Uganda

Decision Point Document (HIPC: April 1997)

In the financial sector, the necessary legal and regulatory framework was substantially strengthened with the revision of the Bank of Uganda (BOU) Act and the enactment of a new Financial Institutions Act. The main areas of current policy focus are: (i) the recapitalization of the Bank of Uganda (BOU); (ii) the restructuring of weak banks; and (iii) the sale of the state-owned Uganda Commercial Bank (UCB). By the time of the midterm review of the first annual arrangement of the new ESAF for the "completion point" in April 1998, these financial sector reforms should be substantially completed, with an accelerated timetable on some of the key components.

Selected Structural Reforms in Uganda 1997/98-1999/2000
Uganda Commercial Bank (UCB) Offered for sale Dec. 1996; Complete sale Sept. 1997
Privatization: Implementation target of 85 percent: 100 state enterprises
--Already completed 62 enterprises Dec. 1996
--Additional 12 enterprises June 1997
--Achieve target 85 percent End-June 1998
Privatize telecommunications Dec. 1997
o Reduce public service to 62,100 Dec. 1996
o Additional reduction to 58,100 June 1997

Regarding the privatization program, its scope has been broadened compared with the plan under the current ESAF to include all but some utilities and the railroad, and the pace is being stepped up. The number of state enterprises to be privatized has been revised upward several times, and now stands at 117. The target was to achieve 85 percent of the total (measured by the number of enterprises) by end-1998, but this is being accelerated to end-June 1998. By end-1996, 62 enterprises (53 percent of the total) had been divested and by end-June 1997, at least a further 12 enterprises should be divested. At the time of the midterm review of the first annual ESAF (by April 1998), substantial progress is expected toward achieving the 85 percent target. The use of the proceeds from privatization is governed by the relevant statute, and in practice focuses on financing divestiture costs, debt settlements, and severance benefits for workers. Regarding enterprises that will remain in the public sector, restructuring will focus on the elimination of the remaining direct and indirect subsidies, and in a broadening of scope to include the reorganization of the major public utilities in the telecommunications sector, the electricity sector, and the railways. Monitoring of these reforms would be largely under SAC III and other IDA-supported programs. The telecommunication company is expected to be privatized by December 1997, and enactment of legislation for a strategic plan in the electricity sector is also expected by that date. The strategic plan for the electricity sector will allow private sector participation in the generation of electricity. Regarding the railways, a strategic plan is expected to be approved by the Ugandan Cabinet by December 1997, and legislation to restructure the Ugandan Railways Corporation is expected to be enacted by June 1998.

Following completion of a major phase of civil service reform that cut the size of the civil service by half (to about 150,000) and the number of ministries from 34 to 21, almost all noncash benefits were monetized, and progress was made in moving toward a competitive wage for most civil servants. The current focus on completing civil service reform will (i) reverse and contain the upward drift in the size of the civil service under the current ESAF program through benchmarks on the size of the public service and through improved tracking and monitoring mechanisms; (ii) review the size and functions of the central government in light of decentralization, and undertake any further restructuring of the civil service that may be required-expected to be substantially completed by the time of the midterm review of the first annual arrangement under the new ESAF (April 1998); (iii) improve the quality of the civil service through outcome-oriented performance evaluation-as under SAC III; and (iv) review (jointly with IDA) the fiscal implications of the universal primary education (UPE) program by June 1997, in order to incorporate into the next budget the implications of the major expansion in the teachers' wage bill.

Under the proposed IDA-supported SAC III the following specific actions are
expected to be implemented by April 1998: complete sale of the UCB and implement policy regarding the Uganda Development Bank (UDB) to stop losses and minimize budgetary costs.

Completion Point Document (HIPC: March 1998)

Implementation of structural reforms has been satisfactory. In the trade area, maxi-mum import tariffs were reduced from 30 percent to 20 percent, and preparations are on track to lift the import bans on beer, soft drinks, and batteries effective April 1, 1998; this should make Uganda's trade regime one of the most open in sub-Saharan Africa. The capital account was liberalized at the beginning of the program period. With a view to reducing the size of government and in light of decentralization, the civil service was further cut without compro-mising the level of staffing required to implement the UPE program; moreover, the government decided on a comprehensive restructuring plan that will significantly reduce the number of ministries. In the financial sector, agreement was reached on the sale of the Uganda Commercial Bank and on the final recapitalization of the Bank of Uganda, the latter's supervision of commercial banks was strengthened, and commercial banks engaged in greater provisioning and recapitalization. With regard to public enterprises, the Uganda Telecommunications Corporation was offered for sale, a license was awarded to a second national operator in telecommunications, and restructuring of the Uganda Electricity Board was undertaken, involving significant staff retrenchment. Satisfactory progress was made under the privatization program. In the remainder of the fiscal year, the government intends to continue with its ambitious structural reform agenda.

Uganda: IDA-Supported Structural Reforms
Complete sale of the Uganda Commercial Bank (UCB) and implement policy regarding the Uganda Development Bank (UDB) to stop losses and minimize budgetary costs.
Agreement was reached on the sale of forty-nine percent of UCB shares with an option for an additional 2 percent to a private foreign investor. A business plan has been drawn up for UDB to eliminate direct government subsidies.

Second Decision Point Document (HIPC: January 2000)

The government will continue its efforts to promote a sound financial system. Central to these efforts will be the enactment of a revised Financial Institutions Statute (FIS). Moreover, the BOU will strengthen its supervisory capacity through staff increases, upgrading of skills, and technical assistance, with a view to developing the capacity to examine all banks, at least once a year, by 2000/01. The BOU will continue to enforce its policy of intervening in banks not adhering to prudential guidelines and to closing banks, which fail to adhere to remedial memoranda of understanding leading to full compliance with all prudential guidelines. To maintain the momentum gained to date with regard to the recovery of commercial bank nonperforming assets, the mandate of the Non-Performing Asset Recovery Trust (NPART) has been extended by two years to October 2001. The government also intends to reprivatize the Uganda Commercial Bank Ltd. (UCBL), following the resolution of current legal proceedings relating to an earlier failed privatization effort.

Privatization and public enterprise reform. In the area of privatization and public enterprise reform, the government will focus its efforts on implementing measures to enhance the efficiency of the privatization process, expedite the privatization of key public enterprises, and strengthen monitoring of the financial performance of the remaining parastatals, particularly public utilities. The government's proposed amendments to the Public Enterprise Reform and Divestiture (PERD) statute were approved by parliament in December 1999, including a proposal to the bill's provisions for accountability of public officers. With regard to the Uganda Electricity Board (UEB), parliament recently approved legislation paving the way for the privatization of the UEB in particular, and for private sector participation and competition in the power sector in general. With funding from IDA, restructuring and privatization advisors are expected to be appointed by February 2000 to prepare comprehensive recommendations regarding the unbundling of the UEB into separate corporate entities and the modalities for introducing private sector participation and competition to the sector. The cabinet will consider the principles underlying establishment of a single independent multisector utility regulatory agency and propose legislation to parliament in 1999/2000. In order to bring greater transparency and accountability to the financial operations of public enterprises, the government will set detailed operational and financial performance contracts with managers of the three largest public enterprises (UEB, Uganda Railways Corporation (URC), and National Water and Sewerage Corporation (NWSC)) and submit the targets to parliament, along with the 2000/01 budget. New appointment letters will be sent to the managers specifying their responsibilities and reporting requirements, as well as penalties for noncompliance.

Policy Framework Paper 1997/98-1999/2000, October 22, 1997

In 1997/98, the government continued to press ahead with structural reforms. Tariffs were reduced, and three of the four import bans were lifted. An important stage of financial sector reform was completed with the privatization of the Uganda Commercial Bank (for which an on-site examination subsequently took place) and only the final legal steps remain for the recapitalization of the Bank of Uganda. However, the pace of privatization slowed down as this program ran into a number of difficulties, some of which were beyond the control of the government, and as the government prepared a shift in the focus of privatization toward high-impact enterprises; nonetheless, important progress was made and as of end-1997/98, a total of 85 enterprises had been privatized. In mid-August, parliament passed a resolution calling for the suspension of the privatization program pending investigation of procedures followed in some recent divestiture cases. The privatization program has since substantially resumed following the reaching of understandings between parliament and the government. At the Uganda Electricity Board (UEB), the number of staff was reduced from 3,060 in June 1997 to 2,268 as at end-June 1998, and a new management structure is expected to be put into place soon in preparation for the division of the internal functions-generation, transmission, projects, finance, and distribution-into separately managed and financed units. The size of the public service, excluding primary school teachers, was cut significantly, and the number of ministries was reduced from 22 to 17.

The goal of the public enterprise reform program is to reduce the flow of subsidies to public enterprises while improving the coverage and quality of infrastructure services for the population at large. This goal is to be achieved through (i) privatization and/or restructuring of key public enterprises, and (ii) improved financial discipline. With respect to the former, the key sectors to be targeted include telecommunications, water, rail, power, aviation and postal services. The government's strategy is to introduce private sector participation and competition in the infrastructure sectors, divest some of the public enterprises that provided these services, and regulate utilities independently and cost-effectively.

The government's privatization program plays a vital role in the overall strategy of relying increasingly on the private sector as the source of income generation and investment, and it will be conducted transparently. While substantial progress has been made to date, it is recognized that there is a need for better preparation and sequencing of the program so as to maintain its momentum and improve its quality. Accordingly, the government has accelerated the privatization program by divesting larger, more strategic, and more fiscally burdensome enterprises, streamlining the process and making it more transparent, and intends to broaden share ownership. It aims to have approved for sale 16 of the remaining 18 commercial enterprises by June 1999. The government also aims to complete virtually all of the ongoing privatization program for commercial enterprises by December 1999. To this end, it will develop mechanisms for broad public participation, including the public offering of shares through the securities exchange. The government will closely monitor the disbursement of privatization proceeds and use them only to prepare firms for privatization, make severance payments to workers, and pay other expenditures directly related to the restructuring of the enterprises to be divested.

Public service reform and decentralization continue to be pursued within the context of the government's public service reform strategy, which is aimed at (i) optimizing the size and structure of the civil service; (ii) enhancing skills by improving training and evaluation and introducing pay reform; (iii) strengthening control systems; and (iv) monitoring and improving operating efficiency and effectiveness. A major effort will be needed to improve payroll monitoring. Employees that are currently working but are pending access to the payroll will be expeditiously put on the payroll, and in future the waiting period between the date of reporting to work and being put on the payroll will be strictly limited to four weeks. Building on the substantive progress already made in civil service ministerial restructuring, the government will complete the major part of the remaining staff cuts in 1998/99. It will reduce the size of the number-limited staff (excluding primary school teachers) from 54,982 in June 1998 (including pending cases) to 51,640 by end-June 1999. During 1998/99 the government will complete the determination of appropriate establishments for secondary and tertiary institutions and for other number-limited semiautonomous and autonomous bodies (e.g., Mulago Hospital). In 1998/99 the government will complete the job evaluation and grading review of the public service, which will permit a closer linkage between workers' performance and remuneration. During 1998/99, the government will introduce the Results-Oriented Management (ROM) program in all central ministries and local governments. This program will sharpen the focus on service delivery and on performance management to enhance this delivery. The government will also complete the National Service Delivery Survey (NSDS), which will focus on key services delivered in all 45 Districts by five pilot ministries (including education, health, and agriculture). In addition to supporting ROM, the NSDS will provide the government with information to measure the quality of services delivered by central and district governments, and it will provide a basis for government decision making, especially with regard to financial capabilities.

The recent monetization of working benefits combined with the 1994 changes to the pension formula have increased replacement rates well beyond international standards, while pre-1996 pensions continue to be extremely low. The government aims to submit to parliament proposed legislation to replace the current pay-as-you-go system with a defined benefit-contributory system and to reduce the current level of defined benefits to international standards. Toward this end, the government will establish a working group on pension reform which will have a clear timetable for its program, and will commission an actuarial study of the current system to assess the long-term financial requirements of the pension system. The government will seek technical assistance in this area. Meanwhile, all pension commitments for 1998/99 will be fully provisioned for in the budget.

(Policy Matrix)
Power
Reduce staff to 2,000: December 1998
Complete the divestiture of noncore activities: March 1999

Letter of Intent, October 28, 1998

Notwithstanding progress made with regard to the government's public enterprise divestiture and reform program, the number of actual sales were less than planned in the second half of 1997/98. This reflected technical and other difficulties outside the control of government (for example, nonpayment of the agreed price by the buyer); delays in getting the necessary political consensus on privatization; and a change in focus to preparation of high impact public enterprises for divestiture. Furthermore, the privatization process has become complex and the government is taking action to streamline the process and make it more transparent. The benchmarks for privatization were missed by substantial margins in both March 1998 and in June 1998. Thus, 85 enterprises were divested by end-June 1998 compared to a benchmark of 95; of those divested in 1997/98, three were large enterprises (with assets valued at more than U Sh 5 billion) compared to a benchmark of seven. Of the high impact public enterprises, 16 were in advanced stages of divestiture and 5 were in the process of final agreements. There were some positive developments, such as the use of independent arbitration to resolve problems arising from the exercise of preemptive rights of joint shareholders, a clearer policy on the recovery of arrears, and preparation of a comprehensive divestiture procedures manual. Net proceeds (excluding predivestiture, caretaking and preparation costs for the public enterprises not yet sold) from the divestiture program are estimated at U Sh 20.5 billion in 1997/98, bringing the total cumulative net proceeds to U Sh 36.9 billion. The asset value of public enterprises divested was in excess of U Sh 300 billion--a significant figure in relation to asset values of previous divestitures. These figures indicate an increasing impact from the program, although the proceeds have been significantly depleted by predivestiture costs in care-taking and preparation, leaving only a surplus balance of U Sh 2.1 billion at end-June 1998. In mid-August, parliament passed a resolution calling for the suspension of the privatization program pending investigation of procedures followed in some recent divestiture cases. The government is taking steps to address these concerns.

Staff retrenchment at the Uganda Electricity Board (UEB) proceeded on target, and the benchmarks on staff reduction were met. A new management structure is expected to be put in place in October 1998 in preparation for the separation of the internal functions into separate profit centers: generation, transmission, projects, finance, and distribution. General managers were appointed for four of five posts by February 1998, but progress has been slow in appointing the fifth, contributing to delays in internal preparations for the privatization of distribution. The long-term strategic plan for the energy sector (clearly defining the regulatory framework and the extent of private sector participation) remains to be finalized. Progress was disappointing with regard to restructuring of the Uganda Railways Corporation.

In the area of public service reform, a major ministerial restructuring exercise was initiated. The size of the number-limited staff (excluding primary school teachers) on the payroll was substantially reduced, thereby meeting the benchmarks. However, problems persisted with regard to payroll management, and some staff were not placed on the payroll in a timely manner, leading to the accumulation of some U Sh 3 billion in salary arrears in 1997/98. Progress was made in placing school teachers hired under the UPE program onto the government payroll; the use of a transitional supplementary list (of teachers not yet placed on the formal payroll) has enabled the government to become current on salaries, albeit wage arrears pertaining to pre-June 1997 remain. The government conducted a pension census in October 1997 that revealed problems with regard to the pension payroll. The government received technical assistance in the area of public service pension reform, and announced a decision to change the pension formula and move to a contribution-based system.

The government, in consultation with parliament, has substantially resumed the privatization program. The government is determined to overcome the impediments to privatization and to simplify the procedures so that results can be delivered in a more efficient, speedy, and transparent manner. To this end, the Privatization Unit (PU) has commenced implementation of a standardized procedures manual which will further increase transparency. In addition, the government will put in place streamlined procedures for approvals for sale. The PU has begun implementing a revised privatization strategy, with assistance by the World Bank, under which highest priority will be given to those enterprises that would have the greatest positive impact on the economy and/or the budget. The government will submit amendments to the Finance Act to strengthen financial oversight over public enterprises by the MFPED. The total number of enterprises to be divested (excluding those public utilities which are to remain in the public sector) stands at 126, of which 85 have been privatized and an additional 23 have been approved for sale by the Divestiture and Reform Implementation Committee (DRIC). In 1998/99, and as a structural benchmark, at least 16 of the remaining public enterprises (and any subsidiaries created therefrom) will be approved by DRIC (approvals of Divestiture Action Plans) and the investor search will begin (in the form of advertisement of sale or negotiations for preemptive rights enterprises). As a prior action for the midterm review, DRIC approvals and the investor search (as defined above) will have been completed for at least 10 enterprises by March 15, 1999, of which at least 5 will be high priority enterprises. The government aims to virtually complete privatization by December 1999. The government will rebid the sale of the Uganda Telecommunications Limited (UTL) in light of unsatisfactory initial offers. The government will closely monitor the disposition of privatization proceeds and use them only for preparing firms for privatization, severance pay for workers, and other expenditures directly related to the restructuring of enterprises to be divested. To this end, the government has defined a restricted list of uses for the divestiture account.

With regard to the UEB, the number of staff will be reduced to 2,000 by December 1998. Furthermore, UEB will become current on debt service due to the government; and in line with this, the government will become current on its obligations to the UEB. The government will finalize its overall strategy for the power sector and utility regulation, incorporating private sector participation in the existing system as well as in the area of independent power production. The government will prepare by March 1999 a program for restructuring the power sector to increase its operational efficiency and performance, and to promote private sector participation. The government will also make all necessary preparations to establish an independent multi-sector regulatory commission. Regarding railways, as a benchmark under the program, Cabinet will take a decision by December 31, 1998 on options for increasing private sector involvement in the operation of the Uganda Railways Corporation (URC). The aim is to increase URC's operating efficiency, either through a short-term management contract or through a longer term concession contract.

In the area of public service reform, the ministerial restructuring program reduced the number of ministries from 22 to 17 and identified further staff positions in ministries that would be divested in the context of decentralization. Weaknesses in payroll management have been identified, and employees (excluding primary school teachers) that are currently working but are pending access to the payroll (numbering 1,817) will be put on the payroll by October 31, 1998. This number will be included in the staff retrenchments to be implemented in 1998/99. As benchmarks under the program, the size of the number-limited public service excluding primary school teachers (and adjusted to include pending cases) as of end-June 1998 stood at 54,982, and will be reduced to 53,190 by December 31, 1998 and to 51,640 by June 30, 1999; in assessing these benchmarks, a margin of 99 will be provided for unintended new pending cases that may arise due to the interval between approval of a new recruitment and placing it on the payroll. The government recognizes the urgent need for improvement of payroll management and has instituted new measures toward this end. In particular, and as a benchmark under the program, with effect from October 1, 1998, the waiting period between the date of reporting to work and being put on the payroll will be strictly limited to no more than four weeks. All primary school teachers under the UPE program will be accurately reflected on the payroll by no later than May 1999. Primary school teachers whose employment documents are in order will access the payroll by October 31, 1998. The government will consider the merits of putting all teachers on a cash-limited payroll, after identification of appropriate establishments for secondary and tertiary teachers. The appropriate establishments for secondary and tertiary institutions would be completed by December 31, 1998. In addition, appropriate establishments would be determined for other number-limited agencies like constitutional commissions, semi autonomous and autonomous bodies, and bodies yet to be divested.

With a view to reducing the replacement rate to international standards and the fiscal burden of civil servant pensions, the government will propose to parliament legislation to reform the public system, replacing the current pay-as-you-go system with a defined-benefit contributory program in which the defined-benefit would be in line with international standards. Toward this end, the government will approve by end-December 1998 a cabinet paper embodying the basic principles of the proposed pension reform, including a specification of the new pension formula as well as the intended adjustment to benefits for persons who retired prior to the monetization of in-kind benefits.

Benchmarks:
Reduction of the size of the number-limited civil service on the payroll (excluding primary school teachers) to:
53,1902: December 31, 1998
51,6402: June 30, 1999
Approval of divestiture plans in 1998/99 by the Divestiture and Reform Implementation Committee and commencement of investment search (defined as issuance of information memorandum, advertisement of sale, or placement of shares on stock exchange) for:
10 enterprises (prior action for midterm review) Of which: 5 high-priority enterprises (prior action for midterm review) March 15, 1999 March 15, 1999
16 enterprises June 30, 1999

Letter of Intent and Memorandum of Economic and Financial Policies, July 15, 1999

A number of actions have been taken to address the financial problems of the banking sector. First, following the unraveling of the April 30, 1998 sale of a 49 percent interest in Uganda Commercial Bank (UCB), the Government has moved forward with its plan for reprivatization. The board of directors and senior staff of UCB were replaced by a BOU appointed board and managing director. Legal action has been initiated against Westmont Land (Asia) in connection with irregularities in both the purchase and sale agreement and its management contract for UCB. The operating performance of the UCB is being monitored through monthly income/expenditure statements and balance sheets fully reflecting the impact of loan-loss provisioning on capital.

The problems with the privatization program that emerged early in 1998/99 have been resolved. The reorganization of the Enterprise Development Project (EDP) has been completed. Staff levels were reduced from 63 to 32, the post of Executive Director was abolished, the functions of the Parastatal Monitoring Unit (PMU) were transferred to the Ministry of Finance, and a Utility Reform Unit was established to be responsible for utility reform. The amendments to the Public Enterprise Reform and Divestiture (PERD) Statute were submitted to Cabinet on March 14, and the bill is to be presented to Parliament in June. In addition, the Procedures Manual was officially launched and a summary was published. There has been progress toward completion of the sale of three high profile enterprises. Preparatory activities have been completed for the sale of Uganda Clays Limited (UCL), shares of which will be offered through the stock market in August 1999. Regarding Uganda Airlines Corporation (UAC), direct negotiations are being conducted with South African Airlines/Alliance; if the negotiations are not successful, UAC will be liquidated. Uganda Telecom Limited (UTL) has been retendered for divestiture, and the offer has been advertised. With regard to other enterprises, the divestitures of British American Tobacco (BAT), PAPCO, Soroti Meat Packers, Masindi Hotel, Uganda Spinning Mills have been completed,4 and the government's residual shares in Bank of Baroda and SAIMMCO are expected to be divested by June.

The restructuring of the traditional public service, encompassing 17 ministries (reduced from 22), is nearing completion, and the reductions in excess staffing levels in these ministries will be eliminated by September 1999. However, staffing levels in other "number limited" functions (commissions, secondary and tertiary schools, police, prisons, and central government staff "delegated" to the districts) have increased owing to continued weaknesses in payroll management (which has led to the accumulation of salary arrears). As a result, meeting the June 1999 benchmark for the overall reduction in the "number limited" public service will require a reduction of at least 1,625 staff during the last two months of 1998/99. At least 700 staff members will be retrenched by June 1999, mainly from ministries in accordance with the decentralization of their functions. The remaining excess staff will be retired by August 1999. The most recent survey indicates that 663 cases were pending access to the payroll as of May 1999, and this number is expected to be reduced to less than 100 by June 1999. Against this background, the government expects that the June 1999 benchmark on the size of the "number-limited" public service will be observed by August 1999. All primary school teachers will be recorded on the Ministry of Public Service (MPS) payroll by June 1999, and all outstanding back salaries will be paid at that time.

In the area of public service reform, the government recognizes the urgent need for improvement of payroll management and will institute new measures toward this end. With regard to the traditional public service, encompassing the 17 ministries, the government expects to have all vacancies filled by June 2000. Subsequently, these ministries will receive block cash grants for the payment of their wage bills. With regard to the remainder of the "number limited" public service, the government will extend the restructuring exercise to commissions, secondary and tertiary education, police, prisons, and delegated staff. Organizational structures and the number of establishments will be approved by Cabinet by December 31, 1999. In the interim, these functions will also receive a block cash grant for the payment of their wage bills. During this process of restructuring, these functions will reduce the number of staff in the payroll to keep within the block cash grants allocated for paying their wage bill, and will clear salary arrears only on the basis of the payroll determined by the restructuring process. The MPS will also remove from the payroll by September 1999 all public servants whose responsibilities have been transferred to the districts.

Letter of Intent, November 19, 1999

18. Privatization and public enterprise reform. In the area of privatization and public enterprise reform, the government will focus its efforts on implementing measures to enhance the efficiency of the privatization process, expedite the privatization of key public enterprises, and strengthen monitoring of the financial performance of the remaining parastatals, particularly public utilities. The government's proposed amendments to the Public Enterprise Reform and Divestiture (PERD) statute were submitted to a parliamentary committee in August 1999, including a proposal to the bill's provisions for accountability of public officers; the amended legislation is expected to be considered soon by parliament. Direct negotiations with South African Airlines/Alliance for the sale of Uganda Airlines Corp. (UAC) are far advanced, and Ugandan Clays Ltd. (UCL) is expected to be listed on the stock market in October 1999. Completion of the prequalification process and the issuing of invitations to bid for Uganda Telecommunications Ltd. (UTL) would constitute a structural benchmark under the proposed program, as would the sale of Masindi Hotel, SAIMMCO, Uganda Spinning Mills, and all but 10 percent of residual shares in British-American Tobacco (BAT), which will subsequently be offered to the public through the securities exchange. With regard to the Uganda Electricity Board (UEB), all legislation necessary for preparing the enterprise for privatization has been submitted to parliament, and negotiations with a privately funded independent power producer are well advanced. With funding from the World Bank, restructuring and privatization advisors will be appointed by December 31, 1999 to prepare comprehensive recommendations regarding the unbundling of the UEB into separate corporate entities and the modalities for private sector participation in the sector. The appointment of these advisors would constitute a prior action for the completion of the first review. The cabinet will consider the principles underlying establishment of a single independent multisector utility regulatory agency and propose legislation to parliament in 1999/2000. In order to bring greater transparency and accountability to the financial operations of public enterprises, the government will set detailed operational and financial performance contracts with managers of the three largest public enterprises (UEB, Uganda Railways Corp. (URC), and National Water and Sewerage Corporation (NWSC)) and submit the targets to parliament, along with the 2000/01 budget. New appointment letters will be sent to the managers specifying their responsibilities and reporting requirements, as well as penalties for noncompliance.

Civil service reform and pensions. The government expects to meet the June 1999 benchmark of 51,640 staff in the "number-limited" public service (excluding primary school teachers) agreed under the 1998/99 program by October 31, 1999. These staffing reductions will include all public servants whose responsibilities have been transferred to the districts. Until the restructuring is complete, the number-limited public service (excluding primary school teachers) will be maintained at no more than 51,640 (the level to be achieved by October 1999) as a continuous structural performance criterion under the program. Furthermore, the government will in 1999/2000 propose to the cabinet recommendations for restructuring the nontraditional civil service establishments (commissions, secondary and tertiary education, police, prisons, delegated staff, and other autonomous and semiautonomous bodies). All properly appointed primary school teachers will be placed on the Ministry of Public Service (MPS) payroll by March 2000, and all outstanding verified arrears will be paid at that time. With regard to pension reform, the MPS will submit for cabinet approval, by March 2000, proposals to reform the pension system, including revisions in the benefit formula and the extent of validating pensions of public servants who retired prior to 1996.

Policy Framework Paper 1990/2000-2001/2002, November 19, 1999

The Ministry of Public Service (MPS) will commission an actuarial study to analyze the current pension system and assess its long-term financial requirements. The MPS is working on a proposed set of reforms in the public pension scheme, including revisions to the benefit formula. The proposed set of reforms will be incorporated in revised legislation to replace the current pay-as-you-go system with a defined benefit-contributory system in line with international standards.

The Uganda Railways Corporation (URC) receives large government subsidies. In August 1999, the cabinet approved a plan for increasing private sector involvement in the operation of the URC with the aim of improving its operating efficiency. Privatization and restructuring advisors will be appointed by June 2000 to evaluate the mechanisms for implementing the first stage of the restructuring. During the first stage, the URC will be under private sector management. Regarding aviation, the government is privatizing Uganda Airlines Corporation (UAC).

Significant progress has been achieved in laying the groundwork for reform of the power sector. On June 30, 1999, the cabinet approved a plan for reforming the power sector to improve operational efficiency through private sector competition. A revised electricity law has been passed by parliament that introduces private sector competition in the various segments of the industry (i.e., generation, transmission, and distribution). The power sector, as well as other utilities, will eventually be regulated by an independent, multisector Public Utilities Commission. In the interim, sector-specific regulatory bodies will oversee electricity and communications. Moreover, the recently created Utility Reform Unit is expected to take the lead in preparing for privatization all public utilities enterprises.

30. The government is pursuing a least-cost strategy for the development of the country's abundant hydroelectric potential. The first phase for the construction of the 20-megawatt Owen Falls Extension is scheduled to be completed in 2000. The government will continue to pursue agreements with independent power producers that are consistent with the potential growth of domestic and external demand and with the new structure of the sector, as defined in the new sector reform strategy and legislation, and it will establish a transparent process for evaluating the technical, financial, and environmental aspects of each project. The restructuring and reform of the energy sector is central to the provision of low-cost power to consumers and enterprises. As part of the government's commitment to introducing competition and private participation in the sector, it plans to unbundle the activities of the Uganda Electricity Board (UEB) to facilitate private sector involvement, in part through concessionary arrangements. The government is engaging technical experts to assist in the implementation of the strategy. Meanwhile, the government will continue to improve the operational performance of the UEB through actions designed to reduce energy losses, accounts receivable, lower the UEB's operational ratio, and further downsize its workforce.

To this end, the government will restructure the National Water Supply and Sewerage Corporation (NWSC), which is responsible for supplying water and wastewater services to Kampala and ten other towns. The NWSC performance indicators are poor and its tariffs high. The government is investigating options to subcontract the NWSC's technical and commercial operations to a private operator within the framework of a medium-term contract that would provide incentives to improve performance. A decision on the appropriate approach will be made in 2000/01.

Within one year of licensing a second telecommunications provider-in addition to Uganda Telecommunications Limited (UTL)-the number of telephone lines in Uganda has increased by about 48 percent. In the period ahead, the government will focus on completing the privatization of the UTL, which is being retendered after two failed attempts. The Uganda Communications Commission (UCC) will be strengthened to provide a regulatory environment conducive to investment and competition. The UCC will later operate under a single regulatory body for all utilities to be established.

Letter of Intent and Memorandum of Economic and Financial Policies, August 21, 2000

10. The Government's structural reform agenda for 1999/2000 was largely successful. All public enterprises scheduled for divestiture in 1999/2000 were successfully privatized, with the exception of Uganda Spinning Mills, which has been retendered. Most notably, 51 percent of shares of Uganda Telecommunications Limited (UTL) were sold for US$33.5 million to a private international telecommunications consortium, which has assumed management control of the utility.

24. The Government remains committed to implementing the structural reforms outlined in the PRSP designed to create an environment conducive to the maintenance of strong economic growth and poverty reduction. To this end, the Government approved a Strategic Plan for Power Sector Reform in June 1999. Subsequently, in November 1999, Parliament approved new electricity legislation, which provides for the removal of the monopoly of the Uganda Electricity Board (UEB) in the production and distribution of electricity, establishment of an independent regulator for the industry, and the unbundling of UEB into separate distribution, transmission, and generation companies. Each of these companies will be privatized in the context of long-term concessions, beginning with the distribution of operations, which will be completed by end-2001. Accordingly, in 2000/01, the Government will focus its attention on asset/liability valuation, tariff modeling and rationalization and the preparation of concession contracts.

Poverty Reduction Strategy Paper Progress Report, March 2, 2001

Nationality may not be used to exclude a contractor, and advertisement must be used to attract foreign competition in cases where this is necessary for effective competition. Part of the procurement reform is to privatize National Medical Stores. Government is currently developing a plan for their privatization.

In the urban water and sanitation sub-sector, 78 gazetted urban local authorities and district capitals are responsible for water and sanitation, except in 12 large municipalities where an autonomous parastatalŠthe National Water and Sewerage Corporation (NWSC)Šprovides the services. Although the urban water and sanitation sub-sector has received significant capital financing, mainly from donors, there is a high degree of inefficiency in the operations, and lack of an adequate regulatory framework and incentives for commercial operations. NWSC suffers from high unaccounted for water (45%), high staffing levels (24 staff per 1000 connections) and high accounts receivable (8 months sales). To improve the situation, NWSC signed a performance contract with Government in 2000/2001.
Number of NWSC staff/1000 connections 2000/2001 target: 24 2001/2002 target: 14 2002/2003 target: 11