Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 20076

IMPLEMENTATION COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

PROVINCIAL GRID INTEGRATION PROJECT

(CREDIT 2425-LA)

January 31, 2000

Energy and Mining Sector UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Kip Nationale (Kn)US$ 1.0 - Kn 700 (at appraisal)US$ 1.0 - Kn 7,700 (as of November 30, 1999)

WEIGHTS AND MEASURES

m - Meter (3.2808 feet)km - Kilometer (0.6214 miles)kV - Kilovolt (1,000 volt)kVA - Kilovolt-AmpereMVA - Megavolt-ampere (1,000 kilovolt-amperes)kW - Kilowatt (1,000 watts)MW - Megawatt (1,000 kilowatts)kWh - Kilowatt-hour (1,000 watt-hours)MWh - Megawatt-hours (1,000 kilowatt-hours)GWh - Gigawatt-hour (1 million kilowatt-hours)

FISCAL YEAROctober 1 - September 30

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development BankEdL - Electricite du LaosEGAT - Electricity Generating Authority of ThailandGOL - Government of Lao PDRIDA International Development AssociationIRR - Internal Rate of ReturnLao PDR - Lao People's Democratic RepublicMIH - Ministry of Industry and HandicraftsROR - Rate of ReturnSPE - Southern Provinces Electrification ProjectSPRE - Southern Provinces Rural Electrification ProjectTNB - Tenaga Nasional Berhad (Malaysia)UNDP - United Nations Development ProgrammeROR - Rate of Return

Regional Vice President: Jean-Michel Severino, EAPCountry Director: Ngozi Okonjo-Iweala, EACSMSector Manager: Yoshihiko Sumi, EASEGTask Manager: Enrique Crousillat, EASEG

FOR OFFICIAL USE ONLY

Table of Contents

Preface ................ iEvaluation Summary ................ i

Part I Project Implementation Assessment

A. Statement/Evaluation of Objectives .B. Achievement of Project Objectives .3C. Implementation Record and Major Factors Affecting the Project . 8D. Project Sustainability .9E. Bank Performance .0F. Borrower Performance .10G. Summary Assessment of Outcome .1H. Future Operations .121. Key Lessons Learned .12

Part II Statistical Tables

Table 1: Summary of Assessments .15Table 2: Related Bank Loans/Credits .16Table 3: Project Timetable .16Table 4: Credit Disbursements .17Table 5: Key Indicators for Project Implementation .17Table 6: Key Indicators for Project Operation .18Table 7: Studies included in the Project .18Table 8A: Project Costs .19Table 8B: Project Financing .20Table 9: Economic Costs & Benefits (EIRR) .20Table 10: Status of Legal Covenants .21Table 11: Compliance with Operational Manual Statements .24Table 12: Bank Resources: Staff Inputs .24Table 13: Bank Resources: Missions .25

Annexes

Annex A. Mission's Aide Memoire ......................................................... 28Annex B. Borrower's Evaluation Report ......................................................... 33Annex C. Ex-post Calculation of Economic Internal Rate of Return ........................... 39Annex D. EdL's Key Financial Indicators .......................................................... 43Annex E. EdL's Tariff Schedule Effective February 1999 ........................................... 44Annex F. Retrofitted Performance Indicators ......................................................... 45Annex G. EdL's existing and proposed Organization Chart during Appraisal.. ........... 46Annex H. EdL's current Profit and Cost Center Structure ............................................ 48Map: IBRD No. 23467

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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IMPLEMENTATION COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

PROVINCIAL GRID INTEGRATION PROJECT

(CREDIT NO. 2425-LA)

PREFACE

This is the Implementation Completion Report (ICR) for the Provincial GridIntegration Project in Lao PDR, for which Credit No. 2425-LA, in the amount ofSDR25.30 million was approved on October 6, 1992 and made effective on July 6, 1993.

The credit was closed on June 30, 1999, one year after originally planned. Thelatest disbursement took place on November 19, 1999, at which time a balance ofSRD790,065 remained undisbursed. This balance would be canceled after the balance inthe Special Account is fully recovered. Cofinancing of the Project was provided by EGATin the amount of US$1.95 million.

The ICR was prepared by Esperanza Miranda, Operations Analyst, EASEG, andreviewed by Enrique Crousillat, Task Manager for the Project, and cleared by YoshihikoSumi, Sector Manager, EASEG, and Natasha Beschomer, Acting Country Director,EACSM.

Preparation of this ICR was begun in November 1999 during the Bank's ICRmission to Lao PDR. It is based on materials in the Project file, and on information andcomments provided by the implementing agency, the Electricity du Laos (EdL) whichcontributed to the preparation of the ICR by preparing its own evaluation of the Project'sexecution and commenting on the draft ICR. The aide-memoire of the ICR mission isattached as Annex A. The implementing agency's own evaluation report is attached asAnnex B.

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LAO PEOPLE'S DEMOCRATIC REPUBLIC

PROVINCIAL GRID INTEGRATION PROJECT(CREDIT NO. 2425-LA)

EVALUATION SUMMARY

Introduction

1. The Bank Group has had sporadic involvement in the Lao power sector since thelate 1960s. In 1982, IDA provided a US$15 million Credit to finance Phase III of the NamNgum Hydroelectric project (C 1197-LA), the major power export facility in the country. In1987, a Credit of US$25.8 million was approved to finance the implementation of theSouthern Provinces Electrification project (CI896-LA), which itself was the transmissionand distribution component of a broader program to develop electricity resources andsupply in the southern provinces. The Provincial Grid Integration (PGI) project wasconceived as an extension of the SPE project to increase the availability of electricity todevelopments in the Southern and Central regions of the Lao PDR and continueinstitutional development of EdL. Credit No. 2425-LA, in the amount of SDR25.30 millionwas approved on October 6, 1992 and made effective on July 6, 1993 to finance theimplementation of the PGI project.

Project Objectives.

2. As stated in the Bank's SAR, the objectives of the Project were: (i) extendingelectricity supply to more consumers in the Southern and Central Regions of the Lao PDR;(ii) enhancing the quality of supply for existing consumers in those provinces; (iii)improving EdL's system efficiency; (iv) continuing EdL's institutional development; and(v) developing additional power export prospects for the Lao PDR.

3. The above objectives were to be achieved through the implementation of thefollowing components: (i) construction of four overhead river crossing lines to interconnectwith the Thai grid, and extension of the 22kV distribution networks of the central andsouthern provinces; (ii) implementation of an action program for EdL to monitor andreduce system losses, increase collections, and improve billing practices, includingprovision of equipment and spare parts; (iii) technical assistance and provision ofequipment, materials and services for upgrading the skills of EdL's staff and its trainingcapabilities; and (iv) preparation of a feasibility study and design study for the installationof additional capacity at the Nam Ngum hydro station.

4. Although the Project did not explicitly included a financial objective, it included anumber of conditions to ensure EdL's continued financial viability. The following financialcovenants were agreed upon during project negotiations: (i) EdL to generate funds frominternal sources equivalent to not less than 20% of the annual average of EdL's capitalexpenditure; (ii) EdL to maintain a debt service coverage ratio of 1.1; (iii) GOL to takemeasures, including increase of EdL electricity tariffs, necessary to enable EdL to meet its

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1.1 debt service ratio; and (iv) GOL to complete an action program satisfactory to IDA, todecrease EdL receivables from Government agencies. (para. 5)

5. The Project objectives were realistic and consistent with the Government's sectorstrategy of improving the infrastructure in the Lao PDR's southern and central region andsupporting institutional strengthening at both central and provincial levels of the nationalelectric utility. The Project was very clear in setting specific outcomes for each of itsdevelopment objectives and establishing key implementation indicators. The Project wasneither complex nor demanding for the implementing agency, mainly because EdL hadalready gained experience during the implementation of previous power projects. (para. 7)

Implementation Experience and Results

6. Overall, Project objectives were achieved and the project resulted in substantialbenefits for the rural population of the central and southern regions of the Lao PDR. TheProject provided electrification to villages in the central and south provinces where thestandard of living, consumption of consumer goods and commercial activities haveincreased substantially. In addition, the Project provided for a comprehensive technicalassistance program and consulting services for EdL to support its institutional development

7. Extending Electricity Supply. A total of 33,478 households were electrified underthe Project compared with 14,138 households estimated during appraisal. Original ruralelectrification targets were exceeded substantially as a result of a large increase in thedemand of electricity from non-electrified villages which were attracted by the benefits ofvillage electrification. EdL could respond to the increased demand for services byachieving low bid costs for most items and requiring up-front investment contributionsfrom the beneficiaries (para. 9)

8. Improving System Efficiency and Quality Supply. The Action Plan to monitorand reduce system losses, increase collections and improve the billing practices wasimplemented partially: procurement and installation of new meters was carried out in theVientiane area only (original objective was to extend this program to the provinces), andthe program to decrease EdL's receivables from Government agencies was notimplemented. However, EdL achieved some improvements in the reduction of distributionlosses through the acquisition of about 23,000 meters and related equipment whichfacilitated EdL's capability to monitor system losses. Distribution losses in the Vientianearea were recorded at 19% as of mid 1999 compared with 24% in 1995. (para 11-13).

9. Continuation of EdL's Institutional Development. The institutional objective ofthe Project was achieved in that EdL's staff skills and training capabilities were upgradedthrough the implementation of several technical studies and training activities, including atechnical cooperation arrangement with TNB of Malaysia. Also, consulting services onfinancial management and accounting systems, including the hiring of a Resident FinancialManagement Advisor, helped EdL to restructure its operations by cost and profit centers,and to establish a new annual standard budgeting system (para. 14).

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10. EdL's Continued Financial Viability. In spite of the above achievements, EdL'scontinued financial viability is at risk, primarily because of the continued unstablemacroeconomic conditions and in particular, the further and rapid devaluation of the Kip tothe US$ (para. 16). EdL has not met the 20% self financing target since 1993, and reporteda net loss of Kip 7.4 billion in FY98. Although EdL's debt service ratio of 1.48 for FY98 iswell above the 1.1 ratio covenant agreed under the Project, EdL is not generating sufficientrevenues from operations (mainly because electricity tariffs do not cover the full cost ofsupply) (para. 17). EdL has proposed to the Government several measures to address itsfinancial weakness, including restructuring of EdL's balance sheet (para. 18). Of thesemeasures, only increases in domestic tariffs has been made effective. These increases,however, may not be sufficient to fully offset likely further devaluation of the Kip over thenext 3 years and hence, additional increases will be needed if IDA's financial covenants areto be met in the next few years (para. 19).

11. Economic Internal Rate of Return (EIRR). The ex-post EIRR was recalculatedusing the same economic cost/benefit analysis adopted at project appraisal for eachselected project area, but there are differences in the regional breakdown of provincesbecause of the way data were handled at project implementation. The result of the ex-postanalysis is a higher range of EIRR, from 21 to 46%, than the range of 10-21% estimated atappraisal. The main reason for such high values is due to the fact that the project was ableto reach a much larger number of households while project costs remain within budget(para. 20).

12. Implementation Record. Overall, implementation of the Project was carried outsatisfactorily. The credit closing date was extended one year from its original date of June30, 1998 to June 30, 1999 in order to complete additional extensions of electricity supplyin the central provinces and, to allow completion of consultancy services for the NamTheun II project. Disbursements under the credit totaled SDR24.5 million equivalentcompared with the original credit amount of SDR25.3 million equivalent. The undisbursedbalance of about SDRO.8 million will be canceled after the balance in the Special Accountis fully recovered. The estimated project cost at appraisal, based on late 1991 prices, wasUS$ 45.1 million, of which: (a) US$ 36 million was to be financed by the Association, (b)US$ 2.2 million to be financed by EGAT; and (c) US$ 6.9 million to be financed by EdL.The actual project cost was US$ 43.3 million (excluding IDC) which is slightly lower (byabout 4%) than the appraisal estimate. The lower cost was achieved mainly because lowerbid costs for most of the equipment and installation (para. 21-26)

13. The major factor affecting the project in general, and EdL's finances in particular,was the rapid depreciation of the Kip caused by the region's economic crisis in 1997 andthe country's weak macroeconomic management. The devaluation resulted in a sharp jumpin EdL's operating expenses (by about 57%); interest expense payments (105%); andforeign exchange losses (a gain of K 5 billion in FY96 reverted to a loss of K 14 billion inFY98). Consequently, despite the 70% increase in domestic tariff which increasedrevenues in FY97, net losses of K 7.4 billion were recorded in FY98 compared with arestated net income of K 11 billion in FY96 (para. 16, 27).

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14. IDA and Borrower's Performance. IDA's performance during project appraisaland project supervision is considered highly satisfactory due to the substantial support itprovided to the Borrower and EdL in the technical, institutional and financial aspects of theproject. The GOL, as the Borrower of the Project, showed a strong interest in the Projectduring preparation and appraisal, however, its performance during project implementationis rated unsatisfactory because of its lack of action to support EdL's financial restructuringplan. EdL's (the Implementing Agency) performance is considered satisfactory in all stagesof the project cycle, with the exception of covenant compliance. EdL has demonstrated itscommitment and ownership of electrification projects and it has even established a ProjectsOffice dedicated to implementing donor-financed projects. (para. 31-37)

15. Project Outcome. The outcome of the project is rated satisfactory based on thefollowing factors: i) the project objectives were overall achieved, ii) the project resulted insubstantial benefits for the rural population of the central and southern regions of the LaoPDR, and iii) project implementation was carried out satisfactorily from a technical andcost viewpoints. This rating is given mainly on the basis of the actual results achievedunder the project and EdL's commitment to the objectives of the project. EdL's precariousfinancial conditions, although significant enough to threat sustainability of the projectachievements, is mostly a result of the current macroeconomic situation which, in additionof being a factor exogenous to the project, is showing signs of some improvement already.The exchange rate has remained stable for the last quarter of 1999 as result of somemeasures - though not sufficient - taken by GOL. If this trend continuous (the GOL iscurrently in dialogue with IMF and a PRGF mission is scheduled for February/March,2000), even project sustainability could be rated as likely in the future (para. 38).

16. The satisfactory outcome rating of the ICR differs from the unsatisfactory DOrating of the last supervision report in that the ICR rating, as explained above, is anassessment that the Project achieved most of its major objectives albeit EdL's financialweakness, which has been the result of exogenous factors to the Project and a conditionaffecting the Project at the time it was substantially completed. The supervision rating, onthe other hand, focused on EdL's finances and the prolonged macroeconomic crisis asmajor "threats" to both the development objectives of ongoing projects and the viability offuture power lending operations. In this regard, the unsatisfactory rating of the lastsupervision mission is a forward looking view of the sustainability of the Project ratherthan an assessment of the actual achievements of the Project's objectives. Since then, therehave been some signs of recovery (e.g. the Kip has strengthened and remained stable forthe last three months) that, although not clearly sustainable, justify a less pessimistic viewof the project. It's also important to note that the Project had already achieved significantbenefits (namely, rural electrification and institutional strengthening) before EdL's financesbecame a serious threat to project sustainability.

Summary of Findings, Future Operations and Key Lessons Learned

17. Project Sustainability. The project's achievements, although substantial in termsof expansion of electricity to rural areas and institutional development of EdL, may not besustainable if country macroeconomic conditions (i.e. rapid devaluation of the Kip and

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triple-digit inflation) are not stabilized and continue affecting EdL's precarious financialsituation. The lack of Government actions to support financial restructuring of EdL is alsoa factor which casts doubts on the Government's commitment to support an effectivecommercialization of EdL (para. 28-30).

18. Future Operations. Given the current financial breakdown of EdL andmacroeconomic instability, preparation of any future operation is halted until a moresustainable economic environment is present and actions have been taken to put EdL backinto the path of recovery (para. 39-40)

19. Key Lessons Learned. The most important lessons to be drawn from theexperience in implementing the Project are the following (para. 41):

(a) Borrower's involvement, not only during the signing and approval of the project,but also during project implementation is key for an effective collaboration betweenBorrower and IA. The Bank could play an important role to promote this collaboration byensuring Borrower's representation during Bank's missions, project visits and majorproject events.

(b) when an ongoing operation is used to provide supplemental financing for technicalstudies associated to potential future operations, this supplemental financing should beassigned only after ensuring that sufficient funds are available for ongoing activities underthe project.

(c) when there is more than one implementing agency for the execution of the project,individual project agreements between each Implementing Agency and the Bank should beprovided. This will improve efficiency in the management and accounting of loan fundsand increase accountability from each Implementing Agency.

LAO PEOPLE'S DEMOCRATIC REPUBLICPROVINCIAL GRID INTEGRATION PROJECT

(C2425-LA)

PART I. PROJECT IMPLEMENTATION ASSESSMENT

A. STATEMENT/EVALUATION OF PROJECT OBJECTIVES

1. Background. The Bank Group has had sporadic involvement in the Lao powersector since the late 1960s. In 1982, IDA provided a US$15 million Credit to finance PhaseIII of the Nam Ngum Hydroelectric project (Cl 197-LA), the major power export facility inthe country. IDA's involvement in this project was an important catalyst for formalizing abroadly revised power sales agreement between the Lao PDR and Thailand. In 1987, aCredit of US$25.8 million was approved to finance the implementation of the SouthernProvinces Electrification (SPE) project (CI826-LA), which itself was the transmission anddistribution component of a broader program to develop electricity resources and supply inthe southern provinces. The Xeset Hydroelectric project, financed by ADB, UNDP and theSwedish International Development Agency (SIDA), provided the generation componentof that regional program.

2. The Provincial Grid Integration (PGI) project was conceived as an extension of theSPE project to increase the availability of electricity to developments in the Southern andCentral regions of the Lao PDR and continue the institutional development of EdL. In1990, EdL retained the services of the project management consultant assisting EdL underSPE to identify and prepare projects for the further electrification of (i) the centralprovinces of Savannakhet, Khammouane and Bolikhamxay; (ii) the southern provinces ofChampassak, Saravane, Sekong and Attopeu; and (iii) the Sanakham District of VientianeProvince. The consultant's finalized report of the investment program for each of the aboveprovinces constituted the basis of the PGI project.

3. Project Objectives. As stated in the Bank's SAR, the objectives of the ProvincialGrid Integration project were: (i) extending electricity supply to more consumers in theSouthern and Central Regions of the Lao PDR, including areas within the provinces ofChampassak, Saravane, Sekong, Savannakhet, Khamrnouane, and Bolikhamxay; (ii)enhancing the quality of supply for existing consumers in those provinces; (iii) improvingEdL's system efficiency; (v) continuing EdL's institutional development; and (iv)developing additional power export prospects for the Lao PDR.

4. The above objectives were to be achieved through the implementation of thefollowing components:

(a) Central Region Electrification. Construction of (i) a new 115kV double-circuitoverhead river crossing line with associated substation at Savannakhet, and a new22kV double-circuit overhead river crossing line at Thakhek to interconnect with theTai grid; (ii) new 22kV single-circuit overhead river crossing lines to interconnect withthe Tai grid at Se Bang Fai and Paksane, each with an associated 22kV substation; and

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(iii) extension of the 22kV distribution networks in Savannakhet, Khammouane andBolikhamxay provinces.

(b) Southern Region Electrification. Extension of the 22kV distribution networks inSavannakhet, Khammouane, and Bolikhamxay provinces;

(c) Improving System Efficiency. (i) Implementation of an action program for EdL tomonitor and reduce system losses, increase collections, and improve the billingpractices in the Vientiane area and its provincial subsidiaries; and (ii) provision andinstallation of equipment and materials (including spare parts) to strengthen EdL'soperation and maintenance services, particularly at its provincial subsidiaries;

(d) EdL's Institutional Development. Provision of equipment, material and services, andtechnical assistance for upgrading the skills of EdL's staff and its training capabilities;and

(e) Future Project Development. Preparation of a feasibility study and design study for(i) the installation of additional capacity at the Nam Ngum hydro station, together with(ii) any needed strengthening of the transmission line form Nam Ngum to the Thaiborder.

5. Although the Project did not explicitly included a financial objective, it included anumber of conditions to ensure EdL's continued financial viability. It was clear that EdLwould require substantial tariff increases to cover not only the cost of its domestic sales,but also its spiraling debt service requirements and major capital expenditures. To ensurethat EdL would take actions in this regard, EdL was required to comply with the followingconditions prior to project negotiations: (a) increase electricity rates to at least the cost ofsupply; (b) write off arrears that were more than three years old and thus deemeduncollectible; and, (c) levy charges on consumers currently unbilled. EdL complied withall conditions. In addition, the following financial covenants were agreed upon: (a) EdL togenerate funds from internal sources equivalent to not less than 20% of the annual averageof EdL's capital expenditure; (b) EdL to maintain a debt service coverage ratio of 1.1; (c)GOL to take measures, including increase of EdL electricity tariffs, necessary to enableEdL to meet its 1.1 debt service ratio; and (d) GOL to complete an action program (byApril 30, 1994) satisfactory to IDA, to decrease EdL receivables from Governmentagencies. Compliance with these covenants is explained under Section B of this report.

6. The Project objectives were realistic and consistent with the Government's sectorstrategy of improving the infrastructure in the Lao PDR's southern and central region,(where economic activities and growth were expanding), supporting institutionalstrengthening of the national electric utility; and continued progress towards a market-determined price system. The Project was also consistent with the Bank's CountryAssistance Strategy which called for financing critical needs in physical infrastructure thatwill yield substantial benefits to the economy and society and generate expanded economicgrowth. The key infrastructure investments included communication, transport,electrification, power generation and water supply. The Project was instrumental for

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promoting the integration of Lao electric load centers with the Thai grid, therebyminimizing the cost of providing service to those localities while optimizing electricityexports to Thailand.

7. The Project was very clear in setting specific outcomes for each of its developmentobjectives and establishing key implementation indicators. The Project was neithercomplex nor demanding for the implementing agency, mainly because EdL had alreadygained experience during the implementation of the two ADB-financed Vientiane PlainRural Electrification (VPRE) projects and the SPE project.

B. ACHIEVEMENT OF PROJECT OBJECTIVES

8. Overall Results. Overall, Project objectives were achieved and the Project resultedin substantial benefits for the rural population of the central and southern regions of theLao PDR. The Project provided electrification to villages in the central and south provincesof Laos where the standard of living, consumption of consumer goods and commercialactivities have increased substantially. In addition, the Project provided a comprehensivetechnical assistance program and consulting services for EdL to support its institutionaldevelopment. A detail assessment of each of the Project objectives follows.

9. Extending Electricity Supply. This objective was substantially achieved. Allphysical targets were met as or above planned (Table 5). A total of 33, 478 householdswere electrified under the Project compared with 14,138 households estimated duringappraisal (over twice the original target).

10. Original targets were exceeded substantially as a result of a large increase in thedemand of electricity from non-electrified villages which were attracted by the benefits ofvillage electrification (such as improvements in quality of life and children's education,more entertainment facilities, and income generating activities). EdL could respond to theincreased demand for services by achieving low bid costs for most items and requiring that(a) the beneficiary contribute 30% of the cost of 22kV spur line, transformer anddistribution investments before start of construction, and (b) at least 60% of villagehouseholds agree to pay house wiring and connection fees before the system is energized.In some cases, villages were so willing to have electricity that they collected funds amongthemselves to finance 100% of the distribution equipment and paid EdL for installationonly.

11. Improving System Efficiency and Quality Supply. Under this objective, theProject aimed to continue the loss reduction program started under the SPE and extend it tothe service areas of EdL's provincial branches. An action plan for an extended lossreduction program was agreed with EdL during appraisal. This action plan included twomajor activities: (a) check consumer installation and replace metering arrangements; and(b) implement a program to decrease EdL's receivables from Government agencies. Part(a) of the action plan was implemented only in Vientiane and with long delays, and part (b)was not implemented. Therefore, achievement of this objective has been partial and belowexpectations. Of the approximately 30,000 meters and associated reinforcement to beinstalled under the project according to appraisal estimates, EdL had procured and installed

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23,000 meters (about 77% of the original estimate). Replacement of old and faulty metersand better monitoring of system losses have resulted in the reduction of transmission anddistribution losses in the Vientiane area from 24% in 1995 to 19% as of mid 1999.Distribution losses in the provinces is not reported in the ICR because the loss reductionprogram action plan was implemented in the Vientiane area only (which holds about 80%of the total domestic consumption), and EdL could not provide. this data on a timely basis(since each province keeps their own records of data independently). Under the lossreduction program, EdL also acquired tools, vehicles, radio equipment, and atelecommunications system which has facilitated EdL's capability to monitor system lossesand improved communications within the central and southern regions as well as betweenVientiane headquarters and key locations within the provinces.

12. With regard to non-technical losses, the Government failed to assist EdL with theimplementation of a program to reduce Government arrears resulting in a substantialincrease of accounts overdue from government organizations (para. 17). To eliminate thesearrears, Ministry of Finance agreed, under the Performance Contract signed in 1998between MIH, EdL and MOF to permit EdL to offset the amounts owed by Governmentagencies against EdL's tax remittances to MOF (para. 17). However, this action has notbeen fully implemented and remains an issue of concern that is being addressed underEdL's financial restructuring plan (para. 18). Billing and collection from residentialaccounts, however, is less problematic than from Government agencies. During its visit toEdL's branch at Bolikhamxay, the mission was informed by EdL staff that collection ratein this province is about 95%, largely due to the strict enforcement on overdue accounts(service is disconnected after a month of unpaid service) and the introduction of acomputerized billing system (financed under SPRE project). This indicates a realcommitment from the provinces to monitor and reduce system losses and increase theircollection efficiency.

13. The construction, under the Project, of three overhead river-crossing lines (atSavannakhet, Thakhek, and Se Bang Fai) to interconnect with the Thai grid have increasedthe quality of power supply from the Thai grid and assisted with the development of theprovinces. In addition, EdL will start monitoring the quality of services by recordinginterruptions at the consumer level (scheduled and accidental outages) on a quarterly basis.

14. Continuation of EdL's Institutional Development. The institutional objective ofthe Project was achieved in that EdL's staff skills and training capabilities were upgradedthrough the implementation of several technical studies and training activities and EdL'sorganization was restructured into cost and profit centers. During appraisal, it was agreedthat the project's institutional development would include the following activities: (a) aFinance, Accounting and Computerization Consultancy, that would train finance staff atheadquarters and provincial subsidiaries, and assist them in implementing EdL'saccounting systems and financial processes; (b) an Organization and Management Study;that would continue the work begun under SPE to develop the policies, regulations,systems, procedures and guidelines needed to enable EdL to function as decentralizednational utility; (c) a Computerized Rural Electrification Planning System that wouldprovide for computer hardware and software and associated TA to assist EdL in screening,

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ranking and appraising rural electrification investments; and (d) a Training UpgradingProgram, that would include (i) the provision of equipment and tools; (ii) the services oftraining experts; (iii) short-term secondments and external training; and (iv) a "technicalcooperation arrangement" with Tenaga Nasional Berhad (TNB) of Malaysia. The statusand achievement of each of the above activities follows.

* Finance, Accounting and Computerization Consultancy. The computerizationconsultancy was dropped from the Project as it was agreed to wait for therecommendations of the ADB-sponsored Corporate Planning Study which wasexpected to recommend new computer system requirements for EdL to support itsproposed reorganization into profit centers. It was agreed, however, to include thecomputerization component under the SPRE project. Consulting services on financialmanagement and accounting systems, including the hiring of a Resident FinancialManagement Advisor in November 1997, helped EdL to improve their billing andcollection systems and accounting procedures, and to establish a new annual standardbudgeting system. The Project also assisted EdL with the selection and hiring of anindependent accounting firm to review and audit EdL's financial statements and projectaccounts for FY97 and FY98.

* Organization and Management Study. After a slow start, mainly because EdL'sdecision to delay its reorganization, a study on management inforrnation systems begunin 1996 and completed in 1997. However, the main recommendations with regard toEdL's organization and management structure came from the Resident FinancialManagement Advisor Study, which recommended to restructure the company by costand profit centers (Generation and Retail Distribution). Based on the recommendationsof this study, EdL implemented a revised Senior Management Corporate structureunder which Generating Stations and Distribution Branches were operating as separateprofit centers with their own Profit & Loss accounts and balance sheets. Theorganization chart of EdL at the time of project appraisal and the current one are shownin Annex G. The profit and cost center structure which was established and becameoperational from January 1, 1998 is shown in Annex H.

* Computerized Rural Electrification Planning System. With the exception of thepurchase of computer hardware and software, this technical assistance was notimplemented under the Project.

* Training Upgrade Program. The EdL/TNB technical cooperation to enhance EdL'smanagement and technical skills was successfully completed with a total of 25 coursesand 167 EdL staff trained. A total of 23 training sessions representing over 3100 staff-weeks of training were held in Vientiane on engineering economics, finance, audit andhydropower technology. A lecture program given as a part of the loss reduction studyand accounting procedures was very useful and generated interest and enthusiasmamong EdL staff both from Vientiane and the provinces. Purchase of equipment andthe services of training experts to be financed under the project was financed instead

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from a French grant that EdL received to support activities under the training centerupgrading program..

15. Developing Additional Power Export Prospects. A feasibility study for theinstallation of additional capacity at the Nam Ngum hydro station was carried out under theProject as planned. The bid price for this project, however, resulted in about US$3 millionabove the original estimates. This higher cost, combined with the lower electricity pricesoffered by EGAT made the expansion of Nam Ngum economically unviable. Therefore,Project savings from the rehabilitation of Nam Ngum were reallocated to the procurementof goods for distribution extension and additional technical assistance for the Nam TheunII hydroelectric project, a project offering the potential to increase considerably powerexports.

16. EdL's Continued Financial Viability. EdL's financial situation is extremely weakand continues to worsen, primarily because of the continued unstable macroeconomicconditions and in particular, the further and rapid devaluation of the Kip to the US$.During the early stages of the crisis in December 1997, the Kip was hovering around 2,000to the US$, however, at the end of November 1999, the Kip had sunk to 7,700. Thedevaluation resulted in a sharp jump in EdL's operating expenses (by about 57%); interestexpense payments (105%); and foreign exchange losses (a gain of Kip 5 billion in FY96reverted to a loss of Kip 14 billion in FY98). Therefore, despite the tariff increase that tookeffect in February 1999 which provided for an initial increase of 100% plus an escalationof 3%-3.5% per month (para. 19), this increase is insufficient to fully offset the nearly 6%average devaluation per month of the Kip. In addition, EdL has not succeeded in reducingcosts by controlling operating costs and electricity losses and by improving laborproductivity. As a result, the operating ratio (total operating expenses as a percentage oftotal revenues) weakened from 68% in FY97 to 78% in FY98.

17. Compliance with Financial Covenants. EdL has not met the 20% self financingtarget since 1993, and reported a net loss of Kip 7.4 billion in FY98. Although EdL's debtservice ratio of 1.48 is well above the 1.1 ratio covenant agreed under the Project, EdL isnot generating sufficient revenues from operations (mainly because actual electricity tariffsdo not cover the full cost of supply). In addition, the devaluation of the Kip, whichcompounded debt service requirements, constrained EdL from internal finances needed tomaintain, restore, or expand its systems. IDA and GOL agreed also in a covenant by whichGOL committed itself to complete an action program to decrease EdL's receivables fromgovernment agencies over a two-year period. EdL's proposal was to reduce the level ofarrears by offsetting the amounts more than 30 days overdue from taxes payable by EdL toMOF. The Ministry of Finance would then reduce its budgetary allocations to therespective agencies by the amount of their overdue accounts receivables. This program wasnot implemented under the Project, resulting in a 400% increase in the amount ofaccounts overdue from government organizations since 1997 (from Kip 1.6 billion to Kip8.6 billion as of December 31, 1998 in current terms). Compliance with this program,however, continues to be monitored under the Performance Contract signed on January 8,1998 between EdL and MIH and EdL's Financial Recovery Plan.

7

18. Financial Recovery Plan. In September 1998, EdL proposed to the Government acomprehensive Financial Recovery Plan to restore its financial health over the periodFY99-01. The elements of the plan include actions to be undertaken by EdL and theGovernment. The actions proposed to the Government included: (i) to raise the level oftariffs from a minimum of K 145/kWh (US$ 3.2 cents - the tariff that would meetdistribution costs) to a maximum of K 310/kWh (US$ 7 cents - the tariff that wouldachieve IDA's SFR covenant); (b) to assume the impact of foreign exchange losses onEdL's existing foreign loan obligations; (c) to offset the amounts owed by the GOLagencies against EdL's tax remittances to the Government; and (d) to convert US$31million EdL's debt to equity. The actions to be taken by EdL included: (a) increaserevenues by implementing a revised tariff schedule; (b) reduce costs by controllingoperating costs and electricity losses, and improving labor productivity; and (c) reduceworking capital needs by curtailing inventory levels, and improving its billing andcollection performance. EdL has taken actions on tariffs, costs, system losses andcomputerization of billing systems.

19. Out of the above actions to be taken by the Government, only increases in domestictariffs has been implemented by far. A revised tariff schedule became effective onFebruary 1, 1999 by which average tariffs increased from about K 52/kWh(US$1.2cents/kWh) to K 105/kWh (US$2.5 cents/kWh). Thereafter, monthly increaseswill apply of 3-3.5% for the next 3 years (detailed tariff schedule is shown in Annex D)Although these increases indicate Government willingness to raise domestic ratessubstantially to offset in large part the impact of devaluation of the Kip, they may not besufficient to fully offset likely further devaluation of the Kip over the next 3 years andhence, further increases are needed if IDA's financial covenants are to be met in the nextfew year. During the February 1999 supervision mission, IDA strongly recommended theGovernment to approve the remaining measures to support financial restructuring of EdL(assumption of EdL's foreign exchange losses, conversion of EdL debt to equity, offsetaccounts receivables owed by government agencies) and approve the revaluation of EdL'sfixed assets to reflect the actual value of assets and improve EdL's balance sheet position.The mission also requested the Government to adopt the use of international accountingstandards for treating any future foreign exchange losses/gains by bringing them to accountas an expense or income at the end of each fiscal year (however, National Accounting Law,establishes the use of local accounting standards); and to review EdL's accountingpractices, which substantially misstate its commercial condition. To date, the Governmenthas shown very little action to support financial restructuring of EdL, and has left theFinancial Recovery Plan on hold for over nine months. IDA has advised the Governmentthat if no progress is achieved by June 2000, IDA should consider declaring theGovernment and EdL in default of its financial obligations and, consequently, suspendfurther disbursements from the ongoing SPRE project (para. 31).

20. Economic Internal Rate of Return (EIRR). The ex-post EIRR was recalculatedusing the same economic cost/benefit analysis adopted at project appraisal for eachselected project area, but there are differences in the regional breakdown of provincesbecause of the way data were handled at project implementation. Since costs are based inactual data, the supply cost in the ex-post analysis differs from the one used in the SAR in

8

that actual values for export prices were higher than foreseen for the period 1995-1999 andslightly lower thereafter. The benefits have been estimated on the basis of willingness topay for energy following the same methodology of appraisal. The result of the ex-postanalysis is a higher range of EIRR, from 21 to 46%, than the range of 10-21% estimated atappraisal (Table 9). The main reason for such high values is due to the fact that the projectwas able to reach a much larger number of households while project costs remain withinbudget.

C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTINGTHE PROJECT

Implementation Record.

21. Overall, implementation of the Project was carried out satisfactorily. After initialdelays in procurement and project management coordination, the Project was implementedsatisfactorily. The Credit Agreement was amended twice (first, on April 6, 1995 and lateron November 6, 1995) to allow for the provision of specialized services and technicalstudies in connection with the proposed Nam Theun II hydroelectric project. As a resultof these amendments, the total allocation of loan funds for Consultants' Services andTraining category was increased from the original estimate of SDR2.9 million to SDR4.3million. Although, some of the additional funds allocated to Nam Theun II came from loansavings due to low bid costs, there were instances where certain project activities (i.e.system efficiency equipment) had to be curtailed to provide for further financing for NamTheun II. By Project completion, an amount of US$2.6 million had been disbursed againstthis component.

22. EdL showed adequate project management and technical capabilities to carry outimplementation of the Project. Counterparts funds were always available. In January, 1997,mid-way during project implementation, the Project was retrofitted with key performanceindicators using the logical framework to measure progress in accordance with the Projectobjectives. Annex F shows the logframe used for retrofitting the project.

23. The credit closing date was extended one year from its original date of June 30,1998 to June 30, 1999 in order to complete additional extensions of electricity supply inthe provinces of Khammouane and Champassack and to allow completion of consultancyservices for the Nam Theun II project. Disbursements under the credit totaled SDR24.5million equivalent compared with the original credit amount of SDR25.3 millionequivalent. The undisbursed balance of about SDRO.8 million will be canceled after thebalance in the Special Account is fully recovered.

24. Project Costs. The estimated Project cost at appraisal, based on late 1991 prices,was US$ 45.1 million, of which: (a) US$ 36 million was to be financed by the Association,(b) US$ 2.2 million to be financed by EGAT; and (c) US$ 6.9 million to be financed byEdL. The actual Project cost was US$ 43.3 million (excluding IDC) which is slightly lower(by about 4%) than the appraisal estimate. The lower cost was achieved mainly becauselower bid costs for most of the equipment and installation.

9

25. Audit and Financial Reporting. EdL's compliance with audit covenants was onlypartial as the quality and scope of the audits was very limited. Although, EdL's financialstatements were audited by the Minister of Finance, the audit did not provide an auditor'sopinion nor include the audit of project expenditures. Because of lack of qualifiedaccounting staff, IDA agreed to review the Special Account and carried out the audit forpurposes of compliance with the legal covenants. It was only in 1998 that EdL, withproject financing, hired an external international accounting firm (Price WaterhouseCoopers) to produce a compilation report for 1997 accounts, and full audits for FY98 andFY99, including SOE and the Special Account. The compilation of EdL corporate accountsfor FY97 was submitted to IDA in December 1998, and the full audit for FY98, inDecember 1999. The latter is still under IDA's review.

26. Environment. The Project did not pose any environmental problems since thesystem expansion and efficiency improvement of power supply involved construction oflow voltage networks along existing infrastructure in sparsely populated areas. EdL wasrequired to screen components for potentially adverse environmental effects, and arrangefor any needed mitigatory measures to be developed. The Project was rated category B andthus, it did not require a separate EA report.

Major Factors Affecting the Project.

27. EdL's financial woes started in 1995 as a result of the increasing need for domestictariff adjustments to cover the full cost of supply. In 1996, IDA carried out a review ofEdL's finances which highlighted the need to increase domestic rates. Without any tariffincrease during 1996, EdL's financial situation deteriorated even more. In April, 1997, afinancial supervision mission visited EdL to discuss the status of EdL's compliance withthe financial covenants under the Project, and provide recommendations for improving thecompany's financial situation in preparation for the proposed Southern Provinces RuralElectrification (SPRE) project (Credit 3047-LA). It was concluded then, that unless EdLwould take specific actions to improve it's financial status, the SPRE project could not beprocessed. Therefore, EdL and GOL took several measures to improve EdL's financialconditions, including tariff increases, restructuring EdL's debt and signing a PerformanceContract with GOL. The implementation of these measures paved the way for negotiationsof the SPRE project and its final approval by the Board on March, 1998. It was expectedthat EdL would achieve full compliance with its financial covenants during theimplementation of the SPRE project, but the regional crisis in 1997 affected EdL'sfinances deeply and washed away all expectations for its financial recovery (paras. 16-19).

D. PROJECT SUSTAINABILITY

28. The project's achievements, although substantial in terms of expansion ofelectricity to rural areas and institutional development of EdL, may not be sustainable ifcountry macroeconomic conditions (i.e. rapid devaluation of the Kip and triple-digitinflation) are not stabilized and continue affecting EdL's precarious financial situation.

10

29. The lack of Government actions to support financial restructuring of EdL is also afactor which casts doubts on the Government's commitment to support an effectivecommercialization of EdL and has prompted IDA to advise the Government that if noactions are taken to improve EdL's financial situation by June 2000, IDA should considerdeclaring the Government and EdL in default of their financial obligations and,consequently, suspend further disbursements from the ongoing SPRE project.

30. In view of the above, the implementation of a follow-up operation (the SPREproject) whose objectives include the expansion of the rural electrification program andfurther strengthening of EdL's capacity to operate on a commercial basis, is not sufficientto ensure that the PGI project will maintain the achievements generated up to now.

E. BANK PERFORMANCE

31. Overall, the Bank's performance during this project is rated as satisfactory. Theidentification and preparation of the project were carried out smoothly and capitalized onthree factors: (i) EdL's experience with implementation of the SPE project; (ii) technicalassistance provided under SPE to assist EdL with preparation of PGI; and (iii) theincreasing demand of rural electrification in line with the government's poverty alleviationprogram.

32. Bank's appraisal of the project is considered highly satisfactory since the Bankprovided considerable assistance to the Borrower in both the technical, institutional andfinancial aspects of the project. The Bank kept continuous communication with EdL duringthis stage of project preparation and made itself readily available for further assistance.

33. Project supervision is also considered highly satisfactory. The Bank carried out atotal of 15 visits to the field to review implementation of the project, of which 8 wereaccompanied of supervision reports (and thus, recorded in the system as full supervisionmissions). Since early 1996, all the field supervisions were conducted in combination withthe preparation of the SPRE project.

34. Also, during project implementation, the Bank assisted EdL with the audit reviewof the Special Account and accompanying Statement of Expenditures (S GE) in lieu of anindependent auditor acceptable to IDA. The documentation was found to be internallyconsistent and generally in keeping with accepted accounting principles

F. BORROWER PERFORMANCE

35. The Government of Lao PDR, as the Borrower of the Project, showed a stronginterest in the Project during preparation and appraisal, however, its performance duringproject implementation is rated unsatisfactory because of its lack of action to supportEdL's financial restructuring plan and commitment toward the sustainability of the projectobjectives.

I1

36. Performance of EdL, as the Implementing Agency of the Project, can beconsidered satisfactory from project preparation to project completion. EdL hasdemonstrated its commitment and ownership of electrification projects through itssuccessful 10-year collaboration with IDA. It has established a Projects Office dedicated toimplementing donor-financed projects, which is staffed with experienced engineers whomanage procurement, disbursement and implementation and has appointed a full-timeProjects Manager. During project preparation, EdL worked closely with consultants toprepare the detailed engineering design and project implementation plan. EdL along withGOL took key actions that enable the approval of the PGI project, such as, tariff increases,writing off Government arrears, and levying charges to previously unbilled consumers.EdL was successful in arranging the details of a technical cooperation with TNB andtraining program for its staff.

37. For most of project implementation, EdL performed satisfactorily. Lack ofcompliance with the financial covenants (para. 17) was the result of exogenous factors toEdL. However, there were two areas, both under EdL's direct control, where performancewas not satisfactory: (a) implementation of the Loss Reduction Program; and (b) delays inhiring qualified full time accountants to assist EdL in preparing forecast financialstatements. These two shortcomings are being addressed under the SPRE project. Theintroduction of a computerized billing system is being implemented, and in late 1998, EdLengaged the services of consultants to implement a new financial planning model.

G. SUMMARY ASSESSMENT OF OUTCOME

38. Given the facts that the project objectives were overall achieved, the projectresulted in substantial benefits for the rural population of the central and southern regionsof the Lao PDR, and project implementation was carried out satisfactorily from a technicaland cost viewpoints, the outcome of the project is rated satisfactory. This rating is givenmainly on the basis of the actual results achieved under the project and EdL's commitmentto the objectives of the project. EdL's precarious financial conditions, although significantenough to threat sustainability of the project achievements, is mostly a result of the currentmacroeconomic situation which, in addition of being a factor exogenous to the project, isshowing signs of some improvement already. The exchange rate has remained stable forthe last quarter of 1999 as result of some measures - though not sufficient - taken by GOL.If this trend continuous (the GOL is currently in dialogue with IMF and a PRGF mission isscheduled for February/March, 2000), even project sustainability could be rated as likely inthe future.

39. The satisfactory outcome rating of the ICR differs from the unsatisfactory DOrating of the last supervision report in that the ICR rating, as explained above, is anassessment that the Project achieved most of its major objectives albeit EdL's financialweakness, which has been the result of exogenous factors to the Project and a conditionaffecting the Project at the time it was substantially completed. The supervision rating, onthe other hand, focused on EdL's finances and the prolonged macroeconomic crisis as

12

major "threats" to both the development objectives of ongoing projects and the viability offuture power lending operations. In this regard, the unsatisfactory rating of the lastsupervision mission is a forward looking view of the sustainability of the Project ratherthan an assessment of the actual achievements of the Project's objectives. Since then, therehave been some signs of recovery (e.g. the Kip has strengthened and remained stable forthe last three months) that, although not clearly sustainable, justify a less pessimistic viewof the project. It's also important to note that the Project had already achieved significantbenefits (namely, rural electrification and institutional strengthening) before EdL's financesbecame a serious threat to project sustainability.

H. FUTURE OPERATIONS

40. The Southern Provinces Rural Electrification (SPRE) Project (Cr. 3047-LA) wasapproved in March, 1998 and became effective in August, 1998. This project will continuethe extension of distribution networks in rural areas that started under the SPE and PGIprojects, and will support the GOL in formulating its power sector strategy. Thedevelopment objectives of SPRE project are two: (a) expand rural electricity service in 7central and southern provinces of Lao PDR, where economically justified, through gridextension and off-grid electrification; and (b) strengthen EdL's capacity to plan andimplement electrification investments and to operate on a commercial basis.Implementation progress of the SPRE project is satisfactory but the continued financialcrisis of EdL has become a serious threat to the project's development objectives.Therefore, this project is currently rated unsatisfactory in the achievement of itsdevelopment objectives.

41. Given the current financial breakdown of EdL and macroeconomic instability,preparation of any future operation is halted until a more sustainable economicenvironment is present and actions have been taken to put EdL back into the path ofrecovery.

I. KEY LESSONS LEARNED

42. The most important lessons to be drawn from the experience in implementing theproject are as follows:

(a) Borrower's involvement, not only during the signing and approval of the project,but also during project implementation is key for an effective collaboration betweenBorrower and IA. The Bank could play an important role to promote this collaboration byensuring Borrower's representation during Bank's missions, project visits and majorproject events.

(b) when an ongoing operation is used to provide supplemental financing for technicalstudies associated to potential future operations, this supplemental financing should be

13

assigned only after ensuring that sufficient funds are available for ongoing activities underthe project.

(c) when there is more than one implementing agency for the execution of the project,individual project agreements between each Implementing Agency and the Bank should beprovided. This will improve efficiency in the management and accounting of loan fundsand increase accountability from each Implementing Agency.

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PART II. STATISTICAL TABLES

Table 1: Summary of Assessments

A. Achievement of Objectives Substantial Partial Negligible

Macro Policies l Ill ElSector Policies [ FgFinancial Objectives El Il lInstitutional Development E3 al

Physical Objectives El D ElPoverty Reduction El El F]Gender Issues El El El I3Other Social Objectives F] F] E3Environmental Objectives Fl [] F]Public Sector Management F F F]Private Sector Development E] F] F]Other (specify) El ] ElE

B. Project Sustainability Likely Unlikely Uncertain

al [ C. Bank Performance Highly Satisfactory Satisfactory Deficient

Identification [] ElPreparation Assistance F E3]

Appraisal FI ° E1Supervision i: 0l

D. Borrower Performance Highly Satisfactory Satisfactory Deficient

Preparation F] WI F]Implementation - Physical F] El

- Institutional a °Covenant Compliance F1 F]Operation (if applicable) E3

Highly Highly

E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory

[1 WI [1 0

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Table 2: Related Bank Loans/Credits

Loan No. Purpose Year of Statusapproval

Preceding operations1. Cr. 1197-LA Rehabilitation of units 3 and 4 of Nam Ngum 1982 Completed.Nam Ngum III Hydroelectric Project

2. Cr. 1826-LA Provision of infrastructure for electricity supply in the 1987 CompletedSouthern Provinces southern provinces and institutional strengthening ofElectrification EdL.

Following Operations1. Cr. 3047-LA Expand rural electricity service in 7 central and southern 1998 OngoingSouthern Provinces provinces of Lao PDR and strengthen EdL's capacity toRural plan and implement electrification investments and toElectrification operate on a commercial basis.

Table 3: Project Timetable

Steps in Project Cycle Date Planned 1/ Date Actual/Latest Estimate

Identification (Executive Project Sunmmary) n.a. January 8, 1991

Preparation n.a. Nov/90 to Nov/91

Appraisal August 1991 November 5-12, 1991

Negotiations April/May 1992 July 27-29, 1992

Board Presentation July 1992 October 6, 1992

Signing September 1992 December 23, 1992

Effectiveness November 1992 July 6, 1993

Midterm review (if applicable) Not applicable Not applicable

Project Completion December 1997 June 30, 1999

Loan Closing June 30, 1998 June 30, 1999

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Table 4: Credit Disbursements: Cumulative Estimated and Actual(SDR million)

FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00

Appraisal Estimate 0.60 2.74 7.5 13.9 19.4 23.4 25.3 25.3

Actual 0.0 0.9 6.4 8.6 18.8 22.0 24.2 24.5

Actual as % of Estimate 0.0 32.8 85.3 61.9 96.9 94.0 95.6 96.8

Date of Final Disbursement November 19, 1999.

(An undisbursed balance of SDR 820,353 million will be canceled afterthe balance in the Special Account is fully recovered).

Table 5: Key Indicators for Project Implementation

22 kV 0.4 kV 22 kV 22 kV/ Villages to Householdsmedium distribu- sub- 0.4 kV be to bevoltage tion lines stations transfor electrified electrified

Provinces and spurs (km) (no.) mers (no.) (no.)(km) (no.)

Champassak SAR 323 370 108 108 5,912

Actual 351 168 96 102 9,899

Saravane SAR 119 54 17 17 793

Actual 148 166 56 70 5,024

Savannakhet SAR 102 138 44 44 1,950

Actual 254 214 101 101 8,077

Khammuane SAR 197 296 1 92 92 4,354

Actual 231 243 1 130 133 6,987

Bolikhamxay SAR 75 78 1 24 24 1,129

Actual 107 85 1 33 33 3,491

Total SAR 816 936 2 285 285 14,138

Actual 1,091 876 2 416 439 33,478

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Table 6: Key Indicators for Project Operation

Note: No indicators for project operations were included in SAR/President's Report. However, someindicators were retrofitted during project implementation as shown in Annex F.

Table 7: Studies Included in Project

Purpose as Defined at Impact ofStudy Appraisal/Redefined Status Study

1. Organization & To assist EdL to put in Study was not Major recommendations with regardManagement place an organizational carried out as to EdL's organization andStudy structure (as recommended expected because management structure came from the

by the O&M study funded of EdL's decision Resident Financial Managementunder SPE and approved by to delay its Advisor Study, namely, toGOL in 1991)and reorganization. restructure the company by cost andprocedures that will permit Instead, profit centers. Based on thethe entity to achieve the recommen-dations of this study, EdLfnancial targets and implemented a revised Seniordevelopment objectives of Management Corporate under whichits investment program for Generation Stations and Distribution1991-2000. Operations were established as profit

centers.

2. Accounting and To assist EdL in the Completed. Scope Consulting services on financialFinance Study preparation of annual of the study was management and accounting

accounts and financial revised to systems, including the hiring of areports and their incorporate Resident Financial Advisor, haspresentation to the recommendations helped EdL to improve their billingGovernment and lending from the ADB- and collection systems, accountinginstitutions at international sponsored procedures, and to establish a newstandards acceptable for Corporate standard budgeting system.audit by independent Planning Stuy.external auditors.

3. Feasibility Study Review of the development Completed The study provided the basis for thefor Nam Ngum plans of Nam Ngum preparation of bidding documents.Power Station Hydropower Station However, project was canceled as theExtension Extension, including: (i) bid price for this project resulted in

detailed design of the about US$3 million above the originalworks; (ii) cost estimates; estimates.(iii) preparation of a projectimplementation schedule;(iv) economic and financialanalysis of the extension;and (v) preparation of TORfor consulting services forproject implementation.

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Table 8A: Project Costs(US$M)

Appraisal Estimate Actual/Latest Estimate

Item Local Foreign Total Local Foreign Total

Provincial Electrification

Central Region Interconnect 0.00 2.21 2.21 0.02 2.06 2.08

Central Region Distribution 2.26 12.78 15.04 3.81 12.78 16.59

Southern Region Distribution 2.34 9.75 12.09 2.23 9.02 11.25

Sub-total 4.60 24.74 29.34 6.06 23.86 29.92

System Efficiency Improvement

Loss Reduction 0.15 1.50 1.65 0.34 2.84 3.18

Spare Parts, Vehicles, Tools 0.00 0.95 0.95 0.00 0.98 0.98

Micro computers 0.00 0.20 0.20 0.00 0.05 0.05

Telecommunication System 0.05 0.75 0.80 0.01 1.19 1.20

Sub-total 0.20 3.40 3.60 0.35 5.06 5.41

Institutional Development

Organization & Management 0.00 0.75 0.75 0.00 0.26 0.26

Financial & Computerization 0.00 0.50 0.50 0.00 0.36 0.36

Training Center Upgrading 0.00 2.00 2.00 0.00 0.86 0.86

Sub-total 0.00 3.25 3.25 0.00 1.48 1.48

Project Engineering

PGlandNamNgum a/ 0.03 1.80 1.83 0.00 6.42 6.42

Total Base Cost 4.83 33.19 38.02 6.41 36.82 43.23

Physical Contingencies 0.23 1.39 1.62

Price Contingencies 1.83 3.62 5.45

Total Project Cost 6.89 38.20 45.09 6.41 36.82 43.23

Interest during construction 3.80 0.40 4.20 4.29 0.00 4.29

Total Financing Required 10.69 38.60 49.29 10.70 36.82 47.52

a/including administration and supervision

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Table 8B: Project Financing(USSM)

Appraisal Estimate (US$M) Actual/Latest EstimateSource of Fund Local Foreign Total Local Foreign Total

IDA Proposed Credit 0.0 36.0 36.0 0.00 34.87 34.87

EGAT 0.0 2.2 2.2 0.00 1.95 1.95

EdL 10.7 0.4 11.1 10.70 0.00 10.70

TOTAL 10.7 38.6 49.3 10.70 36.82 47.52

Table 9: Economic Costs and Benefits

Province Appraisal Estimate Re-estimate

Economic Internal Rate of Return (EIRR)

Bolikhamxay 18.85% 18%Khammuane 20.96% 44%Savannakhet 10.11% 23%Saravan & Sekong (Southern Grid) 18.33% 33%

Note: For detailed calculations, see Annex C.

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Table 10: Status of Legal Covenants

Original RevisedAgree- Section Covenant Present fulfillment fulfillment Description of covenant Commentsment type status date date

DCA Section 3, 4, 5 CP The Borrower (i) is committed to the Borrower has not taken3.01 (a) objectives of the Project, (ii) shall cause actions on EdL's

EdL to perform according to the Project proposed RestructuringAgreement; (iii) shall take all actions, Plan while EdL'sincluding the provision of funds, financies are worsening.facilities, services and other resources, toenable EdL to carry out the project; and(iv) shall not take or permit to be takenany action which would prevent orinterfere with EdL's obligations.

Section 3, 5 C Procurement of the goods, works and3.02 consultant's services required for the

Project, and to be financed under theCredit, shall be made in accordance withthe Association's procurement guidelines.

Section 2, 11 CP Annually Borrower shall take measures, including Last tariff increase (of3.04 (a) increase of EdL electricity tariffs, 100%) took effect in

necessary to enable EdL to meet a 20% 2/99. However, thisself financing ratio and a debt service increase is insufficient tocoverage of 1. I. allow EdL to comply with

self-financing and debtservice ratios.

Section 2, 11 NC April 30, Borrower shall complete an action Not implemented. It's3.04 (b) 1994 program to decrease EdL's receivables expected, however, that

from agencies of the Borrower. under the PerformanceContract signed on 1/8/98between EdL and MIHand to be monitored underthe SPRE project, EdLmay offset Governmentreceivables against taxpayable.

Section 5 C June 30. Borrower shall cause EdL to assume the This condition of project3.04 (C) 1994 assets and liabilities of the electricity negotiations was

authorities of the Bolikhamxay and complied with.Sekong provinces.

Section I CP Nine Borrower shall furnish IDA with audit Audit reports for 19974.01 months reports of the Special Account and and 1998 were submitted

after the end Statement of Expenditures, including a to IDA on 12/15/99 with aof each FY. separate opinion, prepared in accordance qualified opinion for

with appropriate auditing principles and financial statements wereby an independent auditor acceptable to not prepared under IAS.the Association. This was the first audit

carried out by an inde-pendent auditor (PriceWaterhouse Coopers).

Project Section 5 C EdL is committed to the objectives of the EdL's performance2.01 (a) Project, and, to this end, shall carry out throughout project

the Project in conformity with appropriate implementation isadministrative, financial, engineering and considered satisfactory inpublic utility practices. spite of the precarious

situation of its financeswhich is the result mainlyof exogenous factors(currency devaluation andhigh inflation)

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Table 10: Status of Legal Covenants

Original RevisedAgree- Section Covenant Present fulfillment fulfillment Description of covenant Commentsment type status date date

Project Section 5,10 C December EdL shall employ a consultant to assist in Consultant selected:(cont'd) 2.01 (b) 31,1992 supervising implementation of the Central

and Southern Region Electrificationcomponent.

Section 6 C EdL shall furnish an Environmental Complied with.2.01 (b) Impact Assessment to IDA in the event of

any design modification in the projectthat, in the opinion of the Association,would warrant such assessment.

Section 2, 9 CP EdL shall carry out an action program to Program was partially2.01 (b) (1) monitor and reduce system losses of implemented in the

EdL's subsidiaries; (ii) increase EdL's Vientiane area only.overall collection efficiency, and (iii) Billing and collectionsimprove implementation of EdL's system improvement to becomputerized billing system, especially in implemented under SPREthe provinces. project.

Section 12, 5 CD December EdL shall carry out (i) an Accounting & EdL engaged a Resident2.01 (b) 31, 1994 Finance Study and (ii) an Organization & Financial Management

Management Study Advisor in November,1997.

Section 12,5 C EdL shall ensure implementation of the EdL was restructured into2.01 (b) above studies' recommendations taking profit and cost centres,

into consideration IDA's comments. and a new process forpreparation of an annualstandard budget wasimplemented.

Section 12 C EdL shall carry out a technical A technical cooperation2.01 (b) cooperation agreement with a power arrangement with Tenaga

utility company acceptable to IDA. Nasional Berhad (TNB)of Malaysia wassuccessfully completedwith a total of 25 coursesand 167 EdL staff trained

Section 5 C June 30, EdL shall carry out a feasibility and Complied with.2.01 (b) 1994 design study for the installation of

additional capacity at the Nam Ngumpower plant.

Section 5 NC EdL shall ensure implementation of the Implementation of the2.01 (b) above study's recommendations taking extension of Nam Ngum

into consideration IDA's comments. did not take place as bidprice for this project ofabout US$3 million aboveoriginal estimates, andEGAT's lower buyingprices, made this projectexpansion unviable.

Section 5 C Procurement of goods, works and Complied with.2.02 consultants' services financed under the

Credit shall be carried out according tothe Bank's procurement guidelines.

22

Table 10: Status of Legal Covenants

Original RevisedAgree- Section Covenant Present fulfillment fulfillment Description of covenant Commentsment type status date date

Section I C Nine EdL shall furnish to IDA the audit of its Initially, EdL's financial4.01 months financial statements prepared in and project statements

after end of accordance with appropriate auditing were certified by MOFFY. principles and by independent auditors and MIH. In 1997. EdL

acceptable to the Association. hired, for first time in itshistory, an externalinternational accountingfirm to carry out the auditof its FY97 and FY98accounts. These auditreports were submitted toIDA on December 15,1999 with since it wasfound that Edi's financialstatements were notprepared under IAS.

Section 12 C June 30, EdL shall prepare and furnish to IDA, (ii) EdL4.02 1994 EdL's proposed tariff structure policy

and (ii) measures to address issues ofEdL's supply cost differentials and size oflifeline block.

Section 2 NC Annually EdL shall produce funds from internal Due to insufficient4.03 (a) after FY92 sources equivalent to not less than 20% of revenues from domestic

the annual average of EdL's capital tariffs, and rnore recently,expenditures. to the substantial

devaluation of the Kipand lack of progress in therestructuring of EdL, theutility has been unable tocomply with the self-financing ratio sinceFY94.

Section 2 NC Annually EdL shall not incur any debt unless the EdL complied with its4.04 (a) after FY92 estimated net revenues of EdL for each debt service ratio target

FY during the term of the debt to be for FY97 and FY98.incurred is at least 1. I times the estimateddebt service requirements of EdL.

Covenant types:1. = Accounts/audits 8. = Indigenous people2. = Financial performance/revenue generation from 9. = Monitoring, review, anid reportiiig

beneficiaries 10. Project implementation Inot covered by categories 1-93. = Flow and utilization of project funds lI. = Sectoral or cross-sectoral budgetary or other resource4. = Counterpart funding allocation5. = Management aspects of the project or executing 12. = Sectoral or cross-sectoral policy/ regulatory/institutional

agency action6. = Environmental covenants 13. = Other7. = Involuntary resettlement

Present Status:C = covenant complied withCD = complied with after delayCP = complied with partiallyNC= nor complied with

23

Table 11: Compliance with Operational Manual Statements

Statement Number and Title | Describe and comment on lack of compliance

There are no OMS relevant to the Project that have not been complied with and/or been acted against.

Table 12: Bank Resources: Staff Inputs

Planned ActualStage of

Project Cycle Weeks US$(000s) Weeks USS(OOOs)

Preparation to appraisal n/a n/a 17.6 56.3

Appraisal n/a n/a 16.7 48.5

Negotiation through Board approval n/a n/a 8.4 29.0

Supervision 21.0 n/a 65.7 227.2

Completion 2.0 30.6 7.1 26.2

TOTAL 115.5 387.2

n/a: not available

24

Table 13: Bank Resources: Missions

PerformanceDays Rating

Stage of Month No. of in Specialized IP DO Types ofProject Cycle [Year Persons Field Staff Skills Problems

Through Appraisal 11/90g 7 FA, n/a n/a EdL's tariff proposal is still insufficient to meetEdL's long run needs. EdL needs to recruit andemploy a qualified full time accountant.

08/91 10 FA, n/a n/a Pricing of electricity for domestic consumption istoo low and excessive level of losses within EdL'sdistribution system.

Appraisal 11191 8 FA, PE, nla n/a A loss reduction program continues to be neededEC, OF not only for Vientiane but also for other provinces,

and EdL's tariffs need to be adjusted.

Post-Appraisal 03/92 1 5 FA n/a n/a Ensure compliance with conditions of negotiations

Supervision 08/93 1 5 FA HS HS EdL is still short of capable accounting staff.

04/94 1 5 PE S S Procurement action has been slow. Governmentconsumers are still on average 5 months behindin payment.

06/94 1 3 OF n/a n/a

07/95 1 5 OF n/a n/a

12/95 2 9 PE, OF S S EdL needs to raise domestic tariff to improvetheir finances. Implementation of TA componentis unsatisfactory.

04/96 3 11 PE, FA, n/a n/a EdL's financial statements do not conform toEC generally IAS; EdL needs to have an agreed

strategy to increase domestic rates to cover fullcosts.

06/96 1 7 OF n/a n/a Loss Reduction Program (LR.P)is movingslowly.

02/97 4 14 PE, OF, S S Implementation of the LRP needs to beFA accelerated; EdL's financial position is not

meeting expectations and financial restructuringis necessary.

04/97 2 3 FA, EC n/a n/a EdL has not met the 20% self-financing ratioand in 1996, it was unable to meet its debtservice obligations. Mission recommendedseveral actions for improving EdL's financialsituation in preparation of the SPRE project.

07/97 3 9 EC, PE, n/a n/a Additional tariff increases are required to ensureFA compliance with covenants. Program to reduce

Government arrears has not been implemented.

01/98 1 7 FA S S Project implementation is nearing completion.

25

Table 13: Bank Resources: Missions

Performance RatingStage of Month No. of Days Specialized IP DO Types of

Project Cycle [Year Persons in Staff Skills ProblemsField

Supervision 05/98 I 6 EC n/a n/a Closing date was extended by one year to June(cont'd) 30,1999.

09/98 3 8 EC, FA S S EdL's financial situation is very critical andcontinues deteriorating. EdL will likely be indefault of IDA's covenants in FY98. A financialrestructuring plan should be put in place.

02/99 3 5 EC, FA S S Devaluation of the kip has caused EdL to incurrecord net losses. GOL approved a 100% tariffincrease, but further increases are needed tomeet IDA's financial covenants.

05/99 1 2.5 EC S U The continued macroeconomic instability hasbecome a serious threat to the project'sdevelopment objectives. The GOL has beenunable to implement, with the exception of tariffincreases, any of the financial restructuringmeasures proposed by EdL and MIH.

Completion 11/99 2 5 EC, OA S U The uncertainity associated to EdL's currentfinancial status and the country'smacroeconomic conditions, casts anunsatisfactory rating in the sustainability of theproject's achievements.

Note: All supervision missions conducted after May/98 were conducted in combination with missions forother power projects, therefore, the days spent in the fields for some missions are estimates.

Specialized Skills: FA = Financial Analyst; PE = Power Engineer; EC = Economist; OF = OperationsOfficer; OA = Operations AnalystPerformance Ratings: IP = Implementation Progress; DO = Development Objectives; HS = HighlySatisfactory; S = Satisfactory

26

27

ANNEXES

ANNEX A: MISSION'S AIDE MEMOIRE

ANNEX B: BORROWER'S EVALUATION REPORT

ANNEX C: CALCULATION OF EIRR

ANNEX D: EDL's KEY FINANCIAL INDICATORS

ANNEX E: EDL's TARIFF SCHEDULE EFFECTIVE FEBRUARY 1999

ANNEX F: RETROFITTED PERFORMANCE INDICATORS

ANNEX G: EDL's EXISTING AND PROPOSED ORGANIZATION CHARTDURING APPRAISAL

ANNEX H: EDL'S CURRENT PROFIT AND COST CENTER STRUCTURE

28 Annex A

Aide MemoireWorld Bank/IDA ICR Mission, November 8-13, 1999

Electricite du Laos (EdL)Provincial Grid Integration Project (C2425-LA)

A mission consisting of Mr. Enrique Crousillat (Mission leader) and Ms. Esperanza Miranda(Operations Analyst) visited Lao PDR from November 8 to 13, 1999 to carry out theImplementation Completion Report (ICR) mission of the Provincial Grid Integration Project(PGI). The mission met with officials of the Electricite du Laos (EdL) including staff from EdL'sbranch office at Bolikhamxay. The mission also visited the Paksane substation and severalproject sites in the province of Bolikhamxsay. The Aide Memoire records the mission's findings,agreements reached and comments received from EdL's management on key lessons learned fromPGI project's implementation. The Aide Memoire would be ratified by IDA's management. Themission wishes to thank the staff of EdL for their excellent cooperation and hospitality.

Project Objectives

1. The objectives of the project were the following: (i) extending electricity supply to moreconsumers in the Southern and Central Regions of the Lao PDR, including areas within theprovinces of Champassak, Saravane, Sekong, Savannakhet, Khammouane, and Bolikhamxay; (ii)enhancing the quality of supply for existing consumers in those provinces; (iii) developingadditional power exports prospects for the Lao PDR; (iv) improving EdL's system efficiency; and(v) continuing EdL's institutional development.

2. Project objectives were fully achieved and the project resulted in substantial benefits for therural population of the central and southern regions of the Lao PDR. The project providedelectrification to villages in the central and south provinces of Laos where the standard of living,consumption of consumer goods and commercial activities has increased substantially. Inaddition, the project provided a very comprehensive technical assistance program and consultingservices for EdL staff to continue their institutional development. A detail assessment of theachievements reached under each component of the PGI project follows:

i) Provincial Electrification (Central and Southern Provinces). A total of 33,478 householdswere electrified under the project in the provinces of Champassak, Saravane, Savannakhet,Khammuane and Bolikhamxay compared with 14,138 households estimated during appraisal,(over twice the original target). Original targets were exceeded substantially as a result of a largeincrease in the demand of electricity from non-electrified villages which were attracted by thebenefits of village electrification (such as improvements in quality of life and children'seducation, more entertainment facilities, and income generating activities). EdL could respond tothe increased demand for services by achieving low bid costs for most items and requiring thebeneficiary to: (i) contribute 30% of the cost of 22kV spur line, transformer and distributioninvestments before construction commences, and (ii) at least 60% of village households mustagree to pay house wiring and connection fees before the system is energized. In some cases,villages were so willing to have electricity that they collected funds among themselves to finance100% of the distribution equipment and paid EdL for installation only. The table belowsummarizes the SAR and actual figures under this component.

29 Annex A

22 kV 0.4 kV 22 kV 22 kV/0.4 Villages to Householdsmedium distribution substations kV be to bevoltage and lines (km) (no.) transformer electrified electrifiedspurs (km) s (no.) (no.) (no.)

Champassak (SAR) 323 370 --- 108 108 5,912Champassak (Actual) 351 168 96 102. 9,899Saravane (SAR) 119 54 17 17 793Saravane (Actual) 148 166 56 70 5,024Savannakhet (SAR) 102 138 44 44 1,950Savannakhet (Actual) 254 214 101 101 8,077Khammuane (SAR) 197 296 1 92 92 4,354Khammuane (Actual) 231 243 1 130 133 6,987Bolikhamxay (SAR) 75 78 1 24 24 1,129Bolikhamxay (Actual) 107 85 1 33 33 3,491Total SAR Estimates 816 936 2 285 285 14,138Total Actual 1,091 876 2 416 439 33,478

ii) Enhancement of Quality Supply for existing consumers. The construction, under the PGIproject, of three overhead river-crossing lines to interconnect with the Thai grid (at Savannakhet,Thakhek, and Se Bang Fai) have increased the quality of power supply from the Thai grid andassisted with the development of the provinces. In addition, EdL will start monitoring the qualityof services by recording interruptions at the consumer level (scheduled and accidental outages) ona quarterly basis.

iii) Improving System Efficiency. Under this component, the PGI project aimed to continuethe loss reduction program started under Southern Provincial Electrification (SPE) to reducedistribution losses in the Vientiane area and extend it to the service areas of EdL's provincialbranches. However, the program was implemented only in Vientiane. Under this component,EdL has procured and installed 24,000 meters and is recording losses on a monthly basis. By theend of September 1999, EdL recorded distribution losses of 14.6% which is an improvement,although modest, from 16% in 1993. EdL also acquired tools, vehicles, radio equipment, and atelecommunications system which has facilitated EdL's capability to monitor system losses andimproved communications within the central and southern regions as well as between Vientianeheadquarters and key locations within the provinces. During its visit to EdL's branch atBolikhamxay, the mission was informed by EdL staff that collection rate in this province is about95%, largely due to the strict enforcement on overdue accounts (service is disconnected after amonth of unpaid service) and the introduction of a computer billing system. This indicates a realcommitment from the provinces to monitor and reduce system losses and increase their collectionefficiency. During the ICR mission, EdL agreed to provide an updated status of the Action Planfor Reducing Technical and Non-Technical Losses agreed upon during appraisal (Annex 1). Thelatest EdL report on Energy Loss Reduction for the period January to September 1999 for theVientiane grid is attached as Annex 2.

iv) Continuation of EdL's institutional development. The following activities were included:

a Finance, Accounting and Computerization Consultancy that would train finance staffat EdL headquarters and the provincial subsidiaries, and assist them in implementingEdL's accounting systems and financial processes related to EdL's new MIS. Thecomputerization consultancy was dropped from the project as EdL plans to reorganize into

30 Annex A

profit centers became clearer. Consulting services on financial and accounting systems,including the hiring of a Resident Financial Management Advisor in November 1997,have helped EdL to improve their billing and collection systems and procedures.

* an Organization and Management Study that would continue the work begun underSPE to develop the policies, regulations, systems, procedures, and guidelines needed toenable EdL to function as a decentralized national utility. This study was completed in1997 by PA Consulting.

* a Training Upgrade Program that would include (i) the provision of equipment andtools; (ii) the services of training experts; (iii) short-term secondments and externaltraining; and (iv) a "technical cooperation arrangement" with Tenaga Nasional Berhad(TNB) of Malaysia. As a result of a grant financing from the Government of France tosupport EdL's training program, items (i) and (ii) were not carried out under the PGI.EdL staff received both external and in-house training on engineering economics, finance,audit and hydropower technology. A lecture program given as a part of the loss reductionstudy and accounting procedures was very useful and generated interest and enthusiasmamong EdL staff both from Vientiane and the provinces. The EdL/TNB technicalcooperation was successfully completed with a total of 25 courses and 167 EdL stafftrained.

v) Development of hydro exports for the Lao PDR. A feasibility study for the installation ofadditional capacity at the Nam Ngum hydro station was carried out under PGI as planned. Thebid price for this project, however, resulted in about US$3 million above the original estimates.This higher cost, combined with the lower prices offered by EGAT made the expansion of NamNgum economically unviable. Therefore, EdL reallocated the project savings from therehabilitation of Nam Ngum to the procurement of goods for the distribution extension in theprovinces and technical assistance for the Nam Theun II hydroelectric project.

Implementation Record

3. The project was approved on October 6, 1992 and became effective only until July 6, 1993due to Borrower's delays in presenting a satisfactory legal opinion. On April 6, 1995 and later onNovember 6, 1995, the DCA was amended to allow for the provision of specialized legal andfinancial advisory services, and social, environmental and macroeconomic studies in connectionwith the proposed Nam Theum II hydroelectric project. A total of about US$4.6 million wasreallocated under PGI to consultant's services for TA to prepare Nam Theum II studies.

4. Overall, implementation of the project was carried out satisfactorily. EdL showed adequateproject management and technical capabilities to carry out implementation of the PGI.Counterpart funds were available always. In January 1997, the project was retrofitted with a setof performance indicators as shown in Annex 3.

5. The credit closing date was extended one year from its original date of June 30, 1998 toJune 30, 1999 in order to complete additional extension of electricity supply in the provinces ofKhammouane and Champassack and to allow completion of consultancy services for the NamTheum II project.

Financial Covenants

31 Annex A

6. Although financial strengthening of EdL was not stated explicitly as a project objective,IDA engaged the Government and EdL into the commercialization of EdL's through thefollowing financial covenants: (a) EdL to generate funds from internal sources equivalent to notless than 20% of the annual average of EdL's capital expenditure; (b) EdL to maintain a debtservice coverage ratio of 1.1; (c) GOL to take measures, including increase of EdL electricitytariffs, necessary to enable EdL to meet its 1.1 debt service ratio; and (d) GOL to complete anaction program (by April 30, 1994) satisfactory to IDA, to decrease EdL receivables fromGovernment agencies.

7. EdL has not met the 20% self financing target since 1993. In 1996, it was unable to meetits debt service obligations, which effectively made EdL insolvent. Prior to appraisal of the SPREproject, EdL and GOL had taken important measures to restore the company's financial healthincluding: (a) a 70% tariff increase; (b) debt conversion of about US$32 million of EdL debt toequity; (c) preparation of a Performance Contract; and (d) revisions in tax and dividend policies.Albeit these actions, EdL's financial situation continued to deteriorate largely due to thedepreciation of the Kip triggered by the regional financial crisis. In September 1998, EdLproposed to the Government certain measures to address its financial weakness, including furthertariff increases. GOL approved a tariff increased of 100% effective in February 1, 1999 plus anescalation of 3% per month for the next three years.

8. The above tariff increases, however, are not sufficient to fully offset likely furtherdevaluation of the Kip over the next 3 years and thus additional increases will be needed if IDA'sfinancial covenants are to be met in the next few years. In February 1999, an IDA supervisionmission recommended, based on its review of EdL 's financial projections, that GOL approve thefollowing measures to support financial restructuring of EdL: (a) revaluation offixed assets; (b)offset of EdL 'sforeign exchange losses; (c) conversion of EdL debt to equity; (d) offset accountsreceivables owing by Government agencies to EdL; and (e) adoption of international accountingstandards. Up to date, very little has been achieved to improve EdL 'sfinancial health as none ofthese measures have been made effective by GOL.

Project Outcome and Sustainability

9. Based upon the critical situation of EdL's finances and the lack of Government actions tosupport financial restructuring of EdL, sustainability of the project is rated uncertain.

10. In spite of the fact that the project objectives were fully achieved and projectimplementation was carried out satisfactorily from a technical and cost viewpoints, theuncertainty in that the project will maintain its achievements under EdL 's current financial statusand the country's macroeconomic conditions, are key determinants in rating the outcome of theproject unsatisfactory. It's important to note, however, that the determinants upon which theunsatisfactory rating is based (EdL 's financial status and macroeconomic conditions) are bothrelated to policy issues exogenous to the project and beyond EdL 's control.

Key Lessons Learned

11. Based on the implementation experience of the PGI project, the following lessons can belearned and applied in future projects:

32 Annex A

(i) the Bank should maintain the Borrower (in most cases, the Ministry of Finance) fullyinvolved throughout project implementation so as to maintain policy dialogue and collaborationamong the Government, Implementing Agency and the Bank.

(ii) when an ongoing operation is used to provide supplemental financing for technicalassistance that is relevant to the project objectives but it was not included in the original estimates,this supplemental financing should be assigned only after ensuring that sufficient funds areavailable for ongoing activities under the project.

(iii) when there is more than one implementing agency for the execution of the project,individual project agreements between each Implementing Agency and the Bank should beprovided. This will improve efficiency in the management and accounting of loan funds andincrease accountability from each Implementing Agency.

Agreements Reached

12. EdL agreed to submit a final Implementation Completion Report, including information onlocal costs, loss reduction program, training received by EdL, revised economic rate of return andlessons learned by EdL not later than December 3, 1999.

13. EdL would confirm with EdL's branches the accuracy of the actual figures presented in theSeptember 1999 electrification progress report by December 3, 1999.

33Annex B

IMPLEMENTATION COMPLETION REPORT page 1 of 6LAO PEOPLE'S DEMOCRATIC REPUBLIC

PROVINCIAL GRID INTEGRATION PROJECT (PGI)(CREDIT NO. 2425-LA)

II : PROJECT ANALYSIS AND PERFORMANCE

A. Introduction

2.1 Electricite du Laos formulated the Provincial Grid Integration Project with credit agreement2425-LA from IDA, to accelerate the economic development of the Southern and CentralRegions of Lao PDR, previously greatly hampered by shortage of electricity. The objectivesof project were as follows:

2.2 The objectives of the project were: (i) extending electricity supply to more consumers in theSouthern and Central Regions of the Lao PDR, including areas within the provinces ofChampassak, Saravane, Sekong, Savannakhet, Khammouane, and Bolikhamxay (Map IBRDNo. 23467); (ii) enhancing the quality of supply for existing consumers in those provinces;(iii) developing additional power import prospects for the Lao PDR; (iv) improving EdL'ssystem efficiency; and (v) continuing EdL's institutional development.

B. Project Components

2.3 The project included the following components:

a) Central Region Electrification. Construction of: (i) a new 115 kV double-circuitoverhead river-crossing line with associated substation at Savannakhet to Thai grid atMoukdahan and a new 22 kV double-circuit overhead river crossing line at Thakhek(both of which replaced aging underwater cables), to interconnect with the Thai grid atNakhornpanom; (ii) new 22 kV single-circuit overhead river-crossing lines at Pakxaneto interconnect with the Thai grid at Bungkane, each with an associated 22 kVsubstation and (iii) extension of the 22 kV distribution networks in Savannakhet,Khammouane and Bolikhamxay provinces;

(b) Southern Region Electrification. Extension and modification of the 22 kV distributionnetworks at Bangyo Substation to additional areas in Champassak and extension of the22 kV distribution networks at Sekong, and Saravane provinces;

(c) Improving System Efficiency. This component included (i) implementation of programfor EdL to monitor and reduce system losses, which is in progress (see Annex F) andcompletion of improve has to the billing practices in the Vientiane area and itsprovincial subsidiaries; and (ii) provision and installation of equipment and materials(including spare parts) to strengthen EdL's operation and maintenance services,particularly in the new provincial subsidiaries.

(d) Continuation of EdL's Institutional Development. Provision of equipment, material andservices, and technical assistance for upgrading the skills of EdL's staff and its trainingcapabilities; and In addition to training provided by the equipment switching suppliers:(i) The services of two training consultants a human resources expert and ElectricityTransmission and Distribution expert for twenty five (25) person-months, (ii) Twentythree training sessions representing over 3100 person-weeks of training held inVientiane and (iii) 24 programs of 167 person-weeks of training held in abroad (SeeAnnex C ).

34 Annex BPage 2 of 6

(e) Future Project Development. Preparation of a feasibility and design study for (i) the'installation of addition'al cap-icity atthe NamnNguiniihydi stiiion, together with (ii)any needed strengthening of the transmission line from Nam Ngum to the Thai border.

C. Achievement of Project Objectives

(a) Central Region Electrjfication. Construction of: (i) a new 115 kV 1.122 km double-circuitoverhead river-crossing line with associated substation at Savannskhet, and a new 22 kV1.216 km double-circuit overhead river crossing line at Thakhek (both of which wouldreplace aging underwater cables), to interconnect with the Thai grid; (ii) a new 22 kV 0.853km single-circuit overhead river-crossing lines to interconnect with the Thai grid at Paksane,each with an associated 22 kV substation; and (iii) extension of the 22 kV distributionnetworks in Savannakhet, Khammouane and Bolikhamxay provinces ( See Annex C)

(b) Southern Region Electrification. Extension of the 22 kV distribution networks to additionalareas in Champassak, Sekong, and Saravane provinces ( See Annex C )

(c) Improving System Efficiency. This component included (i) implementation of an actionprogram for EdL to monitor and reduce system losses which is in progress (see Annex F )and completion of improve has to the billing practices in the Vientiane area and its provincialsubsidiaries; and (ii) the provision and installation of equipment and materials (includingspare parts) to strengthen EdL's operation and maintenance services, particularly in the newprovincial subsidiaries.

(d) Continuation of EdL's Institutional Development. Provision of equipment, material andservices, and technical assistance for upgrading the skills of EdL's staff and its trainingcapabilities; and In addition to training provided by the equipment switching suppliers: (i)The services of two training consultants a human resources expert and electricityTransmission and Distribution expert for twenty five (25) person-months, (ii) Twenty threetraining sessions representing over 3100 person-weeks of training held in Vientiane and (iii)24 programs of 167 person-weeks of training held in abroad (See Annex E ).

(e) Future Project Development. A feasibility study for future installation of additionalcapacity at the Nam Ngum hydro station, together with (ii) any needed strengthening ofthe transmission line from Nam Ngum to the Thai border.

D. Implementation Record

2.4 All the components of the project have been completed in (the 5* year) span of the creditfor the Provincial Grid Integration Project ( PGI ). The feasibility study for PGI wascompleted in' 1990, and the project was approved during the appraisal mission inNovember, 1991. After bidding, the project construction began in June 1994 and wascompleted by June, 1998. However, due to a component failure the period of the credit wasextended until June 1999, this was largely for the purpose of 22 kV network extensions.The total actual cost of the various components of the project is within the estimated costprovision of the in SAR, the summary of which is given below. ( See Annex A for moredetails).

35 Annex BPage 3 of 6

Annex A : Project Costs

SAR ESTIMATE ACTUAL COSTSSR. DESCRIPTION Foreign Local Foreign LocalNo. Cost Cost Cost Cost

_ ___________________________ ,000 US S ,000 US S ,000 US S ,000 US SI Provincial Electrification

Central Region Interconnect 2.21 0 1.03 0.02Central Region Distribution 12.78 2.26 11.86 3.81

Southern Region Distribution 9.75 2.34 9.02 2.23Sub Total 24.74 4.6 21.91 6.06

2 System Efficiency Improvement

Loss Reduction 1.5 0.15 2.84 0.337Spare part, Vehicle, Tools 0.95 0 0.98

Micro Computers 0.20 0 0.05Telecommunication System 0.75 0.05 1.19 0.015

Sub Total 3.4 0.2 5.06 0.352

3 Institutional Development

Organization & Management 0.75 0 0.26Financial & Computerization 0.5 0 0.36Training Center Upgrading 2 0 0.86

Sub Total 3.25 0 1.48

4 Project Engineer l_l

PGI & Num Ngum (A*) 1.8 0.03 6.42Total Base Cost 33.19 4.83 34.87 6.412

Physical Contingencies 1.39 0.23Price Contingencies 3.62 1.83Total Project Cost 38.20 6.89

Interest during Construction 0.40 3.80 4.29Total Financing Requirement 38.60 10.69 34.87 10.702

2.5 The target for electrification has been fully achieved as can be seen from the followingcomparison ( See Annex B for details).

36 Annex B

ANNEX B SCOPE OF WORK OF PROVINCIAL ELECTRIFICATION Coiwbohk+s

22 kV medium 0.4 kV 1522kV Sub 2210.4 kV Villages to HouseholdDescription voltage and distribution I l5kV Sub stations Tmnsformers be to be

Spur lines lie (m stations no n) electrified electrified(km) ies n) no no) (no) (no)

Champassack 323 370 _ 108 108 5912Saravane 119 54 17 17 793Sekong 37 18 11 11 400Savannakhet 102 138 1 - 44 44 1950Khammnuane 197 296 - 1 92 92 4354Bolikhanxay 75 78 - 1 24 24 1129Total SAR 853 954 1 2 296 296 14538Estimates I I I ITotal Actual 1,129.575 1,130.991 1 2 482 551 35,407

E. Institutional Development

2.6 This the component of the project has been subdivided into two portion and has been awardto two consultants viz Swedpower and EdL. Swedpower's scope of work covered thefollowing:

a) Financial Accounting, Budgeting and Control.b) Technical : i) Telecommunication system improvement

ii) Review of commercial meteringiii) Loss reduction study

c) Computer Software Applications

F. Financial Accounting Budgeting and Control

2.7 The main objectives under this part were:

a) to formulate uniform accounting practices and procedures and establish an adequatereporting and control system;

b) impart necessary training to staff; and

c) identify areas requiring further considerations and recommend steps and actionsrequired to achieve the objectives.

G. Computer software applications

This part of work was added to the scope at a later stage. Under this addition, the consultant hasprovided services to augment the existing computer systems, with additionalsoftware/modifications to the existing software in respect of the various systems ( consumerbilling, general ledger, fixed assets, stores & purchasing , personnel information, payroll andaccounts payable). The modification in the systems involved inclusion of more categories ofconsumers in the billing systems, revision of the chart of accounts and bifurcation of assetaccounts into foreign currency and Kip components. The assignment started in June 1996 and wascompleted by May 1997. With the training imparted and the systems having been stabilized, these

37 Annex B

systems are in regular operation and working satisfactorily. The training has been carried out andthe new system are running well.

H. Future Project Development Study

2.8 The main objectives under this part were:

a) Distribution Extension some 500-600 villages from middle to the south of country.

b) Set up the pilot of Off-Grid Rural Electrification 46 villages by using of small-scale,standalone generation system such as micro-hydro, diesel mini-grids and as well assolar battery charging station in remote rural communities.

c) Provide to EdL to further improve efficiency on Institution Building

I. Factor affecting the Project

2.9 The main objectives under this part were:

a) Risk of Infatuation of Lao Kip.

b) Financial return of EdL, (domestic load, almost residental Energy are increased), whichcould effect on financial issues but it develops the social infrastructure.

G. Project Sustainability

The project has been executed in reasonable time and within the available fund of the credit. TheEIRR obtained for Electrification of Bolikhamxay Province exceeds SAR estimates and issatisfactory . The EIRR for Khammuane, Savannakhet, Champassack , Salavane provincescomponent, though below the SAR estimates is likely improve .With the intensification ofagricultural and industrial sectors in coming years, it is expected that the EIRR will improve.

K. IDA Performance

IDA's performance under the Project was satisfactory. Project objectives developed atidentification were in line with the country's and the Bank's assistance strategy, and weresupported by the project's components, conditionality and covenants. (para. 34)

Specifications and tender documents for key investment components (e.g. transmissionsystems) were prepared in advance of project effectiveness (in order to prevent disbursementdelays) and were revised during implementation to enable EdL to substitute a more cost effectivemicrowave transmission system for a fiber-optic transmission system.

During supervision, IDA could have provided more support to EdL in engaging consultantsand to the Government in undertaking sector reforms; however, resources were not made availablefor such efforts, as IDA had decided not to pursue a subsequent operation in the sector (seeCountry Assistance Strategy).

L. Borrower and Beneficiary Performance

The Government's and EdL's performance under the project was highly satisfactory. Both entitiesdemonstrated strong commitment to the project to sector reform and commercialization. They

38 Annex B

worked closely with Bank preparation missions and consulted with Bank staff regaraing all majorissues. After EdL surmounted initial delays (due largely to problems with contracting),disbursements exceeded appraisal estimates (Table 4). With minor exceptions, the Governmentand EdL met the project's covenants.

M. Assessment of outcome

The outcome of the project was satisfactory. All of the physical, financial and institutionalobjectives of the project were fully achieved; many were greatly exceeded. The Government andBeneficiary undertook additional policy reforms beyond the scope of theproject which enabled them to attract and implement additional investment from donors as well assubstantial private investment in EdL.

N. Future Operations

EdL has already formulated the next phase of development activities in the centers and southemprovinces by way of the new project viz. Southern Provinces Rural Electrification Project ( SPRE).This project has already been reviewed by IDA and is being financed under IDA credit 3047-LA.The credit was effective from 12 August 1998 and the project has progressed to the stage ofplacement of order for most major components.

0. Key Lessons Learnt

The experience gained by EdL's staff during the project will greatly enhance EdL's ability toeffectively plan, co ordinate and execute large projects in the future.

The difficulties and delays encountered during execution has helped EdL to streamline engineeringconstruction management procedures adopted in the organization .

The load development in the domestic and commercial sector of the project area has justified theload forecast technique adopted in the project formulation. Future EdL project will adopt moderateload growth for agricultural and industrial sectors as they may take along time to materialize.

ANNEX C: SCOPE OF WORK OF 22 KV NETWORK(km)

Champasack Saravane+ Savannakhet Khammouane Bolikhamxay TotalWorks Sekong

22 kV medium 323 119 + 37 102 197 75 853Voltage linesActually 345.286 163.65 256.519 242.34 121.78 1,129.575

Remark: For Sekong province is Saravane province's construction.

ANNEX D : FINANCING PLAN FOR THE PROJECT(US$ Million)

Source of Funds Local Cost Foreign Cost Total CostIDA Proposed Credit 00.00 36.00 36.00EGAT 00.00 02.20 02.20EdL 10.70 00.40 11.10Total 10.70 38.60 49.30

Provincial Grid Integration ProjectProject Internal Rate of ReturnTable 1: Bolikhamxay Province

Bolllchamxay Provtnce 1993 1994 19951 1996 19971 1999 1 999 20001 2001 2002 2003 2004 2005 2006 2007 2008 2009 20101 2011 2012 20131 2014 2019 20161 20171 2018 2019 20201 20211 2022

Investment Costs (IJS$ Million)CIF 1.338 2.231 0.446 0.449L.ocal 0.271 0.14 0.143

O&M Cost (US$Milion0) It 0.013 0.036 0.043 0.049 0 05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0 05 0 05 0.05 0.05 0.05 0.05 0.05 0 05 0.05 0 05 0.05

Subtotal 1.351 2.267 0.78 0 639 0.193 0.05 0.05 0.05 0.05 0.05 0.05 0 05 0.05 0.05 0 05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0 05 0.05 0.05 0.05 0 05

flncremntal Consumn05on (GVith 2,Residentiat/Comonercial/PSArltl. 1.068 3.424 3.198 3 421 3.661 3.917 4.191 4.191 4.191 4.191 4.191 4.191 4.191 4.191 4 191 4.191 4 191 4 191 4.191 4.191 4.191 4.191 4.1911 4 191 4 191 4.191

AgniAndustry 0.354 1.296 2 988 3.198 3.421 3.660 3.917 3.917 3.917 3 917 3.917 3.917 3.917 3.917 3 917 3917 3.91 7 3.917 3 917 3.917 3.917 3.9`17 3 917 3.917 3.917 3.917

Subtotal 1.422 4.720 6.196 6.619 7.082 7 578 9 109 8.109 8 105 9.106 9.109 8 108 8.198 8198B 8.105 9.108 9.109 8.105 6 105 8.108 6198 9.109 8 108 8.109 8.109 9 105

Supply c-ost at 0.054$ththl tor 1995.99 0.084 0.290 0 367 0 328 0 351 0 375 0.401 0.401 0.401 0 401 0 401 0.401 0 401 0.401 0.401 0.401 0 401 0.401 0.401 0.401 0.401 0 401 0.401 0 401 0 401 0 401

and 0.04SSltWhl tor 2000 onwards 3/(before 10% disbtri"on toss)

Benefit 1US$ Milli-nRes/ComslPS/lnt. at0023 SAsVNl 0.246 0.788 0 736 0.787 0.842 0.901 0.964 0.964 0 964 0.964 0.964 0 864 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0.964 0 964 0.964

Agnfindustry at 0.1 8 $ArkWh 0.063 0.229 0.529 0.566 0.606 0.648 0.693 0.693 0.693 0.693 0.693 0 693 0.693 0.693 0.693 0.693 0 693 0 693 0.693 0.693 0.693 0.693 0.693 0.693 0693 0.693

Total Benefit 0.308 1.017 1.264 1.353 1.448 1.549 1.657 1.657 1 657 1.657 1.657 1.657 1.657 1.657 1 657 1.657 1.657 1.657 1.657 1 657 1.657 1.657 1.657 1.657 1.657 1.657l.W

Total Cool 1.351 2.267 0944 0.919 0.561 0.378 0 401 0.425 0 452 0 452 0 452 0.452 0.452 0.452 0.452 0 452 0 452 0.452 0.452 0 452 0.452 0.452 0.452 0.452 0.452 0.452 0.452 0.A52 'O

Total Benefit 0 308 1.017 1.264 1.353 1.448 1.549 1.657 1.657 1.657 1.657 1.657 1 657 1.657 1 657 1.657 1.657 1.~657 1 657 1I657 1.657 1.657 1.657 1.657 1 657 1.657 1 657

Net Benefit -1 351 -2.267 -0.536 0.099 0.704 0.975 1 047 1.124 1.206 1.206 1 200 1 200 1200 1.206 1 200 1.206 1.200 1.200 1 209 1.200 1.206 1.206 1.200 1 200 1 200 1200 1 206 1206

IEIRR 19%1

Assumptions.1/1I% of assets.2/ 7% increase In demand froml 2000 unSil 2003. Fros, 2003 onwards. consumpySon levels remain constant as increased in consumpoon would required additional investments that are beyond the scope of the project.

3/Supply cost is expected to01 falstarting in the year 2000 as Thoilend's avoided costa are down and this is beng reflected In the ne,w prices negsatied wtith EdL

supply cost 1995-1999 0.054supply cost 2800-2021 0.045WiP tor Resid8na9Con1PSAnn5. 0.23WTP for AgsiAndusbial demand 0.177

0 0

PIsX

.Js O'

Provincial Grid Integration ProjectProject Internal Rate of ReturnTable 2: Khammuane Province

Khammuan. Province 1993 1994 19651 1996 1997 1 999,1966 20001 2001 20021 20031 2004 2005 20061 20071 2009 2009 20101 2011 2012 2013 20141 20`15 2016 20171 2019 2019 20201 20211 2022

Invuestment Costs (US$ Million)CIF 0.315 0.315 0.630 0.620 0.946 0.315Local 0.146 0.209 0.134 0.251 0.591 0.345 0.272

OtiM Cost (US$MiIlion) 11 0.005 0.010 0.017 0.026 0.042 0.049 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0,051

Subtotal 0.466 0.534 0.781 0.507 1.569 0.708 0.323 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.001 0.051 0.0-51 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051 0.051

Incremental Consusamoiqn_CGVVhl 2ReSidentiatICormnerctaMllSAlnt. 6.110 7.511 9.329 8.351 8.935 9.561 10.230 10.964 10.946 10.946 10.946 10946 10946 10946 10946 10.646 10946 10.946 10.946 10.946 10.946 10.946 10.949 10.946 10.646 10.946 10.946

Agrifindustry 0.621 1.427 3.487 5.642 6.037 6.460 6.912 7.396 7.396 7.396 7.366 7.396 7.396 7.39B 7.396 7.396 7.396 7.396 7.39r6 7.396 7.396 7.396 7.396 7.396 7.396 7.396 7.396

Subtotal 6.731 8.938 12.916 13.663 14.972 16.021 17.142 18.342 18.342 1I.342 18.342 18.342 19.3-42 18.342 18.342 18.342 18.342 18.342 18.342 18.342 18.342 18.342 18.342 19.342 19.342 18.342 18.342

Supply cost at 0.045$Ikr1.M tsr 1960.99 0.333 0.442 0.634 0.693 0.659 0.705 0.754 0.907 0.907 0.807 0.807 0.807 0.907 0.907 0.807 0.807 0.807 0.807 0.907 0.907 0.907 0.907 0.607 0.907 0.907 0.807 0.907

and 0.04S/VhfOM, o 2000 onwards 3/(before 10% distribuahon loss)

ResfComfPSAng. at 0.20$OlAKM 1.405 1.728 2.145 1.921 2.055 2.159 2.353 2.518 2.518 2.518 2.618 2.518 2.518 2.518 2.518 2.516 2.518 2.518 2.519 2.518 2.518 2.519 2.518 2.518 2.518 2.518 2.518

A5rdAsdustry at0. 1 77 (t/Mr 0.110 0.253 0.617 0.999 1.069 1.143 1.223 1.309 1.306 1.309 1.309 1.309 1.309 1.309 1.306 1.309 1.306 1.309 1.309 1.309 1.309 1.309 1.309 1.309 1.309 1.309 1.209

Total Benefit 1.515 1.980 2.763 2.916) 3.124 3.342 3.576 3.827 3.827 3.827 3.927 3.827 3.827 3.827 3.827 3.827 3.927 3.827 3.827 3.827 3.927 3.927 3.827 3.627 3.927 3.827 3.827

Total Cost 0.466 0.534 0.781 1.240 2.011 1.343 1.016 0.710 0.756 0.905 0.959 0.95 0.958 0.585 0.959 .5 0.859 0.959,85 0.959 0.959 0.95 .0 .59 0.959 ~5 0.959 0.959 0.959 0.90 .59 0.956 0.956 CD

Total Benefit 0 0 0 1.515 1.990 2.763 2.919 3.124 3.342 3.576 3.827 3.827 3.827 3.927 3.827 3.927 3.827 3.827 3.827 3.927 3.827 3.927 3.927 3.927 3.827 3.927 3.827 3.827 3.827 3.627

Net Benefit -0.466 -0.534 -0.791 0.275 -0.031 1.420 1.904 2.414 2.597 2.771 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969 2.969

EIRR 44%

Assumptions:11 1% 01 assets.2/ 7% increasesi demand fromh 2000 until2003. From 2003 onwards. consump5on levels remain constant as increased is consumpfion would re4ufired additional investments that are beyond the scope of the project.3/Supply cost is expected to tall starting is the year 2000 as rhaitands avoided costs are down and this is being reflected is 919 new prices nvegotiated with EdL.

supply cost 1965-1966 0.045supply cost 2000-2022 0.040WTP tsr ResidentialrComIPSlnno. 0.23WTP for Agrtlindustiald demand 0.177

(D

0 (D

Provincial Grid Integration ProjectProject Internal Rate of ReturnTable 3: Savannakhet Province

Savn.nekhet Provtince 19931 1994 1995 1998I 19971 1998 199 20001 2001 2002 20031 2004 2005 20001 20071 2006 2009 20101 2011 2012l 2013 20141 2018 20161 20171 2018 2019 20201 20211 2022

Investtenet Costs (US$ Million)f CIF 0,729 2179 2.905j 0.729 0729Local 0 289j 0.529 0.289 0.255

OSM Cost (USSMillion) I1 0.007 0.029 0.061 0.074 0.084 0.096 0.089 0.096 0.096 0.096 0.086 0.099 0.086 0.096 0.086 0.086 0.086 0 086 O0.06 0 086 0.086 0.086 0.086 0.086 0 086 0.086 0.086 0 086 0.086

Subtotal 0.733 2.208 3.255 1.326 1.099 0.341 O0.09 0.086 0.086 O0.09 0.086 0 086 0.086 0.086 0.099 0.086 0.086 0 086 0 086 0 086 0.086 0.086 O0.09 0.086 0.086 0 096 0.086 0.086 0.086

'Irmna osmpinIVT12Residential/Commerciat/PoSAr0l. 2.602 49095 3.410 10.094 10 801 11 56 12.366 13.232 13.232 13.232 13.232 13 232 13 232 13 232 13.232 13 232 13.232 13.232 13.232 13 232 13 232 13.232 13 232 13.232 13 232 13 232 13 232

Agn/Indlustry 1.060 1.118 1.273 3.302 3.533 32780 4.045 4.328 4.328 4.3229 4 329 4328 4 328 4.328 4.328 4.328 4 328 4.328 4 328 4 328 4 328 4.328 4 328 4 328 4 328 4.328 4 328

Subtotal 3.592 5.213 4.6893 13.396 14.334 15.337 16.411 17.559 17.559 17 559 17 559 17 559 17 559 17.559 17.559 '17.559 17 559 17.559 17.559 17.559 17.559 17.559 175S59 17.559 17 559 179559 17.559

Supply cost at 0.054SllrtMn for 1995-99 0.213 0.310 0.278 0.799 0.710 0 759 0.812 09869 0.869 0.899 09969 0.869 09969 0 869 0.869 0.869 09969 09969 09969 09969 09969 0.999 0999g 0 869 09969 0.869 09999

and 0.0455,5k/4h tsr 2000 onwards 3/(belore i0% distobution toss)

Benefit (US$ MillioniRes/CorniPSAItn. at 0.23 S/k09 0.575 0.942 0.764 2 322 2.484 2.658 2.844 3 043 3 043 3.043 3.043 3.043 3.043 3.043 3 043 3.043 3.043 3 043 3.043 3.043 3 043 3.043 3.043 3.043 3.043 3 043 3 043

AgrdAndustry atO0 177$1k1/Vh 0.191 0.198 0.225 0.584 0.625 0869 0.7`16 0 786 0.766 0.786 0.766 0.766 0.786 0.786 0.766 0.786 0.786 0 790 0.766 0.786 0.766 0.766 0.766 0.766 0 790 0.790 0 766

Total Benefit 0.767 1.140 1.010 2 906 3110 3.327 3.560 3.809 3.809 3.809 3.809 3.809 3.809 3.809 3.809 3.809 3 809 3 809 3.809 3.808390 3.809 3.809 3.80 80 39809 3 809 3.809 4

Total Cost 0 000 0.733 2.208 3.468 1.635 1 377 1.137 0.796 0.845 0.899 0.955 0.955 0.955 0.955 0.955 0.955 06955 0 955 0 955 0.855 0.955 0.955 0.955 0.955 0.955 0.955 0.955 0 955 0.955 0 955

Total Benefit 0 0 01 0.7671 1.1401 1.010 2.906 3.110 3.3271 3.560 3.909 3.809 3.809 3.809 3.809 3.090 180399 3.809 3.899 3 808 3.808 3.809 3.809 3809 3.809 3.890 3 808 3.809 3.809 3.809

Net Baeneft 0D -00007303 .2.208 -2.701 .0.495 .0.367 1.769 2.314 2.482 2.662 2.854 .84 2.854 2.854 2.8942 2694 2 895 4 2 .854 2.854 2.854 2.854 2.854 2.884 2.854 2 .84 894 2.854 2.854 2.854 2.8.54 2 804

IEIRR 23%

Assumptions:11 1% 01 assets.2t 7% increase to demand fmm 2000 untit 2003 From 2003 onwards. coesumptioxi tenets remain constant as increased in consumlpoon would required add itonat invsetments that are beyond the scope ot the project.

3/Suppyf cost is expected to felt starting in the year 2000 en Thaitetnds avoided coDsts are down and this is; being reflected in Mte new prnoes negotiated with EdL.

supply coot 1995-1999 0.054suppy cost 2000-2022 0.045WTP for ResidentiaLCoustPSrlnfl 0 23WTP for AgMricllfldss8le demand 0.177

60M

i-fo

Provincial Grid Integration ProjectProject Internal Rate of ReturnTable 4: Saravan & Sekorng Provinces (Southern Grid)

Saravan &Sekeng Provinces 1993 1994 19951 19961 '1997 199 '19991 20001 2001 2002 20031 2004 2005 20061 20071 2008 2009 2010J 2011 20121 2013 20141 2015 2016 20171 201S 2019 20201 2021 2022

Investment Costs (US$ Millions)CIF 0.176 06528 0.704 0,176 0.176Local 0.112 0.400 0.287 0.01

OSM Cost (USSMIiost) 1/ 0.002 0.00? 0.015 0.021 0.06 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.02e 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026

Subtotal 0.178 0.535 0.831 0.597 0.489 0.097 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026 0.026

Incremantal ConsumoSon gWlt 2/Residenfialrornmerret.tS5InO. 0.041 0.093 0.706 5.234 5.600 5.992 6.411 6.660 6.860 6.660 6.660 6.860 6.860 6.860 6.860 6.860 6.660 6.8600 6.660 6.660 6.860 6.860 6.a60 6.860 6.860 6.66 6.960

AgrnAndustry 0.051 2.726 2.917 3.121 3.339 3.573 3.573 3.573 3.573 3.673 3.573 3.573 3.573 3.573 3.673 3.573 3.573 3.573 3.573 3.573 3.573 3.573 3.573 3.573 3.573

Subtotal 0.041 0.093 0.757 7.960 8.517 9.113 9.751 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433 10.433

Supply cost atO0.054$lkWh for 1965-96 0.002 0.006 0.045 0.473 0.422 0.451 0.483 0.516 0.5116 0.616 0.516 0.516 0.516 0.516 0.516 0.516 0.516 0.516 0.516 0.516 0.616 0.516 0.516 0.516 0.516 0.516 0.516

and 0.045$/kWh for 2000 onwards 31(before 10% dlsttibvUton toss)

Benefit (US$ MillimntResJConPSAtFSo. at 023S$IksWt 0.009 0.021 0.162 1.204 1.288 1.378 1.475 1.576 1.576 1.578 1.578 1.578 1.576 1.678 1.576 1.678 1.578 1.578 1.578 1.578 1.578 1.578 1.579 1.679 1.578 1.578 1.676

AgriOondustry at 0. 1779966K 0.000 0.000 0.009 0.483 0.516 0.552 0.591 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.632 0.032 0.632 0.632 0.632 0.632 0.632 0.632 0.632

Total Benefit 0.006 0.021 0.171 1.686 1.804 1.931 2.060 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210

Total Cost 0.000 0.178 0.635 0.834 0.602 0.534 0.570 0.440 0.477 0.509 0.543 0.543 0.543 0.543 0.543 0.543 0.543 0.543 0.643 0.043 0.543 0.043 0.043 0.543 0.643 0.643 0.543 0.543 00543 0.543 4

Total Benefit 0 0 0 0.009 0.021 0.171 1.666 1.804 1.931 2.066 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.2`10 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 2.210 .

Net Benefit 0.000 -0.176 -0.535 -0.824 -0.581 -0.362 1.116 1.356 1.453 1.567 1.668 1.6068 1.668 1.6068 1.668 1.6068 1.668 1.668 1.868 1.668 1.686 1.686 1.8668 1.668 1.668 1.868 1.668 1.668 1.8668 1.668

,EIRR 33%

Assumptsons:1/ 1% ot assets.2/ 7% increase in demand from 2000 unbi 2003. Ftnxs 2003 orwards, conlsumtpSon levels reotmn constant as incemased is consumpbion would required additionat investsoents that are beyond the scope of the project.

3/Supply cost is expeceod to falt statting in the year 2000 as Thtaitancra avokled co8ws are down and this Is beinig reflected is the new prices negofsated with EdL.

supply cost 1696-1999 0.064supply oost 2000-2022 0.045WTP for ReskWWsA81ik~1JPSn1J 0.23WTP for A.rtthsu$WWa dernand 0.177

0 P%

EdL's Key Financial Indicators (1992-1998)

Financial Year Ended Dec. 31 1992 1993 1994 1995 1996 1997 1998SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual

Primary Ratios:Self Financing Ratio a/ % 31.9 24 32.9 41 19.4 11 28.3 -14 30.0 -22 20.0 10.2 23.6 1.64Debt Service Coverage times 2.0 1.85 1.7 1.53 1.4 1.05 1.7 1.01 1.8 0.96 1.3 1.51 1.3 1.48Current Ratio c/ % 69.0 37 60.3 7.7 65.4 3.0 61.6 5.0 57.3 3.7 59.7 0.82 62.3 0.48Accounts Receivable months 2.9 4.7 2.9 3.4 3.1 3.1 3.2 3.7 3.3 4.7 3.4 3.3

a! The ratio of cash available from operations divided by the three year average of capital expenditures (the previous year, the current year and the followingyear).b/ The ratio of total borrowings divided by the sum of total borrowings plus equity (net of any revaluation reserves).c/ The ratio of current assets net of cash divided by total current liabilities.

OQCD

o X

44

Annex EPage 1 of 1

EdL's Tariff Schedule effective February 1999

Categories New Tariff Base Monthly Increase1. Residential

1 - 50 kWh/mo Kip 20/kWh 3%51 - 100 kWhmo Kip 40/kWh 3.5%101 - 200 kWh/mo Kip 60/kWh 3.5%Over 200 kWh/mo Kip 130/kWh 3.5%

2. Foreign US$cents 9.5/kWh 2% yearly3. Commercial Kip 160/kWh 3%4. Entertainment Kip 200/kWh 3%5. Government Kip 120/kWh 3%6. Irrigation Kip 50/kWh 3.5%7. Bulk 22kv or over As above 2-5 Discounted by 5%Minimum charge Kip 650/mo for residential

Minimum charge Kip 4500/mo for others

Summary of Objectives and Key Performance IndicatorsLaos Provincial Grid Integration Project - Credit 2101 LA

(with retrofitted amendments to the logicalframework shown in italics)

Objectives Inputs (Resourcs in Outputs (Goods and services Risks and Critical Assumptions Outcomes and Impacts (of project activitics)

(Schedule 2 of Credit Agreement) USS provided from produced by the Project) (The outcome is dependent on ...) (Covenanted requirements underlin-d ref clause of PA (Project

(IDA SDR 25.3 m plus Agreement; and CA Credit Agree nent). Others as indicated in

Loca' USS 4.6 m) SAR (Staff Appraisal Report)

Parts A &B. Exteading & hun&d far0rcpmni Expanded cetetiit network: Delays in distribution construction Project completed by Decmber 1998 at whlch time:

enhancing quality of suapply to of aquip't n worksv _ - delays in EGATportion of the SAR 6.t (a) EdL to acquire assets liabilities of provincial

exbting and new consumers In FC & LC' in USS in': 2 22 kV substations owork- authorities in Bolikhamxay and Sekong;

five; Origv > Amneded 850 kmc of MV line - constraints in aupply of cement; - 14000 new consumers connected

(A) -Southern 4'12. -- ZJ 950 kmc of LV line ' prolonged drought affecting EdL's -power sales increase to 1208 GWh

(B) - Central Regions fl, xx MVA of 115/22 kV financing local component - per capita consumption increases to 60 KWh/capita

capacity - EdL constuetion departmentxx kmc of 115 kV line provide with adequate budget and

B &C 1585 14,000 households staffresources

Pirt C. Improving EdLs system 4IJA - loss reduction materials, -Vienutanne Town Distribution - SAR 6.2 (b) EdL to implement action plan (Annex 3.3) to

eficiency spares for generation project coklted in 1998 (MAR 1.21) reduce losses from 16% in 1993;

Part D: Continuing EdL's m Technical Assistance for: - Government commercialization of EdL Financial /Institutional Performance

institutional Development Consulting Services & (i) Institutional Development -SOE on sehedule.. - PA IV 4 03 From 1992 Fdl to provide for at least 20% ot

training - FinanFcg& Accounting .dgives priority to disiribution annual average capital expenditure

-Organization management operations over JPPs - PA IV 4 04 net revenues of EdL. should be at least 1. I UJ

Orig study .-EdL to refrainfrom incurring debt estimated debt service reauirements

Strengthening FdL's autonomy and Amended -Computerized RE Planning without implement tariff increases; - SAR 6.1 (c) Implement program to reduce arrears from k 438

financ 372 ' ,2 tools - EdLto implement 1997 ADB m in 1993 to k 150 m in 1994; with outstanding reduced from

organization, management and tariff 8.7 months to 3.0 months (refer Annex 4.2);study recommendations. - SAR 6.1 (e) adjust electricity rate to increase av. revenue from

3.4 cikWh to 4.3 by 1996;

Training of dLstaff (ii) Technical cooperation - Edlt staff able to communicate in - SAR Annex 3.7 (para 6): 612 person weeks abroad;

program with utility (TNL); English- Training Upgrading Program - Training upgrading program to be -3100 personweeks of training comolcted

financed with French assistance.

Plannine new distribution (iii) Project Management and -PIP/RAP completed satisfactorily - new ST&REproject to be submited to IDA by July 1997

itw.slwtenk. project preparation

Part E: Developing EdL's Engineering Studies: Technical Assistance: Expansion of exports

additional power export projects USS (iii) Prefeasibility of Nam * Nam Ngum project may not be - Minor rehabilitation ofNam Ngun by 1998 iffunds available.

Ngun Extension viable -Q- EdL 's annual investment not to - SAR 6.1 (k) Gov't to make equi;y injection if EdL debt in D>

exceed $30 m/ysar excess of 70 % of total capital

Orig Amended (iv) TAsfor Nam Theun - conditionfor Bank support not - 8ank decision in June 1997 whether on not to support Nam O

.LQ1 i .Q. Project accepted by GOL Theun "X

I . I~ tj

46 Annex GPage 1 of 2

LAO PDR

PROVINCUAL GRD INTEGRAION PROJECT

Eketrldts du Lao

ExisUng Organdon Chart

GENERAL MANAGER

I~~~~~~~~~~~~~~~~~

r DEPUTY. |GENERAL MANAGER

ADLfNSTAION PBSONNEL ACONlGPLANN EWORK TRENTER

RNOEPWa LOOM C>P R PPROJECT CUSTOMER H1AM NO(22#h (1281) (ll4SSaft (1276W1 (IIEW

B.ECRiKCAL SUSWTATIONS i REGON 2 REGION 3 |REGON 4 RE1O 1

(4_ (t22SW1) (379dl) SL M(40OI (as) SUM (23 I

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47 Annex GPage 2 of 2

LAO PDR

PROVINCIL GRID INTEGRATION PROJEC=

EwiscitrI du Lao

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ELECTRICITE DU LAOS

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23*05-L-) 3:S7 PM

ELECTRICITE DU LAOSPROFIT AND COST CENTRE STRUCTURE

Overall ProfitlCost Centre

EDL Business Enterprise

Main Cost Centre Main Cost Centre Main Cost Centre Main Profit/Cost Main Profit/Cost Main Profit/CostCentre Centre Centre

Administration & DevelopmentFinance GM's Office Generation Distribution Services

Sub-Profit/Cost Sub-Profit/Cost Sub-Cost CentresSub-Cost Centres Sub-Cost Centres Sub-Cost Centres Centres (HPPs) Centres

- Selaban - Vientiane - Training Centre- Corporate - Environmental - Business - Nam Ngum Province - Kindergarten

Planning - Systems Ventures - Xeset - Vientiane - Pakse Pole

- AdPrnnstraon Planning - Nam Dong Municipality Factory- Personnel - Technical l l l Branches: - Workshops- Accounting Standards - Luang Prabang- Supply - Projects - Houaphanh- Computer - Saravan

- Champasak- Khanmnouane- Savannakhet- Bolikhamxay- Bokeo- Installation >

Agency

IBRD 23467102> "'? Pv \ , \ 104 1d6 'l ~6~ \ CHINA

o Oio,8msay. - --_. .0 v e . . , - . , MYAN4MAR >!pAECCF>LE5 XM A

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0 Xi-Kang MALAYSIAKhoang

Singapore

f.ngviengo .) '. '*'~INDONESIA

, PhoINAMNGUM -- A -X Y - L-iSHongO Xen C•n To Be S<ded -

PidR,'CTD1 A/j & O Nape"18 h BUNGKAN

VIENTIANE ''

UDON THANI S -Sakon

NakhonA

,A M/ M O U A N E 'T H A I L A N D THAT PHANOM

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jfmsen,Ao, Sepone 0o.g v(;ntl:eoke: ; ~

MukdahanA Q ,f< \ vy xti 5A VA,N @N NAK gH ET

-16' LAO PEOPLE'S DEMOCRATIC REPUBLIC

PROVINCIAL GRID INTEGRATION PROJECT A / N EOTHER WORKS PROPOSED ravane

EXISTING (BY EGAT) PROJECT

-115kV Transmission Lines V

22kV Transmission Lines G

* i Hydropower Plants - ks(Design Studies) Srn

A I 1 5kV Substations Sirindhorn Dam

A ZL 11 5kV/22kV Substations

A 29 22kV Substations tHAMPA S SAKJDistribution Networks

Paved Roads -' '

- Unpaved Roads KhO-14' ng69~ b, Tho WoO,I~6k National Capital j .

\ ns6rno~~~~~~- l -s of Th, Vv-?l B.",MProvince Boundaries -J.o,o =FoWBd,

- - International Boundaries f Th ,d 8- G,-,

s, o 100 150 C A M B O D I A ooo,,eWo'oo,

Kilometers II6 MAY 1992