Document of

The World Bank

FOR OFFICIAL USE ONLY

A- Iz Z2 -AL+A .s 3Z/3 -A4.AVt rg Z / 4Repwt No. P-5133-AL

MEMORANDUM AND RECOMMENDATRIO0.'

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A PROPOSED PACKAGE

OF FIVE LOANS

AMOUNTING TO US$99.5 MILLION EQUIVALENT

TO FOUR ALGERIAN ENTERPRISES

AND THE DEMOCRATIC AND POP'ULAR REPUBLIC OF ALGERIA

FOR AN

INDUSTRIAL RESTRUCTURING DEMONSTRATION PROJECT

APRIL 30, 1990

TMs doument ha a restriced distrbution and may beused by recipients only in the perornmene of|dir offldal du*eL Its contents may not oduwbe be dacsdowd wito WorM Bank *Whor atn

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Currency Unit - Algerian Dinar (DA)DA 8.00 (February 1990) - US$1.00DA 1.00 (February 1990) - US$0.13

VEIGHTS AND UKASURES

Metric System

ABBREVIATIONS AND ACRONYMS

BAD: Banque Algerienne de DeveloppementBCR: Entreprise Nationale de Production de Boulonnerie, Coutellerie et

RobinetterieBIB: Entreprise Nationale d'Emballages M6talliquesENORI: Entreprise Nationale d'Organisation et d'InformationGDP: Gross Domestic ProductPRONETAL: Entreprise Nationale de Produits K6talliques Utilitaires

FISCALIYAR

January 1 to December 31

FOX OMCIL USE ONLY

INDUSTRIAL RESTRUCTURING DEMONSTRATION PROJECT

Loans and Proiect Summary

Borrowers: Three industrial enterprises (EMB, BCR and PROMETAL), anindustrial consulting firm (ENORI), and the Government.

Guarantors: Democratic and Popular Republic of Algeria and respectiveshareholders of EMB, BCR, PROWETAL and ENORI.

Loan Amounts: US$47.6, US$29.2, US$12.7, US$5.0 and US$5.0 million equivalentrespectively.

Terms: Fifteen years, including a 5-year grace period, at the Bank'sstandard variable interest rate. The borrowing enterpriseswill assume the foreign exchange risk on their respectiveamounts.

Financing Plan: IBRD US$99.5 millionEnterprises/Government US$11.5 millionDomestic loans US$34.6 millionOther foreign loans USS48.3 million

TOTAL US$193.9 million

Economic Ratesof Return: From 41X to 66X.

Staff AppraisalRepDort: Report No. 8037-AL

Thidocument has a strited distribution and may be used by cipents only in te performanceof their official dutie. Its contents may not otherwise be dbcloed without World Bsnk "'thorition.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORSON A PACKAGE OF FIVE PROPOSED LOANS

TO AWERIAFOR AN INDUSTRIAL RESTRUCTURING DEKONSTRATION PROJECT

* 1. This memorandum and recommendation on five proposed loans to fourAlgerian public enterprises (EMB, BCR, PROMETAL and ENORI) and the AlgerianGovernment for US$47.6, US$29.2, US$12.7, US$5.0 and US$5.0 million equivalentrespectively is submitted for approval. The proposed loans will be on standardIBRD terms with 15 years maturity including five years grace; they will helpfinance an Industrial Restructuring Demonstration ?roject.

2. Background. Building a modern and diversified industrial sector hasbeen an overriding objective of Algeria's economic policymakers sinceindependence. Unlike many other oil exporters, Algeria devoted much of itshydrocarbon revenues to investment financing (the ratio of investment to GDPaveraged about 40X until the early 1980s, one of the highest in the world). Alarge share of that investment was in basic industry, with the objective ofpromoting import substitution and "growth poles", following economic theorizingthat was popular in the late 1960s. This effort was carried out in the contextof an economic management system that relied on state intervention andcentralized planning. Industrial development was based upon the creation of afew very large, vertically integrated, monopolistic, public enterprises. Throughcentral planning, the enterprises were given physical production targets and hadlittle control over input and output prices, investment and operating decisions.Financial performance was not an important consideration as enterprise losseswere routinely financed by captive state banks and their surpluses frequentlytaken over by the central government. Similarly, in the agricultural sector,Government invested heavily in centrally planned state farms that had beenmanaged by Europeans as smaller units prior to independence. The role of theprivate sector was severely circumscribed and declined progressively afterindependence.

3. By the early 1980s, there were clear signs that this system ofindustrial production was not generating the intended results. Agriculturalproductivity stagnated and the country's growing food requirements were metincreasingly from imports. Although industrial production appeared to growrapidly (the value-added in non-hydrocarbon industry grew at an average 11.61 perannum between 1969 and 1985), this growth was not commensurate with the heavyinvestments made in this sector and the availability of many industrial productsfell increasingly short of the growing domestic demand. Moreover, theenterprises themselves showed low productivity and product quality, poor workerand management motivation and widespread financial losses. Plants were ofteninadequately maintained and capacity utilization rates were generally low, partlyas a result of poor maintenance and management and partly because difficulties inobtaining foreign exchange caused shortages of critical spare parts and importedinputs.

4. These factors led to a growing belief amongst a small but influentialminority of Algerian policy makers that the country's productive potential andeconomic development objectives could not be achieved without a fundamentaloverhaul of the existing system for economic management. The need for suchreforms became even more urgent after the oil price collapse of 1986, whichrendered unsustainable the Government's financing of the subsidies entailed by

- 2 -

these widespread inefficiencies. Progress in bringing about these changes was,however, limited by bureaucratic inertia and the concern about negative reactionsby an increasingly disenchanted and restless population. Events came to a headin October 1988, when there were violent and widespread public demonstrationsthroughout the country protesting against the failure of the 'system' to delivergoods, jobs and better living standards. These events led to a decision at thehighest level in the country to accelerate the process of economic reform and toembark in parallel upon a major program of political liberalization that wouldreplace the traditional one party system by a multiparty democracy. A newGovernment was put in to implement the reform agenda and work accelerated on thelaws and decrees necessary for the proposed changes. In September 1989, afurther change in Government put the strongest proponents of the reform programin charge of the key ministries.

5. In the industrial secto',, the Government's strategy relies on athree-pronged approach to overcome the inefficiencies and low productivity thathave generally characterized the sector's performance to date. This approachconsists of: (a) turning the public sector enterprises into autonomous publicly-owned 'corporations', effectively managed with the profit motive as theoverriding decision-making principle; (b) opening up the industrial productionsphere to private enterprise and to foreign investment, and (c) progressivelyreplacing administered prices of industrial inputs and outputs by prices whichreflect market conditions of demand and supply. The corporatization of existingpublic enterprises implied that the direct tutelage relationship exercised by thevarious ministries over the enterprises in their sectors be severed. To do so,the ownership of the enterprises was distributed among eight holding companies(the Fonds de Participation). These Fonds, each of which holds a block (but notall) of the shares in a group of enterprises, jointly with some of the otherFonds, have the mandate to maximize financial profitability, and to buy or sellshares and invest in or divest their holdings as they see fit. Trade in sharescan at this stage only occur among Fonds, or between Fonds and other autonomouspublic enterprises (such as banks or industrial enterprises); but this set-up isclearly viewed by the Government as the embryo of an equity market, which couldin the future be open to other investors.

6. An increased role of the private sector is crucial to enhance theefficiency of industry as a whole. !iegal and regulatory barriers to theactivities of the private sector have been removed at a quick pace since 1988.This has meant abolishing the ceilings on private investment and bank lending forprivate investment; removing the need for prior authorization for newinvestments; freeing-up of the restrictions on foreign exchange allocations forprivate businesses, and a much greater amount of foreign exchange allocated tothe private sector. A special dimension of increased private sector activity isa more open door to foreign investment. In the past, the extremely restrictiveconditions governing direct foreign investnmnt have rendered its contribution toAlgeria's economic development at best marginal. This can now change under thenew law on foreign capital. Private sector enterprises can form joint-ventureswith foreign partners, with no limits on the foreign partner's share: fullforeign ownership is even allowed. Full repatriation of benefits is possible.Foreign banks are now allowed to set up branches;V international arbitrationwill govern the settlement of disputes. The remaining legal restrictions onforeign investment are minimal.

I/ One French bank has already opened up a branch.

- 3 -

7. As regards prio e and incentives reform, the initial focus of theGovernment has been on the goods markets. Prices and controls have been liftedor substantially alleviated on all but a handful of products, u-hich should have abeneficial impact not only on the financial health of public enterprises but alsoon the profitability of potential investment projects by the private sector.interest rates have also been increased but further increases are needed to bringrates in line with Algeria's high opportunity cost of capital. In the foreignexchange market, despite a 60X nominal devaluation since 1986 and a replacementof a product and enterprise specific quantitative allocation system by a moreflexible multiyear budget for each enterprise, further action is needed urgentlyto progress towards the Government's objective of achieving full convertibilityfor the dinar by 1992.

8. In sum, courageous and far reaching actions have already beenundertaken on both the macroeconomic and structural fronts and the Governmentremains committed to further liberalization of the economy in the coming years.It is important to point out, however, that these reforms are being imple:nentedin a difficult context. Despite a sharp cutback in imports and publicexpenditures after 1986, the fiscal and balance of payments equilibrium wi11remain fragile in the short term. A debt service ratio of about 701 is a furthersource of strain on the external payments situation. Inflation, althoughhistorically low, is likely to pick up as the economy moves from administered tomarket prices. Unemployment is reaching 24X of a remarkably young and rapidlygrowing labor force, and workers in public enterprises are likely to be resentfulabout the uncertainties and loss of privileges implied by the move to a moremarket oriented approach. Finally, the experiment of political liberalization isstill at its beginning, and is rendered perilous because of the socialinstability fostered by the high level of unemployment.

9. The economy cannot weather the current macroeconomic instability andmeet the increasing challenge brought to light by the newly emerging politicalfreedom, without obtaining a rapid supply response from existing enterprises.Neither can Algeria, given the existing conditions, let substantially moreunemployment be generated through the enterprise reform process. Finally, theGovernment cannot realistically expect a small private sector, whose developmenthas until recently been thwarted, to generate a sufficient supply response in theshort-term. Both local and foreign investors must play an increasingly importantrole in the future, but their immediate response is likely to be muted in thecurrent climate of macroeconomic, social, and political uncertainty.Fortunately, the diagnosis of existing enterprises shows that there is a lot offairly modern capacity in place. It will be essential over the next few years toget that capacity to produce at adequate levels. Potentially, economicrestructuring projects in Algeria can yield very high rates of return. At thesame time, the enterprise sector must be "corporatized", as a first necessarystep toward the competitive market economy which is the declared final objectiveof the reform process in Algeria.

10. The Bank's Lending Strategn and the Rationale for Bank involvement inIndustrial Restructuring. The Bank's assistance strategy in Algeria supports theGovernment's macroeconomic and structural reform efforts. The Economic ReformSupport Loan (Loan No. 3117-ALG) was a key building block to provide financialand analytical support in the design and implementation of the overall economicreform program. Further adjustment lending is envisaged to help deepen thismacro-economic reform effort. In parallel, the Bank is working to ensure that

- 4 -

the real sectors can yield the necessary supply response by supporting keyinvestments in critical sectors: agriculture, industry, transportation, energy,public utilities and human resources.

11. For the Industrial Sector, the Bank supports the pragmatic approach ofthe Algerian Government to launching the essential restructuring of key Algerianindustries. Therefore, after a long hiatus, Bank industry lending in Algeria isrecommencing as a first phase with a loan to restructure three representativeindustrial enterprises and a service enterprise, identified 1,y the Bank in closecollaboration with the authorities. In light of the severe weaknesses of theAlgerian banking system at present, the technical, managerial, financial, andcommercial aspects of each company as well as the loan components to be financedhave all been appraised directly by the Bank --and not through an intermediary aswould normally be the case. The Bank's loan agreements are also directly withthe enterprises. This proactive approach to industrial restructuring, in theabsence of an adequate financial framework, is in line with those adopted forother centrally planned economies currently undertaking similar reform programs.

12. In parallel with this operation, extensive work is ongoing to developthe necessary institutional framework and capabilities so that the bankingsystem, the newly autonomous enterprises and a growing private sector can becomeprogressively more active partners in subsequent Bank lending for industry. Inparticular, the Bank is working to strengthen the financial framework, theaccounting and auditing framework and the capacity of the enterprises and thebanks to identify and evaluate opportunities for increased industrial efficiencyand competitiveness. As these reforms progress, the Bank will broaden itsinvolvement in the financing of industry restructuring and development, byfocussing on sectoral policy issues, and financing investments in relatedsubsectors, e.g. small scale enterprises. The chan-neling of funds will at thatstage proceed through a number of financial intermediaries which the financialsector reform and related strengthening of these institutions will have enabledto take primary responsibility for the selection and evaluation of individualprojects.

13. Project Objectives. Following from the foregoing discussion, theobjectives of the proposed project are: first, to facilitate the corporatizationof the public enterprise sector by supporting its full implementation in threerepresentative, economically viable ente-prises; second, to accelerate successfulindustrial restructuring efforts by providing technical and financial resourcesto these enterprises which are able and willing to restructure; third, todemonstrate both the process of restructuring and its costs and benefits to theindustrial sector as a whole; fourth, to begin developing the necessaryinformation base and expertise in Algeria to replicate this type ofrestructuring; and finally to permit the authorities to monitor the effects ofthe evolving macro-economic reforms e.g. price and exchange rate changes, on arepresentative set of enterprises and to make appropriate adjustments ifnecessary.

- 5 -

14. Three medium-sized enterprisesl' in the engineering industriessubsector were selected jointly by the Government and the Bank as representative,in varying degrees, of typical weaknesses found in Algerian industrial enter-prises, e.g. lack of a long-term strategy, weak management skills, insufficientor non-existent managerial/financial systems, insufficient knowledge of themarket, weak finances and disregard for budget constraints, weak capitalbudgeting procedures, overstaffing, low capacity-utilization, insufficientmaintenance and quality control and lack of in-house product developmentcapabilities. Each of the enterprises also has a motivated management team thatis eager to initiate productivity improvements to prepare for future marketconditions and to establish their companies on a sound, sustainable, competitivebasis, Most importantly, all three enterprises are economically viable and havethe potential, through restructuring, to become healthy and profitable. Theproject was designed to help these three enterprises: (i) define their medium andlong term corporate strategy after studying various strategic options (thesestudies have already led to some major strategic changes, particularly inPROMETAL's case); (ii) identify their inefficiencies in terms of overallmanagement, marketing, financial management, pricing, production, technology,etc.; and (iii) define and carry out necessary actions and investments toimplement their strategy within the framework of a detailed restructuring plan.The experience of these three enterprises will be disseminated to otherindustrial enterprises and systematically reviewed by the Government. Theproject is also designed to help develop local management consulting skillsnecessary to replicate the restructuring process on a larger scale, bystrengthening ENORIt a consulting firm whose role was critical in coordinatingproject preparation.

15. Project Description. The project includes three components:

(a) First, the implementation of restructuring grograms for EMB, BCR andPRONETAL, based on the detailed studies financed from a PPF advance. Therestructuration programs involve: (i) setting-up modern managementinformation systems, (ii) physical investments (mostly forrehabilitation, debottlenecking, and pollution-control investments), and(iii) studies, training, and other technical assistance.

(b) Second, a program to strengthen ENORI through: (i) the training ofENORI's staff by foreign consultants financed under the PPF as part ofthe diagnostic studies for the industrial enterprises, and (ii) thepreparation and implementation of a mediJ.m-term strategy and plan ofaction to reinforce ENORI's capabilities, including further training,foreign technical assistance and purchase of data processing equipment.

1/ Entreprise Nationale de Boulonnerie-Coutellerie-Robinetterie (BCR),which manufactures nuts, bolts, taps and valves; EntrepriseNationale d'Emballages Mdtalliques (EMB), which makes metal cans andcontainers; and Entreprise Nationale de Produits N6talliquesUtilitaires (PROMETAL), which specializes in metal appliances(stoves, tubs, etc.).

2/ Entreprise Nationale d'Organisation et d'Information (ENORI).

(c) Third, subsector or enterprise specific studies in priority areas, e.g.engineering industries and private sector development.

16. Project Cost. Financing, and Implementation. The total project cost isestimated at US$193.9 million, with a foreign exchange component of US$151.1million. EDB, BCR, PROMETAL and ENORI will borrow directly from the Bank fortheir respective components (US$47.6, US$29.2, US$12.7, and US$5.0 millionrespectively) and will be directly responsible for the implementation of theirrestructuring plans. Punds for the industry sector studies (US$5.0 million) willbe lent to the Government and administered by the Ministry of Industry.Retroactive financing totalling US$3.4 million (about 3Z of the aggregate amountof all five loans) has been provided. A breakdown of costs and the financingplan are shown in Schedule A. All goods and services financed by the proposedloans will be procured in accordance with Bank guidelines. Amounts and methodsof procurement and of disbursements, and the disbursement schedule are shown inSchedule B. In addition, a high-level "Comit6 de suivi" has already beenestablished with representation from the Government, the banking sector and thenew "Fonds de Participation", to monitor the project and disseminate itsexperience to other enterprises. In this context, the Government has committeditself, in a letter to the Bank, to consult annually with the Bank on theprogress of the project, in accordance with the project's demonstration objective(para. 13). A timetable of key project processing events and the status of BankGroup operations in Algeria are given in Schedules C and D, respectively. TheStaff Appraisal Report, No. 8037-AL dated April 30, 1990, is also attached.

17. Issues and Agreements reached. Like many Algerian industrialenterprises, EMB and BCR (and, to a lesser degree, PROMETAL) have suffered lossesover the last few years as a result of Government-controlled prices, an almostexclusive reliance on borrowing to finance investments, and poor efficiency,which led to their rapid decapitalization. A sound financial structure iscritical for these enterprises to operate on a genuinely commercial, autonomousbasis. Their equity base must be sufficient to make them bankable, independentof Government guaranties and to enable them to withstand the vagaries of anuncertain, competitive market economy. Accordingly, an important aspect of thepreparatory work under this project was to define the conditions under which thefinancial structure of the enterprises could become sound. Subsequent to thiswork, the Government authorized a major financial restructuring of BCR andPROMETAL in the context of their transition to autonomy (i.e. through acombination of debt-equity conversion and short-term debt rescheduling) and isworking on similar measures for EMB, whose debt-equity ratio is to be reduced to75:25 as a condition of effectiveness of the loan to that company.

18. In order to provide the Bank with assurances regarding the achievementof the project's objectives, additional agreements have been reached under theproposed loans, as follows:

(i) under the loan agreements. the enterprises have agreed: (a) toimplement their respective strategies and achieve related keyperformance indicators; (b) not to incur long-term debt in excess ofUS$5 million (US$1 million for ENORI) without the Bank's prioragreement unless their debt service coverage ratio is at least 1.5;(c) to have their annual financial statements audited by independentauditors acceptable to the Bank; and (d) to observe sound environmen-tal and safety practices. Disbursements on a portion of PROMETAL'sloan (US$5 million) for the metal furniture subproject and a portion

- 7 -

of EMB's loan (US$4.3 million) for its spray can production line willalso be subject to the Bank being provided with satisfactoryfeasibility studies establishing the economic, financial, technical,commercial and environmental viability of these subprojects. Thesestudies are expected to be completed in the coming months.

(ii) under four shareholders' agreements, the shareholders of eachenterprise (i.e. the corresponding Fonds de Participation) haveagreed to guarantee funding of the project and the Borrower'spunctual performance of its obligations (signing of such agreementswill be a condition of effectiveness of each loan).

20. Benefits. As already mentioned, the primary benefit of the project isto launch the process of industrial restructuring in several viable enterprisesby ensuring access to necessary technical and financial resources and tofacilitate effective dissemination of these restructuring measures industry-wide. In addition, the Government will cbtain systematic, practical feedback onthe impact of key reform measures on industrial restructuring actions e.g.divestiture and joint-venture efforts (for PROMETAL), subcontracting arrangementswith foreign manufacturers (for BCR) and the likely varying impact of price,credit and trade reforms on each of the three industrial enterprises.

21. From a narrower standpoint, the quickest and most obvious benefits ofthe project are those derived from the projected increases in capacityutilization and the switching to more profitable product lines, which will farexceed the costs of the associated proposed investments. The companies willthereby be established on a sustainable, competitive basis including improvedmanagement systems, increased responsiveness to market demands and more selectiveinvestment planning. Economic rates of return for the various components of theproject for which benefits can be quantified, range from 41X to 66X whilefinancial returns are even higher. Some of the proposed actions and investmentsare also likely to lead to foreign exchange earnings through increased exports aswell as foreign exchange savings through a reduction of imported inputs (fromimproved feedstock yields). In addition, the project is expected to have a majorpositive environmental impact, demonstrating that productivity gains and positiveenvironmental effects can be achieved simultaneously: first it will address EMB'sonly major envirozmental problem, (i.e. waste water disposal at its Mascaraplant); second, it will lower industrial waste through higher efficiency and theadoption of modern processes (e.g. switch from lead soldering to electric weldingin the case of EMB), and third, it will permit each industrial enterprise toenhance its pollution-control equipment. Finally, the training of localconsultants is expected to lead to the creation of more flexible and responsiveconsulting firms, thus helping in the development of a dynamic and competitiveprivate service sector.

22. Risks. Industrial production in a competitive environment does andshould entail risks. A main objective of this project is to enable the selectedenterprises to confront these risks with the appropriate management and technicaltools. Market risks were analyzed and found acceptable and the financialrestructuring of each company has been designed to provide it with the robustnessto handle significant levels of market uncertainty. However, it is important tonote that the success of these enterprises' specific efforts is inextricablylinked with the macroeconomic environment in which they will operate. TheGovernment is clearly committed to seeing through these reforms, but given thecurrent difficulties, the uncertainty on oil revenues and the difficulties

- 8 -

inherent In managing such a process of transformation, the risk that unexpectedlyhigh inflation and other kinds of instability indeed block progress towardconvertibility and price liberalization cannot be ruled out. Another risk,although considered less significant, is that an enterprise wou'ld depart from itsagreed strategy, thus endangering the implementation of its part of the projecteither direct.y by changing its scope, or indirectly by undertaking excessivefinancial commitments and/or uneconomic projects whicht would prevent it fromfunding, or managing, a project component. In order to safeguard against thisrisk, all four enterprises have committed themselves under the loan (i) toimplementing their respective agreed strategy, and (ii) to subjecting theirfuture borrowings over agreed limits to Bank review (para. 18).

21. Regmndation. I am satisfied that the proposed loans comply with theArticles of Agreement of the Bank and recommend that the Executive Directorsapprove the proposed loans.

Barber ConablePresident

Attachments

Washington, D.C.April 30, 1990

Schedule A

Pilot Tndustrial Rstzuctturins Pxoject

SOML PRCJT cosr__________________

Local Foreign Total Local Foreign Total

(milio BA) (million US$)nterprise t structuring:

Production equi m_t (1) 75.1 4n77.1 552.2 11.2 71.2 82.4

Spare pert. & other oonsus. 0.0 68.7 66.7 0.0 10.0 10.0

Ckaupting quip. & sofNotre 2.8 51.8 54.6 0.. 7.7 8.1

Rohab. works 6 services 73.1 18.6 01.7 10.9 2.8 13.7

Erviromaunt T.A. & equip. 0.0 4.2 4.2 0.0 0.6 0.6

Tech. assist. A studies (2) 49.9 84.3 134.2 7.4 12.6 20.0

Training 14.5 30.4 44.9 2.2 4.5 6.7

Subtotal reatructur. 215.4 733.1 948.5 32.1 109.4 141.6

Strengthening of 3lT3R: 0.0 0.0 0.0

T.A.,studies a trainung tl) 6.6 34.0 40.6 1.0 5.1 6.1

zquspment & vhbicles 0.0 12.8 12.8 0.0 1.9 1.9

Subdtotal 3303! 6.6 46.8 53.4 1.0 7,0 8.0

Sector ?.A. 4.9 26.5 31.4 0.7 4.0 4.7

BASM COST(t988 prices) 226.9 806.4 1033.3 33.9 120.4 154.2

Physical centing. 22.7 80.6 103.3 3.4 12.0 15.4

Price canting. 37.6 125.1 162.7 5.6 18.7 24.3

TOTAL PR30330T COST 287.2 1012.1 1299.3 42.9 151.1 193.9

Financing Plan:

Enterprises om funds 55.2 21.9 77.1 8.2 3.3 11.5Domestic loas 232.0 0.0 232.0 34.6 0.0 34.6T.B.R.D. 0.0 668.6 666.6 0.0 99.5 99.5Other foreign loan 0.0 323.7 323.7 0.0 48.3 48.3

TOTUL 287.2 1012.2 1299.4 42.9 151.1 193.9

N.B.:totals may not add up dtte to rounding

(1) includes PEF-financed studies (U58 1.5 million) and external audits (tUS 0.7 million)

- 10 - Schedule B

AL=ERI

INDUSTRIAL RESTRUCTURING DEMONSTRATION PROJECT

PROCUREMENT METHOD AND DISW RSEMENTS

Procurement Method TotalProject Element ICB LIB DC Other Cost

------------ US$ million----

1. Production equipment 50.8 23.1 1.0 28.3s' 103.1(34.0) (2.2) (0.8) (37.0)

2. Spare parts & consumables 9.4 2.2 11.6(9.4) (0.9) (10.4)

3. Computer equipment & software 9.8 0.2 1.6 11.6(9.7) (0.2) (9.8)

4. Rehabilitation works & serv. 0.8 0.3 5.8 11.4 18.3(0.8) (5.8) (6.6)

5. TA and studiesW 1.5 38.5' 40.0(30.0) (30.0)

6. Training 8.5' 8.5(4.9) (4.9)

7. Environment 0.8 0.8(0.8) (0.8) -

Total 71.7 24.8 9.1 88.3 193.9(54.7) (2.2) (7.7) (34.9) (99.5)

Note: Figures in parentheses represent the respective amount to be financed bythe Bank.

A/ Equipment procured internationally based on financing terms.k/ Includes PPF-financed studies, sector-wide TA, and external audits.S/ Bank guidelines for consultants.

Disbursements

Categors Amount X(US$ million)

Equipment & vehicles 54.3 100l of foreign expenditureWorks 6.6 100l of foreign expenditureTraining, technicalassistance andconsultants' services 34.9 1002 of foreign expenditure

Estimated Loan Disbursements: FY91 FY92 FY93 FY94 FY95(US$ million)

Annual 6.0 18.8 24.6 25.1 25.0Cumulative 6.0 24.8 49.4 74.5 99.5

- 11 - Schedule C

INDUSTRIAL RESTRUCTURING DEMONSTRATION PROJECT

Timetable of Key Project Processing Events

(a) Time taken to prepare: 20 months

(b) Prepared by: Government/participating enterpriseswith Bank andforeign consultants' assistance (PPFadvance).

(c) First Bank mission April 1987.

(d) Appraisal mission departure January 1989.

(e) Negotiations February 1990.

(f) Planned Date of Effectiveness September 1990 (tentative).

- 12 - Schedule D

The Status of Bank Cretu (OeratigM in Algeria

Statement of Snk La" o and IDA Credits(As of Nberh 31. 1990)

USS wtllion Amant(Less cu,celtations)

Loan or

Credit go. Year t Ft I dis

Twenty-Six loans fully disbursed 751.06

2370 1984 The Democratic and PopularRepublic of Algeria Teleco.mmications 104.30 21.70

2461 1984 The Democratic and PopularRepublic of Algeria water Supply II 290.00 26.90

2591 1985 The Democratic and PopularRepublic of Algeria water Supply & Sewerage 262.00 87.13

2808 1987 The Democratic and PopularRepublic of Algeria Highways V 120.00 93.25

2809 1987 The Democratic and PopularRepublic of Algeria Irrigation Cheliff 94.00 84.56

2821 1987 The Democratic and PopularRepublic of Algeria Water Supply & Sewerage It 250.00 219.78

2976 1988 Soci6te National. des Trans-ports Ferroviaires (SNTF) Railways 11 143.00 143.00

2977 1988 The Democratic and PopularRepublic of Algeria Vocational Training 54.00 51.50

2978 1988 The Democratic and PopularRepublic of Algeria Irrigation Engineering 14.00 12.00

2981 1988 Societe Nationale de ltElec-tricit6 et du Gaz (SONELGAZ) Power III 160.00 160.00

3009 1989 Banque de l'Agriculture et duD6veloppement Rural (8ADR) Agriculture Credit 110.00 110.00

3017 1989 The Democratic and PopularRepublic of Algeria Locust Control 58.00 40.68

3076 1989 The Democratic and PopularRepublic of Algeria NitidJa Irrigation 110.00 110.00

3105 1989 The Democratic and PopularRepublic of Algeria Third Ports I 63.00 63.00

3117 1990 The Demcratic and PopularRepublic of Algeria Economic Reform Loan 300.00 169.43

3176 1990 The Democratic and PopularRepublic of Algeria Technical Assistance 9I 26.00 26.00

TOTAL 2909.36 1418.93Of which has been repaid 559.51

Total now outstanding 2349.85Amount sold 36.37of which has been repaid 35.18 1.19

Total now held by Sank 2_8.66

Total undisbursed 1418.93

A/ Not yet signed as of March 31. 1990.

Algeria is not a nember of IFC.

HMGE02/bankopsMarch 21, 1990