Mozambique

Mozambique - Communication Sector Reform Project (Vol.1), 2001/06/25, PID9839, Project Information Document

Privatisation of TDM: Prior to the privatization, the project will finance consultants who will prepare a legal and financial assessment of TDM. Once the assessment is completed, the project will assist the Government in restructuring and privatizing the main telecommunications operator through a strategic partnership. Shares from the public telecommunications company will be offered for sale to a strategic partner (with management control) through a competitive and transparent bidding process.

Mozambique - Rail and Port Restructuring Project (Vol.1), 1999/01/08, PID7290, Project Information Document

Component 1. Concessioning
Concessioning of main sea ports, airports, and railways. This component would focus on provision of consultant services to advise the Government on a strategy to attract private participation in sea ports and railways and on structuring concessioning arrangements for the main port-railway systems and airports.

Decision Point Document (HIPC: March 1998)

All the structural benchmarks of the program are being observed, and the policy reforms incorporated in the Policy Framework Paper (PFP) (EBD/97/51, May 8, 1997) generally are being implemented as expected. Customs management was privatized in 1997 and a system of full reconciliation of import taxes due and taxes paid has been set up, preparations are underway for the introduction of a value added tax, and new budgetary recording and monitoring procedures have been introduced. A civil service reform is being prepared for implementation in 1999. The privatization program is on track. Over 100 small and medium enterprises were privatized in 1997, and about 32 large enterprises (against a program target of 16). The last remaining state-owned bank was privatized in September 1997; a new Financial Institutions Law has been submitted to the Assembly of the Republic; banking supervision is being strengthened; and an interbank money market was introduced in September 1997.

An important aspect of the government's effort to strengthen public administration is civil service reform. This involves reclassification of career streams, revision of the compensation system, decompression of salaries, and increased training. The new career streams and compensation structure are expected to be finalized by June 1998, and will be fully implemented by April 1999. They are intended to make government remuneration, particularly at senior levels, more competitive with comparable jobs in the private sector, and thus help the government attract and retain qualified staff. Also, nonwage incentives will be given to employees working in the provinces, as part of an overall strategy to improve the delivery of social services in rural areas, strengthen local administration, and prepare the way for the creation of local government assemblies. Salary decompression to reflect the new compensation structure is expected to be completed by April 1999. The objective is to raise the wage compression ratio (the ratio of the highest to the lowest salary), which at present is less than 10:1.

The program of privatization of large enterprises (those that are on the list of enterprises to be privatized by the Technical Unit for Enterprise Restructuring) is expected to be completed by mid-1998. All small and medium-size enterprises are expected to be fully privatized by mid-1999. By the end of the privatization program in mid-1999, the government will have privatized over 1,200 enterprises, including 85 large enterprises. A total of nearly 900 enterprises have been privatized to date.

There will remain about 20 major public enterprises after the privatization program is completed. Of these, the ports and railways are being concessioned out to the private sector. The importing and marketing functions of the oil company have been separated, the company's import monopoly has been eliminated, and a joint venture is being set up with other oil companies to take over importation of petroleum products. Tenders were issued for the privatization of the airline company, but the bids were considered unsuitable and were rejected. Instead, the airline and oil companies are being converted into limited liability companies in preparation for the possible sale of some of their shares on the forthcoming stock exchange. The management of the five major water companies is being privatized. A study is being undertaken to help set government policy in the telecommunications sector; privatization and demonopolization of the telephone company are possible options. A law was passed in 1997 allowing private sector participation in the electricity sector. Finally, the Maputo bus company is being restructured, with the intention of making the Beira subsidiary an independent entity in 1998.

Completion Point Document (HIPC: June 1999)

Summary Record of Structural Reforms
Completed salary decompression: 1999
Privatized the two large state-owned banks: 1996/1997
Established private company to take over the oil importing function of state-owned Petromoc: 1998
Completed privatization of about 90 large enterprises: 1998
Completing privatization of about 1,200 small and medium enterprises: 1999
Signed memoranda of understanding with private consortia for management of selected ports and rail lines: 1998-99
Granted concession of CFM's port terminal facilities at Maputo and Beira to private sector operators: 1998-99
Notified selected bidder for private management of urban water supply in the five major cities: 1999

The program of privatization and restructuring of large enterprises (those on the list of the Technical Unit for Enterprise Restructuring), was completed in September 1998 (Box 2). The program of privatization and restructuring of small and medium-scale enterprises is on track to be completed in mid-1999. By end-March 1999, over 1,100 enterprises had been privatized and restructured, and progress was being made towards the privatization and restructuring of the remaining 115 enterprises.

The concessioning of facilities of the state-owned port and railway company CFM is well under way. Most port terminal facilities at Maputo and Beira are now operational and concessioned to the private sector. The concessioning of the remaining ports and railways, except for the CFM-Center rail network, is expected to be completed by end-1999. The corporate restructuring of CFM is also under way.

A private company, IMOPETRO, was established in 1998 and took over the oil importing function of the state-owned PETROMOC.

Privatization of management of water companies in five major cities is well under way. The selected bidder for private management of the five largest urban water supply systems (lease contract for Maputo; management contract for Beira, Nampula, Quelimane, and Pemba) was notified. Contract signatures will follow effectiveness of an IDA credit, to be considered by IDA's Board in June 1999.

Since 1990, Mozambique has made substantial progress in privatizing and restructuring the state-owned enterprises. Economic activity, once predominantly under state control, is now conducted primarily by the private sector. Public enterprises account for less than one-fifth of industrial output, compared with over two-thirds in 1990.

With the completion of the government's privatization and restructuring program of both large as well as small and medium-sized enterprises, over 1,300 enterprises will have been privatized, concessioned, or liquidated. After that, only 11 wholly owned public enterprises and 22 com-panies with majority government shareholding will remain. Sixteen of these 33 enterprises are large enterprises; and most of them are utilities and public service companies.

The second phase of salary decompression was implemented in 1999, raising the ratio of the highest to the lowest salary from 9.6 in 1997 to as much as 15 for certain categories.

Structural Reform Agenda, 1999-2002
Strengthen public enterprises management. In 2000, the government will adopt (i) a policy regarding the remaining 11 public enterprises and 22 companies with majority public ownership; (ii) a strategy for government shares in privatized enterprises, including criteria for divestment; and (iii) a strategy for distributing the shares in these companies held on behalf of labor. All performance contracts with public enterprises will be revised to improve the delivery of services and to rationalize flow of funds with government.

Status of Structural and Social Reforms Envisaged at the HIPC Decision Point

Complete privatization of large enterprises under the Technical Unit for Enterprise Restructuring (UTRE).
Done 22 large enterprises privatized in 1998, completing list under UTRE.
Options and proposed policies for remaining public enterprises and enterprises with majority state ownership to be developed over the next year.

Complete privatization of small and medium-sized enterprises.
On track Program nearly complete. Over 1,100 companies privatized or restructured under this program as of March 1999, with preparations well advanced for the remaining 115 to be completed by midyear.
Strategy on government shares in mixed enterprises and criteria for disposal of government's remaining interest in enterprises to be developed.

Establish a private oil-importing company to replace the state-owned oil company (PETROMOC).
Done Private oil importing company established in Nov. 1998 with minority ownership by PETROMOC.

Privatize the management of five major water management companies. Under way Selected bidder notified for private management of five largest urban water supply systems (lease contract for Maputo; management contracts for Beira, Pemba, Nampula, and Quelimane). Contract signatures is tied to effectiveness of IDA credit, successfully negotiated in May 1999 and to be considered by the Board in June 1999.
Beginning of longer-term program to delegate management of water supply towards municipal ownership, and manage it on commercial basis. Legislation provides for decision to be made in three years with respect to five initial cities, with extension to other cities to follow. Rural water supply strategy and management options to be developed to move to demand-based water supply system during 1999.

CFM's ports and railways (1998-99). Under way Process of concessions is well under way, monitored through preparation of IDA credit. Most port terminal facilities at Maputo and Beira concessioned to private sector operators and operational. All other rail and port facilities, except central rail network, under negotiation. Concessioning
expected to be completed by end-1999. Concessioning of central (Machipanda) line delayed by decision to package it together with Sena line; active search under way for concessionaire.
CFM's strategic objective is to divest itself of any involvement in the direct operation and management of the ports and railways in the country. Restructuring of CFM is under way, to be supported by the IDA credit negotiated in April. The proposed restructuring would involve (i) incorporation of a new holding company to manage CFM's subsidiaries and affiliates, the government's equity in the concessionaire companies, and residual commercial activities and public assets (i.e., not taken over by the concessionaires); (ii) redefining the role of the existing CFM; and (iii) regularizing the financial flows between the CFM and the government.

Complete salary decompression according to new structure.
Done Second phase of decompression implemented in April 1999. Ratio of highest to lowest salary was raised from 9.6:1 in 1997 to as much as 15:1 for certain categories of workers.
Salaries may be further decompressed within framework of revised career streams and compensation structure. System of merit-based pay increases and promotions will be instituted.

Second Decision Point Document (HIPC: March 2000)

Structural reforms, which started in 1987 and gained momentum after 1994, led to the deregulation of most goods and service markets and a substantial liberalization of the trade regime. Among the key reforms were a comprehensive program of public administration reform and the implementation of a large privatization program that included the two largest commercial banks.

Private Sector Development. The annual report of the Inter-Ministerial Commission for the Removal of Administrative Barriers was prepared in December 1999, and progress is being made towards completing a new Commercial Code in August 2000, covering company and contract law. A proposal for regulations for use of urban land was submitted to the corresponding Inter-Ministerial Commission, and is scheduled for adoption in May 2000. The process of private management contracting of the urban water systems moved forward with the signing of private management for the five major urban water systems, and a comprehensive restructuring plan for the national railway company is in progress.

Policy Framework Paper, 1998-2000, August 10, 1998

The increased competition in the financial sector of Mozambique has been accompanied by rapid modernization and financial deepening. The restructuring of the banking system was completed in 1997 with the sale of the last state-owned bank, Banco Popular de Desenvolvimento. Financial deepening is evident in the growing volume and variety of financial instruments offered to the public. Nevertheless, there are still obstacles to financial intermediation, such as the limited availability of collateral, the small number of clients with proper accounting and business management practices, deficiencies in the judiciary system, and the high cost of registering loans. As a result, real interest rates and interest rate spreads still remain high albeit declining.

The government attaches priority to its program of public administration reform, consisting of civil service reform, decentralization, and capacity building. Regarding civil service reform, the ratio of the highest to the lowest salary was decompressed in April 1998 from 9.6:1 to 13.2:1. Further salary decompression, bringing the ratio to 17:1, is planned for April 1999, together with the implementation of a new system of career streams and remuneration. The government intends to set transparent regulations regarding the "topping up" of civil service salaries in the context of the reform. A decree instituting competitive entry examinations, and establishing career progression and reclassification rules will be promulgated by September 1998. Regarding decentralization, local elections were carried out in 33 localities in June 1998, and the government intends to submit a local tax code to the Council of Ministers by September 30, 1998. The new career and remuneration system contains incentives for civil servants assigned to provinces and districts. The public administration reform also includes a program for capacity building in the public administration, consisting of training, management development, and general institution strengthening.

The government's privatization program is nearing completion. The privatization of large enterprises in the Technical Unit for Restructuring of Enterprises (UTRE) list will be completed during 1998. This program had privatized 85 large enterprises as of June 1998. Of the remaining four enterprises on UTRE's list, three (two irrigation companies, and a brewery) will be sold and EMOSE, an insurer, will be converted to a public limited-liability company with the goal of finding a strategic private partner for it in the future. About 20 large enterprises will remain state-owned after UTRE completes its work. Over 900 medium-size and small enterprises had been sold as of early June 1998, and the remaining are expected to be sold by June 1999.

The government is examining the status of the remaining companies under majority government ownership to ensure good management and financial performance. Most of the companies in which the government still retains majority ownership are utilities and public services, which require close regulatory follow-up. In 1997, the oil and electricity sectors were opened to competition. In 1998-2000, the performance of the remaining public enterprises will be strengthened through several mechanisms, such as performance-based management contracts (in the case of water companies), restructuring and pursuit of a strategic partner (the airline company and possibly the telecommunications company), and the granting of concessions to the private sector (railway lines and port terminals). The objective is to ensure that these enterprises operate strictly along commercial lines, with greater management autonomy, subject to greater financial accountability, and with no explicit or implicit subsidization.

A tender for the privatization of the national airline, Linhas Aereas de Moçambique (LAM), completed in October 1997, did not result in offers acceptable to the government. The government intends to complete the restructuring process by transforming LAM into a limited-liability company, in preparation for the possible sale of shares on the forthcoming stock market. In the meantime, the government is committed to continuing efforts to improve LAM's financial and operational performance. LAM has made profits in 1997 and progress is being made toward securing a strategic partner by December 1998.

Under its National Water Policy adopted in 1995, the government is preparing for the privatization of management of the five major urban water companies before June 1999. To ensure the future sustainability of these water systems, the government will reform tariff structures and raise their levels, both for urban water supply and bulk water provided from major reservoirs. Tariffs will be increased in real terms prior to the signing of the management contracts. In rural areas, the government is establishing community-driven systems of provision of water services, with the goal of increasing the population's access to safe water.

Letter of Intent and Memorandum on Economic and Financial Policies, June 10, 1999

Other structural reforms. Major reforms are being undertaken to improve public administration and encourage private sector development. These include the ongoing revision of career streams, pay scales, and compensation structure in the civil service; the preparation of new civil service regulations that include performance standards and incentive mechanisms; the development of a strategy for a major public sector reform including a functional review of ministries; the improvement of the judicial system; the revision of the commercial code; the continued reduction of bureaucratic obstacles to investment and trade; and the adoption of regulations to define and protect urban land-use rights. The earlier program of privatizing selected large enterprises was completed in September 1998, with the exception of the national airline, which--in the absence of acceptable bids--was converted into a limited liability company with the intention of selling the government's shares on the future stock exchange. The program of privatizing and restructuring small and medium-sized enterprises will be completed in June 1999. By end-March 2000, the government will prepare a policy statement regarding the future of the remaining public enterprises and of companies with majority state ownership. Details of these and other structural reforms are provided in the government's policy framework paper supporting the request for a new three-year ESAF arrangement.

Prepare new civil service regulations that include performance standards and incentive mechanisms (paragraph 15) (*), December 1999

Policy Framework Paper, 1999-2002, June 10, 1999

During 1996-98, monetary policy was aimed at ensuring price stability, modernizing the financial system, and increasing financial intermediation. Monetary growth was reduced from 55 percent in 1995 to 18 percent in 1998. In addition to the considerable help provided by the accumulation of government deposits in the banking system, the main instruments to achieve these objectives were quarterly direct controls on the net domestic assets of individual banks, legal and regulatory reforms in the financial sector, and the privatization of the two state-owned banks, which, at the end of 1995, represented 71 percent of total commercial bank assets. Legal and regulatory reforms in the financial sector included improved management of the reserve requirement regime and the central bank rediscount rate, a law on the use of checks, and a new law of financial institutions. The reliance on direct instruments of monetary control was reduced by replacing the quarterly bank-by-bank credit ceilings with annual ceilings and by introducing an interbank foreign exchange market in mid-1996 and a money market in late 1997. Privatization, deregulation, and the entry of two additional commercial banks increased competition within the financial sector.

In May 1997, a private management company took over customs administration and began implementing a comprehensive program of modernization, restructuring, and training. The management contract comes to an end in December 1999, at which time control of customs will be passed back to Mozambican hands. The government will continue to provide the necessary financial and other support to customs to ensure that the management company completes its scheduled work by end-1999. If necessary, to consolidate the gains and ensure sustainability of the customs reforms program, the government will consider retaining the management company on a limited basis for a period of time after 1999. In particular, the government will see to it that the computerization of at least ten customs clearance points is completed by end-September 1999, and that 500 redundant workers are redeployed by the end of 1999. The government also intends to submit revised customs legislation to the National Assembly by end-December 1999. In view of these efforts to improve customs administration, the government will continue to reduce the share of imports subject to preshipment inspection operations.

As noted above, the program of privatization of selected large enterprises was completed in September 1998, with the exception of the national airline. In the absence of acceptable bids, the airline was converted into a limited liability company, with the intention of selling the government's shares in the future stock exchange. The program of privatizing and restructuring small- and medium-sized enterprises will be completed in June 1999. By that time, over 1,200 enterprises will have been privatized or restructured, and only 11 wholly owned public enterprises and 22 companies with majority government share will remain. By end-March 2000, the government will prepare a policy statement regarding the future of these enterprises. At a minimum, the performance of these enterprises will be strengthened through several mechanisms, such as performance-based management contracts, restructuring and joint ventures, and the granting of concessions to the private sector. Furthermore, the government will develop a strategy on its holding of shares in privatized enterprises, including the formulation of criteria for divestment and the development of a plan to distribute shares held on behalf of labor.

The government has begun to address the problems of Mozambique's public administration, which include weak incentives, lack of skills, and a heavily centralized structure. Key initiatives include civil service reform, capacity building, and decentralization. Regarding civil service reform, salaries have been decompressed since 1998, and a revised career stream and remuneration system was adopted in April 1999. The government's intention is to continue to improve incentives within the new career stream, with the objective of retaining qualified staff. Attention will now turn to preparing by December 1999 new civil service regulations that include performance standards and incentive mechanisms, and, by December 2000, a code of administrative procedures. A system of merit-based pay increases and promotions will be instituted, and special incentives will be given to civil servants assigned to provinces and districts. Under the capacity-building component, a public administration training system has been designed, and an operational plan for its implementation will be completed by March 2000.

Develop plan to distribute shares held on behalf of labor. June 2000

Prepare civil service regulations that include performance standards and incentive mechanisms. December 1999

Separate state construction units and plant pools from road directorate and initiate privatization of the plant pools. October 1999

Adopt regulations for implementation of electricity law that clears the way for private sector involvement in generation and distribution of electricity, and that establishes autonomous regulatory body. December 1999