Ghana

Ghana - Water Sector Restructuring Project (Vol.1), 1998/11/13, PID7299, Project Information Document

Restructuring: The restructuring component includes (i) financial support for the phasing in of tariff increases, in order to reach full cost recovery, (ii) technical and financial support for the Ghana Water Corporation in its establishment and initial operation as well as in assisting it with the monitoring of the private operators, and (iii) staff rationalization support.

Ghana Water and Sewerage Corporation will be transformed into a down-sized Ghana Water Corporation which will become the asset holder and will monitor operations. Ghana Water Corporation will be supported during its transformation by the Water Sector Restructuring Secretariat of the Ministry of Works and Housing. The Public Utilities Regulatory Commission will be the regulator.

Ghana - Public Enterprise and Privatization Technical Assistance Project (Vol.1), 1996/05/13 T6901 Technical Annex

The public enterprise reform program will focus on (a) preparing enterprises for divestiture; (b) monitoring the performance of enterprises, and making information available to the Government and the public; (c) a review of government policy for the public enterprise sector, with an increased focus on the management of the Government's portfolio of equity investments, loans, and guarantees; (d) policy and regulatory reform in a number of key sectors in which SOEs are dominant - aviation, cocoa and petroleum; and (e) building capacity within the Ministry of Finance and State Enterprises Commission (SEC).

The privatization program will focus on (a) acceleration of the divestiture program using newly-approved procedures; (b) contracting out the sale of enterprises to private firms; (c) arrangements to address labor redundancies caused by divestiture; (d) arrangements to promote the participation of Ghanaians in the investment opportunities created by divestiture; (e) implementation of a public information and communications strategy, including periodic impact assessments with the participation of key stakeholders; and (f) building capacity within the Divestiture Implementation Committee (DIC).

The role of the Government in the SOE sector is evolving. As privatization continues, the size of the sector is being reduced. The Government's role is evolving from one of relatively active involvement in the management of enterprises to a more passive role in managing a portfolio of equity investments, loans and guarantees. It is placing increased emphasis on creating an appropriate policy, legal and regulatory framework for strategic sectors. Specifically, it has developed and is implementing policy and regulatory frameworks in the financial, mining and telecommunications sectors designed to liberalize and allow private investment, and, with assistance under this project, proposes to expand these reforms into other sectors that have large SOEs, such as cocoa, petroleum, and aviation.

An acceleration and expansion of the divestiture program lies at the core of the Government's efforts to establish a climate conducive to private investment. Under the Government's accelerated divestiture program, 110 small and medium-sized SOEs placed on the divestiture list will be divested, of which at least 48 are to be completed by March, 1997. In addition, the Government intends to offer for sale at least three large non-bank SOEs, including Ghana Telecom, by that time. The program thereafter has not been defined in detail, but at the intended pace, the bulk of the current SOE sector would be divested over the next five years or so. To enable this program to be defined and implemented, upstream preparatory work of enterprises for divestiture has been undertaken under the auspices of the SEC, largely on a contract basis.

The Government decided in 1994 to accelerate the divestiture program. In April 1994, it raised around $350 million from the sale of half of its majority stake in Ashanti Goldfields Corporation and a further $23 million from the sale of its stake in seven manufacturing companies listed on the Ghana Stock Exchange. Divestiture of its controlling stakes in the other state-owned mining companies was substantially completed in 1995. In January 1995, the Government announced that it would sell a further 114 enterprises. It also approved and published new procedures for carrying out divestitures, including arrangements whereby DIC would enhance its capacity by contracting out the sale of enterprises to private firms. In late 1995 and early 1996, the Government successfully floated two state-owned banks on the Stock Exchange and advertized the sale of a strategic stake in Ghana Telecom. It intends to continue the divestiture program once the sale of the 114 enterprises announced in 1995 has been completed.

IDA is supporting the accelerated program through a series of adjustment and technical assistance operations. As part of the First Private Sector Adjustment Credit (PSAC I) amounting to US$75 million, the credit agreement for which was signed in July 1995 (Cr. 2418-GH), the Government has committed to divesting not less than 48 small and medium-sized SOEs and to bring at least 3 strategic enterprises to the point of sale. A second adjustment operation (PSAC II) is scheduled for IDA FY97 and will address the cocoa and petroleum sectors. IDA is assisting the Government to privatize state-owned banks (Cr. 23 18-GH), non-bank financial institutions (Cr. 2792-GH), mining (Cr. 192 1-GH) and Ghana Telecom (operation under preparation) as part of wider sector reform programs. This project would continue the support provided under the PETA Project (Cr. 1847-GH) which is scheduled to close on June 30, 1996.

The benefits of outsourcing are that it allows DIC to accelerate the pace of divestiture by utilizing private sector resources and expertise; wvith the appropriate financial and success fee incentives in place, private sector privatization specialists with hands-on experience in negotiating sale transactions are more likely in certain cases to secure quality investors and increased sales proceeds in a timely manner: openness and access to information concerning the divestiture process is enhanced; and it fosters development of the private services sector in Ghana, through direct use of local consultants, lawyers and financial advisory firms to undertake divestitures, and throughi the skills transfer arising from associations between local and international firms.

There is no reliable estimate of the potential liability for severance and termination payments arising from the divestiture program. Rough estimates are that up to 40,000 employees may be affected, at a cost of around US$ 40 million. This compares to over 60,000 redundancies from the civil service reform program and around 100,000 in the Cocoa Board in the late 1980s and early 1990s.

Economic and Financial Policy Framework Paper, 1998-2000, March 9, 1998

In 1993-94, the authorities made some progress in reducing fiscal and external imbalances. The domestic primary balance shifted to a surplus of 0.8 percent of GDP in 1994, bolstered by increased revenue from taxes on cocoa exports. However, import duties were not imposed as planned on a range of zero-rated or exempted goods, while overruns occurred in wages and domestic interest payments. The government's external position was supported by large privatization proceeds, mostly from the sale of the Ashanti Goldfields Company.

Accelerated Divestiture. An acceleration and expansion of the divestiture program lies at the core of the government's efforts to establish a climate conducive to private investment. During 1993-97, the government divested a total of 48 state-owned enterprises from a pre-determined divestiture list of 110. Of the large and strategic enterprises, the government divested 30 percent of its shares in Ghana Telecom in late 1996. During 1998, the government will offer for sale at least another 20 of the remaining small and medium-sized enterprises from the list and will have completed privatization for at least two of the following large and strategic enterprises: the State Insurance Corporation, the State Housing Corporation, and Mim Timber.

The government has also sought enhanced competition in commercial banking through a program of divestiture of publicly-owned commercial banks-the Social Security Bank (SSB) and the Ghana Commercial Bank (GCB).2 Majority share holdings in SSB passed into private hands in 1996 with foreign strategic investors obtaining management control. Forty-two percent of the shares of GCB were divested through a public offering in 1996 and negotiations with a strategic investor were conducted in 1997. Negotiations could not be concluded due to complications arising from Bank of England regulations governing the sale of the London branch of GCB. Financial sector reforms will continue in 1998 with the divestiture of the National Investment Bank, the State Insurance Corporation, and the Reinsurance Corporation. Overall banking supervision will be strengthened throughout the medium-term in order to safeguard the soundness of the banking system.

The authorities have renewed their commitment to continued deregulation of the sector and the following measures are planned. First, the government reinstated a system of automatic price adjustment for petroleum products in early 1997. The formula includes an ad valorem tax component and applies import parity pricing, and will result in the decontrol of ex-depot petroleum prices subject to safety and competition standards. Second, GNPC operations will be restructured in order to confine the company to hydrocarbon and energy-related activities. GNPC assets unrelated to its primary functions will be liquidated and corresponding outstanding debts repaid. A timetable for the repayment of GNPC debt to the Bank of Ghana has been agreed upon and the debt will be fully repaid by April 1998. Third, during 1998, the Tema Oil Refinery's (TOR) and the Ghana Oil Company will be offered for sale. The operations of TOR will be fully exposed to competition after 1998, which will complete the liberalization of the import of petroleum products.

In recognition of this problem, the government announced in the Budget of 1998 plans to rationalize the regulatory regime for subvented agencies and specific measures to rationalize the size and structure of the public service. These include measures to reorganize the functions of the civil service and subvented organizations, reduce staffing levels, rationalize hiring practices, and raise relative pay in favor of managerial staff.

However, through further rationalization of the operations of the Cocoa Board and the reduction in export taxation, the farmers' share in the f.o.b. price of cocoa will be raised to 60 percent for the 2000-01 crop season. Over this period, the Cocoa Board's share of the f.o.b. price will be reduced by at least one-half of the increase in the share of the farmers. The operational savings will come primarily through efficiency gains from the privatization of the Produce Buying Company (the domestic arm of the Cocoa Board).

The government's strategy in infrastructure is to co-opt private participation in the expansion and maintenance of the nation's infrastructure in most sub-sectors. This is seen as necessary to reduce costs, improve the quality, and overcome the financial constraint on investments. In the telecommunications sector, the government has moved the farthest through the enactment of the 1996 National Communications Act which set the basis for the divestiture of 30 percent of Government shares in Ghana Telecom to an international consortium led by Telekom Malaysia, and the grant of license for a second national network to another international consortium, African Communications Group.

Public funds will also be directed to investments in basic rural infrastructure such as rural water supply, small-scale irrigation, village roads, post-harvest facilities (including storage and marketing), and rural telecommunications as both residual financing and a catalyst for private investments. But the government will seek to increase the efficiency of public spending, raise the share of infrastructure public expenditures that are targeted to low-income areas, and ensure the sustainability of these investments through community participation and, where possible, cost recovery. In roads, the government will seek to increase private participation in the management and maintenance of the existing road network, which complements the ongoing reform of road maintenance financing.

Summary and Time Frame for Macroeconomic and Structural Adjustment Policies, 1998-2000
Launch rationalization of the size and pay structure of civil service and subvented agencies. Budget 1998

Accelerate and expand divestiture program. From the divestiture list of state-owned enterprises (SOE) offer for sale an additional 20 SOEs and at least two of the following: the State Housing Corporation, State Insurance Corporation, and Mim Timber processing plant. 1998

Divest 60 percent of the shares of the National Investment Bank. 1998
Offer for sale the Reinsurance Corporation after commercial restructuring. December 1998

Offer for sale GNPC's non-oil-related assets. March 1998
Offer for sale Tema Oil Refinery Ltd. and the Ghana Oil Company Ltd. June 1998

Offer for sale the Produce Buying Company (PBC). June 1998

Letter of Intent, November 12, 1998

The government is enhancing its capacity to implement public sector economic reforms. The National Oversight Committee of the National Institutional Renewal Programme (NIRP) is consolidating job functions with a view to streamlining and downsizing the public service. The government is negotiating with the social partners a comprehensive long-term wage policy, aimed at reforming the pay structure based on a detailed job evaluation across the entire public sector.

An important part of this reform is the rationalization of the regulatory framework for subvented agencies. In December 1997, Cabinet approved a comprehensive strategy for public service reform over the next 10 years.3 Approximately 70 percent of the civilian public service is employed in 174 subvented agencies, including the Education Service, Health Service, and Highways Authority. A review of activities and staffing levels of these agencies is ongoing with a view to making them more efficient and, where appropriate, incorporating them in the budget, closing them down, or commercializing them prior to privatization. The Cabinet approved a pilot project for the reform of subvented agencies, which would restructure at least seven agencies, commercialize at least five, and close down five others. The draft legal framework and procedures for closing down or commercializing subvented agencies are to be prepared by the end of December 1998. The Cabinet is expected to approve the specific subvented agencies for the pilot project by the end of 1998 and the project is to be completed by the end of 1999. The reform of the subvented agencies will be supported by a World Bank credit, which encompasses assistance for the pilot project and preparation of a medium-term program to reform the sector.

The government has continued to implement a strategy to rationalize and increase the efficiency of the cocoa sector while improving the return to farmers and enhancing the quality premium of the Ghanaian cocoa. Incentives for cocoa farmers were improved through an increase in the share of the f.o.b. price of cocoa that accrues to farmers from 51 percent in the 1996/97 crop year to 54 percent in the 1997/98 crop year and further to 56 percent in the crop year that started October 1, 1998. The government will identify further cost-cutting measures for the Cocoa Board to support future increases in the share of the farmers. The government will proceed with its already announced plan to divest the Produce Buying Company (PBC), a subsidiary of the Cocoa Board, and will offer it for sale by March 1999. The divestiture process was delayed by a discussion regarding splitting the PBC into two companies so as to increase competition in the sector. The unification of the extension services of the Ministry of Agriculture and the Cocoa Board were slowed down by the existence of salary scales that were significantly different. While a common salary scale is being considered, the government has gone ahead with the first phase of the unification covering selected producing areas. Full unification is expected early in 1999. The government intends to request assistance from the World Bank to finance possible retrenchment costs associated with the reforms in the extension services and the PBC. Various options for eliminating the Cocoa Board's export monopoly will be assessed while safeguarding the quality of the cocoa crop. The government, with World Bank support, has scheduled a workshop on cocoa in January 1999 to discuss ways to deepen the ongoing reforms and to consolidate the future prospects for the sector.

During 1998, the government will continue its privatization program with the divestiture of at least two large and an additional 20 small- and medium-size enterprises. Of the large enterprises, three quarters of the government's share in Barclays (40 percent) and one half of its shares in Twifo Oil Plantation (80 percent) were divested during the first half of 1998. At the same time, the State Insurance Corporation was privatized. By end-1998, the Mim Timber Company and the Ghana Reinsurance Corporation will be offered for sale. Regarding the small-scale enterprises, government divestiture initiatives remains on track.

GNPC divested its nonenergy-related assets in March 1998. The government appointed international consultants to prepare comprehensive prospectus for the sale of shares in Tema Oil Refinery Ltd. and the Ghana Oil Company Ltd. The request for bids for Ghana Oil Company Ltd. is expected by end-October, 1998, and the sale should be completed in early 1999. For the divestiture of Tema Oil Refinery Ltd., the process is expected to involve negotiations with creditors to convert their debts into equity in the company by end-1999. Subsequently, government will arrange sale of a second batch of shares to reduce its shareholding to a minority stake.

Structural Performance Criteria and Benchmarks Under the Second Annual ESAF Arrangement, 1998
Offer for sale the Produce Buying Company (PBC). June Delayed to end-March 1999 Complete valuation of assets and draft terms of reference for share flotation by mid-November 1998
Offer for sale GNPC's non-oil-related assets. March Done
Offer for sale Tema Oil Refinery Ltd. and the Ghana Oil June Postponed to October Company Ltd.* (Ghana Oil); End-1999 (Tema)
Identify subvented agencies to be reincorporated into the budget, September Done Privatized or closed.

Summary and Time Frame for Macroeconomic and Structural Adjustment Policies, 1998-2000
Accelerate and expand divestiture From the divestiture list of state-owned enterprises program. (SOE) offer for sale an additional 20 SOEs and at least two of the following: the State Housing Corporation, State Insurance Corporation, and Mim Timber processing plant. 1998 Mostly done

Increase private sector participation and cost 1998-2000 Ongoing recovery in water supply, sanitation, waste management, and drainage.
Increase participation of the private sector in port management and operations. 1998-2000 Under Consideration

Policy Framework Paper, 1999-2001, April 13, 1999

The government is making progress in implementing key structural reforms, albeit with some delays to ensure stakeholders' support. Cocoa sector reforms continue to move ahead: the producer's share in the f.o.b. price of cocoa was increased to 56 percent for the 1998/99 crop season, and private-licensed buying companies now purchase 40-50 percent of the cocoa crop. However, the sale of the Produce Buying Company (PBC) was delayed as experts were consulted over the details of the privatization. A medium-term strategy to foster development in the cocoa sector was adopted by the cabinet in March 1999. In the energy sector, the Public Utilities Regulatory Commission (PURC), established in late 1997 to set tariffs on an autonomous basis, raised significantly electricity and water tariffs in 1998, so as to eliminate operating losses in these sectors. Ex-depot wholesale petroleum prices were introduced, based on an automatic formula for adjusting them in line with petroleum import price changes. The offer for sale of the Ghana Oil Company took place in October, while that of the Tema Oil Refinery was delayed because of ongoing rehabilitation and financial restructuring. A new public sector wage policy, based on a 22-level grade structure, will be implemented from January 1, 1999.

In 1998, the government moved to a new phase of the divestiture process covering major enterprises in the transport, energy, and banking sectors. The overall divestiture program for 1999/2000 covers about 80 companies. The government intends to conduct a comprehensive review in April 1999 of the divestiture process and program. On this basis, it will set a target for program completion and take necessary steps to achieve it. An evaluation of the outsourcing program will be a key input into this overall review. In the meantime, the government will endeavor to solve the problem of the outstanding liabilities of some firms, the sale of which is constrained by end-of-service benefits and substantial customer claims. It will also seek to attract more investor interest by enhancing the quality of sale advisors and by improving disclosure of information on the program. In this respect, the government will reduce the publication lag of the annual financial reports of the Divestiture Implementation Committee (DIC), as well as complete and disseminate a detailed impact assessment of the divestiture program.

The government has begun to implement a far-reaching public sector reform program to be carried out over the next decade. The main objectives of the program are to reform central government agencies and to rationalize 175 subvented agencies, which employ about 400,000 staff. In this context, a pilot program to commercialize, restructure, or close down at least 17 subvented agencies will be completed by the end of the year 2001; enabling legislation will be presented to parliament in 1999. The Ministry of Finance, the Public Service Commission, and the National Development Planning Commission will be restructured in the next two years. The exercise will be extended to include the Ministry of Local Government and Rural Development, the State Enterprise Commission, and the Office of the Head of the Civil Service by end-2001. Moreover, the government intends to improve and streamline policy design and implementation. To this end, the government drew a pilot public/private partnership program to increase private sector participation in activities now being performed by central government and subvented agencies.

A new regulatory framework embodying the PURC (Act 538 of 1997) and the Energy Commission (Act 541 of 1997) has been set up to attract private sector participation in power and petroleum products. In light of the vulnerabilities in power supply highlighted by the 1998 energy shortages, the government is preparing a "Statement of Power Sector Development Policy," which will outline the remaining reform agenda for discussion with stakeholders in 1999. In parallel, the government is preparing a Transitional Power System Development Plan (1999-2001). This plan will indicate a least-cost strategy for increasing thermal power supply to complement the projected availability of hydropower until 2001, prior to the delivery of natural gas from Nigeria via the proposed West Africa Gas Pipeline Project. Based on the outcome of the Transitional Power System Development Plan (1999-2001) the government will present for parliamentary consideration and approval before end-December 1999, the Electricity Regulations-Operation of the National Interconnected System, and complete the operational separation of the electricity transmission utility (National Grid Company, Ltd.) from other activities of the Volta River Authority (VRA). The VRA will divest its thermal power generation assets, and the Electricity Company of Ghana (ECG) is being restructured and will be offered for sale by end-1999.

The government aims to develop Ghana as a major regional hub and is preparing to privatize some operations at the harbors and at Kotoka International Airport. To support its policy of liberalized skies, a program of institutional reform is planned for the Ghana Civil Aviation Authority as part of the World Bank-supported Gateway Project.

In 1993, the government initiated a restructuring program aimed at improving the supply of water and sewerage services and allowing the sector to reach financial viability. The separation of responsibilities for urban and rural water, sanitation, and sewage is largely complete. The government is in the process of downsizing and converting the Ghana Water and Sewerage Corporation (GWSC) into the Ghana Water Company (GWC), which will lease the urban water supply network to private operators. Two lease packages, designed to promote competition in urban water supply, will be opened for bids in October 1999. The conversion of the GWSC, including a program of staff rationalization, is expected to be completed by January 2000. The government has also initiated the transfer of all small community systems to the district assemblies. These systems will be operated by the communities, with management support from the Community Water and Sanitation Agency. This transfer should be completed by end-2000. Finally, the government has established a program of tariff increases to ensure the financial viability of the sector. The average water tariff was raised by 140 percent in March 1998. The PURC is currently considering a second tariff increase, which will be sufficient to cover operating costs of the private operators.

Timing and Implementation of Macroeconomic and Structural Adjustment Policies, 1999-2001

Withdraw licenses of banks that do not meet capital adequacy requirements. September 1999
Sell at least 30 percent of shares of the National Investment Bank. September 1999
Divest all Bank of Ghana shares in commercial banks, except for Agricultural Development Bank (ADB). December 1999
Reduce government participation in Ghana Commercial Bank (GCB) to 20 percent or less of shares. December 1999
Divest Bank of Ghana shares in ADB. June 2000

Convert Ghana Water and Sewerage Corporation into Ghana Water Company and complete staff rationalization program. January 2000
Complete transfer of all small water systems and remaining sewerage systems to district assemblies. December 2000

Offer for sale the Produce Buying Company (PBC). June 1999

Letter of Intent and Memorandum of Economic and Financial Policies, April 14, 1999

In June 1995, a three-year Enhanced Structural Adjustment Facility (ESAF) arrangement was approved by the Fund in support of the government's program. This arrangement focused on reducing macroeconomic imbalances and redirecting government efforts away from activities that could be provided more efficiently by the private sector. Despite temporary setbacks, the program has broadly achieved its objectives. The inflation rate was brought down from 71 percent at end-1995 to 16 percent at end-1998. Real growth averaged 4.5 percent per year in the period 1996-98, and the domestic primary surplus increased from 1.5 percent of GDP in 1995 to 3.6 percent of GDP. On the structural front, the farmers' share of the f.o.b. export price of cocoa was increased, private buyers were allowed to purchase cocoa from farmers, access of the national petroleum company to central bank credit was eliminated, and steps were taken to deregulate petroleum product marketing. Moreover, 16 medium-sized public enterprises and 34 small public enterprises were privatized or liquidated in the context of the ESAF-supported program and the World Bank private sector adjustment credit (July 1995-February 1998).

During 1999-2001, the government will accelerate the implementation of structural reforms so as to encourage private savings and investment, and to foster efficient resource allocation. It will transfer the purchase of the cocoa crop to private licensed marketing agents, while allowing them to begin exporting a significant share of the crop. The government will also increase farmers' income by reducing the taxation of cocoa and the Cocobod's (cocoa marketing board) share. To improve the allocation of financial savings, the government will foster the development of a sound and competitive banking system. It will take steps to complete the divestiture of its shares in financial institutions other than the Agricultural Development Bank.2 Banks that by end-September 1999 fail to meet the capital adequacy requirements of the Banking Law of 1989 will have their banking licenses withdrawn. Also, the government will be vigorously implementing a divestiture program, which will cover about 80 state-owned enterprises during the first two years of the ESAF arrangement. In so doing, it will enhance the transparency of the divestiture program through timely publication of audited financial statements of the Divestiture Implementation Committee. The government will continue to implement public sector reforms aimed at refocusing its priorities on core areas, in particular agriculture, the social sectors, and basic infrastructure. Finally, actions to overhaul the energy sector will remain crucial, was highlighted by the early 1998 crisis.

Both the government and the Bank of Ghana will take steps to divest their shares in the banking industry. By September 1999, the government expects to complete the sale of at least 30 percent of the shares of the National Investment Bank to a strategic partner. Similarly, at least 40 percent of the shares in the Ghana Commercial Bank will be divested by December 1999. The Bank of Ghana will also sell all its shares in commercial banks, except those in the Agricultural Development Bank (ADB), by December 1999.

Before end-1999, the government will place before parliament a new Bank of Ghana bill that will ensure the independence of the central bank in formulating monetary policy and supervising the financial system, while making it more transparent and accountable. A new banking law will also be submitted to modernize regulatory practices. Banking supervision will be strengthened. A new foreign exposure regulation was introduced in December 1998 and will become effective in mid-1999. The Bank of Ghana is encouraging the creation before December 1999 of an "apex institution" that will provide services to rural banks. The Bank of Ghana will, however, retain final regulatory authority over these banks and, as demonstrated by its closure of 23 rural banks in late-1998, will not hesitate to withdraw the licenses of problem banks.

The government aims to create an environment in which private investment increases over the medium term, helped by a vigorous and transparent divestiture program. The government has prepared a divestiture work program for 1999-2000 covering about 80 companies. The government projects divestiture receipts of 100 billion in 1999, and 100 billion and 50 billion in 2000 and 2001, respectively. The government will seek to attract more investor interest by using experienced sales advisors and by improving the disclosure of information on the program. In that context, the government will reduce the publication lag of the annual audited financial reports of the Divestiture Implementation Committee (DIC) and will, following its completion, disseminate a detailed impact assessment of the divestiture program.

Public sector reforms will be carried out to refocus the government's efforts on core areas, particularly the social sectors and basic infrastructure. The government has begun to implement the public service reform program adopted by the cabinet and discussed at a conference of all stakeholders in 1998. This reform program is expected to be carried out in stages over the next decade. A pilot project for the reform of subvented agencies will commercialize, restructure, or close down at least 17 of them by the end of 2001. Legislation to support the commercialization or closure of agencies will be presented to parliament this year. The government also plans to reform the central management agencies over the 1999-2001 period, putting a coherent and transparent regulatory environment in place and streamlining functions. It is negotiating with the social partners a comprehensive long-term wage policy, aimed at reforming the pay structure based on a detailed job evaluation of the entire public sector. The Central Management Board (CMB) appointed to implement the program has regraded current public service jobs according to the categories of the new remuneration system. The government intends to conclude the ongoing negotiations on the implementation of the new salary structure as soon as possible.

Reforms in this sector will remain important, as highlighted by the early 1998 crisis. The government is expected to complete the regulatory framework for the sector, including the Rules of Practice for the Operation of the National Grid, by end-1999. State-owned utilities will be made into separate corporate entities for the generation, transmission, and distribution of hydroelectric and thermal power. In anticipation of this, the government has already initiated the transformation of Volta River Authority (VRA) into four entities and is in an advanced stage of divesting its thermal generation plant. The Electricity Company of Ghana (ECG) is being restructured and will be offered for sale by end-1999. Both utilities are also implementing financial recovery plans approved by the government to deal with past liabilities and to ensure their future viability. To guide the growing number of participants in the industry, including regulators and private operators, the Ministry of Mines and Energy is preparing a Statement of Sector Development Policy, to be discussed with stakeholders in 1999. The statement will outline the remaining reform agenda. The financial restructuring of the Tema Oil Refinery (TOR) will be completed by June 1999, enabling the government to offer it for sale before end-December. The West Africa Gas Pipeline is under consideration by government in partnership with the private sector to address Ghana's long-term energy needs; feasibility studies of the pipeline are expected to be completed by mid-1999.

Appoint sales advisor for the divestiture of Ghana Airways, Ghana Railways, and Electricity Company of Ghana.2 December
Divest Bank of Ghana shares in the National Investment Bank, Bank of Housing and Construction, Bank of Credit and Commerce Ghana Ltd, and the COOP. December

Letter of Intent and Memorandum of Economic and Financial Policies, November 3, 1999

In April 1999, the cabinet approved a medium-term cocoa strategy, after extensive consultations with stakeholders. The strategy was published and distributed widely. This strategy was designed to promote competition in the domestic market and end the public monopoly in cocoa exports. Specifically, the Cocoa Board began to provide equal access to its crop financing and warehousing facilities to all licensed buying companies. However, the Produce Buying Company (PBC) had not yet been offered for sale by June 30, 1999, as agreed under the program. The government publicly announced in September its intention to offer PBC for sale, and the prospectus will be available shortly. In June, the producer price of cocoa for the 1999/2000 crop season was announced at the same nominal level as in the 1998/99 season despite a sharp decline in cocoa export prices, which raised the producers' share in the f.o.b. cocoa price to 74 percent, substantially above the 60 percent minimum target under the program.

Also in April, the Divestiture Implementation Committee (DIC) published a divestiture work plan, annual targets for divestiture receipts for the period 1999-2001, and a privatization impact assessment done in collaboration with the World Bank. The government is taking steps to complete the divestiture of a number of companies already in the pipeline, including the State Transport Company and GHACEM, a cement factory. Divestiture revenues in the second half of the year are estimated to amount to 80 billion.

In the energy sector, the government published in April its "Statement of Power Sector Development Policy" and also posted it on its website. A draft financial restructuring plan for the Tema Oil Refinery (TOR) was prepared, and plans to offer TOR for sale before year's end are on course.

Prior Actions to Complete the First ESAF Review, Structural Performance Criteria, and Benchmarks
Offer the Produce Buying Company (PBC) for sale. 1/ October Done.
Offer the TOR for sale. 2/ December On schedule.
Complete the divestiture of State Transport Co. and GHACEM 1/ October Done.
Appoint sales advisor for the divestiture of Ghana Airways, Ghana Railways, and Electricity Company of Ghana. December No progress on Ghana Airways, limited progress on Ghana Railways; divestiture advisor selected for ECG.
Divest Bank of Ghana shares in the National Investment Bank, Bank of Housing and Construction, Bank of Credit and Commerce Ghana Ltd, and the COOP. December No progress.
Convert Ghana Water and Sewerage Corporation into Ghana Water Company and complete staff rationalization program. 01/31/00Conversion completed. Staff rationalization plans being reviewed.

Letter of Intent and Memorandum of Economic and Financial Policies, June 25, 2000

Regarding structural reforms, good progress was achieved in reducing government involvement in financial sector institutions. The National Investment Bank has been sold to investors, and the Bank for Housing and Construction (BHC) and Cooperative Bank (COOP) was closed on January 17 with minimum disruption to banking activities; deposits were transferred to sound banks. In 2000, the cost of these closures is presently estimated at about 60 billion, which is less than originally estimated. The government will be issuing treasury bills as needed to cover liabilities to depositors. The Bank of Credit and Commerce, a private bank, was also closed on May 31, 2000. Two new banks have entered the market: Stanbic Ghana Ltd. and Amalgamated Ghana Ltd. Draft central bank and banking laws have been finalized and submitted to parliament in May 2000.

Shares of the Produce Buying Company (PBC) were offered for sale on the Ghana Stock Exchange on December 10, 1999. A sales advisor for the Electricity Company of Ghana will be appointed by end-September 2000. The appointment of the transaction advisor for Ghana Railways has been delayed and is now expected in September 2000. The government decided not to move ahead with the divestiture of Ghana Airways for the moment. The financial restructuring of the Tema Oil Refinery (TOR) was completed in 1999. In June 2000, a memorandum of understanding was signed with Samsung (Korea), which is financing the modernization of the refinery, to take up to a 15 percent equity stake in TOR.

The government will deepen its divestiture program during 2000-2002, with the sale of the Electricity Company of Ghana, sale of additional shares in Ghana Telecom and the Ghana Commercial Bank, and concessioning of the Ghana Railways. Efforts will also be made to collect amounts due to government on account of previous divestitures. The government will continue to implement public sector reforms aimed at refocusing its priorities on core areas, in particular agriculture, the social sectors, and basic infrastructure. Ghana's decentralization policy is expected to devolve power, competence, and resources to the district level.

In March, the government committed to take prior actions in a number of key areas of reform to underscore its commitment to the strategy described in this memorandum (Table 2). In particular, government will postpone the expenditures equivalent to at least 1 percent of GDP until the second half of 2000; these expenditures will be cut, if necessary, if fiscal developments in the first half of 2000 are less favorable than programmed. It will make the new VAT rate and petroleum excise effective prior to or on June 1, 2000. A sales advisor prepared to underwrite the sale of 10-15 percent shares in Ghana Telecom will be selected in June. The remaining commercial bank that presently does not meet the capital adequacy requirement will be closed and the draft central bank law submitted to parliament. The government, after consultation with its technical partner, will provide documentary evidence of the intended partial divestiture of TOR. The government will also eliminate any outstanding external payment arrears.

Structural performance criteria
· Appoint sales advisor for the divestiture of the Electricity Company of Ghana (end-September 2000).
Key benchmarks
· Hire financial advisor for the concessioning of Ghana Railways (end-September 2000).
· Divest all Bank of Ghana's shares in commercial banks (end-September 2000).

Interim Poverty Reduction Strategy Paper, June 30, 2000

In the urban water sector, the Ghana Water and Sewerage Corporation has been restructured into a limited liability company - Ghana Water Company (GWC). A programme to increase tariffs in order to safeguard the financial viability of the utility is underway and takes into account ability to pay of poor households. The GWC has a target to cover 100 per cent of the urban population by 2015. Government intends to lease existing urban water production and distribution systems to investors to attract much need capital to ensure their long-term sustainability.

In addition, substantial resources have been invested in the rehabilitation and construction of such economic infrastructure as roads, highways and ports and harbours. Under the Ghana Gateway Programme, the Tema and Takoradi Ports as well as the Kotoka International airport are being rehabilitated to ensure the free flow of both cargo and passengers and to service the whole sub-region. Government is considering the involvement of the private sector not only in the financing but also in the management of roads, ports and harbours as well. In this connection, the Government has involved private sector institutions in the operation of the tolls.

As of end 1998, 188 companies had been privatised under the accelerated privatization programme. To ensure that ordinary Ghanaians have a meaningful stake in the privatized companies, a Privatization Trust is being established to warehouse all outstanding shares of Government in SOE's. Under this scheme, the Government also intends to use the warehoused shares to deepen the Employee Share Ownership Programme (ESOP).

With respect to the financial sector in Ghana, a programme of reform has been pursued within an environment of market economy, involving among others, deregulation of interest rates and credit ceilings, and a liberalised trade and payments regime. As part of the reform programme, measures were put in place to strengthen the management and operational capabilities of banks, and the development of the capital market. In addition, a programme of privatization of state-owned banks has also been pursued.

Policy Matrix for Poverty Reduction 2000- 2002
oHire financial advisor for the concessioning of Ghana Railways. 9/ 30/ 00
oIssue invitation for bids on concession for Ghana Railways. 12/ 31/ 01
oIssue invitation for bids on concession port operations. 12/ 31/ 01