Tanzania

Tanzania - Dar es Salaam Water Supply and Sanitation Project (Vol.1), 1999/04/15, PID7578, Project Information Document

This would be achieved through an in depth institutional reform that would transform DAWASA into an "Asset Holding Authority -- AHA", responsible for developing the WS&S facilities and thus for implementing the proposed Project. DAWASA would act as "Public Granting Authority -- PGA" and sub-contract technical and commercial operations of the WS&S service to a professional "Private Operator - PO" under a ten year "Lease Contract". The PO would be responsible for day to day operations of the facilities, updating customer files, installing bulk and individual meters, reducing physical and commercial unaccounted for water (UfW) and increasing collection of bills. The PO would take the operational and commercial risks and provide financing for the initial working capital and operational equipment, including individual meters.

Tanzania - Second Programmatic Structural Adjustment Credit Project (Vol.1), 2000/03/31, PID8877, Project Information Document

The principal objectives of PSAC are to encourage increased private investment; induce greater efficiency of the private sector by reducing the cost of doing business and enhanced competition; increase private sector participation in the economy through further divestiture of key public enterprises, particularly in infrastructure services; and improve the effectiveness in the delivery of supportive public services. This strategy is in line with the principal objective of the 2000 CAS, to support poverty reduction through accelerated growth and more effective public service delivery. Increased private sector investment and business efficiency is crucial for higher sustained growth. The CAS is being submitted to the Board together with this proposed operation.

Tanzania - Privatization and Private Sector Development Project (Vol.1), 1999/02/26, PID8083, Project Information Document

During 1994-1998, Tanzania divested about 270 public enterprises (PEs). These included mainly small-medium PEs in tradable goods sectors, but also a number of large PEs (e.g., brewery, cigarette factory). In some cases, such as leather, privatization of PEs has opened up markets for private entrepreneurs and improved output and efficiency. There have, however, also been cases in some sectors where delays in divestiture have contributed to deterioration of fixed assets, and created uncertainty which has limited private investment.

In late 1996 the Government of Tanzania (GOT) decided to expand the privatization program to divest all major utility and infrastructure PEs (water, telecommunications, ports, railways, electricity) banking, agriculture and mining PEs. The GOT's stated aim is to divest all of these enterprises by the end of 2000. However, in practice, it is expected that divestiture of the remaining 230 PEs will take longer, and some (notably in infrastructure) will be opened to private investment in stages over the medium to long term.

The project will support implementation of Tanzania's public enterprise (PE) privatization program. Specific objectives are to : (1) continue institutional support and capacity building through the Parastatal Sector Reform Commission (PSRC), for implementation of PE divestitures - including major PEs in public utilities and infrastructure; and strengthen the efficiency and transparency of the privatization program, through streamlining of government approval of divestitures, greater delegation of implementation to PSRC, and adoption of clear, consistent overall policies for the treatment of PE debt and for the retrenchment of PE employees; (2) continue support for liquidation of non-performing assets of the state-owned banks by the Loans and Advances Realization Trust (LART), including for implementation of new methods to contract out marketing of assets internationally; and preparation and implementation of the eventual move of LART to the private sector and the creation of a competitive market of Non-Performing Asset (NPA) collection services for the banking system; (3) establish an institutional framework for regulation of infrastructure and public utilities, including a program of institutional development, public education and regulatory capacity building; (4) support creation of a government-private sector dialog mechanism to promote removal of key regulatory and business environment bottlenecks to expansion of private and foreign direct investment (FDI), especially for utilities and infrastructure, and the improvement of Tanzania's image as a destination for FDI.

Tanzania - Privatization and Private Sector Development Project (Vol.1), 1999/11/15, 19119, Project Appraisal Document

The project will contribute to meeting the CAS objective of enhancing economic efficiency and the quality of services by divesting remaining parastatals on an accelerated schedule, by supporting effective infrastructure/utilies' regulation, and private sector competitiveness. This would include (a) divestiture of most major public utilities and transport infrastructure PE's; (b) promotion of competition wherever feasible, such as in port services and telecommunications, and (c) fostering of private investment and operation in these sectors.

Over the 1994-1998 period, Tanzania divested about 150 of the 385 PE's initially held. These included mainly small-medium PE's in tradable goods sectors, but also a number of large PE's (brewery, cigarette factory, etc.). In some cases, e.g., leather, privatization of PE's has opened up markets for private entrepreneurs and improved output and efficiency. Notwithstanding this, delays in divestiture of PE's have contributed in a number of cases to deterioration of fixed assets, and created uncertainties limiting private investment in certain sectors. In late 1996 the Government of Tanzania (GOT) took the decision to expand the privatization program to divest all major utility and infrastructure PEs (ports, railways, electricity, telecommunications, etc.) banking, agriculture and mining PE's . The GOT's stated aim is to divest all of these enterprises, as far as possible, by 2000. However, in practice, it is expected that divestiture of the remaining 230 PE's will take longer, and some (notably in infrastructure) will be opened to private investment in stages over the medium to long term.

The GOT now wishes to accelerate implementation of its privatization program to reap the benefits of greater efficiency and more dynamic private investment and economic growth, Several issues need to be addressed to achieve this: a) Despite considerable progress by PSRC, the technical capacity to carry out the legal and regulatory preparations necessary as well as to prepare and execute these divestitures is still limited, particularly for the more complex privatizations in infrastructure and utilities. b) The Govermment approval process for individual PE divestitures has, in the past, been cumbersome, inefficient and, on occasion, less than fully transparent and needs to be clarified and streamlined to facilitate these major transactions. c) The internal procedures of PSRC need to be simplified, streamlined and reinforced so as to ensure that they are clear to all stakeholders (Government., civil society and potential bidders) and can be easily followed and regularly audited. d) Past experience has shown that there is a need to develop consistent policies for handling PE employee retrenchment, and PE debt issues. e) The legislation on insolvency and bankruptcy need to be revised and updated, as part of the GOT's ongoing business law reform program, to facilitate inter alia liquidation of unviable PEs.

Against the previous practice until now, if adopted, the proposed new approach would, in essence, call for any severance payments beyond the statutory allowance to be determined based upon a market-based assessment of a retrenchee's re-employment prospects and anticipated resulting future wage losses. Application of the proposed new methodology for six major parastatals (that comprise a major share of the PE labor force, and would likely need to retrench about 10,000 employees) yields an absolute total cost of about Tsh. 35.2 billion (or US$54 m. equivalent) - assuming 6,000 retrenchees The unit cost would average about Tsh. 8.2 million per worker, or around 4 times annual salary (excluding pensions, the average cost per worker is about 5.2 million T.Sh.). If adopted in practice, it would represent a significant savings in total and unit costs combined with a more equitable distribution of severance benefits in relation to anticipated future income losses. The unit cost cited above is in line with retrenchment operations in other developing countries in Africa and elsewhere, and is consistent when using different data sources and methodological variations. Nevertheless, the fiscal cost is large and ways to reduce the upfront costs may be considered, in particular, with respect to pension issues.

Labor - Previously labor had not been formally represented in the GOT's privatization program, however, the president of the Tanzanian Federation of Trade Unions as well as a former principal secretary of labor sit on the PSRC Commission. During preparation of this project however, labor was consult extensively in the preparation of the new retrenchment remuneration guidelines.

Tanzania - Public Sector Reform Program Project (Vol.1), 1999/10/30, 19216, Project Appraisal Document

The overall objective of the CSRP was to achieve a "smaller, affordable, well compensated, efficient and effectively performing civil service". The program has so far been implemented in two phases: (i) restoration of the structural preconditions to support fiscal stabilization measures, including: the removal of ghost workers, staff retrenchment, rationalization of the pay and grading system, and reinstatement of establishment and payroll controls expected to bring employment and the wage bill under control; and (ii) institutional improvements, including: a redefinition of the role of govemment, restructuring for organizational effectiveness and efficiency, outsourcing certain services, decentralization of service delivery, and managerial capacity building.

The total number of public service employees has reduced by approximately 27% from about 355,000 in 1992 to approximately 260,000 today. This is a net reduction after selective additional recruitment into the key sectors of education, health and law and order.

The civil service salary structure has been decompressed, from a ratio of about 9 to I in 1992 to about 21 to 1 today. Future changes in pay will be guided by targets specified in a new Public Service Pay Policy that emphasizes for the medium-term a clear enhancement of pay for technical and professional staff.

Gcvernment commitment to the reform program can be discerned from the successful imp]emenlation of the current CSRP, especially in the past three years. It entailed considerable social pain and politic 1 risks. Soon after President Benjamin Mkapa came to office in early 1996, he publicly pledged 1to C"vilrously pursue civil service and other public service reforns". His govemnment has not flinched in suppor irg the reform agenda. More than 70,000 public servants were declared redundant and retrenched, recii inment into the public service was frozen even for those graduating from public service institutions (iri ;,luding technicians and professionals in teaching, health services, agriculture development, and others), th. Public service wage bill was effectively controlled while pay structures were rationalized. This res .lt-d in reduced real pay for many senior public service officers, and many senior staff lost their positicns as a result of ministerial restructuring of the regional administrations. Initially, the Government used large surns from its limited budget to finance the expensive retrenchment program. It is through demonstration of its commitment that over the past three years several donors have provided about US$ 1i00 mii lion to support the retrenchments. In the same spirit of commitment, through CSRP, the Governm.nil has successfully launched an anbitious program for decentralization through devolution.

It is projected that the implementation of the PSRP and the LGRP will result in loss of jobs for about 27,000 employees on the Government payroll. There is already considerable experience gained through the CSRP in designing and implementing programs to facilitate the redeployment of those retrenched. The CSRP has given rise to mandatory retrenchment of more than 70,000 public servants over the past five years. To support those retrenched to transit to new occupations outside the public service, the program emphasizes fair and timely compensation. Except where problems of poor records have resulted in lengthy delays in payments of statutory retirement dues, the program has run relatively smoothly. The trade unions representativTes participate in the standing task force that oversees retrenchment and redeployment.

Preliminary Document (HIPC: November 1999)

Major Structural Changes in the Economy, 1985-99

July 1999: More than half of parastatal entities divested; preparations started for divestiture of utilities and other large monopolies

July 1999: Main government-owned banks privatized or put under private sector management

July 1999: Government employment reduced to 264,000 [from 1993 peak of 354,000]; implementation of wage reform begun

Tanzania has also made considerable progress with structural reforms. More than half of the more than 400 public sector entities identified for privatization in 1993 have been divested by end-June, 1999. Work has started on the privatization of the major utilities. Imports of petroleum products were partly liberalized in 1997/98 and domestic petroleum prices were freed in June 1999; petroleum imports will be fully liberalized in January 2000, when all subsidies to the state-owned refinery will be eliminated.7 The invitation to bid for Tanzania Telecommunications Corporation Ltd. (TTCL) was issued in June, and that for Dar es Salaam Water and Sewerage Authority (DAWASA) is scheduled for the second half of 1999, while financial and legal advisers are engaged in developing strategies for the other large monopolies, including the harbors and the railway corporation. A strategy for the restructuring and divestiture of the electricity sector is under consideration. Nevertheless, the privatization process will not be completed for some time to come, and the mandate of the Parastatal Sector Reform Commission has been extended beyond the original completion date of the year 2000. The agricultural sector has been liberalized. Following the adoption of a new mining policy in 1997, the mining sector is expected to grow rapidly; one new gold mine opened at end-1998, and two others are expected to start production in 2001 and 2002.

The government also made much progress with the restructuring of the state-owned financial sector, which accounted for over 70 percent of the banking system's assets in 1995. The Cooperative and Rural Development Bank (CRDB) was privatized in 1997. After some delay (due to a change in the divestiture strategy) the National Bank of Commerce (NBC) was split into the NBC (1997) and the National Microfinance Bank (NMB) in September 1997. Agreement has been reached on the sale of NBC (1997) to the South African bank ABSA, which began managing the bank in August 1999, and the NMB was put under private sector management at end-July. The BoT has made considerable progress with the establishment of a modern bank supervision department, and prudential regulations have been based on internationally accepted guidelines. The Dar es Salaam Stock Exchange became operational in April 1998, although by mid-1999 only two newly privatized companies had floated shares on it. A liberalized insurance regime took effect in May 1998 with the establishment of the National Insurance Board, and about ten private companies received licenses. Taken together, the deregulation and privatization programs represent a major effort to engage the private sector in areas of economic activity previously monopolized by the Government.

Since the beginning of civil service reform in 1993, overall government employment has been reduced from 355,000 to about 264,000. The first phase of the program (1993-96) focused on retrenchment, and the second phase, beginning in 1996, also addressed management capacities, organizational structures, and the role of government. In 1997/98, retrenchment slowed, pending the completion of an audit of the use of donor funds for retrenchment; the process was resumed in 1998/99, although only about 4,000 of the targeted 7,000 retrenchments were achieved. Considerable attention was paid to ensuring that rationalization of Government employment was not achieved at the expense of social sector services delivery capacity. A total of 2,700 additional teachers was hired as considerable distributional distortions exist despite adequacy of aggregate employment in the education sector. The government is in the process of finalizing the establishment of a central personnel database and preparing for the installation of a new payroll system. A new pay policy was adopted in January 1999, aiming at bringing civil service salaries in line with market levels over a period of five years. To this end, the 1999/2000 budget includes an 18 percent increase in the real wage bill, permitting substantial decompression of the salaries of mid- and upper-level professionals, while maintaining market rates for lower salary levels. A performance-based compensation system is being discussed.

Financial sector reform will continue, with the aim of fostering competition and efficiency in the supply of financial services, narrowing the spread between lending and deposit interest rates, and strengthening the mobilization and allocation of financial resources. Next on the restructuring and privatization agenda are the remaining state-owned financial institutions: the Tanzania Investment Bank and the Tanzania Postal Bank. Moreover, the IDA is assisting the government of Zanzibar in preparing options for restructuring the People's Bank of Zanzibar.

Over the next year, the restructuring and privatization of the public utilities will be accorded the highest priority. Work is ongoing in TTCL and DAWASA, while consultants are carrying out a study for the divestiture of the port operations under the Tanzania Harbours Authority (THA). The government has also undertaken to liberalizing related shipping services currently under the National Shipping Agencies Corporation (NASACO) and the Tanzania Central Freight Bureau (TCFB). The government intends to adopt policies to enhance private participation and move toward a full concessioning agreement for the Tanzania Railways Corporation (TRC), including the divestiture of TRC's marine services division. Finally, the government intends to give special attention to stimulating private commercial farming and divesting the remaining agricultural parastatals.

The government intends to improve the security, reliability, and efficiency of power supply. A draft divestiture strategy, presently before cabinet, aims at unbundling the power system into generation, transmission, and distribution segments, and privatizing distribution by end-2000, followed by divesting the generation and transmission segments under a regulatory ramework that is expected to be put in place by December 1999. The government also intends to institute a petroleum sector regulatory framework. It also plans to encourage further development of the mining industry, led by large-scale private investment; importance will also be given to enhancing incentives to small-scale miners and providing them with technical assistance to upgrade their skills. The divestiture of the State Mining Corporation is expected to be completed by June 2000.

In the context of the Civil Service Reform Program, from 1993 to 1999 the civil service was rationalized, establishing the integrity of the payroll by removing "ghost workers" and consolidating salary and nonsalary benefits to achieve transparency of pay. As a consequence, a total of about 90,000 civil servants were retrenched, reducing the size of the civil service to 264,000 employees, and the civil service wage bill as a proportion of GDP declined from 4.8 percent in 1994/95 to 4.4 percent in 1998/99. 1 The reform process has entailed initial efforts to rationalize civil service functions with noncore functions being shed to independent executive agencies or contracted out; to date, three executive agencies have been formed.

In order to rationalize the pay structure and improve incentives, the government will implement a Civil Service Pay Reform Program, to commence in July 1999. This initiative will be completed within five years and will be closely linked to the system of performance budgeting introduced in 1999/2000.

The government will develop the most cost effective new sources of power under the power sector master plan. This endeavor will connect the TANESCO distribution system to. Neighboring countries. It will also rationalize TANESCO's operations and introduce private operation and ownership beginning with power distribution by 2000.

The government is developing a sector regulatory policy which will allow orderly private sector entry into the power sector. Over the next three years the monopoly of TANESCO will be unbundled into generation, transmission and distribution segments. Privatization of the distribution system will take place in 2000. A simple but effective regulatory framework will be put in place by December, 1999.

In 1995, the government initiated the privatization of the then state-owned banks, and as a result, the CRDB is now fully private. In 1997, the NBC was split into two banks-the NBC (1997) and the National Micro-finance Bank (NMB). The NBC (1997) is currently in the process of being sold to ABSA (South Africa), which manages the bank; a sales agreement is expected to be reached before the end of 1999. A management contract to for NMB was signed in July 1999.

Given the efforts which have already gone into the privatization of the state owned banks, the government intends to complete divestiture of the NBC (1997) and the NMB at an early date. Next on the restructuring and privatization agenda are the remaining state-owned financial institutions, the Tanzania Investment Bank, and the Tanzania Postal Bank. Moreover, the government of Zanzibar has requested the assistance of the union government and the World Bank in restructuring and privatizing the People's Bank of Zanzibar.

The government of Tanzania has made a commendable effort in the privatization of the parastatals since the reform process started in 1986. In 1992, the Parastatal Sector Reform Commission (PSRC) was established to oversee the privatization process. About 50 percent of the previously more than 400 state enterprises have so far been divested.

One big challenge ahead is the divestiture of the utility companies. Preparations have already started for the privatization of the Tanzania Telecommunications Company Ltd. (TTCL), and the Dar es Salaam Water and Sewerage Authority (DAWASA). Work is also going on for concessioning the container terminal of the Tanzania Harbors Authority (THA) and marine services of the Tanzania Railways Corporation (TRC), as well as for the privatization of the National Shipping Agencies Corporation (NASACO) and the Tanzania Central Freight Bureau (TCFB).

Decision Point Document (HIPC: March 2000)

Despite some delays in 1998/1999-mainly for technical reasons but also, in some areas, because of delays in policy decisions-the structural reform agenda was largely on track by the end of 1999. The signing of the sales agreement for the National Bank of -Commerce (1997) in December completed an important step in the restructuring of the financial sector. All subsidies to the petroleum refinery-which ceased operating in October 1999 owing to lack of funds-were stopped as of January 1, 2000, and the completion of a new jetty in December now allows the country to import all its needs for petroleum products. Interim regulations for the petroleum sector were issued in December. With regard to the utilities, following the issuance of the investment memorandum in November, the selection of a wining bidder for Tanzania Telecommunications Corporation Ltd. (TTCL) is expected by mid-2000. Financial bids for the Dar es Salaam Water and Sewerage Authority (DAWASA) were opened on January 31, 2000, and the memorandum of understanding with the winning bidder is expected to be signed by March 2000. Finally, in October 1999, with the aim of reducing the high cost of energy in Tanzania, the government approved a restructuring plan for the electricity industry that aims at separating the Tanzania Electricity Supply Company (TANESCO) into generating, transmitting and distributing segments, for privatization in the medium term.

Reform of the parastatal sector is a key element of the government's economic reform program. The government is instituting a framework for each sector that will allow for a coherent and organized approach to privatizing key infrastructural sectors and utilities. The mandate of the Parastatal Sector Reform Commission has been further clarified and extended to 2004, and the roles of the sponsoring ministries have been rationalized to ensure appropriate interministerial and interagency coordination. The government decision-making process has been further streamlined to ensure expeditious and transparent decisions on individual transactions.

The restructuring and privatization of the public utilities will continue to be accorded priority. Bids for TTCL have been invited, while the concessioning of the Tanzania Harbours Authority and DAWASA is at an advanced stage. A study to develop an optimal strategy for the divestiture of the remaining port terminals under THA is under way. The government has also undertaken to liberalize related shipping services currently under the National Shipping Agencies Corporation and the Tanzania Central Freight Bureau. Decisions on their restructuring are pending. The government intends to adopt policies to enhance private participation and move toward a full concessioning agreement for the Tanzania Railways Corporation, including the divestiture of its marine services division. Finally, the government intends to stimulate private commercial farming and divest the remaining agricultural parastatals.

The government intends to improve the security, reliability, and efficiency of the power supply, while substantially expanding access of the Tanzanian population to electricity. Following the decision to unbundle and privatize TANESCO, proposals are being solicited from advisors to design the divestiture strategy and an accompanying regulatory framework; the government is also designing a new petroleum sector regulatory framework. The revised incentive and regulatory framework for the mining industry (in 1997) has led to large-scale private investment in the sector, while incentives to small-scale miners have been enhanced in parallel. Measures are also being undertaken to improve the geological data being made available to private investors. The divestiture of the State Mining Corporation is expected to be completed by June 2000.

Water and sanitation sector policies
o subcontracting of operations to professional (preferably private) operators;
o subcontracting of DAWASA management to a private operator under a ten year lease contract.

Tanzania: Policy Reforms for the Floating Completion Point
Improvement of utility performance. Signing of concession agreement assigning assets of DAWASA to private management companies; initiation of the process for unbundling TANESCO into autonomous commercial entities by appointing advisers; and adoption by the government of the framework for the establishment of regulatory authorities for the utilities.

Policy Framework Paper, 1998/99-2000/01, January 19, 1999

Most structural reforms envisaged for 1997/98 have been implemented, although in some cases only after some delay, mainly for technical reasons. Reforms focused particularly on the restructuring and privatization of public enterprises. Fifty-two parastatal entities were divested in 1997/98, and, overall, about half of the more than 400 entities that existed in 1993 have now been divested. Privatization of the major parastatal monopolies gathered momentum during the year, with financial and legal advisers engaged in developing strategies for the sectors of water, telecommunications, and harbors. Mining is the most rapidly growing sector of the economy, and its growth is being enhanced through divestiture and reorganization of the state mining companies.
7. The most far-reaching restructuring exercise related to the state-owned National Bank of Commerce (NBC), which at the beginning of the fiscal year still accounted for over half of the banking system deposits. In 1997, it was decided to privatize the bank. To that end, it was split in September 1997 into the NBC (1997) and the National Microfinance Bank (NMB), and preparations began for the privatization of the two new institutions. The Dar es Salaam Stock Exchange became operational in April 1998, and by July 1998 two newly privatized companies had floated shares on it. A liberalized insurance regime took effect in May 1998 with the establishment of the National Insurance Board, and a number of private companies received licenses.

8. Since the beginning of civil service reform, overall government employment has been reduced from 355,000 to 270,000. In 1997/98, retrenchment slowed, pending completion of an audit of the use of donor funds for retrenchment. Restructuring of the regional administrations and prioritization of functions in key ministries (Planning Commission, Ministry of Finance, Ministry of Civil Service, and the Prime Ministers Office) were finalized.

Financial sector reform will continue, with the aim of fostering competition and efficiency in the supply of financial services, narrowing the spread between lending and deposit interest rates, and strengthening the mobilization and allocation of financial resources. A principal focus of financial sector reform in 1998/99 will be the privatization of the NBC (1997) and the NMB. In July 1998, a general invitation to bid was issued. The deadline for submission of bids has been twice extended, most recently to January 29, 1999. In February 1999 successful bidders will be evaluated prior to entering into negotiations. The bank is expected to be privatized by April 1999. The BoT and the Ministry of Finance will ensure that the banks implement the memoranda of understanding under which they are required to operate until they are in compliance with banking regulations. Meanwhile, a manager was selected in November 1998 and will be engaged in January 1999 to assist in the transformation of the NMB into a microfinance bank. Next on the restructuring and privatization agenda are the remaining state-owned financial institutions: the Tanzania Investment Bank, and the Tanzania Postal Bank. Moreover, the government of Zanzibar has requested the assistance of the Union Government in restructuring and privatizing the People's Bank of Zanzibar.

The performance improvement model will be implemented in phases, starting with three ministries in 1999. Efforts to reduce the scope and size of government structures will involve the redefinition of government functions and encouragement of private sector participation. Three executive agencies will be launched by February 1999, and more will follow. Further cost savings are expected from restructuring employment in ministries and local authorities, and from maintaining an overall employment freeze, except in those areas critical for accelerating economic growth and improving service delivery. These savings will enable the government to free resources for nonwage recurrent expenditures, especially office and maintenance expenses.

A new pay structure incorporating the results of the job evaluation and regrading exercise will be in place by July 1999. A central personnel database and a new payroll system will be established by June and December 1999, respectively. A Public Service Commission will be set up, and capacity-building initiatives in leadership skills, and policy development will be undertaken. In order to increase the competitiveness of the pay structure, the government will target civil service pay increases to professional and technical staff. Medium-term pay targets for the civil service will be approved by the government by April 1999. A review of the institutional structure will be undertaken by March 1999, aimed at strengthening the decision-making and oversight functions of the central government. Noncore activities will be either transferred to agencies, privatized, or abolished. Ways will be found to introduce new public/private partnerships to improve service delivery.

Over the next year, the restructuring and privatization of the public utilities will be accorded the highest priority. Work is ongoing in the Tanzania Telecommunications Company (TTCL) and the Dar es Salaam Water and Sewerage Authority (DAWASA), while consultants are carrying out a study for the divestiture of the port operations under the Tanzania Harbours Authority (THA). The government has also committed itself to liberalizing related shipping services currently under the National Shipping Agencies Corporation (NASACO) and the Tanzania Central Freight Bureau (TCFB). The government will adopt policies to enhance private participation and move toward a full concessioning agreement for the Tanzania Railways Corporation (TRC), including the divestiture of TRC's marine services division. Finally, the government will also give special attention to stimulating private commercial farming and divesting the remaining agricultural parastatals.

Tanzania's power system has been increasingly unable to meet the rapidly expanding power demand of a growing economy. The government has decided, as part of an action plan to improve the security, reliability, and efficiency of power supply, to make every effort to complete the 180-megawatt Kihansi Hydropower Project by the year 2000; to implement the Songo Songo gas-to-electricity project as early as possible; to rehabilitate hydropower plants throughout the country; to develop the most cost-effective new sources of power under the power sector master plan, which aims to interconnect the TANESCO system with those of neighboring countries; and to rationalize TANESCO's operations and introduce private operation and ownership into these operations, beginning with power distribution. Other measures include developing a power sector regulatory policy and plan, which is expected to be in place in June 1999. Under this plan, foremost priority will be given to promoting private sector entry based on competitive bidding and autonomous regulatory arrangements. The power system under TANESCO will be unbundled into generation, transmission, and distribution segments, and privatized distribution will be in place by end-2000, followed by the generation and transmission segments. A simple but effective regulatory framework will be put in place by December 1999.

The divestiture of the State Mining Corporation is expected to be completed by June 2000. Preparation of environmental regulation and standards, together with guidelines for the mining sector, will be in place by December 1998. The government's vision is to develop over the next 10 to 30 years a strong, vibrant, well-organized mining industry led by the private sector. Small- and large-scale mining will be conducted in a safe and environmentally sound manner. The target is for mining to contribute not less than 10 percent to the GDP (compared with the present 1.7 percent share).

Given the public sector resource constraints, the government has decided to call for private sector participation in rural and urban water management and investment. In the urban areas, private partnership will be encouraged to supply water and dispose of sewerage. The review of the 1991 Water Policy by the government will be completed, and the new water sector regulatory framework and investment regime will be adopted in 1998/99. This action will go together with the consolidation of the urban water and sewerage authorities. In the rural areas, operation of the existing water supply systems will be transferred to local communities, and water funds will be introduced for expansion and improvement of water schemes. Government contribution will be demand driven to reflect a full participatory role for beneficiary communities

In July 1997, the PSRC engaged a consultant to advise on measures that could be taken with respect to the TRC and the Tanzania-Zambia Railway Authority for introducing private capital and management. The consultant concluded that privatization through long-term concessioning of the TRC should be pursued vigorously. The government accepted this recommendation.

The government has agreed to the concessioning of the Dar es Salaam container terminal. Currently, the consultant, M/S CPCS Transcom Ltd. of Canada, is evaluating its assets, working on legal aspects of concessioning the terminal, and drafting the concessioning agreement and arrangements for the bidding process. The consultant has already submitted an initial report for comments by the government. The government registered its comments and feedback on the consultant's progress as per the terms of reference. The concessioning process is planned to be finalized in June 1999. As for the remaining operations of the THA, a study will be commissioned for each operation, outlining the modes of privatization. The recommendations of this study are expected to be ready in the year 1999/2000.

Tanzania: Recent Policy Performance

Civil service reform	Reduced employment by 77,000, including removal of "ghost workers" from payroll, reducing the workforce to 273,000	1993-96; ongoing
	Introduced a pay reform program to reduce the number of salary scales and include most allowances in the basic wage, and monetized most in-kind benefits	June 1996
Parastatal reform	Removed more than half of parastatals from government control	1994-98

 

Tanzania: Policy Matrix, 1998/99-2000/01
Rationalize civil service employment based on needs for quality, service delivery, efficiency reviews, and wage bill targets Continuous
Expand contracting out of noncore functions March 1999

Remove public enterprise (PE) units from government control through sales, lease, liquidations, and divestitures of 50 additional PEs 1998/99-2000/01
Complete divestiture of PEs 2000/2001
Bring to point of sale Tanzania Telecommunications Company Ltd. May 1999

Decide on Tanzanian-Italian Petroleum Refinery (TIPER) strategy, based on recommended options from the TIPER study February 1999
Divest TIPER 1999/2000
Divest public mining companies 1999/2000
Complete the divestiture and hiving off of the remaining agricultural parastatals and selected public sector activities 2000/01

Concession Tanzania Railways Corporation June 2000
Complete concessioning of the Dar es Salaam container terminal June 1999

Letter of Intent and Memorandum of Economic and Financial Policy, July 13, 1999

The privatization of the large utilities is a complex process, requiring full audits, legislative changes, and the preparation of regulatory frameworks. Despite well-planned time frames, delays have occurred. For example, the invitation to bid for Tanzania Telecommunications Corporation Ltd. (TTCL) had been scheduled for issuance by February 1999, but had to be postponed because a further audit, which had become necessary following the first international audit of the company's financial situation in the third quarter of 1998, was completed only in May 1999. The invitation to bid was issued on June 29 and the information memorandum will be made available to interested bidders shortly. This will be followed by prequalification of bidders, and final agreement with the successful bidder is expected to be reached by the end of 1999.

The start of final negotiations on the privatization of the Dar es Salaam Water and Sewerage Authority (DAWASA) was postponed from February as the DAWASA Act needed to be amended to provide for a new regulatory framework. Consultations with potential bidders are now planned to be completed by July 1999; the bidding documents will then be sent out and the agreement with the successful bidder is expected to be finalized by November 1999. Meanwhile, preparations for the divestiture of other key parastatals continue. A draft policy paper on the restructuring and divestiture strategy for the electricity sector will be submitted to Cabinet in July, and a decision is expected by end-August.

In aggregate, during July-December 1998, 23 parastatal entities were removed from government control, against the benchmark of 25, and the total number for the fiscal year as a whole was 36, compared with the benchmark of 50. The shortfall is expected to be made up early in the new financial year, however, as preparations for the divestiture of a substantial number of tea estates and milling units have reached an advanced stage. In 1998, the PSRC was requested by the government to further assess the situation of 16 entities that had been sent to the Loans and Advances Realization Trust for liquidation. A thorough review of the situation of each company indicated that indeed liquidation was the only option, and in June 1999 the government authorized liquidation to proceed. Since early 1999, the PSRC has also undertaken an intensive effort to complete sales agreements for some 32 companies for which memoranda of understanding had been signed before the end of 1998. By end-June, six agreements had been signed, and another six are expected to be signed in July 1999. The rest will either have agreements signed or be returned to the privatization pipeline before the end of the year.

Late in 1998 certain private investors expressed a wish to submit proposals for continued operation of the Tanzanian and Italian Petroleum Refining Company Ltd. (TIPER) as a refinery of crude oil. A draft cabinet paper regarding the divestiture strategy for the refinery, which had been prepared for cabinet decision, was therefore withdrawn, and March 31 was established as the deadline for submitting proposals. No responses were received by the deadline, but in early April, a private company submitted a proposal to purchase the government's shares in the refinery. In early June, the government decided that with effect from January 1, 2000, the refinery would no longer be subsidized, either through the pricing system or from the budget. A three-option strategy was adopted: by that date, TIPER would either be privatized as a refinery without government subsidies or privatized as a storage depot or, if neither proved feasible, would be closed. The Ministry of Energy and Minerals was asked to evaluate all three options, including a private sector proposal, to permit a final decision to be taken by end-September 1999.

In the financial sector, progress continued with the divestiture of the National Bank of Commerce (NBC (1997)) and the National Microfinance Bank (NMB). Negotiations with the Amalgamated Banks of South Africa (ABSA) regarding the privatization of NBC (1997) were concluded successfully in April, but signature of the memorandum of understanding (MOU), and assumption by ABSA of the management of the bank could not take place immediately because of a court injunction obtained by the bank's employees. In late June, the court ruled in favor of the government and the MOU is now expected to be signed in July. Negotiations on the management contract for NMB have now been concluded, and the bank will be put under private sector management in July. An investors' conference to discuss participation in the NMB is planned for October 1999. Pending the private sector takeover of their management, the operations of the NBC (1997) and the NMB remained subject to their memoranda of understanding with the MoF and the BoT, which were monitored by the latter on the basis of monthly returns and quarterly management reports. The BoT has stepped up its scrutiny of these returns, and has requested remedial action in a number of areas; in this regard, task forces were established early in 1999 to reconcile the NBC (1997)'s inter-branch accounts and to facilitate its recovery of nonperforming loans. A restructuring plan for the People's Bank of Zanzibar will be developed in the coming months with the assistance of a World Bank financial institutions development project.

Remove 25 entities from government control (July 1-Dec. 31, 1998) December 1998, 23 entities divested
Remove 50 entities from government control (July 1, 1998-June 30, 1999) June 1999, 36 implemented
Issue invitation to bid for Tanzania Telecommunications Company2 February 1999, Implemented June 1999

Cabinet decision on TIPER divestiture strategy, including provision for closing the refinery by November 1999, if a private buyer prepared to operate it as a refinery has not been identified by June 19992 February 1999 Implemented June 1999

Complete retrenchment of 7,000 civil servants, subject to availability of donor assistance June 1999 To be completed early in 1999/2000

Government approval of policies on treatment of parastatal retrenchment and debt October 1999
Remove 70 entities from government control (July 1, 1998-December 31, 1999) December 1999
Select winning bidder for DAWASA September 1999
Select winning bidder for TTCL October 1999

Divest or close TIPER December 1999

Letter of Intent and Memorandum of Economic and Financial Policies, March 9, 2000

Parastatal Select winning bidder for TTCL and begin final negotiations (P) June 2000
Select consultants to prepare detailed plan for unbundling TANESCO June 2000
Remove 40 parastatal entities from government control: 20 entities 40 entities (cumulative) June 2000December 2000

Delays in structural reforms in 1998/99, mainly due to technical factors, have been made up to a significant degree. A reputable international bank took over management of the National Bank of Commerce (NBC) (1997) in August and in December signed an agreement to purchase the bank. The National Microfinance Bank (NMB) was also put under private management in August, and in February 2000 a policy framework for microfinance regulation was submitted for government approval. The World Bank began assisting the Government of Zanzibar in developing options for the restructuring of the People's Bank of Zanzibar (PBZ). The investment memorandum for Tanzania Telecommunications Company Ltd. (TTCL) was further delayed, pending resolution of issues related to cellular telephone licensing, but was eventually issued in November 1999. Bidders will be selected for final negotiations for the Dar es Salaam Water and Sewerage Authority (DAWASA) in March 2000 and for TTCL in June 2000. In September, the Government decided to discontinue subsidies to the Tanzanian-Italian Petroleum Refinery (TIPER) and the decision was implemented on schedule at the end of 1999. Pending the development of a compre-hensive regulatory framework for the petroleum sector, interim regulations were promulgated in December.

A thorough review of the prospects for 1999/2000 was undertaken beginning in October. The wage bill was expected to surpass the budget's T Sh 278 billion by T Sh 10 billion, even with a freeze on promotions and new recruitment.

The privatization of the two offshoots of the former NBC, the main element of finan-cial sector reform in recent years, is nearing completion. The NBC (1997) Act was repealed in October 1999, satisfying a condition precedent to finalization of the sales agree-ment for the NBC (1997), which was signed on December 20. Following a settling-in period for the private sector managers of the NMB, by June 2000 the Government intends to develop a strategy for recapitalizing the bank and transforming it into a microfinance institu-tion. With support from the World Bank, studies for the restructuring or privatization of the remaining state-owned financial institution--the Tanzania Investment Bank, the Tanzania Postal Bank, and the People's Bank of Zanzibar--are expected to be completed by June 2000.

The Government intends to make major further progress in privatization over the next three years. The privatization of the smaller parastatal entities will be accelerated with the aim of completing it by the end of 2003, and it is planned to complete the process for at least 40 entities in 2000. The restructuring of the utilities and remaining large monopolies will be completed and regulatory frameworks put in place, and decisive progress will be made with their privatization. The Government intends to adopt policies in the area of parastatal staff retrenchment and parastatal debt by May 2000. Privatization will be supported by institutional reforms in other areas affecting the environment for private sector growth, as described in the interim PRSP. The mandate of the Parastatal Sector Reform Commission (PSRC), the main executive body for privatization, has been extended to 2003, and it will continue to benefit from World Bank support.

The investment memorandum for TTCL was issued in November 1999; potential bidders have asked for more time to prepare their bids, and negotiations with the winning bidder are now expected to start by June 2000. Financial bids for DAWASA were opened on January 31, 2000, and, facilitated by the intensive preparation process, the memorandum of understanding will be signed with the winning bidder by end-March 2000. As detailed in the PRSP matrix, progress is also being made with the restructuring and privatization of the other large monopolies.

In October 1999, the Government approved the restructuring of the electricity industry. In order to improve the efficiency of the sector and reduce the high costs of energy in Tanzania, the activities of the Tanzania Electricity Supply Company (TANESCO) will be separated into generating, transmission, and distribution segments. Consultants' reports with recommendations on the optimal number of entities, as well as competition, trading, and regulatory mechanisms in each segment, will be completed by the end of 2000. Following the preparation of TANESCO for the restructuring and the establishment of a new legal framework for the sector by December 2001, the separate segments will be privatized, starting with distribution. A study on the establishment of a regulatory framework for all utility sectors has been completed, and a proposal was submitted to the Government in January 2000.

Tanzania: Policy Matrix, 2000-02
Remove at least 2 utilities, 1 large entity, and 40 small/medium entities from government control 2000
Select winning bidder for DAWASA March 2000
Bring to point of sale Tanzania Telecommunications Company Ltd. June 2000

Divest public mining companies 2000

Review and decide on the future role of the State Mining Corporation (STAMICO) 2000

Complete privatization of agricultural enterprises December 2003

Concession Tanzania Railways Corporation December 2001

Letter of Intent and Technical Memorandum of Understanding, July 18, 2000

At the end of June 2000, the TPDC [Tanzania Petroleum Development Corporation] was restructured to enable it to focus on petroleum exploration, and its staffing is being reduced from 105 to around 65. With effect from July 1, this role is being supported through the government budget; to safeguard the corporation's assets, the TPDC will not engage in any financial transactions unrelated to this role without the express approval of the Ministry of Energy and Minerals. Budgetary support will continue until a decision has been made on whether the TPDC should have a continuing role in gas exploration and production operations in Tanzania, as specified in its establishment order issued under the Public Corporations Act. Whether the TPDC will have any role in the oil and gas sector will be addressed in a study of the sector's institutional and regulatory requirements, which is scheduled to be undertaken in 2001 under the IDA Songo Songo credit. The government will decide on the TPDC's future after the study but before commencement of natural gas production, currently scheduled for early 2003.

Following a far-reaching reexamination of the modalities of privatization undertaken in consultation with the World Bank, the approach followed by the Parastatal Sector Reform Commission (PSRC) has been substantially revamped. The aim is to have bidders follow a careful prequalification and due diligence process, during which the details of the eventual offer would be developed; thus the bids, once received, would be judged on well-defined criteria, mainly price, obviating the need for extensive negotiations with the winning bidder. Since then, one of the large parastatal monopolies, the container terminal of the Tanzania Harbour Authority, has been removed from government control through a ten-year lease agreement; the agreement was signed in May 2000, and the handover will take place by August. With regard to the Tanzania Telecommunications Corporation Ltd. (TTCL), six entrants completed the due diligence process, out of which three submitted bids in May. The winning bidder, a consortium of Detecom/MSI, was selected in June.

Preparations for the recapitalization and privatization of the National Microfinance Bank (NMB) are progressing. Following the completion of the business plan in June 2000, the NMB will launch a pilot project for microlending in six branches, which will be increased to 15 in 2001. The privatization strategy for the NMB is expected to be finalized by March 2001, and privatization is now targeted to be completed by mid-2002, after which unrestricted lending operations are expected to resume. Microfinance operations will be guided by the microfinance policy approved by the government in May, slightly later than the program benchmark date of April. The legal, regulatory, and supervisory framework for microfinance institutions is under review by a task force, which is expected to release a draft report by November 2000. Studies on two remaining parastatal financial institutions-the Tanzania Postal Bank and the People's Bank of Zanzibar-will be launched, with World Bank support, in July 2000, in preparation for their restructuring and possible privatization.

Concerning privatization, the PSRC has, in consultation with the World Bank, adopted a work plan aiming to substantially complete the divestiture of the 212 remaining entities by the end of 2003. The number of entities divested so far in 2000 (13 through the end of June) has fallen short of the program benchmark of 20, but overall activity has been intensive, and we still hope to reach the targeted 40 by the end of the year. The present benchmark does not take any account of the economic significance of the entities divested, and the PSRC, in consultation with the World Bank, is developing data on turnover and employment of the companies being privatized. With the completion of the full database of remaining divestitures in September 2000, it will be possible to develop more meaningful measures of progress. The database will also provide a basis for studying the impact of privatization. To standardize the approach to parastatal staff retrenchment, in May 2000 the Government decided to pay retrenched employees only their statutory benefits. With respect to parastatal debt, it was decided to maintain the existing case-by-case approach. Draft legislation for establishing regulatory agencies for the utility and transport sectors will be prepared by September 2000, and the agencies will be operationalized by September 2001. In light of the nonconforming initial bids for the Dar es Salaam Water and Sewerage Authority (DAWASA), the Government, in consultation with the World Bank, has decided to restart the bidding process. External consultants will be engaged by January 2001 to guide the restructuring of the electricity sector, including a detailed plan for the unbundling of TANESCO. We have completed a financial audit for TANESCO and are planning to strengthen its management at an early date to reduce costs, preparing the way for a rationalizing of electricity tariffs and, if necessary, bearing the costs that may arise when the power tariff dispute with Independent Power Tanzania Limited (IPTL) is eventually resolved. If such costs prove to be substantial, the program will have to be reviewed to see what additional measures would be needed to ensure fiscal viability.