ICRR 10193
                                                                                               Report Number : ICRR10193
                    ICR Review
                    Operations Evaluation Department




1. Project Data :
             OEDID :
             OEDID:     L3517
         Project ID :   P008169
      Project Name :    Public Enterprise Reform Loan (PERL)
            Country :   Uruguay
             Sector :   Public Enterprise Reform
       L/C Number :     L3517-UR
  Partners involved :   Japan
       Prepared by :    David Greene, (consultant), OEDCR
      Reviewed by : Roger J. Robinson
    Group Manager : Ruben Lamdany
       Date Posted : 08/21/1998

2. Project Objectives, Financing, Costs and Components :
The PERL of 1992 provided US$ 11 million to finance technical assistance to support the Government's public
enterprise reform and privatization program, specifically in the telecommunications, power and the transport sectors,
to develop sectoral policies and regulatory regimes, and to implement restructuring of public enterprises . The loan
was cofinanced by two Japanese grants totaling US$ 2.4 million. However, a referendum in that same year, voided
clauses in the privatization law allowing partial privatization of the state telecommunications law . Only $4.2 million of
the loan was used for its original purpose, US$ 3.6 million was reallocated for other purposes, and US$ 3.2 million
was canceled. US$ 0.3 million of the Japanese grant was also canceled .

3. Achievement of Relevant Objectives :
While some of the objectives of the loan were not accomplished, most notably in the telecommunication sector,
progress was made in developing the regulatory frame work for utilities . The state airline was partly privatized,
however, 1700 former airline employees remain on the state payroll . Port sector reform is in progress and a system
of private concessions for most commercial services was introduced . This was a major breakthrough given strong
union opposition. New regulations are being drafted for the power sector and the state monopoly on the generation
of power has been terminated. Privatization options for the cement and alcohol plants were rejected following the
referendum. Small-scale privatization has not been actively pursued since the referendum . Project funds were
reallocated to insurance sector reform, reform of the sanitation sector, technical improvements in postal services,
and rationalization of armed forces health services .

4. Significant Achievements :
Given the change in political will and the subsequent decline in government commitment to privatization,
achievement of the ambitious agenda for this operation was not accomplished . Nevertheless, progress in
demonopolization in key areas was achieved and the foundations for continued efficiency improvements in the
provisions of public utilities was laid .

5. Significant Shortcomings :
Both the Government and the Bank misjudged public support for a change in the role of the public sector in Uruguay .
Although the Memorandum of the President noted the possibility that parts of the Public Enterprise Law could be
voided by referendum, the authorities informed the Bank that "there was little possibility of any referendum
eventuating." (MOP p.6) and the Bank stated that "with the provision of appropriate safeguards in the unlikely event
the law is overturned, we intend to proceed ..." Given that the operation went to the Board in September 1992, and
the referendum on privatization was held in December 1992, perhaps it might have been more prudent to have
postponed Board presentation until after the referendum . Even for components less affected by the referendum
results, cumbersome Uruguayan administrative procedures and numerous staff changes delayed implementation .


6. Ratings :             ICR                       OED Review                Reason for Disagreement /Comments
               Outcome : Satisfactory              Satisfactory
    Institutional Dev .:   Partial                Modest
        Sustainability :   Likely                 Likely
   Bank Performance :      Satisfactory           Satisfactory
      Borrower Perf .:     Satisfactory           Satisfactory
       Quality of ICR :                           Satisfactory


7. Lessons of Broad Applicability :
In environments where there is a strong public sector involvement in a wide range of commercial activities,
enterprise restructuring and /or privatization will undoubtedly encounter strong opposition from a variety of vested
interests. Therefore gauging the public's acceptance of such reform, and thereby the Government's political will to
proceed is a crucial component of any appraisal of a project designed to support such change .

8. Audit Recommended?           Yes       No

9. Comments on Quality of ICR :
The ICR is satisfactory, however it lacks the completion mission aide memoire and any input from the Borrower on
an evaluation of this project .