India, Kenya) to the beginningsof a community outreach strategy combining home visits by sub-professionalmotivators with a clinic-based FP service delivery system fully integrated

1/ Sixth Annual Review of Project Performance Audit Results.

- 151 -

with primary rural health care (Kenya). All four projects suffered in varyingdegrees from the tendency of local health professionals and administrators togive more priority to general curative treatment and MCH than to FP services,a phenomenon common in ministries of health generally. The projects, byfocusing mainly on the provision of services by financing construction,equipment, training, etc., were less effective than anticipated because oflack of demand for family planning services.

4.363 The MCH and rural health objectives of the four projects wererelatively better fulfilled than the family planning and fertility goals.Improved health care may be expected to have reduced infant mortality which inthe short-run may have increased the rate of growth of the population butwhich in the medium- to long-term is a precondition to increased contraceptivepractice. Thus, although the family planning and fertility goals were notreached, the projects did contribute to the creation of an environment forfertility reduction in the future.

4.364 The institutional impact was greatest in the India project whichaimed at incremental improvements in ongoing family planning programs inselected districts in two states and setting up population centers in each ofthose states. These goals were largely achieved, and the improvements arebeing replicated in other projects in India. In Kenya, the National Familywelfare Center (NFWC) was established under the Ministry of Health (MOH) tocoordinate family planning activities, and a major contribution to the ruralhealth network was made. The NFWC has never achieved the effectiveness thathad been expected, but it has had some impact on family planning in Kenya andit also provides a base from which to build stronger family planning servicesin the MOH. The rural health centers financed by the project are wellutilized for health services, but there is little demand for family planningservices. An excellent management study funded under the Trinidad and Tobagoproject was never acted on by the Government.

4.365 The projects in Jamaica, and Trinidad and Tobago were national inscope and aimed at setting up new or reorganized and strengthened familyplanning agencies under the respective countries' ministries of health, whileseeking integration of FP with other health services at the local level. Thenew or reorganized agencies have not proven to be effective as policy-makingor coordinating bodies. Although the crude birth rate fell appreciably duringthe project periods in both Jamaica and Trinidad and Tobago, services providedthrough project facilities were unlikely to have been major contributingfactors. Indifferent attitudes of political leaders in the two countries madeit difficult for the programs to achieve more.

4.366 In the three projects in Jamaica, Trinidad and Tobago, and Kenya,the FP and delivery points supported by Bank financing were designed tosupplement smaller-scale private sector voluntary programs administered bynational-level family planning associations. Private, voluntary efforts haveproven to be effective though limited. In these and in almost all countries,

- 152 -

private family planning associations were instrumental in creating the aware-ness and commitment that led to public sector programs. Because of limita-tions of finance and managerial personnel, the private programs have tended tobe focused mainly in the urban areas. In more recent Bank projects, monieshave been channeled to support private, voluntary efforts. The integratedpublic health family planning programs tend to be more complex, more difficultto manage and to require considerable care to avoid health concerns negatingthe emphasis on family planning activities.

4.367 There are lessons to be drawn from this small but significant

group of projects. These three are perhaps the most important:

(a) these projects concentrated mostly on the supply of contraceptiveservices, with whatever motivational activities that were includedalso channeled through the service organization. It is now fairlyclear that much broader motivational efforts outside the serviceorganizations are needed to stimulate the demand for family planningservices;

(b) the projects probably gave too little attention to the very formida-ble management difficulties in administering health and MCH/FPprograms especially with health ministries frequently being amongthe least well-managed in most countries. The management problemstended to be greater than in most other sectors in which the Banklends; and

(c) the expectations for family planning acceptance and fertilitydecline in the projects were unrealistically high. It is now fairlyclear that the general expectations of the late 1960s and early1970s of rapid fertility decline through public family planningprograms were simply unrealistic. The task of simultaneouslyraising the demand for and supply of contraceptive services is a farmore complex and intractable job than had been anticipated. What ismore, the task in countries outside Asia is almost certainly goingto be more difficult and different than for countries in Asia.

- 153 -

ANNEX IPage 1 of 6

Classification of Projects Covered by

Reviews I - VIII

The 108 projects under review are part of the 709 whose performancehas been audited by OED up to December 31, 1981. This Annex shows the proj-ects included in each of the eight reviews to date under different classifica-tions. Table 1 indicates the distribution of the 709 in terms of the year inwhich the loans or credits were signed, and Table 2 the year in which theywere fully disbursed.

As can be seen from Table 1, each review brings together projectsoriginating over a wide range of years. This is a reflection of the fact thatthere is a considerable variation in the time required to implement individualprojects. However, it is also evident from the table that each successivereview deals with a younger group of projects. For this Eighth Review, 76%of the projects were signed in the fiscal years 1972 through 1976 with 19%prior to 1972 and 5% more recent than 1976.

The distribution by sector, region and size is shown in Tables 3,4 and 5. In each case summary figures are provided for the seven earlierreviews.

Taken together, the tables in this Annex provide a quick referenceto the nature and scope of operations covered by the project performance auditreview system through December 31, 1981. A more comprehensive referenceappears in the "Concordance to Project Performance Audit Reports Issued by theOperations Evaluation Department", of June 30, 1981.

- 154 -

ANNEX IPage 2 of 6

Table 1

PROJECTS COVERED BY PPARsBY DATE OF LOAN/CREDIT AGREEMENT

Annual Review

Fiscal Year I II III IV V VI VII VIII Total

Prior to FY1963 7 - - - 1 - - - 8

1963 - 1 - - - - - - 1

1964 3 - 2 2 - - - - 7

1965 5 3 2 1 1 3 - - 15

1966 5 2 4 3 2 - - - 16

1967 9 8 7 9 1 1 1 - 36

1968 8 16 3 6 8 3 2 4 50

1969 5 11 24 26 14 8 3 2 93

1970 5 12 12 24 23 18 7 6 107

1971 3 1 8 20 15 26 14 9 96

1972 - 1 5 8 14 27 16 22 93

1973 - 2 1 6 9 20 12 19 69

1974 - - 1 1 7 16 11 17 53

1975 - - 1 3 - 4 10 15 33

1976 - - - - 3 3 5 9 20

1977 - - - - - 1 4 3 8

1978 - - - - - - 1 1 2

1979 - - - - - - 1 - 1

1980 - - - - - - - 1 1

TOTAL 50 57 70 109 98 130 87 108 709

- 155 -

ANfiEX IPage 3 of 6

Table 2

PROJECTS COVERED BY PPARsBY YEAR OF FINAL DISBURSEMENT

Total Numberfor which Issued Issued Issued Issued Issued Issued Issued Issued Total Issued

Loans/Credits Through 4/1/75 to 1/1/76 to 1/1/77 to 1/1/78 to 1/1/79 to 1/1/80 to 1/1/81 to ThroughDisbursed 3/31/75 12/31/75 12/31/76 12/31/77 12/31/78 12/31/79 12/31/80 12/31/81 12/31/81

Review I Review II Review III Review IV Review V Review VI Review VII Review VIII

Before July 1, 1972 n.a. 11 2 3 4 - 1 - 21

Second half of CY1972 24 20 3 - 1 - - - - 24

CY1973 66 14 32 13 7 - - - - 66

CY1974 75 3 17 2,'s 18 7 1 - 2 76

C1975 79 - 2 19 3 6/b 9 3 2 2 73

CY1976 104 2 - 6 30 34 22 2 5 101

CY1977 106 - 1 1 9 32 40 13 6 102

CY1978 123 - - - 4 12 49 26/c 10 101

CY1979 125 - - - - 4 11 29 33 77

CY1980 171 - - - - - 4 9 4/d 57

CY1981 166 - - - - - 5 5 10

After January 1, 1982 n.a. - - - - - - - 1 1

Total so 57 70 109 98 130 87 108 709

/s Includes one loan cancelled prior to disbursement (Loan 958-VE)./b Includes two loans cancelled prior to implementation at borrower's request (Loans 699 and 832-SP).IC Includes one loan cancelled April, 1978 (Credit 416-ET)./d Includes one loan cancelled April, 1980 (Loan 1564-AR).

I &

- 156 -

ANNEX I

Page 4 of 6

Table 3

PROJECTS COVERED BY PPARsBY SECTOR

Annual Review

I II III IV V VI VII VIII Total

Agriculture 6 8 21 17 28 49 32 40 201

Public UtilitiesPower 7 13 14 10 7 19 6 12 88Telecommunications 1 6 2 8 2 6 5 2 32Water Supply & Waste

Disposal 2 3 3 2 6 3 6 6 31

Sub-Total 10 22 19 20 15 28 17 20 151

TransportationHighways 11 8 12 25 18 15 11 9 109Railways 7 1 - 6 3 5 5 5 32Ports 4 1 2 4 4 3 3 - 21Pipelines 2 - 2 - - - - 1 5Airports - - - - - 3 - 1 4Others - - 2 3 3 2 - - 10Tourism - - - - - 2 - 1 3

Sub-Total 24 10 18 38 28 30 19 17 184

Education 4 2 3 11 5 11 11 5 52

DFCs 6 11 3 14 8 8 2 14 66

Industry - - 5 2 4 2 3 7 23

Program Loans - 4 1 7 7 1 2 2 24

Population - - - - - 1 - 3 4

Technical Assistance - - - - 3 - 1 - 4

GRAND TOTAL 50 57 70 109 98 130 87 108 709

- 157 -ANNEX IPage 5 of 6

Table 4

PROJECTS COVERED BY ANNUAL REVIEWS I-VIIIBY SECTOR AND REGION

Europe,Eastern Western East Asia South Middle East Latin AmericaAfrica Africa & Pacific Asia & N. Africa & Caribbean Total

Agriculture 5 9 3 8 7 8 40

Public UtilitiesPower 1 - 1 3 4 3 12Telecommunications - - - 1 - 1 2

Water Supply & WasteDisposal 1 2 1 - 2 -6

Sub-Total 2 2 2 4 6 4 20

TransportationHighways 2 4 - - 1 2 9Railways 1 - 3 - 1 - 5Airport 1 - - - - -1

Pipeline 1 - ---- 1Tourism - - - - 1 - 1.

Sub-Total 5 4 3 -3 2 17

Education 1 2 - -1 1 5

Population 1 - - 1-13

:DFCs 1 - 4 2 3 4 14

Industry - - - 4 1 2 7

Program Loan - - - 2 - - 2Total 15 1 7 12 21 21_ 2 2 108

Review 1 11 2 5 5 9 18 50Review 11 13 - 13 7 7 17 57Review 111 10 5 11 7 19 18 70Review IV 15 39 6 13 15 21 109Review V 9 17 20 11 17 24 98Review VI 20 15 18 15 21 41 130Review VII 8 14 21 10 12 22 87

GRAND TOTAL 101 109 106 89 121 183 709

- 158 -ANNEX IPage 6 of 6

Table 5

PROJECTS COVERED BY ANNUAL REVIEWS I-VIIIBY SECTOR AND SIZE OF LOAN/CREDIT

----------------- Size in Millions of US$---------------Over

0 - 5 6 - 10 11 - 15 16 - 20 21 - 25 26 - 30 30 Total

Agriculture 6 12 6 7 2 1 6 40

Public UtilitiesPower - 3 - 1 4 - 4 12

Telecommunications - - 1 - 1 - - 2Water Supply & Waste

Disposal 2 2 - - - - 2 6

Sub-Total 2 5 1 1 5 - 6 20

TransportationHighways 3 1 1 - 3 1 - 9Railways - 1 - - - - 4 5Airports - - - - - 1 - 1Pipeline - - - 1 - - - 1Tourism - - - - 1 - - 1

Sub-Total 3 2 1 1 4 2 4 17

Education 1 2 1 1 - - - 5

Population 1 - 1 - - - 1 3

DFCs 1 2 2 - 1 1 7 14

Industry - - - 1 - - 6 7

Program Loan - - - - - - 2 2

Total 14 23 12 11 12 4 32 108

Review I 14 11 5 4 5 1 10 50Review II 13 15 9 5 5 2 8 57Review III 16 13 9 11 5 2 14 70Review IV 32 28 9 7 9 4 20 109Review V 32 20 15 9 4 6 12 98Review VI 22 31 13 19 12 5 28 130Review VII 15 21 14 11 4 6 16 87

GRAND TOTAL 158 162 86 77 56 30 140 709

- 159 - ANNEX II

Page 1 of 6Table 1

PROJECTS FOR WHICH PROJECT PERFORMANCE AUDIT REPORTS WERE ISSUED

Jantary 1 - December 31, 1981

Date ofAmount- Board Loan/Credit Final

Projects by Sector CUS$ Iss) Approval Agreement Disbursement Brief Project Description

AGRICUlTURE

Irigation

1 Mali Mopti Rice 9.5 L 01/72 01/72 11/79 Increase paddy production by 35,000 tons per year at full developmentCr. 277 through the construction of three polders and the rehabilitation of 5

polders in the Niger flood plain; deep plowing, equipment and staffing ofthe project authority, establishment of a seed farm and technical assistanceto project management were also included.

2 Bangladesh Chandpur II 13.0 10/72 10/72 07/80 Increase paddy production by 200,000 tons per year through flood control andIrrigation drainage of 133,000 acres and provision of irrigation for 71,000 acres.

Cr. 340

3 India Kadana Irrigation 35.0 02/70 02/70 06/78 Construction of the Kadana Dam; irrigation of about 140,000 ha, drainage

Cr. 176 of 37,000 ha, land levelling on about 42,000 ha, and 3,200 km upgrading andconstruction of district and village roads.

4 India Pochampad 39.0 07/71 08/71 09/77 Comprehensive irrigation development of about 100,000 ha. CompletionIrrigation of a diversion and storage dam; excavation of 36 km of the Godavari South

Cr. 268 Main canal, lining of 113 km of this canal and distribution system for83,000 ha.

5 Sri Lanka Maha-eli Ganga 14.5/ 01/70 01/70 04/80 Provide supplemental irrigation water to 126,700 acres of existing

Development Stage I 14.5 irrigated land, full irrigation of 105,000 acres of new land to be

Cr. 174/In. 653 developed in subsequent stages, and 40 MW hydropower generating capacity.

6 Romania Giurgiu- 70.0 01/75 02/75 03/79 Irrigation of 100,000 ha along the left bank of the Danube, 60 km

Razmiresti Irrigation southwest of Bucharest, to increase yields of cereals, sugar beets,In. 1082 and other crops. Number of beneficiaries: 36,000.

7 Turkey Irrigation 18.0 01/72 01/72 08/79 Improving and rehabilitating existing irrigation and drainage systemsRehabilitation and of about 26,000 ha and construction of new works on a further 24,0U0 ha;

Completion land levelling and strengthening of the agricultural extension services

Cr. 281 to be carried out over the whole area.

8 Yemen Arab Republic 21.2 /c 05/73 05/73 12/79 Agricultural development of 17,000 ha in Wadi Zabid by irrigation

Tihama Development improvements, infrastructure Improvements and agricultural services,

Cr. 376 extension and credit. The project also financed a feasibility study andexploratory drilling for developing ground and surface water resourcesin Wadi Mawr.

Treecrops/Estate Development

9 Mauritius Tea Develop- 5.2 03/71 04/71 07/80 Increase in tea production by about 120% through tea planting on state-

ment Authority owned land to be leased to some 3,730 smallholders, construction of twoCr. 239 tea factories, installation of laboratory facilities and the creation of

a Tea Development Authority responsible for planting, leasing teasmallholdings, processing and export services.

10 United Republic of 16.0 05/75 07/75 03/80 Support the establishment of the first tranche of 5,800 ha of a planned

Cameroon Niete Rubber 15,000 ha rubber estate; and finance the preparation of a master plan for

Estate the agricultural development of the south-west province of the country.

Cr. 574

11 Ivory Coast First Grand 8.4 03/73 10/73 12/78 Establish a 13,500 ha rubber plantation at the south-western coastal

Bereby Rubber area of the Ivory Coast, complete with roads, workers' villages and an

In. 938 administrative residential complex. Processing facilities were to beprovided under a second phase project.

12 Ghana Sugar Rehabilita- 15.6 12/72 01/73 02/80 Aimed at increasing Ghana's sugar production and making the industry

tion efficient. Specifically the project provided for rehabilitating two

Cr. 354 sugar estates: replanting and expanding canefields, rehabilitating

factories, and improving support services.

13 Ghana Eastern Region 8.5 06/70 06/70 05/80 Support cocoa rehabilitation and replanting through farm credit,

Cocoa farmer training, cocoa marketing, road construction and project

Cr. 205 administration to help Ghana rehabilitate its cocoa industry which haddeclined in the sixties as a result of unsound Government policiesconcerning cocoa taxation and pricing.

14 Ivory Coast Fourth 20.0 03/77 03/77 11/80 Planting of 7,500 ha estate and 2,000 ha smallbolder coconuts as well asOil Palm and Coconut 8,000 ha estate and 500 ha outgrower oil palm.

In. 1382

Livestock

15 Chad Livestock 2.2 02/72 05/72 11/78 Construction of 38 new wells, rehabilitation of 102 existing wells andCr. 309 establishment of two units to maintain wells was to bring into productive

use about 600,000 ha of grazing land and prevent the decline of waterpointsserving an area of over 2 million ha; four studies aiming at the preparationof further and more comprehensive livestock projects were also included.

16 Turkey Second Livestock 16.0 04/72 09/72 06/80 First phase in support of village livestock breeding in the northeastern

Development highlands and fattening of sheep and cattle, mainly on the Central AnatolianCr. 330 Plateau, through supervised credit; establishment of technical services

group in the Livestock Directorate and in the Agricultural Bank of Turkey;inducing extension workers to visit rainfall areas by financing a "hardshiptravel" allowance; staff training.

17 Argentina Balcarce 15.3 07/67 07/67 11/80 Inducing a limited number of ranchers (700) to adopt improved technologiesLivestock Development in pasture production and management and animal health practices, by

in. 505 financing onlending for pasture improvement, fencing, stock handling,water facilities, breeding cattle, etc. However, a strong demonstrationeffect was expected which would increase livestock production throughoutthe area.

18 Panana First Livestock 4.7 05/73 06/73 03/81 Further develop the livestock industry in Panama through financingDevelopment investments in 570 small and medium dairy farms and cattle ranches, and

In. 901 individually or group operated large beef breeding and fattening ranches.

19 Israguay Fourth 10.0 08/74 09/74 01/80 Further assist Government in the development of the livestock industryLivestock Credit through innovative methods of lending to small individual and cooperative

In. 1037 livestock farms and decentralization of technical services. Through theseprograms, beef production was to be increased by 14,000 tons per year.Other expected production increases were: pork, 1%; poultry, 3%; milk,4%; eggs, 10%; and foreign exchange earnings by US$14.0 million per year.

- 160 -ANNEX 11Page 2 of 6

Table 1

PROJECTS FOR WHICH PROJECT PERFORMANCE AUDI REPORTS WERE ISSUED

January 1 - December 31, 1981

ta Date ofAmont- oard loan/Credit Final

Projects by Sector (US$ ams) Approval Agreement Disbursement Brief Project Description

Fisheries

20 Tunisia First Fisheries 2.0 09/71 09/71 01/80 Replacing obsolete inshore fishing craft by 335 fully equipped motorizedCr. 270 boats; institution building to assist the sector, credit to fishermen

and overseas training were also included.

21 Yemen PDR First Fisheries 5.1 04/73 4/73 08/81 Construction of cold stores; design and construction of shoreCr. 370 facilities; construction of 95 improved fishing vessels; management

consultancies and studies for further fisheries and harbor development.

22 Ecuador Fisheries 5.3 09/68 09/68 05/81 To more fully exploit Ecuador's abundant offshore fishing resourcesIn. 555 through investment in modern tuna fishing vessels and training of key

crew members. Twelve tuna purse seiners with a carrying capacity of 150short tons each were to be constructed. The estimated iucrease in totalcatch of 24,000 short tons per year would double the annual tuna catchin the country.

Credit

23 Senegal Second Agricul- 8.2 06/73 06/73 05/79 Provision of medium-term loans to farmer cooperatives for thetural Credit purchase of about 120,000 animal drawn implements (mainly feeders,

Cr. 404 hoes, ploughs and carts) and draft animals; and strengthening of theextension service organization as well as the input distributionand marketing organization.

24 Korea Second Agricul- 20.0 09/76 10/76 03/80 Support for the Government's program to increase farm production andtural Credit farmers' income through credit for investments in apple orchards,

n. 1328 sprinkler irrigation, silkworm rearing houses, plastic iron-framedgreenhouses and on-farm storage facilities for fruit.

25 India Second Agricul- 200.0 05/77 06/77 01/80 lend through agricultural credit institutions to farmers for minortural Refinance and irrigation projects, mainly tubewells; for livestock development;Development Corporation coconut and tree planting; and fisheries.Credit

Cr. 715

26 India Bihar Agricul- 32.0 10/73 11/73 02/80 Increase agricultural production by providing sub-loans for minortural Credit irrigation development. Loans were expected to be made to about

Cr. 440 50,000 farmers for investments in tubewells and pumping sets whichwould provide irrigation for 235,000 ha.

27 Peru Fifth Agricultural 25.0 08/73 09/73 10/78 Provide credit for dairy and livestock enterprises, annual crop productionCredit Project (mostly loans for fsrm machinery), permanent crop production and agro-

Ln. 933 industries.

28 Costa Rica Second Agri- 9.0 05/72 06/72 09/80 Supporting loans to farmers for: livestock, crop, forestry production,cultural Credit Project and to industrialists for agro-industrial projects. Training and

Ln. 827 technical assistance was also included.

29 Jamaica Second Agri- 5.5 05/74 06/74 01/80 Continue lending to an emerging group of commercial farmers. Under acultural Credit two-year lending program the national development bank was to finance

Ln. 1004 mostly on-farm investments for milk, beef and meat, and treecropproduction but also for agro-industrial activities.

30 Argentina Agricul- 60.0 05/78 06/78 s.a. Provision of medium- and long-term credit for livestock and croptural Credit production in selected areas of the Pampean and Mesopotamian regions,

Un. 1564 a weed control program, and a land clearing program. The project wasdesigned to increase productivity and expand the agricultural frontierthereby accelerating agricultural production and exports.

Agricultural Development

31 Nalawi Lilongwe land 8.5 03/75 05/75 07/79 Continuation of infrastructure development, provision of extension,Development Program training, credit, health services and program monitoring as part of thePhase III larger program aimed at a target population of 109,000 farm families

Cr. 550 and covering an area of about 1.2 million acres.

32 Sudan Southern Region 10.7 05/74 06/74 09/79 Designed to provide quick and tangible assistance to the war-tornAgricultural southern region through investments in foodcrops, cash crops and animalRehabilitation production and health; training, research, credit and technical assistance

Cr. 476 were also included. The project was to have a rapid impact on thenutritional standards and cash incomes of small farmers and herders.

33 Rwanda Mutara Agri- 3.8 11/73 11/73 12/79 Settlement of about 4,300 farming families on individual plots of aboutcultural Development 3 ha and about 1,400 pastoralist families on 120 ranches; establishment

Cr. 439 of an independent parastatal implementation agency to be financed mainlyfrom fees paid by beneficiaries; development of a bull-breeding ranch;and a tse tse fly eradication program.

34 Zambia Integrated U.5 01/73 02/73 04/80 Increase production of tobacco and maize through settlement ofFamily Parming 6,300 farmers and by providing supporting services.

n. 882

35 Senegal Terres Neuves II 2.0 07/75 08/75 10/80 Resettling farm families from the overpopulated groundnut Basin intoResettlement and Eastern less populated Eastern Region: 450 families in new villages and 150Senegal Technical families in existing villages were to be provided with physical andAssistance social infrastructure and services.

Cr. 578

Agricultural Support

36 Korea Integrated Agri- 13.0 05/74 06/74 07/80 Further develop the agricultural food industry through lending to smallcultural Products farmers for production of off-season crops and to food processors for

Processing modernization and diversification of production facilities.Us. 994

37 Korea Seeds 7.0 11/73 11/73 11/79 Improve the quality of seed through investments in modern technology andin. 942 training. Major investments and expenditures were for five field crop

and six potato seed processing plants, farm machinery, improvements in

foundation seed system, seed inspection equipment and training of projectpersonnel.

- 161 - ANNEX IIPage 3 of 6

Table 1



Date ofAmountL Board loan/Credit Final

Projects by Sector (USS mlns) Approval Agreement Disbursement Brief Project Description

38 India Bihar Agricul- 14.0 02/72 03/72 12/79 Improve marketing efficiency by reducing handling and storage losses,tural Markets improving product quality and reducing municipal expenditures and time

Cr. 294 lost due to market congestion. Provide for construction and developmentof 50 market centers thoroughout the State.

39 India Wheat Storage 5.0 07/71 08/71 10/79 Meet part of the urgent need for storage resulting from increased productionCr. 267 due to introduction of high-yielding varieties in Northwest India and also

provide the basis for a more effective system of grain storage and distribu-tion throughout India. Construction of 10 (10,000 ton) godowns, and 10(20,000 ton) silos.

40 Spain Agricultural 12.7 05/71 06171 12/79 Upgrade the standard of agricultural research through establishment of sixResearch Project commodity oriented research centers, 200 training fellowships and provision

Ln. 768 of expatriate research specialists.

PUBLIC UTILITIES

Power

41 Kenya Gitaru 63.0 07/75 07/75 06/80 Construction of a 200 MW hydroelectric project and transmissionHydroelectric facilities; a review by consultants of borrower's management;

Ln. 1147 and a study of tariff structure.

42 Malaysia Sixth Power 45.0 07/74 07/74 09/79 Construction of transmission lines and a load dispatch center; andLn. 1031 extension of distribution system.

43 Pakistan First 23.0 08/70 08/70 06/79 Installation of transformers, switchgear and other equipment inWAPDA Power new and existing substations; addition of a second circuit to an

Cr. 213 existing transmission line; transformer repair facilities; andmanagement and engineering consultants' services.

44 Sri Lanka Power IV 16.5 07/69 07/69 06/79 Construction of a 90 MW hydroelectric project and transmissionIn. 636 facilities; installation of a gas turbine unit; implementation of

measures to achieve institutional and managerial improvements;and training in project design under guidance of engineeringconsultants.

45 Sri Lanka Power V 6.0 04/73 04/73 06/79 Rehabilitation and expansion of transmission and distributionCr. 372 facilities; and implementation of measures to achieve institutional

and managerial improvements.

46 Afghanistan First 10.0 05/76 05/76 06/79 Installation of two combustion turbine units of 20 KW each;Power training of local personnel in operation and maintenance ofCr. 627 combustion turbines; and consultants' services for engineering

and supervision.

47 Iceland Sigalda 10.0 12/73 12/73 12/77 Construction of a hydroelectric project (initial capacity 100 MW,Hydroelectric final capacity 150 MW) and transmission facilities.

Ln. 951

48 Turkey Keban Trans- 25.0 10/68 10/68 12/74 Construction of transmission lines and substations to link the Kehanmission Line hydroelectric plant with main load centers.

In. 568

49 Turkey TEE Power 24.0 06/71 06/71 09/74 Time slice of TEK's 1971-74 transmission construction program.Transmission

In. 763

50 Bolivia ENDE Power IV 25.0 04/76 06/76 12/80 Expansion of an existing hydroelectric station; civil works toIn. 1238 enlarge the water storage capacity of the power station; insalla-

tion of an additional gas turbine unit; construction of trans-mission and substation facilities; and preparation and implemen-tation of a training program.

51 Brazil Sao Simao 60.0 05/72 06/72 06/79 Construction of a hydroelectric project (initial capacityHydroelectric 1,600 MW, final capacity 2,500 MW) and associated transmission

In. 829 facilities.

52 Colombia Guatape Power 56.0 01/73 01/73 06/80 Construction of the 280 MW second stage of an existing hydro-In. 874 electric project, including raising the height of the dam;

construction of transmission facilities; expansion of the dis-tribution system; and training of utility's staff.

Telecomunications

53 Burma First Tele- 21.0 05/75 05/75 06/80 The main components of the 1976-79 development program of thecommunications Post and Telecommunications Corporation, consisting of: expansion

Cr. 551 and modernization of local and long-distance facilities; provisionof microwave, telex and subscriber long-distance dialling facilities;and conversion of exchanges from manual to automatic working.

54 Colombia Third Tele- 15.0 01/75 01/75 06/80 Expansion of local and long-distance facilities; radio telephone facilitiescommunications for rural areas; telex service; and construction of buildings to house

to. 1073 equipment.

Water Supply and Waste Disposal

55 Swaziland Water Supply 3.5 11/74 12/74 06/80 Extension and improvement of the water and sewer system in several& Sewerage towns; services for devising and establishing a commercially-

tn. 1058 oriented financial and accounting information system; and training.

56 Gabon Libreville Vater 9.5 04/73 05/73 06/80 Construction of a river diversion scheme; increase in pumping,Supply storage and treatment plant capacities; installation of trans-

Ln. 895 mission mains, distribution mains, small distribution pipes andstandpipes; and training of the utility's staff.

57 Ivory Coast Abidjan 9.0 01/75 01/75 06/80 The laying of sewers and drains; pilot scheme for construction ofSewerage & Drainage public showers and toilets in low income areas; construction of an

In. 1076 office building; staff training; and consulting services.

- 162 - ANNEX IPage 4 of 6

Table 1



Date ofAmount- Board Loan/Credit Final

Projects by Sector (US$ mins) Approval Agreement Disbursement Brief Project Description

58 Thailand Bangkok 55.0 07/73 06/74 06/80 Construction of a water treatment plant, transmission facilities,Water Supply reservoir and pumping stations; purchase of equipment for trans-

Ic. 1021 portation, maintenance and operation; and provision of consultingservices and training programs for management, financial andoperating practices and procedures.

59 Cyprus Nicosia Sewerage 2.7 03/71 04/71 12/80 Construction of a sewer network, trunk mains and sewage treatmentIn. 729 facilities.

60 Morocco Casablanca/ 48.0 07/72 07/72 06/80 Expansion of a water treatment plant; construction of a dam,Rabat Bulk Water pumping station, transmission facilities and a training center; andSupply consultants' services for management assistance, training and a

In. 850 tariff study.

TRANSPORTATION & TOURISM

Highways

61 Kenya Highway Main- 12.6 12/70 12/70 05/80 Purchase of maintenance equipment and spare parts; reorganization oftenance maintenance function, training and technical assistance.

Cr. 224

62 Swaziland Second Highway 7.0 04/75 05/75 12/79 Upgrading 106 km of unpaved main road to two lane bituminous standard.Ln. 1108

63 Ivory Coast Second 20.5 06/71 06/71 02/76Highway ) Construction and construction supervision of 357 km on three main

In. 761 ) highways; pavement strengthening of 110 km on one main highway;64 Ivory Coast Third 17.5 06/72 06/72 07/81 ) reconstruction and related supervision of two bridges; technical

Highway ) assistance to improve routine highway maintenance, detailedIn. 837 ) engineering of 300 km of roads; preinvestment studies for an urban

65 Ivory Coast Fourth 7.5 06/73 06/73 02/78 ) development project in Abidjan; feasibility study of feeder roads.Highway

Cr. 406

66 Upper Volta Cotton Roads 4.15/ 06/72 06/72 08/80 Upgrading of roads serving cotton producing area. Original creditCr. 316 amount was US$2.8 million which was increased in 10/73 by US$1.35 million.

67 Iran Fifth Road 42.0 06/70 06/70 08/79 Construction of 550 km of main roads; purchase of maintenance equipment;In. 697 technical assistance and feasibility studies.

68 Dominican Republic - 5.0 07/76 08/76 08/80 Reconstruction and related supervision of 19 km and of bridges on aRoad Maintenance and main highway as well as technical assistance in highway maintenance.ReconstructionI. 1316

69 Guyana First Highway 4.4 04/72 04/72 12/80 Improvement works and related supervision on 34 mi of roads; provisionCr. 301 and installation of weigh bridges; feasibility studies of 200 mi of roads;

detailed engineering of 100 mi of roads; improvements in the roadorganization and operations; technical assistance in transport planning.

Railways

70 Senegal Second Railway 9.6 06/72 06/72 03/80 Procurement of materials and equipment and technical assistance.In. 835/Cr. 314

71 Indonesia First Railway 48.0 06/74 06/74 01/80 Procurement of materials and equipment and technical assistance.In. 1005

72 Korea Fourth Railway 40.0 11/72 11/72 03/79 ) Procurement of: track materials and equipment, passenger cars/sleepingLn. 863 ) cars, freight cars, wheelsets, and materials and equipment for heating cars,

73 Korea Fifth Railway 100.0 04/75 04/75 03/80 ) spare parts for diesel locomotives and track maintenance equipment,In. 1101 ) breakdown cranes, and plant and machinery for workshops and running sheds,

and technical assistance for mechanical engineering and staff training.

74 Yugoslavia Third 50.0 03/68 03/68 12/75 Construction of 372 km of railway line to complete the 476 km routeRailway between Belgrade and Bar.

In. 531

Other

75 Kenya Mombasa-Nairobi 20.0 06/75 06/75 04/81 Construction of a 452 km long pipeline.Pipeline

In. 1133

76 Kenya Nairobi Airport 29.0 05/72 06/72 05/80 Construction of major new air terminal complex including taxiways, aprons,In. 826 access roads, ancilliary buildings, utilities and car parks.

77 Yugoslavia Babin Kuk 20.0 06/71 07/71 12/79 Construction of large, integrated tourism complex.Tourism

In. 782

EDUCATION

78 Liberia First Education 7.2 03/72 05/72 12/79 Construction of multilateral secondary schools and a post- secondaryCr. 305 college of agriculture and forestry; extension of a primary teacher

college and equipment for secondary and technical teacher training.Technical assistance.

79 Greece First Education 13.8 11/70 11/70 07/79 Construction of five higher technical education centers. TechnicalLn. 711 assistance.

80 Sudan First Education 8.5 06/68 06/68 07/79 Construction of post-secondary agricultural institutes and a lowerCr. 122 secondary teacher training college; extension of secondary schools

and a secondary teacher training institute. Technical assistance andfellowships.

81 Nicaragua First 4.0 02/66 04/68 05/78 Construction and extension of general secondary and primary teacher

Education training schools.In. 532

82 Nigeria Second 17.3 03/72 04/72 06/80 Rehabilitation, consolidation and expansion of secondary schools and

Education primary teacher training colleges and strengthening of secondaryL.. 814 science teaching. Technical assistance and fellowships.

- 163 - T 6Poke 5 of 6

Table 1

PROJECTS FOR WHICH PROJECT PERFOR1MANCE AUDIT REPORTS WERE ISSUED


Ia late sofAmount- Soard Loan/Crodit POn-

Projects by Sector (US$ mIns) Approval Agreement Disbursement Brief Project Description

LEVELOPMENT FINANCE COMPANIES

83 Sudan Industrial Bank 4.0 11/73 12/73 0879 Support of DFC operations; institution building.of Sudan

Cr. 447

84 Korea First Loan to 60.0 03/75 03/75 07,78 Support of DFC operations with emphasis on export-oriented andKorea Development Bank intermediate goods industries.

Io. 1095

85 Korea - Korea Develop- 30.0 04/71 05/71 09/75ment Finance Corporation

La. 73586 Korea - Korea Develop- 40.0 05/73 06/73 09,77 ) Support of DFC operations; promotional efforts in industrial sector;

ment Finance Corporation ) deepening of financial system.Ln. 905

87 Korea - Korea Develop- 55.0 07/75 07/75 05,79ment Finance Corporation )

Ic. 1145

88 India Industrial Credit 60.0 10/71 10/71 04/77and Investment Corpo- )ration of India Ltd.

Ln. 789 ) Support of DFC operations; diversification of operations to backward areas;89 India Industrial Credit 70.0 06/73 08/73 07/79 ) foreign resource mobilization.

and Investment Corpo-ration of India Ltd.

In. 902

90 Tunisia Banque de Deve- 10.0 11/69 12/69 11/78loppement Economique de )Tunisie )

In. 64891 Tunisia Banque de Deve- 10.0 01/72 02/72 11/78

loppement Ecoomique doeloseentEconmiq e Support of DFC operations; institution building.

In. 798)92 Tunisia Banque de Deve- 14.0 01/73 02/73 10/79

loppement Economique de )Tunisie )

In. 881

93 Colombia Fifth DFC 60.0 05/73 06/73 08/79to. 903 ) Apex lending to a group of financieras with Central Bank acting as

94 Colombia Sixth DFC 80.0 03/76 03/76 NYTL ) intermediary; increase number of participating financieras; resourceLn. 1223 ) mobilization; introduction of technology improvement programs.

95 Greece National Invest- 15.0 10/73 11/73 10/81mont Bank for Indus-trial Development IV

96 Gree Natonal Invest- 25.0 06/75 06/75 01/79) Support of DFC operations; resource mobilization.

mont Bank for Indus-trial Development V )

Ic. 1135

INDUSTRY

97 India Cochin II 20.0 07/71 07/71 12/77 Plant expansion involving construction of sulfuric acid plant,Fertilizer phosphoric acid plant and NPK plant and intended to produce high

Cr. 264 analysis granulated NPK fertilizers.

98 India Sindri 91.0 11/74 12/74 05/80Fertilizer )

Cr. 520 ) Plant expansion involving erection of ammonia/urea complex with daily99 India Nangal Fertilizer 58.0 01/73 02/73 09/76 ) capacities of 900 tons of ammonia and 1,000 tons of urea.

Expansion )Cr. 357

1D0 Pakistan Multan 35.0 05/74 05/74 03/78 Plant expansion involving erection of ammonia plant, nitric acid plantFertilizer Expansion and combined nitrophosphate/calcium ammonium nitrate plant.

In. 988

101 Turkey Erdemir Stage I 76.0 03/72 04/72 07/79 Expansion of steel works from 0.5 million tpy to 1.1 million tpy ofExpanion finished flat products.

In. 817

102 Brazil Cosipa Stage II 64.5 05/72 06/72 05/79 Expansion of steel works from 1.0 millios tpy to 2.3 million tpy ofExpansion finished products.

In. 828

103 Mexico Las Truchas 70.0 09/73 09/73 11/77 Erection of an integrated steel works with capacity of I million tpySteel of light non-flat finished products in a hitherto undeveloped and

in. 934 sparsely populated area of Mexico.

PROGRAM LOANS

104 India - Tenth Indus- 200.0 02/75 02/75 02/76trial Imports Program ) Financing of industrial imports (raw materials and spare parts) to

Cr. 528 ) help India bridge foreign exchange gap and improve capacity utilization105 India - Eleventh Indus- 200.0 02/76 02/76 07/78 ) in eligible industries.

trial Imports ProgramCr. 616

- 164 -ANNEX IIPage 6 of 6

Table 1

PROJECTS FOR WHICR PROJECT PERFORMANCE AUDIT REPORTS WERE ISSUED


Date ofAmountL Board Iman/Credit Final

Projects by Sector (US$ mns) Approval Agreement Disbursement Brief Project Description

POPULATION

106 Kenya First Population 12.0 03/74 04/74 04/80 Introduction of full-time maternal and child health/family planningCr. 468 (MCH/FP) services in about 400 government facilities; an extension of

those services through the use of 17 mobile teams to some 190 facilities;the establishment of eight nurse training schools and 30 rural healthcenters; training supervisors, family health educators and field workers;provision of increased capacity within the Ministry of Health to produce

health education materials; and the establishment of a new organizationalunit to plan and support the activities of the program.

107 India First Population 31.8 05/72 06/72 05/80 Completion of health infrastUFcture in selected districts of two statesCr. 312 (U.P. and Karnataka); creation of two population centers and provision

of technical assistance.

108 Trinidad and Tobago 3.0 05/71 05/71 05/80 Design, construction and equipment of a maternity hospital, sevenPopulation health centers and nursing and community health training facilities

Lo. 743 plus provision of technical assistance for family planning.

/a Before cancellations./b Including supplementary credit of US2.6 million.c Including supplementary credit of US$10.3 million.d Including supplementary credit of US$1.6 million./e Cancelled in full April 1980.Tf Including supplementary credit of US$1.35 million.

La Not yet fully disbursed.

- 165 - ANREX II

Page 1 of 4Table 2

ESTIMATED AND ACTUAL PROJECT COSTS AND REASONS FOR MAJOR COST CHANGES

Total Costs % Reasons for ChangesEstimate Actual Increase/ Changes Changes in Uyit Changes ifeunit

Projects by Secto (US$ mns) Decrease Scope- Quantities- Prices- Comments

AGRICULTURE

Irrigation

1 Mali Mopti Rice 9.4 13.1 39 R L H Cost overruns moderate compared with other projects in theCr. 277 country. Project area reduced. less demand for ox-drawn

cultivation, reduced scope of studies and research led tocost savings which were offset by escalations in civil works,

project management and extension.

2 Bangladesh Chandpur II 22.0 47.5 116 HH Delays in implementation during a period of high inflationIrrigation contributed significantly to cost overrun.

Cr. 340

3 India Kadan 66.7 183.5 175 HH H Substantial increase is cost of dam construction due toIrrigation geological difficulties not anticipated at appraisal;Cr. 176 additional spillways because of higher flood peaks than

anticipated at appraisal.

4 India Pochampad 127.0 211.0 66 H Higher costs due to inflation.IrrigationCr. 268

5 Sri-Lanka Mahaeli 50.0 83.1 66 H Mostly due to delays in implementation, difficult geologicalGangs Development conditions and delays in awarding contracts.Stoge I

Cr. 174/Ln. 653

6 Romania Giurgiu- 141.0 127.2 -10 L Cost underrun due to rigid government-controlled prices andRazmiresti Irrigation exchange equalization scheme.

Lo. 1082

7 Turkey Irrigation 36.6 40.2 10 R R E Mostly due to delay in execution. Some cost increases haveRehabilitation disappeared by postponing components beyond the closing date

Cr. 281 and their costs are therefore not included in "total projectcosts."

8 Yemen Arab Republic 17.5 39.2 124 R H RH Underestimation of cost at appraisal was exacerbated byTihana Development rapid inflation. Project was reappraised in 1976.

COr. 376


9 Mauritius Tea 7.0 20.0 186 RR L ER Project was scaled down to about 50% of original targets.Devolopment Costs increased due to high sages, implementation delay and

Cr. 239 underestimation of unit costs at appraisal.

10 United Republic of 28.5 30.3 6 R 6 H Under-estimation of problems to establish a plantation in aCameroon Niete Rubber remote area, with labor coming from distant areas. PlantationEstate area was substantially scaled down.

Cr. 574

11 Ivory Coast First 29.1 31.7 9 R H Costs essentially the same but area covered substantiallyGrand Bereby Rubber reduced because of increases in unit costs.

tn. 938

12 Ghana Sugar Rehabil- 24.8 41.3 67 R H The project was carried out in a period of severe internationalitation inflation aod only part of the rehabilitation program was

Cr. 354 carriod out. rFuthemore, the company suffered substantiallosses, far in excess of incremental working capital estimates.

13 Ghana Eastern Region 15.6 38.7 148 E HR Cost increases due to substantial time overrun (4 years)Cocoa accompanied by massive internal inflation in Ghana. losts

Cr. 205 escalated particularly for staffing and administration.

14 Ivory Coast Fourth 40.6 35.8 -12 R Actual planting fell short of appraisal targets by 27% mainlyOil Palm and Coconut because of a reorientation of agricultural policy and aDevelopment consequential reorganization of the implementing agencies.

La. 1382

Livestock

15 Chad Livestock 3.4 2.7 -21 R L H Delays in starting the project, high rates of internationalCr. 309 inflation and depreciation of the dollar were more than offset

by a substantial reduction in project scope.

16 Turkey Second 28.3 28.3 0 R R Substantial cost increases were offset by reduction in projectLivestock scope and devaluations.

Cr. 330

17 Argentina Balcarce 39.1 45.7 17 E L H Project implementation lasted much longer than envisaged whichLives tock Development increased costs of support component, but omit on-form invest-

to. 505 ments were on average only 60% of those provided at appraisal.

18 Panama First Livestock 13.5 12.7 - 6 R L H Despite the fact that the number of enterprises financed wasI.. 901 40% less than that expected, project costs were just 6% lower,

indicating a sharp rise in prices.

19 Paraguay Fourth 23.0 23.0 0 R Number of sub-loans were lower than estimated, and on-farLivestock Credit investments varied considerably from appraisal estimates.

Ln. 1037

Fisheries

20 Tunisia First Fisheries 3.1 2.9 -6 R H H Owing to inadequate preparation and supervision (almost no tech-Cr. 270 nical supervision), cost estimates for boats were far too low

and the wrong engines were supplied. Thus the number of boatsconstructed under the project was substantially reduced.

21 Yemen PDR First 4.2 6.2 48 R H Delays in execution and effects of inflation resulted inFisheries increased unit prices. Some studies were deleted.

Cr. 370

22 Ecuador Fisheries 6.6 6.7 2 RR H Due to higher unit costs, project was substantially scaledto. 555 dow.

- 166 - ANNEX ItPage 2 of 4

Table 2


Total Costs % Reasons for Changes

istimate Actoal Increase/ Changes /n Changes in U7t Changes 4cUnitProjects by Sector- (US$ mins) Decrease Scope- uantities-- Pricea-- Comments

Credit

23 Senegal Second 11.5 10.3 -10 L Total project costs slightly less than estimated owing to lowerAgricultural Credit unit costs of agricultural equipment distributed.

Cr. 404

24 Korea Second 41.2 43.1 5 R L H Higher prices more than offset reduction in the number ofAgricultural Credit sub-loans made.

is. 1328

25 India Agricultural 467.0 488.0 4 Virtually all quantified targets were met.Re-finance and Devel-opmeot Corporation

Cr. 715

26 India Bihar Agricul- 60.0 51.0 -15 E H L It was possible to finance more than double the individualtural Credit investments planned because unit costs were much less than

Cr. 440 estimated at appraisal and because of devaluations duringimplementation.

27 Peru Fifth Agricul- 41.7 51.2 23 ER R Very high inflation during project period. A substantialtural Credit number of subloans were financed, but their average size

In. 933 was much smaller than expected.

28 Costa Rica Second 16.5 17.9 8 E Cost overruns, originally scheduled for financing under theAgricultural Credit follow-on project, had to be included under the costs of thisL. 827 project when the follow-on project did not materialize.

29 Jamaica Agricultural 10.8 8.5 -21 R H Disbursements were initially in line with estimates but declinedCredit substantially when the economic climate deteriorated. Actual

in. 1004 investments were only two-thirds of those planned and there weresubstantial relative shifts in investment categories.


30 Malawi Lilongwe Land 12.0 13.3 11 E Infrastructure development higher than targets.Development ProgramPhase III

Cr. 550

31 Sudan Southern Region 12.6 12.7 1 R H Project was scaled down to available finance, and unit costsAgricultural Rehabil- were much higher than anticipated.itation

Cr. 476

32 Rwanda Mouara Agricul- 4.3 4.3 0 R L H After one year of project implementation, project cost estimatestural Development had increased by 64% equivalent because of inadequate price

Cr. 439 contingencies, omission of some items and underestimation ofunit costs. The project was scaled down to keep it within thelimits of available funds.

33 Zambia Integrated 15.3 19.0 24 R H f Overhead costs per farmer were much higher than expected. ThisFamily Farming was further aggravated by the fact that the number of farmers

Ln. 882 recruited was much lower than expected.

34 Senegal Terres Neuves 3.9 3.3 -15 L Because of price policies, farmers shifted emphasis to cropsII Resettlement and using less marketed inputs.Eastern SenegalTechnical Assistance

Cr. 578


35 Korea Integrated 20.0 21.7 9 R Project was implemented during a period of high internal andAgricultural Products international inflation, but expected onlending for someProcessing categories was much reduced or less than expected. Savings

Ln. 994 were shifted to other categories, some of which had not beenenvisaged at appraisal.

36 Korea Seeds 14.8 25.9 75 E H Cost overrun is due to doubling cereal seed processing capacityis. 942 and higher cost of civil works.

37 India Bihar Agricul- 23.3 28.8 24 R H Higher costs were generally due to rising prices for goodstural Markets (cement and steel) and services and for purchase of land.

Ce. 294

38 India Wheat Storage 15.9 20.2 27 RR H H Project was scaled down by 63%; but underestimated unit costsCr. 267 for machinery and civil works, higher professional and labor

time needed due to construction delays and rising prices ingeneral, more than offset reduced scale.

39 Spain Agricultural 26.0 30.3 17 H Higher costs due to time overrun and inflation.Research

is. 768

PUBLIC UTILITIES

Power

40 Kenya Citaru 135.9 136.0 0hydroelectric

Ln. 1147

41 Malaysia Sixth 68.5 90.3 32 E H Cost increase was due to increased project scope and changesPower in currency exchange rates.

is. 1031

42 Pakistan First WAPDA 39.8 33.4 -16 R Comparisons between the original cost estimate and the final

Power cost of the project are difficult to make due to the actualCr. 213 scope of the project being scaled down and due to changes in

currency exchange rates.

43 Sri Lanka Power IV 31.5 25.7 -18 R Gas turbine unit was deleted.Lu. 636


Table 2


Total Costs % Reasons for Changes

/a Estimate Actual Increase/ Changes ns Changes in U7it Changes 17cUnitProjects by Sector- (US$ als) Decrease Scope-- Quantities- Prices- Comments

44 Sri Lanka Power V 9.8 10.7 9 E The length and scope of transmission facilities were increased.Cr. 372

45 Afghanistan First 11.0 13.9 26 H Increase in cost mainly due to the depreciation of the S$Power relative to the currency of the supplier of the combustion

Cr. 627 turbines.

46 Iceland Sigalda 64.3 88.0 37 H H Geological conditions and domestic inflation were worse thanHydroelectric anticipated at appraisal.

Ln. 951

47 Turkey Keban 35.9 73.0 103 hTrasmission Line ) No accurate estimate of final total cost is possible due to

Ln. 568 ) inadequate records; overruns due to delays in implementation,48 Turkey TER Power 67.1 134.0 100 H ) local and foreign inflation, currency realignments and staffing

Transmission ) difficulties.L.. 763 )

49 Bolivia ENDE 33.1 36.2 9 E An additional substation was constructed and substationPower IV facilities at two other locations were increased.

tn. 1238

50 Brazil Sao Simao 395.8 868.8 120 EE H R Generation capacity was increased; transmission facilitiesHydroelectric were modified; engineering cost increased because of design

Ia. 829 changes; and the utility's cost of administering the projectwas apparently not included in appraisal cost estimates.

51 Colombia Guatape 98.2 136.2 39 E H The cost of resettling individuals affected by the raising ofPower the height of the dam was much higher than estimated.

tn. 874

Telecommunications

52 Burma First Tele- 30.9 59.0 91 E H Increased scope; increased duties and taxes; currency realign-communications ments; under-estimation of costs at appraisal, and local

Cr. 551 inflation.

53 Colombia Third 52.1 57.8 11 E 8 H No accurate estimate of final local cost is possible due toTelecommunications inadequate records. The foreign cost overrun was due primarily

tn. 1073 to higher unit costs on the long-distance exchanges, to thelarger number of long-distance terminations ordered and to newand higher capacity exchanges. The number of rural areas servedwas increased.

Water Supply & Waste Disposal

54 Swaziland Water 4.5 3.3 -27 R L Some contractors submitted lower-than-expected bids; someSupply & Sewerage project elements reduced due to the postponement of thetn. 1058 construction of a textile mill.

55 Gabon Libreville 19.9 20.5 3 E Distribution component was expanded.Water Supply

Ln. 895

56 Ivory Coast Abidjan 16.7 20.7 24 ER H Cost overrun reflects currency readjustments and higher pricesSewerage & Drainage than anticipated. There were also changes in design and project

to. 1076 scope.

57 Thailand Bangkok 214.0 237.1 11 H H Inflation and cost overrun on tunnel component due to geologicalWater Supply conditions (strengthening of lining required).

Lt. 1021

58 Cyprus Nicosia 6.3 6.3 0 LH Actual bids on some contracts were 20% lower than expected;Sewerage this, combined with favorable currency fluctuations, offsetLn. 729 additional cost resulting from the long implementation period.

59 Korocco Casablanca 104.9 111.4 6 LH Cost overrun due primarily to currency realignments; in termsRbat Bulk Water of local currency, the project had a slight cost underrun.

Su pplyLo. 850


Highways

60 Kenya Highway Maint- 18.1 18.9 4 R H H Quantities and prices of equipment financed under the project

ensace changed slightly from projections.Cr. 224

61 Swaziland Second 9.9 10.5 6 E L Project scope was expanded by 30% while unit cost wereHighway significantly lower than estimated.

Ln. 1108

62 Ivory Coast Second 35.5 36.1 2 R H Original project context changed somewhat and some costsHighway increased.

tn. 761

63 Ivory Coast Third 29.0 40.. 38 ER 6 Overruns were due to underestimates of cost, inflation andHighway currency fluctuation.

to. 837

64 Ivory Coast Fourth 12.3 24.7 101 E H Higher design standards, inflation, and currency fluctuationsHighway increased costs.

Cr. 406

65 Upper Volta Cotton 3.5 5.1 46 R 5 H One road section was dropped, the other had cost overrun due toRoads design changes, underestimates of construction cost, inflation,

Cr. 316 and currency fluctuation.

66 Iran Fifth Road 85.0 83.3 - 2 R H Not all project elements were fully implemented and S$12.05to. 697 equivalent of loan was cancelled.

67 Dominican Republic 8.2 8.2 0 HL Lower than estimated costs of road reconstruction, equipment,Road Maintenance and tools, and spare parts counterbalanced higher costs of workshopsReconstruction and consultant's services.

Lo. 1316

- 168 -f 4

Page 4 of 4Table 2


Total Costs % Reasons for ChangesEstimate Actual Increase/ Changes in Changes in U7t Changes 17 Unit

Projects by Sector- (US$ mls) Decrease Scope- Quantities- Price- Comments

68 Guyasa First Highway 8.2 11.4 39 ER H Costs increased due to higher design standards and revisions inCr. 301 project content during implementation.

Railways

69 Senegal Second 12.3 11.9 - 3 ER H H Major changes altered project content, in particular reductionRailway in track relaying and increases in spare parts.I. 835/Cr. 314

70 Indonesia First 158.0 147.0 - 7 ER HL R Comparable cost data are not available because performance wasRailway not-monitored in detail and some work was not quantified atL. 1005 appraisal.

71 Korea Fourth Railway 264.8 219.2 -17 ER HI HL ) Projects' content was reduced and then partly restored; unitLn. 863 ) costs were less than estimated in the appraisal for about 95%

72 Korea Fifth Railway 291.6 256.7 -12 ER HL HIL ) of quantities.La. 1101

73 Yugoslavia Third 225.5 421.9 87 H H Increase was due to unanticipated technical difficulties, delaysRailway in construction and higher unit prices than estimated.

Ln. 531

Other

74 Kenya Mombasa-Nairobi 82.9 113.0 36 HL Inflation and the realignment of the US dollar vis-a-vis thePipeline Japanese yen account for cost increase.

La. 1133

75 Kenya Nairobi Airport 46.3 78.3 69 H H Inflation and significant contract management problems accountLa. 826 for cost overrun.

76 Yugoslavia Babin Kuk 45.5 66.9 47 RR H H Scope of project was greatly reduced in response to increasedTourism costs.

In. 782

EDUCATION

77 Liberia First Education 9.6 10.2 6 RE HL H Scale of equipment reduced; some facilities added (e.g. languageCr. 305 laboratories) or expanded. Generally good cost control.

78 Greece First Education 24.0 45.5 90 H HH High inflation during extended project implementation periodLn. 711 with about 15% increase in areas constructed.

79 Sudan First Education 15.4 18.5 20 R H Three secondary school extensions deleted and no specialistCr. 122 expert services utilized.

80 Nicaragua First 8.0 10.2 28 E H One general secondary school added. Costs of schools builtEducation before earthquake were lower than estimated at appraisal.

L.. 532

81 Nigeria Second 27.8 78.0 181 H Reconstruction boom fueled by high oil revenues caused rapidEducation price increases, exacerbated by delays in implementation.

Ia. 814

INDUSTRY

82 India Cochin II 47.2 72.2 53 E H Cost overrun resulted from delays in implementation andFertilizer underestimated base prices.

Cr. 264

83 India Sindri 174.5 187.8 8 EFertilizer

Cr. 520

84 India Nangal Fertil- 100.5 140.1 39 E 8 Higher prices due to delays in project implementation andizer Expansion tight situation on international equipment markets.Cr. 357

85 Pakistan Multan Fer- 84.4 170.8 102 E HH Sharp increases in equipment prices in the aftermath of thetilizer Expansion oil crisis; high domestic inflation.

in. 988

86 Turkey Erdemir 319.7 527.4 65 E H Faster than anticipated demand growth prompted change in projectStage I Expansion scope in the course of implementation. Higher cost also reflect

In. 817 large delays in implementation.

87 Brazil Cosipa 422.1 998.3 137 E HH High overruns on local costs resulting from inflation, form ofStage II Expansion construction contracts and inadequate work supervision.

l. . 828

88 Mexico Las Truchas 635.6 962.8 51 H Cost overruns resulted from higher costs of equipment due toSteel post-oil crisis, internatinal inflation and poor cost control

Ln. 934 procedures during construction.

POPULATION

89 Kenya First Population 15.4 17.9 16 HCr. 468

90 India First Population 31.8 31.8 0 E HL local currency costs increased by 18%; devaluation of rupee

Cr. 312 permitted inclusion of some additional works on the project.

91 Trinidad and Tobago 4.6 17.2 274 R H Construction delayed during period of rapid inflation.Population

I-. 743

/a Excludes DFC projects (14) and Program Loans (2) and uncompleted project (1)./b E = expansion; R = reduction; double letters indicate major changes.

S H = higher than appraisal estimate; L = lower; double letters indicate major changes.


Table 3

ESTIMATED AND ACTUAL TIMES FOR COMPLETION AND REASONS FOR MAJOR EXTENSIONS OF TIME

Date of Increase/ Reasons for Increases/DecreasesLoan/Credit Completion Decrease in Changes Execution

Projects by SectorLa Agreement Est. Actual Months % in Scope of Workab Procurement-1 Administratioe/d Comments

AGRICULTURE

Irrigation

I Mall Mopti Rice 01/72 11/78 03/80 16 19 X X X Civil works delayed due to late tendering andCr. 277 need to adjust beginning of works to dry season.

Irrigation works completed on time except forthe rehabilitation of three polders. Cementshortages delayed completion in construction ofbuildings.

2 Bangladesh Chandpur 10/72 12/76 06/79 30 60 X Delays were primarily due to poor administrationII Irrigation but project also was delayed because of local

Cr. 340 finance shortages.

3 India Kadana 02/70 07/75 07/78 36 55 X X X Problems with counterpart financing in earlierIrrigation yearn, procurement delays, contractor's failure,

Cr. 176 supervisory personnel shortages, managementcoordination constraints and engineeringproblems.

4 India Pochampad 08/71 12/77 12/79 24 32 X X Substantial delays in cain canal lining andIrrigation construction of distributaries due to late

Cr. 268 deliveries and procurement problems.

5 Sri Lanka Mahaweli 01/70 06/75 05/78 35 54 X X In addition to delays in awarding contracts andGanga Development more problematic geological conditions thanStage I expected, severe flooding was another cause for

Cr. 174/Ln. 653 delay.

6 Romania Giurgiu- 02/75 06/78 12/78 6 15 X X Full government commitment was a decisiveRazmiresti factor for relatively timely completion of theIrrigation project.

In. 1082

7 Turkey Irrigation 01/72 12/76 12/81 60 102 X X Irrigation and drainage works completed wellRehabilitation after credit closing. Shortage of local fundsand Completion was one reason for delay, but lack of coopera-

Cr. 281 tion and understanding by farmers was another.

8 Yemen Arab Republic 05/73 06/77 12/79 30 61 X C X Initial delay in recruiting expatriate staff andTihama Development preparation of contract documents. As a result

Cr. 376 of the initial delays, costs increaseu and theproject was reappraised in 1975.


9 Mauritius Tea 04/71 06/77 03/79 21 28 X X X Project implementation delays due to short-Development comings in design, deteriorating economicAuthority condition of the tea industry, labor

Cr. 239 disorders, poor management and politicaland bureaucratic interference.

10 United Republic of 07/75 06/80 11/79 -7 -12 X X Reduction by 28% of area to be developed andCameroon Niete ilages to be built.Rubber Estate

Cr. 574

11 Ivory Coast First 10/73 06/79 06/78 -12 -18 X X Inability to cope with problems in remote areaGrand Bereby Rubber was one of the main reasons for reducing scope

in. 938 of project.

12 Ghana Sugar 01/73 09/78 09/78 0 0 X X X X There wan no time increase, but only part ofRehabilitation the project was carried out. Government did

Cr. 354 not take action to turn the project around andthe credit was closed as scheduled and theremaining balance cancelled.

13 Ghana Eastern 06/70 12/75 12/79 48 73 X X X Slow physical implementation due to low farmerRegion Cocoa participation (mainly caused by low produce

Cr. 205 prices); project area expanded.

14 Ivory Coast Fourth 03/77 06/79 12/80 18 67 3 Physical establishment of project plantationsOil Palm and occurred nearly two years before loan effec-Coconut Development tiveness and the loan was disbursed in one

In. 1382 single payment.

Livestock

15 Chad Livestock 05/72 12/74 12/76 24 77 X X The Bank's insistence for following a strictCr. 309 and orthodox civil works procurement procedure,

when flexibility in execution was important,proved cumbersome and unnecessary.

16 Turkey Second 09/72 12/77 06/80 30 48 X X Sub-borrowers had to be motivated to parti-Livestock cipate. This was slower than expected andDevelopment demand for loans followed a different pattern

Cr. 330 from what was expected.

17 Argentina Balcare 07/67 07/72 05/80 94 157 X Long delay due to sector environment: astonish-Livestock ing rates of inflation, extreme shifts inDevelopment Government livestock policies, the swing in the

In. 505 cattle cycle and frequent changes in interestrates.

18 Panama First 06/73 06/78 12/80 30 50 X Delays attributed to slowness in appointingLivestock project management and technicians, limitedDevelopment participation by private banks and slow

In. 901 implementation of on-farm investment plans.

19 Paraguay fourth 09/74 02/79 08/79 6 11 X X Project closing date was extended 6 months toLivUtock Credit allow disburaements to consultant. All other

In. 1037 project components were completed prior tooriginal completion date.

- 170 -f 5

Page 2 of 5

Table 3


Date of Increase/ Reasons for Increases/DecreasesLoan/Credit Completion Decrease in Changes Execution

Projects by Sector. Agreement Est. Actual Months % in Scope of Work/bh Procurement-i Administratio-id Comments

Fisheries

20 Tunisia First 09/71 06/76 12/79 42 73 X X X General administrative delays.Fisheries

Cr. 270

21 Yemen PDR First 04/73 12/78 09/81 33 49 X X Deficiencies in preparation and design based onFisheries limited knowledge of the sector. Completion of

Cr. 370 shore facilities took almost twice as long as

expected at reappraisal.

22 Ecuador Fisheries 09/68 06/74 10/80 76 110 X X Time delay despite large scale reduction inin. 555 project size, was largely due to poor project

design, size and method of procurement of purseseiners.

Credit

23 Senegal Second 06/73 12/76 01/79 25 60 X X Delays in carrying out four studies were reasonsAgricultural for time increase including contracting ofCredit consultants and greater than anticipated com-

Cr. 404 plexity of the studies.

24 Korea Second Agri- 10/76 06/80 05/80 -1 -2 X X This was follow-on project and good sub-loancultural Credit evaluation procedures had been established

in. 1328 under the first project. Implementing agencywas long established and a well-organizedcooperative credit institution.

25 India Second Agri- 06/77 12/79 12/79 0 0 X A follow on project managed by a good institu-cultural Refinance tion. Furthermore, project provided time sliceand Development of credit operations.Corporation Credit

Cr. 715

26 India Biar Agri- 11/73 06/77 12/79 30 70 X Icreased number of sub-loans. Delays due to:cultural Credit lack of timely groundwater certificates, non-

Cr. 440 availability of pumpsets, shortage of welldrilling contractors, delay's in providingsubsidies to farmers, ineffective extensionservices, delays in providing electricity topumps and interruptions in electric supply.

27 Peru Fifth Agri- 09/73 12/77 10/78 10 20 XX Branches of the executing agency, Banco Agrariocultural Credit del Peru, concentrated more on short-term loans

in. 933 than on the medium- and long-term loans underthe Bank project.

28 Costa Rica Second 06/72 12/76 01/80 37 69 Some committed loans for agro-industrialAgricultural projects were cancelled; interest forCredit beef production diminished; sub-borrowersIn. 827 wanted to borrow for specific items rather

than a model; terms of borrowing were lessfavorable than for competing funds; andstringent appraisal procedures.

29 Jamaica Second 06/74 12/77 02/80 26 62 X X Rapidly deteriorating economic conditionsAgricultural reduced demand for credit, and extension inCredit hope of recovery proved fruitless.

in. 1004


30 Malawi Lilongwe 05/75 03/78 03/79 12 35 X Most infrastructure development was completedLaod Development within implementation schedule and cost targets.Program Phase III Certain facilities over and above estimates

Cr. 550 were added.

31 Sudan Southern 06/74 06/79 09/79 3 5 X X X C On average, buildings completed three yearsRegion Agricul- late reflecting unrealistic scheduling rathertural Rehabilitation than performance. In fact, there were only

Cr. 476 limited delays and the credit was fullydisbursed three months before the closing date.

32 Rwanda Mutara Agri- 11/73 06/79 06/79 0 0 X X Project scope reduced to remain within availablecultural Development funding; ICE proved impossible to execute.

Cr. 439

33 Zambia Integrated 02/73 12/78 12/79 12 17 X Project period slightly extended to allow theFamily Farming project agency to wind down its affairs and

Ln. 882 audit its disbursement requests.

34 Senegal Terres 08/75 12/79 09/80 9 17 X X X X School construction program reduced.Neuves II Technological package only partly adopted dueResettlement and to adverse signals from government price andEastern Senegal marketing policies.TechnicalAssistance

Cr. 578

Agricultural Sponrt

35 Korea Integrated 06/74 06/78 05/80 23 48 X Implementation was delayed by lack of demandAgricultural for originally envisaged sub-loans.Products Processing

in. 994

36 Korea Seeds 11/73 06/78 08/79 14 25 X X Project was delayed by finalization of contractin. 942 with USAID, selection of plant site and conflict

over procurement.

37 India Bibar Agri- 03/72 06/78 06/80 24 32 X X X Main problem leading to delay was acquisitioncultural Markets of sites for market centers. There were also

Cr. 294 shortages of materials.

- 171 - ANNEX 51Page 3 of 5

Table 3


Date of Increase/ Reasons for increases/DecreasesLoan/Credit Completion Decrease in Changes Execution

Projects by SectorL Agreement Est. Actual Months % in Scope of WorksL Procurement./c Administratio/d Comments

38 India Wheat Storage 08/71 12/74 03/80 63 157 X X X Delay due to conflict between Bank and borrowerCr. 267 over procedures for hiring consultants and

appointment of major contractor, procurementdelays and some ineffectiveness of major con-tractor and the project unit.

39 Spain Agricultural 06/71 12/76 12/79 36 54 X X Reasons for delay include reorganization,Research Project start-up and financing problems; Bank's overly

In. 768 optimistic scheduling of such a complexproject; and poor performance of somecontractors.

PUBLIC UTILITIES

Power

40 tenya Gitaru 07/75 07/78 09/78 2 1Hydroelectric

In. 1147

41 Malaysia Sixth 07/74 12/79 11/80 11 17 X A transmission line was added to the project.Power Main project components completed before

In. 1031 target completion date (12/79).

42 Pakistan First 08/70 11/74 03/80 64 125 X X War; political unrest; flooding causingWAPDA Power disruption to communications and transport;

Cr. 213 and difficulties with procurement, includingdelays in bid evaluation.

43 Sri Lanka Power IV 07/69 09/72 07/74 22 58 X Change of consultants between feasibilityIn. 636 studies and detailed project design;

Inssrrection; shortage of sapplies; andinadequate coordination between contractors.

44 Sri Lanka Power V 04/73 06/76 12/79 42 110 X X Indifferent performance by the utility's

Cr. 372 project staff; and renegotiation of priceswith suppliers.

45 Afghanistan First 05/76 11/77 10/78 11 61 X X Delay in the preparation of bid specifica-Power tions and unfamiliarity with the type of

Cr. 627 civil work involved.

46 Iceland Sigalda 12/73 04/77 12/77 8 23 X labor strikes; erection difficulties; andHydroelectric construction of the second unit was delib-L. 951 erately delayed due to slower load growth.

47 Turkey Keban 10/68 06/72 10/76 52 118 X X Contractor abandoned work due to financialTransmission Line difficulties and project completed by force

Ln. 568 account; implementation deliberately sloweddown due to delay in completion of associ-ated hydroelectric station (Keban); manage-ment problems; and shortage of skilled staff.

48 Turkey TEK Power 06/71 09/74 06/77 33 84 X X Management problems and shortage of skilledTransmission staff.

In. 763

49 Bolivia ENDE 06/76 03/80 12/80 9 20 X X Poor performance of local contractors; and

Power IV diffeulties in obtaining major equipment andIn. 1238 materials.

30 Brazil Sao Simao 06/72 03/79 12/78 -3 -3Hydroelectric

In. 829

51 Colombia Guatape 01/73 12/77 01/80 25 43 X X Resettlement took much longer than expected;Power late signing of civil works contract; late

Ln. 874 delivery of excavation equipment; and prob-lems with excavation and construction.

Telecommunications

52 Burma First Tele- 05/75 06/79 09/80 15 31 X X X Delay in start-up due to slow bid evaluationcommunications and contracting; increase in scope, and civil

Cr. 551 works delayed by rainy season.

53 Colombia Third 01/75 03/78 12/82 57 150 X X X Scope of project was increased. About 40% ofTelecommunications the works were completed by original target date

In. 1073 and most of the physical components were com-pleted and earning revenues by 12/79. However,facilities in some of the rural areas notlikely to be finished before 12/82. Changesin key personnel affected procurement andconstruction.


54 Swaziland Water 12/74 09/77 03/79 18 55 X X Supply of water from project started in 9/78.Supply & Sewerage Main delay caused by fact that certain con-

In. 1058 tracts had to be retendered since some ofthe contracting firms went into liquidation;design changes also contributed to thetime overrun.

55 Gabon Libreville 05/73 05/75 12/76 19 75 X X Part of treatment works commissioned in earlyWater Supply 1976, in time to avert major water shortage.

tn. 895 Delays due to: decline in the utility'smanagerial performance; demolition and con-truction work for other infrastructure whichwas not foreseen at the time of appraisal;and overstretching of resources of suppliersand contractors.

- 172 - ANNEX IIPage 4 of5

Table 3


Date of increase/ Reasons for Increases/Decreasesloan/Credit Completion Decrease in Changes Execution

Projects by Sector- Agreement Est. Actual Months % in Scope of Worksi ProcureamentL Administratio./d Comments

56 Ivory Coast 01/75 09/77 03/81 42 131 X X The drainage component was completed on time.Abidjan Sewerage Delay in sewerage component mainly caused by& Drainage foundation problems encountered at the pumping

L.. 1076 station after construction had heen completedin 12/77.

57 Thailand Bangkok 06/74 03/78 03/80 24 53 X X Supply of Water from project started in 1977.Water Supply Main delays attributable to: retendering of

Ln. 1021 certain tunnel contracts; and difficultiescaused by interfacing between equipmentsuppliers and installers on the one hand andcivil works contractors on the other.

58 Cyprus Nicosia 04/71 12/74 05/80 65 148 X X About 92% of the project was completed bySewerage original date. Unsettled political conditions

In. 729 were the main cause of delay.

59 Morocco Casablanca 07/72 07/76 06/80 47 98 K Main project components completed and inRabat Bulk Water operation by appraisal target date. DelaySupply principally in construction of staff housing

hn. 850 and training center, which took longer tocomplete than expected.


Highways

60 Kenya Highway 12/70 12/74 12/79 60 100 X X X X Project was not implemented as conceivedMaintenance because local implementation capacity was

Cr. 224 misjudged.

61 Swaziland Second 05/75 12/77 05/78 5 14 X Original project of 84 km was completed onHighway schedule. Time overrun was due to construction

Ln. 1108 of added 24 k.

62 Ivory Coast Second 06/71 03/75 10/75 7 16 X X X Main delay was due to construction program.HighwayL. 761

63 Ivory Coast Third 06/72 12/76 05/78 17 40 X K X Main delay was due to maintenance and better-highway ment program.

i. 837

64 Ivory Coast Fourth 06/73 06/76 09/78 27 175 X X X Main delay was due to construction program.highway

Cr. 406

65 Upper Volta Cotton 06/72 12/74 02/80 6 20 X X Loan closing was delayed by four years whileRoads remaining loan funds were used for other works.

Cr. 316

66 Iran Fifth Road 06/70 12/74 12/75 12 38 X X X Project scope changed, portions not carried out;hi. 697 loan was closed for lack of activity.

67 Dominican Republic 08/76 06/79 03/80 9 19 X X Some delay in both construction and maintenanceRoad Maintenance & programs.Reconstruction

hi. 1316

68 Guyana First 04/72 12/75 6/80 54 146 X Main delays were in construction and vehiclehighway weight control programs.

Cr. 301

Railways

69 Senegal Second 06/72 06/75 06/78 36 100 X X X Managerial capacity and quality of technicalRailway assistance were over estimated.

Lu. 835/Ln. 314

70 Indonesia First 06/74 06/78 12/79 18 38 X X X Large and complex program overtaxed implementa-Railway tion capacity.

hi. 1005

71 Korea Fourth 11/72 12/75 12/79 48 141 K X X )Railway ) New items added to the projects close to

hi. 863 ) or later than the Project Completion Dates72 Korea Fifth Railway 04/75 12/77 06/80 30 103 X X K ) delayed completion.

Ln. 1101

73 Yugoslavia Third 03/68 12/72 12/78 72 119 K Unforeseen difficulties in construction.Railway

hi. 531

Other

74 Kenya Mombasa- 06/75 10/77 02/78 4 14 Project was implemented virtually on schedule.Nairobi Pipeline

hi. 1133

75 Kenya Nairobi 06/72 12/75 03/78 27 47 X X X Project delayed due to contract managementAirport problems.

hn. 826

76 Yugoslavia Babin 07/71 01/75 07/76 18 43 X X Project delayed due to organizational,Kuk Tourism financial and design changes.

hn. 782


Table 3


Date of Increase/ Reasons for Increases/Decreaseslean/Credit Completion Decrease in Changes Execution

Projects by Sectrma Agreement Est. Actual Months % in Scope of Worksb ProcurmentLi Administratio.,/d Comments

EDUCATION

77 Liberia First 05/72 03/76 12/79 45 98 X X X Unrealistic scheduling; late architectualEducation consultant appointment; redesign of buildings

Cr. 305 and retendering; shortages of buildingmaterials.

78 Greece First 11/70 03/74 06/79 63 154 X X Changes in schedules of accommodation;

Education rebidding; delays by contractors to await priceIn. 711 increase allowances; unsuitable packaging of

furniture and equipment.

79 Sudan First 06/68 12/72 08/79 80 148 X X X Unrealistic scheduling; late selection ofEducation architectural consultants; civil disturbances;

Cr. 122 change in structure of education system;

emigration of construction workers.

80 Nicaragua First 04/68 06/72 03/78 70 140 X X X Initially project management was ineffective.Education Following earthquake there were shortages of

In. 532 supplies and labor.

81 Nigeria Second 04/72 03/75 12/80 69 197 X X X Unrealistic scheduling; shortage of State funds;Education stoppages of works by contractors; shortages of

In. 814 labor and materials.

INDUSTRY

82 India Cochin II 07/71 03/74 07/76 28 85 X X Delays reflected management shortcomingsFertilizer within the company and an ineffective

Cr. 264 relationship between the local engineeringfirm and its consultants.

83 India Sindri 12/74 09/77 12/78 15 45 X X Delays in the delivery of equipment.

FertilizerCr. 520

84 India Nangal Fer- 02/73 08/75 07/77 23 77 X X Reasons for delays included protracted comple-

tilizer Expansion tion of detailed engineering and late deliveryCr. 357 of equipment.

85 Pakistan Multan 05/74 04/76 09/78 29 121 C X X Optimistic scheduling and poor project manage-Fertilizer ment resulted in large delays in projectExpansion implementation.

Ln. 988

86 Turkey Erdemir 04/72 04/75 09/78 41 114 X X X X Weak project management and differences withStage I Expansion consultants are main causes for large delays.

In. 817

87 razil Cosipa 06/72 06/76 12/78 27 56 X X Weak project management and ineffective workStage It Expansion coordination.

In. 828

88 Mexico Las Truchas 09/73 03/76 12/76 9 30 Satisfactory implementation given tightness ofSteel original schedule.

In. 934

FOPULATION

89 Kenya First 04/74 12/77 03/80 27 60 X Iack of full-time staff.Population

Cr. 468

90 India First 06/72 06/78 03/80 21 31 X Completion of experimental programs interruptedPopulation by Emergency.

Cr. 312

91 Trinidad and 05/71 12/74 10/79 58 135 X Implementation affected by oil boom.Tobago Population

In. 743

Excludes DFC Projects (14), Program Loans (2), and uncompleted project(S)./b Work associated problems such as performance of contractor, technical problems, etc./c Procurement of materials and equipment including differenEes in time required for

bidding procedures and delivery of equipment./d Administration and staff including management and technical competence of borrowers' staff.


Table 4

ESTIMATE OF ECONOMIC RETURNS Al TIME OF APPRAISAL AND AUDIT

Izan/Credit Total Project Cost Returns (%)Amount (US$ ales) Appraisal Re-estimated

Projects by Category of Estimat (PS$ l..) Estimated Actual Estimate at Audit Comments

I. Projects for Which Economic Returns Were Estimated at Appraisal

AGRICULTURE

Irrigation

1 Mali Mapti Rice 9.5 9.4 13.1 14 17 Despite decrease in area and productivity comparedCr. 277 with appraisal estimates, ERR was higher because of a

300% price increase for rice.

2 Bangladesh Chandpur II 13.0 22.0 47.5 16 18 ERR is 18% if costs of Chandpur I are not included;Irrigation otherwise ERR would be 13%.

Cr. 340

3 India Kadana Irrigation 35.0 66.7 183.5 14 12 Higher costs and reduced irrigation area partly offsetCr. 176 by higher commodity prices.

4 India Pochampad Irrigation 39.0 127.0 211.0 14 14 Cost overruns and delays in project execution wereCr. 268 balanced by higher cropping intensities and higher

output prices.

5 Sri Lanka Mahaweli Ganga 29.0 50.0 83.1 12 20 Agriculture and power benefits were higher than expected,Development Stage I mostly due to higher value of power, rice and sugar

Cr. 174/Ln. 6513 price increases and increased cropped area.

6 Romania Giurgiu-Razmiresti 70.0 141.0 127.2 13 19 Higher yields and cropping intensities and higherIrrigation farugate prices.L. 1082

7 'Iurkey Irrigation Rehabil- 18.0 36.6 40.2 17 33 Yields and cropping intensities increased faster anditation and Completion reached a higher level than expected; this and higher

Cr. 281 farmgate prices resulted in average ERR of 33%,almost twice appraisal estimate of 17%.

8 Yemen Arab Republic 21.2 17.5 39.2 13 Lb 22 Higher prices almost tripled gross value of farmTihama Development production.

Cr. 376


9 Mauritius Tea Develop- 5.2 7.0 20.0 15 Negative Appraisal costed family labor at zero for picking tea;ment Authority if wage rates had been used at appraisal, rate of return

Cr. 239 would have been only 2.5%. Since no farmers were settled,all labor was costed at wage rates and actual ERR wasnegative.

10 United Republic of Cameroon 16.0 28.5 30.3 14 12 Higher costs, lower area and also significantly higherNiete Rubber Estate prices of rubber.

Cr. 574

11 Ivory Coast First Grand 8.4 29.1 31.7 13 11 Cost increases and area decrease not quite matched byBereby Rubber higher than expected prices.

In. 938

12 Ghana Sugar Rehabilitation 15.6 24.8 41.3 20 Negative Implementation suffered from a multitude of problems;Cr. 354 sugar production in the last year reached only 18%

of targets.

13 Ghana Eastern Region Cocoa 8.5 15.6 38.7 26 12 Planting targets were largely met but withCr. 205 considerable cost and time overruns. Cocoa

yields substantially below estimates, but prices atcompletion higher.

14 Ivory Coast Fourth Oil Palm 20.0 40.6 35.8 17 15 Production about 20% below appraisal estimates.and Coconut Development

In. 1382

Livestock

15 Chad Livestock 2.2 3.4 2.7 11 Negative Maintenance of wells stopped due to civil war. If wellsCr. 309 had been maintained the rate of return would have been

11%.

16 Turkey Second Livestock 16.0 28.3 28.3 20 23 Successful demonstration effects.Development

Cr. 330

17 Argentina Balcare Live- 15.3 39.1 45.7 27 14 Profitability of the partially adopted technologicalstock Development package much lower in the specific Argentine context

In. 505 than expected.

18 Panama First Livestock 4.7 13.5 12.7 15 8 Reduced ERR due to lower than expected on-farm produc-Development tivity, higher investment costs and a sharp drop in

In. 901 beef prices.

19 Paraguay Fourth 10.0 23.0 23.0 20 36 Rising relative beef prices as result of beef cycle.Livestock Credit

Ic. 1037

Fisheries

20 Tunisia First Fisheries 2.0 3.1 2.9 36 43 Due to higher real value of fish.Cr. 270

21 Yemen FIR First Fisheries 5.1 4.2 6.2 30 13 Principally due to delay in starting fish exports.

Cr. 370

22 Ecuador Fisheries 5.3 6.6 6.7 21 Negative Implementation delays, cost increases; only 4 rather

Ln. 555 than 12 purse seiners constructed, of which only 2 werecontinuously operational; catch much lower than expected.

- 175 - AVNEX fIPage 2 of 5

Table 4

ESTIMATE OF ECONOMIC RETURNS AT TIME OF APPRAISAL AND AUDIT

Loan/Credit Total Project Cost Returns (%)Amount CUS$ ens) Appraisal Re-estimated

Projects by Category of Estimate-/a ($ ems) Estimated Actual Estimate at Audit Comments


Credit

23 Senegal Second Agricul- 8.2 11.5 10.3 22 15-20 ERR was probably over-estimated at appraisal andtural Credit audit therefore used more realistic methodology.

Cr. 404 If appraisal methodology had been used at completion,ERR would have been 30%.

24 Korea Second Agricul- 20.0 41.2 43.1 29-38 23tural Credit

In. 1328

25 India Second Agricultural 200.0 467.0 488.0 27-50 23-50 Too short a timespan for recalculation. Based onRefinance and Development similar projects financed under ARDCI, ERRE forCorporation Credit various subprojects estimated in same range.

Cr. 715

26 India Bihar Agricul- 32.0 60.0 51.0 21-32 17-40 Sigher ERR at upper range probably due to large areatural Credit and lower investment costs.

Cr. 440

27 Peru Fifth Agricultural 25.0 41.7 51.2 26 30 Success of lending for farm mechanization.Credit

L. 933

28 Costa Rica Second Agri- 9.0 16.5 17.9 20-37 10-15 Decline of profitability of beef production.cultural Credit

Ln. 827

29 Jamaica Second Agri- 5.5 10.8 8.5 26 Negative Most on-farm investments were no longer viable under thecultural Credit prevailing economic circumstances; incremental produc-

In. 1084 tion reached only one-third of appraisal estimates; thisand other factors (lack of inputs, abandonment of farms)explains why the return is negative.


30 Malawi Lilongwe Land 8.5 12.0 13.3 13 25 For all three phases, tobacco yields higher thanDevelopment Program expected; without project, situation assumed to

Phase III deteriorate in actual estimate; less so in theCr. 550 appraisal estimate.

31 Sudan Southern Region 10.7 12.6 12.7 18 1 All components fell badly short of appraisal targetsAgricultural except for the rainfed coffee component. If coffeeRehabilitation excluded, overall ERR negative.

Cr. 476

32 Rwanda Mutara Agricul- 3.8 4.3 4.3 12 marginal Only 60% of the attributed land is now cultivated,

tural Development at best increases in livestock productivity have been offset

Cr. 439 by migration of cattle to other countries and regions.

33 Zambia Integrated 11.5 15.3 19.0 20 Negative Benefits much lower (fewer farmers participated andFamily Farming lower yields) and costs much higher than expected.

Ln. 882

34 Senegal Terres Neuves II 2.0 3.9 3.3 14 18 Yields higher and on-farm costs lower; average farm-Resettlement and Eastern family income at level twice that estimated.Senegal TechnicalAssistance

Cr. 578


35 Korea Integrated Agricul- 13.0 20.0 21.7 24 35 Shift to higher value products.tural Products Processing

ia. 994

36 Korea Seeds 7.0 14.8 25.9 48 22 Cost and time delays have cot been offset byIn. 942 improvements in real prices.

37 India Bihar Agricul- 14.0 23.3 28.8 29 11 Delays in project implementation; less use made of

tural Markets markets by traders.Cr. 294

38 India Wheat Storage 5.0 15.9 20.2 25 15 Godown component had improved from 20% to 26%, but silosCr. 267 deteriorated from 28% to 9%.

PUBLIC UTILITIES


39 Ivory Coast Abidjan Sewerage 9.0 16.7 20.7 Sewerage: 9-24 1-10 The reduced rate of return for the sewerage& Drainage Drainage: 12 12 component is mainly due to the delay in realiz-

In. 1076 ing the benefits.


Highways

40 Kenya Highway Maintenance 12.6 18.1 18.9 33 <10 Project produced no appreciable impact on road conditionsCr. 224 except perhaps during two of its nine year life.

41 Swaziland Second Highway 7.0 9.9 10.5 24 26 Appraisal estimate is based on 84 km and audit reestimateIn. 1108 on 106 km.

- 176 - fNEX 5Page 3 of 5

Table 4


Loan/Credit Total Project Cost Returns (%)Amount (US$ ales) Appraisal Re-estimated

Projects by Category of Estimate- (US$ m1ns) Estimated Actual Estimate at Audit Comments


42 Ivory Coast Second 20.5 35.5 36.1 18 22 Returns on individual sections executed ranged fromHighway 16% - 49%; traffic exceeded forecasts.

Ln. 761

43 Ivory Coast Third 17.5 29.0 40.1 50 33 Return on: maintenance program, 33%; betternent program,

Highway 32%; bridge construction, over 50%.Ln. 837

44 Ivory Coast Fourth 7.5 12.3 24.7 14 24 Return on road construction, 25% and on bridge construe-Highway tion, 14%. Traffic exceeded estimates.

Cr. 406

45 Upper Volta Cotton Roads Lb 4.2 3.5 5.1 17 4 Construction cost exceeded estimates.Cr. 316

46 Iran Fifth Road 42.0 85.0 83.3 17-27 > 17 Return calculated for civil works component only;Ln. 697 equipment and other components are likely to have

had minimal return.

47 Dominican Republic Road 5.0 8.2 8.2 24 32 Return was 18% on reconstruction program; and inMaintenance & Reconstruction excess of 44% on maintenance program.

La. 1316

48 Guyana First Highway 4.4 8.2 11.4 15 16 Returns on individual sections ranged from 14% to 19%.Cr. 301

Railways

49 Senegal Second Railway 9.6 12.3 11.9 18 13 Lawer rate especially attributable to limited successLa. 835/Cr. 314 of track relaying.

50 Indonesia First Railway 48.0 158.0 147.0 23 19 Freight traffic was less than projected.La. 1005

51 Korea Fourth Railway 40.0 264.8 219.2 20-22 19-25 Reestimate constituted by economic rates of return onLa. 863 electrification of industrial and of Seoul suburban lines

and on investment program as a whole.

52 Korea Fifth Railway 100.0 291.6 256.7 29 25 Reestimate based on rate of return for investment programEn. 1101 as a whole.

53 Yugoslavia Third Railway 50.0 225.5 421.9 8.5 6-9 The reestimated return is based on methodology adoptedLa. 531 in PCR which audit does not accept but does not

challenge in absence of alternative calculation.

Other

54 Kenya Mombasa-Nairobi Pipeline 20.0 82.9 113.0 31 19 Higher costs and lower traffic caused the lowerLa. 1133 reestimated return.

55 Kenya Nairobi Airport 29.0 46.3 76.3 L5 5 Higher costs and lower traffic account for the lowerLa. 826 than expected return.

56 Yugoslavia Babin Kk Tourism 20.0 45.5 66.9 12 n.a. A reestimate was prepared for PCR; however, uncertaintyLa. 782 as to financial data preclude confirmation by audit of

PCR calculation.

INDUSTRY

57 India Cochin 1 Fertilizer 20.0 47.2 72.2 14 14 Satisfactory EE owing to higher world fertilizerCr. 264 prices.

58 India Sindri Fertilizer 91.0 174.5 187.8 16 5 Very low levels of production during the first twoCr. 520 years of production due to shortages of heavy fuel oil.

59 India Nangal Fertilizer 58.0 100.5 140.1 15 12 Higher plant cost and longer construction period partiallyExpansion compensated by higher output prices.

Cr. 357

60 Pakistan Multan Fertilizer 35.0 84.4 170.8 34 15 Cost overruns and increased capital costs; slow productionExpansion build-up.

La. 988

61 Turkey Erdemir Stage 1 76.0 319.7 527.4 18 15 Revised ERR based on optimistic projections for Erdemir'sExpansion operations from 1981 onwards.

Ln. 817

62 Brazil Cosipa Stage II 64.5 422.1 998.3 15 16 Higher output prices and excellent production record inExpansion recent years compensate for time and cost overruns.

L.. 828

63 Mexico Las Truchas Steel 70.0 635.6 962.8 12 9 Laser ERR reflects mostly slow build-up in production asLa. 934 higher plant costs were largely offset by high output

prices.

II. Projects for Which Incremental Financial Returns Were Used as Proxy for Economic Returns

PUBLIC UTILITIES

Power

64 Kenya Gitaru Hydroelectric 63.0 135.9 136.0 14 12La. 1147

65 Sri Lanka Power IV 16.5 31.5 25.7 24 30 Project has provided fuel cost savings by substituting

La. 636 hydroelectric for thermal generation.

66 Afghanistan First Power 10.0 11.0 13.9 7 Negative Increases in capital cost and fuel cost. Due to the

Cr. 627 unforeseen activity in the Kabul area and disrupted supplyfrom the existing hydroelectric plants, the two gasturbines have been a prime source of energy instead of apeaking source since the later part of 1979.

- 177 -

Page4of 5Table 4


Loan/Credit Total Project Cost Returns (%)Amount (US$ alns) Appraisal Re-estimated

Projects by Category of Estimate- (US$ mlns) Estimated Actual Estimate at Audit Comments

II. Projects for Which Incremental Financial Returns Were Used as Proxy for Economic Returns

67 Iceland Sigalda Hydroelectric 10.0 64.3 88.0 11 11is. 951

68 Turkey TEK Power Transmission 24.0 67.1 134.0 13 3 Delay in project implementation; growth in energy salesLU. 763 slower than projected; and tariffs declined in real terms.

69 Bolivia ENDE Power IV 25.0 33.1 36.2 19 2 Inadequate tariffs.to. 1238

70 Brazil Sao Simo Hydroelectric 60.0 395.8 868.8 17 9 Tariffs declined in real terms.In. 829

71 Colombia Guatape Power 56.0 98.2 136.2 16 11 Increase in project costs and tariffs declined in realLn. 874 terms.

Telecommunications

72 Burma First Telecommunications 21.0 30.9 59.0 16 14 Increase in project costs only partly offset byCr. 551 higher-than-expected traffic increases.

73 Colombia Third Telecommunications 15.0 52.1 57.8 27 20 Increased construction costs over a longer construction

In. 1073 period; and some delay in obtaining the financialbenefits.


74 Swaziland Water Supply 3.5 4.5 3.3 12 3 Delayed benefits due to longer construction period;

Sewerage lower volumes of water sold; and lower average water

Ln. 1058 and sewerage revenues.

75 Gabon Libreville Water Supply 9.5 19.9 20.5 10 11Ln. 895

76 Thailand Bangkok Water Supply 55.0 214.0 237.1 8 Negative Tariffs declined in real terms.

Ln. 1021

77 Cyprus Nicosia Sewerage 2.7 6.3 6.3 12 14

Ln. 729

78 Morocco Casablanca Rabat 48.0 104.9 111.4 10 10Bulk Water Supply

Ln. 850

III. Projects for Which No Estimate of Return Was Made at Appraisal

AGRICULTURE


79 Spain Agricultural 12.7 26.0 30.3 None calculatedResearch Project

Ln. 768

PUBLIC UTILITIES

Power

80 Malaysia Sixth Power 45.0 68.5 90.3 None calculated There was no way of identifying the portion ofLn. 1031 system revenues which could be properly attributed

to the project (i.e., sections of transmission anddistribution systems).

81 Pakistan First WAPDA Power 23.0 39.8 33.4 None calculated Benefits of project not separately quantifiableCr. 213 from other investments in power sector.

82 Sri Lanka Power V 6.0 9.8 10.7 None calculated There was no way of identifying the increase in

Cr. 372 revenues (or of quantifying the benefits) whichcould be properly attributed to the project.

83 Turkey Keban Transmission Line 25.0 35.9 73.0 None calculated Benefits of project not separately quantifiable

In. 568 from other investments in power sector; projectjustified as integral part of long-term trans-mission system development.

EDUCATION

84 Liberia First Education 7.2 9.6 10.2 Satisfactory Well-conceived and managed project which has met its

Cr. 305 chief objectives of expanding and improving schoolsystem and institutional strengthening. Some practicalsecondary courses not yet finalized.

85 Greece First Education 13.8 24.0 45.5 Good New type multi-disciplinary post-secondary institutions

In. 711 created which are now highly regarded; however, somespecialized courses discontinued.

86 Sudan First Education 8.5 15.4 18.5 Uncertain Project institutions' curriculum improvements not realized

Cr. 122 and planned output below needs.

87 Nicaragua First Education 4.0 8.0 10.2 Satisfactory New curricula including practical studies offered. Risks

Ln. 532 of lower educational standards because of overcrowding andmulti-shift operation.

88 Nigeria Second Education 17.3 27.8 78.1 Fair New curricula developed but workshops not yet functioningIn. 814 because equipment not yet delivered.

- 178 - ANNEX 1 5Page 5 of 5

Table 4

ESTIMATh OF ECONOMIC RETURNS AT TIME OF APPRAISAL AND AUDIT

IMan/Credit Total Project Cost Returns (%)Amount (US$ mlns) Appraisal Re-estimated

Projects by Category of Estimate- (00$ ms) Estimated Actual Estimate at Audit Comments

III. Projects for Which No Estimate of Return Was Made At Appraisal

DEVELOPMENT FINANCE COMPANIES

89 Sudan Industrial Bank 4.0 8.4 25.9 Uncertain Generally ineffective implementation of sub-projects.

of SudanCr. 447

90 Korea First Loan to 60.0 227.2 128.9 Satisfactory Aim of supporting sub-projects with strong export bias

Korea Development Bank met.Ln. 1095

91 Korea - Korea Develop- 30.0 92.9 93.6 Satisfactoryment Finance Corporation )

Lo. 735 )92 Korea - Korea Develop- 40.0 88.2 87.9 Satisfactory ) Export promotion objective achieved; extensive use of

ment Finance Corporation ) co-financing arrangements.

Lm. 90593 Korea - Korea Develop- 55.0 106.8 109.5 Satisfactory

meat Finance CorporationIn. 1145

94 India Industrial Credit 60.0 0.a. 415.0 Satisfactoryand Investment Corpo- )ration of India Ltd.In. 789 ) Geographic diversification objective only partially

95 India Industrial Credit 70.0 n.a. 430.0 Satisfactory 3 met.and Investment Corpo-ration of India Ltd.

In. 902 )

96 Tunisia Banque de Deve- 10.0 n.a. a.. Satisfactoryloppement Economique de )Tunisie )

In. 648 )97 Tunisia Banque de Deve- 10.0 n.a. n.a. Satisfactory ) Projects concentrated around Tunis.


La. 798 )98 Tunisia Banque de Deve- 14.0 n.a. n.a. Satisfactory


In. 881

99 Colombia Fifth DFC 60.0 267.7 300.5 SatisfactoryDn. 903 ) Bank funds allocated to relatively large companies;

100 Colombia Sixth DPC 80.0 192.0 197.1 Satisfactory ) geographical dispersion objective achieved.Do. 1223

101 Greece National Invest- 15.0 56.1 58.0 Satisfactoryment Bank for Indus- )trial Development IV ) Subsidiary objectives, such as regional dispersion,

Ln. 945 ) export-orientation and emphasis on medium-size102 Greece National Invest- 25.0 53.1 95.3 Satisfactory ) enterprises, were met.

ment Bank for Indus-trial Development V )

Do. 1135

POPULATION

103 Kenya First Population 12.0 15.4 17.9 None calculatedCr. 468

104 India First Population 31.8 31.8 31.8 None calculatedCr. 312

105 Trinidad and Tobago Population 3.0 4.6 17.2 None calculatedLo. 743

/a Excludes Program Loans (2) and uncompleted project (1)./b 11% at reappraisal./c 35% at reappraisal.

- 179 - ANtE IIfahe I of 2

Table 5

INDICATORS OF FINANCIAL PERFORMANCE OF RLENUh-EAlilNG BNTITIES

Rate of Return DringConstruction and Early Operation Self-Financing

Compared with Compared with of Investment ComparedProjects by Sector Previous Years Loan Covenant with Forecast Comments

PUBLIC UTILITIES

Power

1 Kenya Gitaru Hydroelectric Lower Loer Similar The overall financial performance of the sectorLa. 1147 was satisfactory. The covenanted rate of return

was reduced in a subsequent loan (Loan 1799-KE).

2 Malaysia Sixth Power Lower Dower Lower The financial performance was satisfactory in theDo. 1031 earlier years of the project period but declined

thereafter because of inadequate tariff increases.

3 Pakistan First WAPDA Power n.a. Lower Lower Higher operating expenses and increased costs ofCr. 213 capital investment caused the rate of return and

the self-financing ratio to deteriorate.

4 Sri Lanka Power IV Lower Lower Similar ) Delays in project implementation reduced theDo. 636 ) amount of annual investment necessary, hence

5 Sri Lanka Power V Lower Lower Similar ) self-financins ratio was adequate.Cr. 372

6 Afghanistan First Power n.a. n.a. Lower Doubtful whether the utility will meet the 8XCr. 627 rate of return covenant set for 1960/81 and

thereafter without further tarirf increases.However, the interim objective agreed with IDAfor the period prior to 1980/81 was met.

7 Iceland Sigalda Hydroelectric Lower Lower Lower Tariff increases were inadequate. The utilityLn. 951 also bad cash flow problems.

8 Turkey Keban Transmission Line n.a Lower Lower ) Management and staffing problems; inadequateto. 568 ) tariffs; delayed commissioning of generating

9 Turkey TER Power Transmission n.a. Lower Lower ) plant; and slower-than-expected growth in sales.Ln. 763 )

1i Bolivia ENDE Power IV Higher in the Similar in earlier Higher Financial performance deteriorated in recenthn. 1238 earlier years, years, lower years due to inadequate tariff increases.

lower thereafter. thereafter.

11 Brazil Sao Simao Hydroelectric Lower Similar Lower The loan agreement required the utility'sLn. 829 tariffs to be set at such levels as to produce

revenues in accordance with the tariff legis-lation of the country. Subsequent modificationsin the application of tariff legislation led toa decline in tariffs in real terms and conse-quently a decline in the utility's financialperformance.

12 Colombia Guatape Power Lower Lower Lower Financial performance has improved slowly.Do. 874 Bank informally suspended loan disbursements

partly because of the borrower's poor financialperformance.

Telecommunications

13 burma First Telecommunications n.a. higher Higher Revaluatiosnf assets not required under loanCr. 551 agreement. Satisfactory financial position

assisted by tariff and traffic increases.

14 Colombia Third Telecommunications higher Higher higher Results based on revalued assets; higher revenuesLn. 1073 largely due to tariff increases and greater

international traffic.


15 Swaziland Water Supply & Sewerage n.a. Lower Dower Tariffs did not keep pace with inflation.tn. 1058

16 abon Libreville Water Supply Simlilar Similar himilar The utility's accounts receivable are unduly hibh.Do. b95

17 Ivory Coast Abidjan Sewerage n.a. n.a. Higher The revenue covenant focussed on the self-financing& Drainage ratio in the absence of firm information on asset

Dn. 1076 values.

18 Thailand Bangkok Water Supply Lower Dower Lower Poor financial performance due to increasedhn. 1021 operating costs, absence of tariff increases, high

level of unaccounted-for water and low water pro-duction following delay in project implementation.

19 Cyprus Nicosia Sewerage n.a. o.a. Higher No rate of return covenant but actual rate ofDo. 729 return higher than forecast at appraisal.

20 Morocco Casablanca Rabat Bulk n.a. Similar Higher Financial performance generally quite good althoughPater Supply accounts receivable situation unsatisfactory.

Do. 850


Railwayn

21 Senegal Second Railway Lower Lower Lower Low tariffs and inefficiency of the railways were mainDo. 837/Cr. 314 cause of financial results.

22 Indonesia First Railway Lower Lower Lower Low tariffs and low freight traffic were main reasonsD. 1005 for poor financial performance.

23 Korea Fourth RailwayDo. O S Lower Dower Lower lariffs were kept low.2i Korea Fifth Raitway

In. 11i )

25 Yugoslavia Third Railway Lower Lower Lower Tariffs were kept low and traffic was less thanLn. 531 projected.

- 180 -II

Page 2 of 2Table 5

INDICATORS OF FINANCIAL PERFORANCE OF REVENUE-EARNING ENTITIES

Rate of Rotors flutingConstructio and Early Operation Self-FinancingCoopated with Compared with of Investment Compared

Projects by Sector Previous Years Loan Covenant with Forecast Comments

Other

26 Kenya Mombasa-Nairobi Pipeline n.a. Higher n.a. This was a new enterprise; high tariffs have offsetLn. 1133 higher than expected costs and lower throughput.

27 Kenya Nairobi Airport Righer Higher Similar User charges have increased more than sufficient toCo. 826 to appraisal offset inflation, high costs and lower than forecast

traffic.

28 Yugoslavia Babin Kuk Tourism n.a. 0.a. n.a. New enterprise; investment costs greatly exceeded andCo. 782 sales were substantially below forecasts. The PCR

estimated a negative financial rate of return butdue to uncertainties as to financial data, the auditwan unable to confirm the PCR estimate.

INDUSTRY

29 India Cochin II Fertilizer lower Lower n.a. No self-financing of investment.Cr. 264

30 India Sindri Fertilizer Lower Cower n.a. No self-financing of investment. Production offset byCr. 520 lack of feedstock.

31 India Nangal Fertilizer Lower Cower n.a. No self-finaning of investment. Production handicappedExpansion by lack of raw materials and mechanical mishaps.

Cr. 357

32 Pakistan Multan Fertilizer Lower Lower Higher Due to controls, prices have not kept up with risingExpansion cosat.

LC. 988

33 Turkey Erdemir Stage I Higher Sigher Higher Very poor production record for lack of raw materials;Expansion self-financing higher in absolute terms but lower in

Co. 817 relation to total project costs. Company benefittedfrom highly protected domestic market.

34 Brazil Cosipa Stage II Corer lower Lower Poor profitability due to Government controls overExpansion steel prices.

Cn. 828

35 Mexico Las Truchas Steel n.a. Cower n.a. Extremely poor financial performance due to shortfallsCo. 934 in production, low labor productivity, high financial

charges and Government price controls.

- 181 -f05 60

Page 1 of 6Table 6

INSTITUTIINLBPELDING: CASES WHERE BASK SMAfE SPECIAL EFFORT'S TO STRENGTHENBORROWER'S ADMI\ISTRATIVE ADO TECHNICCAL CAPABELITIES

Projects by Sector Focus of Effort MeaAchevem of ObjectEves Comments

AGRICULTURE

lrr ation

1 Mali Mopti Rce Project ManagemeCt Technical Partial After some delays project implementation progressed dueCr. 277 Assistance to strong management. however, extension remained weak

and no famor organization was created.

2 eangladesh Chandpor II Strengthening of Concentraton of partial The concept of unified management was initially opposedIrrigation implementation and project authority in to by other agencies causing delays.

Cr. 340 management capability one agency institutingT&V extension system

3 India Kadana Irrigation - -- -- )Cr. 176 ) No special institution-building effort; existing

4 India Pohampad Irrigation -- -- - ) institutions executed the project.Cr. 268 )

5 Si Lanka Mahaweli Garga Improve water macnge- Dialogue between Substantial Better understanding of the need to improve waterDevelopment Stage I ment and cost recovery the Governent and management and cost recovery, and reasures have beenCr. 174/Ln. 653 and improve price the Bank taken in Stage 11 and ItI projects. Government's

policy for paddy decision in 1978 to shift from overomenat arkectingchannels and fixed price to free market led to higherrice prices.

6 Romania Giurgiu-Raemiresti -- -- - o special effort, but as this was the firstIrrigation Bank-financed irrigation effort, it exposed a sub-

L.. 1082 stantial number of Borrower officials to new informa-tioe and methodologies.

7 Turkey Irrigation Rehabil- To improve the Irri- Consultants and Partial Training was late and some of the consultants wereitation and Completion gatLion Department and overseas training not engaged.Cr. 281 the Soil Conservation

Service, which didthe landshaping

8 Yemen Arab Republic Establishment and Recruitment of Partial Exclusion services have been very effective and wellThama Development strengthening of expatriates and received, though improvement in interagency cooraination

Cr. 376 Tibama Development training of local wrl be required.Authority counterparts


9 Mauritius Tea Develop- Develop tea Creation of TDA Negligible TDA was created to plant and lease smallholdingsnent Authority industry and to develop processing and export services.

Cr. 239 In retrospect, establishment of TDA had adverseconsequences for the tea ondustry i Mauritio.

10 United Republic of To build up a Consultants, training Partial Indications aeo that consultants performed well.Cameroon Niete Rubber plantation Cameroonian staff Although plantation established, there is noEstate management production yet to confirm this.

Cr. 574 entity

11 Ivory Coast First Grand Creating of effi- Expatriate sanage- Partial Project management is in expatriate hands andBereby Rubber cient institutions ment contracts likely to remain so because the expatriate management

in. 938 in the rubber company is buying the ro rubber. Ivorianizationsector limited at present.

12 Ghana Sugar Rehabili- Making the sugar Expatriate manage- Negligible Under the circumstances prevailing in the country thetation industry more rent consultants managing agents did quite well, but they were over-

Cr. 354 efficient and optimistic in their belief that the project could beeconomic made viable. For a multitude of reasons the project

failed and the company was in fact technically bankrupt.

13 Ghana Eastern Region Efficient project Creation of large Partial Performance of project management was reasonable;Cocoa implementation autonomous project however, the project suffered from the weakness

Cr. 205 anit of institutions administering the sector.Given the fluctuating status of prescnt institutionalarrangements, the future of the project unit isuncertain.

14 Ivory Coast Fourth Oil Palm -- -- -- No special institution-building effort; projectand Coconut Development excutnlg0 agency was well managed hct seccor

Ln. 1382 polocies left something to be desired.

Livestock

15 Chad Livestoek Training of Live- On-the-job Substantial SERARHY turned out to be one of the mostCr. 309 stock Department training and effective government agencies working in rural

Staff and establish- creation of areas.nt of the rural SERARHY

water supply agenoy

16 Turkey Second Livestock To strengthen the Consultants and bubstantial Extension service operation at the lower levels wanDevelopment Directorate of Live- in-house and below expectations because of difficulty to induce

Cr. 330 stock Development overseas training staff to travel and to accept postings in a harshpart of the country (Anatoelan plateau).

17 Argentina Baloare Live- Improved applied Creation of a roup Substantial The project had a very positive impact us 1NIA.stock Development research of specially-tracned Before the project, INTA had generally worked on a

In. 505 -teohchnis in the commodity basis, but research efforts as a result ofAgricultural Research the project began to focus on the entire ranch (farr)Institute (ITA) as the production unit.

18 Panama First Livestock Increased lending and Establishment of live- Partial Eventually the management unit developec into aDevelopment technical assistance stock management unit, reasonably effective organization. Training program

In. 901 fur livestock raches training of lIfostock was neglected. Major institutional impact of theand dairy farms specialists and project has bee to increase knowledge of important

tcehnical assistan.ce ascts of beef production and to acquaint livestocktechnicias with project analysis methodology.

- 182ANNEX 11Page 2 of 6

Table 6

INSTITUTION BUILDING: CASES WHERE BANK MADE SPECIAL EFFORTS TO STRENGTHENBORROWER'S ADMINISTRATIVE AND TECHNICAL CAPABILITIES

Projects by Sector Focus of Effort Means Achievement of Objectives Comments

19 Paraguay Fourth Livestock fund Improvement of on-farm Partial Improvements have continued in the operations ofLivestock Credit investment planning and technical assistance provided by the

Ln. 1037 and technical assistance livestock Fund.

Fisheries

20 Tunisia First Fisheries - -- - This was essentially a credit project but the onlendingCr. 270 bank was not very interested. The project imposed

technical limitations on the sub-borrowers which weregenerally not acceptable. Technical assistance, althoughmuch needed, was not so perceived by the borrower.

21 Yemen PDR First The Ministry of Management Partial It was the first of the fisheries projects and onlyFisheries Fish Wealth consultants the second Bank/IDA operation in the country which

Cr. 370 has limited manpower resources. The project triedto do too much in the fisheries sector.

22 Ecuador Fisheries Strengthening skills Construction of Partial Graduates of training school had difficulties inIn. 555 of fisherman to school and training finding employment, Quality of instruction has not

man purse seiners program been good.

Credit

23 Senegal Second Agricul- Pelping ONCAD with Consultants Partial ONCAD's bankrupty meant that project effortstural Credit accounting and data and studies (for SODEVA) were lost. SODEVA benefitted from the project-

Cr. 404 processing; and Negligible financed studies especially with regards tostrengthening SDEVA (for ONCAD) monitoring and evaluation and seed storage;extension services the fertilizer study had little impact becauseand building a moni- the Research Institute did not accept thetoring and evaluation consultants' findings.system

24 Korea Second Agricul- -- -- -- Institutional development was minor; whatevertural Credit institutional development took place was mainly

Ln. 1328 under the first credit proJect.

25 India Second Agricultural - -- Substantial This was a time-slice project. This project and theRefinance and Development others following it are contributing materially toCorporation Credit the strengthening of ARDC. The basic problem is the

Cr. 715 arrears in repayments to the state banks.

26 India Bibar Agricul- Strengthening devel- Increasing branch Substantial The standards of loan appraisal by LDB greatly improvedtural Credit opment lending for office network of and loan processing time was considerably reduced.

Cr. 440 agriculture Bihar State LandDevelopment Bankand training of itsstaff

27 Peru Fifth Agricultural To build loan Local consultant and Substantial The local consultant's performance was good and theCredit appraisal capability an IBRD loan adminis- branch offices now have sub-loan appraisal capability

Ln. 933 within SAP tration office over and above establishing simple credit ratings only.

28 Costa Rica Second Agri- -- -- -- The Central Bank's, special project unit and thecultural Credit participating banks performed well but they were unable

Lo. 827 to provide technical backing. Nor was the agriculturalextension service in a position to do so; possiblyif the technical assistance portion of the loan hadbeen properly used, this could have been alleviated.The ministry of Agriculture was excluded from theexecution of this project; this omission was correctedin the follow-on project.

29 Jamaica Second Agri- Strengthening of Technical Assistance Negligible Pressure to produce commitments reduced quality ofcultural Credit the executing devel- provided under the portfolio; lack of managerial experience in JDB's

Lt. 1004 opment bank (JOE) project and Bank agricultural department; increasing arrears resultedsupervision in a disastrous financial performance.

30 Argentina Agricul- Improving agricul- Onlending arrangements -- The project failed (and loan was fully cancelled) astural Credit tural and economic under the project onlending terms (especially with positive interest

to. 1264 policy making rates) proved unattractive and demand was thereforenot forthcoming.


31 Malawi Lilongwe Land Effective project Expatriates and Partial Bank financed expatriates to implement project.Development Program implementation training Negligible attention to creating local capabilities.Phase III

Cr. 550

32 Sudan Southoen Region Strengthening Ministry Prajoec development Negligible The project unit was to be merged under Sudaneae controlAgricultural of Agriculture in unit; expatriate with the Ministry after four years; this was completelyRehabilitation Southern Sudan assistance and unrealistic. On-the-job training was not undertaken.

Cr. 476 on-the-job training The project's size probably weakened the Ministry andthe semi-independent implementation unit is heavilydependent on expatriates.

33 Rwanda Mutara Agri- To improve settlement Establishment of an Negligible The autonomous and self-financing principle ofcultural Development performance and reduce autonomous and Project Authority didn't work and was abandomed

Cr. 439 Goverment's financial self-financing because of the refusal by farmers to pay settle-contribution project authority ment fees and uncontrolled occupation of land.

34 Zambia Integrated Strengthening the Staffing and other Negligible TBZ failed to develop as an institution capable of

Family Farming implementing agency support provided by fostering tobacco development.Ln. 882 TBZ the project

35 Senegal Terres Neuves II Creation of coopera- Support provided by Negligible The basis for creating cooperatives was credit

Resettlement and tives (farmers) Resettlement Agency and input supply, both of which were not in con-Eastern Senegal formity with Government price policies.Technical Assistance

Cr. 578

- 183 - ANNEX 61Page 3 of 6

Table 6

INSTITUTION BUILDING: CASES WHERE BANK MADE SPECIAL EFFORTS TO STRENGTHENBORROWER'S ADMINISTRATIVE AND TECHNICAL CAPABILITIES

Projects by Sector Focus of Effort Meca Achievement of Objectives Comments


36 Korea Integrated Agri- Improvement of Provide project Negligible Project unit hired consultant who did not have thecultural Products projects entity's entity with expert necessary expertise.Precessing ability to appraise consul:ant

tn. 994 agro-processing sub-projects

37 Korea Seeds Improvement of EstablLshment of Partial Seed unit still is not in full control of cereal andLn. 942 system for producing Office of Seed potato seed certification system and training of

high quality certified Produc-ion; seed inspectors has been below expectation.seed trainiag of seed

insper:ors

38 India Bihar Agricul- Develop modern EstablLsh state Substantial Provision for state marketing board was made undertural Markets marketing system marketLng board the federal marketing act.

Cr. 294

39 India Wheat Storage New methods of silo Consultant Partial Construction was slow and not replicated; trainingCr. 257 construction and was incomplete.

training in mech-anized grain handlingand storage

40 Spain Agricultural Improve efficiency INIA's reorganization Substantial INIA's reorganization and reorientation was successfulyResearch Project of the National completed.

In. 768 Research Institute(INIA)

PUBLIC UTILITIES

Power

4L Kenya Gitara Rydro- At sector level, Studies by Satisfactory New tariff structure implemented along with changes inelectric project provided for consul:ants organization and in accounting and reporting systems.

In. 1147 a management reviewand a study of tariffstructure

42 Malaysia Sixth Power Improvements in the Internal review Satisfactory A new corporate planning unit was established.Ln. 1031 organizatio structure

43 Pakistan First Improvements in the Studie. by Substantial Albeit with delay, substantial progress has been made inWAPDA Power fields of management consul:ants helping the utility become an efficient, commercially-

Cr. 213 and accounting oriented operation; however, improvements are neededin the area of stores management, internal audit and useof computer.

44 Sri Lanka Power IV ) Creation of a public Use of Partial The government has not given the utility sufficientLn. 636 ) statutory corporation. consultants autonomy. Staffing difficulties have hindered the

Also revision of the effective implementation of management information) organization structure, system and accounting procedures.

45 Sri Lanka Power V ) and implementation ofCr. 372 ) management infornation

) system and accounting) procedures

46 Afghanistan First A new tariff struec- Technizal Partial Reorganization of the utility was not implemented andPower ture; formulation of assistance the government has not given the utility sufficient

Cr. 627 a power sector develop- provided by autonomy.ment plan; training in consultantsaccounting and finance;reorganization of theutility; and improve-ment of its financialoperation

47 Iceland Sigalda Improvements in the Studies by Partial Although consultants were not used as hadHydroelectric organization of the consultants been envisaged, several governmental

Ln. 951 power sector. Also a studies have been made.general revision of thetariff structure

48 Turkey Keban Transmis- ) Creation of autonomous Legislation; Partial Responsibility for generation and transmission largelysio Line ) power entity with consultants; brought together in national power authority, but lacks

in. 568 7 national responsibility covenants in autonomy, particularly with regard to tariffs andat bulk supply level; loan agreement staffing. Financial performance poor.

) placing of entity on49 Turkey lK Power 7 sound financial footing

Transmission )Le. 763 )

50 Bolivia ENDE Implementation of new -- Substantial Staffing difficulties (arising from low salary scales)Power IV tariff structure. Also may hinder the institutional growth of the utility.L. 1238 changes to the administration

and training of staff

51 Brazil Sao Sima No special effort made - -- A well-nanaged utility.Hydroelectric

In. 829

52 Colombia Guatape Power Training of staff in -- Substantial Institutional performance in earlier years sufferedLn. 874 planning, design and due to frequent changes in management. Situation has

distribution-system improved and now a very strong institution. Staffmaintenance training successfully implemented.

Telecommunications

53 Burma First Telecom- Improvement of account- Covenants Satisfactory Special project management unit established with goodmunications ing systems and revi- results.

Cr. 551 sion of tariff structureto permit operation alongcommercial lines; limita-tion on cross-subsidiesfrom telecommunicationsto postal services;improve project execution

- 184 - AlfIX I 6Pag 4 of 6

Table 6

INSTITUTIOM BUILDING: CASES WHERE BANK MADE SPECIAL EFFORTS TO SIRENGTHENBORROWER'S ADMINISTRATIVE AND TECHNICAL CAPABILITIES

Projects by Sector Focus of Effort Means AcAhvement of Objectives Comments

54 Colambia Third Teleom- Continuation of intse- Covenant Satisfactory Integration of the sector continued under this loan,munications groting the oertor; although more slowly than expected; the covenant

Ln. 1073 establishing accounting relating to accounting procedures was fully met; furtherprocedures to reflect advice and assistance is needed to develop a budget andpension liabilities and cost accounting system and for decentralization offunds allocated to acquire authorities to regional head quarters.000 companies

Water Supply and Vaste Disposal

55 Swaziland Water Supply Establishment of an Covenants Partial Lack of sufficient autonomy; high staff turnover; staff& Sewerage organization with some consultants effort was diverted to meeting government as well as

Ln. 1058 measure of autonomy, commercial accounting requirements.especially in staffingand financial matters;introduction of a cao-mercal acout.ing system

56 Gabon Libreville At tLim of appraisal, Covenants Satisfactory Doring project implementation, managerial efficiencyWater Supply utility wa relatively declined seriously; after intervention of Bank and

tn. 895 small and well-nanaged. cofinanciers, utility carried out a major reorganzationEffort thereore focussed and replaced many senior staff. Situation improved andon maintaining autonomy, new organizational structure seems to work well. Theimproving f .noaial utility has also constructed a vocational school andperformance and strength- introduced staff training and development schemes whichening staff training have contributed to a substantial increase in the

number of nationals holding senior positions.

57 Ivory Coast Abidjan The establishment of Covenants Substantial The institution building effort under the project hasSewerage & Drainage an organization to consultants proceeded well. However, the financial set-up of the

Ln. 1076 plan, execute and sector remained fragmented and consolidated accountsmaitain corks in never materialized.the sector

58 Thailand Bangkok Strengthen management, Consultants; Satisfactory Management and accounting systems improved;Water Supply and staffing covenants staff training and project execution capability

Ln. 1021 satisfactory.

59 Cypro NItcosia Sewerage Establishent of a Covenants in loan Satisfactory The project led to the creation of the utility. TheLn. 729 strong institutional agreements and financial and administrative capacities of the utility

fr-aork dialogue with the have evolved commensurate with its growing responsi-authorities through bilities. The technical capability has grown at apreparation and somewhat slower rate.supervision

60 Morocco Casablanca Creation and develop- Legislation; Very successful National authority was established and has developed intoRabat Bulk ont of a national consultants; a highly competent entity; tariff study carried out andhater Supply authority with respon- covenants; new tariff structure implemented based on long-run

Ln. 850 sibility for blk tariff study marginal cost.water supply


Hlighwys

61 Kenya Highay Reorganization of Teahnical Largely cnsuccess- Projeat fell significantly short of expectations, reekMainenance maintenacre function assistance by fl except for the commitment was instrumental in poor result.

Cr. 224 at MOW and training consultants institutionalizationof training function

62 Swaziland Second Noe n.a. n.a.Highway

tn. 1108

b3 Ivory Coast Second ler n.a. c.a.HighwayI. 761

64 Ivory Coast Improvement of routine Construct/ecuip Partial Major administrative reforms achieved; capital andThrd Highway highway maintenance workshops; purchase recurrent eapenditures on routine and perionic main-

In. 837 operations equipnent/vehicles; tenance increased significantly; but only about half ofbetter earth/gravel betterment program completed.roads; consultants'services for opera-tions and reorganization

65 'vory Coast None n.a. a.a.Fourth Highway

Cr. 406

66 Upper Volta No institution Training by Moder.tlyCotton Roads bilding included; experts financed scrssoful

Cr. 316 later some training under Thirdadded Highway Project

67 Iran Fifth Road Technical assistance Consultants to Limited screno: Events in Iran caused decreased interest in institutionalLn. 697 for the creation of train under- only phase one of component.

a highway authority; etodies and the maintenancereorganization of the carry out reorganization wasratntenance function; studire completed and samean ntermodel coordi- happened to theatio study; and ontermodol coordana-feasibility and engi- tion studyroring stodor

68 Dominican Republic Improvement of highway Rehabilitate/ Substantial Relationship established between Government and Bank thatRoad Maintenance maintenance reconstruct could be expanded later.& Reconstruction corkshops; purchase

Ln. 1316 equipmeet/tooisand spare parts;consultants'oervices forplanning andprocedures

- 185 - ANNEX ItPage 5 of 6

Table 6

INSTITUTION BUILDING: CASES WHERE BANK MADE SPECIAL EFFORTS TO STRENGThENBORROWER' S ADMINISTRATIVE AND TECHNICAL CAPABILITIES

Projects by Sector Focus of Effort Mans Achievement of Objectives Comments

69 Guyana First 1. Improvement in organi- Technical Partial Not much progress in implementing some studyHighway zation and operations assLstance and recommendations.

Cr. 301 of Ministry of Works staf trainingand Transport

2. Improvement in trans-port planning

Railways

70 Senegal Second No major effort French Govern- Bank supervision Appraisal mission omitted to assess effectiveness ofRailway because technical ment consultants missios insisted essential bilateral assistance.

Ln. 835/ assistance provided on reorganizationCr. 314 from bilateral of technical assis-

sources, not part tance and some ofof the project the objectives wars

achieved

71 Indonesia First Major effort to Consultants Not fully achieved There were some communications problems and not allRailway improve management, consultants were suitable.

Ln. 1005 operations,maintenance practicesand accounting

72 Korea Fourth Railway Management study Consultants' Substantial Recommended structural changes to be implemented.Ln. 863 services and

loan covenants

73 Korea Fifth Railway Transport planning Con-ultants' Partial Administrative arrangements are adequate but inter-Ln. 1101 and coordination services and ministerial coordination and acquisition of trained

loa- covenants and experienced staff still need improvement.

74 Yugoslavia Third None 0.a. n.a.Railway

Ln. 531

Other

75 Kenya hombasa-Nairobi Establishing new enter- On-the-job Successful Establish small but effective organization was anPipeline prise with special training endeavor new to country.Ln. 1133 emphasis on training

76 Kenya Nairobi Airport Institutional Technical Limited institutional Poor commitment to component explains its unsatisfactoryLa. 826 reorganization, assistance and development and no results.

accounting and training by long-range accountingoperational consultants or operational trainingtraining, hiring achievedaviation experts

77 Yugoslavia Babin Establishing new Collaboration of New enterprise was Institutional arrangements in Dubrovnik hotel sectorKuk Tourism tourism enterprise existing wholesale established but continue to be under review.

Ln. 782 enterprise with along linesvarious financial substantiallyorganizations different than

planned

EDUCATION

78 Liberia First Education Manpower planning, Technical assistance Substantial Fellowship provision very small in the light of the majorCr. 305 educational and univer- expErts and fellow- institution building effort supported by the overall

sity planning, project ships technical assistance program.implementation

79 Greece First Education Project implementa- Tecfnical assistance Substantial Introduction of new educational programs generallyLn. 711 tion, creation of new experts and fellow- successful. Project unit has been absorbed into unit

type of educational ships responsible for all externally-financed projects.institute

80 Sudan First Education Improved agricultural Tectnical assistance Negligible Specialist services deleted because of delays and to meetCr. 122 and teacher training expErts and fellow- cos, overruns. Returned Fellows not employed in posts

institutions ships originally envisaged.

81 Nicaragua First Full-time teaching Project design Satisfactory Progress achieved despite effects of earthquake which had

Education staff, advice on substantial effects on educational system.

In. 532 careers, less rigidapproach to examina-tions

82 Nigeria Second New emphasis on Tecinical assistance Partial Science education improved but some difficulties inEducation science education and experts and follow- project implementation and introduction of workshop

Ln. 814 practical subjects. ships subjects. Some Fellows did not return to country.Architectural support

DEVELOPMENT FINANCE COMPANIES

83 Sudan Industrial Bank Upgrading appraisal/ UND Technical Assis- Negligible lack of receptivity and inertia by institution;of Sudan supervision capability tance Program; training strained relationship between institution and IDA

Cr. 47 and management systems at EDI and Bank-associated following differences on a number of issues.DFCs; IDA supervisionmissions

84 Korea Fiest Loan toKorea Development Bank ) -

Cn. 1095 )85 Korea - Korea Develop-

ment Finance Corporation ) EconomicLn. 735 ) analysis Substantial

86 Korea - Koea evelop-ment Fi.ace Corporation

Ln. 905 )87 Korea - Korea Develop- )

ment Finance CorporationLn. 1145 )

88 India Industrial Creditand Investmnt Corpo- ) )ration of India Ltd. P Ecoomic ) Institution has reached very satisfactory loan

Ma. 789 ) analysis; Substantial ) processing standards but has shown limited dynanism89 lndia Idustrial Credit ) project P in promoting new projects.

and Investment COrpo- P promotionration of India Ltd. )

n. 902 ) )

- 186 - f D

Page 6 of 6Table 6

INSTITDTION BUILDING: CASES WhERE BANK MADE SPECIAL EFFORTS TO STRENGTHEhBORROWER'S ADMINISTRATIVE AND IECHNICAL CAPABILITIES

Projects by Sector Focus of Effort Means Achievement of Objectives Comments

90 Tunisia Banque de Dve-lopperent Economique de ) )Tuisie ) )

to. 648 ) Marked improvement in appraisal capability and management91 Tunisia Banque de Deve- ) Improvement of ) systems; limited progress in building up supervision

loppement Economique de ) appraisal/ Partial ) capability and promotional activities.

Tuniisie ) supervisiontn. 798 ) capability;

92 Tunisia Banque de Deve- ) project promotionloppeeat Economique de ) -Tunisie ) )

ts. 881

93 Colombia Fifth DFC ) Enhance Central Bank most useful in review of financieras' sub-Ln. 903 ) Central Bank's project appraisals and follow up work; limted progress

94 Colombia Sixth DFC ) capability to Partial in developing Central Bank's capability to take overLn. 1223 ) supervise Bank's direct supervision function over financieras.

) fioancieras

95 Greece National Invest-ment Bank for Indus-trial Development IV ) Cood Institution, despote initiai lack of supportiveLn. 945 ) Mobilizaton of Progress ) policy framework, reduced considerably its dependence

96 Greece National Invest- ) domestic and ) on bilateral and concessional resources.ment Bank for Indus- ) foreign resources )trial Development V

to. 1135 )

INDUSTRY

97 India Cochin I Project engineering Consultants Negligible Unsatisfactory relationship between the company,Fertiliter and managennt; oust which acted as its own General Contractor,

Kr. 264 accounting; management and its consultants; management inadequate.information systems

98 India Sindri 1) Project management Appointment of Substantial Satisfactory project management.Fertilizer Project Manager

Cr. 520 with overall pro-jact implementa-tions responsibility

2) Maintenance pro- Consultant study Partial Pollution control measures being implemented.cedures and No impact on workforce redeployment after projectpollution control start-up.

99 India Nangal Fertil- Project management Appointment of Substantial Satisfactory project management.izer Expansion Project Manager

Kr. 357 cith overall pro-ject implementa-tions responsibility

100 Pakistan Multan Fer- Project management; Consultants Limited Progress in institution building very slow.tilizer Expanson cost accounting;

Ln. 988 management informa-tion systems

101 Turkey Erdemir Stage I Project Consultants Partial Consultants responsible for project engineering.Expansion management Assistance in project management, however, suffered from

Ln. 817 lack of precise dicision of werk between the consultantsand the company.

102 Brazil Cosipa Stage 1) Technical expertise Consultants PartialII Expansion 2) Organization Consultants Partial Company reluctant at the time to implement consultantLn. 828 Structure and recommendations pertaining to management matters.

ProjectManagement

103 Mexico Las Truchas Technical Consultants Partial Decision to terminate consultant contract after start-upSteel expertise impacted negatively on the company's production build-up.L. 934

POPULATION

104 Kenya First Population Creation of National Technical Partial, short-run Lack of borrower commitment to project's family planningCr. 468 Family Welfare Center Assistance objectives.

105 India First Population Creation of two Technical Successful Centers fully incorporated into state family planningIs. 312 Population Centes at Assistance prograns and continuing to operate ffectively.

State Level

106 Trinidad and Tobago Creation of Office Technical Partial Low priority given to family planning within healthPopulation of Family Planning Assistance service.

LU. 743 Programs

- 187 -

WANNX i

SUMMARY OF PROJECT RESULTS

Rank Constributioos to-Loan/Credit Execution Expenditures Economic Returna-- tntlto Wider ector

Projects by Sector Agreement Am.ot Estimate Actual Estimate Actual Audit Estimate Creation Stringtheniig Effort Comments(Date) (US$ mns) (ycars) (US eite) (%)

AGRICULTURE

rrigati on

1 Mal Mapti Rice 01/12 9.5 6.8 8.2 9.4 13.1 17 X The project objectives were not fully achieved mainly forCe. 277 climatic reasons, sborton.1gu in technical design, wil

race onfestlon and lack of adeqoate agricucLtr credit.

2 Bangladesh Chandpur II Irrigation 10/72 13.0 4.2 6.7 22.0 47.5 18 X X The project is an agricultural and economic success.Cr. 340

3 India Iadana Irrigation 02/70 35.0 5.4 8.4 66.7 183.5 12 Despite delays an sizeablec cost overrans, the project'sCt. 176 major nbjectives have been ochieved.

4 India Pochampad Irrigation 08/71 39.0 6.3 8.3 127.0 211.0 14 bussons learned fron this and the above project wereCr. 268 increasingly incorporated in subsequent projects.

5 Sri Lanka Mahaweli Ganga Development Stage I 01/70 29.0 5.4 8.3 50.0 83.1 20 X X Sound design of the project, continued support of governmentCr. 174/Ln. 653 agencies and farmers ability to adept to a more rigorous time

frame of double cropping were main reasons for project success.

6 Romania Ciurgiu-Razmiresti irrigation 02/75 70.0 3.3 3.8 141.0 127.2 19 Jborrower's performance excellcit3 was one of the major reasonsLn. 1082 tor project'n noccens.

7 Turkey Irrigation Rehabilitation 01/72 18.0 4.9 9.9 36.6 40.2 33 X X Most of the problrm of delayed execution and timely implemen-and ComAlertue cation were aue to country scituations and wer, non project-

Cr. 281 specific.

8 Yemen Arab Republic Tihama Development 05/73 21.2 4.1 6.6 17.5 39.2 22 X Shortage of local stai eaketed efforts to create effectiveCr. 376 institution.


9 MariLtius Tea Development Authority 04/71 5.2 6.2 7.9 7.0 20.0 Negative TDA bame a sort of unemployment relief organizatial, betC,. 239 lessons learned from the project experience has helped to better

design a recent SAL project for Mauritius.

10 United Republic of Cameroon Niete 07/75 16.0 4.9 4.3 28.5 30.3 12 X X A useful stop in ssistLing the plantalion industry.Rubber Estate

Cr. 574

11 Ivory Coast First Grand Bereby Rubber 10/73 8.4 5.7 4.7 29.1 31.7 11 X X Natural rubber prospects are good and plantation crops are theLn. 938 only means of bringing a large populotion to a rainforest area.

A good project provided present laboc problem, can be solved.

12 Ghana Sugar Rehabilitation 01/73 15.6 5.7 5.7 24.8 41.3 Negative Bank's original intenios in this regard did not materialize.Cr. 354 Implementation sufored from a multitude of problems, largely

country-related and the project ended in faillre. No viabloinstitutions remained.

13 Ghana Eastern Region Cocoa 06/70 8.5 5.5 9.5 15.6 38.7 12 X X X The project atteapted to operat, in isolatioc. In fact, thisCr. 205 was not possible and this experiece demonstrates both the

difficulties of ensuring proper prtject implementation in anunsound sector envirotonent and or soling ector issuesthrough projects.

14 Ivory Coast Fourth Oil Palm and Coconut 03/77 20.0 2.3 3.8 40.6 35.8 15 Project well implemented although short of targets. Because ofDevelopment loan administration pobmics, project plantineg complete two

Lt. 1382 years before effectiveness.

Livestock

15 Chad Livestock 05/72 2.2 2.6 4.6 3.4 2.7 Negative X X X A second and core comprehesive livestock project ade full useCr. 309 of studies carried Out under the first project and of tensons

learned fron it, but the project wa not ompleted because ofthe civil war.

16 Turkey Second Livestock Development 09/72 16.0 5.3 7.8 28.3 28.3 23 X X X The project was Lie second of five projects to support theCr. 330 livetock setor; contributions to Turkey's livestock sector

developmnat are considerable and cotLinnoos.

17 Argentina Balcare Livestock Development 07/67 15.3 5.0 12.8 39.1 45.7 14 X X X Project a mixed sucess. Progress was much slower than tpectedLn. 505 mainly due to unfaorable sector environment. Contrary to

-xpectations, there was no demonstration effect and the profit-ability of the technological package was much lower.

188 ASSFT II

Table 7 Page 2 of 7

SUMMARY OF PROJECT RESULTS

Bank Contributions toLoan/Credit Execution Expenditures Economic Returns- Institution Wider Sector

Prolects by Sector Agreement Amount Estimate Actual Estimate Actual Audit Estimate Creation Strengthening Effort Comments(Date) (US$ mins) (yeare) (US$ mins) (%)

18 Panama First Livestock Development 06/73 4.7 5.0 7.5 13.5 12.7 8 X Project was scaled down by about 40%. Sub-loans were made toIn. 901 smaller-than-expected ranches. Beef prices dropped sharply.Project management skills developed slowly.

19 Paraguay Fourth Livestock Credit 09/74 10.0 4.4 4.9 23.0 23.0 36 X Project generally achieved its objectives. First livestocktn. 1037 project in Paraguay to earmark funds for small farmers.

Fisheries

20 Tunisia First Fisheries 09/71 2.0 4.8 8.3 3.1 2.9 43 Contributions to sector development were not too effective, butCr. 270 project set the stage for a more meaningful effort under thesecond project.

21 Yem PDR First Fisheries 04/73 5.1 5.7 8.4 4.2 6.2 13 X X Good start but with a long way to go; Bank continues activeCr. 370 participation and training support.

22 Ecuador Fisheries 09/68 5.3 5.8 12.1 6.6 6.7 Negative X Project was significantly scaled down due to lack of demand forLn. 555 credit to purchase purse seinors. Training of crews has beenpartially successtul.

Credit

23 Senegal Second Agricultural Credit 06/73 8.2 3.5 5.6 11.5 10.3 15-20 X The issue of disincentive producer price for grouncdnuts was notCr. 404 resolved depite a provision in the Credit Agreement that yearlydigove ro-nt b -d B3nk on p,ioeo and suboodiewould take place.

24 Korea Second Agricultural Credit 10/76 20.0 3.7 3.6 41.2 43.1 23 Project implementation was timely and effective, mainly becauseLo. 1328 project was iviple,eted by long established and well organizedcooperative credit organization,

25 India Second Agriculeurat RefinaneL 06/77 200.0 2.5 2.5 467.0 488.0 23-50 X X ARDC is good and improving with Bank assistance. Statc bankscod Developmrent Corporation Coft oand the now nationalized commercial banks are less effectiveCr. 715 and more difficult to improve.

26 India Bihar Agricultural Credit 11/73 32.0 3.6 6.1 60.0 51.0 17-40 X Project achieved more than stated targets in terms of bone-Cr. 440 ficiarie and incromental oroductio due to lower thanexpected invetment cost per beneficiary and relativelyeffective management by main financial intermediary.

27 Peru 3ift Agricultural Credit 09/73 25.0 4.3 5.1 41.7 51.2 30 X X Assisted farm mechanization at a time when foreign exchangeIn. 933 reserve were low and farm machinery badly run down,

28 Cot Rica Seccod Agriltural Credit 06/72 9.0 4.5 7.6 16.5 17.9 10-15 X Some institution-building carried further in the follow-onto. 82/ proJect. The project clearly showed that agro-industrialprojects should be controlled in the Bank (IBRD) by other thanagricultural divisions.

29 Jamaica Second Agricultural Credit 06/74 5.5 3.5 5.7 10.8 8.5 Negative The project failed to reach any of its objectives largely oue10. 1004 to an unfavorable econonde climate which deterred investmentsin agriculture. JDB's overall financial performace has beendisastrous mainly due to substantial increases in arrears.

30 Argentina Agricultural Credit 06/78 60.0 4.5 n.e. 161.7 ... L n.a.L The project Could not have been succe-folly implemented due toLo. 1564 supressed demand for credit caused by policies prevailing at thetime and availability ot finance both nationally and interna-tionally at more favorable terms.


31 Malami Lilongwe Land Development Program 05/75 8.5 2.8 3.8 12.0 13.3 25 X Physical implementation of the project was a SuceesS. PoorPh.o. III performance in terms of institution-building.Cr. 530

32 Sudon Sutbero Region Agricultural 06/74 10.7 5.0 5.3 12.6 12.7 1 The project failed to achieve most of its targets (except forR.hbbilitEo the rainefd coffee component) including its institution buildingCe. 476 objectives. The project was over-ambitious but there have beensome accomplishments: substantial infrastructure has been con-structed, research station has been established, and the soundbeginnings of an extension service exist.

33 Rwanda Mutara Agricultural Development 11/73 3,8 5.6 5.6 4.3 4.3 marginal The Bank ignored the institutional system under which similarCr. 439 at beot settlement projects had been implemented in the past. Creatinga new institution proved of little interest and costly.

- 189 -ANX 11

Table 7 Page 3 a 7

SLI21ARY OP PROJECT RESULTS

Bank Contributions toLoan/Credit Execution Expenditures Economic Return Institution Wider sector

Prjeets by Sector Agreement Amovnt Estimate Actual Estimate Autual Audit Estimate ireation Strengthening Effort Commets(Date) (US$ mins) (years) (US$ milns) (%)

34 Zambia Integrated Family Farming 02/73 11.5 5.8 6.8 15.3 19.0 Negative The p-oset t.nd by evry ret,e.n i n--- ad the inple-Le. 882gThprjc aldbevrcrtroofscesadteil-menting aeneey did not develop into an orgnizat-i-. capable ofsustainino or IurLhering project ntivities.

35 Senegal Torreo eeves II Resettlnemt and 08/75 2.0 4.3 5.1 3.9 3.3 18 x Projert one enceesftl. ler prodnetion t1 grendunts,Eastern Senegal Technical Assistance PilleL ad sesgun tBn npter.d, and letio pgruin ntOm. 578milLadsrhmtaexctdanloeprdconf

cetton and naize due to Governnent price policies.

Agriciltual Support

36 Korea Integrated Agricultural 66/74 13.0 4.0 5.9 20.0 21.7 35 P-jee did nat merigiial aj-tiv devLpgP-sdiet. Pratessing

tntegrated produetlon and processing of egriculturalLe. 994 euommdities, aut instead provided finance far freezing anded s tarage et I iheries producte.

37 Kne S.ede 11/73 7,0 4.B 5.6 14.8 25.9 22 94 x Seed processing plant capacity is grealer than that planned atLi. 842 apprainal, but seed procensing systen i nat being eed tocapscity.

38 India Bihar Agricultral Markets 03/72 14.0 6.3 8.3 23.3 28.8 Il x x Pojret forned part al Goverment's es-gn peagram to developCr. 294PrjcfomdprofGvren ngngpormtdvlprodera narket centere throughout India. Project has not fullynet uejeetives; reluctance af traders and farmers to use newarkel centers.

39 ilia Shent Storage I8/71 5.6 3.3 8.6 15.9 20.2 15 x x X Prect completion ons delnyen by more than five years due toCr. 267 procremt controversy, general prnourement end techinlelprobleme and delayt n acquiring construction sites. lhe silocomponent has torned eut tn Se rarginal.

40 Spaim Agriculturil R-earch Prajeet 06/71 12.7 5.5 8.5 26.0 30.3 n.a. X X The projeet nat fully implenented as envisaged at appraisal.n. 768 Reearch has now become more relevant and INIA has beensucesfully rerineted.

PUBLIC UTILITIES

Power

41 Kenya Gitaru Hydroelectric 07/75 63.0 3.0 3.1 135.9 136.0 12 x x the sector was strengthened thrugh: the provision af effectiveLe . i1147 training programa, which perimtted the traineg o Keayannationals to meet the oer', growing need Io aaditinalstaff and te replacemeiL ofpexpatrinte; and improveents inaceonting and reporting syste"e. A new taeilf strutnre wasao introduced, boed n oneg-run narainal osta .

42 Malayin Sixth Power 07/174 45.0 5.4 6.3 68.5 90.3 n.a. x The iStituton hts been strengthened by changes to its orga-S31 tniationetrture and by the creation et a corporate planning

department.

43 Paketan First WAPDA Poeer 08/70 23.0 4.3 9.6 39.8 33.4 n.a. x Signiiicant progres ws made in the arean of finance, accountingCr. 213 and cerrcial operation.

44 Sri lanka Power IV 07/69 16.5 3.2 5.0 31.5 25.7 30 X ) The two projeets achieved a najor institutional objective ni).

636 reatiog a public statury corporatio responsible for power45 Sri Lanka Power V 04/73 6.0 3.2 6.7 9.8 10.7 na. x ) developmL in the country, though the corpøration has not been.e. 372

) given uffniecent anutonoy. ther institutional bjetive, ..g.,iprovements in management iormatitn eysteme and tinancilI andaconting syetene, have net been folly achteved because of

) difficiultes in obtaining qualiCied staff.

46 Afghanistan First Power 05/76 10.0 1.5 2.4 11.0 13.9 Negative X Institution has been strentlhened in the arenaf accontlog.Cc. 621 1aever , the utility has not been operating as a sei-autonrmonsenterprise, due partly to failure Lo have its charter revised.

47 leeland Sigalda Hydroelectric 12/73 10.0 2.9 3.6 64.3 88.0 11 x Ineronection betwene utilities has Bero taking place andLn. 951 oen.slideatieo e the por setor appears to nhow promise; a

general revision o tte ,rift structure is bing prepared.

- 190 - ANNLX IIPage 4 of 7

Table 7

SUM1ARY OF PROJECTRESUJLTS

Bank Contributions toLoan/Credit Execution Expanditures Economic Returns- Institution Wider Sector

Projectso by Sector greement Amount Estimate Actual Estimate Actual Audit Estimate Creation Strengthening Effort Conents(Date) (US$ mlns) (year.) (CS$ ans) (%)

48 Turkey Keban Tranmi ..tn Line 10/68 25.0 3.7 8.9 35.9 73.0 na.. X ) A key objective of Loan 566-TL and Loan 763-I was the ceorgoni-En, 568 zation and consolidation of the sector by integrating power

49 Turkey TEK Fower Transmission l/71 24.0 3.3 6.0 67.1 13.0 3 X X X ) tacilities at tOe b,lk supply level within a national powerLn. 763 ) authority (TEK). Law creating TEK had been crafted at time of

appraisal of Loan 568-TU qnd was poosed shortly before appraisal) of Loan 763-Ti. However, reasonable autonomy for TER was not

achieved and its fi-rancil p.rforanc has been weak.

50 Bolivia ENDE Power IV 06/76 25.0 3.8 4.5 33.1 36.2 2 X X Loan 1238-O and the four previous Bank lending operations to1c. 1238 the power sector have contributed to: the developuent of the

sector's expansion plan according to economic criteria; thecoordination of sector entities, mandatory annual revaluationof the borrower's asset for taliff-beLing purposes; and animprovement in the structure of bulk supply tariffs.

51 Brazil Sao Simao Hydroelectric 06/72 60.0 6.8 6.5 395.8 868.8 9 X Tire sector's tendency towards the achieeno of State rather

ia. 829 than regional power sufficiency, which could have resulted inuncoordinated and uneconomic planning of generation capacity,was arrested. The Goveorent colitted itself to revisingregional generation expansion planning on the basis of least-cost solutions and integration of facilities. Authoritiescompleted a study of bulk supply tariffs, based on marginalcost and are extending these studies to the retail level.

52 Colombia Guatape Power ul/73 56.0 4.9 7.o 982 136.2 11 X Measures t0.rd0 the i n t gth.,inE of the

Ln. 874 fragmented power sector continued under this loan, though notwithout setbacks. The measures were: creation and growth of anational power generation and transmission utility; establismentof a governmental tariff regulatory agency; consolidation ofnumerous small utilities; and preparation of an overall powerdevelopment plan.

Telecommunications

53 Burma First Telecommunications 05/75 21.0 4.1 5.3 30.9 59.0 14 X Institution has been strengthened in terms of accounting,Cr. 551 commercial operation and project management; tariff

structure was improved.

54 Colombia Third Telecommunications 01/75 15.0 3.2 7.9 52.1 57.8 20 X X The integration and consolidation of the sector continued under

Ln. 1073 this Loan. The institution has been strengthened in terms of

project managetent and commercial operation. Assistance Inneeded in developing a budget and cost accounting system.


55 Swaziland Water Suppy & Sewerage 12/74 3.5 2.8 4.3 4.5 3.3 3 X X The newly fomed utility was strengthened under the project.

Ln. 1058 The financial management was improved through the introductionof a commercial accounting system. However, systematicfinancial planning and management reporting along commerciallines were not Successfully established. The utility was notprovided with sufficient independence to enable it to functioneffectively.

56 Gabon Libreville Water Supply 05/73 9.5 2.0 3.6 19.9 20.5 11Ln. 895 X At time of appraisal, entity was relatively small wiLh capable

staff. Bank effort therefore concentrated on physical facilitiesand development of staff without seeking major changes in sub-sector arrangements. However, preparation of urban master plan

for Libreville, envisaged under project, not carried out. Tariffstructure was reformed to increase access of lower-income groupsto household water supply.

57 Ivory Coast Abidjan Sewerage & Drainage 01/75 9.0 2.7 6.2 16.7 20.7 Sewerage: 1-10 X X X The reorganization of the water, sewerage and drainage subsector

Ln. 1076 Drainage: 12 under this project has created satisfactory Institutions to carryout large inveotment programs and has provided the sector with

its own sources of revenues to make it self-financing.

58 Thailand Bangkok Water Supply 06/74 55.0 3.8 5.8 214.0 237.1 Eegative X Management and staffing have improved considerably, with the

Ln. 1021 assistance of consultants, but financial performance of theinstitution disappointing. Bank's efforts to bring aboutrealistic tariff policy have not met with success.

- 191 -

Page 5 of 7Table 7

SUMIARY OF PROJECI RESULTS

/ Bank CoatributiCos toLoon/Credit Execution Expenditures Economic Retorns- a nttion Wider Sector

Projects by Sector Agreement Amoont Estimate Actual Estomate Actual Audit Estimate Creation Strengthening Ettort Comments(late) (US$ miu) (years) (US$ nlus) (%)

59 Cypes Nicooia Seoeroge 04/71 2.7 3.7 9.1 6.3 6.3 14 X x The project served s a vehicle or ppo-ting the e-tlsh-Ln. 729 meet of a strong institutional framework. The utility has been

strengthened in the areas of finsoce, commercial operation andtechicl mnagemeot.

60 Morocco Casablanca Rabat Bulk Water Supply 07/72 41.0 4.0 7.9 104.9 111.4 10 X X x National aothority ice bulk water supply created and strengthenedLn. 850 under the project. Implecentation of new tariff structure, with

the atistanre of coasoltants financed under the project, hasprovided ba.s for financial viability of the sector and efficientallocation of resources on relotion to economic cost of supply.


61 Kenya Highway Maintenance 12/70 12.6 3.8 8.8 18.1 18.9 < 10 X Project demonstrates need for assuring adequate politicalCr. 224 ano social basis if major institutional change is to socced.

62 Swaziland Second Highway 05/75 7.0 2.5 3.0 9.9 10.5 26 Although Bank had concerns about broader transport issues,to. 11B8 project mode no contribution in this area.

63 Ivory Coast Second Highway 06/71 20.5 3.5 4 35.5 36.1 22to. 761 3 The three project assisted inl national programs of road

64 Ivory Coast Third Highway 06/72 17.5 4 5.5 29.0 40.1 33 X construction and maintenance improvement but the projectsto. 837 ) fa1led to cciIve a strong, coordinated impact on country's

65 Ivory Coast Fourth Highway 06/73 7.5 2.5 4.5 12.3 24.7 24 ) cransport osysec.Cr. 406

66 Upper Volta Cotton Roads 06/72 4.2 2.5 7.5 3.5 5.1 4 X This project Initiatea Bank Group's contact with road sector IcCr. 316 Upper Volta and institutional impact therefore was small.

67 Iran Fifth Road 06/70 42.0 4.2 5.2 85.0 83.3 > 17 X Project illustrates need to reexamiine project design if majorLt. 697 changes in project environment occur.

68 Dominican Republic Road Maintenance 08/76 5.0 2.5 3.5 8.2 8.2 32 X Even though project scope was limited project sought to provideand Recosroctien institutional basis fot more exteoive operations In food onctor.

to. 1316

69 Guyana First Highway 04/72 4.4 3.3 7.6 8.2 11.4 16 X X Phyoral components delayed doe to problems with localCr. 301 ctrecor and institutional component not very sccssful

due to weak borrower commitment.

Ra-ilway.

70 Senegal Scond Railway 06/72 9.6 3 6 12.3 11.9 13 X Projcct permtted railway to ontne providing oorthwhile

Lu. 833/Cr. 314 services, to aehieve coon finanuial autonoy ana to improveequipment maintenance but operating efficiency remained mostlytoe.

71 Indonesia First Railway 06/74 48.0 4 5.5 158.0 147.0 19 X Project made major contribution to restructuring of railway evenIe. 1005 though so=e over ambitious targets were tot achieved.

72 Korea Fourth Railway 11/72 400 2.8 5.8 264.8 219.2 19-25 X X ) Projects were part of series for Korean railways and Korean

Ln. 863 ) trasport system and both sought to address broader railway and73 Kora Fifth Railway 04/75 100. 2.5 5 291.6 256.7 25 X X 3 oc to r mngermet problem; further coorodinaion in sectoral

tn. 1101 ) approach would have helped.

74 Yugoslavia Third Railway 03/68 50.0 4.7 10.7 225.5 421.9 6-9 Project coestitoted major new railway link which had national

In. 531 sign-ficance.

Other

75 Kenya Mombasa-Nairobi Pipeline 06/75 20.0 2.0 2.0 82.9 113.0 19 X Relatively small new organization launched successfully but

Ln. 1133 other sectoral and macroeconomic issc were not fully addressed.

76 KeyaNairobi Airport 06/72 29.0 3.4 5.6 46.3 78.3 5 X X lajor physical expansion achieved at Nairobi airport but there

to. 826 ao only limited ccet in improving Kenya'o e,,pacto agency orin manoging and operating the new Nairobi airport.

77 Yugoslavia Babin Kk Tourism 07/71 20.0 3.3 5.0 45.5 66.9 na. X Accounting problems prevent reestimation of rate of return; new

to. 782 hotel enterprise is now operating facilities financed underproject.

- 192 - ANEXi OSPage 6 of 7

Table 7

SUMMRkY OF PROJECT RESULTS

Bank Contributions toLan/Credit Execution Expenditures Economic Return s Institution Wider Sector

Projects by Sector Agreement Amount Estimate Actual Estimate Actual Adit Estimate Creation Strengthening Effort ommets(Date) (US$ mns) (years) (US$ o11s) (%)

EDUCATION

lb Liberia First Edoation 05/72 7.2 3.b 7.6 9.6 10.2 Satisfactory X X X Successfl project with useful institution building. SomeCr. 305 difficulties in finalizing curricula of practical subjects.

79 Greeca First Education 11/70 13.8 3.4 8.7 24.0 45.5 Good X X X Successful project which introduced new type post-secondaryLt. 711 institation. bubstantial institution building.

80 Sudan First Education 06/68 8.5 4.5 11.2 15.4 18.5 Uncertain Project soffered severe delays mainly because of country con-Cr. 122 ditions and has not yet met its objectives.

81 Nicaragua First Education 04/68 4.0 4.2 9.9 8.0 10.2 Satisfactory X Despite earthquake and overcrowding in project schools projectLn. 532 generally successful granted generally unsettled state of country.

82 Nigeria Second Education 04/72 17.3 2.9 8.7 27.8 78.0 Fair X Facilities for primary teacher and secondary education expandedLa. 814 in difficult circumstances, but more innovative project aspects

less succssful.

DEVELOPMENT FINANCES COMPANIES

83 Sud,n Bndctrial Bank of Sudan 12/73 4.0 4.0 5.5 8.4 25.9 Uncertain No progress in institution building.Cr. 447

84 Korea First Loan to Korea Development Bank 03/75 60.0 4.3 3.3 227.2 128.9 Satisfactory X Tangible progress in resource mobilization.Ln. 1095

85 Korea - Korea Development Finance Corporation 05/71 30.0 4.3 4.3 92.9 93.6 Satisfactory X)to. 735 ) Notable constribution to industrial and

86 Korea - Korea Development Finance Corporation 06/73 44.0 4.5 4.1 88.2 87.9 Satisfactory X ) financial deepening; successful in resource4n. 905 ) mobilization.

87 Korea - Korea Dsvelopment Finance Corporation 07/75 55.0 4.9 3.8 106.8 109.5 Satisfactory XLa. 1145

88 India Industrial Credit and Investment 10/71 60.0 5.2 5.2 n.a. 415.0 Satisfactory X)Corporation of India Ltd. ) Efforts to diversify sources of foreign currency modestly,

Ln. 789 successful for reasons beyond institution's control;89 India Industrial Credit and Investment 08/73 70.0 5.4 5.4 n.a. 430.0 Satisfactory X ) institution continues to rely heavily on official aid loans.

Corporation of India Ltd. )Ln. 902 )

90 Tunisia Banque de Developpement Economique 12/69 10.0 4.0 4.9 n.a. n.a. Satisfactory Xde Tunisle

L0. 648 )91 Tunisia Banque do Doveloppement Economique 02/72 10.0 4.2 5.9 n.a. n.a. Satisfactory X

dc Tunisic Efforts to raise local resources of limited success.L.. 798 )

92 Tunisia Banque de Developpement Economique 02/73 14.0 5.1 6.4 n.a. n.a. Satisfactory )de Tunisiec

La. 881 )

93 Colombia Fifth DEC 06/73 60.0 4.0 6.5 267.7 300.5 Satisfactory X ) Limited success in exteding the number of participatingLn. 903 ) financieras due to systemic reasons; financial system

94 Colombia Sixth DEC 03/76 80.0 4.3 4.8 192.0 197.1 Satisfactory X ) hampered efforts to mobilize long-term resources.Ln. 1223

95 Greece National investment Bank for industrial 12/73 15.0 4.1 4.1 56.1 58.0 Satisfactory XDevelopment JV )

In. 945 ) Progress in attaining financial and institutional96 Greece National Investment Bank for Industrial 06/75 25.0 3.2 3.2 53.1 95.3 Satisictory X ) independence.

Dovelopment V )La. 1135

INDUSTRY

97 India Cochin II Fertilier 07/171 20.0 2.8 5.1 47.2 72.2 14 .Cr. 264

98 India Sindri Fertilier 12/74 91.0 2.0 4.0 174.5 187.8 5 X Non-compliance with covenants relating to supply and transportCr. 520 or raw materials affected commissioning and operations.

99 India Nangol Fsrtili..r Expansion 02/73 58.0 2.5 4.4 100.5 140.1 12 xCr. 35/

LOd Pakistan Multn Fertilizer Expansion 05/74 35.0 2.0 4.4 84.4 170.8 15 X Priciog policies remain an issue.Ln. 988

- 193 -ANEX 11

Table 7page 1 of

SUMARY OF PROJECLT RESULTS

ton/Credit Execution Expenditures Eronoic Returns-- coatitut onn etaProjects by Sector Agreeet Amount Estimate Actual Estimate Actual Audit Estimate Creation tre o Effort Commeont

(Dat) (CS$ mls) (yert) (US$ mins) (C) -

11 TurLkey Erdemir Stage I Expansion 04/72 76.0 3.0 6.4 319.7 527.4 15 XLu. 817

102 Brasil CoSipa SLage 11 Expansion 06/72 64.5 4.0 6.3 422.1 998.3 16 X Price controls is an issue; financial outlook of companyLu. 828 oscrtaLin.

103 Mexico Lo Truchas Steel 09/73 70.0 2.5 3.3 635.6 962.8 9 X X Largely unsuccesstul attempt by the Bank to initiate steeltn. 934 industry planning effort in Lhe country; pricing remaitn an

issue.

PROGRAM LOANS

104 India - Tenth Industrial Imports Program 02/75 200.0 1.3 1.0 n.a. n.a. n.a. X ) Discussions with governmeat coutributed to rationalization ofCr. 528 ) imports control system. No progress in addressing structural

105 India - Eleventh Industrial Imports Program 02/76 200.0 1.3 2.3 t.a. n.0. n.0. X ) and istitutional constraints in the industrial sector asCr. 616 suggested by sob ctor studies.

POEPUIAT ION

106 Kenya First Population 04/74 12.0 3.0 5.0 15.4 17.9 n.a. XCe. 468

107 India First Population 06/72 31.8 5.0 6.3 31.8 31.8 n.a. X X XCr. 312

lEE Trinidad and Tobago Poulation 05/71 3.0 3.0 8.0 4.6 17.2 na. XLa. 743

/a Financial return are used as proxy for economic return in some cases.h Loan fully cancelled before implementation began.

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Page 1 of 10

FOLLOW-UP

The sample of seven memoranda that follow has been selected froma total of twenty-five. The full set constitutes a unique aspect of thefollow-up to lessons emerging from individual project performance auditreports (see paras. 4.123, 4.124). The memoranda relate to PPARs foragricultural projects, and are addressed to all managers in the agricultureand rural development sector across the Bank. This initiative is so farlimited to the agriculture sector; its extension to other sectors is underconsideration of the Operations Policy Staff. Other follow-up actions areoutlined in the summary findings appearing at the end of each sectorreview. The consolidated listing, which appeared in the last Review, willbe resumed next year.

1.

December 1, 1980

Lessons Offered by Audit of Completed Irrigati7on Projects-Serial No. 1

Our review of the PCRs and PPARs of three irrigation rehabilitationprojects in Indonesia (Irrigation II, III and IV), and the first irrigationproject in Romania (Giurgiu-Razmiresti Irrigation Project) indicates that thefollowing conclusions brought out in these PPARs would be of general interestand should be kept in mind while preparing future irrigation projects:

1. For irrigation rehab:litation projects, the appraisal cost estimatesshould be based on final designs and work quantities of at least either arepresentative sample of the proposed works, or the first year's program;otherwise cost increases much larger than the foreseen physical contingenciesare likely to result as final designs are developed.

2. Operation and maintenance of the compated project works (particularlyworks that have been rehabilitated) need to be closely monitored by the super-vising authority of the Borrower, and the Bank, if possible, to ensure thatthe need for further rehabilitation is avoided.

3. For irrigation rehabiliation projects, neither the executive bodyform of organization nor the autonomous corporation is inherently superior;both have strengths and weaknesses and are likely to have administrative prob-lems which have to be resolved in the best manner possible within the contextof the particular set-up of the country and the project.

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4. Fertilizer dosages in Bank technical reports should always be speci-fied in terms of available nutrients. However, the commercial form in which thenutrients in question are supplied should also be indicated.

2.

May 21, 1981

Lessons Learnt from Project Performance Audit Reports - No. 6

1. Our review of the PPAR and PCR of the Kadana Irrigation Project.in India (approved in early 1970) indicates that the following con-clusions could be of general interest.

(a) Cost of the dam increased by about 420% due primarilyto an underestimated spillway capacity, which had tobe increased twice on the basis of record floodsactually experienced during construction, and problemsresulting from a geologic fault not considered seriousby original designers. It is quite obvious thatappraisal missions should satisfy themselves about theadequacy of geologic explorations, and of hydrolozicstudies and estimates of design floods, failing whichphysical contingencies should be suitably increased.Rowever, the experience of the Kadana Project serves asa reminder that in a project involving a dam very fulland careful attention should be paid to hydrology andgeology during preparation and appraisal.

(b) One of the major reasons for delay in project imple-mentation was the non-availability of adequate counterpartfunds during the first year of the project. This is acommon problem which requires special attention atappraisal and can be avoided, or mitigated by incor-porating special measures like revolving funds orlarger disbursement percentages during the project'searly years.

(c) It is unrealistic to assume that once additional supplie*sof irrigation water are available at farm outlets, farmerswill share it equitably and use it optinally. The ex-perience of the Kadana Project underscores the importancenow attached in irrigation project design to mechanismsfor appropriate water distribution and management at thefarm level.

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Page 3 of 10

3.

June 5, 1981

Lessons Learnt from Project Performance Audit Revorts No.7

1. As you may be aware, the Performance Audit Report on theMalawi-Lilongwe Land Development Program Phase III (Credit 500-MAI) wasissued by the Operations Evaluation Department recently. This was apioneer program: many of the features and the philosophy of which havefound their way into rural development projects financed by the Banksince the late 1960s. While the whole performance audit report isworth reading, the following salient points are thought to be of

particular interest and relevance.

2. Pioneer area based urolect. LLDP has rightly been held up asone of the Bank's and Malawi's success stories, and its principles havebeen applied with some success elsewhere (e.g. the Nigerian ADPs). Itis essentially a philosophy o:f development, however, and it has beenshown that the model has to be considerably adapted to the environment

of other countries to make it effective. Just as with the Training andVisit system of extension, it cannot be transferred like a blueprint.

3. Intensive develooment area based projects are often needed toinitiate new forms of development, and to convince Governments, regionalauthorities and local leaders of the efficacy of the approach. TheNational Rural Development Program (NRDP) needed this type of projectas a forerunner; and even with a national NRDP program, Lilongwe, as ahigh potential developed area, needs to continue to experiment with moreintensive farming systems for later replication elsewhere in Malawi.

4. Lack of instLtution building capacity. While LLDP can be criti-cized for its lack of institution building capacity, the argument in para 3above holds good. It was important to get this new style of developmentunder way effectively and to make an impact - this needed a semi-autonomousform of organization. After this, the more difficult task of reformingexisting, more permanent institutions could be followed with demonstratedexperience from which to draw and adapt.

5. Trained manpower. While the project provided an excellent sourceof trained manpower at intermediate levels, it relied heavily on expatriatemanagement. Even though it introduced a management training program forsenior Malawian staff, in the event, the output from the program wasinsufficient to meet the country's need.

6. Indigenous construction capacity. The construction program wasboth economically and effectively implemented, but some contracting outto local contractors would have encouraged the local building industry,albeit at some possible sacrifice in speed and economy of construction.While it can be argued that this was not appropriate under Phases I and IIto ensure quick impact, it should have been done in the Phase III Project.

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Page 4 of 10

7. Level of infrastructure. It still remains to be seen whetheror not th-: project could have been as successful with less infrastructureand lower standards. Certainly for rapid replication on a country widebasis, recurrent cost concerns dicate that lower standards are and haveto be acceptable. These have rightly been changed in the NRDP, butnevertheless the outcome needs careful monitoring.

8. Achievement of yield targets. Yield targets might have beenmore readily achieved with:

(a) Better price policy, that could have given moreincentive to farmers. There was constant dialogueon this topic with Government during the life of theproject, but only now are the problems caused by itspricing policies for farm products beginning to beappreciated.

Cb) Better adaptation of technology through greaterfarmer participation and analysis of feedback inmuch closer liaison with research. Revision ofextension methodology on 'Training and Visit' linescould pay a big dividend now that infrastructure,input supply, marketing and credit are geared up.

9. Supervision coefficients. The criticism of the duration andstaffing of supervision missions in the Audit Memorandum has to be lookedat in the context of.the Bank's overall approach to supervision. Heavyconcentration of manpower tends to be placed on problem projects to tryto improve performance, which inevitably leads to lower Bank input onprojects such as LLDP which perform well. Yet, it is often from the betterprojects that one can learn more from effective supervision. In this case,with a higher staff input the problems in extension and applied researchmight have been noticed and rectified earlier.

10. Monitoring and evaluation. The project experience with M&E hasclosely parallelled the various pitfalls that can be seen in Bank effortsto introduce M&E in other projects elsewhere. Nevertheless, it has been apioneer in the Bank's as well as Malawi's, learning process, and more may

emanate from it than the PPAR gives credit for. Hopefully, the lessons

are being learnt, and not being repeated in new generations of Bank

projects. The main lesson as far as NRDP is concerned is that first

priority must be given to appropriate monitoring, backed up by quickresponse surveys of identified problem areas to assist management in

its ongoing management function. More comprehensive surveys and analytical

evaluation should form a second important task but never to the exclusion

of the former.

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Page 5 of 10

4.

February 4, 1982

Lessons Learnt from Recent PPARs - No. 11

1. A recent PPAR concerning a project which failed in almost allrespects draws attention to an important lesson of wide ranging relevance.

2. In brief, the project sought to increase production of twoannual cash crops through recruitment, settlement and servicing (includingcredit, input supply, extension, road construction and basic social sectoramenities) of several thousand smallholders. In the event, productiontargets for'both cash crops .ailed to reach one third of appraisal esti-mates; and the institution thought to be capable of fostering furtherdevelopment in the future failed totally to rise to this challenge.

3. The reasons for this dismal performance are not entirely unique,viz:

a) rapid deterioration of management in the executingagency and a change to political objectives at variancewith those of the project as approved by the Board;

b) overly heavy dependence of project beneficiaries onunreliable government services and failure to providealternatives;

c) changes in the relative profitability of the two cashcrops such that the rationale for growing one of themat all should have called for a more thorough reviewof the farming system during supervision with a viewto possible amendments; and,

d) near total failure of project management to provide annualaccounts and project data that would have permitted amore accurate assessment of the health of the Project.

4. The failure to respond effectively to these factors can be

ascribed to two principal, interrelated, reasons:

a) supervision missions tended to base their recommendationson other than project grounds. Country considerations

were permitted to influence judgments as to the wisdom

of continuing the project, the performance of which

justified withdrawal of Bank support, i.e., by with-

holding disbursements. This preoccupation with countryquestions resulted in the comparative neglect of projectissues which further exacerbated the poor performance;

- 199 - ANNEX III

Page 6 of 10

b) there was an apparent lack of communication betweenmanagement and staff in the Bank as to the seriousnessof the situation and the appropriateness of remedialaction.

The project was a problem project for five years and thus subject tomuch more intense management scrutiny than most. Nevertheless, itwas allowed to deteriorate, largely because of apparently excessivesensitivity to country considerations.

5. In sum, the major lesson is that project concerns should pre-dominate in supervision and implementation decision-making. Countryconsiderations, such as promoting smallholdem and maintaining goodrelations between the borrower and the Bank are obviously importantin and of themselves. Nevertheless, there is serious doubt as towhether in most cases they are sufficient reason to allow bad projectsto continue, since in the long run, this could well prove counter-productive.

5.

July 16, 1982

Lessons Learned from Recent PPARs - No. 19

1. A recent PPAM on one of the Bank's earliest multi-sectoral ruraldevelopment projects that encountered major implementation problems drawsattention to important considerations pertaining to this type of investment.

2. Because of their diversity, multi-sectoral rural developmentprojects tend to encompass much wider bureaucratic and/or politicaldimensions than, for instance, those solely concerned with irrigation orparticular crops. Such rural development projects are not necessarily"blue printed" at time of loan finalization since they not infrequentlycomprise many small sub projects that are finalized during implementationaccording to agreed criteria. They may well have a bearing on and/or haveto accommodate such politically sensitive Government policies as employment,rural versus urban development, transportation, water supplies, health, andmarketing. There is a distinct limit on the extent to which the Bank canexpect, through a perforce relatively small series of project interventions,to encourage policy changes which may call entire Government programs intoquestion. Further, there is a limit to the readiness to introduce evenminor policy shifts that can be expected from a range of government agencieswhich may be fighting for positions in the hierarchy and which have managersof varying influence and dynamism, nothwithstanding mechanisms introducedunder the project to counter institutional rivalries.

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Page 7 of 10

3. There is an additional general political aspect to this type ofproject. That is the extent to which the Bank can or should seek to preventa rural development project from becoming a partisan undertaking thatfavors supporters and penalizes opposing forces within a recipient country.Only limited safeguards can normally be incorporated by the Bank in projectdesign to guarantee fully the channeling of project funds to, say, the mostneedy districts or villages.in a project area, since precise socio economicdata are rarely available to determine their location and size. There isthus a danger that project financed assets could be used for gainingpolitical capital at the risk of penalizing otherwise deserving segments ofthe population. Such potential. inequities argue for particular attention tothe collection of appropriately detailed socio economic data in course ofpreparation, and agreement with governments on objective and mutuallyacceptable criteria for project: interventions in projects of this kind.These latter actions are particularly important when the interventionsconcerned require the provision of recurrent budgetary resources for theircontinued operation after disbursement of Bank funds has been completed.

July 20, 1982


1. Several recent PPAMs on projects designed to increase productionof rainfed annual crops in the semi arid tropics draw attention to adesign fault in the technology prescription. This relates to a perceivedfailure to examine the basic ecological principles of the traditionalfarming system and to explore potential benefits from its development.

2. In the areas in question farmers have evolved a flexible mixedcropping system designed to maximize production and minimize risk of totalcrop failure under conditions of variable and unreliable rainfall. Projectdesigners and, until recently, research workers in these areas have tendedto advocate sole cropping as the basis for production packages. Suchrecommendations, whilst technically sound under experimental station conditions,are less than fully acceptable to farmers because of the risk of crop failure

- 201 - ANNEX III

Page 8 of 10

under adverse climatic conditions. Their perceptions have been borne outby recent research findings in one area that may be regarded as typical ofsub Saharan Africa. Results indicated that while the average yield ofindividual crops under a traditional mixed cropping regime using traditionalvarieties may be up to 40% lower than yields of sole crqps planted on thesame area, the average value of the mixture was up to 35% higher than thatof sole crops. Furthermore, the returns from mixed cropping were 28% higherper man hour than from sole cropping and even greater (57%) when laborapplied during weeding, a traditional labor peak, was considered separately.The net financial return also shows the superiority of mixed cropping,roughly from 30-40% above sole cropping, depending on labor rates, Thesefindings suggest that under the climatic conditions of a reasonablyrepresentative area of the African semi arid tropics, mixed cropping not onlymaximizes the resources available to small farmers, but also assists inalleviating labor peaks.

3. There is an obvious general lesson in the foregoing. Namely,that during preparation and appraisal it is essential to assess the relevanceof project interventions to conditions on farmers' farms. Such assessmentshould involve an appraisal of the agro ecological and socio economic conditionsunder which farmers operate, and the extent to which recommendations fromresearch stations, which may be proposed as project interventions, have takensuch factors into account. In the event that they have not, proposals foradaptive research should be carefully designed with these factors in mind, andmajor investment in promoting dissemination of "improved technology" should bedelayed pending resolution of perceived inadequacies of the technology in question.

4. This lesson and a number of others relating to area development projectsbased on rainfed annual crop production will be the subject of a jointRegional/OED/AGR sponsored seminar later in the year.

7.

July 27, 1982


1. A recent PPAM on two related agricultural credit projects provideslessons of general interest concerning the use of studies and projects asvehicles for bringing about changes in major government policies andimprovement of institutions concerned with project implementation.

2. At appraisal the following main issues were identified:

a) Inadequate meat pricing policy and the absence ofdifferential prices for differing grades andqualities of beef;

b) Insufficient slaughtering and marketing facilities;

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Page 9 of 10

c) Inadequate interest rates; and,

d) A deteriorating financial situation and poor organizationand management of the credit institution.

Remedial actions proposed by IDA were accepted by the Government atnegotiations and pertinent covenants were included in the legal documents.On issues a) and b), the Government was to engage consultants to carry outstudies and make recommendations within 12 months of the date of Crediteffectiveness. Within nine months of receipt of the consultant's reportthe Government was to adopt a beef price policy acceptable to IDA to providefor differential prices for meat of different grades and qualities. Thequestion of interest rates was addressed by a covenant stipulating that ifthe rate of inflation should rise above an agreed threshold the creditinstitution would make no further loan commitments until agreement wasreached with IDA on adopting an indexing system. Finally, the problersofthe credit institution were to be reviewed by consultants whose reco=endationswere to be implemented within six months after the issuance of their report.

3. Thus, with the exception of the indexing problem, the issuesidentified were expected to be resolved through consultant studies andthe rapid implementation of their recommendations. In the event, althoughthe studies were carried out and despite IDA's efforts during supervision,little or no action was taken to put their recommendations into effect.

4. The lessons arising from this and other experiences are asfollows:

a) While studies have a valuable role in development, it isunreasonable to expect that Governments and the Bank can commit themselvesto implement wide ranging consultants' recommendations in a given relativelyshort time. Past experience shows that the conclusions of a study arenot necessarily acceptable to the parties involved and can often requireextended discussions, sometimes involving several ministries, together withpossible changes in legislation. Imposition of a tight time frame toimplement policy reforms that go beyond the scope of a particular project,and which cannot be clearly defined at negotiations, may well result inproject covenants that are unrealistic.

b) Relatively small and simple projects are not normallyappropriate vehicles to bring about changes of macro economic policies unlessthe Government concerned has already displayed strong, and preferablytangible, commitment to effect such changes. It is now recognized thatStructural Adjustment Loans can provide a more appropriate means forpromoting macro economic policy changes.

c) Improvement of a government agricultural credit institutionis not an easy task since it cannot be isolated from the country's politicaland economic environment and is therefore open to possibly deleteriousGovernment intervention in its operations, policies and procedures.

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5. Despite protracted discussions between IDA and Government staffthe indexing covenant was not successfully applied for a variety of reasonsfrom which it can be deduced that if indexing is chosen as a means ofaddressing inadequate interest rates:

a) Governments must fully accept the principle of monetarycorrection and be prepared to provide strong support forits application.

b) Indexing cannot be applied only in a particular sectoror sub sector.

c) Indexing is likely to be rejected by farmers when pricesof outputs are controlled by governments and distorted infavor of urban consumers.

d) Coordination between the Government, the Bank and otherinstitutions providing alternative sources of financingis a prerequisite for successful introduction of a soundmonetary correction system.

e) Moving from zero to full indexing on a gradual basis isprobably desirable in countries which have no indexingexperience.

Documents

Eighth Annual Review of Project Performance Audit Results