Document of The World Bank Report No: NCO00002292 NOTE ON CANCELLED OPERATION (IBRD-76410) ON A LOAN IN THE AMOUNT OF US$18 MILLION TO THE REPUBLIC OF MAURITIUS FOR A MAURITIUS ECONOMIC TRANSITION (TECHNICAL ASSISTANCE) PROJECT March 25, 2013 Finance and Private Sector Development Eastern and Southern Africa - AFTFE Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective March 2013) Currency Unit = MUR US$ 1.00 = MUR 30.00 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement BFA Business Facilitation Act BOI Board of Investment BOM Bank of Mauritius CPS Country Partnership Strategy DB Doing Business DPL Development Policy Lending EU European Union FM Financial Management GDP Gross Domestic Product GoM Government of Mauritius GPN General Procurement Notice IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment IFC International Finance Corporation IFRs Interim Financial Reports ISR Implementation Status Report JEC Joint Economic Council LAVIMS Land Administration Valuation Information Management System MCCI Mauritius Chamber of Commerce and Industry MCIB Mauritius Credit Information Bureau M&E Monitoring & Evaluation METAP Mauritius Economic Transition (TA) Project MIC Middle Income Country MoFED Ministry of Finance and Economic Development MUR Mauritian Rupees PAD Project Appraisal Document PCC Project Coordinating Committee PERU Public Enterprises Reform Unit PIMS Parastatal Information Management System PPF Project Preparation Facility PPP Public Private Partnership PSD Private Sector Development PSIP Public Sector Investment Program SIL Specific Investment Loan SMEs Small and Medium Enterprises UNDP United Nations Development Program WB World Bank Vice President: Makhtar Diop Country Director: Haleh Bridi Sector Manager: Irina Astrakhan Project Team Leader: Khoudijah Maudarbocus-Boodoo NCO Team Leader : Brinda Devi Dabysing REPUBLIC OF MAURITIUS MAURITIUS ECONOMIC TRANSITION (TECHNICAL ASSISTANCE) PROJECT CONTENTS A. Basic Information....................................................................................................... 1 B. Key Dates ................................................................................................................... 1 C. Ratings Summary ....................................................................................................... 1 D. Sector and Theme Codes ........................................................................................... 2 E. Bank Staff ................................................................................................................... 2 F. Ratings of Project Performance in ISRs ..................................................................... 2 1. Context, Project Development Objectives, and Design .............................................. 3 2. Post-Approval Experience and Reasons for Cancellation. ....................................... 10 3. Assessment of Bank Performance ............................................................................ 12 4. Assessment of Borrower Performance ..................................................................... 12 5. Lessons Learned ....................................................................................................... 13 Annex 1. Bank Lending and Implementation Support/Supervision Processes ............ 15 Annex 2. List of Supporting Documents ..................................................................... 16 MAP DATA SHEET A. Basic Information RW-Economic Country: Mauritius Project Name: Transition (TA) Project Project ID: P105669 L/C/TF Number(s): 7641-MU ICR Date: 03/30/2012 ICR Type: NCO Specific Investment REPUBLIC OF Lending Instrument: Borrower: Loan MAURITIUS Original Total Disbursed Amount: US$ 18 Million US$ 1.56 Million Commitment: (nearest million) Revised Amount: Environmental Category: C Implementing Agencies: Board of Investment Ministry of Finance and Economic Development which housed the PIU Ministry of Business, Enterprises and Cooperatives Ministry of Renewable Energy and Public Utilities Competition Commission Cofinanciers and Other External Partners: None B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: February 13, 2008 Effectiveness: April 6, 2009 April 08, 2009 September 15 to Appraisal: Closing: Sep 30, 2014 April 01, 2011 19, 2008 Approval: January 29, 2009 C. Ratings Summary C.1 Performance Rating by NCO Outcomes: Not applicable Risk to Development Outcome: Not applicable Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory 1 D. Sector and Theme Codes Original Actual Banking 16% 16% Law and Justice 5% 5% Public Administration – Energy and Mining 19% 19% Public Administration – Industry and Trade 41% 41% Public Administration – Water, sanitation and flood 19% 19% protection Theme Code (as percent of total Bank financing) Legal institutions for a market economy 8% 8% Other financial and private sector development 27% 27% Other public sector governance 3% 3% Regulation and competition policy 35% 35% State-owned enterprise restructuring and privatization 27% 27% E. Bank Staff Positions At NCO At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Haleh Bridi Ruth Kagia Sector Manager: Irina Astrakhan Gerardo Corrochano Project Team Leader: Khoudijah Maudarbocus-Boodoo Constantine Chikosi NCO Author: Brinda Devi Dabysing F. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 February 4, 2009 MS MS 2 March 5, 2009 MS MS 3 December 14, 2009 MS MS 4 June 28, 2010 MS MS 5 March 27, 2011 MS MS 1.56 6 Dec 20, 2011 MS MS 1.56 7 Nov 30, 2012 MU MU 1.56 2 1. Context, Project Development Objectives, and Design 1. Country Background: The Mauritius Economic Transition (Technical Assistance) Project (METAP), financed with a US$18 million IBRD loan, was designed at a stage where Mauritius started investing in an ambitious economic reform program which aimed at moving the country away from dependence on trade preferences to global competitiveness. The sustainability of the Mauritian economy depended on improving productivity and competitiveness. The project intended to contribute to achieving the country’s development strategy by addressing the challenges to private sector development. This included easing constraints related to (i) the business environment, (ii) inadequate service delivery in key public enterprises by helping restore fiscal discipline and reducing the budgetary burden of the parastatal sector, and (iii) private investment in key infrastructure sectors. 2. Rationale for Bank Assistance. The Investment Climate Assessment 2006 Study and various Doing Business reports had identified the key constraints to the growth of the private sector in Mauritius. The METAP supported part of the broader and longer-term economic reform program of Mauritius. The METAP Project was an integral part of the Country Partnership Strategy: 2007-2013 which was anchored in the Government’s long- term development program of: (i) fiscal consolidation and improved public sector efficiency; (ii) improving trade competitiveness; (iii) improving investment climate; and (iv) democratizing the economy through participation, social inclusion and sustainability. 3. In support of these objectives the Government of Mauritius requested two SILs in the period 2009-2010, including the METAP and the US$20million IBRD-financed Manufacturing and Services Development and Competitiveness Project. Both SILs were intended to support enterprise growth, competitiveness and employment creation in manufacturing and services sectors. These two operations represented a significant re- engagement with the Bank following a seven-year gap. 4. Development Objectives. The Project development objective was to improve the performance of selected public enterprises and services that contribute to an improved investment climate in Mauritius. 5. The Project was structured around the following three pillars: (i) Component One: Business Facilitation; (ii) Component Two: Public Enterprise Reform; and (iii) Component Three: Utility Regulation & Public Private Partnerships. Component One: Business Facilitation (US$5.88 million) 6. The Business Facilitation component was aimed at financing activities that would strengthen investment climate reforms in order to induce supply-side investment responses and accelerate economic growth. It was structured around the following 3 activities: (i) Simplifying Business Licensing Procedures; (ii) Improving Access to Commercial Justice; (iii) Improving Land Title Registration Services; (iv) Extending Coverage of the Credit Reference Bureau to Improve Access to Finance; and (v) Streamlining the Legal Framework for Business. Subcomponent A: Simplifying Business Licensing Procedures (US$0.69 million) 7. At the time the project was in preparation, it was observed that the regulatory burden was excessive and needed improvement to allow Mauritius to benefit from a first class investment climate. This excessive regulatory burden was caused by a large number of complex regulations, as well as by uncertainties and high compliance costs created by non-transparent rules. The objective of Subcomponent A of the Project, therefore, was to reduce the number of steps, time and cost it took to obtain a business license and to position Mauritius as a transparent and rule-based destination for doing business. This was to be done through technical assistance to: (i) devise and implement a program to streamline the business licensing regime in Mauritius; (ii) develop IT infrastructure to enhance the efficiency of the business licensing system and to develop an IT-based business registration system; (iii) create a national database of business licenses; (iv) map the re-engineered business licensing processes and workflow systems to allow online submission and processing of applications for a business license; (v) develop an effective ex-post control program across line Ministries to verify compliance with established business licensing guidelines, and; (vi) provide outreach seminars to the public service officials concerned and the business community, both to disseminate information on the business licensing reforms and to help change mind sets. Subcomponent B: Improving Access to Commercial Justice (US$0.85 million) 8. This Subcomponent of the Project was to reduce the time and cost it took to settle commercial disputes in Mauritius and relieve the backlog of commercial cases in the court, by providing technical assistance for the establishment and running of a dedicated commercial division of the Supreme Court, where delays of up to 2 years in the resolution of commercial disputes were the norm. To achieve this goal, the Project was to fund: (i) procurement and installation of information systems for efficient case and mediation services management; (ii) a short term consultant to conduct a systematic training needs assessment for the judges and other staff of the Commercial Division of the Supreme Court; (iii) training and study tours for judges, registrars and mediation administrators in other countries with similar legal systems; and (iv) procurement of commercial law reports including specialized reports on intellectual property and building contracts for the commercial division of the Supreme Court. Subcomponent C: Improving Land Title Registration Services (US$0.54 million) 9. The Doing Business Survey 2008 showed that in 2008, it took 210 days to register land titles in Mauritius. The Project included funding technical assistance to support computerization of the Registrar General’s Office and the improvement of land registries’ 4 effectiveness so as to facilitate the registration and securitization of land based assets. The objective was to reduce the number of days taken to register land titling. Subcomponent D: Extending Coverage of Credit Reference Bureau (US$2.80 million) 10. The 2006 Investment Climate Assessment and the 2008 Doing Business Report confirmed that both access to and cost of finance were major constraints to the growth of the private sector in Mauritius, particularly for small and medium sized enterprises. This Subcomponent was to provide technical and financial assistance to the Bank of Mauritius to transform the existing Mauritius Credit Information Bureau (MCIB) into a credit bureau offering services of best international standards. The following technical assistance was identified: (i) review of the IT application to support extension of the coverage of the MCIB to sectors other than the banking sector, including retailers, trade creditors and utility companies; provide for on-line availability of two year credit history and sale of credit information to private credit rating agencies, and (ii) consultancy services to set up the procedures and operating guidelines for private credit rating agencies. Subcomponent E: Streamlining the Legal Framework for Business (US$1.00 million) 11. There were a significant number of economic laws that were considered to be outdated and which required revision so as to bring identified improvements in the investment climate. At that time of project preparation, legal amendments were carried out on a piece meal basis as and when specific reforms were needed. The project was designed to fund the following activities: (i) legal researchers to conduct a comprehensive census and prioritization of the business laws that need updating based on their impact on the cost of doing business in Mauritius; (ii) drafting of identified priority legislation; (iii) capacity building for legislative drafting for officers in the Attorney General’s Office; and (iv) the setting up of a specialized library in relation to legislative drafting and business/trade law. Component Two: Public Enterprise Reform (Total USUS$6.0 million) 12. To assist the Government to reduce the budgetary burden of the parastatals and improvement in the efficiency and delivery of public services, the Project was to support the Government’s public enterprise reform program in the following three areas: (i) support for the setting up of a Public Enterprise Reform Unit (PERU) and for cross- cutting reforms; (ii) support for sector and enterprise level reforms and; (iii) support for the establishment of a Competition Commission. Subcomponent A: Support for PERU and Cross-Cutting Reforms (US$2.3 million) 13. This subcomponent intended to support the following: (i) design and implementation of a public enterprise management and tracking system; (ii) technical assistance to design and implement a comprehensive five year parastatal reform strategy and action plan; (iii) training to PERU staff in public enterprise diagnostics and 5 implementation of reforms programs at sector and enterprise levels, and (iv) technical assistance in cross-cutting aspects of the parastatal reform program including corporate governance reforms, design of performance management systems for parastatals, treasury management, mergers, rationalizations and divestments, and design and implementation of public information and outreach strategies and of social mitigation strategies. Subcomponent B: Support for Sector and Enterprise Level Reforms (US$2.1 million) 14. This Subcomponent was meant to provide funding to Government for the preparation of a detailed, enterprise level reform strategies. Specifically, the Project intended to fund: (i) consultancies, training and equipment to improve parastatal monitoring systems at the line ministry level; and (ii) support to sector working groups and selected public enterprises to prepare and implement enterprise level restructuring programs. Subcomponent C: Support for Establishment of the Competition Commission (US$1.6 million) 15. In order to improve competition in the economy and prevent collusive and restrictive practices, the Government decided to implement a Competition Commission. The sub component intended to provide financial and technical support for the setting up of the Competition Commission. Specifically, it was supposed to finance consultancies and training to: (i) help design, set up and run the Commission itself; (ii) to develop the Commission’s operational strategies and methodologies; (iii) develop its human resources and implementation capacity and that of other practitioners, such as judges, other legal practitioners and public officials, who would be involved in the implementation of competition law and policy; (iv) provide training and establish twinning arrangements for staff development with similar bodies in other countries; (v) implement IT support for the Commission’s operations; and (vi) support the Commission in devising and executing an advocacy and public outreach program on the implications of the Competition Act (2007) and related Government policies. Component Three: Utility Regulation & Public Private Partnerships (US$4.98 million) 16. Inadequate infrastructure was identified as one of the key challenges that were impacting on the growth potential of Mauritius. Investment was being undertaken exclusively by Government which lacked the capacity to discharge this important mandate adequately. Increased private participation in ownership and management in the infrastructure sector was therefore a key focus under the Government’s investment climate reform plan. A Public Private Partnerships (PPP) Unit already existed within MoFED to promote private investment in infrastructure sectors but was not considered as being effective in promoting PPPs in key projects. The International Finance Corporation recommended the institutional arrangements for an independent utility regulator. The Project intended to provide support to the PPP reform program in the 6 following two areas: (i) Strengthening the Institutional Framework for PPPs; and (ii) Establishing the Utility Regulation Authority. Subcomponent A: Strengthening the Institutional Framework for PPPs (US$4.52 million) 17. Under this subcomponent, the Project was supposed to finance the following capacity building activities for the PPP Unit: (i) a Resident Advisor to the PPP Unit as a consultant for a period of at least 24 months to support preparation of a pipeline of PPP projects, in-house training of PPP Unit staff and advise the PPP Unit on appropriate PPP development strategies; (ii) transaction advisory services to structure PPP projects and assist Contracting Authorities (e.g. line ministries, municipalities and other public legal entities) in identifying private investors; (iii) a specialized IT system in the PPP Unit; and (iv) training in preparation and promotion of PPP and workshops to enhance the awareness of the key stakeholders about the benefits of PPPs. Subcomponent B: Establishing the Utility Regulation Authority (US$0.46 million) 18. To support the establishment of the independent utility regulator, the Project was to fund the implementation of a sound policy and institutional framework through (i) short and long term resident advisers to help establish reporting and monitoring systems; (ii) IT investments to build the regulator’s capacity to discharge its mandate effectively; and (iii) capacity building measures including study tours and training for the regulator’s staff in specific technical areas such as economic regulation and tariff setting. Lending Instrument 19. This project was a standalone Specific Investment Loan (SIL), and financed through an IBRD Loan. The duration of the project was five years and the Project costs and financing are summarized in the following table: Table 1 Project Components, Costs and Sources of Financing US$ Project Cost by Component and or Activity million Component One: Business Facilitation 5.88 A. Business Licensing reforms 0.69 B. Improving Access to Commercial Justice (CJO) 0.85 C. Improving Land Title Registration Services 0.54 D. Extending Credit Reference Bureau to improve access to finance 2.80 E. Streamlining the Regulatory Environment for Business 1.00 Component Two - Public Enterprise Reform 6.00 A. Support for the Public Enterprise Reform Unit and for Cross-cutting Reforms 2.30 B. Support for Enterprise Level Reforms 2.10 C. Support for the Establishment of the Competition Commission 1.60 7 Component Three - Utility Regulation and Public Private Partnerhips 4.98 A. Strengthening the Institutional Framework for PPPs 4.52 B. Establishing the Utility Regulation Authority 0.46 Total Baseline Cost 16.86 Physical Contingencies 1.10 Total Project Costs 18.00 Implementation Arrangements 20. A major challenge at the design stage was to identify the most effective structure that would oversee the implementation of the project. The METAP was the first project after the reengagement of the country with the Bank. As such, the Government’s capacity to deal with World Bank procedures was relatively low. The PERU was the main counterpart of the Bank team during project preparation and since it was housed at MoFED, it was identified as the Project Coordination Unit with fiduciary and M&E functions. The implementation of specific project components was to be carried out by individual ministries and agencies. 21. The project had a Project Coordinating Committee (PCC), chaired by a Director in MoFED with focal points designated by the Project’s beneficiary agencies and a representative of the private sector. The PCC was expected to provide strategic guidance and oversight of the overall reform process being undertaken by the Government under the METAP Project, approve annual work programs and budgets, review progress reports prepared by PERU, clearing and forwarding periodic reports to IBRD, address any major problems affecting project implementation; and review key reports including the audit, mid-term review and implementation completion reports. 8 Risk Analysis 22. The overall project risk was assessed to be low. The table below summarizes the risk assessment and mitigating measures that were identified at project appraisal: Risk rating Risk Risk mitigation measures with mitigation Sustainability Risk. A change in Government would be a risk if it This risk would be mitigated by ensuring that L resulted in a departure from current reforms and ownership and understanding of the program the role of the private sector in driving economic is both broad and deep throughout the civil growth. service, and therefore able to withstand changes in political leadership. Macro-economic / Fiscal Risk. Macro stability was a pre-requisite for sustainable Credibility of the current Government was private sector development. Hence ensuring that closely linked to the maintenance of macro Mauritius achievements in this regard were stability and an important element of the M maintained was essential to the success of the program would be mainstreaming PSD issues program. across Government and society. Staff turn-over in Government. Availability of skilled personnel in Government To address this challenge, staff at all levels, was a constant challenge for building and across the departments involved and other L maintaining capacity. key institutions were involved from the beginning of Project design. Procurement Capacity and prior experience with Bank projects. Procurement assessment was performed and M mitigation plans agreed including capacity building/ on-going training and close monitoring Financial Management. Capacity and prior experience with Bank projects. FM assessment was performed and Transactions might not be properly accounted for, mitigation plans agreed included review of L and IFRs might not be presented in time and in the Project Chart of Accounts, elaboration of conformity with Bank requirements. the Project Implementation Manual, capacity building/ on-going training and close monitoring 9 2. Post-Approval Experience and Reasons for Cancellation. (main events leading to cancellation, steps taken to resolve problems, exogenous factors, identification of causes and responsibility if project failed, implications of failure): 23. The METAP was approved on January 29, 2009 and became effective on April 8, 2009. In March 2011, after 23 months’ effectiveness, the Government of Mauritius requested the cancellation of the METAP project as well as of the other Private Sector Development SIL, the Manufacturing and Services Development and Competitiveness (MSDC) Project. The request for cancellation followed May 2010 elections, whereby the new Minister of Finance had a different preferred modality of collaboration with the Bank. The Government requested to replace both operations with a new Development Policy Loan (DPL) which was considered a more appropriate lending instrument to deliver the high quality Bank advisory services which Mauritius as a middle income country valued. The DPLs served as a useful instrument for engendering the necessary policy and institutional reforms in the area of private sector development, as the Government preferred to strengthen the institutional and policy environment for business growth through budget support operations. Furthermore, the decision to move to DPOs would address other issues that had hampered project implementation including fiduciary challenges, lack of political will to tackle SOE reform, and problems arising from the implementation of Program Based Budgeting (PBB). 24. The Government underestimated the fiduciary and compliance requirements under a SIL. Despite the fact that a special unit was established under the MOFED to monitor same and technical assistance was provided to the staff to support them in these responsibilities, the procedures were deemed to be too cumbersome by the client. On top of this, Mauritius, like other middle income countries, assigns more importance to the Bank’s high quality advisory services than its financing terms or safeguards. Here again, DPLs were considered to be a more appropriate instrument to meet the requirements of the client. 25. Although there was high-level political buy-in of the lending operation at the design stage for reforms in the parastatal sector, the political commitment, support and ownership for implementing these reforms eroded quickly during the pre-electoral period. One of the major signals of the diminished government ownership occurred during the pre-electoral period, when the Minister of Finance refused to sign off on the recruitment of a resident advisor for PERU. 26. The Bank team had not anticipated the impact of the implementation of the Program Based Budgeting. In 2010, the government implemented PBB around the same time as the project was declared effective. The new PBB tool was introduced to monitor the financial discipline and performance of the various agencies within ministries through effective budgeting outlays. In this regards, any additional funding given to these agencies through the SIL would have undermined this initiative. Budget support, possible under DPL, was a preferred alternative. The activities to be funded under the project had not been included in the PBB of relevant ministries, making it difficult for Ministry of Finance to allocate funds to the activities as per the Procurement Plan. This 10 caused a delay of almost one year in the disbursement schedule, having to wait for the next financial year to include the activities to be funded in the PBB. 27. Until the decision to replace the METAP financing with DPL was taken by Bank management, implementation continued unevenly and selectively, with only a few sub- components having been implemented satisfactorily and some components not implemented at all. The first Subcomponent on Business Facilitation was largely implemented, with progress achieved in improving access to commercial justice and land titling registration services, largely through funding from the Investment Climate Facility Fund (ICF) and hence cannot be fully attributed to the METAP project. In contrast, the e-regulations platform was developed but only as an information platform instead of a fully transactional one. Procurement of consultancy services for establishment of private credit rating agencies, as well as the review and modernization of the IT systems at the Mauritius Credit Information Bureau, were not implemented within the scope of METAP but independently by the Bank of Mauritius, where they are housed. Similarly, the planned activities to streamline the legal framework for business were not carried out under METAP. 28. As regards Component Two, Public Enterprise Reform, the project did finance the setting up of the Competition Commission including baseline training for staff. The project also provided financial assistance for the review of Development Bank of Mauritius (DBM) and the Agricultural Marketing Board (AMB), but did not proceed with implementation of the reforms as had been programmed. Progress with public enterprise reform stalled due to the delayed development of a less comprehensive Public Enterprise Monitoring and Information Tracking System (PEMITS) with internal resources and the policy decision not to go ahead with the recruitment of a resident Public Enterprise Reform (PER) adviser. 29. In Component Three, the Utility Regulatory Authority (URA) was not set up as it is no longer a priority for the Government. The panel of experts to be set up was not implemented and no public awareness workshops were organized. The Government benefitted from financing from PPIAF to carry out a review of the policy, legal and institutional framework for public private partnerships in Mauritius and training for staff based in the PPP Unit. The resident advisor as defined at project approval stage was not recruited and no IT systems enhancements were carried out. 30. The METAP was cancelled on April 01, 2011, having disbursed 8.67% or US$ 1.56 million, thus reaching beyond the percentage and quantum thresholds of 5% and USD 1 million as per the Implementation Completion and Results Report Guidelines (OPCS 2006, updated 10/05/2011). Nevertheless, management decided to prepare an NCO instead of an ICR as the operation failed to reach significant implementation. This is the second operation that was cancelled by the client, the first one also having failed to reach significant implementation and for which an NCO has already been submitted and approved. 11 3. Assessment of Bank Performance 31. Quality at Entry is rated moderately satisfactory. The Project design was based on the findings from the Bank’s Economic and Sector Work, such as the Investment Climate Assessment and the Doing Business reports, as well as analytical work carried out in the country by various authorities. The issues addressed in the project were aligned with Government’s own priorities and consistent with the Bank’s CPS. While potential risks were identified during the preparatory phase of the project and mitigation factors spelled out, some risks, especially those linked with public sector reforms, were underestimated. The program for carrying out sector wide reforms across a range of public enterprises was too ambitious. For some crucial activities, Government either allocated their own funds or used funding from other agencies to keep the momentum of the reform plan. 32. Quality of Supervision was moderately satisfactory. The Bank team in the field was able to provide just-in-time technical and advisory support to the implementing agencies and MoFED. This was important given that the Bank was re-engaging in Mauritius after seven years, and that the implementing agencies as well as the PCU required capacity building in Bank’s systems and procedures. The Bank was proactive in responding to the expectations of Government and was able to bring in sector expertise to strengthen the field team. However, a number of warning signals were slow to be noticed and acted upon, mainly in the area of political economy (elections-related) shifts in priorities, including the government’s desire to fund reforms without Bank support. Moreover, PIU capacity constraints were also not adequately addressed. 33. The preparation of the Implementation Status and Results (ISR) reports has been irregular because at one point the audit report from the client was delayed and also because of the financial reconciliation matters that took a while to be resolved. 34. Given the above ratings for quality at entry and quality of supervision, the overall Bank performance is rated moderately satisfactory. 4. Assessment of Borrower Performance 35. The performance of the Borrower was moderately satisfactory. The Government had committed to the project at the design stage where timely discussions were held on how to implement the reform program at a time of transition from a preference-based economy. However, while the Government was very enthusiastic to work with the Bank on policy issues, it was less keen to collaborate on implementation of specific activities that were to be supported by the METAP financing agreement. Instead, the Government went ahead to implement reforms using funding sources that it considered as more advantageous. Although the Government is to be commended for implementing some reforms on its own, it turned away from the financing it has previously requested and negotiated with the Bank under the METAP, and moreover with little dialogue with the Bank over possible reallocation of the funds to other activities within the same PDO. 12 36. The performance of the Implementing Agencies was moderately unsatisfactory. The PERU was dedicated to manage the operation with specific responsibilities assigned to staff within the unit. Despite this, the PCU staff could not accommodate additional tasks of procurement, financial management and M & E in addition to their day to day work. Furthermore, these staff was not conversant with the Bank’s fiduciary procedures, rendering their coordinating role more difficult. Although this lack of familiarity with the Bank’s requirements was noted during Project preparation, it appears that the deficient capacity of the PCU was not properly addressed and made a priority consideration when determining the size and nature of the interventions to be supported by METAP. Training requirements were flagged and on the job intervention solicited. Interventions from the Fiduciary team were mostly of an auditor approach rather than support and mentoring. 37. Given above ratings for government performance and implementing agency performance, the overall borrower performance rating was moderately satisfactory. 5. Lessons Learned 38. Relevance of design: Throughout the process of Project design and preparation, the government was actively involved and supportive of the objectives and desired impact of the SIL. However, when the time came for implementation, the authorities found the Bank’s fiduciary compliance requirements to be cumbersome, dragging on efficiency and the desired speed of reforms, thereby resulting in slow disbursement and limited progress toward achievement of the PDOs. Furthermore, Government dramatically changed priorities during implementation of the project, including the desire to control the implementation of reforms through one central implementing agency, the Ministry of Finance, rendering the SIL irrelevant as the Bank’s choice instrument. At the same time, the Government continued to press the Bank for technical assistance, analytics and policy dialogue. This brings to the forefront the issue of Middle Income Countries which value highly and desire the Bank’s knowledge services to help learn from and apply global best practices in the reform planning and implementation process, but do not need or demand the accompanying Bank financing or wish it but at customized terms and/or delivery mechanisms. These clients wish to maximize access to the Bank’s technical assistance but without the associated administrative requirements imposed by the use of SIL as a lending instrument. This calls for continuous improvement and/or innovation of Bank lending instruments to suit the requirements of this ‘emerging’ client segment. 39. Proactivity and agility to develop a customized solution for meeting the changing needs of a MIC client: The cancellation of the METAP provided an opportunity for the Bank to demonstrate its service responsiveness and agility to meet the evolving development priorities of an MIC client. In complying with the government’s concerns, wishes and priorities, t he Bank team moved quickly to prepare a single DPL operation supporting the same competitiveness agenda that were to have been addressed under the SILs. 13 40. Risks underestimated: With hindsight, a review of the operation suggests that the implementation challenges associated with the public sector reforms, and capacity gaps within the implementing agencies, were underestimated at the design stage. Clearly, more attention should have been afforded to an understanding of the political economy environment of Mauritius, especially during a period of elections, while the fiduciary capacity of authorities to implement Bank projects should have been assessed with greater care for quality and reliability. 41. Timing of sensitive reforms: Although there was high-level political buy-in of the Project at the design stage for reforms in the parastatal sector, the political commitment, support and ownership for implementing these reforms eroded quickly during the pre- electoral period. This was signaled to the Project team very early, about one year in advance of the elections, when the then Minister of Finance refused to sign off on the recruitment of a resident advisor for PERU, and should have been factored into the Project preparation accordingly. Strong ownership of any reform program must be obtained at the onset and maintained throughout the duration of the program. Furthermore, sensitive reforms should be launched in the early phases of a Government mandate, when they are most likely to be implemented, instead of during the pre-election political cycle when resistance to reforms and the potentially negative distributional impact on some stakeholders tends to weigh on Government’s resolve and commitment to implement the reforms. 42. Clear M & E framework: Elaborating a realistic Results Framework with clear baseline data allows proper monitoring of progress towards performance. For the METAP, the Project performance indicators contained in the PAD’s Results Framework were mainly derived from the Doing Business indicators, some of which were supposed to be achieved at the end of the project but ended up instead being met in the first year of operation. It is also important to have a results framework with more tailored KPIs so as to better measure the impact of the project achievements. 43. PCU Capacity: The successful implementation of policy and institutional reforms required adequate capacity in key areas. The PCU needs to be staffed and equipped with commensurate quality and quantity. Capacity building of the fiduciary team and focal points at the implementing agencies should be provided during project preparation in order to have a fully prepared functioning implementation unit by the time of project effectiveness. Inadequate PIU capacity is one of the risks to be flagged before the Project is approved, and often it means that the Project design should be revisited. 44. Decentralization of Project Supervision: In countries with limited institutional capacity, having the TTL in the field is pivotal to timely resolution of issues encountered during implementation, providing the ability to engage in problem solving dialogue with the PCU, implementing agencies and the Government with responsiveness required for achieving a constant implementation pace and orientation toward the PDO. 14 Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibilit Names Title Unit y/ Specialty Lending Supervision/NCO Andrew Osei Asibey Senior Monitoring & Evaluation AFTDE Mariella Beugue Program Assistant AFMMU Irene F. Chacon Operations Analyst AFTFW Wilfrid Bernard Drum Consultant LCSPE Efrem Fitwi Procurement Specialist AFTPC Sidonie Jocktane Executive Assistant AFMGA Patrick Kabuya Sr Financial Management Specialist AFTFM Khoudijah Bibi Private Sector Development Specialist AFTFE Maudarbocus-Boodoo Francois Marie Maurice Sr Financial Management Specialist AFTFM Rakotoarimanana Lova Niaina Ravaoarimino Procurement Specialist AFTPC Ann Christine Rennie Lead Financial Sector Specialist SASFP Nko Etesin Umoren Resource Management Analyst AFTRM Lead Private Sector Development Chunlin Zhang AFTFE Specialist Brinda D Dabysing Private Sector Development Specialist AFTFE (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY07 45.95 FY08 84.79 Total: 130.74 Supervision/NCO Total: 0.00 15 Annex 2. List of Supporting Documents 1. Mauritius - Economic Transition (TA) Project, Project Appraisal Document December 2008 2. Loan Agreement Economic (TA) Project, February 2009 3. Missions Aide Memoires, 2009-2010 4. Project Status Reports and Implementation Status and Results Reports, 2009- 2010 5. Progress Report from PCU – Project Implementing Agency (2009-2010) 6. Doing Business 2013, Economic Profile of Mauritius, 2012 16 IBRD 33446 57°30'E Rodrigues Island INDIAN MAUR I T I U S Flat Island 19°40'S Port Mathurin OCEAN SELECTED CITIES AND TOWNS Grand Montagne DISTRICT CAPITALS Petit La Femme Gabriel NATIONAL CAPITAL Gunner's RIVERS Quoin 19°45'S 0 1 2 3 Kilometers Crab MAIN ROADS Island 0 1 2 3 Miles 63°20'E 63°25'E 63°30'E DISTRICT BOUNDARIES INTERNATIONAL BOUNDARIES 57°45'E 20°00'S Cannoniers 20°00'S Point Grand Grand Gaube This map was produced by the Map Design Unit of The World Bank. Baie The boundaries, colors, denominations and any other information Goodlands Ile D'Ambre shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Triolet Triolet RIVIÉRE Poudre d'Or DU PAMPLEMOUSSES PAMPLEMOUSSES R E M PA R T Riviére Rivié Rivi ére du Pamplemousses Rempart Rempart Riviér e Citro INDIAN Terre Terre Rouge m pa rt ns Re e OCEAN Ri vi ér PORT LOUIS La Bon PORT Nicoli Nicoliéére Nicoliére Accueil LOUIS N cq Découve Fla Point ou ll te du Centre Petite Riviére ve e P os de Flacq rt du re e v ié Moka Ri MOKA Pointe Quartier Quartier Militaire FLACQ Quatre Cocos 20°15'S Rose Hill 20°15'S Bel Air Q Bambous ua Ile aux Cerfs rt Piton de Milieu Montagne ie Reservoir Reser voir Blanche r Phoenix M lit i Riv ai re Vacoas Vacoas re ié du r South East Re Bambou M ts Curepipe Grand Rive mp Rivié r e Tamarin Tamarin ar t Pointe BLACK PLAINES du Diable RIVER WILHEMS GRAND Vieux Vieux Grand Gra n s Mare Nouvelle aux France PORT Port Port a d Vacoas Vacoas co vié Ri INDIAN Va Rivi re ére Mont Piton No L ir e Rose Belle OCEAN a (828 m) Mahebourg Ch Ile aux Grand Bois a ux Bénitiers G Riv e r Cap Sa du ra R iv Mt. Cocotie va nd er Baie des Pointe (771m) ne d Po e u Sud s A S AVVA N N E AVA Sa te Mt Ouest L'Escalier va s G le t Chemin a s Riviére Rivi Riviéére des nn Grenier Anguilles e 20°30'S Baie du Cap Surinam Souillac MAURITIUS 0 1 2 3 4 5 Kilometers 0 1 2 3 4 5 Miles 57°30'E DECEMBER 2004