Document ofThe World Bank

Report No. 55694-TZ

PROJECT DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$ 1 MILLION EQUIVALENT

TO THE

FOR A

LIGHTING RURAL TANZANIA PROJECT

June 8, 2010

CURRENCY EQUIVALENTS(Exchange Rate Effective as of May 30, 2010)

Currency Unit Tanzania Shillings (TZS)TZS 1,376 = US$1

FISCAL YEARJuly 1–June 30

ABBREVIATIONS AND ACRONYMS

AFREA Africa Renewable Energy Access Grants Program ESMF Environmental and Social Management FrameworkEWURA Energy and Water Utilities Regulatory AuthorityGEF Global Environment FacilityIBRD International Bank for Reconstruction and DevelopmentIDA International Development AssociationIFC International Finance CorporationJAST Joint Assistance Strategy for TanzaniaLADM Lighting Africa Development MarketplaceLED Light-emitting diodeLRT Lighting Rural Tanzania NGO Non-governmental organizationNORAD Norwegian Agency for Development CooperationPFI Participating financial institutionPV PhotovoltaicREA Rural Energy AgencyREF Rural Energy FundRPF Resettlement Policy FrameworkSIDA Swedish International Development Cooperation AgencySME Small and medium enterpriseSSA Sub-Saharan AfricaSPP Small power projectTANESCO Tanzania Electric Supply Company LimitedTEDAP Tanzania Energy Development and Access Expansion ProjectToR Term of referenceTZS Tanzania shillings

Vice President: Obiageli Katryn EzekwesiliCountry Director: John Murray McIntire

Sector Manager: S. Vijay IyerTask Team Leader: Dana Rysankova

CONTENTSI. STRATEGIC CONTEXT AND RATIONALE..........................................................1

A. Country and Sector Issues.....................................................................................1B. Rationale for Bank Involvement...........................................................................2C. Project Development Objective............................................................................4

II. PROJECT DESCRIPTION......................................................................................4III. IMPLEMENTATION............................................................................................5

A. Partnership Arrangements.....................................................................................5B. Institutional and Implementation Arrangements...................................................6C. Monitoring and Evaluation of Outcomes/Results.................................................6D. Sustainability.........................................................................................................7E. Critical Risks and Possible Controversial Aspects...............................................7

IV. APPRAISAL SUMMARY.....................................................................................7A. Economic and Financial........................................................................................7B. Technical...............................................................................................................8C. Fiduciary...............................................................................................................8D. Social and Environmental.....................................................................................8

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and Sector Issues

1. Tanzania faces significant power shortages; the power system’s security and supply reliability are inadequate due to heavy reliance on hydropower, which is susceptible to droughts. The limited power supply has been identified by both the World Bank and the International Monetary Fund as one of Tanzania’s main infrastructural bottlenecks and an impediment to development and poverty reduction.

2. In addition, Tanzania has one of the lowest electrification rates in Sub-Saharan Africa (SSA), only 11 percent, compared to the SSA average of 29 percent and the SSA low-income average of 26 percent. The access rates are particularly low in rural areas (below 2 percent), where most of the Tanzanian population lives and where poverty rates are the highest.

3. Recognizing these constraints, in 2005, Tanzania’s Parliament approved a Rural Energy Act, which established the Rural Energy Agency (REA) to lead the development of rural energy access initiatives and the Rural Energy Fund (REF) to finance these initiatives. The REA and REF are responsible for financing noncommercial electrification and other rural energy activities.

4. REA is currently piloting an innovative rural electrification model based on private sector and community participation. REA’s efforts are supported by the Tanzania Energy Development and Access Expansion Project (TEDAP), which, among other goals, aims to: (i) increase electricity access in rural areas in Tanzania; (ii) establish a functioning institutional and regulatory framework for commercially oriented, sustainable service delivery for rural electrification and small renewable energy projects; and (iii) remove barriers to renewable energy technologies to help mitigate greenhouse gas emissions. TEDAP’s interventions span from renewable energy support and minigrid development to solar electrification.

5. In this context, REA is also interested in piloting interventions that would support low-cost, off-grid lighting, which has the highest potential to directly benefit the rural poor, for whom conventional electricity or even a solar home system might not be affordable. In this context, REA has requested $1 million for seed funds from the Africa Renewable Energy Access Grants Program (AFREA)1 trust fund for the Lighting Rural Tanzania (LRT) Grant, which is expected to provide technical assistance for innovative approaches in bringing modern, affordable, off-grid lighting to the Tanzanian poor. The project will be channeled as additional parallel grant financing to TEDAP, and will follow TEDAP’s implementation arrangements.

1 AFREA is managed by the Africa Energy Unit and supported by the Netherlands through the ESMAP Clean Energy Investment Framework Multi-Donor Trust Fund. AFREA activities include capacity building, technical assistance, advisory services, and economic and social studies that directly support and/or create enabling conditions for increased renewable energy investments and expand access to modern energy. Other activities focus on workshops, training, and dissemination of information such as case studies, best practices, and lessons learned to public and private organizations.

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6. The proposed LRT project also draws inspiration from the World Bank/International Finance Corporation (IFC) Lighting Africa program. Lighting Africa promotes new technical innovations, such as the latest light-emitting diodes (LEDs) and solar photovoltaic (PV) technologies. These technologies promise clean, durable, low-cost, and higher quality lighting that for the first time in history can be made available at prices lower than households’ kerosene expenditures. See box 1 for more details on Lighting Africa’s objectives and components.

In 2008, in conjunction with the Lighting Africa conference in Accra, Ghana, a Development Marketplace grant competition was conducted, which awarded more than $3 million in seed funds to 16 innovative, off-grid lighting projects in SSA. These projects are to be completed by June 2010, and a comprehensive evaluation is now underway. The preliminary data indicate that there are a number of promising approaches.

7. The LRT project will replicate the competitive award mechanism for affordable lighting that Lighting Africa Development Marketplace (LADM) has piloted, integrating lessons learned from the LADM competition.

B. Rationale for Bank Involvement

8. The proposed activity will be implemented as additional parallel grant financing to TEDAP, which has two objectives: (i) to improve the quality and efficiency of the electricity service provision in the main three growth centers of Dar es Salaam, Arusha, and Kilimanjaro, and (ii) to establish a sustainable basis for energy access expansion and renewable energy development in Tanzania.

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Box 1. Lighting Africa Program Description

Launched in September 2007, Lighting Africa is a joint World Bank/IFC program supported by multiple donors and trust funds. The objective of Lighting Africa is to mobilize the private sector to provide clean, affordable, and quality lighting to people without access to electricity in SSA, with a target of 250 million persons having access to clean, modern, off-grid lighting products by 2030. Access to better and affordable lighting will provide an avenue for social, health and economic development, especially for households and small businesses, which will realize significant cost savings and increases in productivity from the transition from kerosene. To achieve this vision, Lighting Africa’s immediate target is to facilitate sales of 500,000 high-quality, low-cost, off-grid lighting products by 2012, which will provide better lighting to an estimated 2.5 million people.

To achieve its objectives, Lighting Africa is addressing a number of barriers that currently constrain the penetration of high-quality products on the African continent. Lighting Africa has five components, each addressing one of the identified barriers: (i) quality assurance; (ii) market intelligence; (iii) business development linkages and financing; (iv) consumer awareness; and (v) policy and regulation.

9. TEDAP, with $105 million from the International Development Association (IDA) and $6.5 million from the Global Environment Facility (GEF), was approved in December 2007 and became effective on March 31, 2008. On April 1, 2010, additional financing in the amount of $26 million was approved for a rural/renewable energy credit line. TEDAP consists of three components: (A) a grid component ($85.8 million); (B) a small power project (SPP) component ($42 million from IDA, including additional financing, and $6.5 million from GEF); and (C) a technical assistance component ($3.2 million). The LRT grant is related only to the SPP component B and is implemented through:

Provision of performance grants to the private sector (including NGOs and cooperatives) to partially offset investment costs of new service connections and matching grants for preinvestment studies, business and market development, and for technical assistance to financial intermediaries.

Supply, installation, maintenance, and other associated services for the sustainable solar market packages.

Provision of goods, consultant services, and training for the technical assistance subcomponent, and related operating expenses.

Implementation of a low-cost electrification pilot. Implementation of a credit line for rural/renewable energy projects.

10. The LRT grant will complement TEDAP by focusing on the low-cost, off-grid lighting subsector, which currently is not covered by TEDAP’s interventions. Low-cost, off-grid lighting has recently undergone a rapid technological development, which makes off-grid lighting products more affordable and of better quality. The LRT grant aims to extend the benefits of these technological advances to the rural poor in Tanzania by financing competitively awarded subgrants to the private sector (including NGOs and community organizations). The subgrants will finance technical assistance to the private sector operators for innovative approaches on how to expand access to modern, affordable, and high-quality lighting in rural Tanzania.

11. The subgrants will follow TEDAP’s implementation arrangements under the “matching grant” window for business and market development.

12. The LRT grant will also leverage the Lighting Africa initiative by expanding its outreach to Tanzania. The LRT grant will benefit from the recent work carried out by Lighting Africa, which has developed a testing methodology for low-cost lighting products and is now testing the main off-grid products available in SSA. REA will have access to Lighting Africa’s information and expertise. Lessons learned from the Lighting Africa Development Marketplace of 2008 have been incorporated in the project design. Key lessons include:

The greatest obstacles to the access of reliable and affordable modern lighting ser-vices are now in the area of viable, innovative business models, not product innova-tion.

Highly innovative ideas that lacked rigorous implementation plans have not achieved their targeted objectives.

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It is helpful for businesses to partner with local community or academia to develop sustainable business models.

Ambitious projects that have overstretched their resources have not been able to de-liver targeted objectives.

Local assembly faces unfavorable duty and tax regime due to government policies providing exemptions for finished goods only and not for the separate electrical com-ponents necessary for local assembly.

II. PROJECT DESCRIPTION

A. Project Development Objective

13. The objective of the LRT grant is to facilitate development of sustainable business models to bring efficient, clean, and affordable lighting services to the Tanzanian poor.

14. The proposed activity is consistent with TEDAP’s development objective related to its SPP component of “establishing a sustainable basis for energy access expansion and renewable energy development in Tanzania.” It is also consistent with the TEDAP’s global environmental objective of “abating greenhouse gas emissions through the use of renewable energy in rural areas for electricity.”

15. The LRT grant is also consistent with the Joint Assistance Strategy for Tanzania (JAST) and the government’s National Strategy for Growth and Reduction of Poverty (goal 6, provision of reliable and affordable energy to consumers).

B. Project Activities

16. The LRT grant will provide additional parallel financing to TEDAP’s matching grant window, providing grants of up to $100,000 each to the private sector for technical assistance to develop business models that deliver a wide array of innovative and appropriate modern lighting products to off-grid households and businesses in rural Tanzania, with the quality, applications, costs, or configurations needed by this low-income market segment. Energy for these lights could be from renewable energy, mechanical, or other nonfossil fuel sources.

17. The competition is expected to receive proposals that will bring together lighting manufacturers and local distributors in Tanzania. The subprojects will be implemented in 12 months. The subprojects must support access to sustainable and affordable energy services for people in rural Tanzania and have credible potential for replication and scaling-up. In addition, the subprojects need to demonstrate innovation in one or more of the following areas: improvements in technology/product for rural, low-income consumers; demonstration of business models that strengthen manufacturing, marketing, and distribution and supply chains; reduction of product cost and increased access to financing (supply and demand); and reduction of transaction costs. Specific focus will be on demonstrating sustainable business models.

18. REA has advertised the call for proposals locally and internationally and has received 81 proposals. REA has conducted an initial screening of the proposals to ensure that the proposals meet formal criteria. Based on the screening, 40 proposals were

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preselected and will be evaluated by an independent panel of experts based on the following criteria:

Results and realism: Extent to which subproject outputs or results are clear and have a direct impact on improving lighting service delivery to the rural poor. Subproject teams should present a realistic implementation timeline and budget.

Financial viability: Extent to which the implementing organization can sustain activities beyond LRT grant competition funding phase. Subprojects should demonstrate ability to be financially viable by leveraging funds from grants and nongrant resources (such as user fees, community contributions, and the like).

Sustainability: Extent to which the proposal addresses organizational capacity, local support, and participation.

Innovation: Extent to which idea varies from current business models and approaches in the country.

Replicability/scaling-up: Extent to which subprojects can be transferred and/or replicated.

19. The LRT grant, in the amount of $1 million, is funded from the Africa Renewable Energy and Access Grant Program (from the government of Netherlands). In addition, REA will provide $350,000 to fund the logistics and administrative activities associated with conducting the LRT conference and grant awards, and the supervision, monitoring, and evaluation of awardees’ activities.

20. A small amount of grant resources ($15,000) will be reserved for operating expenses, including travel and training. The remaining amount of $985,000 would be distributed in the form of matching grants.

21. Retroactive financing will be available for operating expenses.

22. Grant’s closing date is April 30, 2011.

III. IMPLEMENTATION

A. Partnership Arrangements

23. The LRT grant will be implemented as an additional parallel grant to TEDAP, following TEDAP’s implementation arrangements. In addition, the Russian Energy SME and the SIDA-financed trust fund for Energy Access and Regulation grants for rural and renewable energy development will be linked with TEDAP. More information on these grants and their TEDAP links are in table 1. In addition, LRT is coordinating with donors supporting REA directly, including NORAD and SIDA.

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Table 1. Other Grant ResourcesGrant Objectives Activities financed in TanzaniaRussian Energy SME grant

Support additional financing and technical assistance activities de-signed to strengthen SMEs in pro-viding energy services to poor com-munities in SSA.

Parallel financing for subcomponents B.1 (performance and matching grants) and B.4 (credit line) of TEDAP, sup-porting smaller SPPs ($3–5 million).

SIDA trust fund for Technical Assistance for Energy Access and Reg-ulation in Tanzania

(i) Build up REA’s capacity to develop, finance, implement, and scale up a rural electrification program, with renewable energy and grid and off-grid components. (ii) Develop a credible and clear regulatory system to promote the efficient and financially sustainable operation of TANESCO, SPPs, and other sector enterprises.

Technical assistance to build up the op-erational capacity of REA and EWURA ($3.6 million).

B. Institutional and Implementation Arrangements

24. REA, which is the implementing agency for TEDAP’s component B (SPP component), will implement the proposed LRT grant. The activity will follow TEDAP’s procedures for matching grants, including procurement and financial management procedures, as specified in TEDAP’s Operating Guidelines. The description of the matching grant in the Operating Guidelines has been amended to accommodate additional requirements for the LRT matching grants. The excerpt from the Operating Guidelines governing matching grants is included in annex 1. The LRT additions are in italics.

25. The Lighting Africa program will provide technical support to REA for the organization of the competition.

C. Monitoring and Evaluation of Outcomes/Results

26. The activity will have the following key outcome indicators:

Number of subgrants awarded: minimum 7 Number of innovation projects reaching its stated objectives:

minimum 5 Number of innovation projects ready for a replication and scale-

up: minimum 3

27. The monitoring and impact evaluation for the overall activity will be the responsibility of REA (under its monitoring and evaluation unit).

28. Lighting Rural Tanzania 2010 is modeled after the Lighting Africa Development Marketplace. Under this model, funds are disbursed in tranches. Prior to the first disbursement, awardees, with guidance from REA, agree on a set of outcome indicators and milestones. Awardees are to present a progress report outlining achievements on

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these outcome indicators and milestones. If REA finds satisfactory progress, then REA disburses the corresponding payments.

29. REA is responsible for conducting site visits to the projects to supervise progress and provide additional guidance to awardees.

30. Once projects are completed, awardees will report to REA on all outcomes and achievements. REA will be responsible for compiling lessons learned and dissemination of results. In addition, the AFREA Gender and Energy Program will provide support to REA for incorporating a gender sensitive approach into the project through preparation of a baseline and a gender monitoring and evaluation framework for the grants and capacity building and gender training for the monitoring and evaluation unit.

D. Sustainability

31. The competition is expected to bring together international lighting manufacturers and local distributors in Tanzania. The subprojects need to demonstrate innovation in one or more of the following areas: improvements in technology/product for rural, low-income consumers; demonstration of business models that strengthen manufacturing, marketing, and distribution supply chains; reduction of product cost and increased access to financing (supply and demand); and reduction of transaction costs. These criteria will be examined in the context of identifying sustainable business models that can be scaled up and replicated.

E. Critical Risks and Possible Controversial Aspects

Risk Risk rating

Risk mitigation measures

Insufficient volume of quality project proposals.

Low Forty proposals, all meeting the formal criteria, have already been received.

Grants not achieving their outputs and outcomes.

Moderate Subgrants are disbursed in tranches, following agreed progress indicators. REA will closely monitor the subprojects’ progress and will demand corrective actions if required. Lighting Africa program will provide additional technical expertise to the grantees (for example, the grantees will benefit from the results of a comprehensive evaluation of LADM subprojects).

Capacity and coordination issues by the implementing agency.

Low REA has a proven implementation capacity and is managing a much larger TEDAP SPP component ($42 million). The Lighting Africa program will provide additional technical assistance and share its experiences and expertise, particularly regarding quality issues for off-grid lighting.

Overall risk rating Low

IV. APPRAISAL SUMMARY

A. Economic and Financial32. The activity is expected to yield positive economic benefits. Currently, 1.6 billion people worldwide and 500 million in SSA are without electricity. Among the poorest of

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the poor, lighting is often the most expensive item among their energy use, typically accounting for 10 percent of total household income. Although consuming a significant share of scarce income, fuel-based lighting provides little return. New advancements in lighting technology, such as LEDs, promise clean, durable, low-cost, and higher quality lighting that, for the first time in history, can be made available at prices lower than household kerosene expenditures. The challenge is to leverage these technologies to develop products and business models specifically targeted at the poor in Tanzania. The potential exists to engage the Tanzanian and international lighting industry in this new market area, while serving consumers, bolstering local commerce, creating jobs, enhancing incomes, cleaning the air, and improving health, safety, and quality of life.

33. The individual projects are not yet known because they are demand driven and will be competitively selected. It is therefore not possible to calculate economic and financial rates of return.

B. Technical34. The activity leverages revolutionary advancements in lighting technology, including recent improvements in the quality of LEDs. However, given that this is a rapidly expanding area, there is a great variance in the quality of LED lighting devices on the market. To ensure sustainability of the proposed efforts, Lighting Africa will provide technical advice to REA and share the results of its quality assurance component.

C. FiduciaryProcurement

35. The procurement capacity assessment of REA has been carried out in the framework of the preparation of TEDAP’s additional financing and is available in the project files. The assessment concluded that REA has a minimum capacity to manage World Bank funds. Additional mitigation measures on capacity building and record keeping have been agreed on.

36. Procurement will follow the Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 and revised October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers,” also dated May 2004 and revised October 2006. The subprojects will be allowed to use established commercial practices as provided in the Operating Guidelines for matching grants.

Financial management37. REA’s financial management assessment concluded that the institution has an adequate capacity to manage IDA funds. Mitigation measures have been agreed on to improve the financial management arrangements to adequately provide accurate and timely information on the status of the project, as required by the World Bank. The assessment is available in the project files.

D. Social and Environmental

38. The activity is intended to contribute to the social and environmental development of rural areas in Tanzania. Given that the activity is providing technical assistance grants for market development for dissemination of LED lanterns and similar individual lighting devices only, no negative environmental and social impacts are foreseen. However, REA

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will screen all subprojects, and if any negative impacts are identified, the subprojects will be required to follow TEDAP’s Environmental and Social Management Framework (ESMF) and the Resettlement Policy Framework (RPF), which were publicly disclosed on July 1, 2007.

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Annex 1. Excerpt from the Operating Guidelines of TEDAP

II.3 Matching Grant Provision1. Eligible subproject types - Private proposals for: (i) grid-connected renewable energy power projects

(with capacity not more than about 10MW); (ii) grid-connected minigrids; (iii) greenfield mini/microgrids; (iv) solar PV systems; and (v) other off-grid energy initiatives including hybrid systems.

- New business models or special initiatives that overcome technical, finan-cial, legal, or commercial barriers and support the off-grid market develop-ment objectives of TEDAP.

- Technical assistance to participating financial institutions (PFIs) for renew-able energy lending.

2. Eligible subproject developers

- Any private enterprises, associations, financial institutions, NGOs, com-munity, cooperative, or individual operating in Tanzania, registered as a legal entity, and having the capacity to enter into a binding contract under the laws of the United Republic of Tanzania is eligible, subject to REA as-sessment of technical, financial management, and procurement capacity to implement the proposed subproject according to these Operating Guidelines.

- The project champion will be eligible to receive subsequent grants if it has completed the preceding subprojects to the satisfaction of REA, in accord-ance with the terms of the grant agreement.

3. Eligible activities - Market development activities (for example, market studies, promotion, and education)

- Business improvement (for example, staff training and business plan prepa-ration)

- Product development activities (for example, assembly optimization study and testing)

- Preinvestment and preparation activities (for example, preparation studies for licenses)

- Market entry (for example, establishing new outlets and networks and demonstrations)

- New initiatives (for example, new alliances, partnerships, and territories)- PFI costs associated with the evaluation of SPP loan applications and build-

ing capacity for renewable energy lending4. Eligible expenditures - Costs of services of independent consultants or consulting firms, including

their travel costs and direct expenses for providing short- to medium-term services under a terms of reference (ToR).

- Cost of design and production of materials and manuals, such as for train-ing and promotions.

- Fees for inspections for ISO or other recognized certifications.- Fees and other costs of participating in marketing/promotional events.- Costs associated with capacity building and training activities, and market

and consumer surveys.- Costs associated with setting up new networks and alliances, testing busi-

ness models, and expanding into new territories.- PFI costs associated with the evaluation of SPP loan applications.

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- Costs of sample off-grid lighting products under the Lighting Rural Tanza-nia grant.

5. Ineligible expenditures - Salaries and reimbursable costs of staff or long-term consultants of the en-tity. However, these may be considered as the entity’s contribution toward “cost share” in the case of its first application. Exception: – Lighting Rural Tanzania subprojects may finance salaries and reimbursable costs of staff or long-term consultants if clearly specified in the winning proposals.

- Salaries and expenses of government (and provincial government) officials.- Expenses associated with routine business activities of the entity.- Financing or acquisition of existing assets (including land) or refinancing

of existing debts or accrued interest. - Other expenses not meeting the objectives of TEDAP, as determined by

REA.6. Amount of the grant - Maximum of 80 percent of project costs (up to 100 percent allowed for

PFIs and for Lighting Rural Tanzania subgrants).- Maximum per entity per annum: $100,000.- Annual limit may be increased for special programs that are perceived to

carry a higher than usual risk, but at the same time have the potential to make a large impact at the sector or subsector level.

- Annual limit is computed on the basis of effective dates of commencement of activity in a given year.

7. Required information - Application form (or certificate of an award in Lighting Rural Tanzania competition, with an accompanying proposal).

- Confirmation of legal registration of project champion/stakeholder.- Description of business. - Description of proposed project/activities, in the case of proposed consul-

tancies’ ToRs (tasks, schedule, deliverables, and budget) included.- List of services to be financed.- Detailed budget and financing plan.- Timetable for implementation, including proposed outputs and milestones,

(and monitoring and evaluation plan for Lighting Rural Tanzania subpro-jects).

- Justification of barrier removal toward programs objectives (for example, through log frame).

- Evidence of minimum procurement and financial management capacity.

8. Evaluation criteria - Activities proposed for assistance are well targeted and consistent with the entity’s development needs and business strategy.

- Needs, proposed activities, and required assistance are clearly described.- Implementation arrangements and schedules are feasible and likely to be

effective.- Results and outcomes are time bound, and stated in a form that can be mon-

itored periodically and measured objectively.- The budget is sufficiently detailed and reasonable. - Proof of contribution toward achieving development objectives of program

(for example, through log frame).- Additional criteria for Lighting Rural Tanzania matching grants are at-

tached.

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9. Subgrant agreements - Bind the entity to defined activities and time-bound deliverables.- REA will make payments as stipulated in agreement and Operating Guide-

lines.- All outputs from the supported activities will remain the exclusive property

of the beneficiary entity, with commercial confidentiality fully preserved.- Beneficiary will ensure that all procurement processes and expenditures are

carried out with due regard to sound business principles, economy, and diligence.

- Draft matching grant agreement provided in annex 1.10.

Procurement - Commercial practices, if qualified project promoter.- Bank procurement rules if not qualified project promoter.- Assessment of procurement capacity of project promoter by REA.

11.

Disbursement - Payments based on agreed deliverables in grant agreement.- First payment after at least 50 percent of counterpart contribution (in cash)

from project promoter for the assignment has been disbursed and con-firmed by REA.

- First payment is an amount equal to 50 percent of agreed on level of sup-port.

- The balance 50 percent will be released when a completion report accept-able to REA is submitted with supporting evidence of completion and achievement of agreed on activities, and supporting procurement docu-mentation including ToRs, alternate quotations, and evaluation criteria.

- For LRT grants, payments follow a set of milestones agreed on by the grantees in the grant agreement, based on the presented project proposals, with the following payment schedule: first payment, 30 percent; second payment, 50 percent; and third payment, 20 percent.

12.

Supervision and verification

- REA verifies progress reports and data furnished by project promoters for completeness and technical compliance.

- For Lighting Rural Tanzania grants, REA will carry out at least one onsite supervision visit of each grant.

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No objection from WB - The first five grant proposals, irrespective of size.- Grant proposals above $100,000.

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Key memos: - Application form—annex 2. - Subgrant agreement—annex 5.- Evaluation form—Memo MGP-001-AF.

15.

- Additional evaluation criteria for the LRT matching grants

Viability - The subproject will identify measureable targets and have a clear plan for demonstrating that it is able to achieve these objectives/targets within the scheduled time frame. LRT is seeking to support projects with a high like-lihood of success and not those that are highly risky. This is the most es-sential criteria because the LRT grant is seeking to support the implemen-tation of viable plans, not research or idea development.

Capacity - The subproject team will demonstrate that they have the required skill ca-pacity to deliver on the targets, for example, knowledge and experience, technical expertise, market knowledge, financing/credit establishment and operation, supply chain management, and so forth.

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Sustainability - The subproject will demonstrate the ability or at least a high level of likeli-hood that it will continue to operate or generate benefits to the target bene-ficiaries after the grant funding has run out. The subproject needs to create the circumstances for it to be self-sustaining in the long run. For example, equipment to be installed with the grant money will need to generate funds to ensure its maintenance throughout its useable life, and credit schemes will need to sustain themselves through generating sufficient revenue to enable future credit to new customers.

Innovation - The subproject will demonstrate a high level of innovation in the areas of making products or services available to people in rural areas. Product in-novation alone is not sufficient to be rewarded with a grant. It is the inno-vative use of modern lighting technologies and not the production or pro-vision of technology itself that the competition is encouraging. This means that it is not enough to have a strong proposal for sourcing or manufactur-ing an innovative technology.

Replicability - Each subproject should demonstrate the ability to be replicated to benefit a greater amount of people than currently targeted within the necessarily limited scope of each subproject. The grant funds are targeting projects that can use the funds as leverage for the initiative to be scaled up follow-ing the completion of the subproject by either the subproject management team or by others who seek to replicate the projects’ successes in other ar-eas/countries.

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Annex 2. Financial Management and Disbursement Arrangements

The financial management assessment of REA has been completed and the mitigated risk rating is moderate, which is acceptable to the World Bank. REA’s full financial management assessment is available on file.

The project financial management is strengthened by the following salient features:

REA has the capacity to prepare the project’s budget. The finance division in REA has qualified and experienced accountants to account for

the project’s funds. Two of the staff are certified public accountants (CPAs) with master’s degrees in business administration (MBAs).

The REA has an experienced chief internal auditor who is also a CPA with an MBA. Furthermore, an effective and properly constituted audit committee is place.

The REA computerized system (SAGE) can be used for project accounting. However, the interim financial reports (IFRs) will need to be prepared in specially designed Ex-cel spread sheets.

The external audit arrangements are adequate. The NAO are the auditors. REA has al-ready developed a comprehensive financial accounting manual that is sufficient for the project.

The project financial management is weakened by the following salient feature:

REA accounting staff have no previous experience in handling IDA-financed projects, particularly in the areas of disbursements and financial reporting.

Mitigation measures have been proposed to improve the financial management arrangements to adequately provide accurate and timely information on the status of the project as required by the World Bank. These measures include: adequate financial management supervision in the project supervision; strengthened internal audit and audit committees; annual fiduciary assessments through public expenditure financial assessment reviews; and adequate supervision and quality assurance of the project by the oversight agencies. It was agreed that before initial disbursements, the formats of unaudited IFRs that are used for the project and the ToRs for external auditors would be prepared by REA and approved by IDA. Programs such as the Public Financial Management Reform Program and the Local Government Reform Program are used by the government of Tanzania to fund these mitigation measures at central and local government levels.

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