SCCD : N.G.

AFRICAN DEVELOPMENT FUND ETH/NTTT/2000/01Language: EnglishOriginal: English

APPRAISAL REPORT

PRIVATISATION TECHNICAL ASSISTANCE PROJECT

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

NB: This document contains errata or corrigenda (see Annexes)

COUNTRY DEPARTMENT OCDEEAST REGION OCTOBER 2000

TABLE OF CONTENTSPage

PROJECT INFORMATION SHEET, LIST OF ABBREVIATIONS AND (i-viii)ACRONYMS, BASIC DATA SHEET, EXECUTIVE SUMMARY,PROJECT MATRIX

1. ORIGIN AND HISTORY OF PROJECT 1

2. ETHIOPIA’S PRIVATE SECTOR INVESTMENT CLIMATE 2

3. THE ETHIOPIAN PRIVATISATION PROGRAM 33.1 Objective of the Privatisation Program 33.2 Implementation Status of the Privatisation Program 33.3 The Ethiopian Privatisation Agency 5

4. THE PRIVATISATION TECHNICAL ASSISTANCE PROJECT 6

4.1 Project Concept and Rationale 64.2 Strategic Context 74.3 Project Objective 74.4 Expected Project Outputs 74.5 Project Description 84.6 Components supported by the Other Participating Donors

and the GOE 94.7 Proposed Components for ADF Project 104.8 Environmental Impact 104.9 Social Impact 114.10 Project Costs 124.11 Sources of Financing of the Overall Technical Assistance Project 124.12 Cost Structure of the ADF Project 134.13 Sources of Financing of the ADF Project 13

5. PROJECT IMPLEMENTATION 145.1 Executing Agency 145.2 Institutional Arrangements 145.3 Supervision and Implementation Schedule 155.4 Procurement Arrangements 165.5 Disbursement Arrangements 185.6 Monitoring and Review 185.7 Aid Co-ordination 19

6. JUSTIFICATION, SUSTAINABILITY AND RISKS 196.1 Justification 196.2 Sustainability 196.3 Critical Risks and Mitigating Measures 20

TABLE OF CONTENTS (Continued)Page

7. CONCLUSION AND RECOMMENDATION 207.1 Conclusion 207.2 Recommendation 20

LIST OF TABLES

3.1 Tranching of Enterprises for Privatisation in Phase II4.1 Total Project Cost by Component4.2 Sources of Finance of the Overall Technical Assistance Project4.3 ADF PROJECT: Cost Estimate by Component4.4 Financing Plan of ADF Project by Source4.5 ADF Project: Financing Plan by Component5.1 ADF Project: Cost Estimate by Categories of Expenditure and Year5.2 Expenditure Schedule by Source of Financing5.3 Summary of Procurement Arrangements

LIST OF ANNEXES

I. Map of EthiopiaII. Organisational ChartIII. Privatisation: Transaction Preparation TasksIV. List of Public Enterprises: Tranche 5V. Terms of Reference for Out-sourced Consultancy Service for Transaction PreparationVI. Terms of Reference for Privatisation/Post Privatisation AdvisorVII. Terms of Reference for Contract professionalsVIII. Terms of Reference for Publicity and Marketing AdvisorIX. Detailed Cost Estimates by Expenditure CategoryX. Detailed Cost Estimates by Expenditure Category by yearXI. Summary Bank Group Operations

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This report was prepared by Messrs. S.A.OLANREWAJU (Chief Economist) OCDE.1,Hassan H.FARAH (Principal Investment Officer) OPSD.2, and I. SAMBA (SeniorEnvironmentalist) OCDE.1, following their preparation and appraisal missions to Ethiopia inJune 1999 and June 2000 respectively.

AFRICAN DEVELOPMENT FUND01 BP 1387 Abidjan 01

Telephone: 225 – 20 20 44 44Telex:23717 AFDEV, 23498 AFDEV

Fax: 225 – 20 22 60 04; 225 – 20 21 65 45

PROJECT INFORMATION SHEET

This information given hereunder is intended to provide some guidance to prospectivesuppliers, Consultants and all persons interested in the procurement of goods and services forprojects approved by the Boards of Directors of the Bank Group. More detailed informationand guidance should be obtained from the Executing Agency of the Beneficiary.

1. Country : Ethiopia

2. Name of Project : Privatisation Technical Assistance

3. Beneficiary : Federal Democratic Republic of Ethiopia

4. Location : Addis Ababa, Ethiopia

5. Executing Agency : The Ethiopian Privatisation Agency

6. Description of the Project : The project consists of six components:(i) transactions support(ii) institutional support (technical

assistance, provision of equipment andtraining)

(iii) public awareness promotion(iv) post privatisation monitoring and impact

analysis and(v) Environmental Audit(vi) EPA operating Support

7. Total Cost : UA 10.2 million

8. Bank Group Grant : TAF – UA 3.0 million

9. Other Sources of Finance : GTZ UA2.24 millionIDA UA0.75 millionGOE UA 4.89 million

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10. Date Approval : November 2000

11 Estimated Starting Dateof Project and Duration : January 2001 – December 2002

(24 months)

12. Procurement of Goods : The procurement of goods comprising computerand promotional equipment will be by nationalshopping (NSH) since the items are varied, thequantities to be procured are small and thegoods are available locally.

13. Consultancy Servicesrequired and stage ofselection : Consultancy services would be required

for out-sourcing of transaction preparation andexecution and for technical assistance usingshortlist method. The selection procedure ofcombining technical quality with price will beused in accordance with the Bank’s Rules ofProcedure for the use of consultants.

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ABBREVIATIONS AND ACRONYMS

ADB : African Development BankADF : African Development FundCV : Curriculum VitaeDM : Dutch MarkEA : Environmental AuditEIA : Environmental Impact AssessmentEPA : Ethiopian Privatisation AgencyE-EPA : Ethiopian Environmental Protection AuthorityEPAOS : Ethiopian Privatisation Agency Operating SupportETB : Ethiopian BirrEVDSA : Ethiopian Valley Development and Study AuthorityGOE : Government of EthiopiaGPN : General Procurement NoticeGTZ : German Technical Co-operationIDA : International Development AssociationLS : Local ShoppingMIS : Management Information SystemNSH : National ShoppingPAP : Public Awareness PromotionPESA : Public Enterprises Supervisory AuthorityPEs : Public EnterprisesPPAP : Post privatisation Impact AnalysisPR : Public RelationsSL : ShortlistTAF : Technical Assistance FundTOR : Terms of ReferenceTS : Transactions SupportUA : Unit of AccountsUS$ : United States Dollar

CURRENCY EQUIVALENTS30 July 2000

Currency: Ethiopian Birr

1 UA = Birr 11.0Birr = UA 0.091 US$ = Birr 8.251 UA = US$ 1.34

FISCAL YEAR : July 7 to June 6

ivBASIC DATA SHEET

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MPDE Matrix: Ethiopia Privatisation Technical Assistance Project

Narrative Summary (NS) Verifiable Indicators (OVI) Means of Verification (MOV) Important Assumptions

Goal: (Goal to Super goal):

1. To promote a dynamic privatesector development therebyenhancing the contribution of theprivate sector to sustainableeconomic growth and povertyreduction through employmentgeneration.

1. Sustainable economic growth rateof 5-6% in the medium to long run.

2. Improvement in governmentrevenue, through enterprise salesproceeds.

Periodic Reports of EPA onprivatised PEs and the annualbudget document.

1 Sustained nationalcommitment to theprivatisation program

.

Project Objective: (Project Object .to Goal):

1. To strengthen the capacity of EPA toeffectively implement theprivatisation action plan therebyreducing the size of the portfolio ofstate enterprises.

1 Bringing at least 80 of the 123 Pescontained in the Privatisation Action Planto the point of sale by June 2001 andcompleting preparation reports for theother 43 PEs., by December 2002

Progress report of EPAPrivatisation Action Plan.

Quarterly progress reports andsupervision mission reports.

1 ADF and other donors’support projects areeffectively implemented.

2 Project resources arereleased on time.

Outputs: (Output to Project Obj.):

1. Transaction preparation reports of123 PEs completed and at least 80PEs brought to the point of sale byJune 2001.

2. EPA technical capacity toimplement the privatisationprogram enhanced.

3. Public and investor awareness of theprivatisation program improved

4. Systems for post privatisationimpact analysis established andreports of sector studies for therestructuring of other Pes competed.

5. Environmental audit of 20enterprises completed.

1. Technical preparation reports of 123PEs by December 2002.

2. Training program executed andinformation systems are functionalby December 2001.

3. Plans of awareness promotion fordifferent target groups successfullyimplemented by December 2002.

4. Impact analysis system put in placeby December 2002

1.1 Quarterly progress andsupervision mission reports

1.2 Ditto

1.3 Ditto

1.4 Ditto

1.5 TCR

EPA retains trained staff

EPA effectively monitors theoutsourced transactionspreparation tasks.

Activities: (Activity to Output):

1.1 Contracting out PEs divestiturepreparation to private consultingfirms.

1.2 Provision of policy and technicaladvice, training, and MIS.

1.3 Contracting out public informationpromotion to private professionalmedia.

1.4 Hiring consultants to undertakesector studies and periodic impactanalysis.

1.5 Environmental audit

Input: (UA,000)TS 4,756IS 2,292PAP 921PPIA 185EA 130EPAOS 1,428Contingency 486Total 10,198

2. Resources: (UA’000)ADF/TAF 3,000IDA 750GTZ 2,240GOE 4,210

Total 10,200

1.1 Quarterly progress andannual audit reports.

2.1 Supervision missionreports.

3.1 Disbursement vouchers.

1. Contracts are prepared andawarded on time.

2. Donor resources arereleased on time for theproject.

3. Government’s localContribution is available.

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EXECUTIVE SUMMARY

1. Project Background

As part of its public sector reform and private sector development process, Ethiopiainitiated in 1994 a privatisation program aimed at reducing the size of the portfolio of publicenterprises. The Ethiopian Privatisation Agency (EPA) was established in the same year byProclamation No. 87/1994 to provide the institutional framework for ensuring an orderlyimplementation of the privatisation program. During the first phase of the program, the EPAprivatised 176 PEs, comprising mostly small enterprises using mainly in-house expertise andgovernment resources. To facilitate the successful implementation of the second phase of theprivatisation program (involving larger and more complex enterprises) initiated in 1998, theGovernment prepared a technical assistance project aimed at strengthening the institutionalcapacity of the EPA and sought the support of the African Development Fund (ADF), theGerman Development Co-operation (GTZ) and the World Bank for its implementation.

2. Purpose of the ADF Grant

The ADF grant of UA 3.0 million, amounting to 95% of the total ADF project cost,will be used to finance 100% of foreign exchange (UA 2,401,000) and 78.3% of local cost(UA 597,000). In terms of the overall technical assistance project however, the ADF grantrepresents 30% of the foreign exchange and 27% of the local cost.

3. Sector Goal and Project Objective

3.1 The sector goal is to promote a dynamic private sector development. This sector goal hasthree main elements:

(i) creating a dynamic entrepreneur group as a partner in the economicdevelopment process thereby enhancing the contribution of the privatesector to sustainable economic growth;

(ii) investment attraction – providing access to the private capital to propelnational economic development; and

(iii) relieving tied resources: – enabling the Government to re-deploy itsscarce resources and the privatisation proceeds to higher priority sectorsand poverty-reduction programs.

3.2 The Privatisation Technical Assistance Project aims at strengthening the capacity of theEPA to effectively implement the government’s Privatisation Action Plan, thereby reducingthe size of the portfolio of state enterprises. The Action Plan envisages the divestiture of 123enterprises, of which 80 are expected to be brought to the point of sale by June 2001 and thebalance by December 2002.

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4. Brief Description of the Project’s Outputs

In order to achieve these objectives, the project will focus attention on:

i) Transaction preparation for 123 PEs, at least 80 of which would be brought tothe point of sale by June 2001 and the balance by December 2002;

ii) Enhancement of EPA technical capacity to implement the privatisation`Program;

iii) improvement of public and investor awareness of the privatisation program;iv) Establishment of systems for post privatisation monitoring and impact analysis;v) Execution of environmental audit of 20 enterprises to be privatised.

5. Project Cost

The total cost of the overall privatisation technical assistance project is estimated UA10.20 million, out of which about UA 8.0 (78.4%) will be in foreign currency and UA 2.2million (21.6) will be in local cost.

6. Sources of Financing

The project will be financed by the African Development Fund (ADF), the WorldBank, the German Development Co-operation (GTZ) and the Government of Ethiopia(GOE). Total ADF finance amounting to UA 3.0 million will be utilised to finance thefollowing components: transactions support (out-sourced consultancy service) for 20enterprises in tranche 5 of the Privatisation Action Plan, institutional support, publicawareness promotion, post privatisation monitoring and impact analysis, and environmentalaudit of the 20 enterprises. Total ADF contribution representing 29.4% of total cost, will beutilised to cover 30% of the foreign exchange costs and 27% of local costs of the project.The World Bank will be responsible for the provision of funds (UA 0.75 million) fortransactions support for 13 enterprises in tranche 4 of the Privatisation Action Plan whilethe GTZ’s contribution (UA 2.24 million) will fund institutional support and publicawareness promotion components. The GOE’s contribution of UA (UA 4.89 million willbe utilised to cover transactions support for the enterprises in tranches 1-3 and EPAoperating expenses.

7. Project Implementation

The proposed project will be implemented over a 2-year period beginning in January2001 and ending in December 2002. The Implementing Agency will be the EthiopianPrivatisation Agency (EPA). However, the Ethiopian Environmental Protection Authority willexecute the environmental audit component, either directly or through outsourcing inconsultation with the EPA.

8. Conclusions and Recommendations

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8.1 The GOE has demonstrated its determination to vigorously implement its privatisationprogram. For the first phase of the program, the EPA privatised 176 (mostly small-scale) PEs.Under the current phase of the program, the GOE has prepared a Privatisation Action Planinvolving the divestiture of 123 PEs, out of which 80 are expected to be brought to the pointof sale by June 2001. Together with the support being provided by the World Bank and theGTZ, the ADF project will support the implementation of the Privatisation Action Plan.

8.2 It is recommended that a grant not exceeding UA 3.0 million from ADF/TAF resourcesbe granted to the Government of Ethiopia for the purpose of implementing the project asdescribed in this report, subject to conditions specified in the loan agreement.

1. ORIGIN AND HISTORY OF THE PROJECT

1.1 The Ethiopian Privatisation Program was initiated in 1994 and the Ethiopian PrivatisationAgency (EPA) was established by Proclamation No. 87/1994 to provide the institutional frameworkfor ensuring an orderly implementation of the privatisation program. During the first phase of theprogram, the EPA privatised 176 PEs, comprising mostly small enterprises (see para.3.2.1) usingmainly in-house expertise and government resources. The EPA however lacks the capacity toprivatise more complex medium and large enterprises envisaged in the later phases of theprivatisation process. To facilitate the successful implementation of the second phase of theprivatisation program initiated in 1998, the Government prepared a technical assistance projectaimed at strengthening the institutional capacity of the EPA. The GOE sought financial assistancefor the project from the African Development Bank Group, the World Bank and the GermanTechnical Co-operation (GTZ).

1.2 The three institutions have responded positively to the government’s request. The GTZtook the lead by providing resources amounting to DM 5.5 million (about UA 2.24 million) toEPA for a three-year period (February 1999-January 2002). The World Bank has also approved anIDA Project Preparation Facility (PPF) of US$ 1.0 million for the EPA as a prelude to a possiblelarger credit. Both the GTZ and the IDA components are already under implementation. A BankGroup project preparation mission visited Ethiopia during the period 14-25 June, 1999 to preparethe ADF component of the Privatisation Technical Assistance Project at a time when the WorldBank mission was also in the country to finalise the procedure for the utilisation of the PPF. Thestaff of both the IDA and GTZ joined the ADB mission in its discussions with the EPAmanagement, thus affording the three institutions the opportunity to discuss the overall frameworkfor the technical assistance project and co-ordination mechanism. Another Bank Group missionvisited Ethiopia from 4–24 June, 2000 to appraise the project. This report is based on the findingsof both the preparation and appraisal missions. A TAF grant, not exceeding UA 3.0 million ishereby being proposed to assist the GOE to part finance the technical assistance project.

2. ETHIOPIA’S PRIVATE SECTOR INVESTMENT CLIMATE

2.1 In the 1970s and 80s, public enterprises (PEs) formed an integral part of the Ethiopiancentrally planned economy. In some sectors such as manufacturing, mining, power and transport,output of PEs accounted for over 50 percent of the total output of the respective sectors. However,since 1992, the focus of economic policy has shifted from a command to a market system. Due tothe legacy of the restrictive economic policy, which characterised the Derg regime, poor enablingenvironment for private sector development has been a key problem in Ethiopia. However,economic reforms since 1992 has accorded a high priority to public sector reforms and privatesector development. To this end, the Government has been implementing measures to progressivelyliberalise the environment for private investment. The investment code issued in 1992 has beenrevised twice in 1996 and 1998. The 1998 revision increased private sector (including foreign)participation in infrastructure provision by opening up key areas formerly under state control suchas domestic civil aviation, power and telecommunications to private investment. To increaseforeign direct investment in the economy, the Government has removed the minimum capitalinvestment limit (less than US$ 20 million) applying to foreign investment in joint ventures and theupper limit (greater than US$ 20 million) applying to sole ventures in the engineering,metallurgical, pharmaceutical, chemical and fertiliser industries. Overall, Ethiopia has recordedsome achievements in improving the environment for private investment since 1992. Privateinvestments in manufacturing, agriculture, agro-business and mining contributed, on the average,about 10.5% to the GDP during 1995-97.

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2.2 To permit a sustained private-sector led growth, which the Ethiopian economy is capable ofachieving, a number of existing constraints to private investment still need to be removed. Landacquisition remains a major problem, even though the Government has introduced a market-based landlease policy aimed at guaranteeing long-term usership of land for agriculture, housing and industrialpurposes. The implementation of the policy is hampered by bureaucratic bottlenecks in many of theregions. The exorbitant cost of land in the Addis Ababa area also constitutes a disincentive toinvestors. It is however encouraging to note that Regional Governments are becoming moreaccommodating with respect to the sensitive issue of access to land and are also becoming moreaggressive in their efforts to promote inward private investment. Limited infrastructure facilities,especially energy, water and inland transport also constrain the emergence of a dynamic privatesector. Also, Investment Offices, both at the centre and the regions are still not able to functioneffectively as one-stop shops due to capacity constraint.

2.3 Financial sector stability, depth and competitiveness are essential for efficient mobilisationand allocation of resources for private sector development. Ethiopia’s financial sector is non-competitive since it is still dominated by state-owned institutions. The financial sector is currentlycomposed of the National Bank of Ethiopia, the Commercial Bank of Ethiopia, the Constructionand Business Bank, the Development Bank of Ethiopia, insurance companies, Pension and SocialSecurity Authority, savings and credit co-operatives and six private commercial banks which hademerged since 1994. In the insurance business, there are nine companies, eight of which areprivate. The scope of financial services provided by the financial sector is still narrow while theprovision of term financing is very limited, especially in foreign currency. The Investment Codedoes not, for now, permit the establishment of foreign banks and there is no stock exchange yet inthe country. The weak and under-developed financial system and the absence of a stock marketcould constrain the emergence of a dynamic private sector in Ethiopia.

2.4 Within the context of its public sector reform program which has made considerablestride, the Government needs to further intensify reforms in a number of areas including: (a)liberalisation of the foreign exchange and trade regimes by licensing more foreign exchangebureaux, removing export pricing controls, and increasing exporter retention of foreign exchangewhich is still limited to 10 percent of export earnings; (b) further simplification of investmentregulations and trade licensing procedures; and (c) further liberalisation of private investment(including foreign investment) in banking and utilities. In order to improve the regulatoryenvironment, the Government has commissioned a comprehensive study aimed at easingregulatory constraints to private sector development and has established a broad-based forum forregular consultation with the private sector. The privatisation of public enterprises (PEs), aimedat opening up more opportunities for private investors, is a key aspect of the private sectordevelopment process.

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3. THE ETHIOPIAN PRIVATISATION PROGRAM

3.1 Objective of the Privatisation Program

The objective of the privatisation program is to promote a dynamic private sectordevelopment and improved enterprise productivity thereby enhancing the contribution of theprivate sector to sustainable economic growth and poverty reduction. It is expected thatprivatisation of public enterprises would relieve tied resources and permit the Government to re-deploy its scarce resources into areas of higher priority and poverty-focused projects and programs.

3.2 Implementation Status of the Privatisation Program

First phase

3.2.1 The Ethiopian privatisation programme was initiated in 1994 as part of wider policymeasures aimed at bringing about a shift from a command to a market-based economic system.Since its creation in 1994, the EPA has privatised 176 PEs most of, which were small-scale retailtrade outlets, hotels, manufacturing and agro-processing, plants. Women entrepreneurs bought over70% of these enterprises. Four large enterprises were also privatised namely: (i) Legal-DembiGold Mine acquired for US$ 172 million; (ii) Awash Tannery acquired for US$ 15 million; (iii) StGeorge Brewery acquired for US$ 10 million; and (iv) Adwa Flour Mill acquired for US$ 3.5million. The EPA realised Birr 2.5 billion (equivalent to US$303 million) from the first phase ofthe privatisation program. For the second phase of the privatisation program, although varying insize, the average net assets of the PEs to be privatised is about Birr 25 million (US$3.6 million),implying a total net asset of about Birr 3.1 billion (equivalent to about US$ 375 million). Proceedsfrom the sales of public enterprises will boost the government non-tax revenue and enhance thecapacity of the Government to implement its development projects and programmes therebypromoting sustainable growth and poverty reduction.

Lessons learnt

3.2.2 A number of important lessons have been learnt from the first phase of the privatisationprogram and the experiences of other African countries implementing privatisation programs.Some of these experiences have proved useful in designing the second phase of the privatisationprogram. Concentrating mostly on small enterprises during the first phase of the privatisationprogram provided the EPA staff hands-on experience, which could be applied to the privatisationof more complex medium- and large-scale enterprises. However, experience during the first phaserevealed that the EPA lacked sufficient autonomy, institutional capacity and adequate professionalstaff with the right skills to meet the challenges of a more complex program.

3.2.3 Recent experiences with privatisation in Africa have pointed to capacity building in, andautonomy of, the privatisation agency as key to success of privatisation programs. To address theseissues, a new Privatisation Proclamation was introduced in 1998 and the staffing situation of theEPA is being strengthened. The issue of institutional capacity is also being addressed by out-sourcing key transaction tasks to competent consulting firms. At the same time, EPA's in-housecapacity is being strengthened to ensure proper monitoring and supervision of out-sourced tasks(see para. 4.5.2). Experiences from privatisation programs in Africa have also revealed that lack ofinformation to the public and potential investors on privatisation programs often hinders successand public acceptance of the program. The establishment of a Public Relations Department in EPAand inclusion of public awareness promotion as a component of the technical assistance project aremeant to address this issue.

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3.2.4 Experience has also shown that privatisation of state enterprises usually raise someenvironmental issues which need to be addressed. Often, many of the privatised public enterpriseswere established at a time when little or no thought was given to environmental consideration.Therefore environmental issues need to be identified and addressed during the process of theirprivatisation. It is not prudent to hand over enterprises with significant environmental problems tothe private sector without putting in place adequate safeguards for the health of the population andthe protection of natural resources and the environment in general. To address this concern,assessment of environmental issues should form part of the due diligence process andenvironmental audit implemented for enterprises with significant environmental problems. Theaudit would recommend mitigating measures to be taken before or after divestiture. Environmentalconcern is often ignored in the privatisation process and the same mistake was made during thedesign of the privatisation technical assistance project for the EPA. To address this concern, theADF project includes an environmental audit component.

3.2.5 Fortunately, Ethiopia has already put in place the institutional framework for environmentalauditing. The country has established an Environmental Protection Authority, which hasresponsibility for environmental issues and has mandate to enforce environmental standards. TheAuthority has formulated relevant policies and regulations for the protection of the environment,including requirements for environmental impact analysis and auditing. The tasks of theEnvironmental Impact Assessment (EIA) Department of the Authority includes environmentalauditing, though existing capacity for this task is still limited. To contribute to the enhancement ofcapacity in this area, the ADF project includes a training sub-component featuring environmentalawareness including environmental impact assessment and auditing (see para. 4.7.3). TheEnvironmental Protection Authority would execute the environmental audit for the 20 enterpriseswhich the ADF grant would help to prepare, either directly or through out-sourcing.

Second phase

3.2.6 Under the second phase of the privatisation program, the GOE has prepared a PrivatisationAction Plan involving divestiture of 123 PEs over the period 1998 to 2002, 80 of which areexpected to be brought to the point of sale by June 2001. The EPA has grouped the enterprisesinto two broad categories: 83 enterprises whose transaction preparation will be out-sourced toprivate consultants (tranches 1-5), and 40 enterprises to be prepared in-house for divestiture by theEPA (tranches 6-8). For both groups of enterprises, the EPA intends to undertake execution works(actual divestiture) in-house, except for five enterprises in tranche 5, for which both transactionpreparation and execution would be out-sourced on a pilot basis. The tranching of the enterprisesis presented in Table.3.1 below.

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Table 3.1Tranching of Enterprises Scheduled for Privatisation in Phase II

Tranche No. of EnterprisesTranche 1 25Tranche 2 4Tranche 3 21Tranche 4 13Tranche 5 20Tranche 6 8Tranche 7 15Tranche 8 17Total 123

3.2.7 The preparation of the enterprises in the first three tranches was funded with government’sown resources. The preparation tasks of the first two tranches involving 29 enterprises have beencompleted while six of the enterprises had been sold and seven others advertised. The preparationof enterprises in tranche 3 is in progress. The evaluation of the bids for the preparation ofenterprises in tranche 4, being funded by the World Bank, has been completed while thepreparation of enterprises in tranche 5 to be funded by the ADF would be launched soon after theapproval of the grant. The EPA is preparing in-house, the medium-scale enterprises in tranches 6-8.

3.2.8 While there is no one way to go about privatisation, the methods open to the GOE include:asset sales, public offerings, competitive tender, joint ventures, concession and lease agreements,management/employee buyouts, management contract, mass privatisation using voucher, andliquidation followed by asset sales. The method used for the divestiture of enterprises in the firstphase and the six enterprises already sold during the second phase was direct asset sales. The nextsection briefly presents the existing situation in the EPA, the organisation responsible forimplementing the privatisation program.

3.3 The Ethiopian Privatisation Agency

3.3.1 The Ethiopia Privatisation Agency was established in 1994 to implement thegovernment’s privatisation programme. This section presents the existing situation in theorganisation, focusing on its Board, organisation structure and staffing. The organisation chart ofthe institution is presented in annex 2.

3.3.2 The Board: The proclamation establishing the EPA provides for a governing Board,which deals with policy matters. The Chairman of the Board is the Head of the Public EnterprisesSupervisory Authority (PESA) in the Prime Minister’s Office, who is of the rank of minister. Theother members are the Minister of Finance, the Minister in-charge of Social and AdministrativeAffairs in the Prime Minister’s Office, Legal Adviser from the Prime Minister’s Office, aRepresentative of the Commercial Bank of Ethiopia and the General Manager of EPA.

3.3.3 Organisational Structure: The main features of the organisational structure of the EPAare:

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General Manager’s Office to which the Legal Advisor, Internal Auditor, Attorney/Advocate andExternal Legal Panel directly report;

(i) Four key departments: Privatisation Operations (headed by a Deputy GeneralManger), Property Restoration, Administration and Finance, and PublicRelations; and

(ii) A number of units within each department.

3.3.4 Staffing: The EPA has a staffing strength of 29 comprising 19 male and 10 female staff.Two of the female staff occupy management positions. To ensure the successful implementationof the privatisation program and its sustainability, the EPA has embarked on a program ofcapacity building focusing on: (a) increasing the full complement of in-house professional staff ofthe EPA from 29 to 38. The new positions are expected to be filled in 2001; (b) an enhanced civilservice salary structure to improve incentives; and (c) recruitment within the context of the projectbudget, a team of technical experts in the field of privatisation to supervise specialised tasksinvolved in preparation, monitoring and execution of transactions and assist with in-house on-the-job training of the EPA staff (see para. 4.5.3 for details). Also, an administrative officer to handleproject accounts of the three donor agencies is to be recruited.

3.3.5 One could make a few general observations on the Board and the organisationalstructure/staffing of the EPA. All the members of the EPA Board are from the public sector.Including one representative of the organised private sector on the Board would enrich itsdeliberations given that the EPA deals with issues affecting the private sector. The inclusion ofsuch a member is made a condition of the grant. Secondly, a private sector oriented salary wouldhave enabled the EPA to attract staff with key generic privatisation-related skills. Since the EPAis not meant to be a permanent organisation, such employees could be employed on contract.Thirdly, for better accountability, the Internal Auditor should have been made to report directly tothe Board.

4. THE PRIVISATION TECHNICAL ASSISTANCE PROJECT

4.1 Project Concept and Rationale

4.1.1 The privatisation technical assistance project is designed to assist the Government of Ethiopiato successfully implement the second phase of its privatisation program to which both the Governmentand the EPA are highly committed. In designing the second phase of the privatisation program, whichthis project is supporting, stakeholders' participation was an important feature of the process. InNovember 1996, the EPA organised a three-day seminar involving different stakeholders to evaluatethe implementation of the first phase of the privatisation program, review the experience so far gainedand deliberate on the way forward. Managers of private consulting firms chaired the seminar sessionsand participants included senior government officials, private entrepreneurs, academicians and thecivil society. The commissioning of the Price Waterhouse study that designed the guidelines for thesecond phase of the privatisation program emanated from the recommendation of the seminar. Withinthe context of the GTZ project, a one-week project-planning workshop was also organised from 10 to14 May, 1999. Participants were drawn from the public sector, the private sector and the civil societyto deliberate on the future of the privatisation process. The design of this project has benefited from thelessons leant from these seminars, two of which are the need to beef up the capacity of the EPA and toinclude a public awareness promotion as a component of this project to give various stake holders(potential investors, employees of the enterprises and the civil society) opportunities to deliberate on,and monitor the progress of the implementation of the privatisation program.

4.1.2 In terms of lessons learnt from project implementation in the same sector or type ofoperation, there has been no Bank Group-financed private sector or privatisation project in

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Ethiopia. The Bank Group has however implemented one institutional support project in theagriculture sector, which benefited the Ethiopian Valley Development and Survey Authority(EVDSA). The project, which was approved in 1989, was completed in 1993 and wassuccessfully implemented. It assisted the Government in strengthening the capacity of theEVDSA to prepare river basins master plans, which were essential for the development ofirrigation projects in the country. The proposed project, the second stand-alone institutionalsupport project in Ethiopia, is in conformity with the Bank Group’s assistance strategy for thecountry, the Bank Group’s vision and the development strategy of the Government, all of whichrecognised the private sector as a critical engine of growth.

4.2 Strategic Context

The proposed project focusing on capacity building of the EPA indirectly supports the sectorgoal, which the privatisation program is supporting namely, creation of a dynamic private sectordevelopment. This sector goal has three main elements:

(i) creating a dynamic entrepreneur group as a partner in the economic developmentprocess thereby enhancing the contribution of the private sector to sustainableeconomic growth;

(ii) investment attraction – providing access to the private capital to propel nationaleconomic development; and

(iii) relieving tied resources: – enabling the Government to re-deploy its scarceresources and the privatisation proceeds to higher priority sectors and poverty-reduction programs.

4.3 Project Objective

The objective of the project is to strengthen the capacity of EPA to effectively implementthe second phase of the privatisation programme contained in the Privatisation Action Plan (PAP)thereby enhancing the capacity of the private sector to contribute to economic growth and povertyreduction, in the long run, through employment generation.

4.4 Expected Project Output

The overall technical assistance project is expected to produce the following outputs:

(i) transactions preparation reports of 123 PEs completed, and at least 80 of thembrought to the point of sale by June 2001 and the balance by December 2002;

(ii) EPA technical capacity to implement the privatisation programme enhanced;(iii) public and investor awareness of the privatisation programme improved;(iv) systems for post privatisation impact analysis established and impact studies

initiated; and(v) Environmental audit of 20 enterprises to be privatised completed.

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4.5 Project Description

4.5.1 The Privatisation Technical Assistance Project has six components namely, transactionssupport, institutional support (technical assistance, provision of equipment and training), publicawareness promotion, post privatisation monitoring and impact analysis, environmental audit andEPA operations support.

4.5.2 Transactions Support: This component will finance transaction preparation and executiontasks to be out-sourced to competent consultancy firms. The tasks to be undertaken in the processof enterprise preparation and execution include: due diligence review, financial auditing, assetvaluation, financial restructuring, legal transformation into share companies, business valuation,design of market-based sales strategies, marketing, negotiation and actual divestiture (see annex 3for details). Fifty-four (54) of the enterprises are to be transformed into share companies and fullyprepared for divestiture while the remaining 69 enterprises would be transformed into sharecompanies pending decision of the Government on their eventual divestiture.

4.5.3 Institutional Support: The EPA has recognised the need to strengthen its professionalcapacity to ensure high level of quality control and effective monitoring of out-sourcedpreparation and execution tasks and the overall management of the implementation of theprivatisation program. This will require carrying out intensive in-house and external training ofEPA professional staff and managers, including short-term secondment to successful privatisationagencies in other countries and provision of technical experts in critical areas of privatisation andprovision of equipment. Thus, the institutional support component include: (i) 92 man-months oflong-term advisors and 67 man-months of on-demand short-term specialists for monitoring andquality control of the privatisation tasks, post privatisation impact analysis, and public awarenesspromotion, (ii) recruitment of 60 man-months of contract professionals to beef up the staffingstrength of the EPA, (iii) in-house training of EPA staff in privatisation process andenvironmental issues, (iv) study tours for EPA management and secondment of selectedprofessional staff, and (v) provision of management information system (MIS), equipment andvehicles.

4.5.4 Public Awareness Promotion: The successful implementation of a privatisation programcalls for, among other things, the initiation of public awareness promotion both locally andinternationally. Locally, public awareness promotion would aim at providing information to allstakeholders about the status and impact of the implementation of the privatisation program. Thiswould involve organising workshops and seminars for potential investors, workers and otherstakeholders, the use of print and broadcast media, and publications of privatisation newsletter,magazines and brochures of the enterprises to be privatised. Internationally, privatisationpromotion tours would be undertaken to meet targeted audience particularly investors. This wouldalso involve the use of media services, organisation of international investment fora and ‘roadshows’ for large divestiture. The task would require the services of a highly skilled andexperienced public relations (PR) specialist. To manage this process, the EPA has established aPublic Relations Department and the project will fund the services of a PR Consultant.

4.5.5 Post Privatisation Monitoring and Impact Analysis: This component will involve postprivatisation monitoring and impact studies, in order for the Government to be able to ascertainthat the development objectives of the privatisation program are being attained. Periodic impactanalyses of the privatisation program would be undertaken to determine its results in terms of keyindicators such as improved productivity, output, private investment, employment, reduced fiscaldrain on public resources, social impact, environmental impact, enforcement of investorobligations under the sales contract and assistance needed by private investors to ensure thesustainability of the privatised enterprises in their new environment. The project will fund the

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services of a post privatisation expert to design and implement necessary studies related to theprogram, in conjunction with the staff of the EPA Post Privatisation Department.

4.5.6 Environmental Audit: This component is introduced by the ADF project and it will only belimited to the enterprises the ADF grant would help to prepare (see para. 4.7.6) since the design ofthe overall technical assistance project was silent on environmental issues.

4.5.7 EPA Operations Support: Part of the government contribution to the technical assistanceproject will be in terms of the EPA operating expenses to support the day-to-day operations of theorganisation.

4.6 Components supported by the Other Participating Donors and the GOE

4.6.1 GTZ: The GTZ support for the privatisation technical assistance project, amounting toDM 5.5 million (about UA 2.24 million), entered into force in February 1999 and will becompleted in February 2002. It focuses on institutional capacity building and public informationawareness program. The grant supports: (i) provision of 56 man-months of long-term experts and67 man-months of on-demand short-term experts for the monitoring and supervision oftransactions preparation; (ii) secondment to GTZ of project assistants/guest students under theGTZ junior staff promotion program; (iii) supply of equipment: three vehicles, office equipment,computers and software, and expendables up to a total value of DM 480,000 (UA 196,151); (iv)training in the field of privatisation, seminars, workshops, and study tours up to DM 235,000 (UA95,832); (v) international advertising up to DM 600,000 (UA 244,670) and (vi) accommodationand official travels of seconded experts and operation and administration expenses in respect ofGerman contribution up to DM 100,000 (UA 40,780).

4.6.2 IDA: The World Bank’s support is in the form of Project Preparation Facility (PPF) ofUS$ 1.0 million (UA 0.75 million). The amount would be used for out-sourcing of transactionpreparation of 13 enterprises in tranche 4.

4.6.3 GOE: Using government resources amounting to UA 3.23 million (equivalent to US$ 4.33million), the EPA has completed the transaction preparation of 29 enterprises in tranches 1 and 2through out-sourced consultancy services and has launched the preparation tasks of 20 enterprisesin tranche 3. The EPA is also undertaking in-house, the transaction preparation tasks of 40enterprises in tranches 6-8, using government resources. In addition, the operating expenses ofthe EPA, estimated at UA 1.43 million (about US$ 1.92 million) for three years (2000-2002), arealso being provided by the Government through the budgetary process. Overall, the Government’scontribution to the technical assistance project is estimated at about UA 4.89 million (equivalentto US$ 6.55 million).

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4.7 Proposed Components for ADF Project

4.7.1 The components proposed for the ADF project are as follows:

4.7.2 Transaction Preparation and Execution: The ADF grant will support the pilot out-sourcing of combined transaction preparation and execution of 5 enterprises, and the out-sourcingof transaction preparation of 15 enterprises. The 20 enterprises in tranche 5, will be divided into sixlots. The list of the 20 enterprises is given in annex 4 while the terms of reference (TOR) for out-sourced consultancy service is presented in annex 5.

4.7.3 Institutional Support: The institutional support component of the ADF project willinclude: (i) 24 man-months of consultancy services in the areas of privatisation and postprivatisation impact analysis; (ii) 60 man-months of contract professionals to beef up the staffingstrength of the EPA in the areas of information technology, legal services and business analysis,(iii) on-the-job training on privatisation tasks, business skills and environment awareness, includingimpact assessment and auditing, and (v) provision of computer and promotional equipment.Annexes 6 and 7 present the TORs for the privatisation/post privatisation advisor and the contractprofessionals.

4.7.4 Public Awareness Promotion Program: The ADF project will be the major source ofsupport for this important component of the privatisation technical assistance project. Thiscomponent will fund (i) the provision of 12 man-months of Public Relations (PR) Consultancyservice; (ii) organisation of workshops and seminars on the privatisation process for various stakeholders (potential buyers, employees and the civil society in general), (iii) local and internationalpublic awareness promotion through electronic and print media, organisation of internationalinvestment fora and ‘road shows’, and (iv) publication of privatisation newsletters, magazines andbrochures of enterprises to be privatised. Annex 8 presents the TOR of the PR Consultant.

4.7.5 Post Privatisation Monitoring and Impact Analysis: This component will involveperformance monitoring, monitoring compliance with the provisions of the contract and impactanalysis. The ADF grant will fund the provision of a Post Privatisation Advisor for 12 man-monthswho will be responsible for the design of the monitoring procedure and studies for impact analysisin conjunction with the staff of the Post Privatisation Monitoring and Impact Analysis Department,focusing on indicators specified in para. 4.5.5 above.

4.7.6 Environmental Audit: This component will focus on the environmental auditing of the 20enterprises included in the ADF project. The cost of the audit has been included in the projectbudget. The institutional support component also includes a training sub-component onenvironmental awareness that will feature modules on environmental impact assessment andauditing. Two of the computers and printers under the equipment sub-component of theinstitutional support component would be allocated to the EIA Department of the EnvironmentalProtection Authority, which will execute the environmental audit, to enhance environmentalinformation management.

4.8 Environmental Impact

The institutional support project, which the Bank is financing per se, would not induce anynegative environmental impact, rather it would enhance environmental awareness through itstraining sub-component. However, as indicated in para. 3.2.4 above, experience has shown thatthe privatisation process often raises some environmental issues. This explains why the project isclassified as category II in terms of environmental impact. In the context of Ethiopia’sprivatisation program, the appraisal mission visited a 10 percent sample of the enterprises to be

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privatised and observed some environmental problems relating to waste disposal (both solid andliquid waste) and dust resulting in environmental pollution. To mitigate these environmentalproblems, the ADF project provides for environmental audit for the 20 enterprises, which it wouldassist to prepare. It also provides for training on environmental awareness includingenvironmental impact assessment and auditing (see para. 4.7.3). The post-privatisation componentalso includes monitoring of environmental impact (see para. 4.5.5 and 4.7.5) as a postprivatisation due diligence process.

4.9 Social Impact

4.9.1 The appraisal mission investigated the issue of potential social impact of the projectespecially on the poor and women. The institutional support project per se would not induce anynegative social impact on the poor since it focuses on capacity building. However, the privatisationprocess it is supporting could have negative social impact if it leads to retrenchment of workers.The mission observed that more than 50 percent of the employees of the 10 percent sample of theenterprises visited are women. This is especially the case in the textile industries where womenperform the bulk of the operations. It was also observed that women are mostly employed at the low-job level and less at the supervisor and managerial levels, a situation attributed to the lowereducational status of the Ethiopian women compared with their male counterparts. This minimises thechances of women for upward mobility in job places. If the privatisation process results inretrenchment of workers, more women are likely to be affected in view of their greater number in theenterprises.

4.9.2 The mission however observed that the Government has already taken a number ofmeasures to minimise the potential negative social impact of the privatisation process. Theseinclude down-sizing the staff of the enterprises to manageable levels before the commencement ofthe privatisation exercise in 1994, thus minimising the need for widespread post-privatisationretrenchment; inclusion in the sales contracts of the privatised enterprises provisions forcontinuation of employment contracts of all workers and guarantee of their rights and benefits fortheir years of service pursuant to Labour Proclamation No. 42/1993 and all other laws in force inEthiopia, including payment of their pension entitlements. In the possible case of lay-off by thenew buyer of an enterprise, it is mandatory that compensation be paid to the affected staff inaccordance with the law.

4.9.3 The appraisal mission noted that workers affected during past retrenchment exercises inthe context of the civil service reform were, in addition to their compensation, granted loans bythe Government to start their own businesses or form share companies. To ensure adequate socialprotection of the workers of the privatised enterprises, compliance with the provision of the salescontracts however needs to be carefully monitored in the post privatisation period. To this end, thepost privatisation impact analysis component of this project is designed to monitor, among otherissues, the compliance by the new owner with the provision of the sales contract relating toworkers welfare (see para. 4.5.5). To also assist workers who might be affected by retrenchmentin the course of the privatisation process, the public awareness promotion workshops wouldfeature sensitisation program for workers and basic business skills which could assist potentialretrenchees to start and operate their own businesses.

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4.10 Project Cost

The estimated cost of the overall technical assistance project is UA 10.20 million (US$13.67 million). Table 4.1 presents the cost structure by components of the technical assistanceproject for all participating partners and the Government.

Table 4.1Total Project Cost by Component

Component Foreign Cost(UA’000)

Local Cost(UA’000)

Total Cost(UA ‘000)

% Share ofComponent

Transactions Support 4,756 0 4,756 46.6Institutional Support 2,061 231 2,292 22.5Public Awareness Promotion 561 360 921 19.0Post Privatisation ImpactAnalysis

110 75 185 1.8

Environmental Audit 130 0 130 1.3EPA Operating Support 0 1,428 1,428 14.0Base Cost 7,618 2,094 9,712 95.2Price Contingency (5%) 381 105 486 4.8Total Cost 7,999 2,199 10,198 100.0

4.11 Sources of Financing of the Overall Technical Assistance Project

Based on the UA 10.20 million estimated project cost, the project financing plan is asfollows: GTZ: UA 2.24 million, IDA: UA 0.75 million, ADF: UA 3.0 million, and the GOE: UA4.89 million. Table 4.2 presents the sources of financing by components.

Table 4.2Sources of Finance of the Overall Technical Assistance Project by Component

Component ADFUA’000

GTZ*UA’000

IDA*UA’000

GOEUA’000

TOTALUA’000

ADF% Share

Transactions Support 1,458 0 71 3227 4,756 30.6Institutional Support 348 1,944 0 0 2,292 15.2Public Awareness Promotion 734 187 0 0 921 79.7Post Priv. Impact Analysis 185 0 0 0 185 100.0Environmental Audit 130 0 0 0 130 100.0EPA Operating Support 0 0 0 1,428 1,428 0.0Base Cost 2,855 2,131 71 4,655 9,712 29.4Price Contingency 143 106 4 233 486 29.4Total Cost 2,998 2,237 75 4,888 10,198 29.4

Note: *The GTZ support is DM 5.5 million while IDA support is US$ 1.0million

Exchange rate: UA 1 = US$ 1.34.

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4.12 Cost Structure of ADF Project

The estimated cost of the ADF project (net of all taxes and duties) is UA 3.16 million(ETB 34.8 million) of which the foreign exchange cost is UA 2.4 million (ETB 26.41 million) or76% of the total cost and the local cost is UA 0.76 million (ETB 8.39 million) or 24% of the totalcost. The project cost estimates are based on the number of enterprises to be prepared and thecapacity building requirements of the EPA and allowance of 5% for price contingency (based onthe inflation rate). The summary of the cost estimates is presented in Table 4.3 while detailed costtables are presented in Annexes 9 and 10.

Table 4.3ADF Project: Cost Estimate by Component

Component ETB millionForeign Local TotalCost Cost Cost

UA’000Foreign Local TotalCost Cost Cost

Transactions Support 16.04 0 16.04 1,458 0 1,458Institutional Support 2.37 1.46 3.83 215 133 348Public Awareness Promotion 4.11 3.96 8.07 374 360 734Post Priv. Impact Analysis 1.21 0.83 2.04 110 75 185Environmental Audit 1.43 0 1.43 130 0 130EPA Operating Support* 0 1.73 1.73 0 157 157Base Cost 25.16 7.98 33.14 2,287 725 3012Price Contingency 1.25 0.41 1.66 114 37 151Total Cost 26.41 8.39 34.80 2,401 762 3,163

* Represents part of the overall EPA operating support indicated in Table 5.2 above.

4.13 Sources of Financing of the ADF Project

4.13.1 The ADF project will be financed jointly by the ADF and the GOE. ADF will finance95% of the project cost while the GOE will finance 5%1. The ADF support represents 100% ofthe foreign exchange cost and about 80% of the local cost comprising essential items such asremuneration of the contract professionals, promotional expenses and training cost. The GOE willfinance all the EPA operating cost. The proposed financing plan is shown in Table 4.4.

Table 4.4Financing Plan of the ADF Project by Source

UA ‘000

Source Foreign Local Total %Exchange Cost Cost

ADF 2,401 597 2,998 95

GOE 0 165 165 5-------- ------- -------- ------

TOTAL 2,401 762 3,136 100-------- ------- -------- ------

1 This is part of the GOE’s total contribution of 48% of the overall technical assistance project cost.

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4.13.2 The financing plan by component is presented in Table 4.5 below:

Table 4.5ADF Project: Financing Plan by Component

Component ADFForeign LocalCost Cost

UA’000

GOEForeign LocalCost Cost

(UA’000)

TOTAL COSTADF GOE Total

UA '000

Transactions Support 1,458 0 0 0 1,458 0 1,458Institutional Support 215 133 0 0 348 0 348Public Awareness Program 374 360 0 0 734 0 734Post Priv. Impact Analysis 110 75 0 0 185 0 185Environmental Audit 130 0 0 0 130 0 130EPA Operating Support 0 0 0 157 0 157 157Base Cost 2,287 568 0 157 2,855 157 3,012Price Contingency 114 29 0 8 143 8 151Total Cost 2,401 597 0 165* 2,998 165 3,163

5. PROJECT IMPLEMENTATION

5.1 Executing Agency

The EPA will be the Executing Agency of the project and will have full powers for theimplementation of all project activities. However, the Environmental Protection Authority, whichhas the mandate for environmental issues in the country (see para. 3.2.5), will execute theenvironmental audit component (directly or through out-sourcing) in consultation with theEthiopian Privatisation Agency.

5.2 Institutional Arrangements

The Public Enterprises Supervisory Authority (PESA) determines the PEs to be privatisedand these are then passed on to the EPA for implementation. The EPA is responsible for theprivatisation process whose major component is transaction preparation and execution. For thepurpose of effectively monitoring the out-sourced transactions preparation tasks, EPAprofessional staff and the contract professionals will work in teams under the supervision of theEPA management and the privatisation advisors. The advisors and the out-sourced consultancyfirms are also expected to undertake continuous on-the-job training of EPA staff on aspects of theprivatisation tasks to ensure transfer of know-how. To ensure smooth and effective projectimplementation, taking into account the procurement, accounting and reporting requirements ofthe three participating donors, an experienced administrative officer is to be hired on contractunder the GTZ project. The recruitment of the administrative officer is a condition of the grant.

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5.3 Supervision and Implementation Schedule

5.3.1 The proposed project will be implemented over a 2-year period beginning in January 2001and ending in December 2002 but disbursement deadline will be December 2003. The implementationschedule is indicated below.

Activity Timing Responsible Organisation

Grant Approval : November 2000 ADFSigning of Protocol of Agreement : December 2000 ADF/GOEEntry into force : January 2001 ADFProject Launching : February 2001 ADFOutsourcing of transaction preparation: February – April 2001 EPARecruitment of Contract Professionals : February – April 2001 EPARecruitment of International TAs : March – May 2001 EPAProcurement of Equipment : April –June 2001 EPAPromotional activities : June 2001 – June 2002 EPATraining: Environmental Awareness : June 2001 EPAEnvironmental Audit : July 2001-June 2002 E-EPASupervision mission : July 2001 ADFPost Privatisation Activities : July 2001 – Dec. 2002 EPAMid-Term Review : November 2001 EPASubmission of Audit Reports : Dec. 2001 & Dec.2002 EPASupervision mission : March 2002 ADFDisbursement Deadline : December 2003 ADFSubmission of PCR : January 2003 EPAPreparation of ADF PCR : June 2003 ADF

5.3.2 Based on the above implementation schedule, the cost schedule by year ispresented in Table 5.1 below:

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Table 5.1ADF Project: Cost Estimates by Categories of Expenditure and Year

Expenditure Category 2001(UA’000)

2002(UA’000)

Total Cost(UA '000)

Consultancy Services:Technical Assistance:

OutsourcingPrivatisation AdvisorsContract Professionals

External Auditor

1,458185

567

018556

7

1,458370112

14Equipment:

Computers and PromotionalEquipment

72 0 72

Training:Environmental Awareness 40 0 40Promotional Expenses

PublicationWorkshops & SeminarsMedia and promotional services

5055

187

5055

187

100110374

Impact Studies: Logistics and Supplies 0 75 75Environmental Audit 130 0 130EPA Operations Support 78 79 157Base Cost 2,318 694 3,012Price Contingency 116 35 151Total Cost 2,434 729 3,163

5.3.3 The forecast expenditure schedule for the ADF project by source of finance is indicated inTable 5.2 below:

Table 5.2Expenditure Schedule by Source of Finance

UA ‘000Source 2001 2002 Total %

ADF 2,352 646 2,998 95GOE 82 83 165 5

-------- ------- -------- ------TOTAL 2,434 729 3,136 100

-------- ------- -------- ------

5.4 Procurement Arrangements

5.4.1 Procurement arrangements for the ADF project are summarised in Table 5.3. Theprocurement of goods and acquisition of consultancy services financed by the ADF will be inaccordance with the Bank Group “Rules of Procedure for Procurement of Goods and Works” and“Rules of Procedure for the Use of Consultants”, using the relevant Bank Group’s Standard BiddingDocuments. Ethiopia’s national procurement laws and regulations have been reviewed and foundacceptable.

5.4.2 The EPA will be responsible for the procurement of goods, consulting services andtraining services. Given that the EPA has successfully undertaken similar procurement tasks forenterprises in tranches 1-4, the capacity, expertise and experience of EPA are adjudged adequateto carry out the procurement tasks.

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Goods

5.4.3 The procurement of miscellaneous goods comprising computer and promotional equipment(UA 76,000) and supplies (UA 78,000) will each be undertaken under National Shopping (NSH)since the items are varied, the quantities to be procured are small and the goods are availablelocally.

Consultancy and Other Services

5.4.4 Procurement of consulting, training, publication, media and promotional services externalaudit and environmental audit services will be undertaken in accordance with the Bank’s Rules ofProcedure for the Use of Consultants, using shortlist method. The selection procedure of combiningtechnical quality with price will be used. For part of the publication and media services amountingto UA 498,000 the beneficiary may limit the publication of the announcement to national orregional newspapers. However, any eligible service provider being regional or not may express hisdesire to be short-listed. The environmental audit service may however be executed in-house bythe Environmental Protection Authority, using the allocated resources, if there is adequate in-housecapacity to execute the task.

Table 5.3Summary of Procurement Arrangements

(UA’ 000)Categories NSH SL GOE TOTAL1. Goods1.1 Computer and Promotional Equipment1.2 Supplies

76 (76)78 (78)

76 (76)78 (78)

2.Consultancy Service2.1 Technical Assistance

Out-sourced Consultancy service Privatisation Advisors Contract Professional

2.2 External Auditors2.3 Environmental Audit

1530 (1530)389 (389)118 (118)

15 (15)136 (136)

1530 (1530)389 (389)118 (118)15 (15)136 (136)

3. Miscellaneous3.1 Media and promotional Services3.2 Publication3.3 Workshops and Seminars3.4 Training3.5 EPA Operating Expenses

393 (393)105 (105)116 (116)42 (42)

165 (0)

393 (393)105 (105)116 (116)42 (42)165 (0)

Total 154 (154) 2844 (2844) 165 (0) 3,163 (2998)

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General Procurement Notice

5.4.5 The text of a General Procurement Notice (GPN) will be agreed with the EPA and will beissued for publication in the Development Business, upon approval of the grant proposal by theBoard and a Specific Procurement Notice will be published in a national daily at the same time.

Review Procedures

5.4.6 The following documents will be subject to review and approval by the Bank beforepromulgation:

i) General Procurement Noticeii) Specific Procurement Notices;iii) Short-lists;iv) Tender Documents or Requests for Proposals from Consultants;v) Tender Evaluation Reports or Reports on Evaluation of Consultants

Proposals, including recommendations for Contract Award; andvi) Draft contracts, if these have been amended from the drafts included in

the tender invitation documents.

5.5 Disbursement Arrangements

In accordance with the Bank Group’s disbursement handbook, the appropriate disbursementmethod to be followed for different ADF components will be as follows:

(i) Direct payment for the procurement of out-sourced consultancy services, advisors andinternational electronic and print media services; and

(ii) Special account method for payment of contract professional; locally procured services,equipment and supplies; workshops and seminars expenses; local electronic and printmedia services and environmental audit service.

5.6 Monitoring and Review

5.6.1 To facilitate effective project monitoring, quarterly progress reports will be prepared andsubmitted by the EPA to the Bank Group regularly highlighting key issues and problem areas, andrecommending action plans for resolving identified bottlenecks. On its part, the Bank Group willundertake regular supervision missions and liase closely with the other participating donors for theevaluation of implementation progress.

5.6.2 The accounts of the project will be audited at the end of each year and the audit report will besubmitted to the Bank. Uninterrupted disbursement of project funds will be conditional on regularsubmission of annual audit reports, failing which disbursement would be suspended. Provision ismade for the cost of auditing in the project budget, after which the ADF will prepare its own PCR.

5.6.3 At the end of the project's life, the Executing Agency will prepare a Project Completion Report(PCR) within six months of the final disbursement in accordance with ADF’s guidelines.

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5.7 Aid Co-ordination

In view of the three donors (ADF, IDA and GTZ) participating in the project, a co-ordinated,approach to project preparation and appraisal was adopted to ensure the success of the privatisationtechnical assistance project. To this end, both the World Bank and GTZ staff participated indiscussions with the EPA during the Bank Group's project preparation mission. The Bank Group'sappraisal mission was also closely co-ordinated with the World Bank's Task Manager/ResidentMission and the GTZ Resident Mission. The implementation of the ADF project will be closelyco-ordinated with the two other participating partners. The newly established ADB Resident Officein Addis Ababa will play a critical role in the areas of follow-up of project activities and aid co-ordination.

6. JUSTIFICATION, SUSTAINABILITY AND RISKS

6.1 Justification

The proposed project will assist the Government in implementing its privatisation program.Privatisation is a complex operation, even in developed market economies, involving financial, legal,marketing, social and other issues. The project will provide the EPA with technical assistance,information management technology, public awareness campaign and analytical skills essential forquality control and monitoring of privatisation tasks to ensure successful implementation. Theprivatisation program is important to the success of the government’s market-based reformprogram. It is also important for private sector development, which is a key area of the Bank’svision. The project represents the first attempt by the Bank Group to directly intervene in theprivatisation program in a member country, thereby presenting opportunities for the Bank Group tobuild experience and capacity in this area. The proposed TAF support for the privatisation programis therefore justified on these grounds.

6.2 Sustainability

6.2.1 Recent African experiences with privatisation point to a number of key factors ofsuccessful implementation and program sustainability including (i) capacity building emphasisingstrong professional, including local staffing capabilities in the privatisation agency, preferably ona non-civil service basis, (ii) autonomy of the privatisation agency, and (iii) adequate preparationof an overall strategy and program for carrying out PEs divestiture, including arrangements foroutsourcing preparation and execution of transactions. The design of the current phase of theprivatisation program took these factors into account. The Technical Assistance Projectincorporates capacity building including employment of contract professional with relevant skills,adoption of an enhanced civil service salary scale for EPA staff, on-the-job training for the EPAstaff, outsourcing of transaction preparation tasks to competent private consultants, and provisionof privatisation experts to ensure proper monitoring and supervision of out-sourced tasks and theprivatisation process. Capacity building and hands-on-experience gained by the EPA during thisphase of the privatisation program would be important for the extension of the privatisationprocess to other key areas outside the current program namely, infrastructure and public utilities.The Government has already taken a decision to extend the privatisation program to thetelecommunications sector.

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6.2.2 The issue of sustainability is however, not so much critical for the EPA since privatisationagencies, in general, are not intended to be permanent organisations. The issue is more pertinentfor the economy in terms of the sustainability of the privatised enterprises and their prospects tocontribute to improved enterprise productivity, vibrant private sector development, employmentgeneration, enhanced household income and poverty reduction. To guarantee this type ofsustainability, the private investment climate in all sectors needs to be continuously improved topermit the economy to attract substantial domestic and foreign private investment to achieve thesector goal.

6.3 Critical Risks and Mitigating Measures

There are a number of possible risks emanating not so much from the project but from theprivatisation program it is supporting. The first is the possible risk of replacing public monopolieswith private monopolies. However, choosing the right divestiture mode, which will spreadownership of the enterprises being privatised, enforcing existing anti-monopoly laws andintroducing competition would help to mitigate this risk. The second possible risk stems from thelimited capacity of the EPA, which may hinder the implementation of the privatisation program.This risk is being mitigated by strengthening the capacity of the EPA through the technicalassistance project and by out-sourcing transaction preparation tasks. Related to this risk is theinability of public establishments to retain trained staff due to poor salary and conditions of service.Permitting EPA to operate an enhanced public sector salary structure reduces this risk. However, aprivate sector-oriented salary structure, possibly on contract basis, could have served a betterpurpose. Fourthly, except for the five enterprises in tranche 5 in which the outsourcing ofpreparation and execution tasks will be combined, there is the risk that the procedure beingemployed by the EPA, whereby only transaction preparation is out-sourced and execution is donein-house, may slow down the privatisation process. There is also the possible risk of thegovernment influencing the divestiture process. However, the autonomy of the EPA as provided forby its proclamation and the fact that the EPA maintains a transparency tendering procedure in thedivestiture process would help to mitigate this risk.

7. CONCLUSION AND RECOMMENDATION

7.1 Conclusion

The GOE has demonstrated its determination to vigorously implement the privatisationprogram. During the first phase of the program, the EPA privatised 176 (mostly small-scale) PEs.Under the current phase of the program, the GOE has prepared a Privatisation Action Planinvolving divestiture of 123 PEs. Together with the support by the World Bank and the GTZ, theADF support is designed to accelerate the implementation of the Privatisation Action Plan.

7.2 Recommendation

7.2.1 It is recommended that an ADF/TAF grant not exceeding UA 3.0 million be made available tothe Government of Ethiopia to improve the capacity of the EPA to implement the Privatisation ActionPlan. The grant will be subject to the following conditions:

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Conditions Precedent to Grant Effectiveness

7.2.2 The entry into force of the Loan Agreement shall be subject to the fulfilment by theBeneficiary of the provisions of Section 5.01 of the General Conditions Applicable to LoanAgreements and Guarantee Agreements of the Fund.

Conditions Precedent to the Release of the First Tranche

7.2.3 The obligations of the Fund to make the first disbursement of the grant shall beconditional upon the entry into force of the Loan Agreement as provided in paragraph 7.2.2 aboveand fulfilment by the Beneficiary of the following conditions. The Borrower shall have shownevidence satisfactory to the Fund that:

(i) a special bank account, into which the ADF funds shall be deposited, has been opened in aBank acceptable to the Fund (section 5.5);

(ii) an administrative officer, knowledgeable about the procurement, accounting and reportingrequirements of the three donors has been recruited by the EPA (section 5.2); and

(iii) the Government has provided for inclusion on the Board of EPA, a representative of theorganised private sector, for example, the Chambers of Commerce (paragraph 3.3.5).

Other Condition

Prepare and submit to ADF for approval, within six months of entry into force of the grant,the programme of local training for environmental audit as well as the CVs of the potential trainees(para 5.5.7).

Annex 1

MAPOF ETHIOPIA

Annex 2ETHIOPIAN PRIVATISATION AGENCY

ORGANISATIONAL CHART

LEGAL ADVISOR INTERNAL AUDITOR

ATTORNY/

ADVOCATE

EXTERNAL LEGAL

PANEL

REGISTRATIONAND RECORDING

SERVICE

INVESTIGATIONTEAM

PROPERTY RESTITUTIONDEPARTMENT

DOCUMENTATIONAND LIBRARY

COMPUTER

CENTER

DATA PROCESSING

AND DOCUMENTATIONCENTER

PRIVATIZATIONPREPARATION

AND PLANING

DEPARTMENT

IMPLEMENTATIONDEPARTMENT

RESOURCE COORDINATIONDEPARTMENT

POST PRIVATIZATION

MONITORING

IMPACT ANALYSIS

POST PRIVATIZATIONDEPARTMENT

PRIVATIZATIONOPERATIONS

DGM

FINANCE

PERSONNEL

GENERALSERVICES

REGISTRY

PURCHASING

ADMINISTRATIONAND FINANCE

DEPARTMENT

BROADCASTJOURNALIST

PRINTJOURNALIST

PUBLIC RELATIONSDEPARTMENT

GENERAL MANAGER'SOFFICE

BOARD

Annex 3Page 1 of 2

PRIVATISATION: TRANSACTION PREPARATION TASKS

The key steps in the privatisation process in preparing companies for sale are detailed below.

1. Due Diligence

The key tasks will include a review of each enterprise to identify and define all theissues that may potentially impact on the divestiture process and providerecommendations to overcome these constraints. The due diligence review willinclude a detailed analysis of the issues impacting the divestiture process includingbut not limited to:

The regulatory and fiscal regime issues prevailing in the sector and its impact

Legal issues including those related to title deeds, leases, contractual obligations,court cases, disputes, loan covenants, etc

Financial, technical, operational, marketing, staffing and organisational issues

Any other issues not specified above

Recommendations to overcome all of the above issues.

2. Privatisation Strategy

The key tasks will include the development of an optimal mode of divestiture that isfeasible of implementation and meets with the GOE´s privatisation objectives. Theprivatisation strategy will include a detailed review of:

The sector in which the PE operates including an analysis of the regional andinternational markets

The overall operations of the PE

The key regulatory, fiscal, legal, financial, technical, operational, employment andother issues that impact the successful implementation of the divestiture processwith recommendations to deal with the issues

The potential domestic, regional and international investors and an analysis oftheir attitudes and preferences with regard to their level of interest in the PE, theproposed mode of divestiture, Government policies related to the sector and anyother issues that potential investors may express

Annex 3Page 2 of 2

The different options available with regard to the mode of divestiture with thepros and cons for each option

The recommended mode of divestiture with the rationale for the preferred mode

The bid evaluation criteria, the marketing plan and the comprehensiveprivatisation action plan and the timetable for its implementation.

3. Asset Valuation

The key tasks include the valuation of all fixed assets held by each PE in order toreflect more realistic and market-based values. These may include properties, processplant and machinery, non-specialist equipment, vehicles, and office furniture andequipment.

4. Financial Audit

The key tasks include the audit of the books of each PE. The scope of the auditsshould be sufficient to satisfy the requirements of the international accountingstandards and Ethiopian legislation in respect of the creation of share companies.

5. Financial Restructuring

The emphasis of the financial restructuring is to derive the share capital of the newShare Company and to ensure its present and near-term viability. All problematicitems currently in the accounts are segregated from the other items that are to betransferred into the new Share Company. The restructuring measures, may include butnot be limited to, debt rescheduling or write-offs, debtors write-offs, stock write-offsand creditor write backs to ensure that the financial position of each proposed newshare company is sound and viable.

6. Business Valuation

The purpose is to derive a value range for each new share company based oninternationally accepted methodologies, which will be used to inform and guide theGovernment and the EPA in any negotiations with potential investors. A detailednarrative of each assumption used in the discounted cash flow (DCF) analysistogether with the rationale for each assumption is included in the business valuation.

7. Information MemorandaThis document is prepared for investors to provide them with an understanding of theoverall operations of the company in relation to production, marketing, competing,fixed assets, financial data, employment, human resources, raw material supplies, etc.

8. Advertisement for Sale

The next step is to advertise the company for sale.

Annex 4

LIST OF PUBLIC ENTERPRISESTRANCHE V

LOT ONE:- Agro-Services1.1 Coffee Technology Development Enterprise1.2 Fish Product & Marketing Enterprise1.3 Natural Gum

LOT TWO:- Construction2.1 Cement Products Procession Factory2.2 Ethio- Marble2.3 Prefabricated Building Production Factory2.4 Water Wells Drilling2.5 Building Material Supply Enterprise

LOT THREE:- Textile3.1 Adei Ababa Yarn Factory3.2 Akaki Textile Factory

LOT FOUR:- Mining4.1 Ethiopian Mineral Development Enterprise4.2 Abijatta Soda Ash

LOT FIVE:- Miscellaneous5.1 Nefas Silk Paint Factory5.2 Repi Soap Factory5.3 Rubber and Canvas

LOT SIX:- Enterprises for Combined Preparation & Execution

6.1 Debreberhan Blanket Factory6.2 Akaki Metal Products Factory6.3 Tabor Ceramics Factory6.4 Ethio Fiber6.5 Yekatit Paper

Annex 5Page 1 of 3

Out-sourced Consultancy Service for Transaction PreparationTerms of Reference

1. BACKGROUND

The Government of the Federal Democratic Republic of Ethiopia (GOE) isundertaking a program to privatise most of the nation’s Public Enterprises (PEs). TheEthiopian Privatisation Agency (EPA) is responsible for managing and implementingthe program. The EPA wishes to engage qualified and experienced Consultants toundertake the following tasks:

Undertake due diligence and recommend a feasible mode of divestiture

After approval by the EPA of the mode of divestiture, undertake assetvaluations, financial audit, financial restructuring, business valuation andinformation memoranda, based on the approved mode of divestiture

2. SCOPE OF WORK, TASKS AND OUTPUTS

2.1 Phase 1: Due Diligence and Mode of Divestiture

2.1.1 Phase 1 Tasks

The key tasks will include the following:

Undertake due diligence to identify and define all the issues that may potentiallyimpact on the divestiture process and provide recommendations to overcome theseconstraints

Recommend an optimal mode of divestiture that is feasible of implementation andmeets the GOE´s privatisation objectives and define a detailed privatisation actionplan and timetable for the divestiture process.

2.2 Phase 2: Financial Restructuring and Business Valuation

2.2.1 Phase 2 Tasks

The key tasks in Phase 2 are to be in accordance with the approved mode ofdivestiture and will include the following:

Annex 5Page 2 of 3

Asset Valuation

All fixed assets held by each PE are to be revalued in order to reflect morerealistic and market-based values. These may include properties, process plantand machinery, non-specialist equipment, vehicles, and office furniture andequipment.

The asset valuation is to be undertaken by an Asset Valuer of appropriatequalifications and relevant sector experience.

The scope and methodology of the valuation should be in accordance withinternationally accepted standards and should be adequate to satisfy therequirements of Ethiopian legislation in respect of the creation of a new sharecompany and the Auditor’s requirements for proper accounts.

The valuation should also comply with EPA Asset Valuation Guidelines and anystatements of clarification on the TOR for fixed asset valuation that EPA mayissue from time to time. Where any conflict between standards or approaches isidentified these should be brought to the attention of EPA together with proposedresolutions.

The valuation will include a separate indication of the lease values of land and“strategic buildings” not owned but utilised by the PE.

Financial Audit

The audit schedules and audit adjustments are to be clearly understood by themanagement of the PE. Copies of all the audits schedules and audit adjustmentsare to be provided to the management of the PE who must be in a position toincorporate the audit adjustments without further recourse to the Auditors.

The scope of the audits should be sufficient to satisfy the requirements of the internationalaccounting standards and Ethiopian legislation in respect of the creation of sharecompanies. Where any conflict between the international accounting standards andEthiopian legislation is identified, these should be brought to the attention of EPAtogether with proposed resolutions

Financial Restructuring

The emphasis of the financial restructuring is to derive the share capital of the newShare Company and to ensure its present and near-term viability.

All problematic items currently in the accounts should be segregated from theother items that are to be transferred into the new Share Company.Recommendations should be made on how any such problem items are to betreated by the Government.

Annex 5Page 3 of 3

The restructuring measures, may include but not be limited to, debt reschedulingor write-offs, debtors write-offs, stock write-offs and creditor write backs toensure that the financial position of each proposed new share company is soundand viable.

The net assets in the opening restructured balance sheet will reflect the amounts ofthe revalued fixed assets and the other assets and liabilities as per the audit report,after incorporating the proposed restructuring measures. The share capital of eachnew share company is to be derived based on the value of the net assets in theopening restructured balance sheet.

Business Valuation

The Consultant will derive a value range for each new share company based oninternationally accepted methodologies, which will be used to inform and guide theGovernment and the EPA in any negotiations with potential investors. The valuationshould also take account of the EPA business valuation guidelines.

3.3 Phase 3: Privatisation Preparation

3.3.1 Phase 3 Tasks

The key tasks in Phase 3 will in accordance with the approved mode of divestitureand will include the preparation of information memoranda and/or prospectus andother marketing documents.

3.3.2 Phase 3 Outputs

The outputs of phase 3 for each new share company will be the following reports:

1. Information memoranda with the relevant appendices

2. Advertisement for sale

The scope and contents of each of the above reports will be detailed in the letter ofinvitation to bidders.

Annex 6Page 1 of 2

TERMS OF REFERENCE FOR PRIVATISATION/POST PRIVATISATION ADVISOR

Overall Role and Responsibility

To pro-actively liase and co-ordinate with the EPA, external consultants, short-termconsultants and other key stakeholders to ensure the success of the Ethiopian privatisationprogramme with specific reference to privatisation activities and post privatisationmonitoring.

Specific Privatisation Tasks:

Provide support to the EPA management in reviewing the reports of the out-sourcedconsultancy firms in the following areas: due diligence, asset valuations, financial audit,financial restructuring, business valuation and information memoranda; and in-house trainingof EPA staff in these areas.

Specific Tasks - Post Privatisation Monitoring

1. Review the existing operations of the post privatisation department and develop acomprehensive 5-year plan for the department.

2. Review the existing criteria to monitor transactions post privatisation. Define and developadditional criteria as may be deemed necessary.

3. Develop a data collection system between the enterprises, PESA, EPA and the newowners to ensure that an adequate system exists to facilitate the reporting of postprivatisation variables.

4. Review the terms and conditions contained in the sales agreements and verify complianceof the obligations from the various parties to the sales agreements.

5. Assist with the legal completion process to hand over state owned enterprises to the newowners.

6. Develop a verifiable reporting mechanism between the Purchaser and the relevantstakeholders in Government to ensure regular reporting of conditionalities agreed to in thesales agreement

7. Evaluate the economic, fiscal and social impact of privatisation on the enterprises, thesector in which it operates and the overall impact on Ethiopia.

8. Prepare regular information reports on post privatisation monitoring activities for therelevant stakeholders in Government.

9. Advise and assist the EPA with the preparation of companies for privatisation.

10. Undertake any other tasks with respect to post privatisation as may be required by theEPA from time to time.

Annex 6Page 2 of 2

Qualification and Experience

Professional Qualifications: MBA or Chartered Accountant

Professional Experience: 5 years privatisation hands on transactional work experience indeveloping countries with proven track record of the experienceknowledge and skills defined in the job description. Experiencein Africa will be an added advantage.

Other Attributes: Computer literate. Ability to plan, direct, manage, control andtake initiatives independently, communicate fluently, work as ateam member, and a matured level of sensitivity and diplomacyin dealing with key stakeholders

The minimum required experience of proposed professional staff is:

Due Diligence Team: 3 YearsPrivatisation Strategy Team: 5 YearsAsset Valuation Team: 5 YearsAudit Team: 5 YearsFinancial Restructuring Team: 3 YearsBusiness Valuation Team: 5 YearsInformation Memoranda Team: 3 Years

Annex 7Page 1 of 2

TERMS OF REFERENCE FOR PRIVATISATION EXPERTSOverall Role and Responsibility

The EPA requires five local experts in specific skills indicated below to beef up its staffingposition. The overall responsibility of the experts is to assist the EPA in the implementationof the privatisation action plan, particularly supervision and monitoring of the transactionpreparation tasks, in-house transaction preparation and execution tasks, in-house training ofEPA staff in their specialised areas and any other tasks as may be delegated by the GeneralManager of the EPA and Privatisation Advisors.

SPECIFIC REQUIREMENTS

1. Information Technology Specialist (Number of Positions –1)

Overall Job Profile

The information technology specialist will provide support to the EPA in the area ofinformation management particularly hardware, software and training. The keyresponsibilities of the job include;

Supervision and maintenance of the EPA information technology systems Trouble-shoot hardware, software and network related problems Review and enhance existing systems Identify user training needs and provide appropriate training Analyse, design and develop the EPA web site Support the IT Head of EPA in other activities

Profile of Candidate

Applicants should have a B.Sc or M.Sc. Degree in Computer Science or its equivalent,working knowledge of Visual Basic and a minimum of 5 years professional experience.

2. Legal Expert (Number of positions -1)

Overall Job Profile

The legal expert will provide support to the EPA in the areas of privatisation and restitution.The key responsibilities of the job include:

Provision of legal advice to the EPA Drafting of sales agreements and other transaction documents. Review of legal claims Representation of the EPA in court. Drafting of legislation as may be required

Annex 7Page 2 of 2

Profile of Candidate

Applicants should have an LLB or LLM degree and a minimum of 5 years professionalexperience in commercial law.

3. Business Analysts (Number of poitions-3)

Overall Job Profile

The business analysts will provide support to the EPA in all the key tasks of the privatisationprocess. The key responsibilities for the job include:

Review of financial statements. Review of options on financial restructuring. Preparation and review of business valuations and other financial analysis. Review of privatisation strategies, due diligence reports and sales documentation. Provision of on the job training and advice to the EPA.

Profile of Candidate

Applicants should have a professional qualification, ACCA or CA, or equivalents with aminimum of 3 years professional experience.

Annex 8Page 1 of 2

TERMS OF REFERENCE FOR PUBLICITY & MARKETING ADVISOR

Overall Role and Responsibility

To pro-actively liase and co-ordinate with the EPA, external consultants, short termconsultants and other key stakeholders to ensure the success of the Ethiopian privatisationprogramme with specific reference to the publicity, marketing and pubic education andawareness campaign.

Specific Tasks

1. Review the existing status and plans on the publicity, marketing and pubic education andawareness campaign of the EPA

2. Prepare and/or modify the existing plan for the Public Relations Department.

3. Identify needs for in-house short term consultancies, define terms of reference, manageand control the short term consultants and perform quality control assurance on theoutputs produced by the consultants.

4. Provide on the job training to the staff of EPA.

5. Advise and assist the EPA with the:

a) Public education awareness campaign using media such as the press, radio, television,internet, in-house newsletters and brochures. These will include but not be limited tothe following:

Preparation and implementation of radio programs

Preparation and implementation of television programs

Preparation of appropriate press articles and releases

Preparation of relevant brochures, newsletters and other media documents

Preparation of appropriate articles for the EPA web site

b) Organisation of workshops and seminars to discuss key issues and promotion of thetransparency of the privatisation program

c) Preparation of promotional and publicity material to promote Ethiopia, variousbusiness sectors and specific enterprises in the international market place to targetaudiences and stakeholders. These will include but not be limited to the following:

Organisation of international and domestic forums, workshops, roadshows, etc.

Preparation of publicity materials for marketing using appropriate media

Annex 8Page 2 of 2

Preparation of appropriate press articles and releases

Preparation of relevant brochures, newsletters and other media documents

Preparation of appropriate articles for the EPA web site

Identifying, arranging for and organising meetings with target groups of investors

Laision with international and domestic investors

6. Advise and assist on any other initiatives as may be requested by the Agency.

PROFILE

Professional Qualifications: Masters Degree in Public Relations, Advertising or Journalism

Professional Experience: 5 years work experience in developing countries with proventrack record of the experience knowledge and skills defined inthe job description. Experience in Africa and work of similarnature undertaken for Privatisation Agencies will an addedadvantage.

Other Attributes: Computer literate. Ability to plan, direct, manage, controland take initiatives independently, communicate fluently, workas a team member, and a matured level of sensitivity anddiplomacy in dealing with key stakeholders.

Annex 9DETAILED COST ESTIMATES BY EXPENDITURE CATEGORY

Expenditure Category Description Quantity Unit PriceUA

Foreign CostUA

Local CostUA

Total CostUA

1. Consultancy Services1.1 Out sourcing

- Transaction preparation- Combined Preparation &

execution1.2 Technical Assistance

- Privat./Post Privat. Advisor- Public Relations Advisor- Contract Professionals

1.3 External AuditorSub-Total

Enterprise

Enterprise

Man monthMan-monthMan-monthMan-Year

15

5

241260

2

67,160

90,150

9,16712,5001,8677,000

1,007,400

450,750

220,000150,000

14,0001,842,150

-

-

--

112,020______

112,020

1,007,400

450,750

220,000150,000112,020

14,0001,954,170

2. Equipment- Computer- Printer- Printer (colour)- Scanner- UPS- Tape driver- CD writer- Server- Digital Camera- Tape Recorder- Overhead Projector with screen

model HP-A11, HP-A IRQLC& HPA 11 DX

- Steal camera with case &Accessories

- Slide Projector Auto Focus withScreen & Tripose

Sub-total

Desk TopLaser JetLaser Jet

Professional

Visitor 5000 AF

2010

22

2032112

2

2

2

1,700600650600250500600

6,300600

6,150

460

610

200

34,0006,0001,3001,2005,0001,5001,2006,300

60012,300

900

1,220

480

72,000

-----------

-

-

-

-

240006000130012005000150012006300600

12300

900

1220

480

720003. Training

- Trainers’ fees- Training material- Per-diem for trainees- Training venue rental and

logisticsSub-total

Man-monthLump-sumMan-day

Lump-sum

21

100

1

9,50010,000

50

6,000

19,000--

_-___19,000

-10,0005,000

6,00021,000

19,00010,0005,000

6,00040,000

4. Promotional Expenses- Publications- Workshops- Media & promotional Services

Sub-total

Per yearPer workshopPer year

210

2

50,00011,000

187,000

--

224,000224,000

100,000110,000150,000360,000

100,000110,000374,000584,000

5. Miscellaneous- Impact Studies- Study materials

Sub-total

Lump-sumLump-sum

11

60,00015,000

--

60,00015,00075,000

60,00015,00075000

6.Envitronmental Audit Per Enterprise 20 6,500 130,000 0 130,0007. EPA Operating Support Per Year 2 78,500 0 157,000 157,000Base CostPrice contingency (5%)

Total Cost- -

2,287,150114,358

2,401,508

725,02036,251

761,271

3,012,170150,609

3,162,779

Annex 10

DETAILED COST ESTIMATES BY EXPENDITURE CATEGORY BY YEAR

Expenditure Category Description Quantity Unit PriceUA

2001UA

2002UA

Total CostUA

1. Consultancy Services1.1 Out sourcing

- Transaction preparation- Combined Preparation &

execution1.2 Technical Assistance

- Privat./Post Privat. Advisor- Public Relations Advisor- Contract Professionals

1.3 External AuditorSub-Total

Enterprise

Enterprise

Man-monthMan-monthMan-monthMan-month

15

5

241260

2

67,160

90,150

9,16712,5001,8677,000

1,007,400

450,750

110,00075,00056,0107,000

1,706,160

---

110,00075,00056,0107,000

248,010

1,007,400

450,750

220,000150,000112,020

14,0001,954,170

2. Equipment- Computer- Printer- Printer (colour)- Scanner- UPS- Tape driver- CD writer- Server- Digital Camera- Tape Recorder- Overhead Projector with screen

model HP-A11, HP-A IRQLC& HPA 11 DX

- Steal Camera with case &Accessories

- Slide Projector Auto Focus withScreen & Tripose

Sub-total

Desk TopLaser JetLaser Jet

Professional

Vivitar 5000AF

2010

22

2032112

2

2

2

1,700600650600250500600

6,000600

6,150

450

610

240

34,0006,0001,3001,2005,0001,5001,2006,300

60012,300

900

1,220

48072,000

-----------

-

-

--

34,0006,0001,3001,2005,0001,5001,2006,000

60012,300

900

1,220

48072,000

3. Training- Trainers’ fees- Training material- Per-diem for trainees- Training venue rental and

logisticsSub-total

Man-monthLump-sumMan-day

Lump-sum

21

100

1

9,50010,000

50

6,000

19,00010,0005,000

6,00040,000

---

--

19,00010,0005,000

6,00040,000

4. Promotional Expenses- Publications- Workshops- Media Expenses

Sub-total

Per yearPer workshopPer year

210

2

50,00011,00075,000

112,000

50,00055,000

187,000292,000

50,00055,000

187,000292,000

100,000110,000374,000584,000

5. Miscellaneous- Impact Studies- Study materials

Sub-total

Lump-sumLump-sum

11

6,00015,000

---

60,00015,00075,000

60,00015,00075,000

6. Environmental Audit Per Enterprise 20 6,500 65,000 65,000 130,000È: EPA Operating Support Per Year 2 78,500 78,500 78,500 157,000Base CostPrice contingency (5%)

Total Cost-

---

2,253,660112,683

2,366,343

758,51037,926

796,436

3,012,170150,609

3,162,779

Annex 11Page 1 of 3

ETHIOPIA

SUMMARY OF BANK GROUP OPERATIONS AS AT 31/08/2000

No YEARAPPROVED

PROJECT SOURCE OFFUNDS

DATESIGNED

NET LOANAMOUNTMillion UA

DISBAMOUNTMillion UA

UNDISBAMOUNTMillion UA

PERCENTDISB

LOANCLOSING

DATE

STATUS OFPROJECT

LOANBALANCES

CANCELLEDMillion UA

AGRICULTURE

1 1975 Southern Rangeland Livestock ADF 20-02-1976 4.59 4.59 0.00 100.00 30.juin.94 Completed 0.01

2 1977 Amibara Irrigation ADF 18-08-1977 4.25 4.25 0.00 100.00 31.déc.87 Completed 1/ 0.35

3 1979 Finchaa Sugar Study ADB 16-05-1979 4.85 4.85 0.00 100.00 31.déc.85 Completed 0.15

4 1980 Wush Wush Tea ADF 12-12-1980 7.36 7.36 0.00 100.00 31.déc.95 Completed 1/ 0.01

5 1981 Addis Ababa Fuekwood* ADF 25-06-1982 6.62 6.62 0.00 100.00 31.déc.94 Completed 1/ 2.59

6 1982 Bebeka Coffee Plantation ADB 06-05-1982 10.00 10.00 0.00 100.00 31.déc.94 Completed 1/ ***

7 1982 Agricultural Line of Credit ADF 02-08-1983 7.33 7.33 0.00 100.00 30.juin.94 Completed 1/ 0.04

8 1984 Gelena Irrigation TAA 05-11-1984 1.10 1.10 0.00 100.00 30.juin.90 Completed 0.32

9 1984 Dairy Rehabilitation & Dev.* ADF 28-01-1985 5.01 5.01 0.00 100.00 11.juil.95 Terminated 1/ 15.41

10 1985 Small Scale Irrigation* ADF 09-05-1985 5.36 5.36 0.00 100.00 31.déc.95 Terminated 1/ 10.32

11 1985 Awash Basin Water Study TAA 09-05-1985 1.19 1.19 0.00 100.00 30.juin.94 Completed ***

12 1985 PADEP (Sidamo /Gamo/Gofa)* ADF 07-05-1986 5.44 5.44 0.00 100.00 31.déc.95 Terminated 1/ 13.74

13 1986 Tepi Coffee Development ADB 24-04-1987 4.68 4.68 0.00 100.00 31.déc.98 Completed 2.92

ADF 24-04-1987 16.16 16.05 0.11 99.32 31.déc.98

14 1987 Amibara Drainage ADF 27-08-1987 14.94 14.72 2.32 98.53 31.déc.97 Completed

15 1988 Finchaa Sugar ADB 25-04-1989 80.00 77.22 2.78 96.53 31.déc.99 Completed

ADF 14-02-1989 14.46 14.46 0.00 100.00 31.déc.99

16 1989 South East Rangelands ADF 01-12-1989 22.11 18.19 4.10 82.27 30.juin.00 Completed

17 1989 EVDSA Institutional Building TAF 01-12-1989 2.56 2.56 0.00 100.00 31.déc.93 Completed 1/ 0.35

18 1989 Wush Wush II ADF 14-02-1990 10.13 6.06 4.07 59.82 30.juin.99 On Going

19 1990 Meat Plant Feasibility Study TAF 21-02-1991 1.07 1.02 0.05 95.33 31.déc.97 Completed 0.07

20 1991 Omo-Ghibe Master Plan Study TAF 31-12-1991 5.07 5.07 0.00 100.00 31.déc.97 Completed

21 1991 Birr- Koga Irrigation Study TAF 24-12-1991 2.48 2.48 0.00 100.00 31.déc.97 Completed 0.29

22 1992 Amibara Drainage II study TAF 22-01-1993 0.54 0.36 0.18 66.67 31.déc.95 Completed

23 1997 National Fertilizer Project ADF 21-02-1998 28.00 16.88 11.12 60.29 31.déc.02 On Going

24 1998 National Livestock Project ADF 21-11-1998 27.00 1.10 26.4 4.07 30.juin.04 On Going

Annexe 11Page 2 of 3

TRANSPORT

25 1977 Jimma-Chida Road ADF 13-12-1977 6.45 6.45 0.00 100.00 16.juil.85 Completed

26 1980 Rural Roads( Sidam, Bale) ADF 22-06-1980 7.11 7.11 0.00 100.00 30.juin.85 Completed 0.25

27 1981 Rural Roads( Gondar and Shoa) ADF 30-12-1981 10.94 10.94 0.00 100.00 31.déc.97 Completed 0.11

28 1984 Gore-Tepi Road* ADF 10-02-1984 15.69 15.69 0.00 100.00 31.déc.94 Completed 1/ 0.74

29 1989 Assab Port Development ADF 29-05-1989 8.58 8.58 0.00 100.00 31.déc.94 Cancelled 32.44

30 1989 Road Maintenance & Rehab. ADF 01-12-1990 43.75 36.95 7.09 84.46 30.juin.99 On Going

31 1990 Ethiopian Airlines Inf. Dev. ADB 14-03-1991 24.55 24.55 0.00 100.00 31.déc.98 Completed 3.65

32 1992 Addis Ababa Airport Study TAF 22-06-1992 1.93 1.93 0.00 100.00 31.déc.95 Completed

33 1992 Chida Sodo Road ADF 14-04-1993 23.95 20.76 3.18 86.68 31.déc.98 Completed

34 1996 Addis Ababa Airport Infra. Dev ADF 20-12-1996 19.50 10.62 12.30 54.46 31.déc.99 On Going

35 1998 Alemgena-Butajira Road Upgrading ADF 21-07-1998 18.50 0.00 18.50 0.00 31.déc.02 On Going

36 1998 Seven Roads Study TAF 17-12-1998 3.4 0 3.4 0.00 30.juin.02 On Going

PUBLIC UTILITIES

37 1975 Addis Ababa Sewerage I ADF 16-01-1976 4.60 4.60 0.00 100.00 31.déc.79 Completed 1/ ***

38 1979 Rural Electricity ADB 16-05-1979 1.50 1.50 0.00 100.00 30.juin.84 Completed 1/

NTF 16-05-1979 5.00 5.00 0.00 100.00 30.juin.84

39 1979 Assab Water Supply ADF 27-02-1980 6.13 6.13 0.00 100.00 31.déc.90 Completed 0.32

40 1986 Power Transmission Lines ADB 24-04-1987 10.00 9.37 0.63 93.70 30.juin.98 Completed

(Electricity I) ADF 24-04-1987 25.02 24.90 0.12 99.52 30.juin.98

41 1979 Addis Ababa Sewerage II ADF 16-05-1979 6.63 6.63 0.00 100.00 30.juin.94 Completed 1/ ***

42 1982 Six Centers Water Supply ADF 02-03-1983 13.58 13.58 0.23 100.00 31.déc.97 Completed 1/ 0.23

43 1983 Eight Centers Water Supply ADF 04-05-1984 11.60 11.60 0.00 100.00 31.déc.97 Completed 1/ 2.17

44 1984 Telecommunications I ADB 05-11-1984 24.01 24.01 0.00 100.00 31.déc.95 Completed 1/ 0.02

45 1985 Chemoga Yeda Hydro Study TAA 07-05-1986 0.55 0.55 0.00 100.00 30.juin.94 Completed ***

46 1989 Five Towns Water Study TAF 29-05-1989 1.44 1.44 0.00 100.00 31.déc.95 Completed 0.19

47 1989 Addis Ababa Master Plan TAF 01-12-1989 1.09 1.09 0.00 100.00 30.avr.97 Completed 0.01

48 1990 Aleltu Hydro Feasib. Study TAF 21-02-1991 1.64 1.58 0.06 96.34 30.juin.98 Completed

49 1991 12 Towns Water Supply Study TAF 19-03-1992 1.79 1.79 0.00 100.00 31.déc.97 Completed 1/ 0.51

50 1992 Addis Ababa Water III Study TAF 12-05-1993 2.95 2.39 0.56 81.02 31.déc.99 On Going

ADF 12-05-1993 3.13 3.05 0.08 97.44 31.déc.99

51 1992 Telecommunications II ADB 14-04-1993 32.40 22.68 10.13 70.00 31.déc.00 On Going

Annex 11Page 3 of 3

ADF 14-04-1993 14.32 3.18 11.14 22.21 31.déc.00

52 1992 Northern Ethiopian Power Trans. ADB 14-04-1993 20.84 20.11 0.73 96.50 31.déc.98 Completed

ADF 19-04-1993 27.25 26.72 0.53 98.06 31.déc.98

53 1993 Hydro-Power Feasibility Study TAF 06-09-1994 4.25 2.27 2.01 53.41 31.déc.99 On Going

SOCIAL

54 1983 Primary Teachers & Sec. Education ADF 13-06-1983 14.98 14.98 0.00 100.00 31.déc.95 Completed 1.15

55 1992 Basic Educ., Tech. & Voc. Training ADF 22-01-1993 10.94 4.53 6.41 41.41 31.déc.99 On Going 3.80

56 1998 Education III Project ADF 21-11-1998 32.00 0.00 32.00 0.00 31.déc.02 On Going

TAF 21-11-1998 0.30 0.00 0.30 0.00 31.déc.02 On Going

57 1998 Primary Health Care ADF 17-12-1998 29.67 0.00 29.67 0.00 31.déc.02 On Going

INDUSTRY AND MINING

58 1987 Lega Dembi Gold ADB 19-11-1987 16.55 16.55 0.00 100.00 31.déc.95 Completed 1/ 0.53

59 1989 Lega Dembi Gold Study TAF 30-01-1990 2.11 2.02 0.09 95.73 31.déc.97 Terminated 0.68

60 1993 Biklal Phosphate Study TAF 26-01-1994 2.60 0.73 1.87 28.08 31.déc.98 On Going

MULTI-SECTOR

61 1992 ERRP ADF 14-05-1992 86.62 86.62 0.00 100.00 30.déc.97 Completed 1/

62 1993 SAL ADF 09-07-1993 63.54 63.54 0.00 100.00 30.juin.96 Completed 0.01

63 1998 Suplementary Financing Mechanism ADF 0.00 0.00 0.00 0.00 31.déc.99 On Going 7.79

TOTAL 955.68 770.67 192.16 80.64 85.76

* PROJECTS WHOSE LOAN BALANCES (TOTALLING UA 44.11 MILLION) WERE REALLOCATED TO THE ERRP IN 1992

1/ COMPLETED PROJECTS FOR WHICH PCR HAVE BEEN PREPARED

*** CANCELLED LOAN BALANCES LESS THAN UA 5,000.00

Annexe

SCCD : N.G.

CONFIDENTIAL

AFRICAN DEVELOPMENT FUND ADF/BD/WP/2000/157/Corr.103 November 2000Prepared by: OCDEOriginal: English

Probable Date of Board Presentation08 November 2000 FOR CONSIDERATION

MEMORANDUM

TO : THE BOARD OF DIRECTORS

FROM : Philibert AFRIKASecretary General

SUBJECT : ETHIOPIA - PROPOSAL FOR A TAF GRANT OF UA 3,000,000TO FINANCE THE PRIVATISATION TECHNICAL ASSITANCEPROJECT *

Please find attached a corrigendum relating to the above document

Page 6, paragraph 3.3.5: deletion of the reference to inclusion of a representative of theorganised private sector on the Board of the Ethiopian Privatisation Agency (EPA) as acondition of the grant; and

Page 21, paragraph 7.2.3: deletion of the third condition precedent to first disbursement.

Attach:

cc: The President

* Questions on this document should be referred to:

Mr. A. MTEGHA Director OCDE Extension 4056Mr. W.G. BENE-HOANE Division Chief OCDE.1 Extension 4120Mr. S.A. OLANREWAJU Chief Economist OCDE.1 Extension 4632Mr. I. SAMBA Senior Environmentalist OCDE.1 Extension 4962Mr. H.H. FARAH Principal Investment Officer OPSD.2 Extension 5784

Background:

During the negotiation of the grant conditions, the Government requested thatthe third condition precedent to first disbursement relating to the change in thecomposition of the Board of the Ethiopian Privatisation Agency (EPA) be deletedbecause it would be difficult to fulfil. The condition would require an amendment tothe proclamation (legislative instrument) establishing the EPA, which would involve alengthy legal process and parliamentary approval. After a careful consideration ofthis request, Management agreed to delete the condition, in view of the fact that itwould delay the start up of the project and hence the implementation of thegovernment privatisation program.

Corrigendum

Page 6

Delete from paragraph 3.3.5 the sentence: ‘The inclusion of such a member is made acondition of the grant’.

Page 21

‘Conditions Precedent to the Release of the First Tranche’ should read ‘ConditionsPrecedent to First Disbursement’

Delete paragraph 7.2.3 (iii): ‘The Government has provided for inclusion on the Boardof the EPA, a representative of the organised private sector, for example, theChambers of Commerce (paragraph 3.3.5)’.