World Bank Document · 2016. 7. 16. · 1 document of the world bank report no: icr00001664...
Transcript of World Bank Document · 2016. 7. 16. · 1 document of the world bank report no: icr00001664...
1
Document of
The World Bank
Report No: ICR00001664
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-39490 IDA-H1140 IDA-H4100)
ON A
CREDIT
IN THE AMOUNT OF
SDR 20 MILLION (US$29.0 MILLION EQUIVALENT)
AND A
GRANT
IN THE AMOUNT OF SDR 14.5 MILLION (US$ 21.0 MILLION EQUIVALENT)
TO THE
STATE OF ERITREA
FOR AN
ERITREA POWER DISTRIBUTION AND RURAL ELECTRIFICATION PROJECT
January 22, 2011
Energy Group (AFTEG)
Country Department AFCE2 (Kenya, Eritrea, Comoros, Rwanda, Seychelles, Somalia)
Africa Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective October 2010)
Currency Unit = Eritrean Nakfa (ERN)
1.00 ERN = US$ 0.0667
US$ 1.00 = ERN 15.00
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
EEC Eritrean Electric Corporation
EPC Engineering, Procurement and Construction
EIRR Economic Internal Rate of Return
ESMMP Environmental and Social Management and Monitoring Plan
FIRR Financial Internal Rate of Return
GDP Gross Domestic Product
GIS Geographic Information System
ICR Implementation Completion and Results Report
IDA
ISR
International Development Association
Implementation Status Report
IT Information Technology
kV Kilovolt
kW Kilowatt
kWh Kilowatt Hour
LV Low Voltage
MEM Ministry of Energy and Mines
MV Medium Voltage
MW Megawatt
M&E Monitoring and Evaluation
Nfa Nakfa
NPV Net Present Value
O&M Operation and Maintenance
PAD Project Appraisal Document
PMU Project Management Unit
PPF Project Preparation Facility
QAG
REF
Quality Assurance Group
Rural Electrification Fund
SDR Special Drawing Rights
SIL Specific Investment Loan
TOR Terms of Reference
VA Village Administrator
ZA Zoba Administrator
Vice President: Obiageli Katryn Ezekwesili
Country Director: Johannes C.M. Zutt
Sector Manager: Subramaniam V. Iyer
Project Team Leader: Kyran O’Sullivan
ICR Team Leader: Kyran O’Sullivan
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ERITREA
POWER DISTRIBUTION AND RURAL ELECTRIFICATION PROJECT
CONTENTS
Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Project Performance in ISRs
H. Restructuring
I. Disbursement Profile
1. Project Context, Development Objectives and Design ............................................... 5 1.1 Context at Appraisal ............................................................................................. 5 1.2 Original Project Development Objectives (PDO) and Key Indicators ................. 6
1.3 Revised PDO and Key Indicators, and Reasons/Justification .............................. 7 1.4 Main Beneficiaries ................................................................................................ 7
1.5 Original Components (as approved) ..................................................................... 8 1.6 Revised Components ............................................................................................ 9 1.7 Other Significant Changes .................................................................................... 9
2. Key Factors Affecting Implementation and Outcomes .............................................. 9 2.1 Project Preparation, Design and Quality at Entry ................................................. 9
2.2 Implementation ................................................................................................... 12
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization .... 15
2.4 Safeguard and Fiduciary Compliance ................................................................. 16 2.5 Post-completion Operation/Next Phase .............................................................. 16
3. Assessment of Outcomes .......................................................................................... 18 3.1 Relevance of Objectives, Design and Implementation ....................................... 18 3.2 Achievement of Project Development Objectives .............................................. 18
3.3 Efficiency ............................................................................................................ 18 3.4 Justification of Overall Outcome Rating ............................................................ 20 3.5 Overarching Themes, Other Outcomes and Impacts .......................................... 20
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ... 21 4. Assessment of Risk to Development Outcome ........................................................ 21 5. Assessment of Bank and Borrower Performance ..................................................... 22
5.1 Bank Performance ............................................................................................... 22 5.2 Borrower Performance ........................................................................................ 25
6. Lessons Learned ....................................................................................................... 26 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 27
Annex 1. Project Costs and Financing .......................................................................... 28 Annex 2. Outputs by Component ................................................................................. 29 Annex 3. Economic and Financial Analysis ................................................................. 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 37 Annex 5. Beneficiary Survey Results ........................................................................... 39
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Annex 6. Stakeholder Workshop Report and Results ................................................... 40
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 41 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 42 Annex 9. List of Supporting Documents ...................................................................... 43
MAP ………………………………………………………………………………….44
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A. Basic Information
Country: Eritrea Project Name:
ERITREA POWER DISTRIBUTION AND RURAL ELECTRIFICATION PROJECT
Project ID: P057929 L/C/TF Number(s): IDA-39490,IDA-H1140,IDA-H4100
ICR Date: 01/26/2011 ICR Type: Core ICR
Lending Instrument: SIL Borrower: GOVERNMENT OF THE STATE OF ERITREA
Original Total Commitment:
XDR 34.5M Disbursed Amount: XDR 20.0M
Revised Amount: XDR 20.0M
Environmental Category: B
Implementing Agencies: Eritrea Electric Corporation Ministry of Energy and Mines
Cofinanciers and Other External Partners:
B. Key Dates
Process Date Process Original Date Revised / Actual Date(s)
Concept Review: 08/29/2000 Effectiveness: 12/20/2004 12/20/2004
Appraisal: Restructuring(s): 06/26/2008
Approval: 07/06/2004 Mid-term Review: 02/28/2008 03/10/2008
Closing: 06/30/2009 07/22/2010
C. Ratings Summary C.1 Performance Rating by ICR
Outcomes: Unsatisfactory
Risk to Development Outcome: Substantial
Bank Performance: Moderately Satisfactory
Borrower Performance: Moderately Unsatisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings
Quality at Entry: Satisfactory Government: Unsatisfactory Quality of Supervision:Moderately SatisfactoryImplementing Moderately Satisfactory
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Agency/Agencies: Overall Bank Performance:
Moderately SatisfactoryOverall Borrower Performance:
Moderately Unsatisfactory
C.3 Quality at Entry and Implementation Performance Indicators Implementation
Performance Indicators QAG Assessments (if any) Rating
Potential Problem Project at any time (Yes/No):
Yes Quality at Entry (QEA):
None
Problem Project at any time (Yes/No):
Yes Quality of Supervision (QSA):
None
DO rating before Closing/Inactive status:
Unsatisfactory
D. Sector and Theme Codes Original Actual
Sector Code (as % of total Bank financing)
Central government administration 10 10
Power 90 90
Theme Code (as % of total Bank financing)
Access to urban services and housing 28 50
Infrastructure services for private sector development 29 5
Regulation and competition policy 14 5
Rural services and infrastructure 29 40
E. Bank Staff Positions At ICR At Approval
Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo
Country Director: Johannes C.M. Zutt Makhtar Diop
Sector Manager: Subramaniam V. Iyer Yusupha B. Crookes
Project Team Leader: Kyran O’Sullivan Paivi Koljonen
ICR Team Leader: Kyran O’Sullivan
ICR Primary Author: Anil S. Bhandari
F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)(a) Carrying out a sustainable program for the expansion of access to electricity; (b) improving the quality and adequacy of the electricity supply in its territory; and (c)
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strengthening the institutional capacity of key energy sector agencies, including regulatory and institutional reforms in the sector to increase efficiency and attract private participation. Revised Project Development Objectives (as approved by original approving authority) Restructuring and additional financing was approved by the Board on June 19, 2008 but did not become effective because the Government refused to sign the Supplemental Letter on Financial and Economic Data as they were not agreeable to sharing the national debt information on sovereignty grounds. The revised PDOs of the restructured project were to be: (i) Expansion of electricity access in rural areas; (ii) Improve the quality and adequacy of the electricity supply; and (iii) Regulatory and institutional reforms in the sector to increase efficiency. (a) PDO Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : Voltage fluctuations in Asmara limited to Value quantitative or Qualitative)
+- 5% of supply voltage
Date achieved 06/30/2009 Comments (incl. % achievement)
Since the Asmara Distribution component was not completed. Therefore it is assumed that there was no improvement in voltage fluctuations.
Indicator 2 : Asmara system losses reduced to Value quantitative or Qualitative)
7% 20%
Date achieved 06/30/2009 12/31/2009 Comments (incl. % achievement)
The target could not be met because the Asmara Distribution component was not completed.
Indicator 3 : Unplanned power interruptions in Asmara reduced by Value quantitative or Qualitative)
90%
Date achieved 06/30/2009 Comments (incl. % achievement)
See comment under Indicator 1 above.
Indicator 4 : Number of consumers connected to Asmara system Value quantitative or Qualitative)
80,000 82,342
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Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
102% achieved.
Indicator 5 : Annual energy sales in Asmara system Value quantitative or Qualitative)
169GWh 153 GWh
Date achieved 06/30/2009 12/31/2009 Comments (incl. % achievement)
90% achieved.
Indicator 6 : Number of consumers connected in Project villages, by consumer category: (a)residential; (b) commercial; (c) industrial
Value quantitative or Qualitative)
(a) 28,600; (b) 1,180; (c) 140
(a) 21,270; (b) 575; (c) 153
Date achieved 06/30/2009 12/31/2009 Comments (incl. % achievement)
Percent achievement (a) 74%; (b) 49%; and (c) 109%. (73% overall)
Indicator 7 : Number of sub-project applications processed Value quantitative or Qualitative)
4 0
Date achieved 06/30/2009 07/22/2010
Comments (incl. % achievement)
The Rural Electrification Fund eventually became functional by 2006, and participating villages made their contributions. However, because of the delays in the preparation of Operational Manual, no disbursements were made at the time of Credit closing.
Indicator 8 : Number of successfully completed sub-projects Value quantitative or Qualitative)
4 0
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
See comment under Indicator 7 above.
Indicator 9 : Electricity tariffs in Nakfa per kWh meet EEC’s financial needs Value quantitative or Qualitative)
Yes No
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
The tariffs were not increased to cost-recovery levels as required due to social and economic impact considerations by the Government.
Indicator 10 : Electricity regulator functional Value Yes Partly
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quantitative or Qualitative) Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
The Electricity Regulatory Committee was established but the regulatory body has not yet become autonomous.
Indicator 11 : Number of trained staff retained in the electricity sector Value quantitative or Qualitative)
70 50+
Date achieved 06/30/2009 02/17/2008 Comments (incl. % achievement)
71%+ achieved (only the minimum estimate could be obtained). The anticipated training in the Asmara distribution component was not implemented because the contract was terminated.
Indicator 12 : Number of villages where environmental and social screening has been carried out
Value quantitative or Qualitative)
80 57
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
71% achieved. The number of villages was reduced due to the increased cost of equipment and supplies since the project commencement.
Indicator 13 : Solutions to mitigate negative environmental and social impacts carried out in a timely manner
Value quantitative or Qualitative)
Yes Yes
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
Achieved.
Indicator 14 : Number of health, school, and water facilities electrified Value quantitative or Qualitative)
90 654
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
The actual value in 2010 includes churches, mosques, clinics, schools, water pumps, public administration, security posts, and other public facilities.
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised
Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : Proportion of substations rehabilitated
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Value (quantitative or Qualitative)
100% 20%
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
20% achieved. Cancellation by the Government of private construction contractors’ licenses negatively impacted the carrying out of civil works in the Asmara Distribution component.
Indicator 2 : Proportion of 66kV transformers and overhead and underground cables replaced Value (quantitative or Qualitative)
100% 25%
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
25% achieved. Not fully achieved because the contract of the Asmara Distribution component was not completed.
Indicator 3 : Proportion of LV system rehabilitated Value (quantitative or Qualitative)
100% 0%
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
Not achieved because the Asmara Distribution component was not completed.
Indicator 4 : Number of new development areas made ready for connection Value (quantitative or Qualitative)
10 2
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
20% achieved. Not fully achieved because the Asmara Distribution component was not completed.
Indicator 5 : Number of villages and small towns connected to power supply Value (quantitative or Qualitative)
80 57
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
71% achieved. The number of villages was reduced due to the increased cost of equipment and supplies since the project commencement.
Indicator 6 : Amount of upfront contributions collected in Nakfa Value (quantitative or Qualitative)
10 million Nakfa 22 million Nakfa
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
The original target exceeded by 120%.
Indicator 7 : Operational manual and criteria for site selection prepared
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Value (quantitative or Qualitative)
Yes Yes
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
100% achieved.
Indicator 8 : Funds deposited to Rural Electrification Fund (in million US$ equivalent) Value (quantitative or Qualitative)
2.0 1.5
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
75% achieved.
Indicator 9 : Regulatory unit established and staffed with qualified persons with adequate facilities
Value (quantitative or Qualitative)
Yes Partly
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
The Electricity Regulatory Committee was established with part-time members.
Indicator 10 : Number of staff trained Value (quantitative or Qualitative)
50 50+
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
Achieved.
Indicator 11 : Number of VA, ZA, and MEM staff trained in environmental and social screening
Value (quantitative or Qualitative)
15 10+
Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)
67%+ achieved.
Indicator 12 : EEC’s PMU retains an environmental coordinator Value (quantitative or Qualitative)
Yes Partly
Date achieved 06/30/2009 07/22/2010 Comments (incl. %
This function is performed but EEC relies on MEM personnel and consultants engaged by MEM.
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achievement)
G. Ratings of Project Performance in ISRs
No. Date ISR Archived DO IP
Actual Disbursements (USD millions)
1 12/15/2004 Satisfactory Satisfactory 0.00 2 06/13/2005 Moderately SatisfactoryModerately Satisfactory 3.57 3 12/21/2005 Satisfactory Satisfactory 4.74 4 12/23/2005 Satisfactory Satisfactory 4.74 5 06/30/2006 Satisfactory Satisfactory 7.90 6 12/28/2006 Satisfactory Moderately Satisfactory 11.37 7 06/25/2007 Satisfactory Moderately Satisfactory 14.00 8 12/14/2007 Satisfactory Moderately Satisfactory 15.58 9 06/06/2008 Satisfactory Moderately Satisfactory 20.04 10 12/22/2008 Unsatisfactory Unsatisfactory 26.99 11 06/09/2009 Unsatisfactory Unsatisfactory 30.30 12 11/25/2009 Unsatisfactory Unsatisfactory 30.58 13 06/22/2010 Unsatisfactory Unsatisfactory 31.20
H. Restructuring (if any)
ISR Ratings at RestructuringRestructuring
Date(s)
Board Approved
PDO Change DO IP
Amount Disbursed at
Restructuring in USD millions
Reason for Restructuring & Key Changes Made
06/26/2008 N S MS 20.04
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I. Disbursement Profile
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1. Project Context, Development Objectives and Design
1.1 Context at Appraisal
1. Country Background. The project was appraised in March 2004. At the time, the
Government was preparing its Interim Poverty Reduction Strategy Paper, articulating its
development strategy, medium-term investment plan, and priorities to reduce poverty.
The crux of this strategy was to restore economic growth, maintain macroeconomic
stability, and increase the incomes of the poor segments of the population. Eritrea was in
a post-conflict situation recovering from the devastations of war with Ethiopia, which had
ended in June 2000, after two years of fighting on several fronts. The population in 2004
was 4.3 million and the per capita income less than US$200, among the lowest in the
world with GDP growing at less than 2.0 per cent per annum. Nearly 70 per cent of the
population lived below the poverty line. The government was seriously committed,
through its Interim Poverty Reduction Strategy, to undertake bold institutional and policy
reforms with key focus on improving public service delivery.
2. Sector Background. The annual consumption of electricity in 2004 (62 kWh per
capita) was among the lowest in Sub-Saharan Africa (113 kWh per capita, excluding
South Africa), with about 96 per cent of energy consumed by rural households being
from biomass resources. Estimated forest take-off rate for energy was about 2.4 - 2.8 per
cent when the threshold for sustainability was about 1.25 per cent. Given the dwindling
biomass resources and the increasing dependence on imported petroleum products and
the resultant foreign exchange burden on the economy, Eritrea’s pattern of energy
consumption was clearly unsustainable. Only 32 per cent of the population had access to
electricity (78 per cent urban and 3 per cent rural). The power distribution system in
Asmara, which was nearly 50 years old, was incapable of meeting additional loads, such
that frequent power failures, voltage fluctuations, and unacceptably high power losses
were critical problems.
3. Nevertheless, the Government had taken a number of initiatives to improve the
energy supply including: increasing the power generation from less than 30MW in 1991
to over 130 MW in 2004; increasing the length of transmission lines from less than 150
km to over 350 km; increasing the length of distribution lines from 800 km to over 1,400
km; installing over 600 kW solar systems throughout the country. Legislation (Electricity
Corporation Proclamation) had been promulgated to corporatize the public power utility,
Eritrea Electricity Corporation (EEC), with the aim of promoting operational efficiency
and safety, and fair competition in electricity business.
4. Hence, the key issues facing the energy sector at the time were: the necessity to
make further progress in improving the power sector’s institutional and regulatory
framework, following the Electricity Corporation Proclamation, that was the first
important step in the right direction in better sector governance; low access to electricity
in rural areas (only 3 per cent coverage); deteriorating condition of the Asmara
Distribution System (high technical losses and poor quality of supply); and low
utilization of the generating capacity, where the Hirgigo Plant, which is the major
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generator of electricity in the country, was operating only at 26 per cent of its installed
capacity. As a result, the government’s medium term goals were to: (a) ensure the
availability of reliable, good quality electricity to a wide range of customers, in order to
support economic activity; (b) expand electricity service to rural areas, both to improve
the quality of life in these areas and to provide one of the essential infrastructure inputs
required to facilitate productive activities, especially the establishment of small
businesses; and (c) establish a regulatory and institutional framework that would facilitate
and promote the financial viability of the sector and the introduction of private sector
participation to relieve the financial burden on the state and improve the sector's
managerial capacity.
5. Rationale for Bank Assistance. The Government of Eritrea requested the Bank’s
assistance at a time when the country was going through a post-conflict reconstruction
phase. There was no current Country Assistance Strategy. However, the project’s
objectives were consistent with the Government’s draft Interim Poverty Reduction
Strategy (2003) and the Bank’s Interim Support Strategy (2000 and 2005), both of which
put emphasis on emergency reconstruction and health in response to the humanitarian
crisis following the end of the conflict with Ethiopia, and focusing on improving the
income of the poor segments of the population. Through Bank’s support for the
rehabilitation and expansion of the Asmara electricity distribution system, rural
electrification, and energy sector reforms, the project was envisioned to enhancing public
service delivery; and addressing critical infrastructure bottlenecks and basic human
development.
6. The Government also recognized that the development of an efficient power
sector would require a move away from full government control of power system
administration towards the establishment of a modern institutional and regulatory
framework governing electricity production, transmission, distribution and sales by
efficient independent utilities. The Bank was in a unique position to support this given its
experience on these issues, including establishment of a transparent framework and
mechanism for setting electricity tariffs.
1.2 Original Project Development Objectives (PDO) and Key Indicators
7. The original PDOs were: (a) carrying out a sustainable program for the expansion
of access to electricity; (b) improving the quality and adequacy of the electricity supply in
its territory; and (c) strengthening the institutional capacity of key energy sector agencies,
including regulatory and institutional reforms in the sector to increase efficiency and
attract private sector participation. Key indicators to measure the outcomes were defined
as:
Establishment of the Eritrean Electric Corporation (EEC) as an independent and
financially self-sustaining power corporation;
The adoption of a modern power sector regulatory and institutional framework,
conducive for future private sector participation;
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Extension of electricity supply to about 30,000 new rural consumers, either
directly or indirectly through improved public services;
Reduction of voltage fluctuations and power outages in Asmara to acceptable
levels; and
Decrease in network energy losses in Asmara from 18 percent to about 7 percent.
1.3 Revised PDO and Key Indicators, and Reasons/Justification
8. Restructuring and Additional Financing was approved by the Board on June 26,
2008. Although the Amended and Restated Financing Agreement and related Project
Agreements were signed on August 21, 2008, the Additional Financing never became
effective due to refusal of the Borrower to sign the Supplemental Letter on Financial and
Economic Data, as required by the Bank. The revised PDOs of the restructured project
were to be: (a) Expansion of electricity access in rural areas; (b) Improve the quality and
adequacy of the electricity supply; and (c) Regulatory and institutional reforms in the
sector to increase efficiency.
9. The Additional Financing in the form of an IDA grant of SDR 10.8 million
(US$ 17.5 million equivalent) would have supported the completion of the ongoing
rehabilitation and expansion of the Asmara Distribution component of the project in view
of cost overruns arising from higher unit costs of electrical equipment and materials. The
grant would also have supported a new project component for the overhaul and
rehabilitation of the key power generation plants at Hirgigo, Beleza and Assab to ensure
that electricity supply is maintained and outages are avoided.
10. However, the performance assessment for this ICR is based only on the original
project design and development objectives since the restructuring and Additional
Financing did not become effective.
1.4 Main Beneficiaries
11. The main beneficiaries of the project were the communities, private sector and
businesses in the rural areas where access to electricity was extended under the project.
About 7,350 electricity meters were installed benefiting an estimated 30,000 households
through meter sharing (or about 150,000 people) in 57 villages and small towns.
However, the main target group, which were households and businesses in Asmara have
not benefited because the rehabilitation and expansion of the Asmara distribution system
was not successful given that the EPC contract was terminated by the Contractor before
the works were completed. The Ministry of Energy and Mines (MEM), and EEC both
benefitted from the project, particularly from the capacity building and institutional
reform components. Staff in both entities received training in financial management,
procurement, power sector regulation and applications of GIS; a training coordinator was
hired to train a number of villagers on rural electrification and conduct stakeholder
workshops. A number of studies were completed to enable MEM and EEC to carry out
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critical functions successfully, such as tariff setting. Studies included a study for
Establishment of the Regulatory body (Electricity Regulatory Committee), Rural
Electrification Fund Study and EEC Corporate Strengthening Study. The limited reforms
that were undertaken based on the studies made the two entities somewhat more effective
and efficient, though not to the extent anticipated at appraisal, such that only some of the
benefits are likely to be sustained in the long-run.
12. If the Asmara Distribution component is completed in the future, a large
population of Asmara (approximately 600,000) would benefit directly from the improved
supply of electricity and EEC would benefit from reduction in technical losses from over
20 per cent to about 7 per cent that will in turn put it on a path of financial sustainability.
Government would also benefit from reduced capital subsidies in the short term and
possibly through higher tax revenue from EEC in the long-run.
13. Secondary benefits in the Rural Electrification component that result from the
increased access to electricity in the rural areas, are, better education services, better
health services, more economic activities and higher incomes, reduced carbon emissions
from use of wood for fuel, and increased security in the villages connected through
lighting of selected public places where people congregate.
1.5 Original Components (as approved)
14. The components of the project as appraised were the following:
A. Asmara Distribution Rehabilitation and Expansion1 (US$34 million or 60 per cent)
consisting of replacing old systems (5.5 kV) with new ones (15 kV); replacement of
low voltage (127/220 V) systems with more efficient 400/230 V systems;
rehabilitation and construction of several sub-stations; underground placement of
medium-voltage cables in historic city center; replacement of open-wire distribution
network with safer aerial bunched cable systems; and provision of technical
assistance for training and consulting services to EEC for project design, management,
construction, and operation;
B. Rural Electrification (US$16.4 million or 29 per cent) consisting of the electrification
of 28,500 households, agricultural irrigation, pumps and other small businesses,
schools, clinics, churches, and mosques, etc. in about 80 villages around four selected
towns. The villagers contribute by making an up-front contribution to the Rural
Electrification Fund as per Eritrean practice;
C. Contribution to the revolving Rural Electrification Fund (US$1.4 million or 2 per
cent) involves establishing a Rural Electrification Fund to finance capital subsidies to
1 Hereinafter termed “Asmara Distribution component”
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qualifying schemes to electrify additional villages, either by EEC, village
cooperatives, or private energy service companies;
D. Sector Reform and Institutional Capacity Building (US$4.7 million or 8 per cent) by
supporting the development of the institutional and regulatory aspects of the power
sector, including provision of advisory services, studies, and training; and
E. Environmental and Social Management (US$0.5 million or 1 per cent) for
implementing the Environmental and Social Management and Monitoring Plan
(ESMMP).
1.6 Revised Components
15. Not Applicable. Although the components were revised under the proposed
restructuring and Additional Financing approved by the Board, they are not assessed here
because the Additional Financing did not become effective.
1.7 Other Significant Changes
16. There are no other significant changes.
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design and Quality at Entry
17. Project Preparation. Adequate preparatory studies and analyses of the energy
sector and country background were undertaken to formulate the project objectives and
define the requisite interventions. The project was also appropriately aligned with the
Interim Support Strategy of the Bank, which was approved in 2000 and 2005.
Government’s commitment to reconstructing the country’s critical infrastructure was
high and so was its commitment to reforms in the energy sector. The four key issues
facing the energy sector, namely: (a) deficiencies in the power sector’s regulatory and
institutional framework; (b) low access to electricity in the rural areas; (c) deteriorating
condition of the Asmara electricity distribution system; and (d) need for improved
management of generating capacity, were correctly identified and addressed in the
preparation and design of the project. A technical feasibility and preliminary design study
prepared by an international consultant defined the technical components and parameters
for rehabilitating and enhancing the Asmara electricity distribution system and expanding
coverage to the rural areas.
18. Project Design. The project was designed well and kept simple. It addressed the
critical need to rehabilitate the antiquated electricity network in the capital city Asmara
and also to expand access to villages and towns in four rural areas. The design introduced
modern electricity network technology to enhance efficiency and sustainability. It was
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also innovative in its approach to the provision of electricity to rural areas, whereby a
revolving fund was established into which local communities would contribute funds to
meet the up-front cost of making the connections, thereby reducing the burden of subsidy
on the Government. The design of the project took cognizance of the lack of capacity in
the implementing entities by making adequate provision for technical assistance,
institutional strengthening and capacity building and initiating sector reforms. A tariff
study was intended to provide recommendations for tariff setting that would ensure
financial sustainability of EEC.
19. Risk Assessment. The overall risk rating at appraisal was substantial. Experience
during implementation of the project confirms that the rating at appraisal was appropriate.
20. The following critical risks were identified in the PAD:
Government willingness to implement the sector reforms. The willingness and
enthusiasm of Government to implement its reform strategy was high at the time
of appraisal but slowly reduced over time, particularly with regard to greater
involvement of the private sector and full cost recovery. Over time, private sector
activity stagnated due to adverse Government policies (e.g. strict foreign
exchange controls). The risk was partially mitigated by increased pressure on
MEM from the Bank to comply with legal covenants in the Development
Financing Agreement and implementation of EEC’s financial restructuring.
Government commitment to adopt new electrification approach. This risk was
successfully mitigated by adopting a phased approach for the Rural Electrification
component, including the establishment of the Rural Electrification Fund into
which the up-front connection costs contributed by local communities were
deposited.
Community willingness and capacity to implement a community-based
distribution business. The risk was suitably mitigated by the active outreach and
consultative approach adopted by MEM and EEC and the strong willingness of
the communities to participate.
Limited affordability or lower than expected demand in project areas. The risk
was mitigated by connecting only villages that paid an up-front contribution to the
connection costs. As noted above communities were without exception willing to
pay the upfront costs in order to participate in the Rural Electrification component.
Limited response from private entrepreneurs for rural electrification activities.
During the course of implementation of the project, Government policies stymied
the activities of the private sector.
Low-cost distribution designs and practices are not mainstreamed. The EEC
continued to show interest and commitment to adoption of low cost distribution
designs (for example the span between poles in the rural electrification
11
component was increased compared to previous practice leading to cost
reduction). However, since no rural electrification projects were financed outside
of the project, these designs could not be mainstreamed.
Electricity tariffs not timely and adequately adjusted. This risk was assessed as
Modest and to be mitigated by financing a study on electricity tariffs and assisting
the Government in establishing a suitable tariff setting mechanism. The study was
successfully carried out but despite two increases in tariff rates during project
implementation, EEC could not achieve full cost recovery and continues to
operate at a loss because of: (a) government’s inability to implement fully the
recommendations of the study in consideration of social and economic
implications of unaffordable tariffs; (b) the delay in expected efficiency gains due
to non-completion of the rehabilitation of the Asmara Distribution system; and (c)
the lower than expected growth in demand for electricity due to anemic economic
performance. In retrospect, this risk should have been assessed as substantial
given the history of government subsidy in the energy sector, high level of
technical losses, rapid decline in the value of local currency vis-à-vis the
difficulty of obtaining foreign exchange and the volatility of international
petroleum prices (over 80 per cent of EEC’s costs are for fuel purchase for
generation of electricity). Accordingly, although annual financial covenants in the
project encouraged the Government to adjust the tariff levels, these were not
complied with during the early stages of Project implementation and therefore had
to be modified in 2008.
Delays in implementing sector reforms due to inadequate management capability.
The risk was partly mitigated by obtaining government’s commitment prior to
negotiations, provision of technical assistance to conduct the necessary studies,
and ensuring stakeholder participation during the conduct of the studies. However,
the progress of private sector participation in rural electrification activities
remained slow. The Government systematically backed away from its initial
enthusiasm to promote private sector development and participation in the energy
sector. Tariffs were adjusted twice since 2004, but not to the extent recommended
in the study, and an interim committee (Electricity Regulatory Committee) was
set up to act as the regulatory body for the energy sector.
Delays in the implementation of the project. This risk, assessed as Modest, was to
be mitigated by providing implementation support to EEC through the support of
an experienced international management consultant acting as the Employer’s
Engineer; procurement and project management training for EEC and the MEM
staff; coordination of EEC with the Asmara City Council and the Infrastructure
Department to optimize construction scheduling in the city center; regular
monitoring by Bank supervision missions; and implementation of the Asmara and
the rural electrification components through "design, supply and installation" or
Engineering, Procurement and Construction
(EPC) contracts to reduce logistical and coordination problems.
12
21. All mitigation measures were implemented reasonably successfully. However,
while the Rural Electrification component was completed satisfactorily and on time, the
major component – Asmara Distribution component – was greatly delayed and remained
incomplete at the time of Credit closing. This was largely due to: (a) protracted delay and
disagreements between the Bank and EEC during the selection and final clearance by the
Bank of the lowest evaluated bidder arising from ambiguity (regarding pricing of certain
missing items of work) in the lowest bid received and therefore the evaluation; (b) the
rapid deterioration during implementation in the level of cooperation between the
selected EPC contractor and EEC; (c) unsuccessful attempts during implementation from
Bank’s supervision team to persuade either party to the contract (EEC and the
Contractor) to implement recommendations of the Employer’s Engineer; (d) untimely
termination of the contract by the Contractor; and (e) at times, rigid contract management
by EEC compounded by its reluctance to seek independent external professional advice
offered or facilitated by the Bank.
22. Quality at Entry. There was no QAG review done for the quality at entry of the
project. Overall, the quality at entry of the project is rated satisfactory given: (a) the
adequacy of appraising the country context; (b) background studies and analysis of the
energy sector; (c) alignment of the project and its development objectives to the priorities
and poverty reduction strategy of the Government of Eritrea as well as the Interim
Support Strategy of the Bank; (d) design of the components with emphasis on high
impact results considering the post-conflict situation in the country as well as
introduction of modern technology and an innovative approach to sharing of connection
costs by local communities; (e) adequate assessment of the capacity of the Borrower to
implement the project and provision of technical assistance and training to ensure
successful implementation; (f) adequate attention to environmental and social issues and
identification of appropriate measures to mitigate adverse impacts; and (g)
comprehensive consideration of risks to development outcomes and intermediate outputs.
In retrospect, more attention could have been paid to the likelihood of Government’s
reluctance to increase tariffs to the level of full cost recovery because of social and
economic considerations related to unaffordable tariffs as well as the shift in its policy
towards private sector development. Nevertheless, this was recognized by the Bank’s
supervision team during mid-term review, and which also led to the proposed
restructuring of the project and its objectives.
2.2 Implementation
23. The project was approved by the Board on July 6, 2004 and the Financing and
Project Agreements were signed on September 22, 2004. The credit became effective on
December 20, 2004.
24. The Rural Electrification component was implemented smoothly, in a timely
fashion and within budget, under two EPC contracts awarded to an international
Contractor. The Contractor employed local labor force in the project areas in erection of
the distribution lines. EEC assigned staff to supervise the work of the Contractor during
construction and commissioning. The Contract and Employer cooperated well in
13
overcoming constraints that could have caused implementation delays. For instance,
during periods of diesel shortages and rationing, the Contractor was able to provide
enough diesel so that its trucks and equipment could function.
25. In the Sector Reform and Institutional Strengthening component, all the planned
studies, namely, the tariff reforms, establishment of the regulatory body (Electricity
Regulatory Committee), Rural Electrification Fund Study, EEC Corporate Strengthening
were completed satisfactorily which enabled MEM and EEC to carry out critical
functions successfully and strengthen their capacity to manage the sector and deliver
services more effectively though not to the extent envisaged at appraisal. The exception
was the outcome of the Management Information Study which recommended a rather
elaborate and costly IT system for EEC without taking adequate consideration of EEC’s
priority needs or institutional capacity or of the service requirements to sustain it and
which was therefore rejected by EEC. Technical assistance provided to EEC (Financial
Adviser and IT Specialist) enabled the EEC to adopt international standards of
accounting, modernize its financial management and billing systems, and re-engineer its
organizational structure to improve its effectiveness as a public service provider. While
there was adequate provision in the project for training to support implementation of the
recommendations of the studies, staff in MEM and EEC received, only limited training in
accounting, financial management, GIS, procurement and power sector regulation to
enhance their human resource capacity, partly due to a government policy that put
restrictions on people below the age of forty to go out of the country. In addition the
anticipated training under the Asmara Distribution component was not implemented
because the EPC contract in the component was terminated prematurely by the
Contractor.
26. The major component of the project, the Asmara Distribution component, was
greatly delayed because of procurement related issues. When evaluating the EPC bids,
EEC was inclined to declare the eventual lowest evaluated bid non responsive but had
chosen to evaluate it (in view of the fact that there were only three bids) and loaded the
bid with estimated prices for missing items (chiefly civil works). After a protracted
period of consultation and review of the evaluation methodology proposed by EEC, the
Bank did not accept EEC’s proposal of bid loading for contract purposes. After contract
award, when disputes on implementation arose between the EEC and Contractor, EEC
felt its original assessment had been correct. As a result, a good working relationship
between the selected the Contractor and EEC was never established.
27. In the initial stages of the Asmara Distribution component in 2006, serious delays
occurred in finalizing the designs and agreeing on the changes to the specifications and
the approach to installing the cables and the equipment. By March 2007, the Contractor’s
progress was extremely slow and the relationship between the Contractor and EEC
rapidly deteriorated - largely centered on disputes between the two on the agreed scope of
works, timely submission of designs and specifications, change orders demanded by the
Contractor, cost escalation and differencesin interpreting the price adjustment provisions.
These issues were further compounded by the rapidly deteriorating macro-economic
environment in the country, when the Nakfa became grossly over-valued; inflation was
14
high; restrictions became tighter on foreign exchange; it became increasingly difficult for
people under the age of 40 who had not completed their national service to go abroad for
training; and licenses of local private sector construction contractors were revoked.
Efforts were made by MEM, EEC, the Employer’s Engineer and Bank supervision teams
to find amicable solutions, but these solutions, after being agreed, usually lasted for short
periods only. Despite all such efforts, the Contractor unilaterally and unexpectedly
terminated the contract on January 16, 2009. The Adjudicator designated under the
contract found the Contractor at fault and the Contractor has chosen to move to
international arbitration.
28. The Contractor in the Asmara Distribution
component, in a most unusual move, obtained a court
injunction in its home country against cashing of the
performance bond (US$ 3,106,775 equivalent), leaving
the Borrower with no immediate remedial option. About
80 – 85 percent of the materials and equipment have been
supplied under the contract but the Contractor has carried
out very little or no civil works and none of the materials
or equipment have been installed and commissioned
(photo opposite is of transformers supplied). After
termination, the Contractor did not agree with the handover procedures proposed by EEC
for the acquired assets, which were stored in its warehouse in Asmara, requiring EEC to
engage independent auditors to take stock of the equipment and prepare an official
inventory before it could possess them.
29. The two components (Asmara Distribution and Rural Electrification components)
- were supervised by internationally recruited consultants who acted as the Employer’s
Engineer. However, EEC often differed with their technical judgments and, in the case of
the Asmara Distribution component, did not to accept their recommendations in a number
of instances. In this component EEC imposed severe limitations on the Engineer – for
example it severely limited the consultants in communicating directly with the Contractor
and the Bank. Furthermore, personnel changes in the Engineer’s team had a negative
impact on project management. In the adversarial relationship that developed between the
EEC and the Contractor leading up to contract termination, the inflexible and
uncompromising stance of both parties hampered the effectiveness of the Employer’s
Engineer in attempting to ensure compliance by both parties with contract terms and
conditions and in advising the Employer on remedial actions to overcome critical
challenges. This in turn affected the effectiveness of Bank supervision in seeking to
facilitate dispute resolution since effective Bank supervision depends in part on drawing
on the recommendations of the Employer’s Engineer to persuade the parties in reaching
amicable agreement. In the case of the Rural Electrification component a dispute on
payments in Phase 1 (design and bidding) led to the Engineer demobilizing during Phase
2 (supervision of works) and supervision responsibilities were assumed by EEC itself
30. The establishment of the Rural Electrification Fund (RE Fund) was delayed but
eventually it became functional by 2006. At the time of preparing the ICR, the Borrower
15
reported a total contribution of Nfa 22.0 million (US$ 1.47 million equivalent) into the
Fund by participating villages. However, because of the delay in preparing and
submitting the Operational Manual by MEM, which was a pre-condition for disbursement
of IDA grant funds (SDR 0.97 million or $1.4 million) to the Fund, no disbursements
were made into the Fund as of the time of Credit closing. Another reason for non
disbursement of IDA grant funds into the RE Fund is that under the project restructuring
and Additional Financing approved by IDA in 2008, the funds earmarked for the Rural
Electrification Fund were to be re-allocated to the Asmara Distribution component but
this was not done because the Additional Financing did not become effective. Thereafter,
the Borrower continued to anticipate restructuring (with reallocation of the funds
earmarked for the RE fund) and requested so in March 2010.
31. EEC did not comply fully with the financial covenants, especially with regard to
debt service ratio, accounts receivable and self financing ratio, largely due to external
factors such as the sharp increase in fuel costs and the slow growth in the national
economy that slowed electricity consumption and new connections and because the
tariffs were not increased to cost-recovery levels due to social and economic impact
considerations by the Government. As a consequence, many of these financial covenants
were proposed to be dropped and modified in the restructuring and Additional Financing
approved in 2008.
32. Financial management and audit reports have been generally satisfactory with
occasional delays in submission of audit reports and some qualified management letters
that were satisfactorily followed up and issues resolved by EEC and MEM. Overall, SDR
14.5 million remain undisbursed, largely in the Asmara Distribution component (SDR
8.2 million); Sector Reform and Institutional Capacity Building Component (SDR 1.6
million); and Rural Electrification Fund Component (SDR 1.0 million).
33. A comprehensive Mid-Term Review of the project was carried out in February
2008, which led to the restructuring of the project and its development objectives and the
request for Additional Financing.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
34. Design: The key performance indicators appropriately reflected the PDOs and
guided the monitoring and evaluation (M&E) of the project outputs and evaluation of
impacts. The indicators were adjusted during the project implementation on a number of
occasions to incorporate changing circumstances.
35. Implementation: As originally envisaged at the time of appraisal, the M&E of the
project was carried out through: (a) quarterly progress reports; (b) Bank supervision
missions; (c) project mid-term review; and (d) M&E reports by independent parties. EEC
was responsible for monitoring and evaluating the progress of the Asmara Distribution
and Rural Electrification components and MEM was in charge of monitoring and
evaluating the sector reform component. In general, quarterly progress reports were
submitted regularly until the project experienced serious delays due to the contractual
16
issues in the Asmara Distribution component at which point EEC became preoccupied
with attempts to resolve its disputes with the Contractor at the expense of timely
submission of quarterly reports. Bank supervision missions visited Eritrea regularly, and
discussed key issues related to the progress of the project. The Country Manager
participated in trying to facilitate resolution of the conflicts between EEC and the
Contractor.
2.4 Safeguard and Fiduciary Compliance
36. Overall compliance with safeguard policies is considered satisfactory. Project
design included procedures and implementation arrangements to ensure full consideration
of environmental and social safeguards. The project was categorized as environmental
category B, which requires a partial assessment, and triggered Environmental Assessment,
Cultural Property, and Involuntary Resettlement safeguard policies. The Environmental
and Social Management and Monitoring Plan (ESMMP) was approved by the MEM and
the Bank at the time of project appraisal. The three main areas in which environmental
and social safeguards were relevant to the project were: (a) supervision of the
environmental impacts of civil works linked to power lines and substations, (b)
supervision of involuntary resettlement and compensation, and (c) supervision of
archeological chance finds.
37. MEM was primarily responsible for the supervision of environmental and social
safeguards. The monitoring and mitigation measures of the ESMMP in the Asmara
Distribution component were not deployed as the physical works were not implemented.
In the Rural Electrification component, MEM, in collaboration with EEC, conducted
extensive discussions with stakeholders in the project. Monitoring of safeguard issues
was done with the participation of specialists.
38. Fiduciary compliance: Financial management review of the project is rated
satisfactory. It covered adequately the project accounting and reporting arrangements,
internal control procedures, planning and budgeting, counterpart funding, funds flow
arrangement, external audit reporting arrangements and project accounting staff issues.
2.5 Post-completion Operation/Next Phase
39. About 80-85 percent of the materials and equipment needed to complete the
Asmara Distribution component had already been supplied (amounting to about $16.8
million in value, or 50 per cent of the contract sum), waiting to be installed, when the
contract was terminated by the Contractor. Given that the project is closed and the
Additional Financing did not become effective, the Borrower is making an effort to
allocate government funds to undertake the remaining works. However, this is not likely
to be sufficient to complete the work. Therefore the Borrower is likely to seek assistance
from other development partners. At this stage, however, there is no clear indication that
17
EEC will obtain sufficient funds to complete the work. The cancellation of the US$1.4
million IDA grant will likely impair the sustainability of the Rural Electrification Fund.
18
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
40. The objectives and design of the project were relevant to the strategies of the
Government and the Bank at the time of appraisal and continue to be relevant today given
the critical state of electricity supply in Eritrea and the high priority accorded by the
Government to the improvement of infrastructure and delivery of services in the energy
sector.
3.2 Achievement of Project Development Objectives
41. The objective of improving the quality and reliability of electricity supply,
especially in the city of Asmara, was not achieved because the rehabilitation and
expansion of the Asmara distribution system, which was the major component of the
project, was not successfully completed. Voltages continue to fluctuate, power outages
remain frequent and technical losses in the system are still high (approximately 20 per
cent). On the other hand, the objective of establishing a program for expanding the
population’s access to electricity was reasonably well achieved, considering the highly
successful implementation of the rural electrification program which provided access to
nearly 30,000 new households, and so were some of the intermediate results such as: the
improvement in the organizational structure, accounting and billing system, and
management capacity of EEC; and the adoption of an appropriate regulatory framework
for the power sector including the establishment of the Electricity Regulatory Committee
as a step towards establishing a fully autonomous regulatory body. Nevertheless, the
overall achievement of the development objectives is considered unsatisfactory because
there is no significant improvement in the supply of electricity in Asmara, and it is
doubtful if the highly successful program of rural electrification is sustainable in the
absence of further injection of resources into the Rural Electrification Fund. It should be
noted that up until the ISR of June 2008, except in the June 2005 ISR, the PDO rating
was assessed as satisfactory because the Additional Financing had been approved and the
likelihood of achieving the PDOs was high. The rating was downgraded in December
2008 prior to termination of the EPC contract in the Asmara Distribution component.
This and the failure to make the Additional Financing effective due to Government action,
and the closing of the Credit without extension has made it unlikely for the project to
achieve the Development Objectives. F. Results Framework Analysis and Annex 2
give detailed summaries of the status of implementation of each component and sub-
component of the project.
3.3 Efficiency
42. The Economic and Financial analysis of the two major components, namely the
Asmara Distribution component and the Rural Electrification component are given in
Annex 3. Since the Asmara Distribution component was not implemented, the expected
19
benefits are zero given that at the time of preparing the ICR, there was no assurance that
funding would be provided to complete this component. Nevertheless, for the purpose of
post-review, an analysis is made of the expected benefits and estimated cost to
completion assuming that it will be completed by 2012 using alternative sources of
finance. Tables 1 and 2 below show the Economic and Financial Internal Rates of
Return (EIRR and FIRR) and the NPVs estimated during project appraisal as reflected in
the PAD and at the time of the preparation of the ICR, respectively for Asmara
Distribution component and the Rural Electrification component ).
Table 1 Economic and Financial Analysis at Appraisal and Project Completion
(Asmara Distribution component)
Analysis PAD ICR* Comments
Economic:
EIRR (%) 18.3 16.5 Economically viable
NPV (@ 12%) in
US$
12.3 million 12.8 million No significant difference
Financial:
FIRR (%) 9.7 10.6 Slight improvement financially
NPV (@ 12%) in
US$
-4.5 million -3.2 million
* Based on estimated cost of completing the component and expected benefits if the component is
completed.
43. The differences in the ex-post EIRR and economic NPV of the Asmara
Distribution component (Table 1) from the initial assessment, though not significant,
reflect a combination of the following factors: (a) increase in benefit from incremental
demand served reflecting the updated demand and supply capacity forecast in the Tariff
Study; (b) decrease in net benefit due to the delayed implementation of the project; (c)
increase in costs due to the fuel costs increase; and (d) decrease in economic benefits
from avoided industrial generation costs because of less-than-expected growth in the
industrial consumers segment. The FIRR remains low as before given the low cost-
recovery rates of the tariffs and the drop in the demand growth. Economically, the
component remains viable, given the positive NPV and the EIRR above 12 percent,
which is above the estimated cost of capital.
Table 2 Economic and Financial Analysis at Appraisal and Project Completion
(Rural Electrification component)
Analysis PAD ICR Comments
Economic:
EIRR (%) 12.6 9.8 Decrease in EIRR due to reduced
number of connections than at
appraisal
NPV (@ 12%) in
US$
0.4 million -1.2 million
20
Financial:
FIRR (%) 7.4 7.2 No significant difference
NPV (@ 12%) in
US$
-1.5 million -2.6 million Slight decrease in NPV
44. In the case of the Rural Electrification component (Table 2), the minor differences
between the ex-ante and ex-post estimates stem mainly from the decreased number of
consumers connected by the project. These estimated returns are based on the most
conservative estimate of the number of beneficiaries. The decrease in the EIRR is due to
the increased cost of equipment and supplies since the project commencement; and
because 21 villages had to be dropped from the original list of villages to be supported
under this component.
3.4 Justification of Overall Outcome Rating
Rating: Unsatisfactory
45. The overall outcome rating is judged as unsatisfactory because the main objective
of improving the supply and reliability of electricity to the population of Asmara was not
achieved and there is no certainty that it will be achieved in the near future. Similarly,
although highly successful, there is no certainty that the program for providing access to
electricity in the rural areas is sustainable, given that the IDA grant to the Rural
Electrification Fund was never made or that the program can be scaled up given that EEC
is still financially weak.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
46. The Rural Electrification component has benefited
nearly 150,000 people in rural areas, including women and
children (photo opposite is of children in one of the
electrified villages). As a result, there is less consumption of
diesel, kerosene and biomass. Schools and homes have
lights so that children can study in comfort sparing them
health issues from burning fuels. In one instance an electric
immersion pump was being used in a village to pump water
into a tank where it was conveniently collected by villagers,
particularly benefiting women who would save time for
more household and farming activities. Some improvements in schooling of children (e.g.
use of computers) and people’s livelihoods were observed during the ICR mission.
(b) Institutional Change/Strengthening
47. The project contributed to institutional changes and strengthening of capacity in
MEM and EEC. The EEC management structure is re-organized to handle better the
21
commercial and financial aspects; the accounting systems have been modernized to
conform to international practice; the billing system was updated and made more
effective (billing coverage of all consumers is about 95 per cent); the Electricity
Regulatory Committee is partly functional; and staff have been trained in the areas of
procurement, financial management and energy regulation. However, the project was not
successful in installing a new billing system (i.e. billing hardware system) in EEC under
the Management Information System sub-component nor was the anticipated training of
EEC manpower carried out under the Asmara Distribution component and a number of
study tours as well as training programs planned by MEM remain unimplemented. The
implementation of this component is therefore judged as moderately satisfactory.
(c) Other Unintended Outcomes and Impacts (positive or negative)
48. There are no other unintended outcomes.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
49. Not applicable. No formal survey of beneficiaries or stakeholders was conducted
for this ICR. However, during the ICR mission, Bank team interviewed a random sample
of beneficiaries of the Rural Electrification component and it was reported that the
introduction of electricity in the villages had made significant difference to the wellbeing
of the villagers, especially in terms of: (a) improving the schooling of children; (b) access
to water from elevated tanks; (c) use of computers in schools; (d) savings in cost of
kerosene used for lighting lamps; and (e) savings in cost of diesel where generators were
earlier in use. Widespread use of electricity for small businesses had not yet been
observed.
4. Assessment of Risk to Development Outcome Rating: Substantial
50. The risk to the development outcome is rated substantial. While the Rural
Electrification component has almost completed, only part of the equipment and
materials procurement has been done under the Asmara Distribution component with
neither the civil works constructed nor any of the equipment installed and commissioned.
There are four major risks to the development outcomes:
Funding gap: Given that the civil and installation works still need to be carried out
for the Asmara Distribution component, closing of the IDA Credit before
completion of all components poses a serious risk to the achievement and
sustainability of the project benefits. This is particularly a concern in the Eritrean
context where the prospect for accessing alternative funding is uncertain. Even for
the Rural Electrification component, which has been successfully implemented
with substantial up-front contributions made by the local communities in the
project area, the cancellation of the US$1.4 million IDA grant will likely impair
the sustainability of the Rural Electrification Fund.
22
EEC’s financial performance: EEC’s weak corporate financial status poses a
major risk to the implementation of the remaining Project components and
sustaining the development outcomes. Unless the Asmara Distribution component
is fully implemented to reduce the losses in the electricity system and improve
EEC’s revenue position, together with additional measures necessary to improve
the organization’s financial performance, such as the implementation of the
Electricity Tariff Study recommendations and EEC’s financial restructuring,
achieving and sustaining the benefits of the project and its development outcomes
will continue to face challenges.
Materials and equipment management: With about 80-85 per cent of the materials
and equipment purchased and the prospect for continuing and finishing their
installation uncertain, the risk is high that a large part of the equipment will not be
installed and will deteriorate over time – representing a waste of resources.
Generation capacity: As the project implementation was delayed, enhancing the
installed generation capacity has become an urgent priority in Eritrea. Given that
97 per cent of the electricity generated in the country’s inter-connected grid
comes from a single power plant, rehabilitating the existing power plant and
augmenting additional generation capacity will be crucial to allow for appropriate
maintenance of the plant. In the absence of the Additional Financing of the project,
which was targeted to address this issue but did not become effective, this aspect
would need to be addressed urgently to achieve the quality and reliability of the
electricity supply. EEC has indicated that a development partner may support the
rehabilitation of some of the existing power plants.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory
51. The Bank’s performance in ensuring the quality at entry is judged satisfactory
given the relevance of the project Development Objectives and their alignment with the
Bank’s Interim Support Strategy and the Borrower’s stated priorities, appropriateness of
the selected interventions, assessment of the Borrower’s capacity to implement the
project and sustain the benefits and facilitation of critical institutional and policy reforms
in the energy sector.
(b) Quality of Supervision
Rating: Moderately satisfactory
23
52. The quality of supervision is judged less than satisfactory or moderately
satisfactory considering that the Bank, despite its numerous attempts to address the series
of disputes that arose between the Contractor and Employer in the Asmara Distribution
contract, did not succeed in its efforts to persuade either party to the contract (the
Employer and the Contractor) to follow recommendations of the Employer’s Engineer. In
all other respects, the Bank supervision team provided timely advice, showed flexibility,
was responsive to Client requests and facilitated the smooth implementation of all other
components. The Bank team offered to approve financing under the project the services
of an independent legal counsel to facilitate a satisfactory resolution of the contractual
differences between the Contractor and EEC, but this was rejected by EEC on the
grounds that they were sure of their legal stand. There were no major issues with the
fiduciary and safeguards policies which were adhered to and supervised well by the Bank
team. Despite the overall poor Eritrea-Bank relationship at the time, the team regularly
highlighted the key issues, proactively sought solutions and undertook restructuring
measures for risks that became manifest or arose in the course of implementation. In June
2008, IDA’s Board approved the proposed restructuring of the project and Additional
Financing required to complete the project successfully. This demonstrates proactivity on
the part of the team in responding to the changed country and sector circumstances since
the project was approved. However, the restructuring did not become effective for the
reasons noted in Section 1.3.
(c) Justification of Rating for Overall Bank Performance
Rating: Moderately satisfactory
53. The overall Bank performance is rated moderately satisfactory considering the
quality at entry is rated satisfactory, but the quality of supervision is rated moderately
satisfactory. While the net outcome of the project at the time of Credit closing is rated
unsatisfactory, it is clear that the key decisions that led to the failure were outside the
control of the project implementing entities and the Bank’s supervision team. First, the
Government’s refusal to sign the Supplemental Letter for Additional Financing approved
by the Bank Board led to: (a) the abandonment of the Additional Financing and
implementation of the restructured project; and (b) premature closing of the original
Credit without extension of time to complete the Asmara Distribution component. The
poor relationship between the Borrower and the Contractor in the Asmara Distribution
component (for the reasons noted in Section 2 above) overshadowed Bank team’s
proactive efforts to solve the issues encountered during this component’s implementation,
including: the team’s offer to support independent review of contractual issues by a
contract specialist; extensive consultation with Bank’s Africa Regional Procurement
Manager’s office (RPM) and Legal Procurement (LEGPR) on the contractual disputes
between the Contractor and the Borrower in this component; advice given to the
Borrower to change key project management personnel so as to enhance effectiveness;
advice provided to the Borrower in preparing an alternative implementation plan for the
Asmara Distribution component when the first contract failed; re-allocation of funds from
the REF to the Asmara Distribution component; and facilitation of the overall
restructuring of the project including Additional Financing and extension of closing date.
24
54. Even though efforts were made by the Bank to address the implementation delays
in the Asmara Distribution component and in differences in the interpretation of the
contract to the point of elevating the issue to the Ministerial level, the Bank’s team might
have exerted greater influence during supervision missions to enable the Employer’s
Engineer recommendations to prevail, whether against the Contractor or EEC. However,
EEC was rather rigid and uncompromising in its interpretation of the contract provisions
and continued to keep the Engineer mostly in the background and at times to over-rule
his recommendations. It is also noted that these shortcomings need to be seen in the
context of deteriorating Eritrea-Bank relationship during the course of implementation.
25
5.2 Borrower Performance
(a) Government Performance Rating: Unsatisfactory
55. The Ministry of Finance provided good support to the project including temporary
tax exemption and adequate counterpart funding. However, the overall performance of
the Government during project implementation is rated unsatisfactory because of
counter-productive policies and decisions that led to the rapid deterioration in the macro-
economic environment (high inflation, foreign exchange restrictions and an over-valued
local currency); stifling of the private sector (e.g. cancelation of private contractors’
licenses that negatively impacted on the civil works part of the Asmara Distribution
component); and ultimately its refusal to sign the Supplemental Letter which led to the
suspension of the Bank’s assistance program including untimely closure of the project.
(b) Implementing Agency or Agencies Performance
Rating: Moderately satisfactory
56. The performance of the Ministry of Energy and Mines is judged as moderately
satisfactory considering it undertook satisfactorily the studies planned under the project,
established the Eritrean Electricity Committee in lieu of a fully fledged regulatory body
for the energy sector, established the Rural Electrification Fund and developed an
appropriate framework for its administration, conducted stakeholder workshops, and
imparted training to its staff. However, while it provided periodic support to EEC as the
implementing agency for the major components of the project (such as conducting
stakeholder workshops and facilitating the participation of villagers in the rural
electrification projects), it failed to take decisive actions in resolving the intermittent
conflicts between the Contractor and EEC on the Asmara Distribution component.
57. The performance of EEC is also judged moderately satisfactory considering its
role in the successful implementation of the Rural Electrification component and its role
the Asmara Distribution component and the Management Information System (including
billing system) that were both not successfully completed. EEC was pre-occupied with
the problems facing the implementation of the Asmara Distribution component at the
expense of implementing reforms in the management of EEC and overhaul of its billing
system. After the Asmara Distribution contract was terminated by the Contractor in
January 2009, very little was achieved in the form of developing and implementing an
alternative plan of action until January 2010 following a Bank implementation support
mission in December 2009 when EEC submitted an alternative implementation plan that
was acceptable to the Bank. During this period between termination of the EPC contract
and the formulation of an alternative implementation plan, EEC and the Contractor had
protracted discussions on the handover of equipment. When Bank management
subsequently did not allow extension of the project closing date beyond July 2010 the
plan could not be put into effect.
26
(c) Justification of Rating for Overall Borrower Performance
Rating: Moderately unsatisfactory
58. The overall performance of the Borrower is rated moderately unsatisfactory, in
view of the fact that the overall performance of the Government is rated unsatisfactory
but the performance of the implementing agencies, including the Ministry of Energy and
Mines, is rated moderately satisfactory.
6. Lessons Learned
59. The following lessons can be drawn from the experience with the project, namely:
The Bank and Borrower disagreed in the interpretation of procurement guidelines
in the case of the Asmara Distribution EPC contract evaluation. This lack of
shared common understanding led to protracted delay in finalizing bid evaluation.
The Borrower remained dissatisfied with the outcome and this had a negative
impact on implementation. If a similar case were to arise in the future, it would be
important for the Bank and Borrower to share from the outset, a common
understanding of how procurement guidelines should be applied;
The Contractor in the Asmara Distribution component obtained a court injunction
in his home country against cashing of the unconditional performance bank
guarantee leaving the Borrower with no immediate remedial option. A
performance guarantee is meant to be irrevocable and this action of the Contractor
has very few precedents in Bank financed projects. The Bank should examine this
case to determine if there are lessons to be drawn for the terms of performance
guarantees in Bank financed projects; and
When the Bank and Borrower relationship deteriorates to the point where the
overall dialogue is not in the least constructive, the likelihood of negative spill-
over effects on projects should not be underestimated. In such an environment,
when a project encounters implementation problems, there is little leverage that
can be exerted through the overall country dialogue to resolve the problems.
27
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies
60. The Borrower has not formally submitted its own implementation completion
report. Neither has the Borrower formally provided comments on the draft ICR.
61. EEC told the ICR mission that its recommendation not to award the contract to
the selected Contractor was based on their conviction that the Contractor did not price
some major items including civil works in its EPC bid proposal and that adjusting the bid
by using the average price of the other bidders for these items for evaluation purposes
was the correct approach. EEC told the ICR mission that in its opinion, the Bank should
have accepted this approach. The assessment of the ICR mission was that EEC’s view
influenced its contract management approach. When during implementation, EEC
became dissatisfied with the performance of the Contractor its approach to resolving
contractual problems was influenced by its conviction that despite having agreed to
undertake the works at the low bid price, the Contractor did not intend to carry out the
works at the bid price.
(b) Cofinanciers
62. None.
(c) Other partners and stakeholders
63. None.
28
Annex 1. Project Costs and Financing
(a) Project Cost by Component (in USD Million equivalent)
Components Appraisal Estimate
(USD millions)
Actual/Latest
Estimate (USD
millions)
Percentage of
Appraisal
Asmara Distribution
Rehabilitation and Expansion 29.57 16.75 56.6
Rural Electrification 13.78 12.34 89.6
Rural Electrification Fund 1.41 - 0.0
Sector Reform and Institutional
Capacity Building 4.34 1.59 36.6
Environmental Management 0.43 0.06 14.2
Total Baseline Cost 49.53 30.74 62.1
Physical Contingencies
4.50
0.00 0.0
Price Contingencies
3.15
0.00 0.0
Total Project Costs 57.18 30.74 53.8
Front-end fee PPF 0.00 0.00 -
Front-end fee IBRD 0.00 0.00 -
Total Financing Required 57.18 30.74 53.8
(b) Financing
Source of Funds Type of
Cofinancing
Appraisal
Estimate
(USD
millions)
Actual/Latest
Estimate
(USD
millions)
Percentage of
Appraisal
Borrower - 7.20 Data not
available
Data not
available
International Development
Association (IDA) - 29.00 14.21 49.0
IDA GRANT FOR POST-
CONFLICT - 21.00 16.49 78.5
29
Annex 2. Outputs by Component
A. Asmara Distribution System Rehabilitation and Expansion
Items Status
Replacement of old 5.5 kV MV system by 15 kV
system
Underground cable, overhead lines and new
cross-arms and insulators are procured.
Installation of new 15 kV/LV distribution transformers
and associated fuse gear
Transformers are procured.
Construction of a new 66/15 kV substation at Asmara
North
Transformers and switchgears are procured and
construction has commenced but not yet
finished.
Upgrading/rehabilitation of the existing substations at
Gejeret
Transformers, switchgear and switchboard are
procured but installation work is not yet done.
Upgrading/rehabilitation of the existing substations at
Denden
Transformers and switchboard are procured but
installation work is not yet done.
Minor works at Asmara East substation Done by EEC.
Minor works at Belesa substation Materials are 90 per cent procured but
installation work is not yet done.
Replacement of 66 kV overhead line between Gejeret
and Denden substations by 66 kV underground cable
Installation is not yet done.
Dismantling and removal of 66 kV lines between
Belesa and Asmara Central substations and between
Gejeret and Denden substations
Replacement of the open-wire distribution systems by
aerial bunched cable (ABC)
Elimination of 127/220 V LV system and replacement
by 400/230 V system
Replacement of service connections and new meters
for affected consumers
Training and consulting services to EEC Not done.
B. Rural Electrification
Items Status
Electrification in 80 villages in the hinterland of four
towns of Keren, Barentu, Dekemhare, and Adi Keih
57 villages are electrified
Training and consulting services to EEC Done
C. Rural Electrification Fund
Items Status
Government to establish a Rural Electricity Fund
(REF) to finance capital subsidies to qualifying
schemes to electrify additional villages
REF was established and initial contribution of
Nakfa 22 million was made, exceeding the
initial target of Nakfa 10 million.
30
D. Sector Reform and Institutional Capacity Building
Items Status
Advisory services, studies, and training to establish a
modern legal and regulatory framework for the power
sector
Done.
Set up a suitable tariff setting policy and mechanism Done.
Training of MEM, EEC, regulator, and REF staffs Not done.
Training and information to entrepreneurs on using
electricity for increased productivity and income
generation
Some training activities were done.
Training and information to rural farmers on the costs
and benefits of shifting to electric irrigation pumps
Some training activities were done.
EEC capacity building Not done except for some workshops
organized by MEM and billing system
consulting provided.
MEM capacity building Not done except for MEM in-house monitoring
and evaluation of the project’s outputs and
impacts.
E. Environment and Social Management
Items Status
Implementation of the Environmental and Social
Management and Monitoring Plan
Done.
31
Annex 3. Economic and Financial Analysis
1. At the time of appraisal, net economic and financial benefits, in terms of net
present value and internal rates of return (EIRR and FIRR), were estimated for the
Asmara Distribution Component (Component A) and the Rural Electrification
Component (Component B) respectively. This section adopts similar
methodologies used in the ex-ante economic and financial analysis, subject to the
availability of data, and updates the analysis undertaken in the PAD.
2. For this ex-post economic and financial analysis, some key assumptions are made.
For example, at the time of this ICR, the Component A was not yet complete.
Accordingly, there is no actual stream of economic benefits from this component,
hence the realized NPV and EIRR are technically non-existent. Nevertheless, for
the purpose of comparison and possible future use, the economic and financial
analysis of this component is made on the basis of estimated cost to completion
and the expected benefits if the component is completed. Where realized data
could not be obtained or was insufficient, the analysis relied on a combination of
actual and estimated figures. The assumptions adopted are described in such
instances.
Economic Analysis
A. Asmara Distribution Rehabilitation and Expansion Component (Component A)
3. In the PAD, the Economic Internal Rate of Return (EIRR) and economic NPV@
12 per cent for Component A were estimated to be 18.3 percent and US$12.3
million respectively. The economic benefits of this component are assumed to
derive from: (i) incremental demand for electricity served by the project, (ii)
avoided cost of industrial generation, (iii) avoided cost of unplanned outages, and
(iv) savings in distribution O&M costs. The economic costs of the component are
assumed to be: (i) distribution investment costs, (ii) consumer appliance switching
costs, (iii) the costs of connecting additional consumers; and (iv) incremental
generation and transmission O&M costs.
4. Ex-post, all these economic cost and benefit items are re-estimated using similar
methodologies except for the costs of consumer appliance-switching, which could
not be estimated in this ex-post analysis because it has continuously been
undertaken in the project area before the project completion and data were
deficient. . It is also assumed that the component A will be finalized in 2012 with
additional disbursements of US$10 million, which is within the resource envelope
of the undisbursed amount in the project. Updating the assumptions used in the
ex-ante analysis, the EIRR and economic NPV are estimated to be 16.5 percent
and US$ 12.8 million respectively. These figures show that this component is
economically viable.
32
Table 3.1: EIRR and Economic NPVs for Component A
EIRR NPV AT 12% DISCOUNT RATE
PAD 18.3% US$ 12.3 million
ICR 16.5% US$ 12.8 million
5. The slight differences in the ex-post EIRR and economic NPV from the initial
assessment, though not significant, reflect a combination of the following factors:
(i) increase in benefit from incremental demand served reflecting the updated
demand and supply capacity forecast in the Tariff Study; (ii) decrease in net
benefit due to the delayed implementation of the project; (iii) increase in costs due
to the fuel costs increase; and (iv) decrease in economic benefits from avoided
industrial generation costs because of less-than-expected growth in the industrial
consumers segment. Updated table on the sales of electricity in Asmara,
indicating both the forecast at appraisal and the actual, is attached below.
Table 3.2: Asmara Sales Forecast and Actuals For the Year Ended December 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Energy Sales (GWh)
Domestic 40.37 40.44 45.85 50.83 55.86 58.11 60.46 64.76 69.38 74.67 80.37 86.10
(Actual) 40.37 40.44 45.85 50.83 55.86 60.64 64.50 62.60 67.03 68.40 73.20
Commercial 16.27 15.68 20.62 25.14 26.65 27.72 28.84 30.60 32.62 34.94 37.42 39.89
(Actual) 16.27 15.68 20.62 25.14 26.65 29.09 30.05 28.05 29.96 31.94 31.42
Street Light 3.04 2.10 2.75 2.27 2.58 2.66 2.74 2.87 3.02 3.08 3.14 3.20
(Actual) 3.04 2.10 2.75 2.27 2.58 3.28 3.20 2.08 2.69 3.67 3.51
Small Industries L.V. 12.03 12.24 11.54 12.39 14.11 15.41 16.83 18.73 20.85 22.98 25.34 27.94
(Actual) 12.03 12.24 11.54 12.39 14.11 16.68 16.34 15.79 18.05 17.53 17.76
Small Industries M.V. 12.32 13.73 13.21 11.76 10.97 11.30 11.65 12.12 12.73 13.63 14.60 15.64
(Actual) 12.32 13.73 13.21 11.76 10.97 8.81 7.02 8.39 8.64 9.60 10.83
Large Industries 17.77 19.48 16.97 16.36 15.99 16.47 16.97 17.82 18.90 20.25 21.68 23.22
(Actual) 17.77 19.48 16.97 16.36 15.99 15.23 14.88 16.27 18.69 12.47 16.01
Total 101.80 103.68 110.93 118.75 126.15 131.67 137.48 146.90 157.49 169.55 182.56 195.99
(Actual) 101.80 103.68 110.93 118.75 126.15 133.73 135.99 133.17 145.06 143.61 152.74 -
1.8% 7.0% 7.0% 6.2% 4.4% 4.4% 6.9% 7.2% 7.7% 7.7% 7.4%
(Actual) 1.8% 7.0% 7.0% 6.2% 6.0% 1.7% -2.1% 8.9% -1.0% 6.4%
Losses (%) 17.5% 7.8% 16.6% 17.4% 17.9% 18.0% 18.0% 18.2% 12.4% 6.6% 6.7% 6.9%
Energy imported to Asmara 123.4 112.4 133.0 143.7 153.7 160.6 167.7 179.6 179.8 181.5 195.7 210.5
Load factor (%) 71.2% 65.0% 58.1% 60.6% 59.3% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%
System peak demand (MW) 19.8 19.7 26.1 27.1 29.6 30.6 31.9 34.2 34.2 34.5 37.2 40.1
Consumer Nos.
Domestic 53,425 52,744 53,390 54,525 57,551 58,702 59,876 61,672 63,523 65,428 67,391 69,413
(Actual) 53,425 52,744 53,390 54,525 57,551 59,084 59,837 61,631 64,120 65,567 68,668
Commercial 10,662 10,059 10,744 11,096 11,309 11,535 11,766 12,001 12,301 12,609 12,924 13,247
(Actual) 10,662 10,059 10,744 11,096 11,309 10,734 10,631 10,570 10,547 10,531 10,505
Street Light 166 170 178 182 192 198 204 212 220 225 229 234
(Actual) 166 170 178 182 192 199 208 211 218 222 224
Small Industries L.V. 1,922 1,879 1,305 1,393 1,481 1,555 1,633 1,731 1,835 1,926 2,023 2,124
(Actual) 1,922 1,879 1,305 1,393 1,481 1,524 1,565 1,589 1,600 1,568 1,569
Small Industries M.V. 70 70 69 70 71 72 72 73 75 76 78 79
(Actual) 70 70 69 70 71 61 60 59 58 58 56
Large Industries 17 17 17 17 18 18 18 19 19 19 20 20
(Actual) 17 17 17 17 18 19 19 19 19 19 17
Total 66,262 64,939 65,703 67,283 70,622 72,080 73,569 75,708 77,972 80,283 82,664 85,117
(Actual) 66,262 64,939 65,703 67,283 70,622 71,621 72,320 74,079 76,562 77,965 81,039 -
33
Table 3.3: Summary of Economic Costs and Benefits (Component A)
Domestic
Street
lighting
Commerci
al
S.
Industries
(LV)
S.
Industries
(MV)
L.
Industries
2004 - - - - - - - - - - 0.74 - - - 0.74 (0.74)
2005 - - - - - - - - - - 3.19 - - - 3.19 (3.19)
2006 - - - - - - - - - - 0.82 - - - 0.82 (0.82)
2007 - - - - - - - - - - 0.37 - - - 0.37 (0.37)
2008 - - - - - - - - - - 9.34 - - - 9.34 (9.34)
2009 - - - - - - - - - - 2.53 - - - 2.53 (2.53)
2010 - - - - - - - - - - 0.10 - - - 0.10 (0.10)
2011 - - - - - - - - - - 3.00 - - - 3.00 (3.00)
2012 - - - - - - - - - - 5.00 - 0.18 2.89 8.07 (8.07)
2013 1.70 0.10 0.94 0.42 0.26 0.27 0.54 0.03 0.08 4.34 2.00 0.01 0.37 5.99 8.37 (4.03)
2014 2.64 0.16 1.46 0.66 0.40 0.41 0.57 0.03 0.17 6.50 0.27 0.01 0.37 5.99 6.64 (0.14)
2015 3.64 0.23 2.02 0.91 0.56 0.57 0.61 0.03 0.25 8.82 0.27 0.02 0.37 5.99 6.64 2.17
2016 4.71 0.29 2.61 1.18 0.72 0.74 0.66 0.03 0.25 11.20 0.27 0.02 0.37 5.99 6.65 4.55
2017 5.86 0.36 3.25 1.47 0.90 0.92 0.70 0.03 0.25 13.74 0.27 0.02 0.37 5.99 6.65 7.10
2018 7.09 0.44 3.93 1.78 1.08 1.11 0.75 0.03 0.25 16.47 0.27 0.02 0.37 5.99 6.65 9.82
2019 8.41 0.52 4.66 2.11 1.28 1.31 0.80 0.03 0.25 19.38 0.27 - 0.37 5.99 6.63 12.75
2020 9.82 0.61 5.44 2.46 1.50 1.53 0.86 0.03 0.25 22.50 0.27 - 0.37 5.99 6.63 15.87
2021 11.33 0.70 6.27 2.84 1.73 1.77 0.92 0.03 0.25 25.84 0.27 - 0.37 5.99 6.63 19.21
2022 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2023 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2024 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2025 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2026 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2027 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2028 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2029 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
2030 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78
- - - - -
@ 12% 12.78
@10% 23.44
EIRR 16.49%
(IV)
Distributio
n O&M
cost
savingsYear
(I) Increased demand served
ECONOMIC BENEFITS
Total
Economic
Benefits
(II)
Avoided
industrial
generation
(III)
Avoided
cost of
outages
(V)
Distributio
n
investment
NET
BENEFI
TS
Total
Economic
Costs
ECONOMIC COSTS
(VII)
Increment
al Hirgigo
O&M
(VIII)
Increment
al Hirgigo
fuel
(VI) New
consumer
connection
s
34
B. Rural Electrification Component (Component B)
6. At appraisal, the EIRR and economic NPV@ 12 per cent of Component B were
estimated to be 12.6 percent and US$ 0.4 million. The economic benefits of this
component were the estimated incremental demand served by the project for
different types of consumers and savings in resource cost compared to the demand
served. Assumptions were made on monthly savings in household expenditures
on energy as well as avoided costs of using local diesel generators for commercial,
small industrial, and irrigation consumers. The economic costs of the component
were investment costs and operating costs in the four project areas, and the grid
supply costs.
7. It was estimated at the time of appraisal that average benefits per kWh for each
consumer category were US$0.16 per kWh for residential consumers and public
institutions and US$ 0.24 per kWh for consumers from commercial, industrial and
irrigation sectors. These assumptions were reviewed and reconfirmed on real
basis during the ICR mission, after taking the inflation rates in Eritrea into
consideration. Some sample residential households interviewed told the mission
that they saved about 190-200 Nfa per month for three light bulbs, translating to
about US$ 0.40 per kWh equivalent. Calculation at the time of ICR also indicates
that industries would save about US$ 0.45 per kWh for avoiding the usage of
diesel generators.
8. Ex-post analysis followed the methodology adopted at appraisal with updated
assumptions. Although the Borrower indicated during the ICR mission that about
30,000 households were electrified, to be on the conservative side, this analysis
based the estimated number of households on the most recent written table
available, which suggests about 22,700 households have benefited from this
component in 2010. The EIRR and economic NPV of the component thus
estimated are 9.8 percent and US$ -1.2 million respectively.
Table 3.4: EIRR and Economic NPVs for Component B
EIRR NPV AT 12%
DISCOUNT RATE
PAD 12.6% US$ 0.4 million
ICR 9.8% US$ -1.2 million
9. The differences between the ex-ante and ex-post analysis stem mainly from the
lower than expected number of consumers connected by the project. This is due to
the increased cost of equipment and supplies since the project commencement; 21
villages had to be dropped from the original list of communities to be supported
under this component.
35
Table 3.5: Summary of Economic Costs and Benefits (Component B)
ECONOMIC
COSTS
Total Keren Barentu Dekemhare Adi Keih Total
2004 0.12 - - - - - (0.12)
2005 2.11 - - - - - (2.11)
2006 4.07 - - - - - (4.07)
2007 5.23 0.75 0.49 0.64 0.19 2.07 (3.16)
2008 1.80 0.76 0.49 0.65 0.19 2.10 0.30
2009 1.28 0.77 0.50 0.66 0.19 2.12 0.84
2010 0.83 0.78 0.50 0.67 0.20 2.15 1.32
2011 0.84 0.79 0.51 0.68 0.20 2.18 1.34
2012 0.85 0.80 0.52 0.69 0.20 2.20 1.35
2013 0.86 0.81 0.52 0.70 0.20 2.23 1.37
2014 0.87 0.82 0.53 0.71 0.21 2.26 1.39
2015 0.88 0.83 0.54 0.71 0.21 2.28 1.41
2016 0.88 0.84 0.54 0.72 0.21 2.31 1.43
2017 0.89 0.85 0.55 0.73 0.21 2.34 1.45
2018 0.90 0.86 0.55 0.74 0.21 2.37 1.47
2019 0.91 0.87 0.56 0.75 0.22 2.40 1.49
2020 0.92 0.88 0.57 0.76 0.22 2.43 1.51
2021 0.93 0.89 0.58 0.77 0.22 2.46 1.53
2022 0.94 0.90 0.58 0.78 0.22 2.49 1.55
2023 0.95 0.91 0.59 0.79 0.23 2.52 1.57
2024 0.96 0.92 0.60 0.81 0.23 2.55 1.59
2025 0.97 0.93 0.60 0.82 0.23 2.58 1.61
EIRR 9.78%
NPV@12% (1.23)
NPV@10% (0.14)
ECONOMIC BENEFITS NET
BENEFITS
Financial Analysis
A. Asmara Distribution Rehabilitation and Expansion Component
10. At appraisal, the Financial Internal Rate of Return (FIRR) and financial NPV of
Component A were estimated to be 9.7 percent and US$ -4.5 million. Ex-post,
using cash inflows and outflows caused by this component, these figures are
estimated to be 10.6 percent and US$ -3.2 million. It was assumed that 30 per cent
tax will be levied on the project after its operating revenues become positive.
36
Table 3.6: FIRR and Financial NPVs for Component A
FIRR NPV AT 12%
DISCOUNT RATE
PAD 9.7% US$ -4.5 million
ICR 10.6% US$ -3.2 million
B. Rural Electrification Component
11. The initial FIRR and financial NPV, discounted at 12 per cent, of Component B
were 7.4 percent and -US$1.5 million. At the time of this ICR, these figures are
estimated to be 7.2 percent and US$ -2.6 million.
Table 3.7: FRR and Financial NPVs for Component B
FRR NPV AT 12%
DISCOUNT RATE
PAD 7.4% US$ -1.5 million
ICR 7.2% US$ -2.6 million
37
Annex 4. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
Peter Beard Consultant Power Engineer
Ludmilla Butenko Sr. Financial Analyst AFTEG Financial Analyst
Raihan Elahi Senior Energy Specialist AFTEG Financial Analyst
Steve Gaginis Finance Officer Financial
Management
Tesfaalem Gebreiyesus Sr. Procurement Specialist AFTQK Procurement
Alfred Gulstone Lead Power Engineer TTL
Roxanne Hakim Sr. Anthropologist ECSS4 Social safeguards
Helena Mamle Kofi Procurement Analyst Procurement
Paivi Koljonen Lead Energy Specialist AFTEG TTL, preparation
and implementation
Amadou Konare Environmental Consultant Environmental
safeguards
Brighton Musungwa Sr. Financial Management
Specialist AFTFM
Financial
Management
Edith Mwenda Sr. Counsel Legal
David V. Phan Program Assistant MNSED Program assistant
Enrico Pinali Project Analyst Project analyst
Chrisantha Ratnayake Consultant Power engineer
Francesco Sarno Sr. Procurement Specialist Procurement
Supervision/ICR
Rita Ahiboh Program Assistant AFTEG Program Assistant
Henry Amena Amuguni Financial Management Specialist AFTFM Financial
Management
Paul Baringanire Sr. Power Engineer AFTEG Power engineer
Anil Bhandari Consultant AFTTR ICR Primary
Author
Raihan Elahi Sr. Energy Spec. AFTEG Financial Analyst
Efrem Fitwi Procurement Specialist AFTPC Procurement
Tesfaalem Gebreiyesus Sr. Procurement Specialist AFTQK Procurement
Roxanne Hakim Sr. Anthropologist ECSS4 Social safeguards
Paivi Koljonen Lead Energy Specialist AFTEG TTL
Mbuba Mbungu Consultant Procurement
Mitsunori Motohashi Financial Specialist AFTEG ICR support
Brighton Musungwa Sr. Financial Management
Specialist AFTFM
Financial
management
Kyran O'Sullivan Sr. Energy Specialist AFTEG TTL
Chrisantha Ratnayake Consultant Power engineer
38
Colin P. Rees Consultant QLP Environmental
safeguards
Abdolreza B. Rezaian Sr. Energy Specialist AFTEG IT management
information system
Nightingale Rukuba-Ngaiza Sr. Counsel LEGAF Legal
Kurt F. Schenk Consultant AFTEG Procurement
Janine Speakman Operations Analyst AFTEG Operations Analyst
Bernard W. Tenenbaum Consultant AFTEG
Sector reform and
institutional
capacity
Moses Sabuni Wasike Sr. Financial Management
Specialist OPCFM
Financial
Management
(b) Staff Time and Cost
Stage of Project Cycle
Staff Time and Cost (Bank Budget Only)
No. of staff weeks
USD Thousands
(including travel and
consultant costs)
Lending
FY99 69.6
FY00 22.05 132.95
FY01 11.17 96.60
FY02 2.31 5.13
FY03 8.61 57.43
FY04 33.70 226.12
Total: 77.84 587.84
Supervision/ICR
FY04 0.00
FY05 29.51 147.71
FY06 14.54 100.40
FY07 13.76 92.08
FY08 24.81 170.33
FY09 11.75 74.60
FY10 15.35 88.48
FY11 13.11 77.75
Total: 122.83 751.35
39
Annex 5. Beneficiary Survey Results (if any)
Not applicable.
40
Annex 6. Stakeholder Workshop Report and Results (if any)
Not applicable.
41
Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR
The Borrower has not submitted its own ICR nor made any comments on the draft ICR
prepared by the Bank, before the ICR due date.
The Borrower informed the ICR mission team that it feels strongly that its
recommendation not to award the contract to the selected Contractor was based on their
conviction that the Contractor did not price some major items including civil works in its
EPC bid proposal and that adding an equivalent value to the Contractor’s bid price for
evaluation purposes was the correct approach, which was not accepted by the Bank.
42
Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders
Not applicable.
43
Annex 9. List of Supporting Documents
Project Appraisal Document (PAD)
Project Paper, Additional Financing
Development Financing Agreement
Project Agreement
Project Aide Memoires
Implementation Status and Results Reports (ISRs)
Progress Reports
Midterm Review Report
PB Power (2006) Tariff Study Update Asmara Power Distribution and Rural
Electrification Project
44
MAP