Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 24446

IMPLEMENTATION COMPLETION REPORT(SCL-40200)

ONA

LOAN

IN THE AMOUNT OF US$ 10 MILLION

TO THE REPUBLIC OF

MOLDOVA

FOR AN

ENERGY PROJECT

June 28, 2002

Infrastructure and Energy UnitEurope and Central Asia Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective at December 31, 1995)

Currency Unit = Leu (plural is Lei) (MDL)1 MDL = US$ 0.22US$ 1 = 4.5 MDL

(Exchange Rate Effective at December 31, 2001)1 MDL = US$0.08

US$ 1 = 13.08 MDL

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

ANRE National Energy Regulatory AgencyCAS Country Assistance StrategyCHP Combined Heat and PowerEIRR Economic Internal Rate of RetumEU TACIS European Union Program for Technical Assistance for the Commonwealth of

Independent StatesFIRR Financial Intemal Rate of RetumFMS Financial Management SystemFSU Former Soviet Union[AS Intemational Accounting StandardsIBRD Intemational Bank for Reconstruction and DevelopmentIDA Intemational Development AssociationIDF Institutional Development FundIFC International Finance CorporationILO Intemational Labour OrganisationIRR Intemal Rate of RetumkWh Kilowatt hoursPIU Project Implementation UnitSAC Structural Adjustment CredtSAR Staff Appraisal ReportSPFA State Production Fuel AgencyUSAID United States Agency for Intemational Development

Vice President: Johannes F. Linn

Country Director: Roger W. Grawe

Sector Director: Hossein RazaviTask Team Leader: Jann Masterson

MOLDOVAENERGY PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings I3. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 65. Major Factors Affecting Implementation and Outcome 126. Sustainability 147. Bank and Borrower Performance 158. Lessons Learned 189. Partner Comments 1910. Additional Information 19Annex 1. Key Performance Indicators/Log Frame Matrix 20Annex 2. Project Costs and Financing 21Annex 3. Economic Costs and Benefits 23Annex 4. Bank Inputs 25Annex 5. Ratings for Achievement of Objectives/Outputs of Components 27Annex 6. Ratings of Bank and Borrower Performance 28Annex 7. List of Supporting Documents 29Annex 8. Project Review from the Borrower's Perspective (IBRD Ln. 4020-MD) 30

Project ID: P008555 Project Name: ENERGY

Team Leader: Jann Masterson TL Unit: ECSIE

ICR Type: Core ICR Report Date: June 29, 2002

1. Project Data

Name: ENERGY L/C/TF Number: SCL-40200

Country/Department: MOLDOVA Region: Europe and CentralAsia Region

Sector/subsector: GS - Refining, Storage & Distribution; PT - Thermal

KEY DATESOriginal Revised/Actual

PCD: 10/22/1993 Effective: 08/16/1996 01/31/1997

Appraisal: 01/06/1995 MTR: 10/31/1997 10/25/1999

Approval: 05/23/1996 Closing: 06/30/2000 12/31/2001

Borrower/lmplementing Agency: REPUBLIC OF MOLDOVA/MOLDOVAGAS; REPUBLIC OFMOLDOVA/CHISINAU CHP2

Other Partners:

STAFF Current At Appraisal

Vice President: Johannes F. Linn W. Thalwitz

Country Manager: Roger W. Grawe Basil Kavalsky

Sector Manager: Hossein Razavi Dominique LallementTeam Leader at ICR: Jann Masterson Barbara Evans

ICR Primary Author: Jann Masterson; Margaret A.Wilson

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=HighlyUnlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Perfornmance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The original project objectives were to: (i) strengthen the financial management and accounting systems

that are needed in order to place gas and electricity sales on a commercial basis, and establish Moldovagas

and Moldenergo as financially viable energy enterprises; and (ii) improve the measurement of consumed

energy and the efficiency of electricity production in order to reduce losses and waste of costly imported

fuels.

Context: The objectives and design of the Energy Project need to be assessed in the context of (i)

Moldova's heavy dependence on imported energy (it imports over 99 percent of its primary energy

requirements, with Russia as the main supplier); and (ii) the economic contraction, terms-of-trade shock

and decline in real wages which Moldova experienced following the break-up of the former Soviet Union

(FSU). The most serious policy problem in the energy sector since 1991 has been the inability to place

Moldova's energy consumption on an economic basis, as a result of: (a) energy prices that did not reflect

full costs; (b) widespread energy system losses and theft, amounting to 50 percent of consumed electricity

in some regions; (c) inadequate metering, accounting, and control systems for conducting energy sales as an

economic transaction; (d) Government's reluctance to terminate deliveries to nonpaying customers; and (e)

the focus, inherited from Soviet times, on maximizing production volume at the expense of economic

efficiency and profitability. These problems had brought Moldova's energy agencies to the brink of

insolvency, and delayed structural reformn in the energy-consuming sectors and permitted the build-up of

large debts to external creditors. Such debts exceeded US$300 million as of May 1995.

The project was the first loan to the Moldovan energy sector. The project was envisaged by the Bank as a

limited, focussed intervention, intended only as a first step in moving the energy sector toward better

economic and financial management.

The Energy Project was consistent with the joint IBRD/IDA/IFC Country Assistance Strategy (CAS)

discussed by the Bank's Board on May 7, 1996. The CAS recognized the macroeconomic impact of

Moldova's large energy debt, and that the restoration of the competitiveness of the economy required a

substantial reduction in its energy intensity. While the bulk of the reduction in energy intensity was

expected to come about through a hardening of budgetary constraints and policy reforms, and these

measures were key requirements under the Second Structural Adjustment Loan, the Energy Project was

expected to install a significant amount of the hardware needed to enforce payment discipline and also

reduce gas losses, and improve energy efficiency at one combined heat and power generation plant.

The main risk identified was the possibility that Government and energy agencies would be reluctant to

fulfill key items of the Financial Action Plan, which could seriously undermine the financial position of the

energy agencies. Key measures of the Financial Action Plan and planned due dates were as follows:

* Development of a Regulatory Framework for Energy Supply: Implement new rules of supply and

use for each energy resource in order to define relations between suppliers and consumers, including:

(a) procedures for termination of non-paying customers, (b) measures to reduce high non-technical

losses of electricity and unrecorded consumption (meter bypass), (c) Government will not force the

energy companies to supply non-paying customers on credit or otherwise interfere with disconnection

of non-payers, (d) the energy companies will supply industrial and commercial agents only pursuant to

supply and payment contracts, (e) customers that do not respect their contracts will be disconnected,

and efforts will be made to improve reliability of deliveries to paying customers (June 1996);

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* Billing and Financial Management Systems: Data systems will be put in place at Moldovagas and

Moldenergo that allow daily, real-time monitoring of deliveries to all economic agents and budgetorganizations, monitoring of payment performance, and supervision to ensure that non-payers have

been disconnected in a timely manner;* Tariff Reform: Govemment to present to Parliament a new law on Social Protection, establishing a

timetable to replace the existing energy-tariff discounts with targeted direct subsidies to needy

consumers financed from the State Budget (January 1, 1997);

* Electricity Tariffs: (a) Increase residential electricity tariffs by at least 40% relative to current levels

and maintain industrial tariffs at levels providing coverage of all operating costs (May 1996); (b)

Periodically adjust residential tariffs as necessary to ensure that they at least recover cash operating

costs, including production costs, fuel, maintenance, etc. (ongoing); (c) Phase out remaining cross

subsidies between industry and households in electricity tariffs (December 1998); (d) Complete an

impact analysis of lifeline levels and tariffs on various income groups, and prepare a govemment

Resolution to adjust lower-tier lifeline consumption levels (March 1997);

* Natural Gas Tariffs: (a) Residential gas tariffs will be maintained at cost-recovery levels with

adjustments as needed to reflect changes in import prices and exchange rates. Tariffs for industrial

consumers and for power generation will remain at current levels, adjusted regularly to reflect changes

in costs (May 1996), (b) Cross subsidies in gas tariffs will be phased out to achieve a unified level for

all customers (December 1997);* Heafing Tariffs: (a) Residential heating tariffs will be raised by at least 40%, to approximately 25%

of production costs. Tariffs to other categories of consumers will remain at existing levels (May 1996),

(b) Cross subsidies will be phased out over several years, in conjunction with the introduction of

targeted direct subsidies to needy consumers. The Department of Energy and the Ministry of Economy

will complete a detailed study of Heating Tariffs and impact on various consumers groups by April

1997. Recommendations agreed with the World Bank will be phased in by April 2001 (April 1997 and

ongoing);* Management of Energy Indebtedness: (a) No future growth of consumer energy debts: For

electricity overall collection of payments will be maintained at at least 80 percent of billings for 1996

and 100 percent on an annual basis thereafter. For gas, overall collections will be at least 60% in

1996, 80% in 1997, and 100% thereafter (Ongoing); (b) Cash Collection Targets: The ratio of cash

collections to barter settlements will be targeted to increase as outlined in the Financial targets

(1996-Ongoing);* Resolution of Past Debts Owed by the Energy Companies to Suppliers and Creditors: The

Department of Energy will prepare with Moldovagas and Moldenergo a Debt Management Plan forMoldovagas and Moldenergo. (a) These plan will quantify the now-existing debt balances owed to all

creditors, including: Gazprom, The Government of Moldova, Commercial banks, Other EconomicAgents. (b) For the future period through 2001, the plan will explain measures that will be pursued to

reduce or reschedule the existing debt balances. Based on these hypotheses, the plan will provide an

estimate of how quickly the debt balances owed to the above four categories of creditors can be

reduced and these debt settlements will affect the companies' financial position. (c) The plan will also

set specific collection targets for reducing and eventually eliminating overdue receivables. (d) The plan

will be submitted to the World Bank and measures for its implementation agreed (October 1996).

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* Financial Targets:1996 1997 1998

Collections Cash/Barter Ratio 30/70 70/30

Quick Ratio Moldenergo 0.6 0.7Moldovagas 1.0 1.0

Debt Service Ratio 1.2 1.5

Reduction of Energy LossesGas 30% reduction of losses in 1997Electricity 10% reduction of losses in 1997

A timebound implementation plan was agreed at negotiations, and up-front actions were taken on severalkey items. After the first year of project implementation, the reform measures under the Financial ActionPlan were shifted to the Second Structural Adjustment Loan, which offered government incentives toimplement difficult energy sector reforms. Collection targets were made more realistic in the Letter ofDevelopment Policy of SAL II. In retrospect, the Financial Action Plan as designed was unachievable inits totality (even utilities in developed countries do not achieve 100 percent collections) in the envisagedtimeframe, but its value lay in setting targets and opening a dialogue with government on measures thatcould be taken to improve the crisis situation in the energy sector.

3.2 Revised Objective:Development objective (i), as originally stated, was ambiguous and juxtaposed the objective itself("strengthen the financial management and accounting systems of Moldovagas and Chisinau CHP2") withthe reasons for having the objective ("in order to place gas and electricity sales on a commercial basis andestablish Moldovagas and Chisinau CHP2 as financially viable energy enterprises). Strengthening thefinancial management and accounting systems alone -- while essential -- would not be enough to establishfinancially viable energy enterprises. This juxtaposition led to an ambiguity as to what the projectobjective really was, which could have been interpreted as "establishment of Moldovagas and ChisinauCHP2 as financially viable energy enterprises", which was inconsistent with the nature and scope of theproject. After two years in which the achievement of the development objective was rated unsatisfactorydue to the ambiguity of the development objective and to Government's inability to meet all the targets inthe Financial Action Plan, in June 1999, the Loan Agreement was amended to restate the developmentobjective as follows:The project would: (i) strengthen the accounting systems of Moldovagas and Chisinau CHP2 in order toimprove the billing of customers, tracking of payments and operating costs, and facilitate financial decisionmaking; and (ii) improve the measurement of consumed energy and the efficiency of electricity productionin order to reduce losses and waste of costly imported fuels.

Restatement of this objective did not amount to a restructuring. It was approved at the Director level andreported in the Monthly Report to the Executive Directors. Monitoring indicators for the restated objectivewere also revised so that they were no longer the Financial Action Plan targets, but indicators related to therestated objective.

3.3 Original Conmponents:The Staff Appraisal Report (SAR) included five components:

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Component 1: Overhaul of the Chisinau No. 2 Combined Heat and Power (CHP) Plant:

Cost: US$1.2 million (appraisal estimate); US$1.99 (actual cost).

The project was expected to reduce fuel consumption and restore operating efficiency, which had

deteriorated due to deferred maintenance. The work included: repair of air preheaters, boiler tubing

replacement, condenser cleaning, repair of the water demineralizing system, maintenance of the circulating

and main feeding pumps, fitting and piping for the district heating system and miscellaneous parts for the

plant.

Component 2: Repair of Approximately 180 Leaky Gas Distribution Points:

Cost: US$1.0 million (appraisal estimate); US$ 0.79 (actual cost).

Gas leakage, operating inefficiencies, and unscheduled outages were to be reduced by replacing obsolete

pressure transmitters and indicators, installing safety devices, and replacing leaking distribution lines at

roughly 180 of the 800 distribution points (consumer stations) where imported gas enters the domestic

distribution network.

Component 3: Gas Meter Installation:Cost: US$12.2 million (appraisal estimate); US$9.17 (actual cost).

A pilot program of gas meter installation was to be carried out for all consumer groups in order to begin

the process of universal metering, improve the accuracy where meters already exist and reduce losses. The

program was to install 30,000 household meters and 7,000 apartment risers (multiple households) for

consumers who did not currently have any meters. In addition, existing meters would be replaced with

more accurate metering systems for 60 large industrial customers and 2,100 commercial customers.

Component 4: Upgrade of Accounting and Billing Systems and Financial Management.

Cost: US$2.4 million (appraisal estimate); US$0.17 (actual cost).Moldenergo and Moldovagas were to receive computer system upgrades, consultant services and training in

administrative procedures in order to improve intemal collection and handling of operational data, to

improve billing and financial management. These upgrades were needed in order to reduce nontechnical

energy losses, facilitate better financial decision-making and to support implementation of subsequent

sector reforms. The accounting assistance was to be divided into four implementation phases: (a) phase 1:

irnprovement in accounting data; (b) phase 2: management information systems; (c) phase 3: conversion

of financial statements to an accruals basis using IAS; and (d) phase 4: parallel accounts/full accruals

accounting.

Component 5: Project Management and Implementation Assistance:Cost: US$0.7 million (appraisal estimate); US$0.53 (actual cost).

Since this was the first investrnent project in the Moldovan energy sector, technical assistance was to be

provided to Moldovagas and Moldenergo in project management and in preparing bidding documents and

carrying out World Bank procurement procedures. Technical assistance was also required to finalize the

metering design and specifications.

The design of the five components was clearly linked to the objectives described above. Due to the limited

capacity of the Moldovan energy sector to borrow, the project components were selected in areas where

investments could contribute immediately and directly to the sector's financial recovery, while

simultaneously taking the first step in what would need to be a much more substantial investment program

in the sector.

3.4 Rev ised Components:

Although the components were not revised (no new components, no deletion of components) during

- 5 -

implementation, the amounts allocated to each component were revised through reallocations andamendments during the Project.

Component 1: Overhaul of the Chisinau No. 2 Combined Heat and Power (CHP) Plant: Thiscomponent was increased at the request of the government from US$1.2 million to US$1.99 million inorder to finance additional urgently needed equipment.

Component 2: Repair of Approximately 180 Leaky Gas Distribution Points: This component wasdecreased from US$1.0 million to US$0.79 million due to the restructuring of Moldovagas mid-waythrough the project. Control of the distribution points was passed to the regional gas enterprises, andMoldovagas lost its oversight function. Installation of the equipment procured for the gas distributionpoints lagged considerably and some equipment was stolen before it could be installed (the equipment waseventually recovered). Moldovagas and the PIU were also unable to obtain information from the regionalenterprises about how much equipment had been installed (this situation eventually improved, but was adeciding factor in the decision to reduce this component).. As a result, Moldovagas requested to reallocatethe unspent funds in this component to the purchase of metering, over which it did have control. Thisrequest was approved by an amendment signed by the Director and reported in the monthly report to theExecutive Directors.

Component 3: Gas Meter Installation: The gas metering program amount is about US$3.0 million lessthan the appraisal estimate, primarily because the prices of meters were much cheaper than originallyestimated, and also because of the dramatic depreciation of the Moldovan Lei, which resulted in less localfinancing than originally estimated.

Component 4: Upgrade of Accounting and Billing Systems and Financial Management: Thiscomponent was reduced from US$2.4 million to US$0.17 million since the financing was done entirely byMoldovagas and Chisinau CHP2, in order to meet the government's requirements for the adoption ofMoldovan National Accounting Standards (similar to IAS). Additional financing was provided byUSAID as part of its overall program in Moldova, but these amounts are difficult to track, and have notbeen included in the actual costs.

Component 5: Project Management and Implementation Assistance: This component is roughly thesame amount as envisaged at appraisal, but when the PIU was established in April 1998, with three fulltime staff, operating costs of the PIU were included in this component.

3.5 Quality at EntrY:Quality at entry was not formally assessed for the project. The ICR rating of quality at entry issatisfactory. The project was prepared before the use of the log-frame became commonplace, and theobjectives were somewhat ambiguous, without a clear link to expected outcome and outputs. Despite thisshortcoming, the project was well prepared, and adequate implementation arrangements were in place forproject start-up.

4. Achievement of Objective and Outputs

4.1 Ouitcie/achieveoment of objective:Original Objective: Strengthen the financial management and accounting systems that are needed inorder to place gas and electricity sales on a commercial basis, and establish Moldovagas andMoldenergo as financially viable energy enterprises.

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Restated Objective: Strengthen the accounting systems of Moldovagas and Chisinau CHP2 in order

to improve billing of customers, tracking of payments and operating costs, and facilitate financialdecision making.

Both the original and restated objectives have been achieved. Following a 2 year period in which the

achievement of the original development objective was rated unsatisfactory, due to the mixed performance

in fulfilling the Financial Action Plan agreed at negotiations, this development objective was restated to

remove ambiguity, and a new set of monitoring indicators was developed. Although at the time the

objective was restated there was uneven progress in meeting the conditions of the Financial Action Plan

(legislation had been enacted, an independent regulator had been established and was functioning

satisfactorily, tariffs for gas and electricity had been increased, but collections had registered only slight

improvements and each year decreased dramatically during the winter season, and energy debts for gas

imports continued to rise), by the end of the Project, as a result of the energy privatization dialogue under

SAL 11 and SAC III, electricity collections had improved dramatically with the privatization of 3 of the 5

electricity distribution companies.

In conjunction with the installation of universal gas metering, Moldovagas eventually took steps long

recommended in the Financial Action Plan to improve its commercial practices, i.e., by creating a special

unit for gas meter read-out at household and industrial consumers, timely billing, and cutting off the

nonpaying customers. Moldovagas also increased its gas consumption norms for customers who did not

have meters, so that their payments were cioser to the real gas usage. Collections from the population for

supplied gas improved significantly in recent years, with the population paying almost 100 percent of its

gas consumption. The main non-payers now are the large energy sector consumers such as CHP 1, CHP2

and Ternocom, which pay only about 58 percent. Moldovagas' total collections for the year 1997 were 62

percent (of which 15% in cash; the remaining in barter). During the first nine months of 2001 total

collections reached 72 percent.

The restated development objective was also met. Staff of Moldovagas and Chisinau CHP2 were trained

in the new Moldovan National Accounting Standards. Both Moldovagas and Chisinau CHP2 adopted the

new National Accounting Standards and their financial statements beginning in January 1998 were

prepared in accordance with the National Accounting Standards. Full audits of the underlying accounting

data, including comprehensive management letters, were carried out annually by independent auditors, and

all audit reports were unqualified.

Improve the measurement of consumed energy and the efficiency of electricity production in order to

reduce losses and waste of costly imported fuels. With the help of the Energy Project, Moldovagas

embarked on a program of universal metering and went from a situation in 1996, where only industrial and

commercial customers were metered, often with highly inaccurate meters, and individual residential

consumers had no meters and were billed according to "norms", to the current situation. Now, 100 percent

of industrial consumers, 92 percent of household consumers, 98 percent of apartment consumers (this

figure is a bit misleading, because some of the meters are on apartment risers, serving 10- 15 apartments,

and the apartments are not individually metered), and 99 percent of social consumers are billed according

to metered consumption (compared to an appraisal target of 60 percent of total gas consumers). (In

Moldova, the customer is responsible for purchasing the gas meters, and the meters are the property of the

customer, rather than the gas company, so the expenses for purchasing and installation of the meters were

paid by the customers. The customers were free to purchase the meters from Moldovagas or on the open

market, so not all the meters were financed by the Loan.) Gas losses at the gas distribution and consumer

stations were significantly reduced as a result of the installation of gas pressure regulators, meters and flow

computers, and service became more reliable, once the distribution and consumer stations were able to

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provide a steady, regular pressure to consumers. Between 1998-2000 gas measurement equipment at 75%of the transmission/acceptance stations was modernized by replacing gas meters type DSS-712 withelectronic high performance instantaneous devices "Superflow-2". Emission of leaking gas due to faultyregulators was also reduced. Gas losses fell from 0.8 percent in 1997 to 0.18 percent in 2000. Equipmentpurchased for rehabilitation of Chisinau CHP2 Plant resulted in improved plant performance andreliability. However, because of the bankruptcy of Termocom (the district heating company forChisinau), which was the major customer of Chisinau CHP2 Plant, since 1999, the plant has been operatedwith frequent interruptions and sub-optimally.

On the basis of the above analysis, achievement of the project objectives is rated as satisfactory.

4.2 Outputts by coo7ponents:

Component 1: Overhaul of the Chisinau No. 2 Combined Heat and Power (CHP) Plant: At the timeof appraisal, the anticipated economic benefits from the overhaul of the CHP plant accrued mainly in theform of increased fuel efficiency at the CHP plant. The fuel consumption per kWh at the time of appraisal,as well as the projected fuel consumption on completion of the project, presumed that the plant wouldcontinue to operate primarily as a cogeneration plant - with electricity production being driven by heatdemand. Over the course of the project, however, the physical and financial condition of the central heatingnetworks deteriorated badly, and the amount of heat dispatched from Chisinau CHP2 declined steadily.However, since electricity was in short supply, the plant continued to be operated increasingly incondensing mode. This change in operating regime has had a significant impact on the fuel efficiency ofthe plant. Unfortunately, the data on heat production and heat fuel efficiency that was collected at the timeof appraisal is insufficient to allow construction of a scenario that would allow comparison of the plantefficiency before and after the project. The project financed: chemicals for water treatment during the1998-99 winter period, measuring devices (pH meters, salt-meters, scales, etc.), spare parts forturbo-generators, two water retainers for water cooling towers, condensation pumps, computers andphotocopiers for the accounting department, motor operated gate valves, and thyristor excitation systemsfor the 3 generators. These investments made it possible to undertake normal maintenance to keep the plantin a reliable operating condition, to renew obsolete equipment whose lifetime had expired and to preventfurther deterioration. The installation of water retainers decreased water losses and resulted in an annualsavings of about 1328.6 thousand Moldovan Lei. The installation of chemical control and measuringdevices halved the amount of chemical reagents required to produce chemically purified and desalinatedwater. Installation of automatic chemical control devices decreased the amount of sedimentation on thesurface of the heat-exchange apparatus of the boilers, which reduced the temperature of effluent gas,decreased labor costs, and increased the reliability of equipment operation. Plant management has indicatedthat plant reliability and efficiency have both improved, but direct evidence that this is in fact the casecannot be established due to insufficient baseline data.

Component 2: Repair of Leaky Gas Distribution Points: Gas leakage, operating inefficiencies, andunscheduled outages were reduced by replacing 142 obsolete pressure regulators and pressure transmitters,installing safety devices, meters, and installing 20 super flow computers at gas distribution points (gatestations).

Component 3: Gas Meter Installation: The Project (loan plus Moldovagas and customers) financed theacquisition of 236,521 meters, including: 135,082 meters for households, 6,825 apartment riser meters,91,385 meters for individual apartments; 621 industrial meters and 2608 meters for social objects, as wellas a gas calibration facility for large industrial meters. The gas calibration facility, enabled the industrialmeters to be verified at the facility in Moldova and eliminated the need for costly transportation outsideMoldova for calibration. Of the 127,417 meters financed from the Loan, about 89,000 have been

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installed. Moldova went from a pre-project situation where there was no residential metering to apost-project situation with a universal metering program in place that covered about 92 percent ofhousehold gas consumers and 98 percent of apartment consumers. The project vastly exceeded theappraisal targets of 37,000 meters installed, with 23,710 customers billed with meters. Moldovagasindicates that 373,399 customers are billed via meters (this number is larger than the number of metersbecause it includes multiple apartments metered by a single meter at the apartment riser).

The results of the two gas components (2 and 3 above) in terms of both loss reduction and increasedconsumption efficiency were substantial. Owing either to repair of distribution points, to improved gasaccounting as a result of metering, or improved commercial practices by Moldovagas, system losses fellfrom 0.8 percent to 0.18 percent of total gas throughput (including transit). In addition, total gasconsumption within Moldova (which presumably in the past included unmetered and hence unbilledconsumption) has declined by 32 percent.

Component 4: Upgrade of Accounting and Billing Systems and Financial Management: As a result ofan IDF Grant for accounting, international accounting standards were introduced in Moldova and thegovernment adopted new National Accounting Standards, developed with the assistance of internationalorganizations such as the World Bank and USAID. Government made these standards mandatory for allenterprises beginning January 1, 1998. Moldovagas and Chisinau CHP2 Plant took all necessary actionsfor transition of their accounts and financial procedures to the new National Accounting Standards.Training for their accounting staff was also provided, from sources other than the project. BeginningJanuary 1, 1998, the financial statements of Moldovagas and Chisinau CHP2 Plant were prepared inaccordance with the National Accounting Standards. All audit opinions were unqualified.

Component 5: Project Management and Implementation Assistance. The loan was intended tofinance technical assistance to Moldovagas and Chisinau CHP2 Plant in project management andprocurement; however, because the project was financed by an IBRD loan, the government was extremelyreluctant to use the loan funds to finance technical assistance. The task team sought and obtained grantfinancing from the Netherlands Consultant Trust Fund for project implementation assistance. Thisassistance included a gas specialist, a power engineer, a project management specialist and a procurementspecialist. During the first year and a half of implementation (February 1997-October 1998) theimplementation consultants assisted the PIU, Moldovagas and Chisinau CHP2 in development of technicalspecifications, preparation of bidding documents, and evaluation of bids/offers, as well as projectmanagement assistance, including preparation of quarterly progress reports. They provided on-the-jobtraining to the PIU, and by the end of their assignment, the PIU prepared the quarterly progress report, andtook over responsibility for procurement. The loan also provided consultant services to design and set-up afinancial management system, which performed well throughout the Project. USAID provided considerabletechnical assistance as part of its overall program in Moldova in the area of energy sector reforms and alsoprovided a useful twinning arrangement with a U.S. gas company to improve Moldovagas' knowledge ofinternational practices in gas company operations and in billing and collections. The IBRD loan financedthe annual audits of the project accounts and the accounts of Moldovagas and Chisinau CHP2, and theoperating costs of the Project Implementation Unit.

4.3 Net Present Value/lEcononmic rate of return:(a) Overhaul of the Chisinau No. 2 Combined Heat and Power (CHP) . Owing to insufficient data on theextent of improvements in fuel efficiency, we are unable to calculate the actual EIRR of this component.

(b) Gas Network Rehabilitation and Metering. The IRR currently projected for the repair and metering of

the gas distribution network vastly exceeds the expectations at the time of project appraisal. For the gas

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rehabilitation and metering component, the projected economic rate of return at the time of Boardpresentation was 12.6 percent. One of the contributory factors to the EIRR was the assumption that therewould be a decline in consumer surplus as a result of customers no longer getting gas for free. This declinewas valued at the tariff. We would, however, suggest that this overstates the lost consumer surplus. Ifcustomers had been willing to pay the tariff, then there would be no decrease in consumption as a result ofmore accurate metering. Hence, the value of willingness to pay (and hence in this instance of consumersurplus) lies somewhere between the tariff and zero. For purposes of this analysis it has been valued at 50percent of the tariff (including VAT). Based on the economic price of gas savings (and including the l3stconsumer surplus as discussed above), the EIRR of the repair and metering initiatives is estimated to be3,117 percent. Net present value at 10 percent is estimated to be $194.8 million, as compared with $1.2million estimated at the time of appraisal. The main reasons for the increase are that the original analysisdid not anticipate the large reduction in system losses (which alone are sufficient to recover the cost of theprogram). In addition, restating the value of lost consumer surplus has a significant positive impact on thenet benefits.

(c) Overall Project. In the absence of a basis for estimating the benefits of the CHP component of theproject, the consolidated EIRR includes the costs from both investment components, but only the benefitsassociated with the gas component. The overall EIRR is estimated at 674 percent. Net present value at 10percent is estimated to be $182 million.

4 4 Financial rate of return:

(a) Overhaul of the Chisinau No. 2 Combined Heat and Power (CHP) Plant Owing to insufficient data onthe extent of improvements in fuel efficiency, we are unable to calculate the actual FIRR of this component.

(b) Gas Component. For the Gas component (including the metering and repair of distribution points), theFIRR was estimated at 226.5 percent at the time of Board presentation. Based on actual results in terms ofboth reduction in technical losses and savings due to reductions in unbilled consumption, the FIRR iscurrently estimated at 9,488 percent. Net present value at 10 percent is $563.7 million.

(c) Overall Project. The consolidated FIRR of the project, which includes the costs from both investmentcomponents, but only the benefits associated with the gas component, is estimated at 2,576 percent. Netpresent value at 10 percent is estimated to be $551.3 million.

4.5 Instituitional development inmpact

To avert the escalating energy crisis in the mid-1990's, Moldova embarked on an ambitious set of reformsin the energy sector, the main elements of which were:

* development of a new, market oriented legalframework: A new set of energy laws, codifyingseparation of regulatory, policy and ownership functions, allowing private ownership in the energysector, unbundling and corporatization of the industry, and liberalization of energy trading was adoptedin 1998.

* establishment of an independent energy regulatory agency (ANRE) in 1997.* restructuring and corporatization: The country's vertically integrated electricity monopoly

(Moldenergo) was unbundled into 5 distribution companies, 4 generation companies (3 combined heatand power plants, and a small hydropower plant), and Moldelectrica, a transmission and distributioncompany. All companies were converted into joint stock corporations, except Moldelectrica, which is astate enterprise. The country's district heating networks were transferred from the central state to themunicipal governments.

* changing electricity trading rules: In 1999, electricity trading rules were changed so that distribution

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companies were made solely responsible for contracting directly with importers and domesticgenerators sufficient amounts of electricity to supply their customers. This model displaced the singlebuyer model, where the single buyer (Moldtranselectro) imported electricity or bought it from domesticgenerators and sold it to distribution companies. In conjunction with the privatization of a substantialshare of electricity distribution (about 70%), this bilateral contracts-based market allowed significantreduction of the state's direct or indirect involvement in electricity trading, unlike in the case ofsingle-buyer trading arrangements, through which the state usually continues to exercise its influenceand/or accumulate direct and contingent liabilities.

* debt restructuring: Historic debts of the electricity sector - accumulated by distribution companiesbefore their privatization and by Moldtranselectro - were transferred and consolidated on the books ofMoldtranselectro, which became a debt-holding company, without any involvement in the sector'soperations.

* adjusting the level and the structure of tariffs: In the pre-reform period (before 1997), nonresidentialtariffs for all types of energy were significantly higher than residential, and all tariffs were generallybelow costs. For example, residential electricity tariffs in 1996 were between 1.2-1.6 US c/kWh(average tariffs were below 3 US c/kWh). This implied significant cross-subsidies to residentialconsumers for energy consumption. In 1997, tariffs were increased and equalized for all consumers toabout 5.1 US c/kWh, a level which has been more or less maintained since then.

* reducing and re-targeting subsidies for energy consumption: Subsidies for electricity, heating andgas have been substantially reduced in 2000 and brought in line with budget means by eliminating anumber of groups whose eligibility was unrelated to their income.

* privatization of electricity distribution companies: Three of the five electricity distributioncompanies, covering about 70% of the market, were sold in February 2000 to Union Fenosa, aninternational investor and electricity operator from Spain, through an open international tender.

* divestiture of the gas industry: The majority of shares in Moldovagas - the country's monopoly gassupplier - were sold to Russia's Gazprom, in exchange for a portion of the debt.

These achievements have put the energy sector in Moldova at the forefront of economic reforms in thecountry and at the forefront of energy sector reforms among the FSU countries. The reform achievementshave started to show important benefits, and have improved the sectoral environment:

* payment collections increased, especially for electricity: Both privatized and state-owned electricitydistribution companies have improved their collections. While some problems with collecting fromstate-owned entities remain, such as district heating and water companies, state-owned distributioncompanies have been collecting between 90 percent and 100 percent, with cash collections nowexceeding 70 percent (in the mid-1990's, cash collections were about 30-40 percent). Exact collectionfigures for the private companies are not known, but they pay fully for all their financial obligations.

* reliability of energy supply improved& Reliability of energy supply improved dramatically, especiallyin the areas outside the capital, Chisinau.

* electricity import prices to the privatized companies have dropped substantially (by 25-30 percent),as the creditworthiness and credibility of the companies improved.

* quasi-fiscal deficits reduced: The Government stopped accumulating external debt for gas andelectricity imports, except for the electricity supply in non-privatized areas.

As part of project preparation, the Moldovan authorities and the Bank worked closely to develop acomprehensive framework for financial rehabilitation of the energy sector. A comprehensive FinancialAction Plan, which included development of a regulatory framework for energy supply, improved billingand financial management systems, reduction of tariff discounts, increase in residential tariffs forelectricity, natural gas and heating, management of energy indebtedness, and resolution of past debts owed

-1 1-

by the energy companies, was agreed on during negotiations and covenanted in the legal agreements.

Supervision missions monitored implementation of the Financial Action Plan during the first year of the

project, and many of the actions were taken, although debts continued to increase and collections remained

low. It was decided to incorporate the Financial Action Plan into the Second Structural Adjustment Loan,

and subsequently this was monitored through the energy sector dialogue that was part of the adjustment

program. The significant accomplishments made by Moldova in reforming its energy sector cannot be

considered as the result of the US$10 million investment project, but should be viewed as the result of the

ongoing energy sector reform dialogue pursued as part of the adjustment program that began during

preparation of the Energy Project, when the Financial Action Plan was developed and agreed with

Government. Both the introduction of a universal gas metering program financed by the project and the

privatization of Moldovagas played a major role in facilitating its transition to a more commercial

operation. The institutional development impact is characterized as "modest" because most of the energy

sector reforms are attributed to the adjustment program rather than directly to the Energy Project.

The beneficiaries of the Project (Moldovagas and Chisinau CHP2) were introduced to annual audit reports

by independent auditors, completed their conversion to Moldovan National Accounting Standards (which

were similar to IAS), and became familiar with competitive procurement procedures and contracting (for

example, some of the first contracts signed under the project were submitted to the Bank without a contract

signature date; however, by the end of the project, signed contracts were dated and completed properly).

Moldovagas adopted commercial practices such as meter reading, billing, revising the standard norms tomore realistic consumption for those consumers without meters, cutting off non-payers, and offeringinstallment payment plans for the customers purchasing meters.

The Project Implementation Unit gained considerable experience with Bank procurement and disbursement

procedures, contract management, and English, and is now serving as the project implementation unit for

the proposed Second Energy Project.

5. Major Factors Afiecting Implementation and Outcome

5. 1 Factors outside the control of governinent or implementing agency.The main factor outside the control of the government was the total collapse of the heating sector

enterprises. The bankruptcy of Termocom (the Chisinau District Heating Company) negatively impacted

the operation of Chisinau CHP2 plant, forcing it to increasingly operate with interruptions and

sub-optimally. Termocom was Chisinau CHP2 Plant's main customer, and, when Termocom became

unable to pay for the heat it received from Chisinau CHP2 plant, Chisinau CHP2 plant was no longer able

to pay its suppliers.

5.2 Factors generally subject to goverinient control:In 2000, Government imposed a 20 percent VAT on meter sales by Moldovagas to its customers, making

the remaining meters procured under the Loan uncompetitive on the local market. As a result of this

action, about 34,000 of the meters financed by the Loan had not been installed by the end of the project;

they are being installed gradually (about 1,200 per month), and should be completely installed in 2.5 to 3

years. According to information provided by Moldovagas, there are about 11,744 unmetered household

consumers and about 152,374 apartment consumers who may wish to purchase individual apartment

meters rather than relying on communal billing at the apartment riser. It is also assumed that new gas

consumers would be added.

The Government attempted to adhere to the Financial Action Plan, albeit with mixed results. However, by

the end of the Project, most of the specific measures in the Financial Action Plan had been implemented,

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albeit much more slowly than the initial schedule.In 1998, the country's vertically integrated electricity monopoly (Moldenergo, a beneficiary of the Project)was unbundled into 5 distribution companies, 4 generation companies (3 combined heat-and power plants,and a small hydropower plant), and Moldelectrica, a transmission and dispatch company. All companieswere converted into joint stock corporations, except Moldelectrica, which is a state enterprise. TheMinistry of Finance requested and was granted an amendment to the Loan Agreement and ProjectAgreements substituting Chisinau CHP2 Plant for Moldenergo as a beneficiary of the loan proceeds.

Moldovagas was purchased by Gazprom, and the Govemment transferred its repayment and financialreporting obligations to Chisinau-gaz SRL, a Moldovan owned subsidiary. Since all procurement underthe gas components had been completed, Government did not request an amendment to the LoanAgreement.

5.3 Factors generally sutbject to implementing agency control:Moldovagas made considerable efforts to improve its commercial practices (see 4.5) and achieved adramatic reduction in gas losses (see 4.2).

Chisinau CHP2 Plant had difficulty covering its share of local costs for installation of equipment procuredunder the Project, and in some cases delayed installation by a year or more. Some items procured could notbe installed before the loan closing date, due to lack of funds or due to operational restrictions of the plant(whereby only one unit could be shut down during the construction season). Installation of the secondwater retainer is scheduled for summer 2002, and installation of the second and third excitation systems arescheduled for summer 2002 and summer 2003 respectively.

Both Chisinau CHP2 and Moldovagas appointed competent teams to be responsible for technicalimplementation. During the first year of the project, all procurement was done by these teams, as therewas no PIU, only a Project Coordinator, who was also Director of the Energy Department. Moldovagasfinanced training for one of its employees in "Procurement of Goods" at the ILO training institute. Thisemployee was later appointed as the Procurement Specialist in the PIU. This demonstrates clearly theimplementing agencies' commitment to the project, although they may not always have had the financialresources to organize installation in a timely manner.

The PIU was composed of three competent and motivated staff (Deputy Coordinator, Financial Officer andProcurement Specialist) who managed the project satisfactorily. The PIU was recruited in April 1998, andoperated with considerable efficiency (total PIU operating costs financed by the Loan in the three yearsfrom 1998-2001 were only $1 10,000, compared to approved annual operating budgets of$80,000-$ 100,000).

5.4 Costs andfinancing:Costs: The total project cost came to about US$12.63 million (compared to an appraisal estimate ofUS$17.5 million -- net of taxes), or about 72 percent of the appraisal estimate. There are four mainreasons for the reduction in project costs: (i) prices of gas meters were considerably lower than estimatedat appraisal, and although savings were applied to the purchase of additional meters, the actual cost of thegas metering component was about US$3.0 million less than the appraisal estimate; (ii) local costsdecreased significantly due to depreciation of the Moldovan Leu against the US Dollar (actual local costswere US$3.37 million compared to the appraisal estimate of US$5.7 million); (iii) USAID financing is notincluded in the actual costs, as USAID manages these funds and it is difficult to extract the amount that isproject related from the overall USAID program; and (iv) the upgrade of the accounting and billing systemswas financed by Moldovagas/Chisinau-gaz and Chisinau CHP2 using their own resources instead of the

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loan.

Financing: Most local financing was provided by Moldovagas, Chisinau-gaz, Chisinau CHP2 Plant, and

by customers of Moldovagas (metering) and was used to cover the costs of installation of the equipment

provided by the Loan, the accounting/computerization improvements to enable transition to the new

Moldovan National Accounting Standards, and social charges of PIU staff (financed by the Ministry of

Finance using the proceeds of a Grant from the Netherlands). A Dutch consultant trust fund of

US$189,821 financed project implementation consultants.

Disbursements. Loan effectiveness (and consequently, disbursements) was delayed by eight months from

Board approval in May 1996, due to delays in meeting the standard effectiveness conditions (ratification by

Parliament and signature of Subsidiary Loan Agreements). As a result of the delays in effectiveness, two

dated covenants in the Loan Agreement became due and became defacto conditions of effectiveness,

although once the standard conditions were met, the Bank agreed to extend the due dates to fulfill the two

conditions, and declared the Loan effective on January 31, 1997. Disbursements were slow during the first

year from Board approval, but picked up considerably once procurement got under way, partly because the

first year's procurement was primarily international shopping, which was much easier for new

implementing agencies to manage. The closing date was extended twice and the final closing date was 1.5

years after the original closing date. US$9.08 million of the IBRD Loan was disbursed (or about 91

percent of the US$ 10.0 million loan), leaving a balance of US$915,720.87, which was canceled on June

13, 2002.

6. Sustainabilitv

6.1 RationaleJ]rsustcainabiliti rating:

It is likely that the achievements of the project will be sustained, although there is a considerable short to

medium term risk associated with Termocom. Sustainability of the project depends largely on the

Government's willingness to continue and deepen the reforms begun under the First Energy Project and to

be continued through the proposed Second Energy Project and SAC III. Factors affecting the long-term

sustainability are:

* commercial performance of Termocom, the Chisinau heating supplier, and its impact on commercial

performance of Chisinau CHP2 Plant and Moldovagas;* the ability and willingness of Moldovagas to enforce payment discipline;* financial performance of electricity distribution companies, and their impact on commercial viability of

Chisinau CHP2;* maintaining tariffs at cost recovery levels;* resolution of electricity sector debt overhang.

Moldovagas, after its privatization to Russia Gazprom, is making more of an effort to operate on a

commercial basis, and has improved collections from the population. The threat of gas cutoff to the

country has diminished considerably. Gas and electricity tariffs have been increased so that they cover full

operation and maintenance costs; however, heating tariffs are still kept artificially low. The reductions in

gas losses as a result of the project investments (universal metering program and repair of gas distribution

points) and the commercial measures Moldovagas has taken to reduce losses are expected to be sustained.

Moldovagas, with financing from EU TACIS, has begun a border gas metering program, which should

further reduce gas losses. Chisinau CHP2 Plant remains in a critical financial position, as its single

largest customer is Termocom, which is undergoing bankruptcy and is unable to pay for heating supplied

by Chisinau CHP2. Until the difficulties in the heating sector are resolved, Chisinau CHP2 Plant will

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remain in a precarious financial condition. A plan is envisaged for the eventual privatization of ChisinauCHP2 following privatization of the 2 remaining state-owned distribution companies.

The Second Energy Project and SAC III are good indicators that the dialogue on energy sector reforms willcontinue.

6.2 Transition arrangement to regular operations:* The project was fully integrated into the regular operations of the beneficiaries, Moldovagas and

Chisinau CHP2 Plant, and equipment provided to both facilities is operating satisfactorily. TheIDA-financed follow-up Energy II Project is expected to provide further improvements in the electricitytransmission system, and implement heating supply and efficiency improvements. The energy sectordialogue will be continued under SAC III and Energy II project, and it is likely that government willcontinue with the reforms already put in place. USAID is financing a program of heating studies in aneffort to develop a viable residential heating program, which may lead to additional investments in theheating sector.

7. Bank and Borrower Performance

Bank7.1 Lending:During the preparation period, which took almost 3 years from identification in August 1993 to Boardpresentation in May 1996, the Bank thoroughly analyzed the energy sector in Moldova. The originalproject concept, as conceived in the Initial Executive Project Summary, consisted of a US$35 millionEnergy and Environrnent project to be financed by a US$30 million IBRD Loan. Project components wereto include the following investments: construction of oil storage and unloading facilities, electricitytransmission and dispatch upgrades, development of institutional capacity for environmental impactassessments, financing of energy audits for industrial customers, and possibly a gas metering component.As a result of this broad scope and the lack of information available on the energy sector in Moldova,preparation required large missions with numerous technical experts such as petroleum engineers, gasindustry specialists, financial analysts, environmental specialists, and power engineers, as well aseconomists. Extensive use was made of consultant trust funds (primarily Canada and the Netherlands) tofinance the specialized expertise. As more and more financial analysis work was completed, it becameevident that the financial condition of the proposed beneficiaries would not permit them to reimburse aUS$30 million loan, and the loan was decreased to US$10 million between the yellow and green coverSARs. Because the Borrower was a relatively new Borrower and not experienced in implementinginvestment projects, a considerable amount of resources were also devoted to explaining the role of theWorld Bank, the role of the implementing agencies, the Bank's procurement and disbursements procedures,etc.

The main failing of the Bank during this phase was the lack of continuity of Task Team Leaders. Therewere two Task Team Leaders between identification and appraisal, an acting Task Team Leader betweennegotiations and Board, and a new Task Team Leader was appointed at the beginning of the supervisionphase.

The physical project performance indicators were appropriate for measuring implementation progress, butcould have been better planned (much of the baseline data was to be collected during the project launchworkshop, but in actuality, it was extremely difficult to obtain such data from the beneficiaries, and thetask team was still requesting it later). The financial performance objectives were part of the FinancialAction Plan and were the correct indicators to measure financial performance of the sector and of thebeneficiaries. However, in retrospect, the difficulties to improve the sectoi's financial performance were

- 15 -

underestimated, although they were clearly identified and listed as risks. The financial indicators included

numerous measures that the govemment was unable to implement simultaneously (increase tariffs, improve

collections and cash collections, develop legal and regulatory framework, stop future growth of energy

debts, develop a debt management plan for the sector), or within the short timeframe of one to two years

specified in the Financial Action Plan.

The Bank adequately planned the implementation arrangements. Specific arrangements to create

implementing teams at Moldovagas and at Chisinau CHP2, under the overall coordination of a Project

Coordinator (who was also the Director of the Department of Energy), were put into place during project

preparation, and technical teams at each implementing agency were designated before effectiveness. An

intemational consultant was appointed to provide project implementation assistance to the implementing

teams.

The Bank initiated major structural and institutional reforms during project preparation, with the aim of

improving energy sector management, its financial performance and technical efficiency. These reforms

were expanded and continued during project implementation and after project completion, supported by the

Bank's adjustment operations, the proposed Energy II Project, and other donors.

Overall, the Bank's performance during the lending stage is rated as satisfactory.

7.2 Superviszon.Project implementation progress was adequately reported. Implementation problems were, in general,

timely identified and addressed pro-actively. The performance ratings given in the PSRs were realistic,

with sufficient attention being paid to likely development impact. The Resident Mission played a vital role

in providing assistance to the Borrower during project implementation, helping the implementation teams at

Moldovagas and Chisinau CHP2 Plant and the new PIU to complete withdrawal applications, providing

copies of bidding documents, and serving as a liaison between the PIU and Washington (especially in the

early stage, when PIU staff were uncomfortable speaking English). The Resident Representative invited

PIU directors to monthly project implementation meetings, where they became acquainted with other PIU

directors and exchanged information about their projects.

During project implementation, it became clear that it was impossible to significantly improve the financial

position of the sector and of Moldovagas and Chisinau CHP2 while the companies remained under state

ownership, and that the only viable option was privatization. It also became evident that a USS 10 million

investment project was not the most appropriate vehicle to address energy sector reforms, and this dialogue

was instead pursued under the various structural adjustment loans and credits. In 1998/1999, the Financial

Action Plan agreed during project preparation was only partially being fulfilled (legislation had been

approved, tariffs had been increased, a debt management plan had been prepared, but was not being

implemented, and collections were not improving significantly). The adjustment energy dialogue focus

shifted to privatization as the most credible and efficient way to improve financial performance of the

sector and of Moldovagas and Chisinau CHP2. With the privatization of three of the five distribution

companies to a Spanish investor, electricity collections improved significantly for the three privatized

companies and also for the two state-owned companies. The majority of shares in Moldovagas were sold

to Russia's Gazprom, in exchange for a portion of the debt. Moldovagas' external debt is being reduced.

More significantly, given the change in Moldovagas' ownership structure, the government of Moldova is no

longer liable for Moldovagas' debts.

7.3 Overall Ban,kpeiforniance:Overall Bank performance is rated satisfactory.

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Borrower7.4 Preparation:Several Government agencies participated in the lengthy project preparation period, namely: Ministry ofEconomy, Ministry of Finance, Department of Energy (there was no Ministry of Energy during projectpreparation), State Production and Fuels Agency (SPFA), Moldovagas and Moldenergo. The key contactduring project preparation was the Department of Energy, which demonstrated strong ownership of theProject. Government met 2 of the 3 conditions of negotiations (but was unable to increase collections to80% during the winter months of January and February 1996), so this was moved to an effectivenesscondition. Prior to Board presentation, Government increased tariffs to fulfill the Board condition.

The performance of the Borrower at the preparation stage was satisfactory.

7.5 Government implementation peiformance:

The Government's implementation performance is rated as satisfactory, particularly since this was the firstproject financed by the Bank in the energy sector. The Ministry of Finance developed a system wherebyinternationally financed projects listed in the annual central budget were exempt from VAT, customs andother taxes, so that this worked in most cases without problems when goods and services were procuredunder the project. For several months the Ministry of Finance was unable to pay local taxes and socialcharges for PIU staff (which meant that PIU staff could not receive their salaries from the loan since taxeswere still owed), but this was resolved by a cofinancing grant from the Netherlands. The Ministry ofFinance proposed the establishment of the PIU with 3 full time staff, so that it would have a designatedcontact point for record keeping, and reporting. This greatly facilitated project implementation and respectof the Bank's fiduciary requirements. Initially, the Department of Energy and subsequently the Ministry ofEnergy played a vital role in collecting and providing to the Bank information on losses, tariffs, collections,etc., and in supporting energy sector reforms. In retrospect, although at times progress in implementingenergy sector reforms seemed maddeningly slow, by the end of the project the Government had completedlegal, institutional, and structural reforms of the energy sector, and taken many difficult steps necessary toimprove the financial condition of energy sector agencies. Government developed and implemented a legaland regulatory framework, established an independent regulator (ANRE), increased electricity and gastariffs to cost recovery levels, phased out the cross-subsidies in electricity and gas tariffs between industriesand households, and gradually increased collections (including cash collections).

7.6 Implementing Agency:The performance of the implementing agencies (Moldovagas, Chisinau CHP2 and the PIU) is rated assatisfactory. Both beneficiaries (Moldovagas and Chisinau CHP2 Plant) were unfamiliar with Bankprocurement and disbursement procedures, but made efforts to comply with the unfamiliar procedures.Moldovagas financed from its own funds training in procurement of goods at ILO for one of its staff, whosubsequently was competitively selected as the Procurement Specialist in the PIU. Before the PIU wasestablished in 1998, both Moldovagas and Chisinau CHP2 Plant had created project implementation teamsof technical and financial specialists, headed by a Deputy Director. Implementation of the Project during1997/1998 was done by the teams at Moldovagas and Chisinau CHP2, who handled this responsibility inaddition to their regular workload. In 1998 the Ministry of Finance expressed a need for a full time unit tocoordinate the project and the Bank agreed to set up a Project Implementation Unit. The PIU was excellentand performed satisfactorily throughout the project. All of the audits of the project accounts (managed bythe PIU) were unqualified. The Bank carried out an Independent Procurement Audit in 2001, whichindicated that, for the most part, procurement had been done in accordance with Bank procedures. Noinstances were found that necessitated follow-up action by the Bank. The Procurement Auditor indicatedthat procurement processing and filing had improved noticeably since the establishment of the PIU in April

- 17 -

1998, and that the PIU was among the most competent she had audited. Moldovagas and Chisinau CHP2

moved quickly to adopt the mandatory Moldovan National Accounting Standards, and made the necessary

investments in computers, software, training and staff, to transition to the new accounting system beginning

January 1, 1998.

7.7 Overall Borrower performance:

Overall Borrower performance is rated as satisfactory.

8. Lessons Learned

The project offers the following lessons, ranging from sector policies, to general country issues, to project

implementation.

Sector Policy:

o The most important lesson is that metering is important for commercialization and leads to significant

benefits.* Interventions should start at the point of interaction with end-customers: distribution (electricity, gas,

heat)* A small investment project is not the appropriate vehicle to implement major energy sector reforms, but

needs to be supported (as in this case) by adjustment operations with significant energy sector reform

components.

General Country Issues:

* During the country financial management assessment, there is a need to consider whether the use of an

IDF grant, combined with funding with other donors, could facilitate the adoption of national

accounting standards based on Intemrational Accounting Standards. In the case of Moldova, a

multi-year IDF for accounting reform, coupled with assistance from USAID, encouraged the

govemment to prepare and adopt national accounting standards based on IAS. Training was provided

on the national level, and because the adoption of the new national accounting standards was

mandatory, there did not seem to be the resistance by energy companies to adopt IAS or similar

standards that seems prevalent in many other countries. The new standards were the law, and as such

companies made every effort to adopt them, in order to be in compliance with the law. A recent

financial assessment done during the preparation of Energy II indicated that the Moldovan National

Standards are no longer completely consistent with IAS, as changes have been made in iAS since the

Moldovan National Standards were adopted in 1998. Funding should perhaps be provided from a

regional or country source to continue the dialogue with government on iAS and ensure that the

national standards are updated.

Implementation:

* It is essential to have a competent, full time PIU (paid from the loan or credit) in place from the

beginning of the project. The PIU itself came to this conclusion (elaborated in Annex 8). The PIU

was the only entity in the project whose staffing remained constant. The Directors, Deputy Directors,

Chief Accountants and Chief Engineers of Moldovagas and Chisinau CHP2 changed during

implementation of the project. The Department of Energy (which initially played a coordinating role)

was reorganized, and staff working on the project (in addition to their regular duties) left for better

paying jobs in the private sector. Some records disappeared with each change of staff when

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procurement was handled by the beneficiary companies. The PIU also indicated the need for the Bankto develop a standard project accounting software, or at least provide a shortlist of software providerswith systems that comply with World Bank requirements. Each of the World Bank financed projectsin Moldova uses a different accounting software, which makes it impossible for the PIUs to leam byexchanging experiences with other PIUs, requires each PIU to pay for additional training, andconsiderably increases time and expense for new project preparation.

* As a result of the extreme reluctance of the Moldovan government to borrow from the Loan fortechnical assistance, an attitude common to many borrowing countries in the FSU, the technicalassistance component of the project had to be scaled down or funded through grants from other donors.It would be extremely useful to develop some sort of grant facility that could be used for technicalassistance to assist low income borrowers in day-to-day project implementation, developing technicalspecifications, and managing the procurement process.

9. Partner Comments

(a) Borrower/inmplementing agency:The complete, unedited ICR prepared by the Borrower is in Annex 8.

(b) Cofinanciers:N/A

(c) Other partzrers (NGOs/private sector):N/A

10. Additional Information

Not applicable.

19-

Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome I Impact Indicators:

iF- :,, ':--:' * Idic atr -i -.Pr Jectrdin.d l t'PSR . . ActuaUlLatest Estimate

Strengthen the accounting systems of Moldovan govemment provided training in Moldovan government provided training inMoldovagas and Chisinau CHP2 in order to new accounting standards when they were new accounting standards when they wereimprove billing of customers, tracking of introduced. Additional training was provided introduced Additional training was providedpayments and operabing costs, and facilitate by USAID and by Financial Managment by USAID and by Financial Managmentfinancial decision making. Consultant financed by the Project. Consultant financed by the Project.(i) training of the staff in the new accountingstandards;(ii) adoption of the new accounting standards prepare financial statements in accordance All audits beginning in 1999 have confirmedby Moldovagas and Chisinau CHP2; with NAS. that financial statements are prepared in

accordance with National AccountingStandards (NAS).

(iii) full audit of the underlying accounting Chisinau CHP2 2000 audit. Chisinau CHP2 2000 audit received 8/28/01.data including a comprehensive management Chisinau-gaz 2000 audit. Chisinau-gaz 2000 audit received 8/28101.letter highlighting any further weaknesses in Audit of project accounts for 2000 Audit of project accounts for 2000 receivedthe accounting system; 6/30/01

(iv) preparation of financial statements on an Financial statements prepared in accordance Financial statements prepared in accordanceon-going basis according to the new with NAS. with NAS, beginning in January 1998.accounting standards.% increase in metered & billed monthly gas About 92% of households and 98% of About 92% of household customers and 98%consumption. apartment dwellers are billed via gas meters. of apartment dwellers are billed via gas

meters

The logframe matrix was not used at appraisal. This information migrated to the PSR with the advent ofSAP.Output Indicators:

| . Indicator/Matrix* - Projected in last PSR Aclual/Latest Estimate

Meters Installed 88,942 (total from Loan), of which 38,421 236,521 (total) (about 127,417 financedHousehold households; 49,449 apartments; and 1072 from Loan, about 89,000 installed); of theApartment commercialVindustnal/social. total 236,521: 135,082 households; 6,825

apartment risers; 91,385 individualapartments, 621 industrial, and 2608 socialobjects.

No. of customers billed with meters 373,399 373,399 (this number differs from no. ofmeters installed, as apartments are oftenmetered with a meter at the nser, which couldmeter 10-15 tenants/customers)

Metered and billed monthly gas consumption 92% of household customers and 98% of 92% of household customers and 98% ofapartment dwellers are billed via gas meters apartment dwellers are billed via gas meters

% of Rehabilitation Completed at Chisinau 98% 98% (some installation to be completed inCHP2 summers 2002 & 2003)

Reduction in fuel consumption CHP2 has not been operating in a normal CHP2 has not been operating in a normalregime during 2000, 2001 and was frequently regime during 2000, 2001 and was frequentlyshut down due to arrears/lack of fuel. Thus, it shut down due to arrears/lack of fuel. Thus, itis impossible to make an accurate is impossible to make an accurateassessment. assessment

End of project

- 20 -

Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)- .*i-* .~~~~~~~~ ~ ~ = ~-Aprila sai ' Actuial/Ld fteet"'f'

Proje6ctCost:By.Cofi on Sntillion . ; .WS$ miion - - - -; -

Industrial Meters 2.70

Commercial Meters 0.80Residential and Riser Meters 6.90

Subtotal Metering Program 9.17 0.86

Repair of Gas Distribution Points 0.90 0.79 1.15

Chisinau CHP2 Rehabilitation 1.10 1.99 1.81

Accounting/Billing Systems 2.10 0.17 0.08

Implementation Services 0.60 0.38 0.63

Incremental Operating Costs of PIU 0.00 0.13

Total Baseline Cost 15.10 12.63

Physical Contingencies 1.20

Price Contingencies 1.20

Total Project Costs 17.50 12.63

Total Financing Required 17.50 12.63

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

: .., --- . i g Procuiernent?Method' .-FExpenditure Category - , , / ,- 2. . . Total.CostB . .'B .theC

1. Works 0.00 0.00 0.00 0.00 0.00

(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 8.70 0.00 1.10 5.70 15.50

(8.70) (0.00) (1.10) (0.00) (9.80)

3. Services 0.00 0.00 0.20 1.80 2.00(0.00) (0.00) (0.20) (0.00) (0.20)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00

(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

6. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

Total 8.70 0.00 1.30 7.50 17.50

(8.70) (0.00) (1.30) (0.00) (10.00)

- 21 -

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category-.C. Procurement Method.:- ExpernditureCategory ICB NCB. N-B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00

(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 6.98 0.00 1.79 3.35 12.12

(6.98) (0.00) (1.79) (0.00) (8.77)

3. Services 0.00 0.00 0.20 0.18 0.38

(0.00) (0.00) (0.20) (0.00) (0.20)

4. Miscellaneous 0.00 0.00 0.11 0.02 0.13

(0.00) (0.00) (0. I 1) (0.00) (0. I 1)

5. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

6. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

Total 6.98 0.00 2.10 3.55 12.63

(6.98) (0.00) (2.10) (0.00) (9.08)

"Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.

D Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii) re-lending project funds to local government units.

3/ Miscellaneous represents incremental operating costs of the PIU.

Project Financing by Component (in US$ million equivalent): ~ -[ ........ > . - . ] Percentage of Appraisal

Component [ Appraisal Estimate ActualULatest.Estimate |

Bank Govt. CoF. Bank Govt. .CoF. Bank Govt. CoF.

Industrial Meters 0.00 3.20 0.0 0.0

Commercial Meters 0.00 1.00 0.0 0.0

Residential Meters 7.10 1.10 0.0 0.0

Subtotal Metering 7.10 5.30 6.42 2.75 90.4 51.9

Repair of Gas Distribution 1.00 0.10 0.54 0.25 54.0 250.0PointsChisinau CHP2 1.20 0.20 1.81 0.18 150.8 90.0RehabilitationAccounting/Billing Systems 0.50 0.10 1.40 0.00 0.17 0.0 170.0 0.0

Implementation Services 0.20 0.40 0.20 0.18 100.0 45.0

Incremental Operating 0.11 0.02CostsTOTAL 10.00 5.70 1.80 9.08 3.37 0.18 90.8 59.1 10.0

Local financing for metering program and repair of gas distribution points was providcd by Moldovagas, Chisinau-gaz and bygas customers; Local financing for Chisinau CHP2 was provided by Chisinau CHP2; and local financing for accounting/billingsystems was provided by Moldovagas, Chisinau-gaz and Chisinau CHP2, although it is shown in the table in the "Govt."column. Govemment provided counterpart funds for social charges of PIU staff (using grant funds provided by the Kingdom ofthe Netherlands). Cofinancing (project implementation assistance) was from the Dutch Consultant Trust Fund.

- 22 -

Annex 3. Economic Costs and BenefitsMoldova Enegy I Poject

Ecoonomi Anaysts -Gas Corponent

(US$ o00)

Unit 1997 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In-stmett Cost

IBRD Fianced Meters A Equipment $000 - 3,209 3,209 - -

Repair of Gas Distution Pmts $000 539 - -

Installation Costs MDL000 - 1.616 1.616 1,616 1.616

Custo-rr-Finaocd Industnal Meters MDLOOO - 2,740 Z740 -

ModovaGaslChsinau-gaz Costs $000 811 414 130 125

Customer-F,oaned Household Meters 0000 - 374 374 374 374

Totai Investment Cost $000 539 4,394 3,997 504 499

Benefits -Loss RadaUile

Gas Losses w ihout pqed -

Total Tensport min m3 19,519 19,373 19,999 21,843 21,843 21,843 21,943 21,843 21,943 21,843 21.843 21,843 21,843

Domestic Consumption min m3 3,679 3,052 2,857 2,478 2,478 2.478 2.478 2,478 2.478 2,478 2,478 2,478 2,478

Losses /o prded 0 8% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80% 0 80%

Losse-sthprlect 08% 025% 019% 018% 018% 018% 018% 018% 018% 018% 018% 018% 018%

Savngs % 055% 061% 062% 062% 062% 062% 062% 062% 062% 062% 062% 062%

Sannrgs minm3 10655 12199 13543 13543 13543 13543 13543 13543 13543 13543 13543 13543

Value -Economic(000) $ 6500 6,926 7,930 8.803 8,803 8.803 8,803 8,803 8,803 8,803 8,803 8.503 8,803

E1ctency R-epons to MattrlngCumulative Redu.con in Consumption mIn m3 (624) (819) (1.198) (1,198) (1,198) (1,198) (1,198) (1.198) (1.198) (1,198) (1,198) (1,198)

Percent Response - -17 0% -22.3% -2 6% -32 6%

Sav-g in Gas Purchases S 65 00 40.560 53.235 77,870 77,870 77,870 77,870 77,870 77.870 77,870 77,870 77,870 77.870

Lost Consumer Su,Odus (@50% of ta-if) S 4244 (26.485) (34,762) (50.848) (50.848) (50,848) (50.848) (50.848) (50.848) (50,848) (50.848) (50,848) (50 940)

Total Benefits - 21,001 26,403 35,825 35,825 35,825 35,825 35,825 35,825 35,925 35.825 35,825 35,825

Net Cash Flow (539) 16,607 22,406 35,321 35,326 35,825 35,825 35,825 35.825 35.825 35.825 35,825 3F,825

3117% EIRR

S194.800 NPV @ 10%

- 23 -

. °A E . *! S °°S f

~~I* o S

"3 8 .!. o

,,~~~ _ ,_~ ,. ,^

X° | ; . 2 °, E8 . 8 ro Q

*~~53 ~ o o - _gN

& : *O ,, N z

o o W zq

Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle No. of Persons and Specialty Performance Rating

(e.g. 2 Economists, I FMS, etc.) Implementation Development

Month/Year Count Specialty Progress Objective

Identification/Preparation1/1994 1 Petroleum Engineer (C)3/1994 1 Task Manager

I Senior Energy Specialist;Operations Analyst

2 Petroleum EngineersI Environmental Specialist;

Economist2 Financial AnalystsI Procurement Specialist; Natural

Gas Specialist12/1994 7 Task Manager, Power Engineer,

Financial Analyst, Natural GasSpecialists (2), PetroleumEngineer, Financial Consultant

Appraisal/Negotiation2/1995 7 Task Manager, Power

Engineer, Natural ResourceManagement Specialist,Financial Analyst, NaturalGas Specialist, OperationsAnalyst, FinancialConsultant

4/1995 1 Task Manager9/1995 2 Task Manager, Gas Metering

Consultant

Supervision7/1996 1 Task Manager (Economist) S S

I Power EngineerI Gas Metering ConsultantI Operations AnalystI Procurement Analyst

10/1996 1 Operations Analyst U SI Principal Economist

3/1997 1 Senior Economist S UI Operations Analyst

10/1997 1 Task Team Leader S U

6/1998 1 Operations Analyst S U2/1999 1 Task Team Leader7/1999 1 Task Team Leader S S

6/2000 1 Task Team Leader S S

- 25 -

I Energy Financial Specialist10/2000 1 Task Team Leader

I Pipeline Specialist5/2001 3 Task Team Leader, Sr. Financial

Analyst, Projects Assistant

ICR

Note: The first mission for which information is available in the files was in 1/1994; however some of theotherdocumentation refers to identification in Augst 1993, which presumably included a mission.

(4) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/PreparationAppraisal/Negotiation 677.2Supervision 333.1ICRTotal 1,010.3

Note: SAP does not provide a breakdown of staff time by weeks spent. It does notdistinguish between Identification/Preparation and AppraisaUlNegotiation, or betweenSupervision and ICR; therefore all costs related to project preparation are shown under theAppraisal/Negotiation entry above, and all costs related to ICR are included in the entry forSupervision. SPN figures do not include US$85,583 from Consultant Trust Funds.

- 26 -

Annex 5. Ratings for Achievement of Objectives/Outputs of Components

(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingEl Macro policies O H OSU*M O N O NAO Sector Policies O H * SU O M O N O NAO Physical O H *SUOM O N O NAE Financial O H *SUOM O N O NAO Institutional Development 0 H 0 SU * M 0 N 0 NA

LI Environmental O H OSU*M O N O NA

SocialOI Poverty Reduction O H OSU*M O N O NAO Gender O H OSUOM O N * NA

O Other (Please specify) O H OSUOM O N * NAO Private sector development 0 H * SU 0 M 0 N 0 NAEl Public sector management 0 H 0 SU 0 M 0 N 0 NAO Other (Please specify) 0 H O SU O M 0 N * NA

- 27 -

Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

F Lending OHS OS OU OHUS Supervision OHS OS OU O HUZ Overall OHS OS OU O HU

6.2 Borrower performance Rating

X Preparation OHS OS O U O HUX Government implementation performance O HS O S 0 U 0 HUZ Implementation agency performance OHS OS OU O HUM Overall OHS OS 0 U O HU

- 28 -

Annex 7. List of Supporting Documents

Staff Appraisal Report - Moldova: Energy Project - Report No. 14892-MD, May 2, 1996.Agreed Minutes of Negotiations, dated between the World Bank and the Government of Moldova, March

22, 1996.Loan Agreement - Moldova: Energy Project (Loan No. 4020-MD), dated July 23, 1996.Project Agreements - Moldova: Energy Project, between World Bank and Chisinau CHP2 and

Moldovagas, dated July 23, 1996.Mid-Term Review Report, including Fourth Quarter 1998 Progress Report and Mid-Term Review

Back-to-Office Report dated June 25, 1999.Audited Financial Statements for the Project, for years ending December 31, 1997, 1998, 1999, 2000 and

2001.Audited Financial Statements for Moldova-gaz for years ending December 31, 1998, and for

Chisinau-gaz for the years ending December 31, 1999, and 2000.Audited Financial Statements for Chisinau CHP2 for years ending December 31, 1998, 1999, and 2000.Procurement Audit Report - Energy Project - Final - June 2001.

Quarterly and Semi-Annual Progress Reports from June 1997- December 2001.

- 29 -

Additional Annex 8. Project Review from the Borrower's Perspective - IBRD Loan4020-MD

Moldova First Energy ProjectCompletion Report, 2001

REPUBLIC OF MOLDOVAFIRST ENERGY

PROJECT

PROJECT RE VIEW FROM THE BORROWER'S PERSPECTIVEIBRD LOAN No 4020-MD

- 30 -

The present report is prepared byMoldova Energy ProjectsImplementation Unit staff:

Consultant V.Bosneaga

Financial Officer O.Serenco

Procurement Specialist D.Cebotari

Office Assistant/ Translator A. Melenciuc

Abbreviations used

AS Accounting systemCHP-2 Combined Heat and Power Plant-2, Chisinau

DC Direct ContractingFMR Financial Management ReportsGDP Gas Distribution PointsGMP Gas metering pointGMS Gas metering stationIAS International Accounting StandardsICB Intemational Competitive BiddingIS International ShoppingL/C Letter of CreditLA Loan AgreementMDL Moldova lei (local currency)MG MoldovagazMoE Ministry of EnergyMoEc Ministry of EconomyMoF Ministry of FinanceNAS National Accounting Standards

OT JSC Open Type Joint Stock CompanyPIU Project Implementation UnitSA Special AccountSAR Staff Appraisal ReportTOR Terms of ReferenceVAT Value Added Tax

- 31 -

CONTENTS

Introduction

Statement/Evaluation Of Objectives

Implementation Course and Main Factors Affecting The Project

Initial Phase of Project Implementation

Organizational Aspects

Accounting And Financial Management System

Project Sustainability

Project Implementation - Achievement Of Objectives

Procurements Realized For Moldovagaz

Procurements Realized For CHP-2

Equipment Installation At Moldovagaz

Equipment Installation at Chisinau Combined

Heat And Power Plant #2

Delays During Project Implementation

Bank's Effect

Borrower's Effect

Outcome Evaluation

Annexes: Tables 1-15

Introduction

The situation in the energy sector in Moldova before 1996 (as it was also described in StaffAppraisal Report), when the first energy project was launched, was characterized by the foliowing main

issues:Sector Financial Crisis. There has been a persistent failure, since 1991, to place Moldova's

energy resources consumption on an economic basis, as a result of energy price distortions, inadequate

metering and invoicing of consumed volumes with increasing levels of theft and, in some instances. even

reluctance or technical inability to terminate deliveries to customers who do not pay. These problems

have delayed the structural reform in the energy sector, have led to the growth of external trade debts.

Import Dependence. Moldova is almost completely dependent (99%) upon imported sources of

- 32 -

primary energy. The situation is further complicated by the fact that Moldova has landlocked position,rather limited prospects for supply diversification and due to the fact that the large Moldavskaya thermalpower station, with 85% of Moldova's available generating capacity, is located on the left bank. In theseconditions it became of crucial importance to use rationally all energy resources, including electrical,thermal energy and natural gas.

Assets Deterioration. Moldova's energy infrastructure has been poorly maintained sinceindependence, and there is a need for long-term re-scaling of this infrastructure to rationalize the costs ofupkeep and ensure maximum production efficiency.

Low Energy Efficiency. Despite its relatively low concentration of heavy industry, theeconomy of Moldova exhibits high energy-intensity characteristic of former-Soviet nations, though to aslightly lesser degree. The problem reflects previously low energy prices, inefficient methods of energyproduction and use, high losses, obsolete equipment, and inadequate maintenance of facilities.

Decline in Energy Consumption. Energy consumption has declined markedly from its peak in1989-90, including natural gas and electricity consumption. These declines in demand have beenconcentrated on the right bank, where progress in raising tariffs to cost-recovery levels, although farfrom complete, has been much more rapid than on the left bank.

In these circumstances the implementation of the first energy project, which has to contribute tothe process of Moldova energy sector renewal, became very important. The choice of CHP-2 andMoldovagaz, as the beneficiaries of the first energy project was justified and well founded (this isinvestigated in Staff Appraisal Report, which present a detailed study of energy sector issues, made inMay 1996).

CHP-2 was (and is still now) the main sufficient source of both electrical and thermal energy forChisinau. Moldovagaz with its natural gas transportation and distribution systems (which supplies alsoCHP-2) all the more represents very important part of Moldova energy sector. Thus, the first energyproject has two beneficiaries - Moldovagaz and Chisinau Combined Heat Power Plant -2 (CHP-2).

Loan Agreement was signed in July 1996, became effective in January 1997, the closing dateinitially was established as June 2000, first extension was made till June 2001, and last - till 31 ofDecember 2001.First procurements were made in December 1997, each beneficiary has its own team for projectimplementation, and coordination was performed by the Chief of the Department of Energy who laterwas officially appointed as coordinator of the project by the Government Decision in February 1998.

Later on, due to the World Bank recommendation and in accordance with the mutual agreementbetween the Ministry of Finance and Department of Energy in February 1998, a Government decisionwas adopted to establish a Project Implementation Unit (PIU) for coordination and monitoring of allproject activities and maintaining project's Accounting and Financial management system.

In accordance with the Order of the Department of Energy of April 10, year 1998 MoldovaEnergy Project Implementation Unit (PIU) was created, PIU staff (consisting of 3 persons - a deputycoordinator, a procurement specialist and a financial/accounting specialist) was hired throughcompetition and after a period of preparation (initial PIU set up, opening of Special Account with PIUas Beneficiary, office selection and repair, office equipment procurement, AS installation) in August1998 PIU became fully operational.Statement/Evaluation of Objectives

The main objectives of the Project were:

"to strengthen the accounting systems of Moldovagaz and Chisinau CHP-2 in order to improvethe billing of customers, tracking of payments and operating costs, and facilitate financial decision

- 33 -

making.""to improve the measurement of consurned energy and the efficiency of electricity production in

order to reduce losses and waste of costly imported fuels".

It is worth to mention, that during project implementation Loan Agreement was amended several

times for properly aligning of these development objectives with the project concept and scope

(reallocations of Loan means between categories for new procurements realization, defining moreexactly project objectives etc. ).

The achieving of the first Project objective was facilitate due to introducing by the Governmentdecision as Dbligatory of new National Accounting Standards (NAS), elaborated with the help of

international organizations and based on the International Accounting Standards (IAS). Moldovagaz and

Chisinau CHP-2 took all necessary actions for transition of all Beneficiaries records, accounts andfinancial procedures to the new National Accounting Standards. Training for their accounting staff on

NAS was also performed. All financial statements, starting with the Ist January, 1998, are prepared in

accordance with NAS. So, the beneficiaries, taking into account all these realizations, asked the WB toreallocate the initially planned for part D project means to other components.

The second project objective was planned to be achieved by procurement and installation of

different types of industrial, household and apartments gas meters, gas pressure regulators, Flow

computers for MG and respectively by procurement and installation of different technological equipmentfor CHP-2. This equipment includes generators spare parts, computers, copy machines, pumps,chemicals, measuring devices, valves, water retainers, generator excitations systems, busbars andcables.

Thus, the Project consisted of the following components, which were planned to be financed

from the Loan MD-4020:Part A: overhaul of the Chisinau No. 2 Combined Heat and Power Plant.

The scope was to reduce fuel consumption and restore operating efficiency ofChisinau 2 through repair of existing and installing of newly procured equipment.Here it needs to be mentioned that during project implementation some changes wereintroduced from time to time in the initial procurement plan due to changing inpriorities or due to savings appeared after some procurement (see initial variant inSAR, p] 1). So, the last variant of equipment list to be procured for CHP-2 includedmeasuring devices for chemical composition identification, spare parts forturbo-generators, water retainers for cooling towers, condensations pumps, motoroperated valves, chemicals for water demineralizing system, computers, copiers andtechnological computers and network devices, excitation systems with cables andbusbars for connection to turbo-generators.

Part B: repair of Gas Distribution Points.The goal was to reduce gas leakage, operating inefficiencies of Moldovagaz GasDistribution Points (GDP) and unscheduled outages through the procurement andinstallation of different types of gas meters, gas pressure regulators and Flowcomputers.

Part C: Industrial and Household Gas Meters Installation.The main results expected were reduced losses, improved accuracy of existing meters

and commencing the introduction of universal metering through installing householdand apartment riser meters for consumers, who currently did not have meters. Also itwas planned to replace existing meters with more accurate metering system for

commercial and large industrial customers.Part D: Upgrade of Accounting and Billing Systems and Financial Management systems at

CHP-2 and Moldovagaz.

- 34 -

Improve internal collection and handling of operational data and billing and financialmanagement at CHP-2 and Moldovagaz through provision of computer-systemupgrades, technical assistance and training in administrative procedures (see SAR,p.12).Note: This component of the project was later financed and implemented bybeneficiaries from their own means because they had to upgrade their accounting andfinancial management systems during conversion to new National Standards ofAccounting (based on IAS), which was imposed by the Government decision by the endof 1999. So, Loan means were not usedfor this part of the project.

At the stage of the Project preparation (see SAR, p. 12) one more part was included:

Part E: Project Management and Implementation Services:Provision of technical assistance to CHP-2 and Moldovagaz in project management,preparation of bidding documents and carrying out WB procurement procedures.This part of the project was financed from a grant administrated by IBRD, not fromLoan means.

In accordance with prepared project documents, the Loan Agreement (LA) was signed, wherethe Schedule 1 Withdrawal of the proceeds of the Loan envisaged (after several LA amendments) 4categories of expenditures as follows:Category 1- Goods

Goods under part A: overhaul of the Chisinau No. 2 Combined Heat and Power Plant.Goods under part B: repair of Gas Distribution Points.Goods under Part C: Industrial and Household Gas Meters Installation.Goods under Part D: Upgrade of Accounting and Billing Systems and Financial Managementsystems at CHP-2 and Moldovagaz.

Category 2 - Consultants services and training under parts D and E of the project.Category 3 - Unallocated. At the beginning of the project it was a sum of USD1,500,000 in this

category, later it was completely reallocated between other categories of the project.

Category 4 - Incremental Operating Costs of Project Implementation Unit (PIU). This new categorywas introduced after PIU establishing in 1998.

Implementation Course and Main Factors Affecting the Project

Initial Phase of Project Implementation

CHP-2 and MG project implementation teams started working separately in January 1997 (afterthe project became effective) under coordination of Department of Energy. In February 1998 in order to

accelerate project implementation, based on agreement between WB, Ministry of Finance, Departmentof Energy and Beneficiaries, the Government decision was issued for creating Project ImplementationUnit (PIU) and designating the General Director of the Department of Energy as Project coordinator.

Department of Energy issued the respective order on April 10, 1998 and carried out competition for

hiring PIU staff, which consists of three persons - deputy coordinator, financial management/accountingspecialist and procurements specialist.

Thus, after some organizational work (opening of Special Account and local accounts in the

name of PIU, office space preparing and office equipment procurement, financial and accountingmanagement system installing etc.) in August 1998 PIU became fully operational and undertaken all the

activities on project coordination, monitoring, reporting etc. As subsequent experience showed, it is very

- 35 -

important and even necessary to establish a PIU at the stage of project preparation in order to avoiddifficulties in future project management, monitoring and implementation.

Organizational Aspects

Both beneficiaries of the project underwent some organizational changes during the period ofproject implementation, however these once did not affect in negative sense the project implementation.

CHP-2 was at the time of Loan Agreement (LA) signing a part of State enterprise"Moldenergo", but later was moved out from its structure and transformed in a separate Stateenterprise, which later in its turn was converted from State enterprise into JSC CHP-2 Chisinau.

It is necessary to mention that the second beneficiary - State Concem Moldovagaz underwentsome reorganization too, the last one was made in accordance with Government decision and imposed bythe situation created in gas sector due to large debts to Russian Gazprom. The State ConcemMoldovagaz was converted into a mixed Moldo-Russian venture of open type JSC Moldovagaz. Lateran associated company Chisinaugaz Ltd. was created by MG and it became a legal successor ofMoldovagaz in connection with the obligations, referring to Loan 4020-MD. Nevertheless, theequipment procured under the loan was distributed to all MG associated companies over the wholerepublic (except left bank region) and taking into account that MG was the founder of all theseenterprises, MG reserved the right to determine the technical policy in gas sector of the republic.

In compliance with the changes appeared in Beneficiaries' legal status, project objectivesformulation, procurement plan and respective Project documents (including LA, Subsidiary LoanAgreements and also the Project Agreements) have been amended correspondingly.

Accounting and Financial Management Systems

In order to provide assistance in establishing accounting and financial management system,reporting and procurement upon implementation of the Project, the consulting firm - "ManagementStrategies" was hired under the contract approved with the WB. Results of the above consultant'sservices are in conformity with TOR and other provisions of the contract. The "American Fundware7.0"software based accounting system, was provided with additional spreadsheets reporting system "F9" forautomatic creation of financial management reports.

Financial Management Reports were settled up. Taking into account that PIU was created whenthe project was already ongoing, it was necessary to restore the previously made transactions in PIUaccounting system from the very beginning. Simultaneously all project related documents were copiedfrom beneficiaries files in order to form PIU files, starting from the very beginning of the project.Utilized AS made it possible to generate automatically all necessary FMR reports for every accountingperiod and is rather flexible (see annex, FMR Reports). So, AS used permit to have a clear view onfunds spent from different categories and for all project entities.

Following the experience accumulated a conclusion could be drawn that it would be desirable tohave a standard accounting software, adjusted expressly for WB projects and reporting, in order tofacilitate future projects financial management and accounting. For example, almost every WB projectimplemented or ongoing in Moldova has different accounting software. This makes impossible theexchange of experience accumulated between PIUs, complicates staff training and considerablyincreases time and spending for new projects preparation. If it is not possible to establish a singlestandard software, may be WB consultants could recommend a short list of appropriate software for ASor formulate the minimum requirements which such systems have to comply with, so as the clients couldchoose the most suitable AS software for their specific needs.

Here it could be mentioned that in accordance with WB regulations the annual audits of PIU andbeneficiaries accounts (for years 1998, 1999, 2000) and year 2001 only for Project accounts (as it was

- 36 -

agreed with the WB) were performed. For all audited periods auditors expressed their unqualifiedopinion.

Project sustainability

Moldovagaz components

The essential part of the present Project was gas distribution system rehabilitation, based on installationof modem metering and regulation equipment on GDP and at the customers. This put the start of furtherdevelopment and created conditions for better operation and maintenance using modem meteringequipment. The next step could be the creation of a National System of gas flow measuring at theborders of the republic on main pipelines in order to have a clear view on the quantities of gas imported,consumed in the republic and transited. In present one such gas metering station is under construction,financing provided from TACIS program.

One of the main directions of the project was to put gas selling on a commercial basis. This wasimpossible without consumed gas measuring. The particular feature of gas distribution systems inMoldova was that only industrial and big social consumers had gas meters, the rest of households andmulti story buildings consumers practically did not have gas meters and paid for consumed gasaccording to the norms established by MG. Now, at the end of the project the considerable progress inmetering of gas supplied, especially at the level of individual consumers (the initial state was zeroinstalled at individual consumers) is evident. More than 94% of gas supplied to population is paid inaccordance to gas meters indications, collections increased considerably, especially from population,which in present pays practically entirely current consumption.

Certainly this result is achieved also due to the severe measures taken by MG to nonpayingconsumers, one of such measures is to cut them off gas supply. Additional measures undertaken werecreating of a special subdivision for gas meters indications read-out at household and industrialconsumers, timely billing and cutting off the non-paying consumers. This resulted in instant bettercollection from individual consumers.

Gas supply interruption risk in present is eased due to recent long-term agreement between the

Govemments of Moldova and Russia.

CHP-2 components

In spite of the fact that the total sum disbursed from the Loan by CHP-2 is rather small,comparing, for example, with its fixed assets value, procured goods have a considerable influence onstation performance. Materials, spare parts and technological equipment procured (together with othermeasures undertaken) made it possible to undertake normal maintenance to keep the plant in a reliableoperating condition, to renew the obsolete and outmoded facilities, for which lifetime was expired andprevent further deterioration. Due to all these measures the number of unscheduled downtimes hasdecreased.

It has to be mentioned, that since the privatization of part of electrical distribution networks by

the Spanish Company "Union Fenosa" (which together with other distribution networks operators is themain electrical energy consumer for CHP-2) collections for electricity considerably improved and for 9months 2001 reached 93%. Unfortunately the situation with thermal energy is quite opposite. The mainthermal energy consumer is the heat distribution company "Termocom" (in present the company is underthe procedure of bankruptcy) with rather low efficiency, so here collections did not exceed 10% duringthe same period of 2001.

- 37 -

Project implementation - Achievement of objectives

Procurements realized for MG

In accordance with the initially agreed (see SAR) Project procurement plan (which was updatedannually to include the most priority issues) were conducted 3 International Competitive Biddings (ICB)and 5 Intemational Shopping (IS). ICB procedures were conducted and contracts signed for procurementof Gas meters & Gas pressure regulators, Household & apartment meters, Gas meters for Households&Apartment risers. IS procedures was used for procurement of Gas meters type G-10, Gas meters typeG-16 & gas pressure regulators, Gas flow measuring computers, Turbine type gas meters and theIndustrial Gas meters calibration facility (see annex, FMR, table 15). It is worth to mention that due toconsiderable savings remained after initial planned procurement, additional procurement of gas metersof different types was done.

All deliveries of goods were made in proper time in accordance with the contracts signed. Forbig contracts with Elster and Schlumberger, where partial deliveries were stipulated all deliveries weremade in accordance with agreed schedule (see annex, tables 1,2).

The total sum disbursed for MG procurements of equipment and consultants services by June30 2001 is app. USD7,027,000 (see annex, FMR, table 14). Thus, MG succeeds to use app. 93% ofinitially specified sum.

Procurements realized for CHP-2

In accordance with the agreed Project procurement plan (which for CHP-2 also was updatedannually to include the most priority issues) were conducted 2 International Competitive Biddings (ICB)and 8 International Shopping procedures (IS). Besides, procedure of Direct Contracting was applied forprocurement of generators spare parts from unique supplier. ICB procedures were conducted andcontracts signed for procurement of Measuring devices and Generator Excitation Systems. ISprocedures were used and respective contracts were signed for procurement of Chemicals for watertreating (Cationic and anionic resins), Water retainers for cooling towers #1 and #2, Computers,Photocopy machines, Condensation pumps, Motor operated gate valves, Busbars and Power cables forthyristor excitation systems connection (see annex, table 15).

The total sum disbursed for CHP-2 procurements of materials, equipment and consultants'services by June 30 2001 is USD1,850,000 (see annex, FMR , table 14). Some goods procurement,initially included in the procurement plan (such as circuit breakers, load switches, electrical energymeters) was not fulfilled due to changing of priorities and forthcoming privatization of CHP-2.

Thus, CHP-2 succeeded to use app. 71% of initially specified sum.

Equipment installation at Moldovagaz

Installation of procured equipment was financed by Moldovagaz from its own funds, exceptinstallation of meters at enterprises, households and apartment gas meters, paid by consumers.

All received (142 pieces) Gas pressure regulators are also completely installed (see table 3 in theAnnex) in different regional gas distribution networks of Moldova. Installed instead of previously usedobsolete gas regulators, the new ones are operating stably, their adjusting is suitable and simple. Thisequipment provides reliable gas supply for consumers, especially in fall-winter season, when thepressure in the distribution network is mostly unstable and decreases gas losses at GDP due to absenceof gas ejections in atmosphere. Reconstruction of GDP by replacing of old gas pressure regulatorscompletely eliminated the problems with very low gas pressure at the customers.

- 38 -

All of the total of 20 Flow Computers, procured for measuring gas flow on GDP are completelyinstalled (see table 4 in the Annex) in seven republic's gas distribution networks. This permitted tocreate a much more precise system of supplied gas measuring, taking into account gas temperature,pressure and other parameters. All installed Flow Computers are working properly without any failures

or claims, as a result commercial losses were reduced.

The installation of gas meters of different types, including those procured from Loan means,

started as they were received and is continuing in present (see tables 5,6,7). Tables 6,7 show the numberof gas meters of different types procured from Loan, distributed to subdivisions of MG and installedrespectively by October the 1st and November the 1st 2001. As it could be seen from these tables, the

total number of installed from Loan meters is 89000, which constitutes 68 % of all procured from Loangas meters.

Here it should be mentioned that in addition to gas meters, procured and installed from Loan,

MG has installed also a considerable number of gas meters, procured by population from the market.

Thus the total number of gas meters installed for population (including ones procured from Loan means)is considerably higher and by October the 1st 2001 was about 134000, which amounts to 92% of allhousehold consumers. So, above 92% of all gas consumers are billed via gas meters, thus we considerone of the main objectives of the project was reached.

It is necessary to underline that MG in addition to mentioned technical measures undertook

organizational ones in order to stimulate gas meters installation and improve collections. Among suchmeasures was providing gas meters for population in installments, introduction of new gas consumption

norms for the consumers without meters and cutting off the consumers, which were not paying theirbills.

Installation of calibration line was performed in accordance with the supplier's technical

requirements, specifically in a separate accommodation, well equipped with all necessary equipment,such as air condition, additional doors etc. for ensuring necessary temperature conditions, was built. Thementioned calibration line is the first and the only computerized and automatic installation for gas

meters types G16-G1600 calibration in Moldova. The calibration line is provided with a computerizedsystem and permits to organize a data base on gas meters verified, which contains all neededinformation, such as the types of gas meters, their individual numbers, terms of verifying, etc. During

the first 4 months of operation (July 2001- October 2001) about 260 big industrial meters have beenverified at the newly installed calibration line without transportation of meters outside of Moldova. This

leads to reducing with 20% the expenses and by 50% the time period needed for gas meters calibrationand provides its better quality.

All installed at MG equipment within exploitation period was functioning properly, withoutfailures and downtimes.

As a result of implementation of all scheduled measures for rehabilitation of gas distributionsystem, gas consumption and gas losses during last years decreased considerably (especially at industrialconsumers), more precise registration of consumption was established, main gas losses were localized

and necessary measures were undertaken to eliminate them. For comparison, in 1996 gas losses wereapp. 111,8 million cubic meters, in 1998 - 106,5 million cubic meters, in 2000 - 80,4 million cubicmeters and for 9 months of 2001- 41,1 million cubic meters.

Collections for supplied gas improved significantly during last years, in average on the republic

during 9 months of 2001 they reached 72%, the best results were achieved in private sector (the

population paid all 100% of current gas consumption), the worst (58%) is the situation at large energy

sector consumers, such as CHP-1, CHP-2, Termocom.

- 39 -

Equipment Installation at Chisinau Combined Heat AND Power Plant #2

The installation and utilization of materials and equipment procured started immediately aftergoods receiving. Further the status of the equipment installation and utilization is shortly described.

Chemicals procured were used for water treatment during 1998-99 winter season peak load andcontributes to reliable CHiP-2 main equipment operation, especially important it was during winterperiod.

Measuring devices (pH-meters, salt-meters, balances and others), procured under ICBprocedure were installed and used in Chemical and Boiler Turbine Workshops for adjustingtechnological processes. The remaining uninstalled measuring equipment (app. 34%) represents thecomponent parts of technological automated measuring system. The evaluation of economic efficiencydue to installation of automatic chemical control devices in these two CHP-2 subdivisions was made.After installation of these devices in Chemical Workshop the reduction was registered of chemicalreagents consumption for producing of chemically purified and desalted water of app. 90 000 MDL peryear. Installation of such devices in the Boiler Turbine Workshop led to salt sedimentation slowdown onthe surface of the heat-exchange apparatus and power-generating boilers. This led to the reduction of theeffluent gas temperature and resulted in saving fuel, app. 290 tons conventional fuel per year. Besides,the cost of equipment chemical cleaning, chemical reagent consumption and labor expenses decreased,whereas the equipment operation reliability increased. All mentioned led to annual efficiency fromlaunching devices in operation about 219 000 MDL and payback period equal app. to 4 years.

Turbo-generators spare parts were already partially used in the cases of necessity for generatorsrepair, the rest of the spare parts are in stock and planned to be used during next scheduledturbo-generators repairs and on as needed base. So, these spare parts ensured maintaining of generatorsin operational status.

One of the two procured water retainers for water-cooling towers was installed and is in operationnow. The second one should be installed during 2001 summer repair period when the complete stoppageof station was planned, but due to the fact that the stoppage was not permitted and ,besides, owing toinsufficient amount of own funds for additional materials needed for installation was not installed in2001 and is planned to be installed in 2002. The calculations of economic efficiency of water retainer,based on its passport data and real water consumption were made by CHP-2 specialists. Installed waterretainer contributes to essential decreasing up to existing standards of the amount of the evaporatedwater (which constitutes app. 0,006% of the water added in cooling system), this fact in addition leadsto reducing of thermal pollution in station region. Thus, estimated efficiency in 1998 was about 100 000MDL/per month and pay back period equal app. 7 months.

Condensation pumps were installed instead old ones with their lifetime exhausted and in presentare working without claims, contributing to reliable operation of CHP-2 main equipment. In 1999 onecondensation pump was repaired in accordance to warranty obligations of manufacture.

Computers and copy machines are in use, except a part of technological computers and spareparts for them (app. 19% of total cost), which are partially under installation and the rest is on stock.Received computers and copy machines were used in different CHP-2 subdivisions, particularly inaccounts department, planned-economic department, automated control systems department forimproving CHP-2 accounting and financial management.

Regarding Motor operated gate valves - 4 large valves with diameters 800 mm were installed ondifferent water pipelines at CHP-2 instead old equipment, the rest of the valves, most of them with smalldiameters, are in stock for replacement of existing one in dependence of their current condition on asneeded base.

One of three procured thyristor excitation systems for generators, received in January 2001 wasinstalled on unit #3, adjusted and starting from November 11, year 2001 is in operation. Oldelectromechanical exciters are worked out completely and need to be substituted in any case. Besides,

- 40 -

they have some disadvantages, the main of thern are: the increased vibration of longer generator shaftand need to be oiled, the latter one leads to additional service costs and increases fire risk. The commonadvantages of thyristor excitation systems are well known, conceming this instance case the installed

system has been working successfully from November 11, providing more reliable and stable generator

operation in connection with electrical network (especially in the cases of network failure), more flexible

automatic generator output active and reactive power control. After the replacement of the oldelectromechanical exciter and generator #3 repair its operation lifetime is now in accordance with the

norms - 4 calendar years till next scheduled repair.The part of the busbars and cables for thyristor excitation systems connections are installed on

generator #3, the rest of cables and busbars are in CHP-2 warehouse waiting for installation ofremaining excitation systems. Remaining two excitation systems are planned to be installed respectivelyduring 2002 and 2003 years repair periods.

As a result of all measures attempted during project implementation the operation reliability,unscheduled downtimes ratio and fuel specific consumption of CHP-2 were brought closely to the level

of initially designed for this station and corresponding to good condition of main equipment (see table 8).CHP-2 available capacity after generator #3 repair and thyristor excitation systems installation is closeto full station installed capacity.

More reliable and uninterrupted electrical and heat supply of the industrial plants and residentialdistricts in Chisinau is provided. Moreover, the availability of the own local source of energy such as

CHP-2 creates more favorable conditions for negotiations on energy market for import of electrical

energy from other suppliers.

Delays during project implementation

Due to the fact, that at the initial stage of the project some delays occurred and, besides, someadditional equipment was included in procurement plan, the project closing date was extended, last timetill 31 December 2001. So, it would be naturally to complete all installations (except spare parts or other

equipment, which have to be in stock until it become necessary and equipment, which was procuredclosely to closing date and, besides, could be installed only during summer repair period) till 31

December 2001. But, due to different factors the procured equipment was not completely installed bythis date. One of the reasons for this was additional quantity of procured equipment (gas meters ofdifferent types, excitation systems), others are explained below.

Delays during the project implementation most often took place due to lack of ownbeneficiaries' means, restrictions imposed by the schedule of CHP-2 operation or main equipmentrepairs or in cases of additional procurement, when the time remaining till project closing date does notpermit to install all procured equipment. Besides, some spare parts cannot be installed immediately after

receiving and have to be in stock for future repairs.The following delays took place during project implementation:

* PIU was established in April 1998, by that time a considerable part of contracts at CHP-2 and MGhas been signed and even transactions made. So, it takes some time for PIU to establish the accounting

and financial management system, create own files for the whole project and assume all the activities

under the project;

At CHP-2* Installation of the second water retainer was delayed due to the fact that it was not permittedcomplete stoppage of CHP-2 during 2001 summer repair period. The second water retainer in

accordance with the information provided by CHP-2 will be installed in 2002.

- 41 -

* Installation of technological computers and spare parts for them was delayed also due to absence ofsome components and lack of an experienced specialist in the domain at CHP-2 to implement thistechnological system. In accordance with the information provided by CHP-2 this equipment will beinstalled in 2003.a Installation of two remaining excitation systems for units #1, 2 is planned to be done respectivelyin 2002 and 2003 during scheduled capital repairs of generator units #1 and 2. The installation of allthree excitation systems (received in January 2001) during 2001 summer repair period was impossibledue to operational restrictions of CHP-2.

At Moldovagaz

Considerable part (app. 26% of all procured, which constitutes app. 34000 items as per November1 st, 2001) of gas meters for small consumers remains in stock at MG. According to MG information therate of their installation decreased considerably during the last year because of the fact that MG wasforced to levy meters by VAT at the selling to population, this increases their price by 20 % and somakes them uncompetitive on the internal market. So the population prefers to buy and install cheaper(although in some cases less qualitative) meters from the internal market. MG directed appropriaterequests through Ministry of Energy to the Ministry of Finance to solve this issue, which is now underexamination. Nevertheless, as it could be seen from tables 6,7, monthly more than 1200 meters areinstalled. So, if the rate of installation will keep at this level, the remaining meters will be installed inapp. 3 years, which of course is unsatisfactory.

Bank's effect

The World Bank completely satisfied the requirements of the situation in which Moldovagazand CHP-2 found itself in the post soviet period, starting from the needs of PIU establishing, providingwith necessary information, assistance in the preparation of documents and approvals (includingprofessionals and experts visits) during all the Project phases and right up to adequate monitoring,contributed to the efficient implementation of the Project.Beside very competent individuals in the function of the Task Manager, Program Leader and gas andelectricity consultants, the World Bank staff demonstrated the competence to recognize special featuresof the client and flexibility in upgrading the procurement plan to be adjusted to the changing priorities ofbeneficiaries.

It particularly manifested competence in understanding the current needs and condition relatedto the local situation through the assistance with preparation and timely decisions conceming eachdemand (here as an example could be mentioned the assistance in solving problems with Social Fundspayments, updating and adjustment of procurement plan in accordance with results obtained inprocurement and changing priorities during implementation, careful study of newly appearedbeneficiaries proposals on most effective use of loan funds or additional procurements, gas metersexcessive taxation on population selling etc.).

Our evaluation of the Bank's effects in this Project as excellent is supported by the fact that WBexceptionally contributed to solving of the problems, which appeared during the project implementationand initiating solutions and all possible assistance (including through Resident WB mission).

Borrower's effect

Besides the technical ability of beneficiaries to implement this Project, they succeeded inmanifesting their ability to define clearly the priority needs, being ready to adopt the world's best

- 42 -

practice in the domain. Beneficiaries also proved their readiness to take on and execute the tasks in theagreed manner.Because this project have two beneficiaries, it is better to speak separately about every of them,especially that the specific features in relations with their consumers are rather different. Moldovagazhave a lot of large (such as CHP-2, CHP-1, Termocom, other industrial enterprises) and small (privatefirms, households, apartments) consumers. CHP-2 on the contrary, has few main consumers -Termocom for thermal energy and Distribution companies (Union Fenosa, Nord andNord-West-distribution network operators) for electrical energy.

MG demonstrated the ability to develop, operate and maintain the gas system, which was itsmajor role. Despite its growth, MG has had losses in financial operations, the reasons for which lie indepressed sales gas prices, industry decline, national currency instability (especially during 1998-1999)and low paying ability of the citizens as gas consumers.MG has taken all measures to improve the billing and collection system expecting further improvement.The basic expectations are in the application of the solutions find and experiences gathered duringimplementation of the first project.

Further considerable improvement of MG performance is expected after construction of BorderGas Metering stations, which will pernit to obtain more precise data referring to gas imported in therepublic, consumed and also transited through its territory.

CHP-2 also demonstrated the ability to operate and maintain in relatively good condition thestation equipment. Major financial losses in financial operations were just as in MG case due todepressed energy tariffs, industry decline, national currency instability and low paying ability of theconsumers. But in this particular case the main losses were generated due to Termocom, whoaccumulated large debts for thermal energy, supplied by CHP-2. Electrical energy collections arerelatively much better, especially after privatization of the part of distribution networks by UnionFenosa.

Referred to the lessons leamed it could be mentioned that it is very important to create andmaintain a stable project coordination teams at beneficiaries, including the persons responsible for filingand storing project related documents in appropriate order and ensuring transferring of all thesedocuments in case if another responsible person is appointed. This issue was especially important forCHP-2, where 2 Directors-managers have been changed during project implementation.

Outcome evaluation

The activities carried out under this Project raised the reliability of the gas distribution system(including GDP), significantly improved gas metering at a different levels, create conditions for furtherdecreasing of technical and commercial losses and improving collections for supplied gas to asatisfactory level, thus preventing further gas distribution system decay and contributing to itsdevelopment. As a result of project implementation almost all natural gas supplied is paid in accordancewith gas meters indications. To maximize the results achieved, the construction of Gas MeteringStations (GMS) at the border of the republic was initiated for measuring the amounts of gas imported,consumed inside and transited through republic's territory. This project is carried out at MG underTACIS financial support.

Rehabilitation of CHP-2 also had positive influence on electrical and heating energy supply. Theactivities carried out under this Project raised the reliability and efficiency of CHP-2 main equipment toa satisfactory level thus preventing its further deterioration and decreasing the fuel specific consumptionclosely to designed values. Besides, due to water retainer installation the ecological situation in stationarea has improved. More over, three procured modem thyristor excitation systems for CHP-2turbogenerators will enable to increase the stability and reliability of parallel operation of generators

- 43 -

with electrical network.CcroW n CM Taj* 1.

Cas nwtms dskwWsfDr=f/bWm"C1W

by Ssby 1 km GmW

d&-Yd.b mdv,.m uc I=d". IGMIg'. dw-IftI 1 -T-2 -7 T3 15 16 17 1 18

PAM P."t CM SIM mm imw =001 MO 7M

TMXGMI,dA._ MU4 2W M = I w MD

15M 2MO szmco lffi=M 258M 18fb�GE 034.1a

12ngmgW 2-rdp.Ms1-. 33CO ZM=()D 273200,00 -- I4 124A.EE 03-�

M Pm $1 440 WO 4m 600 26,18DDO ZMOD 432MOD 16MOU 2572MOD 02"�a I "A.,R OM"

llqm..X, -M IODID 1 -IM-0c. MAUD 94-4: MR9614 MR S", C.-Y �r- r. m w F-M-N -r-M 19 -S F.: 11

m 44,p.,Wdip.. M40 zw 851MOO 16=00 2510MM ZPI" 25M.0 C3,k,,R

.Nmom 5*, M�90 IEM zo MO MO 45 W=OD 21mooo 84=OD 174=00 3Z4MOD 4N=CD 27W�* 02A�� MUla

mm ML 'U. 3m. xr, IC lb-,m -T, ,LMOC- � ax.-M T

=PQC 1Q. MT, X-M .1 NM I "�R- Onum iz�6-1 !El g,-�) ri--, '!7-,43 6�P.WdV..% 2= m I '36moo iomm 312BMOO 24-Apr438 o�� av�

&2919M 7 I'P-W 1*-" 409 I'll " 15 4320000 IOBDMDD 54Doaoo 2662MODOPA.�-W 1-mwa m,,-4"P.Mg". 1700 20M 101,15300 iffi=ou 267,150CO 15MWa 25MWa

-n I a. dx:. iou ZyLma. 3YOOD.J. 43x1---X- Iffma. Olf, -x

=1 332 43"mr- O-A

xm M=OD 8=CO 13A.1% mAga W��

#4 10�hpulv-t zn In 119jxooo 83=00 20=(1) A�� U7-5.1a Seda

g"gm 11�pudlp�� 2XD 20M I19=00 iw�=Co 285=00 11-s'pae Z2--.pa XA)�R

12-tl P.W 0*..1 119=00 166=0 2%=00 I&SIA M-S,14 XCU49

134, " gw-t 4M MO MD m 432MOO Iffi=00 174=00 54=CO la=co -,-4 C2 O�

im Tr Lu. -X- 43ALX- IdUml. -an.x. 50-JX--M

!r- F

2DOO zco 119=00 166=OD 295=00 O&M.'M isw4E on w,

AS 154,p.W.I,.- 23M 20M 119JOWOD 166=00 295DMOD 1 1*i.-GO 19#A�4E 00,byg

Y"9m 20M 20M 119=CG le=00 2W=00 194A. W - A O"i-t%mm -= MO MO 3m 60 119=00 M=LO 3Z40000 169,OMOD 174JC= 432MM 619moco OSApl�99 Z4AW4 -A-A

g.. . mm n ix. qx. Im Ilu %IJU.01- r,.X..X. "ELLCEal ". 00CL.X, -rlaxa- -. dx-X-r 77�-Q 7 Ps Y.

3874 310 230=00 84MICO 314-51CM 17,S.PW Z7-qpR DIN"

gmiggg 194, P.M ft-". 4239 3K734DO 21BMOD 146=CO 18=00 541.334 00 2,-,4 0144.1E

GM .kw 2EE74 W) mm W 29D

GM 2Z74 299% 1900 3XO 145D 2EO

.&dA GM 0 0 0 0 0 0

k,"pj OEM 2052M MDM 841= miBq

TM,%-p.K CEN

T.W GM -kd GM jMgft1.M-Jt.C��-.d I

44

Table 2.Gas mfW devrJes for JSC Moldovaa

by Sdiluollr Rulnbach GnibH.

d.1_ df N..bor dparW d Nr=O-f G- N__ To3loso C-t - S _-Cd ._ .* n_ b d WB -pd Wl

I 1 2 3 4 5 S 7 8 9 I 10 11 1 12 13 14

Pd.., per u., USS 34 00 -46 00 0. M G. 4 GA G

be dellwed 45,000 t9200 I1,530.0003 0 883200 0 2,413.200.0

_ 1 It plAsd $Srwo 72D0 244,800 0 254Sp.98 12-0098 16 FbA99-3

30 Setp 96 I la Dc 68 2-nd parll rhipmrnd 320 147,200 0 0196N9 Dnc 25 98 1 SFr-99

7 12 3-rd prs gtp r rn- 7200 244.8 00 27-N98 03-D-98 16-Frb.99

ON-o ga8 25 Jr 9S 441h Pf_ OddM. - 2400 110,400 0 = 14 9 = 284)c-91 16-Fb-99

S 3 54h p.W rhip.o - 720 244,8Do 0 26S4r93 9 Doc 98 _ 12-Mny-98 =

30Jsn 993 30, Ffb 99 Sh prutd sh4pnl - 2350 10S,560 O 2S4Jnn 9 0441rx-99 12-MnY-93

7th p&n shipmrt - i0 75,440 0 274nn49 23Wr-99 12-Mny48

Mans me r r 72DO 4000 244,8qEO_ 1894,000 0 42B,d990 S

04 ST rf shl,mrS 7mn 244.800 o 24-M4-s3 02Ap,-99 12-My-W

30 M.r 99 30 Ibr 99 94h P-S 4hmn-M 3200 147Rno o 24-M.-s 02-Apr99 12-May 98

Wm bnnl'' ' 7ion - 32no ~~244,890n.~ au =-no fton 9 t

tS 7101h pWrs shOMo 71000 46.ooD o 16Ap^,99- 1 Ap,99 02-Apr-99

30 Jurs93130 Jun 91 11C1hparl*hWnh4m 72D0 244,8000 284un-93 a JU1 99 08S4.S99

tm hn_ 720~~~~~~~~~~~~~~6 0 _ 8 000 a6oo * 6 00 00 Wam 94 Al

#6 1 2t dWru htpMrD 3200 147.200 o 29-My-99 = 1 J.n 99 12-.bn99 1 1-Ju-99

I pr, prW h4mr n 7mn 244,800 o 2as39-9 03--p99

30 ,o 99 |0SeP 99 14(h p.nrt hk4mrmt IBDO S1,2C0 28 Aue9 = 04S,99

ISMh P.A.l Ihtd 2 101.2DO0 o4asa , so sa9

m rnw sooo 6400 . .....

.ulh" GM rdul 45000 19200

= = nu~~~bbl, GM .smd O O

= = ~~~A-rmu P.A. US$ 1.530.O0O 00 8833.2W00 o

= = TOTALWi.USS ~~~2,41300O 0 O% C-lhl: pr

= = 7rS1 Gd nbdow 647S All Cm .mr unrbr th. C.& = =d

-45 -

Table 3.Total gas pressure regulators distribution

and installation by JSC "Moldovagaz9

________________________T yp..fG. P s~xm wg6k' &' - W

Drmiaf roflp-nr l 12 P, D-50 12P,D-100 4712, D-0 4712 D-It F; DU-'0 loTl

ano rr.wl rUaI ff Fcl Irtl .14,c t:ls ntal _ ec Irl] -- aDI reca rall W d1 reI c v1 -Ir

ChLir,n. R 28 28 2S 16 16 16 4 4 4 48 46 48

hIdo. eigaz 2 2 2 2 2 2 21 21 21 13 13 13 2 2 2 40 40 40

Aneri-N. 2 2 2 2 2 2 Is is I 2 12 1 2 2 36 36 36

KW= = = = = 3 3 3 _ _ _ 4 4 4

Edinel gao 7 7 7 1 I 1 X 8 a

BnroLi _ _ 4 4 4 4 4 4

Dc-M 2 2 2 2 2 2

Ci1n _ _ _ - 2 2 2

Gr.gZv..'z = = = = =3 13 13 9 9 s927 2 27

Cad,r- Lo_p IS _C 1 0 7 7 7 4 4 4 21 21 21

Conw'I 3 3 3 2 2 2 1 I I 6 6 6

ChimMfhl. ga1 1 _ i I 2 2 I

CFhr1 Ku ga = = = =2 2 2 _ 1 _ 3 3 3

Slafan-V ~~~~~~~~~~~~ao 1~~~~ 4 4 3 3 3 7 7 7

2 _ 2 3 3 3 5 = -

2 2 2

(J,6d gao 3 3 3 3 3 3

Tar.C. gaz 4 4 4 4 4 4

ITOTAL 30 30 30 16 1 8 i 56 56 46 26 26 26 12 12 22 142 142 142

Note: The names of distribution companies are indicated by bold letters, their subdivisions by ordinary ones. Bold

figures refer to total equipment in distribution company, ordinary to subdivisions.

- 46 -

Table 4.Installation on GDP of Flow computers for orifice type gas meters

(completed by 31 st December, 2000)

Nr | Plaecof installation | rofei'td Number of units installed Installation completed by

I ] 22 1 3 3 1 4

- Balti 2 2 Ivano-Frankovsk (Ukraine)

2 Vulcanesti I I Moldovatransgaz

3 Anenii Noi 2 2 Moldovatransgaz

4 Ceadir-Lunga 5 5 Ivano-Frankovsk (Ukraine)

5 Comrat I I Ivano-Frankovsk (Ukraine)

6 Chisinau 8 8 Fluxtex LTD

7 Falesti I I Ivano-Frankovsk (Ukraine)

8 Total 20 20

-47 -

60 K M 8 M w M9 a r 0)E g 0 -/Ml 109 TV;

CO0 00 0031 0)00 000 (101 1I I0 1 0199

0)0 00 0)0 CT a is 000 IO ti l

0)1 (0E OD[ 19I 9 1 WI I6 l 9I El

OD 1 00 0)) 101 N I IL AO R01 I DIE0 C I) I D

DM1 0z o OI VI I91 R s I Of 6 )I 500)00i ll 0 ti 6)1 0)0 9016 Oi I'-0 00 t

001 Zs] z00 (01 ml01) I (i a IN0 ff9 0 St SE

OM1 LK) OK0 ODI 99 we pc it MROfm i I ST0 I0

ml1 C9 0) (00 )9 L I ZZI 6 10t (O ml 0

001 69 0)ml1 ( RE I 00 Im 0691 000I 61 El

ml 000 000 VOl az r 160 1000 M Ia 06 m Cc C

OM1 as 00L RV 00 If ei 1OZ gz n

ODI ) 00 SR IfZ 0 (L S6 I 9l X I I I I II

0)0 0 9090ml) Is I 61 I Ml I

10I Of (f f '9 I ulz 00 1 I I 100 I I9 I fl 00

ml) 0.0 906 &I iOf 91 WIl SD ff00 i X

GN1 I I 000 lb9)X 60 V i

ml n0 0 I 1 1I It It

Got (6i 9016 ) 00ii 9 I 090 a

¶/0)) 0z 00 06 100 00 009 I I I0 10) -q SL

ml1 0 D 7I I0 I I - *

0)1 6Z (0) 1 01 90 Si I 0900 M I 0

0)1 90 0) P`9 0 cs 0000 006 0) 0M (0tz-

am0 I 000 66 0z 99 XE 6 % .2 0ro if It

DI I RI 000 016 0p 1I, 06 01 P ( I El0 El I I

0)0 00 060 00 0 I Ell GI000 01 0l ED I I0

ml1 0c 0(01 i !LI 1 9 I f I lo R9 1191 0) 0 I

0)0 06 060 .1 0~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0 0096 040)~~~~~~~~~~(Td -d Ri.

()0 AL 01 0 1 I Ill DI11 I 000m i 16 0i 0101i 0 0 S

ml0 iI (601 00)0 Nit "II g I Rai 6 Lb 900 as 01 01 0

%11 0 6 101 00) I 000 06Z Z 00 IS 090) 'D 0.. V

OD) I I I 00 ID 0000Ef fI Il 000i 000 01 ?

0)0 I LI O`( 010)0010 0I 0E DI L0IZ 0000 ri0)0 DI 9 wl X 000)0 0 0 M 0l eI 000 ml I

D00 9 to 966 0O 0S00 00 I IuM P IC

90 00 90 (0 00 I0I 00 6 0 0 9 0 9

IT-%Vf) M--w- ppd /.,M1 M10

'M -Wqoppj ~ ioad se~pft-Wnj,, Aqk UOpuMM siJaw Sefi g!D Sa

00-

e9 iq 10( 4431 263 i4 14 O 47 930Y

24 } 1 ia MI II 9 1174 L [OD 1S 97 97J'.

4 4 JOE 35 3529 9 1Y 1252 7 166 125 143 24 2. O

I1 P IM 33 310 9 13 101 7 13 1017 124 24 21 [O

13 1 461 9 19 I . 1864 19(17SOD 33 3 [

a IW I 101 14, 14 12 10 2 _

C - 1 121J 121 13 2 . W

561 0&p- -4 -- UJ,4 -4 -A--49 -4

-49-

Table&? HP-2 penfaee Indlats

during 1-3 quartenf the Year 2001.

Nr. 1d,x8 M mswsed I0qrt 2e01 2)dq2DDI 3.dqu2Do T ea d

1 Elz.l a-aW Pu&nd nh k M 33814 106 12143 65043

2 nh kWn 291 163A 104S 5072kcm am& 94*d %Dauaea eai b

3 E mh L. * 123-M 68 9744.41 236.8

4 COBawb= f *er y (pd - a-&1 ) mh L * 95 0 6725 58 .220 85

6 Th mnma- poiELd d GaC 451 E 191 0 373( 68018

7 i Gmm 445 17852 19 643.5Tlhnmi a=& T Ow,n a=da adil ltd

8 mhi L, 78 x 25.41 4 10838

9 Cdoisb'm k , Th=W mh La, * 2.9 2.61 7.25

11I .ean BE, iui 8*1 149,125.1 82363 51,995 11 283,45660

12 re=amgo,rhm 13111 723 45.a 24919

13 b.k e 8,, m 9v Fud Z9057.70 0 o e 78 1 2,985 84

14 bl_k oil ws 2,13 10 0 0 61 002,19410

15 Ekma a& fsdf-V kV%b 407 2482 15.0 80ff

16 TeaL f zwesc&y a 1d- mbal a -1232 11701

17 Fue q qb" 321 k 351 9 3891 35445

18 V -& 128 9 u8-9 128M9. 128

* The indicated sum in Moldovan lei include VAT.** Negaftve nunber for 3rd quarter indicates that in this period consumers paid more han consumed, covering

peviouslv accumulated debts. This is mosdv due to prnvatisation of distlrbution networks bv Union Fenosa

- 50 -

Table 9.Balance Sheet

Government of Moldova

Moldova Energy Projectas of December 31, 2001

United States Dollars

ASSETS LIABILITIES & FUNDSASSETS: LIABILITIES:

Cash Accounts Payable - VendorsCash - Petty Cash 2.99Cash - Special Account 87,527.85 TOTAL LIABILITIES

Cash - Local Account 13.83

Total Cash 87,544.67FUNDS: (d)

Accounts ReceivableA/R - IBRD (a) - Financing - IBRD 9,165,498.79A/R - Advances to EmployeesA/R -Advances to Contractors - TOTAL FUNDS 9,165,498.79

Total Accounts Receivable

Project Expenditures (c) 9,077,954.12

TOTAL ASSETS 9,165,498.79 TOTAL LIABILITIES & FUNDS 9,165,498.79

Notes:(a) For in-transit items awaiting IBRD/IDA payment (e. G. SOEreimbursements);(b) For cases where IBRD/IDA funds have paid government's share of costs and project is awaiting reimbursement.(c) These amounts will tie to total cumulative project expenditures (see FARAH model page 104).

(d) These amounts will tie to total cumulativve project financing (see FARAH model page 104).

Moldova Energy Project, LN4020, 3rd QT 2000 Report

- 51 -

I � IIii � jijiw >

A

________ JII I � liii -�

Cal IA A A

�I I Ii�� ____

I

Iit a�uu di �

Tadl lL Cst Vam =Rqxwt Repcst 1.B

asdD31,2001

Utgd SMos Dob

A.W Bo* Vffb= LA

R*tldMW cmhut YMTo Ouum.e omu YaTo Cmie Qu.u YlTo _U mar

Q..w Dtk To4~ < Da Tofe QNW Dae ToI

tNl2FrbwPt SW= w1(7l _ .7 4 I 117%3- 570

G=h-WW A 55412C6 I47 . 55941206 1.759348D9 .57,D 255D0E

p4mkGfwuAwwF- ftSW213I - sw~um 09 -A

Goid *PWIB .921340 . 53213 - S.392125D - .9 5392131D

CN -ld h _ 197911 W479a3 _ M14 4379 _ (I1U7114 37119 6,4147S7DD

(CS - rPMlq9 1979331 64172(39 . 323,t614 6,M39193D . (1a241)1 37411O9 6,41AS7197

t~u dA=UnnF 9S -l - . _ _

GmkuxtPl D . . . . . .-

QOhCHPfs2 . . .

(Smbs&TGwnB

IS= i .Wf72 3fisLs WM 467.40 15$= aP7i (337 s(I3

C,,,9h&Tg . 473S413 33 . 473s4m 19 303,mm9 -

0.mCHPW2 KO3M W - 144M A2g321 .

Vih.~, - 219l 13 3267719 . 2191319 3677m D

s . 911|3911 927119 . 11.39D 9371 .D

ALzk -- -

b-- O Go 153721 1681|72 l37291l . I839m 26414538 1572D (20281 (133,7724 1MM=

SF&atdPW 392(3 l1Q90L 6651212 . (03M1 72s4s2s 1,4M2(3 40812 (7,371

Tmpatom&wmu~ ZD 2304 11,7R49 . 29a23 32(2743 .(11,1171

T, -i,J . lE3 l(356. - 4*DW69 . If Dm (4492E

-E . 253799 204s8. 33312m 45sM9 . (11. (.2371

Ad . 46(231 . . (49419

O m& m 7938 1,4(10 839219 . 2m1 1IJ8ZW 7939 (1.10 41

TdY*l3u_ _=9__ s7 s - S=23 sJK2 -7 (U730142 8 .

- 53 -

~~~~. . . . . . . . . . . . . . . l'

I~~~~ W __

il8b^RX~I ,,, . 9i I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _E__ _ _ _ _ _i__ _

ii I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L

Table 13. Special Account Statement

Government of MoldovaMoldova Energy Project

for period October 1 - December 31, 2001United States Dollars

Opening Balance at October 1, 2001 89,079.85(excluding Adjustment items)

Advance from Bank 1/Balance per World Bank Statement of December 31, 2001World Bank replenishments

Subtotal 89,079.85

Deduct:Payment for Eligible Project Expenditures 2/ 1,572.00

Subtotal 87,507.85

Deduct: Amount recovered by World Bank(recovery process, normally begins towards theend of the project)

Subtotal 87,507.85

Adjustment items /3Local Account Opening Balance at October 1, 2001 20.75Local Account Closing Balance at December 31, 2001 13.83Petty Cash Opening Balance at October 1, 2001 16.07Petty Cash Closing Balance at December 31, 2001 2.99

Subtotal 20.00

Closing Balance at 4/ December 31, 2001 87,527.85

Reconciliation With Wold Bank at Year End

Balance, as per above Closing Balance above

World Bank Replenishments inTransit

Balance per World Bank Statement of December 31, 2001

- 55 -

_~~~ _

* I ~ ig1 -' ' '08 0 8 s 0 |

l i i_ 0 CD g , , , 8

S i- #S IS I X tj

Table 15. Contract Expenditure Report Report 3-AGoods and Works (for contracts above prior review threshold) /1

Government of MoldovaMoldova Energy Project

as of December 31, 2001United States Dollars

Contract Contract Supplier/ Nationality Cumency Amount

Descriptionil Number Contractor of contract Value Paid

to date

Geods 8,723,641.65 8,716,105.21

It.rg - r :, .r- -. ,,r 4.,. -

Gasmetnrs & regulatoro (pflot) GD009 Schlumberger Gemany USD 303,851.00 303,850 90

Household & apartment teters GDO10 Elster Germany DM 3,372,206.86 3,429.159 64

Meas-ng devices GD011 Mettler Toledo Swtlz.tRom USD 260,12400 260,12400

Gas metes ra H&A nGDs G0014 Schlumberger Germany USD 2,413,200.00 2.413,200 00

Generator Excitatron Systems GD015 ABB Svwtz CHF 635,783 43 569,045 59

Iertg__ .;.~,loualSho,ppa -, .- __- .. .L~ ..- ; . i.e,M?2 .i _.4.7_

Geometes G-10 GDO01 Eister Germany DM 63.955 41 63.955 41

Geometes G-16 & reguhltors GD002 Schlumberger Germany USD 187.719 00 187,719 00

Camtooe end uDiotc resi G0003 Atat Mddoya USD 74,600 00 74,861 10

Wate retu-ners GD004 Broter-Eco Moddova USD 161,000 00 161,000.00

Computer indast-l network G0O05 Revel Moldova US0 106,954 00 106,953 90

Photocopy machmes GD006 Revel Moldova USD 26.644 00 26.644 00

Codemation pumps GD008 Moldovahidromas Moldova USD 265,050 00 265.050 00

Gas pesusre, now computers GD012 Flow Automaton UK USD 235,362 50 235.362 50

Motor operted gate vatves G0013 Noton (Auma) Netherlands NLG 194,185 31 196,172 83

Turbine type gam meters GD016 Elster Gemany DM 125,073.14 125,073 14

Gas metes calmbra1non oacl GD017 Schlumberger Germany USD 197,933 00 197,933 00

Busbar for gneretors GD018 Zaporojtransformator Ukrain USD 31,600 00 31,600 00

Power cables GD019 Moldavcabel Moldova USD 16,596 00 16,596 00Din- t 10-,0go -. 00Drere Crt ~.eaae._ . .1 - . . _. -., 10X.00000 tO.t

Turbogenentor spore ports GD007 Electrosila Russia USD 100,000 00 100.000 00

Other (T. br Dremrined)

/1- Amendments that are subtecled to Bank no oblection should he included as an addibonal line with the same contract number and amendment number,

Requests for modifying the report for new contracts should be sent to Management Strategies, Inc

- 57 -

IMAGING

Report No.: 24446Type'.: C