A baseline survey to audit the PHC operations and determine community perception and expectations of PHC service delivery was conducted in 72 communities in Enugu state, southeastern Nigeria. The study was intended to facilitate the development of intermediate performance indicators for monitoring the progress of an ongoing health sector reform and to gather baseline data for planning and policy formulation. The tools used for the operations audit assessed indicators for evaluating: (a) Stewardship, (b) Service Provision and (c) Administrative and financial management; while the community survey was assessed by, (a) utilization of health services, (b) perception of service delivery and (c) health care financing. One hundred and sixteen respondents from each of the facilities in the sample frame were interviewed using a structured self-assessment questionnaire and a qualitative assessment was undertaken in 53 of the facilities using an audit guide. Focus group discussions (FGD) were conducted with the policy makers and planners in each of the 17 LGAs in the state. A total of 832 respondents were interviewed in the communities (using a structured questionnaire) and 42 community FGDs were conducted. The results indicate a lack of operational efficiency in the majority of the facilities audited. It was also observed that majority of the facilities do not provide all services required of it, are poorly maintained, do not have enough skilled health workers and operate without a budget. There appears to be no formal financial management system in place and no policy on financial resource generation. The community survey identified two major problems; low utilization of PHCs and poor service provision. The key indicator identified by the community for evaluating performance of the PHCs remains "access to essential drugs". The major prospect was the willingness of an appreciable number of respondents to invest in health financing through insurance schemes and payment of health tax among others. It was evident that poor funding, bad management practices and infrastructural decay is the bane of efficient PHC delivery. Consequently, we propose that cost determination studies, to establish the financial implication of the minimum package for provision of primary healthcare services, should be an essential prerequisite to the reform process. Some critical cross-cutting issues identified from the data obtained which could form the basis for major policy thrust include, development of strategies for sustainable promotion of public-private-partnership for enhanced community involvement in healthcare management, ensuring that interventional investment is proportional to the felt health needs of the populace and funding of healthcare through equitable integration of user fees/charges.