FOR OFFICIAL USE ONLY Report No: PAD5518 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$225 MILLION TO THE DOMINICAN REPUBLIC FOR A DISTRIBUTION EFFICIENCY IMPROVEMENT AND UTILITY STRENGTHENING PROJECT AS PHASE 1 OF THE MULTI-PHASE PROGRAMMATIC APPROACH SUSTAINABLE DECARBONIZATION AND ACCESS TO CLEANER ELECTRICITY WITH AN OVERALL FINANCING ENVELOPE OF US$505 MILLION For Phase 1: November 20, 2023 Energy & Extractives Global Practice Latin America and Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective October 31, 2023 Currency Unit = DOP DOP 56.90 = US$1 FISCAL YEAR January 1 - December 31 Regional Vice President: Carlos Felipe Jaramillo Country Director: Michel Kerf Regional Director: Maria Marcela Silva Practice Manager: Gabriela Elizondo Azuela Task Team Leader: Huong Mai Nguyen The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ABBREVIATIONS AND ACRONYMS ACT Accelerating Coal Transition AM Accountability Mechanism AMI Advanced Metering Infrastructure CCDR Country Climate and Development Report Dominican Corporation of State Electricity Companies (Corporación Dominicana CDEEE de Empresas Eléctricas Estatales) CIF Climate Investment Fund CNE National Energy Commission (Comisión Nacional de Energía) CO2 Carbon Dioxide CPF Country Partnership Framework CRI Cash Recovery Index Unified Council for the Electricity Distribution Companies (Consejo Unificado de CUED las Empresas Distribuidoras de Electricidad) DFIL Disbursement and Financial Information Letter DO Development Objective DP Development Partners DPL Development Policy Loan DR Dominican Republic EDEs Electricity Distribution Companies (Empresas Distribuidoras de Electricidad) EE Energy Efficiency EIRR Economic Internal Rate of Return ENVP Economic Net Present Value E&S Environmental and Social ESF Environmental and Social Framework ESCOs Electricity Service Companies ESCP Environmental and Social Commitment Plan ESMF Environmental and Social Management Framework Dominican Electricity Transmission Company (Empresa de Transmisión Eléctrica ETED Dominicana) FDI Foreign Direct Investment FIRR Financial Internal Rate of Return FM Financial Management FNPV Financial Net Present Value FY Fiscal Year GDP Gross Domestic Product GHG Greenhouse Gas GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GoDR Government of the Dominican Republic GRS Grievance Redress Service The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) GWh Gigawatt hours IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results ICT Information and Communication Technologies IDB Interamerican Development Bank IFC International Finance Corporate IFI International Financial Institutions IFR Interim Financial Reports IFRS International Financial Reporting Standards ILRP Integrated Loss Reduction Plan IP Investment Plan IPF Investment Project Financing JICA Japanese International Cooperation Agency KPIs Key Performance Indicators LAC Latin America and the Caribbean LMP Labor Management Procedures LV Low Voltage LV/MV Low and Medium Voltage MDM Metering Data Management MEM Ministry of Energy and Mines (Ministerio de Energía y Minas) MPA Multiphase Programmatic Approach MTR Mid – Term Review MV Medium Voltage MW Megawatt MWh Megawatt hours M&E Monitoring and Evaluation NDC Nationally Determined Contributions NDS National Development Strategy NEP National Energy Plan Coordinating Body of the National Interconnected Electric System (Organismo OC Coordinador del Sistema Eléctrico Nacional Interconectado) PAD Project Appraisal Document PBC Performance-Based Condition PD Program Document PDO Project Development Objective PIU Project Implementation Unit POM Project Operations Manual PPP Public Private Partnership PPSD Project Procurement Strategies for Development PrDO Program Development Objective QPR Quarterly progress report The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) RE Renewable Energy RESCOs Renewable Energy Service Companies SENI National Interconnected Electric System (Sistema Eléctrico Nacional Interconectado) SEP Stakeholder Engagement Plan SIE Superintendence of Electricity (Superintendencia de Electricidad) Integrated Financial Management System (Sistema integrado de gestión SIGEF/UEPEX financiera) /Project Implementation Unit with External Financing (Unidades ejecutoras de proyectos con financiamiento externo) SMS Social Management Strategy STEP Systematic Tracking of Exchanges in Procurement TA Technical Assistance TSA Treasury Single Account UNFCCC United Nations Framework Convention on Climate Change US United States USTDA United States Trade and Development Agency WACC Weighted Average Cost of Capital WB World Bank WBG World Bank Group Y/Y Year on Year The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) TABLE OF CONTENTS DATASHEET ........................................................................................................................... 1 I. STRATEGIC CONTEXT .................................................................................................... 10 A. Country Context.............................................................................................................................. 10 B. Sectoral and Institutional Context .................................................................................................. 11 C. Relevance to Higher Level Objectives............................................................................................. 16 D. Multiphase Programmatic Approach ............................................................................................. 17 II. PROJECT DESCRIPTION.................................................................................................. 22 A. Project Development Objective ..................................................................................................... 22 B. Project Components ....................................................................................................................... 23 C. Project Beneficiaries ....................................................................................................................... 26 D. Rationale for Bank Involvement and Role of Partners ................................................................... 26 E. Lessons Learned and Progress on Learning Agenda ....................................................................... 27 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 28 A. Institutional and Implementation Arrangements .......................................................................... 28 B. Results Monitoring and Evaluation Arrangements......................................................................... 29 C. Sustainability................................................................................................................................... 29 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 29 A. Technical, Economic and Financial Analysis ................................................................................... 29 B. Fiduciary.......................................................................................................................................... 31 C. Legal Operational Policies ............................................................................................................... 34 D. Environmental and Social ............................................................................................................... 34 V. GRIEVANCE REDRESS SERVICES ..................................................................................... 36 VI. KEY RISKS ..................................................................................................................... 36 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 38 ANNEX 1: Implementation Arrangements and Support Plan ....................................................... 49 ANNEX 2: Detailed Project Description ...................................................................................... 56 ANNEX 3: Economic and Financial Analysis ................................................................................ 71 ANNEX 4: Contribution to Corporate Priorities........................................................................... 75 . The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P180512 Substantial Financing Financing & Implementation Modalities [✓] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [✓] Performance-Based Conditions (PBCs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS) Expected Project Approval Expected Project Closing Expected Program Closing Date Date Date 13-Dec-2023 02-Nov-2028 02-Nov-2033 Bank/IFC Collaboration No MPA Program Development Objective The Program Development Objective (PrDO) is to improve access to more reliable, efficient, and environmentally sustainable electricity supply to the population of the Dominican Republic. MPA Financing Data (US$, Millions) Financing Page 1 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) MPA Program Financing Envelope 635.00 Proposed Project Development Objective(s) The project development objective is to improve the governance and financial and environmental sustainability of the electricity distribution companies in the Dominican Republic. Components Component Name Cost (US$, millions) Component 1: Improving governance of the distribution companies 36.50 Component 2: Supporting the implementation of the Integrated Loss Reduction Plan 183.47 Component 3: Capacity building, administration, monitoring, and evaluation 5.03 Organizations Borrower: Dominican Republic Implementing Agency: Electricity Distribution Company for the East (Empresa Distribuidora de Electridad del Este) Electricity Distribution Company for the North (Empresa Distribuidora de Electridad del Norte) Electricity Distribution Company for the South (Empresa Distribuidora de Electricidad del Sur) MPA FINANCING DETAILS (US$, Millions) MPA FINA NCI NG DET AILS (US$, Millions) Approve d MPA Program Financing Envelope: 635.00 of which Bank Financing (IBRD): 505.00 of which Bank Financing (IDA): 0.00 of which other financing sources: 130.00 PROJECT FINANCING DATA (US$, Millions) FIN_SUMM_NEW SUMMARY -NewFin1 Total Project Cost 225.00 Page 2 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Total Financing 225.00 of which IBRD/IDA 225.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 225.00 Expected Disbursements (in US$, Millions) WB Fiscal 2024 2025 2026 2027 2028 2029 Year Annual 0.00 42.25 112.19 56.37 10.00 4.19 Cumulative 0.00 42.25 154.44 210.81 220.81 225.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Energy & Extractives Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Moderate Page 3 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Substantial 8. Stakeholders ⚫ Low 9. Other 10. Overall ⚫ Moderate Overall MPA Program Risk ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Page 4 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Relevant Community Health and Safety Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant Biodiversity Conservation and Sustainable Management of Living Natural Resources Relevant Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Not Currently Relevant Communities Cultural Heritage Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Legal Covenants Sections and Description Schedule 2, Section I A 1.(b). The Borrower shall cause each of the three Distribution Companies, under the Subsidiary Agreement, to hire or appoint, as applicable, no later than one (1) month after the Effective Date, and thereafter maintain throughout Project implementation, the following staff members as part of the PIU, all with qualifications, experience, and terms of reference satisfactory to the Bank, as further set forth in the POM: (i) One (1) environmental specialist; (ii) One (1) social specialist; (iii) Three (3) environmental technicians; (iv) One (1) data analyst for grievances and environmental and social monitoring and evaluation; and (v) One (1) communications coordinator. Page 5 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Sections and Description Schedule 2, Section I A 1.(c). The Borrower shall cause each of the three Distribution Companies, under the Subsidiary Agreement, to hire or appoint, as applicable, no later than three (3) months after the Effective Date, and thereafter maintain throughout Project implementation, the following staff members as part of the PIU, all with qualifications, experience, and terms of reference satisfactory to the Bank, as further set forth in the POM: (i) Project Coordinator; (ii) financial management specialist; (iii) procurement specialist; (iv) accountant; and (v) monitoring and evaluation specialist. Sections and Description Schedule 2, Section I. A 1.(d) The Borrower shall cause each of the three Distribution Companies, under the Subsidiary Agreement, to create, no later than six (6) months after the Effective Date, and thereafter maintain throughout each calendar year of Project implementation, specific budget line entries in the national annual budget to keep track of the corresponding expenditures financed out of Loan proceeds incurred during Project implementation. Sections and Description Schedule 2, Section I. A 1.(f) The Borrower shall cause each of the three Distribution Companies, under the Subsidiary Agreement, to hire, no later than four (4) months after the Effective Date, and maintain throughout Project implementation, independent auditor(s) in number and with experience and qualifications acceptable to the Bank, for purposes of carrying out audits of the Project in accordance with terms of reference set forth in the POM, and consistently applied auditing standards, all acceptable to the Bank. Sections and Description Schedule 2, Section I. A 2. The Borrower shall cause EDENORTE, under the Subsidiary Agreement, to hire or appoint, as applicable, in coordination with CUED, no later than one (1) month after the Effective Date, and thereafter maintain throughout Project implementation, the following staff members, all with qualifications, experience, and terms of reference satisfactory to the Bank, as further set forth in the POM: (i) one (1) environmental coordinator; and (ii) one (1) social coordinator. Conditions Type Financing source Description Effectiveness IBRD/IDA 5.01 (a) the Borrower, through the MoF, has caused the Distribution Companies to prepare and adopt the Project Operational Manual Page 6 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) (“POM”) referred to in Section I.B of Schedule 2 to the Loan Agreement in a manner satisfactory to the Bank; Type Financing source Description Effectiveness IBRD/IDA 5.01 (b) the Borrower, through the MoF, has entered into the Subsidiary Agreement with the three Distribution Companies, as referred to in Section I.C of Schedule 2 under the Loan Agreement., and in a manner satisfactory to the Bank. Type Financing source Description Disbursement IBRD/IDA Section III. B.1 (b) under Category 2 unless and until the Borrower has caused each of the three Distribution Companies to furnish evidence acceptable to the Bank that: (i) the PBC Expenditures, equal to at least the amount to be withdrawn under this Category in respect of each PBC set forth in Schedule 4 to the Loan Agreement, have been incurred; and (ii) the PBCs set forth in Schedule 4 to the Loan Agreement for which payment is requested have been met and verified in accordance with the Verification Protocols in the POM. Type Financing source Description Disbursement IBRD/IDA Section III. B.2. No withdrawals under Category 2 shall exceed the Loan amount allocated to the respective PBC in Schedule 4 to the Loan Agreement. Type Financing source Description Disbursement IBRD/IDA Section III. B.3. Notwithstanding the provisions of Paragraphs 1 and 2 of this Section, and subject to the Loan Agreement and the Subsidiary Agreement, the Distribution Companies, may withdraw the amount stipulated in the Disbursement and Financial Page 7 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Information Letter as an advance; provided, however, that if the PBCs, in the opinion of the Bank, are not achieved by the date by which such PBCs are set to be achieved in accordance with Schedule 4 to the Loan Agreement, the Borrower shall refund such advance to the Bank promptly upon notice thereof by the Bank. Except as otherwise agreed with the Borrower, the Bank shall cancel the amount so refunded. Any further withdrawals requested as an advance under any other Category shall be permitted only on such terms and conditions as the Bank shall specify by notice to the Borrower. Type Financing source Description Disbursement IBRD/IDA Section III. B.4. Notwithstanding the provision of Paragraph 3 of this Section, if the Bank determines, at any time, that any portion of the amounts disbursed under Category 2 was made for expenditures that are not eligible under the PBC Expenditures, the Borrower shall promptly refund any such amount to the Bank as the Bank shall specify by notice to the Borrower. Type Financing source Description Disbursement IBRD/IDA Section III. B.5. If the Bank determines that any PBC has not been met by the date by which such PBC is set to be achieved in accordance with Schedule 4 to the Loan Agreement (or such later date as the Bank has established by notice to the Borrower), the Bank may, in its sole discretion, by notice to the Borrower: (a) withhold the whole amount of the Loan allocated to any such PBC; and/or (b) disburse the amount of the Loan allocated to such PBC (except for PBC 1.1 and 1.2) at any later time, if and when such PBC is actually achieved, to the extent that such Page 8 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) completion remains feasible at a later time; and/or (c) reallocate the whole amount of the Loan allocated to such PBC to other PBC(s) under Category 2, or to other Categories; and /or (d) cancel in whole the withheld amount of the Loan allocated to such PBC. Page 9 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) I. STRATEGIC CONTEXT 1. This Project Appraisal Document (PAD) covers Phase 1 of the Sustainable Decarbonization and Access to Cleaner Electricity Multiphase Programmatic Approach (MPA), to be presented to the World Bank’s Executive Directors on December 13, 2023 with the first phase Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512)1, Report number PAD5518. A. Country Context 2. The Dominican Republic (DR) experienced sustained economic growth and notable poverty reduction records in the two decades before the COVID -19 pandemic, though continued reforms are required to sustain growth.2 The country had an annual average Gross Domestic Product (GDP) of 4.7 percent from 2000 to 20223, driven primarily by capital accumulation and private consumption. Over the last decade, the DR became the second fastest- growing economy in Latin America and the Caribbean (LAC) supported by strong tourism, remittances, foreign direct investments (FDI), mining revenues, free-trade zones, and telecommunications. Between 2000 and 2021, the national poverty rate fell from 31.8 percent to 23.8 percent, extreme poverty from 7.9 percent to 3.1 percent, and the Gini coefficient from 0.51 to 0.39,4 while the population increased from 8.5 to 11.1 million. Growth is expected to remain around 5 percent over the next three years. The implementation of structural reforms in energy, water, and public- private partnerships (PPPs), as well as efforts to increase the quality of human capital and attract FDI to higher value- added industries, are expected to sustain that growth potential. 3. The country faces growing fiscal constraint, as it looks to sustain its development progress while meeting its climate commitments. Consolidated public debt has consistently risen in the last decade, reaching a peak of 69 percent of GDP in 2020 due to COVID-19 response measures. Effective debt operations and good economic performance have helped alleviate some of the country’s debt burdens, though long-term sustainability risks persist as new expenditure needs arise. At the same time, fiscal revenues still fall below the regional average, constraining investment in social infrastructure. To widen the revenue base, several tax reform measures are being considered, including a carbon tax. This would be aimed to incentivize businesses and individuals to adopt more environmentally friendly practices and reduce their carbon footprint, helping to meet the country’s climate commitments while creating the necessary resources to meet its development goals.5 The fiscal constraint further highlights the importance of actions needed to reduce the fiscal subsidies and burden from the electricity sector. 4. Meanwhile, gender inequality persists in the DR, as there is a lower participation rate in the labor force, higher vulnerability to job loss, and less opportunities for women in the workplace. In 2022, the participation rate in the labor force among women was 52.5 percent, compared to 76.5 percent for men. While women over the age of 15 have continued to join the workforce since 1990, the gender gap in the job market is higher compared to other countries in the upper-middle income group. During the COVID-19 pandemic, the female participation rate fell by 1 In Spanish “Programa de Mejoramiento de Redes Media y Baja Tensión y Normalización de Clientes de las Empresas Distribuidoras de Electricidad a Nivel Nacional” 2 World Bank. Country Partnership Framework for the Dominican Republic for the period FY22-FY26, March 2, 2022 (Report No. 167896-DO) 3 World Bank Data. See: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2019&start=2000 4 Ministry of Economy, Planning and Development of the Dominican Republic. Boletín de estadísticas oficiales de pobreza monetaria en la República Dominicana 2021 No. 9. See: https://mepyd.gob.do/publicaciones/boletin-pobreza-monetaria-a7-no9 5 World Bank. Dominican Republic Country Climate and Development Report (CCDR), forthcoming publication in November 2023. Page 10 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) around 8 percentage points, compared to 5 percentage points for men.6 The National Development Strategy (NDS) 20307 outlined measures to promote gender equality, including strengthening compliance with national regulations and international best practices on women’s rights to build a culture of equality and equity. 5. The DR is also highly vulnerable to climate change, with exposure to multiple natural hazards. The country is exposed to high risk of flooding, landslide, cyclone and wildfire, and medium risk of water scarcity and extreme heat – all of which are expected to increase in frequency and intensity due to climate change – in addition to medium exposure to earthquakes.8 This carries significant risk to human, financial, and physical asset losses, including in energy generation, transmission, and distribution infrastructure. For example, in September 2022, Hurricane Fiona brought torrential rain and powerful winds, forcing 12,500 people out of their homes, and leaving 709,000 people without power.9 Events like these underline the country’s vulnerability to climate change and the need to improve resilience across the sectors, including ensuring the security and reliability of the electricity supply and effective disaster response mechanisms to minimize the impacts of hazards on productive activities and critical public services such as health and education. Building climate resilience of the transmission and distribution networks will be key to avoiding the negative effects on the country’s economy and its society. B. Sectoral and Institutional Context 6. The electricity sector in the DR has been a catalyst for the country’s strong and sustained economic growth, though it has continued to pose a fiscal burden to the state and the generation matrix is reliant on costly imported fossil fuels. Several government initiatives that started in the early 2000s, such as the Blackout Reduction Program and the Tariff Stabilization Fund, were intended as targeted subsidies to the poor in getting reliable electricity and mitigating against high fuel prices. Over time, these programs (despite having been discontinued) inadvertently created an entrenched culture of non-payment of tariffs among segments of consumers and the prevalence of under- cost-recovery tariffs. This has resulted in sustained losses for the three distribution companies (Empresa Distribuidora de Electricidad, EDE), which averaged on an annual basis US$1.2 billion during the period 2017-2021, corresponding to 1.4 percent of GDP.10 High tariff requirements have been largely due to the high costs of electricity, especially electricity generation, which is linked to the high share of fossil fuel-based generation and its associated high fuel costs, exposure to global price volatility, and environmental impacts. 7. The electricity sector in the DR is unbundled11 with a high level of private participation in power generation. Privately owned generation accounts for 72 percent (3,670 MW) of the country’s total installed capacity with the remaining delivered by fully public companies.12 The publicly owned Electricity Transmission Company (Empresa de Transmisión Eléctrica Dominicana, ETED) is in charge of the management, operation, and maintenance of the National Interconnected Electric System (Sistema Eléctrico Nacional Interconectado, SENI)13 and preparing the transmission 6 World Bank. Dominican Republic Gender Assessment, October 2022. 7 See: https://mepyd.gob.do/publicaciones/-ley-1-12-estrategia-nacional-de-desarrollo-2030 8 See: https://thinkhazard.org/en/report/72-dominican-republic 9 See: https://www.accuweather.com/en/hurricane/puerto-rico-outages-continue-in-fiona-aftermath-as-storm-moves-through-turks-and- caicos/1250040 10 World Bank Staff analysis, DPL2 PD 11 This means that the market consists of separate generation, transmission, and distribution companies. 12 Organismo Coordinador del Sistema Eléctrico Nacional Interconectado de la República Dominicana (OC). Memoria Anual 2022. See: https://www.oc.do/Informes/Administrativos/Memoria-Anual?Command=Core_Download&EntryId=187274 13 The SENI consists of transmission lines of 69 kV, 138 kV, 230 kV and 345 kV that connect Santo Domingo to the north, west, and east of the country. See: https://tinyurl.com/449248r8 Page 11 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) expansion plan. Almost all power distribution14 is carried out by three state-owned regional EDEs15 – EDE Norte, EDE Sur, and EDE Este – each controlling about a third of the market. The Market Coordinator (Organismo Coordinador, OC) operates as an independent entity controlling the contract and spot market, and the Superintendence of Electricity (Superintendencia de Electricidad, SIE) regulates the sector, including service quality standards and tariffs. The National Energy Comission (Comisión Nacional de Energía, CNE) is responsible for sector planning and issuing development licenses in the sector. The Ministry of Energy and Mines (Ministerio de Energia y Minas, MEM) was subsequently created in 2013 and will increasingly oversee the planning and licensing functions. 8. Sector governance has faced significant efficiency, accountability, and transparency issues . These were concentrated in the distribution segment, which also faced the combined challenges of high costs of fossil fuel generation, high distribution losses, and low demand-side energy efficiency incentives. One of the key drivers of governance issues was the dominance of the Corporation of Dominican State Electricity Companies (Corporación Dominicana de Empresas Eléctricas Estatales, CDEEE), which had been established to be the public holding company for all the state-owned companies in the sector. Over time, it established de facto policies and was the recipient of all government subsidies, while operating within an environment of weak government oversight and lack of transparency. Its dissolution in November 2022 is among the Government’s efforts to improve sector governance, including in the power distribution, which is critical to improving the overall sector financial sustainability, thereby reducing its fiscal transfer requirements. 9. The high losses in power distribution have been one of the three key factors of the poor financial performance of the EDEs. The total losses (technical and non-technical) of around 35 percent, most of which is non- technical loss, is one of the highest in the region. Relatively high technical losses are a result of ageing infrastructure with insufficient capacity to cater to the rapidly expanding demand leading to over-charged distribution lines and lowering of the power factor in the system. All three EDEs also suffer from high non-technical losses.16 Close to half of the country’s electricity consumers are not metered, either due to legal non-metered connections or due to illegal connections.17 Losses are particularly high in the most impoverished areas where the distribution networks are poorly managed and highly vulnerable to fraud and theft. System losses were at similar levels in the late 2000s but then steadily fell from 36.2 percent in 2009 to 27 percent in 2019 due to the implementation of loss reduction measures.18 However, much of these gains were lost during 2020 and 2021 due to the COVID-19 pandemic response measures where the EDEs were required to reconnect electricity users that had not been paying, and once COVID impacts have receded, those users have continued to receive electricity without being disconnected. In times of crisis, the Government has often resorted to disallowing fuel cost pass-through (to electricity tariffs) as a way to cushion the impacts on the poorest and most vulnerable households. As a result, the combination of high losses and below-cost- recovery tariffs19 have in turn forced the Government to subsidize the sector to keep the EDEs afloat to enable them to pay ETED and the generators. While relying heavily on government subsidies, the distribution companies remain 14 Except for some small local networks that are either cooperatives or under private ownership. 15 Created after the break-up of the formerly state-owned Dominican Electricity Corporation in the 1999, initially privatized, but later sold back to the Government; EDE Norte and EDE Sur were acquired back in 2003 and EDE Este in 2009, making the Dominican State the whole administrator of the EDEs. 16 Non-technical losses correspond to any electrical energy consumed and not invoiced. They may occur due to illegal connections, issues with energy meters such as delay in the installation or reading errors, contaminated, defective, or non-adapted measuring equipment, very low valid consumption estimates, faulty connections, and disregarded customers. https://doi.org/10.1016/j.rser.2021.111205 17 Ministry of Energy and Mines, December 2022. Performance Information of the EDEs. https://mem.gob.do/category/sector-electrico/ 18 System losses mean the difference between total net generation (including IPPs) and energy sales on the system expressed as a percentage of the net generation. Government of the Dominican Republic. Integrated Loss Reduction Plan 2022-2028 (Plan Integral de Reducción de Pérdidas 2022-2028) 19 Tariff revenues received by the EDEs covered only about 60 percent of costs. Page 12 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) perpetually cash-strapped with insufficient resources to invest in much-needed rehabilitation and repair, let alone finance system expansion. 10. The second critical factor in the poor performance of the sector has been t he country’s power generation mix, which relies heavily on fossil fuels with long-term lock-in effects. The country’s total electricity generation in 2022 was 22,144 GWh, of which 46 percent came from natural gas, 31 percent from coal, 8 percent from fuel oil, 6 percent from hydropower, 5 percent from wind, 3 percent from solar, and 1 percent from biomass. Of the 5,075 MW of installed capacity, 71 percent is from gas, coal, and fuel oil.20 Coal-fired generation currently comes from three power plants: Itabo (two units of 128 MW and 132 MW with commissioning dates in 1984 and 1988, respectively), Barahona (originally 45.6 MW with commissioning date in 2001, and then 52 MW after its modernization in 2018), and Punta Catalina (two units of 376 MW for a total of 752 MW with respective commissioning dates in 2019 and 2020). While there has been progress in incentivizing modern renewable energy (RE), where the DR has added 676 MW21 of wind and solar capacity since January 2022 and another 2,700 MW is expected to be developed, the continued reliance on fossil fuels leaves the country exposed to global price volatility and increases the costs of electricity supply. This vulnerability was evidenced when, in July 2022, considerable fuel price increases in the wake of Russia’s invasion of Ukraine caused the Government of the DR (GoDR) to freeze electricity tariffs to cushion the inflationary impact on the country’s households. This underscores the need to integrate RE in the power grid in a sustainable manner, to replace fossil fuels while ensuring the reliability of the electricity supply. 11. The third key factor of performance of the sector is that, besides a carbon-intensive electricity generation mix, the DR also has the second highest per capita carbon dioxide (CO2) emission in the region22, highlighting opportunities for energy efficiency (EE), particularly in the building and industry segments .23 In terms of national greenhouse gases (GHG) emissions, electricity and heat production accounts for 30 percent, followed by agriculture (24 percent) and transportation (20 percent), underscoring the need to decarbonize the energy sector to improve air quality and meet the national emission reduction goals.24 Figure 1 presents a break-down of electricity consumption by segment. As of 2020, 35 percent of consumption came from the industrial segment, 32 percent from residential, and 26 percent from the commercial and public service segment. 20 Of this,1,836 MW (37 percent) is from natural gas, 1,095 MW (22 percent) from coal, 635 MW (13 percent) from fuel oil, 808 MW (16 percent) from hydropower, 417 MW (8 percent) from wind, 405 MW (8 percent) from solar, and 30 MW (1 percent) from biofuel. Organismo Coordinador del Sistema Eléctrico Nacional Interconectado de la República Dominicana (OC). Memoria Anual. See: https://www.oc.do/Informes/Administrativos/Memoria-Anual?Command=Core_Download&EntryId=187274 21 SieLAC – OLADE (Latin American Energy Organization). See: https://sielac.olade.org 22 2,502 metric tons/capita compared to the regional average of 1,641 metric tons/capita 23 World Bank DataBank. See: https://data.worldbank.org/indicator/EN.ATM.CO2E.PC 24 Climate Watch Data. See: https://www.climatewatchdata.org/ghg- emissions?breakBy=sector&end_year=2019®ions=DOM&start_year=1990 Page 13 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 12. The Government sees the electricity sector Figure 1: Electricity Consumption by Segment as a key component of its overall reform agenda. [TJ] Improving the financial viability of the sector and the performance of the distribution utilities will reduce the need for substantial annual budget transfers, freeing up fiscal space for social programs and other critical human development spending. While the Government maintains its medium-term commitment to tariff reforms that will bring in additional revenues into the sector, investments in i) distribution loss reduction, ii) reduced energy consumption through energy efficiency measures, and iii) switching to cleaner, less polluting, less costly generation technologies such as renewables will all contribute to lowering the overall electricity system costs and therefore the tariff requirements. To comprehensively address these binding constraints, Source: International Energy Agency the GoDR has started implementing critically needed reforms endorsed by a broad range of stakeholders embodied in the Electricity Pact (Pacto Eléctrico), which require accompanying investments. Box 1: The Electricity Pact and Electricity Cabinet The Electricity Pact was signed on February 25, 2021. Originally drafted in 2017, it is an accord entered into by all stakeholders in the electricity sector, including leaders of eight political parties, the president and ministers of the central government, local government leaders, business organizations, labor leaders, five committees of the National Congress, and the executives of 16 government institutions with responsibilities in the electricity sector. The signatories endorse a vision of an electricity sector where service is universal, high-quality, efficient, reliable, resilient (including to climate change impacts), and environmentally and financially sustainable. The parties commit to principles of transparency, accountability, equity, and compliance with law. Developed through an inclusive and encompassing stakeholder engagement process, which built broad-based consensus for the implementation of complex and socially sensitive reforms, the Pact aims to address by the end of 2026: (i) the weak sectoral governance framework; (ii) the high vulnerability to external shocks, including through expansion of RE generation and EE measures; and (iii) the poor sector financial performance linked to the high level of losses and tariffs not reflecting cost recovery. The Electricity Pact contains more than 60 concrete agreements and actions with specific timelines for completion. Its implementation is underpinned by four pillars: (i) redefine the roles of government institutions and the private sector in the sector; (ii) strengthen the regulatory framework to assure free competition, promote efficiency, attract investment, protect consumer rights, and enhance transparency and accountability; (iii) assure that the sector is environmentally responsible and adapted for climate change resilience and mitigation; and (iv) improve the sector’s financial sustainability, including setting specific targets for revenue collection rates and distribution loss reduction. To oversee the implementation of reforms, the Electricity Cabinet (Gabinete del Sector Eléctrico) was established with overall oversight role for the sector, headed by the Vice President of the country and comprising of the heads of all key entities in the sector, such as Minister of Finance, Minister of Energy and Mines, the Superintendence of Electricity, the Page 14 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) President of the Unified Council for the Electricity Distribution Companies, among others. The Cabinet meets weekly to evaluate the progress on the achievement of various commitments outlined in the Pact, ensure reforms and associated investments are on track, and make strategic decisions in the sector. The design of the proposed MPA aims to complement and further the recently approved DPL series (see paragraph 14 below), is fully consistent with the priorities identified in the Electricity Pact and has been endorsed by the Electricity Cabinet. 13. To support the Government in its implementation of the Electricity Pact, the Bank has been engaging in extensive policy dialogue through its recent Electricity Reform for Sustainable Growth Development Policy Loan (DPL) series (P17587425 and P17857026). The series has supported fundamental policy and institutional reforms for: (i) strengthening sector governance by updating the legal and regulatory framework and strengthening the institutional set-up, with an emphasis on tackling persistent governance challenges in electricity distribution; (ii) enhancing climate mitigation and social and environmental sustainability by supporting measures to implement the country’s low-carbon energy transition and strengthen system resilience to climate change; and (iii) improving the financial sustainability and operational performance of the sector while protecting poor households. Refer to the respective program documents for the specific policy actions supported by each of the operations. 14. The proposed MPA presents a framework for medium-term engagement that would allow the Bank to further accompany the GoDR in the implementation of the key reform areas of the Electricity Pact, by bringing in investments to support the achievement of critical targets in the sector. To continue supporting the implementation of the reforms outlined in the Electricity Pact, the GoDR requested lending support from the World Bank (WB) that would complement the three policy priorities of the DPL series through investments to: (i) reduce distribution losses and improve the governance of the EDEs with the view to improve the financial sustainability of the sector to enable the energy transition; (ii) reduce electricity consumption and improve energy efficiency in public buildings to ultimately reduce the energy requirements that are currently delivered through fossil fuel-intensive power generation; and (iii) support the transition of specific coal power plants to address the high carbon intensity in the power generation sector, as outlined in the next paragraphs. 15. One of the key actions of the Electricity Pact has been the creation of the Unified Council for the Electricity Distribution Companies (Consejo Unificado de las Empresas Distribuidoras de Electricidad, CUED) to bring transparency to the governance of the EDEs and implement an Integrated Loss Reduction Plan for the EDEs. Through Presidential Decree 340-20, the GoDR has transferred the responsibilities for the oversight of the EDEs to CUED with the mandate to improve their governance and address the poor financial situation in the distribution companies.27 In 2021, CUED commissioned the preparation of the performance improvement plans for the three distribution companies.28 The progress on the implementation of the plans is detailed in Annex 2. A key recommendation of the plans was to prepare an urgent loss reduction plan, described further below. Accordingly, in 2022, CUED issued the Integrated Loss Reduction Plan (ILRP) for the EDEs for the period 2022-2028 (Plan Integral de Reducción de Pérdidas en las EDEs). The Plan consists of: (i) deployment of technologies for loss detection and systems for management of energy balance, such as macro metering, micro-metering (totalizers) and telemetry; (ii) deployment of circuit rehabilitation and smart metering infrastructure; (iii) establishment of an improved network rehabilitation model through the standardization of construction designs and circuit rehabilitation templates; and (iv) capacity building for 25 https://documents1.worldbank.org/curated/en/099455306012230968/pdf/IDU099aebfdc0c72a040950b9cb03b36cc344fbb.pdf 26 https://documents1.worldbank.org/curated/en/099050523115028302/pdf/BOSIB07b54e0710760a2880fd936979f268.pdf 27 The President of CUED is the legal representative for each of the EDEs. The Board of CUED is nominated by the majority owner of the EDEs, the state holding company, Fondo Patrimonial de las Empresas Reformadas (FONPER). 28 The plans were developed in 2021 using the IBRD financing under the Distribution Grid Modernization and Loss Reduction Project (P147277), which closed in November 2022. Page 15 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) improved planning, procurement, monitoring, and administration of loss reduction and control programs. The ILRP identifies a total financing need of approximately US$1.88 billion to improve the commercial management of the EDEs and address the high losses. 16. In addition, recognizing that women are underrepresented in the DR’s electricity sector, the distribution companies have taken actions to address the gender imbalance. Across the three EDEs, which have a total of 7,791 employees, women make up less than 40 percent of the workforce. The share of women in technical and leadership roles is even smaller: (i) in EDE Este, women make up 24 percent in leadership and 15 percent in technical roles; (ii) in EDE Norte, 24 percent in leadership and 2 percent in technical ones; and (iii) in EDE Sur, 25 percent in leadership and 14 percent in technical roles. To address the gender imbalance, EDE Este and EDE Norte have been organizing workshops and training courses, and plan to develop a gender strategy and a gender equality policy. EDE Sur has put in place seven gender policies, one protocol, and a gender equality communication strategy (see Annex 4 for more detail). As part of the implementation of their loss reduction efforts, the EDEs have devised Social Pacts to improve the relationship and dialogue with the beneficiary communities. The communities in which the EDEs operate have 1,733 social and community leaders, of which 33 percent are women. Given the important roles of women in the communities’ energy uses as well as safety and energy-saving behaviors, promoting the participation of women as social and community leaders as part of the implementation of the Social Pacts has been an important effort of the EDEs in International Financial Institutions (IFI)-financed loss reduction projects. 17. Meanwhile, the Government has made notable strides in improving the legal and regulatory framework for energy efficiency, with the National Energy Plan (NEP) 2022-203629 serving as a guide for climate-informed investments in the sector. The NEP envisages the expansion of the electricity supply in an environmentally and financially sustainable manner, as well as the promotion of rational use of energy. Accordingly, and in addition to multiple policies fostering RE development, the Government submitted for Congress’ approval in 2022 a landmark draft EE Law, which will set the minimum energy performance standards for appliances, EE building codes, and vehicle and fuel efficiencies, while introducing the incentive and sanction regimes to facilitate private sector investments. In anticipation of Congress’ approval, the Government issued Presidential Decree 158-23 in April 2023 to mandate EE standards for and their enforcement in public buildings. This has built on the growing awareness in the DR of the need for and importance of the implementation of EE measures as part of the country’s climate mitigation efforts, as well as the stronger regulatory framework for those initiatives. 18. Aligning with its international climate commitments, the Government is also exploring options to decarbonize its ageing coal plants with support from the WB and the Interamerican Development Bank (IDB). The analytical work that is underway will help determine the most viable options for repurposing coal-fired power plants, where the benefits from repurposing are expected to generate an alternative cash flow to outweigh the costs of decommissioning and provide employment opportunities for coal plant workers that are aligned with the principles of a Just Transition. C. Relevance to Higher Level Objectives 19. The proposed MPA is fully aligned with the objectives of the World Bank Group’s Country Partnership Framework (CPF) for the Dominican Republic FY22-26.30 The MPA objectives support two of the CPF objectives under the first High Level Outcome: ‘Improved access to quality public service delivery’. It will contribute to achieving 29 See: https://www.cne.gob.do/documentos/plan-energetico-nacional-pen/ 30 World Bank. Country Partnership Framework for the Dominican Republic for the period FY22-FY26, March 2, 2022 (Report No. 167896-DO) Page 16 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Objective 1.1: Improved fiscal space and public spending efficiency by supporting measures that will improve the electricity sector’s financial viability, reduce fiscal subsidies to the energy sector and therefore redirect scarce public resources towards spending for human development. It will also contribute to achieving Objective 1.2. Enhanced efficiency in electricity by improving the performance of the energy distribution companies, with the goal of achieving greater efficiency and reliability of the electricity sector. Accordingly, the MPA also supports the Government in its implementation of the NDS 2030. 20. The MPA is consistent with the country’s Nationally Determined Contribution (NDC). In the latest NDC submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in 2020, the country commits to reducing GHG emissions by 27 percent (7 percent unconditional and 20 percent conditional upon external support) by 2030.31 The NDC identified 46 mitigation actions and 37 adaptation measures in key sectors, namely energy, transport, agriculture / forestry / land use (AFOLU), industry, and waste disposal. In the energy sector, the focus is on scaling up the deployment of RE and lowering the carbon intensity in power generation, improving climate resilience of the power infrastructure, and enforcing EE standards in transport, equipment, buildings, and industry. On mitigation, the MPA contributes to the achievement of the NDC by providing investments in distribution infrastructure, EE, and decommissioning of coal plants to be replaced by generation capacity from RE, all of which are expected to be low risk. On adaptation, the MPA’s Phase 1 supports the implementation of a remote and real-time monitoring system of the distribution network to help the EDEs take immediate actions related to potential climate hazards. Through this support, the MPA supports the Government’s ambition in achieving economy-wide carbon neutrality by 2050.32 It supports a key finding and recommendation from the forthcoming WB’s Country Climate and Development Report (CCDR) for the DR, which identifies the transition away from coal-fired generation as a necessary action to achieve the government’s carbon neutrality target. More details are provided in Section IV.A. Technical, Economic and Financial Analysis. D. Multiphase Programmatic Approach (a) Rationale for Using MPA 21. The MPA is the optimal instrument to allow for the Bank’s continued support to the implementation of the longstanding and ambitious reforms and investments called for under the Electricity Pact. The MPA instrument allows the Bank to support the Government’s medium-term vision for the sector with programmatic financing in a flexible, comprehensive, and mutually reinforcing manner, under the oversight of the Electricity Cabinet. It allows the Bank to engage simultaneously and more effectively on several interlinked sectoral challenges related to the transition to a financially and environmentally sustainable energy sector than what would be the case under a Series of Projects (Refer to the Program Framework section below), and the longer timeframe of 10 years envisaged under the MPA enables a sustained dialogue and progressive engagement. 22. The MPA phases correspond to the highest priority areas for the Government and are necessary to achieve the objectives laid out in the Electricity Pact and the various aforementioned sector plans reflected in the MPA objectives. Both Phases 1 and 2 will contain elements aimed at preparing the ground and building capacity for the subsequent phase(s). All three phases will mutually reinforce each other in support of the Program Development Objective (PrDO) and in achieving key sector objectives, such as energy security, reducing the impact of the volatility of power prices, improving efficiency and governance of the sector. The reduction of system losses achieved in Phase 31 Submitted to the United Nations Framework Convention on Climate Change (UNFCCC). See: https://unfccc.int/NDCREG 32 See: https://tinyurl.com/4cc7zct3 Page 17 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 1 along with the efficiency improvements of Phase 2 will lower the need for costly coal plants used for peak-hour supply, thereby reinforcing the objectives of Phase 3. Improved energy efficiency in Phase 2 will reduce electricity bills and thereby reinforce the objectives of Phase 1 by encouraging payment culture. (b) Program Results Chain Figure 2: MPA Results Chain Outputs Project Outcomes Program Long-term Outcomes Outcomes Action plan for improvement of financial management process and capacity in EDEs Improved Software modernization to improve governance and 1.Providing distribution service management financial and better A environmental electricity Installation of lines and smart meters in sustainability of services to selected distribution circuits power improve the To improve access to Environmental and social management, distribution more reliable, welfare of monitoring and evaluation efficient, and Dominican environmentally population sustainable electricity Energy audits for buildings and industry and supply to the 2. Contributing population of the to the market assessments of energy service Dominican Republic Government’s companies (ESCOs) and RE service companies Reduced energy goal of (RESCOs) achieving consumption in Advisory on design of energy-saving public buildings carbon performance-based contracts modality neutrality by 2050 Implementation of EE & rooftop solar investments B Environmental and social assessment and stakeholder engagement plans for the selected coal plants Reduced dependence on Phase 1 Critical assumptions: Analysis of grid impact of coal plant closure coal in the A: Payment culture maintained for and required replaced capacity (from RE and Phase 2 sustained loss reduction power storage) generation mix B: Additional RE capacity developed by Phase 3 developers to replace converted / Development of the implementation plan for decommissioned coal-based capacity the coal plant conversion / closure (c) Program Development Objective (PrDO) with Key Program DO Indicators with Baselines and End Targets 23. The PrDO is to improve access to more reliable, efficient, and environmentally sustainable electricity supply to the population of the Dominican Republic. The progress towards achieving the PrDO will be measured by the following indicators: i) Estimated reduction of cumulative GHG emissions compared to a business-as-usual baseline (Metric ton of CO2) (Baseline: 0, end target: 10.14)33 33This is calculated as the total of the cumulative reduction of GHG emissions of each phase’s investment from their respective economic analysis, where Phase 1 will contribute an estimated 1.28 Million ton CO2, Phase 2 2.3 Million ton CO2, and Phase 3 (assuming 569.4 GWh/year Page 18 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ii) Number of beneficiaries (Baseline: 0; end target: 1,455,000)34 (d) Program Framework 24. Contribution to the PrDO: The PrDO represents an overarching objective linking the investments envisaged under its three phases. While the aforementioned DPL series supported reforms that have improved the legal and regulatory framework and the enabling environment for better management of the distribution companies, implementation of energy efficiency measures, and procurement of RE, among others, the proposed MPA will bring investments that will catalyze the achievements of the expected results in better sector performance. The expected results would include lower fossil-based energy consumption and lower GHG emission and benefitting some 13 percent of the population. 25. To achieve these expected results, Phase 1 will support improved governance in the distribution companies and finance improved metering infrastructure, grid rehabilitation works, and software solutions. These investments not only allow for more reliable and efficient electricity services to beneficiaries, but also lower electricity consumption (most of which is currently illegal in the circuits supported) due to metering and therefore lower electricity demand that is currently catered to by a carbon-intensive generation mix. Phase 2 will be taking the first step to improve energy efficiency in the country’s building stock through replacement of energy inefficient equipment (air-conditioners and lighting) and installation of roof-top solar in public buildings, thereby also contributing to lowering energy demand and consumption from the grid. Phase 3 will support investments aimed at repurposing coal- fired power plants along with support to bring more RE generation online at competitive prices to lower the overall generation costs to the system. Priority will be given to financing options that provide maximum leverage of the substantial private sector investments needed for the repurposed fossil plants and the green generation alternatives. 26. Program Phasing: The three phases will be simultaneous, where Phase 1 implementation can start immediately, while Phase 2 implementation can start in about 12 months, and Phase 3 about 12 months after that. The proposed phasing is motivated by the readiness of the envisaged underlying investments. Phase 1 investment is ready for implementation and will address the acute and urgent investment needs in the distribution segment identified in the ILRP. Phase 2 investment is being designed to operationalize the presidential decree on EE in the public sector. Phase 3 investment is under scoping as analytical work contributing to the preparation of the Climate Investment Fund (CIF) Investment Plan (IP) that is expected to be completed by August 2024 27. Choice of Instrument: Phase 1 of the MPA is an Investment Project Financing (IPF) due to the governance risk in the power distribution business related to public procurement, even though the DR has been implementing loss reduction projects for over a decade with International Financial Institutions (IFIs). Under an IPF, procurement for goods, works, and services follows the WB’s regulations, instead of the Borrower’s procedures and processes (as is the expectation for a Program-for-Results (PforR) operation). In addition, the IPF instrument, unlike a PforR, allows saved for 25 years at 536 ton/GWh) 7.6 Million ton of CO2. The total translates to 10,142,325 metric ton of CO2. The GHG emission reductions are calculated using the Harmonized IFI Default Grid Factors 2021 v3.2). 34 It is assumed that the number of beneficiaries in Phase 1 corresponds to the number of people living in the 225,826 households that will be regularized (assuming 3.6 persons per household) and will therefore contribute 813,000 to the Program outcome. In Phase 2, the number of beneficiaries corresponds to the number of persons who are users of the buildings that will be equipped with solar PV and/or EE improvements (i.e., the number of students and staff in a school) (assuming 400 users on average) and will contribute 640,000 to the Program outcome. In Phase 3, the number of beneficiaries will correspond to the number of beneficiaries as well as affected people (i.e., people working or living within 20 km from the plant as well as around 500 people who will find additional employment in the RE-related industries that will replace coal and will contribute about 2,000 to the Program outcome. Page 19 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) for the use of Performance-Based Conditions (PBCs) designed to improve governance of the distribution sector as envisaged under the Phase 1 investment. Phase 2 will be an IPF (and Phase 3 likely the same) because the proposed investments and interventions will be implemented for the first time by the country; and while they each have demonstrative effects, the Government is not expected, at the time of those respective loan appraisals, to have established the respective dedicated larger financing programs for future repeat investments (as is the expectation for a PforR operation). 28. For Phase 1, the GoDR requested support on the implementation of the ILRP through a loan in the amount of US$225 million from the International Bank for Reconstruction and Development (IBRD). This loan will be implemented in parallel to another loan from the IDB in the amount of US$155 million for distribution network improvement to reduce technical losses in parts of the network not covered under the proposed IBRD loan (and therefore is not considered associated facilities to the IBRD loan).35 More details can be found in Section II.D. Rationale for Bank Involvement and Role of Partners. 29. Phase 2 seeks to address the high energy intensity in public buildings. This includes the scope for replacement of energy-efficient equipment and installation of rooftop solar in public buildings, including urban and rural public schools, hospitals, and health clinics. Given the high energy consumption in public sector buildings, EE projects in the public sector have a strong educational and demonstration effect for others, such as industrial zones commercial and residential buildings, to also adopt EE measures. The expected energy and fiscal savings from such a project have already prompted a government request for WB investment in this area, with an estimated financing of US$150 million. 30. Phase 3 will seek to address the high carbon intensity in power generation. Phase 3 represents a step toward a more comprehensive decarbonization by supporting a transition away from coal-fired power generation and toward greater use of indigenous RE sources while continuing to drive the country’s economic growth. Preparation for such a project will include the undertaking of financial, socio-economic, and environmental impact analyses for a comprehensive framework that will allow for the integration of cleaner and cheaper energy sources into the grid, mitigate the risks associated with the phase-out of coal plants, and ensure decent work for affected workers, gender- inclusive development, and poverty reduction. The DR is anticipated to receive an estimated US$85 million in concessional financing from the Accelerating Coal Transition (ACT) window of the CIF and is preparing an IP with joint support from the WB and IDB to be approved by the CIF by mid-2024. The IP will include the total costs for dealing with the coal plants, including the use of concessional funds from CIF, which will be catalytic to the Government’s plan, but the implementation of such plan does not solely rely on such funds. The co-financing is preliminarily estimated using the required leverage factor for the use of CIF funds as is customary in previous ACT-supported countries, but the estimated other amounts will potentially be higher depending on the project to be supported under Phase 3. 35This project has a distinct scope in different circuits that do not in any way influence the implementation or outcomes of the proposed Project. It therefore does not constitute Associated Facilities. Page 20 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Estimated Estimated Estimated Estimated Phase Sequential or IPF or IBRD IDA Other Estimated Project ID Phase’s Proposed DO Environmental & # Simultaneous PforR Amount Amount Amount Approval Date Social Risk Rating ($ million) ($ million) ($ million) To improve the governance and financial and environmental December 13, 1 P180512 Simultaneous IPF 225.00 N/A 0.00 Substantial sustainability of the 2023 electricity distribution companies in the Dominican Republic To reduce energy consumption in public 2 P181424 Simultaneous IPF 150.00 N/A 0.00 April 2025 TBD buildings in the Dominican Republic To reduce dependence on coal 3 TBD Simultaneous in the power TBD 130.00 N/A 130.00 February 2026 TBD generation mix in the Dominican Republic Total 505.00 N/A 130.00 Revised Financing Envelope $ 505.00 Board Approved Financing Envelope $ 505.00 Page 21 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) (e) Learning Agenda 31. The proposed MPA will provide an opportunity to integrate learning from implementation of the separate phases into the GoDR’s implementation of the Electricity Pact. The proposed program is a vertical MPA, where each phase focuses on a distinct technical area, meaning that the lessons for each of them will mainly be drawn from global experiences. However, implementation of each phase will provide feedback to the Electricity Cabinet that will enable them to course-correct and optimize the measures taken to implement the Electricity Pact. Phase 1 will function as a pilot for the implementation of the ambitious Integrated Loss Reduction Plan, whereby grid rehabilitation and metering infrastructure will be implemented countrywide, with the costs expected to be several times the planned Phase 1 investments. Phase 2 will represent the first large-scale energy efficiency project and, although its focus will be on public buildings, it will catalyze the supply chain development and local capacity building needed for subsequent programs focused on the bigger markets of commercial and residential buildings. These two initial phases will therefore provide important learning for future investments within the broader GoDR program on reduction of distribution losses, improving energy efficiency, and greening the generation matrix. Refer to Section II.D of this PAD on the Bank’s value addition in contributing to this learning agenda. 32. Meanwhile, good practices in each phase will inform the preparation and implementation of the others . Experience from the early implementation of the Program will provide inputs to the design of Phases 2 and 3, mainly regarding stakeholder engagement and efficient ways to build local capacity and electricity consumer awareness. For example, the rich experiences related to citizen engagement in an investment like Phase 1 will inform efforts in raising public awareness for the successful design and implementation of EE investments in Phase 2, as well as building public support and a strategic stakeholder engagement framework for coal plant conversion-related activities in Phase 3. 33. Finally, as there are significant overlaps in the implementation periods of the three Phases, the lessons learned from the three phases of the MPA will inform the efforts of the GoDR in their ongoing implementation of similar activities in support of the NDS 2030 and NDC 2030. Phase 1 will include capacity building on an integrated multi-stakeholder approach to power system planning and management, which will directly support the Government in its implementation of its first EE programs, as well as making progress on the politically sensitive coal transition agenda supported under Phases 2 and 3, respectively. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 34. The Project Development Objective (PDO) is to improve the governance and financial and environmental sustainability of the electricity distribution companies. PDO Level Indicators 35. The PDO level indicators include: i) Implementation by each EDE of the Action Plan to improve financial management procedures and processes (Number) Page 22 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ii) Cash Recovery Index (CRI) in the supported distribution circuits (Percentage)36 iii) Estimated reduction of cumulative GHG emission in electricity distribution compared to a business-as-usual baseline (Metric ton of CO2)37 B. Project Components 36. Component 1: Improving governance of the distribution companies (US$36,500,000). The Component will finance software systems to improve the EDEs’ commercial management efficiency referenced below as Sub - components 1.1 and 1.2. The systems when in place will improve the efficiency and quality of the commercial and distribution services, help reduce losses, and therefore reduce GHG emissions. The systems will provide real-time and reliable data for the monitoring of the operation of the network, which will help the EDEs respond quickly to the changing environments causing interruptions in the electricity service. This faster response also enhances the resilience of the power distribution system by allowing the EDEs to take immediate actions in response to potential interruptions of the electricity service related to climate and weather-related events, thereby reducing the risk of electricity outages. These are critical information management systems that are standard in high-performing utilities. Annex 2 provides more detail on these systems.38 i. Sub-component 1.1: A commercial management system will help simplify the process related to the customer management, metering, and billing system; outsourcing service management; and network operation process management, including energy losses, balance, and identification of irregularities. This sub-component will be financed through the regular IPF. ii. Sub-component 1.2: A metering data management system to be implemented will entail interface with the technical and commercial management system, and will also contribute to reducing energy theft, incorrect billing measures, and therefore electricity losses. This sub-component will be financed through the Performance-based Conditions (PBC) mechanism. 37. This Component will also support the implementation of the reforms laid out in the CUED resolution, which is aimed at improving the governance of the three distribution companies for better performance and results. This resolution has committed the EDEs to (i) publication of annual audited financial statements39; (ii) defining on an annual basis the Key Performance Indicators (KPIs), including the CRI and energy losses for each of the EDEs; and (iii) a transparent process and requirements for the competitive selection and appointment of senior management in the EDEs. Specifically, the disbursement of Sub-component 1.2 is linked to the achievement of the PBCs that seek to capture (ii) and (iii). See more details in the Performance-based Conditions (PBCs) paragraph below. 36 The index measures the percentage of cash collected from the portion of the energy invoiced to customers by the EDEs of the total energy purchased from the generating companies. In other words, this index correlates energy sales and cash collections. 37 The indicator captures the amount of GHG emissions in the Project scenario compared with the business-as-usual baseline. It uses the Harmonized IFI Default Grid Factors (version 2021 v3.2), which operates with a grid factor of 426 gCO 2 per kWh for the DR. The reductions in generated energy to the grid come from lower demand due to that consumption now is being metered as well as reduced technical losses in the circuits rehabilitated under the project. 38 Accordingly, the operation is also consistent with the National Adaptation Plan (NAP, 2016), the Third National Communication to the UNFCCC (2017), and the National Development Strategy 2030. 39 This will build on the ongoing support by IDB in financing the audits of the financial statements of the EDEs for year 2021 and 2022, which is expected to be completed by December 2024. Page 23 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 38. Component 2: Supporting the implementation of the Integrated Loss Reduction Plan (US$183,470,000).40 i. Sub-component 2.1: Replacement of obsolete metering equipment and installation of metering equipment for new clients. This will finance: (i) supply and installation of metering equipment (meters, current and power transformer for measuring) to clients with authorized and unauthorized direct connections and to new clients as a result of demand growth, (ii) the replacement of obsolete or poorly functioning metering equipment, and (iii) improvement of physical security of metering equipment by using tamperproof meter panels and installing off-premises metering equipment to clients with a high consumption profile. All meters will have remote metering and remote switching (disconnection and reconnection) capabilities, which will help the EDEs actively manage and reduce energy consumption. ii. Sub-component 2.2: Distribution network rehabilitation and standardization of supplies to clients. This will finance the rehabilitation of medium voltage (MV) and low voltage (LV) distribution lines and the standardization of connections to MV clients. The sub-component will finance replacement of obsolete and overloaded MV/LV overhead powerlines and installation of additional transformers. These investments will mitigate the irregularities of the network making the distribution network easier to manage, reduce electricity losses, and increase the reliability of electricity service. iii. Sub-component 2.3: Implementation of a macro- and micro-metering system for loss reduction monitoring. This will finance the supply and installation of macro-meters (installed at the MV branches of the circuits) and micro-meters (totalizers) installed at the LV terminals of MV/LV distribution transformers. This will allow for better tracking and monitoring of power flows, overloads, energy balances, and commercial losses in the distribution grids. iv. Sub-component 2.4: Social and environmental management. This will finance the monitoring of environmental and occupational health and safety management, monitoring of the collection sites for materials used, and waste generated during the execution of the works. It will also finance the development of the Social Management Strategy (SMS) designed to cultivate and maintain trust between the users and the EDEs, which will help improve the electricity bill payment discipline. Through the implementation of the SMS, community leaders and citizens will be informed about the objectives of the program in their communities and will organize themselves to actively participate during the implementation of the work. It will also support the development of the Social Pacts to be signed between the EDEs and the communities to outline the commitments that both parties must assume to ensure the sustainability of the loss reduction program. The residents of the benefited communities will be trained on the safe and efficient use of electricity, as well as their rights and duties as regular clients of the EDEs. Furthermore, the Project will support higher participation and leadership of women in the Social Pacts, given the role of women in households’ energy uses and the potential for their greater voice and agency in such pacts. The sub-component will also finance the evaluation of implementation of the SMS, which entails carrying out ex-ante and ex-post client satisfaction surveys. This will include actions aimed towards the inclusion of people with disabilities (See Annex 4). 39. Component 3: Capacity building, administration, monitoring, and evaluation (US$5,030,000). This Component will support Project execution, including, inter alia, with regards to procurement, financial management, monitoring and evaluation, environmental and social compliance, audits, trainings, and operating costs. In addition, and subject to budget availability and the government’s request, this component may include the provision of technical assistance 40 The break-down of Component 2 investments is provided in Annex 2. Page 24 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) to EDEs, CUED, and MEM regarding: (a) support the development of an integrated sector-wide approach to power system planning, to inform decisions on new power generation and ensuring integration of options related to (i) rational use of energy; (ii) payment culture; (iii) tariffs; and (iv) environmental and social sustainability criteria; (b) strengthen Distribution Companies’ capacity to: (i) address internal and external audit recommendations; (ii) apply financial and asset management good practices; (iii) reinforce their internal audit unit; and (iv) develop and implement comprehensive administrative procedures; (c) strengthen Distribution Companies’ ongoing development of policies and action plans to close the gender gap and create more technical and leadership opportunities for their female staff. The aforementioned technical assistance, if applicable, would continue supporting the objectives of the Electricity Pact, building capacity, and understanding of the interrelations between financial, social, and environmental sustainability of planned policy actions (for e.g., from tariff reforms). 40. Performance – Based Conditions (PBCs): To strengthen the Project's support to improve the governance of the distribution sector, the Project uses PBCs to support the implementation of critical reforms laid out in CUED’s Resolution No. 1 issued in February 2023. The Project will finance eligible expenditures encompassing investments in software purchase, which has been identified as critical for the reforms. The PBCs are tied to US$12,150,000 of the financing associated with the MDM system under Sub-component 1.2 to be disbursed upon fulfillment of respective PBCs and payments for the agreed eligible expenditures. Disbursements will be made as an advance to finance expenditures as they are incurred, and only upon the achievement of the PBC scheduled for the period and demonstration of eligible expenditures made, will the advances be considered documented and amounts record as disbursements against the PBC. In the case that the evidence of eligible expenditures incurred has been provided, but the achievement of the PBC has not been demonstrated, the Bank will deduct a set amount for the non-compliance PBC from the disbursement amount of the subsequent withdrawal application request. The legal agreement will provide that a refund will be due to the Bank for undocumented advances resulting of uncompiled PBCs. Descriptions and targets of the PBCs are presented in Table 1 and additional information can be found in Section VII. Results Framework and Monitoring. The achievement of the PBCs targets will be verified by the Ministry of Finance (MoF). Table 1. Summary of PBCs and Targets PBC formulation PBC description Year 1 Year 2 target Year 3 target Year 4 Year 5 target target target PBC 1. CUED This PBC tracks the CUED resolution CUED resolution resolutions setting of the containing 2026 containing 2027 defining the key targets for critical targets for energy targets for energy performance performance loss, CRI, and outage loss, CRI and outage indicators and indicators for duration defined and duration defined and required funds to energy loss, CRI, and necessary resources necessary resources meet the targets outage duration of to meet the targets to meet the targets defined for the the three EDEs and defined for the three defined for the three three EDEs necessary funds for EDEs by December EDEs by December them to meet those 31, 2025 31, 2026 targets. US$6,075,000 - EDE Sur: $1,012,500 EDE Sur: $ 1,012,500 EDE Norte: EDE Norte: $1,012,500 $1,012,500 EDE Este: $1,012,500 EDE Este: $1,012,500 PBC 2. CUED This PBC monitors CUED resolution CUED resolution resolutions the transparent outlining the outlining the Page 25 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) outlining the appointment, required recruitment recruitment improved qualifications for the procedures for the procedures for the professionalism, senior management competitive competitive and management of positions of the EDEs selection of the selection of senior the EDEs. and meritocratic senior management management of criteria used in the of the three EDEs the EDEs using recruitment process using terms of terms of reference by December 31, reference consistent consistent with 2025 with meritocratic meritocratic criteria by December criteria 31, 2026 US$6,075,000 - EDE Sur: $1,012,500 EDE Sur: $ 1,012,500 EDE Norte: EDE Norte: $1,012,500 $1,012,500 EDE Este: $1,012,500 EDE Este: $1,012,500 C. Project Beneficiaries 41. Electricity consumers. Electricity consumers in the supported circuits, such as households and businesses, will benefit from: a) lower loss through prevented thefts and therefore more electricity delivered, and b) improved voltage profiles and better quality of electricity services through i) reduced duration of the system’s average interruption, ii) reduced outages, and iii) increased availability of service. More broadly, more reliable electricity services benefit consumers through a) more reliable public lighting at night and therefore greater public safety, b) increased productivity of commercial activities, and c) less money spent on repairs of equipment damaged by voltage drops/fluctuations. 42. Distribution companies and other sector entities. The EDEs will benefit from: a) better performance; b) better billing, collections, and revenues; c) improved customer satisfaction; and d) lower deficits, less reliance on government subsidy, and greater financial viability. Other key sectoral entities will benefit from TA provided through the Project. Selected public institutions will benefit from having greener buildings with rooftop solar generation and more energy- efficient equipment. 43. Population in the DR. The public will benefit from lower electricity losses and therefore less electricity required that would need to be generated from fossil fuel sources, which are highly polluting and present significant environmental and health impacts. They will also benefit from jobs that will be created from new markets in energy efficiency and solar installation services. D. Rationale for Bank Involvement and Role of Partners 44. The WB has extensive global experiences in distribution utility performance improvement, including in the DR. The Bank has global knowledge in supporting its client countries in implementing smart metering roll-out, loss reduction, performance improvement, and revenue protection programs to improve the utilities’ commercial management and sector financial viability. The Bank’s clients in these areas have included Nigeria, Kenya, and the Page 26 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Kyrgyz Republic, and Albania.41 In the DR, the Bank has a deep understanding of the sector and the political economy of the key stakeholders, building on its experiences under the two previous Projects: The Electricity Distribution Rehabilitation Project (P089866) and the Distribution Grid Modernization and Losses Reduction Project (P147277), which contributed to the loss reduction progress in the country until the COVID-19 pandemic. The Bank is also uniquely positioned to support the GoDR in tackling governance challenges in the energy sector, building on the intensive policy dialogue under the recent DPL series (P175874, P178570).42 Under the proposed Project, the Bank will continue to provide advisory services to accompany the Client in implementing the pertinent policies, ensuring coherence and synergies across the Bank’s support to the sector. 45. For the subsequent phases of the MPA, the WB will be able to draw on its global experiences to provide design and implementation support. The Bank has successfully implemented EE investments in India, China, Eastern Europe, and Central Asia, which featured introduction of ESCO models and EE credit lines in commercial banks. It will also be able to bring experiences from South Africa in developing a comprehensive support for the Government’s implementation of environmentally and financially sustainable and socially inclusive plans for the coal transition, including repurposing and decommissioning of the coal-fired generation capacity. 46. The Bank’s involvement will build on parallel support and investments by other partners. First, the IDB is financing a project implemented by MEM in EDE Sur’s business area to reduce technical losses.43 The combination of WB and IDB loans for loss reduction will leave a balance of about US$1.4 billion in financing gap to be financed from either GoDR budget or subsequent loans from development Partners (DPs). On EE, the IDB and the Japanese International Cooperation Agency (JICA) are co-financing a streetlight project to be implemented by the three EDEs and which is expected to start implementation in 2023. Finally, the WB and the IDB are jointly advising the Government on an investment plan for the coal transition. See Annex 2 for additional information regarding the broader support from the DPs in the sector. 47. Through the MPA, the Bank is bringing in programmatic financing to address the investments needs in several areas deemed high priority by the Government. First, the Government has been undertaking a series of legal and regulatory improvements under the Electricity Pact to address the binding constraints in the sector. The implementation of these policy changes would require investments to help make these reforms stick. Second, various DPs have been providing critical TA to improve the understanding among the decision-makers regarding the benefits of investments in these sub-sectors (See Section II.D). There is a strong interest from the various sectoral counterparts to capitalize on the knowledge gained to make impactful changes to the sector and to the lives of the Program’s beneficiaries. E. Lessons Learned and Progress on Learning Agenda 48. The design of the proposed Project has benefited from the lessons learned from the Bank’s previous operations. From the earlier distribution rehabilitation projects, these lessons include the need for a flexible approach 41 An example of the positive results achieved was the Bank’s support to the Government of Albania in reducing losses from more than 45 percent to 23 percent over the 2014-2021 period under the Albania Power Recovery IPF Project (P144029). 42 Among others, the DPL series supported policy measures to improve the governance, transparency, and efficiency of the electricity distribution segment, through (i) the amendment to the General Electricity Law to dissolve CDEEE, (ii) support to CUED in issuing a resolution defining the framework to set key performance parameters to improve the performance of the EDEs, and (iii) SIE’s resolutions to define a t ariff methodology for regulated demand and quality service levels to meet supply and distribution costs. 43 Through rehabilitating the existing substations and networks, and the construction of new distribution substations and associated networks Page 27 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) to circuit rehabilitation engineering designs, adaptation to changing needs, and proactively minimizing delays, while having a realistic timetable for Project activities. What also worked particularly well under these previous operations was the early involvement of social experts to assist with the incorporation of the concerns of community stakeholders to minimize the risk of rejection of the Project, and to accompany the Client in proactively identifying potential conflicts to have them resolved adequately. In light of exogenous shocks such as the COVID-19 pandemic, having (i) a close working relationship between the Client and the WB to identify problems early on and facilitate conflict resolution efficiently, and (ii) contracts that incorporate strong efficiency incentives in their payment schedules proved to be critical to smooth implementation. The Bank’s operations in distribution reforms in Nigeria and Lebanon44 highlighted the need to accompany investments with governance improvement support, including through the use of PBCs, to achieve better results. 49. Efficient implementation of the adoption of Information and Communication Technologies (ICT) is crucial to reaping its benefits. The use of ICT tools helps with integrating the management and commercial systems that allows the utilities to manage the resources through a modern, reliable, and efficient infrastructure, thereby avoiding duplicating work. A modern ICT system can handle a large amount of information in real time, allowing the utilities to detect deviations and problems in processes in virtually real time and facilitate their early resolution.45 Lessons from previous Bank’s operations show that the success of the transition to a new commercial system depends largely on the detailed definition of the processes; the mechanism for capturing, validating, and migrating data; training of commercial staff; and having an implementation strategy. Identification and capacity building of the key staff in the project is important to preparing them to oversee the system support once it is implemented. A way of transferring knowledge to the utilities’ staff and avoiding dependence on the system provider is a job shadowing arrangement that is built into the Project scope. Once the system is implemented, the utilities’ staff will have the knowledge to support maintenance of the system. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 50. The Project will be implemented by the three EDEs, which will have all the fiduciary responsibilities and will undertake all E&S management activities. A Project Implementing Unit (PIU) will be established under each EDE to carry out the work and reporting on the Project progress. The Presidency of CUED will have the responsibility to coordinate the inputs from the three EDEs and submit the quarterly progress reports (QPRs) to the Bank. 51. For the Phase 1 Project, the MoF will enter into a Subsidiary Agreement with the three EDEs to pass the funds to these entities for the implementation of the Project, and to clearly delineate the division of responsibilities and work to be carried out under each EDE. Further details on Project implementation will be outlined in the POM. E&S management experts within the EDEs will receive training on the WB’s Environmental and Social Framework (ESF) over the course of Project implementation. The procurement expert(s) within the PIUs will receive information, and if relevant, training on the applicable Bank’s Procurement Regulations. 52. The implementation of Phase 2 and 3 investments is expected to be coordinated by the MEM. A PIU is 44 NigeriaPower Sector Recovery Performance Based Operation (P164001) and Lebanon Energy Sector Reforms Program (P170506) 45 This characteristic is extremely important for distribution utilities due to their high number of customers, which makes it difficult to know what is going on at customers' sites. Page 28 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) expected to be established there to support and coordinate the preparation and implementation of those projects. The PIUs currently housed within MEM have experts with extensive experiences in the management of IFI-funded projects. The overall oversight and monitoring of results of the investments under the MPA will be ultimately overseen by the Electricity Cabinet, as reported by the relevant entities for each phase (Hacienda, CUED, and MEM). B. Results Monitoring and Evaluation Arrangements 53. The QPRs coordinated by CUED will be submitted to the Bank to track achievement of expected results for the Phase 1 Project. The reports will include, but may not be limited to, progress related to procurement, E&S, works, achievement of the Result Framework, financial management, and disbursements. The Bank will carry out implementation support missions biannually to monitor progress, assess the E&S and fiduciary performance of the Project, evaluate results, and resolve challenges. A Mid-Term Review (MTR) for the Project will be carried out in the third year of implementation. An Implementation Completion and Results (ICR) report will be prepared by the WB, with inputs from the Client and the PIUs, at Project closing. 54. A monitoring and evaluation (M&E) arrangement for the Program will be developed to track progress toward the achievements of the PrDO and their indicators. Such M&E arrangement will be led by the MEM as the entity with overall oversight of the sector, where it draws inputs from the M&E work that will be carried out by the designated PIU for each Phase of the MPA. The Program-level M&E will capture aggregate results from the three phases. As appropriate, beneficiary and user satisfaction surveys may be carried out to capture the efficacy of the Program’s outcome indicators. The progress will be monitored during the Bank’s supervision missions. Qualified M&E specialists may be hired under the terms of reference satisfactory to the WB to support MEM in this function. C. Sustainability 55. The long-term sustainability of the Project will require continued commitment from GoDR in providing financial resources to the EDEs to fully implement the ILRP. Ensuring sustainable loss reduction efforts requires strengthening the utility’s structure through close follow-up activities, such as social management, technical monitoring, and effective commercial management. Infrastructure investments must be combined with continuous efforts in improvement of governance of the EDEs, as well a social and community management through constant awareness-raising, especially among the poorest and most vulnerable, to deter illegal (re)connections. Successful implementation of complementary social transfer programs, such as Aliméntate and Bonoluz, will be crucial to promoting and maintaining the electricity payment culture. 56. The sustainability of the MPA is closely linked to the Government’s continued implementation of the Electricity Pact. Substantial financial and advisory support from the WB and other DPs, such as the IDB for energy efficiency and the coal transition, the United States Trade and Development Agency (USTDA) and IFC on battery storage, and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) for RE, will continue to ensure adequate support to GoDR to strengthen the long-term sustainability of the Program. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis Page 29 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) i) Technical Analysis 57. The equipment and technologies financed under Components 1 and 2 are commercially proven, have been widely used by utilities in developed and developing countries worldwide, and will be implemented in accordance with internationally accepted technical standards. 58. This Project design has incorporated lessons learned from the previous projects (P147277 and P089866) on project management, including procurement, environmental and social safeguards, and financial management. The EDEs have gained relevant experiences from the implementation of these projects as well as from similar projects financed by other DPs and will use that experience to plan for and incorporate best practice procedures and methodologies in the implementation of the proposed Project. 59. Paris Alignment. The operation is aligned with the goals of the Paris Agreement on both mitigation and adaptation. • Assessment and reduction of mitigation risks. The Project does not carry a risk of hindering the DR’s transition to a low-carbon development pathway. On the contrary, it contributes to efforts to reduce GHG emissions. Better performance of the distribution companies supported under the Project will help: (i) reduce losses and therefore energy demand; (ii) improve the reliability of electricity services and therefore competitiveness of businesses; and (iii) bring in additional revenues into the sector through reduced losses and increased cash recovery for the utilities and therefore enable new mitigation and adaptation investments in power infrastructure. The investments supported by the Project are universally aligned with the goals of the Paris Agreement. • Assessment and reduction of adaptation risks. The main climate risks identified for the Project are: (i) increased heat waves and (ii) more frequent and intense extreme weather events, such as flooding, landslide, cyclone, and wildfire. All this might result in area-wide electricity outages, impacting the security and reliability of electricity supply, causing economic and financial losses, and even posing health and safety hazards. To respond to such risks, the Project will include resilience measures within the proposed activities, such as the implementation of a remote and real-time monitoring system of the distribution network. This system will gather reliable data to take immediate actions in the face of climate impacts affecting the power infrastructure. The rehabilitation of the distribution networks will strengthen technical specifications to support more hazard and climate-resilient distribution infrastructure, which will reduce thermal margins and lower line-loading to minimize service disruptions for extreme temperatures. As such, the Project can be considered aligned on adaptation. ii) Economic and Financial Analysis Economic analysis 60. A cost-benefit analysis was carried out on the Project level. The Project costs comprise of investments and additional costs of operations and maintenance (O&M). The economic benefits of the distribution investments will be derived from: (i) reductions in power generation compared to the without-project scenario due to reduction of technical losses and reduced demand from consumers after they become metered and need to pay according to consumption, and (ii) global environmental benefit in terms of avoided GHG emissions. The social cost of carbon is Page 30 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) assumed to follow a curve proposed by The Guidance Note on Social Value of Carbon (2017).46 A medium value between the Low Case and the High Case values of the Guidance Note have been used. 61. With an economic discount rate of 6.0 percent47, the Project investments are expected to generate an economic net present value (ENPV) of US$84.7 million with an economic internal rate of return (EIRR) of 10.4 percent. Three sensitivity cases for (i) an economic discount rate of 10.0 percent, (ii) 20 percent higher investment cost, and (iii) 20 percent lower benefits are presented below. The conclusion is that the Project is highly economically viable and that the conclusion is very robust. More details about the economic analysis can be found in Annex 3. Table 2. Project Economic Analysis Base Case Discount rate 10% 20% higher invest. 20% lower benef. ENPV (US$ million) 84.7 5.3 56.3 39.3 EIRR 10.4% 10.4% 8.5% 8.1% 62. The analysis also includes a quantification of the GHG emission reductions related to the reduced generation from power plants due to the technical loss reduction and the demand. The anticipated accumulated reduction of GHG emissions after 25 years of operation is calculated at 1.28 million tons of CO2 (equivalent to 1,161,196 metric ton of CO2). Financial analysis 63. The financial benefits of the Project investments will be derived from (i) reduced technical losses compared to the without-project scenario and reduced demand from consumers after they become metered and need to pay according to consumption, which result in lower cost of purchasing of power from generators; and (ii) increased revenue from power sales due to the reduction of non-technical losses following the installation of meters. 64. With a Weighted Average Cost of Capital (WACC) of 4.0 percent, the Project is expected to generate a financial net present value (FNPV) of US$2,338.9 million with a financial internal rate of return (FIRR) of 78.0 percent. Three sensitivity cases for (i) a WACC of 6.0 percent, (ii) 20 percent higher investment cost, and (iii) 20 percent lower benefits are presented below. The conclusion is that the Project is highly financially viable and that the conclusion is very robust. More details about the economic analysis can be found in Annex 3. Table 3. Project Financial Analysis Base Case WACC 6% 20% higher invest. 20% lower benef. FNPV (US$ million) 2,338.9 1,733.6 2,307.1 1,839.3 FIRR 78.0% 78.0% 63.3% 60.4% B. Fiduciary (i) Financial Management 46 Source: The Guidance Note on Social Value of Carbon (2017) https://thedocs.worldbank.org/en/doc/911381516303509498- 0020022018/original/2017ShadowPriceofCarbonGuidanceNoteFINALCLEARED.pdf 47 Source: Discounting Costs and Benefits in Economic Analysis of World Bank Projects, OPSPQ, 2016 Page 31 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 65. A Financial Management (FM) Assessment carried out in October 2023 to assess the adequacy of FM arrangements in place, including the FM functions, concluded that the proposed FM arrangements, after satisfactory implementation of the time-bound Project FM action plan, are acceptable to the Bank (See Table 4). The proposed FM arrangements are designed to adequately support Project implementation, properly record all transactions and balances, implement adequate internal controls, support the preparation of regular and reliable Project financial statements, safeguarding the Project’s assets, and will be subject to acceptable auditing arrangements. 66. Using PBCs under an IPF adds a layer of complexity and heightens the likelihood of the FM risk materializing due to the lack of experience on the use of this mechanism. Close inter-institutional coordination between EDE Sur, EDE Norte, and EDE Este will be needed as the EDEs will be executing jointly procurement processes and preparing Project´s financial information that will be consolidated by the CUED that has an oversight role of the EDEs. FM functions and the Project´s flow of funds will be managed by the three EDEs, which will retain fiduciary responsibility for its Project activities. 67. The EDEs will require staff with knowledge of and experiences in externally financed/funded projects or operations managing the FM aspects. The PIUs will be strengthened with the hiring of a qualified FM professional to be dedicated to the Project handling the Project’s FM tasks and providing support on the administrative workload generated by Project´s execution. 68. FM arrangements will rely on the country systems and administrative procedures in place for Project accounting and budgeting execution. The Project will use the Treasury Single Account (TSA) System to manage resources and payments, which provides adequate segregation of duties on approvals, processing, recording and verifications. As part of the overall implementation arrangements, adequate inter-institutional coordination mechanisms will be put in place through an inter-institutional agreement to be accorded among the three EDEs. 69. Disbursements against PBCs will be triggered by: (i) the execution and documentation of eligible expenditures associated with the PBCs, and (ii) the evidence of achievement of the PBCs. The verification of the achievement will be done by the MoF through agreed protocols (verification protocols). 70. The eligible expenditures associated with a PBC will mainly consist of the acquisition of a MDM . The amount to be disbursed upon achievement of a PBC will be the lower of the incurred and documented associated expenditures or the amount allocated to that PBC. Therefore, the amounts claimed would make it up to the agreed amount for the PBC. The final amount approved by the Bank will be transferred from the financing account into EDEs accounts for the correspondent PBC amount allocated to each EDE. 71. The request for funds will be done using the advance method and based on a certification report issued by the verification entity. Advances to each EDE on the PBC mechanism are foreseen to be used and further detailed in the Disbursement and Financial Information Letter (DFIL). The POM will provide detailed guidance on the verification protocols and underlying eligible expenditures for each PBC. Disbursements as advances are subject to PBCs compliance to be documented, so in cases eligible expenditures for the PBCs are incurred but PBCs are not met, a refund will be due to the Bank for the outstanding amount advanced to the Designated Account associated to a PBC which has not been met. Page 32 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 72. In order to manage and mitigate the identified FM risks, key measures were defined in the following FM time- bound action plan to be fulfilled by EDE Sur, EDE Norte, and EDE Este. Table 4. Project FM Action Plan Description of Actions By When • EDE Sur, EDE Norte, and EDE Este prepare a specific section in the POM, including financial management and disbursements arrangements specific to the Project´s execution, reflecting the revised internal procedures required for reporting on PBCs, By effectiveness including associated expenditures, verification protocols for PBCs achievement, funds allocation and disbursement plans. • EDE Sur, EDE Norte, and EDE Este appoint qualified and experienced FM staff to the Within 3 months of Project and PIU´s structure as agreed: hiring at least 1 Accountant in each EDE. effectiveness • EDE Sur, EDE Norte, and EDE Este prepare and record the budget in the annual Within 6 months of budget law. effectiveness • EDE Sur, EDE Norte, and EDE Este prepare Chart of accounts and contents and Within 3 months of format of Interim Financial Reports (IFR), generated from SIGEF/UEPEX. effectiveness • External auditor(s) will be contracted by the EDEs, including in the scope the Within 4 months of verification of the PBCs’ associated expenditures and the achievement of the PBCs. effectiveness (ii) Procurement 73. Procurement will be carried out in accordance with the World Bank’s Procurement Regulations for IPF Borrowers dated September 2023. World Bank’s Anticorruption Guidelines dated October 15, 2006 (revised January 2011 and July 1, 2016) must be observed and applied by the Borrower during preparation and implementation of projects supported by Investment Project Financing (IPF). Each PIU will be staffed with a full-time Procurement Specialist with relevant experience in WB’s Procurement Regulations or other multilateral organizations, and additional staff to support the Procurement Specialist in managing the additional workload expected for this operation. 74. A joint Project Procurement Strategy for Development (PPSD) and a Procurement Plan (PP) for each EDE dated October 2023 has been prepared by the Borrower for the first 18 months of the Project and will be updated as needed during implementation. These documents provide the basis for procurement methods and contract arrangements. The Project will use the Systematic Tracking of Exchanges in Procurement (STEP) to plan, record, and track procurement progress and activities. The PPs and PPSD will be available on the WB’s external website and in STEP or any other system agreed with the WB. The PP will be updated through STEP in agreement with the WB as necessary to reflect the implementation needs to achieve the PDO. The WB will undertake Post Reviews on an annual basis with a sample selected from STEP. The procurement risk rating will be adjusted periodically during Project implementation based on the PIUs’ performance. The WB will also carry out procurement support missions on a semiannual basis. The PIUs shall upload all procurement and contract information in the STEP system, which will be used to provide the WB with a consolidated list of all contracts for goods, non-consulting services, and consulting services awarded under the Project and shall maintain STEP up-to-date with all the documentations generated in each of the processes carried out and the WB’s No Objection will be given through the system as required. Each of the identified PIUs will have a separate line in the system to administer and execute their respective Procurement Plan. Page 33 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 75. Retroactive financing. Reimbursement will be available to the Borrower for the financing of eligible expenditures included in the Project description and paid for with counterpart funds not exceeding twenty percent of the total financing amount up to 12 months before the signing of the Loan Agreement. The highest possible amount of retroactive financing is 20 percent or less of the Bank loan amount and can only be for items procured in accordance with World Bank’s Procurement Regulations, ESF requirements, and Anti-Corruption Guidelines. . C. Legal Operational Policies . Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No . D. Environmental and Social 76. The overall E&S risk rating is substantial. Environmental and Social Standards (ESS) ESS1, ESS2, ESS3, ESS4, ESS6, ESS8 and ESS10 are relevant. 77. The environmental risk rating for Phase 1 of the MPA is considered substantial. The Project will support the implementation of improvement of the governance and capacity of the electricity distribution companies in the DR. Project activities under Sub-components 2.2 and 2.3 include the rehabilitation of LV/MV distribution networks and installation of metering systems, while Sub-component 2.4 and Component 3 will support the strengthening of the Environmental, Social, Health and Safety (ESHS) capacities of the EDEs to manage the Project. Anticipated key concerns for potential environmental risks and impacts are mostly related to the rehabilitation of the distribution networks and the installation of metering systems; however, these are expected to be site-specific, short-term, and effectively mitigated, subject to the establishment of proper E&S measures. Key environmental risks and impacts include: (i) generation of electrical waste (transformers, cables, meters, streetlights, poles); (ii) nuisance related to vibration and noise; (iii) temporary disruptions to local traffic; (iv) health and safety risks to the Project’s workforce and local communities. The exact location of the proposed civil works will be determined during implementation, and the risk rating may be modified proportionately if deemed necessary. Though the three EDEs have improved their capacity to manage environmental and occupational health and safety risk management through their participation in the previous project, their E&S risk management capacities are still limited and require further strengthening; this is an important factor of the current risk rating. The Project will also result in environmental benefits from activities aimed to strengthen the ESHS risk management capacity of the EDEs, which will positively contribute to the country's actions toward achieving sustainability in the energy sector of DR. 78. The social risk rating for Phase 1 of the MPA is considered substantial. The Project is expected to have positive impacts on urban and rural residents of the selected areas of intervention due to the rehabilitation of the electrical distribution grid, home connections to beneficiaries, and the reduction of electricity interruptions. Project activities focus on the supply and installation of macro meters, the supply of meters for installation to clients with authorized direct connections, the replacement of obsolete and/or in poor condition meters, and the supply and installation of meters to new clients as a result of growing demand. The key social risks identified include: (i) potential opposition to the costs associated with the installation of meters and to the potential increase of the payment amounts facilitated Page 34 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) by such metering; (ii) contextual risks associated with certain groups that question the terms of the Electricity Pact, particularly the changes in cross-subsidies bought by the recently enacted sector laws; (iii) risks associated with the interactions between EDE workers and the inhabitants of the homes whose meters will be installed or replaced, which could potentially include sexual harassment, and risks associated with the transmission of contagious diseases during such interactions. To address these risks, the Borrower will implement a stakeholder engagement strategy focused on building or restoring trust between users and EDEs, which is also expected to promote an efficient and safe use of electricity, complemented by additional stakeholder engagement measures included in the Stakeholder Engagement Plan (SEP), such as a grievance mechanism developed in a manner consistent with ESS10. These activities build on the successful Social Management Strategy developed by the Borrower under the previous Project, through which community leaders and citizens are informed about the objectives of the program in their communities in advance and are able to organize themselves to participate actively during its execution. The social management program also includes specific measure towards the inclusion of vulnerable groups (including elderly, undocumented population, informal renters, and people with disabilities, as described in the draft SEP). The Social Pacts will be signed between the EDEs and the communities to establish the commitments that both parties must assume to make the program viable and achieve its objectives. Since these activities are supported by Component 2, the Bank will supervise this process, with indicators in its results framework. Likewise, provisions to reduce the risks associated with workers' interactions and household inhabitants will be included in the codes of conduct to be developed as part of the Labor Management Procedures (LMP). The limited E&S capacity within the EDEs, also contributed to the determination of this risk rating. The social risks of future phases of the MPA will be assessed as part of the preparation of each subsequent phase, and their social risk rating could differ from the one of this first phase. 79. The Client has developed, consulted, and disclosed a draft SEP and a draft Environmental and Social Commitment Plan (ESCP).48 The Client will be required to prepare, consult, disclose, and adopt an Environmental and Social Management Framework (ESMF), Labor Management Procedures (LMP), an E&S Training Plan, and update the draft SEP no later than 90 days after the Effective Date. The Project’s E&S instruments will detail measures to manage known risks and impacts, including among others an exclusion list as part of the ESMF, a screening tool to screen out those activities with the potential to cause high or significant risks and impacts, and a Gender Based Violence (GBV) action plan. Key management commitments, timelines and responsibilities for E&S risk management are defined in the ESCP. Retroactive financing of activities will be subject to an Independent E&S Evaluation prior to approval for financing, as mentioned in the ESCP. The TORs for the evaluation as well as positive and negative lists of expenditures, which may or may not be considered eligible from a social and environmental perspective will be outlined in the ESMF and reflected in the POM. 80. The Project will have qualified staff and resources to support management of ESHS risks and impacts of the Project, including at least one (1) Environmental Coordinator and one (1) Social Coordinator to support the three PIUs with the management of environment, health and safety risks and impacts of the Project, as well as compliance with the ESS requirements and national legislation and the implementation of E&S instruments, in accordance with Terms of Reference acceptable to the Bank. These Coordinators to be on board no later than thirty (30) days after the Loan Agreement’s Effective Date will report to CUED and coordinate with the Director for Projects of each of the EDEs. The subsidiary agreement between the MoF and the three EDEs as well as the Project Operational Manual (MOP) shall describe the role of these Coordinators and the reporting and coordinating arrangements. In addition, each of the three PIUs will include at least one environmental specialist, one social specialist, and one communications coordinator. Furthermore, as needed according to the number of activities that will be carried by each EDE, additional E&S personnel 48 Latest draft of SEP and ESCP disclosed can be found on https://redeselectricas.mem.gob.do/proyecto-de-mejora-de-la-eficiencia-de- distribucion-y-fortalecimiento-de-servicios-publicos/ Page 35 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) will be assigned, including among others: environmental technicians, social agents, communication agents, a data analyst, and data registers, to be dedicated full-time to the Project´s E&S risk management, implementation of E&S instruments, monitoring, and reporting. V. GRIEVANCE REDRESS SERVICES 81. Grievance Redress. Communities and individuals who believe that they are adversely affected by a project supported by the World Bank may submit complaints to existing project-level grievance mechanisms or the Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the Bank’s independent Accountability Mechanism (AM). The AM houses the Inspection Panel, which determines whether harm occurred, or could occur, as a result of Bank non-compliance with its policies and procedures, and the Dispute Resolution Service, which provides communities and borrowers with the opportunity to address complaints through dispute resolution. Complaints may be submitted to the AM at any time after concerns have been brought directly to the attention of Bank Management and after Management has been given an opportunity to respond. For information on how to submit complaints to the Bank’s Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the Bank’s Accountability Mechanism, please visit https://accountability.worldbank.org. VI. KEY RISKS 82. The overall risk is assessed to be Moderate. An assessment of those considered to be of Substantial risk is provided below. 83. Political and Governance risk is rated Substantial. The intrinsic risk is associated with the impact of the elections (presidential, congressional, and municipal) that are schedule to take place in 2024. First, the election may slow the pace of getting Project effectiveness. Second, a potential change in government may lead to changing development priorities, less-than-expected allocation of budgetary resources required for Project implementation or limited political support for the planned reforms. This said, loss reduction with fiscal savings and efficiency improvement for such a critical sector are expected to be seen as a priority for any government. To further mitigate this risk, interventions proposed under the Project will allow for frontloading of the Project activities. The implementation of activities will be complemented by ongoing sector dialogue where the Bank is in frequent contact with key members of the Electricity Cabinet to resolve issues and challenges to implementation. After mitigation, the residual risk is rated Substantial. 84. Fiduciary Risk is rated Substantial. The intrinsic risk has to do with the fact that the EDEs have not had prior experience implementing projects funded by multilateral organizations. The Project will be executed by three entities, which will require inter-institutional coordination among them and CUED, which will have a supervisory role. This IPF will also include PBCs linked to Sub-component 1.2 activities that will add a layer of complexity and heightens the likelihood of fiduciary risk to materialize due to the lack of experience on the use of this modality. Every effort will be made to mitigate Project FM and Procurement risks including: i) the PIUs to be settled in each EDE to support Project implementation, including Procurement and FM functions, and ensuring close coordination with other entities regarding the Project’s FM and procurement processes and procedures, ii) the PIUs will be staffed with FM and procurement professionals to manage the workload posed by the program and additional staff, such as analysts and contract management specialist, will be hired as needed to manage the additional workload, iii) a POM acceptable to Page 36 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) the Bank will be adopted incorporating a dedicated section for FM processes and procedures, and iv) support on the preparation of a PPSD, PP, and a detailed procurement section will be include in the POM with a clear description of the coordination, roles, and responsibilities between EDEs and CUED related to fiduciary aspects in a timely manner, including signing of contracts and supervision role of CUED. After mitigation, the residual risk is rated Substantial. 85. Environmental and Social (E&S) Risk is rated Substantial. The intrinsic risk lies in the uneven experience of the EDEs with E&S risk management and the lack of clear reporting and coordinating arrangements between the E&S PIU staff to be hired under each EDE to implement the Project’s E&S work and E&S Coordinators to guide and supervise on the adherence to the Bank’s requirements. While the three EDEs have benefitted from training and experience with E&S risk management under the previous similar IPF (P147277), their capacity requires further strengthening, especially with regard to the implementation and compliance of Occupational Health and Safety and Community safety measures. And while the subsidiary agreement between the three EDEs and the MoF as well as the Project Operational Manual (POM), to be developed, will further describe the role of the E&S PIU staff and E&S Coordinators as well as the reporting and coordinating arrangements, they remain not completely clear at this stage (See more in Section IV.D. . Environmental and Social). This said, the risk rating can be revised as arrangements are clarified and capacity improves. Page 37 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project Project Development Objective(s) The project development objective is to improve the governance and financial and environmental sustainability of the electricity distribution companies in the Dominican Republic. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name PBC Baseline End Target Improve the governance of the electricity distribution companies Implementation by each EDE of the Action Plan to improve 0.00 1.00 financial management procedures and processes (Number) Improve the financial and environmental sustainability of the electricity distribution companies Cash Recovery Index in the supported distribution circuits 39.40 84.60 (Percentage) Estimated reduction of cumulative GHG emission in electricity distribution compared to a business-as-usual baseline (Metric 0.00 1,161,196.00 ton) PDO Table SPACE Page 38 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Component 1: Improving governance of the distribution companies Commercial management system modernized 0.00 1.00 (Number) Metering Data Management system implemented (Number) 0.00 1.00 CUED resolution containing 2026 targets CUED resolution containing 2027 targets for CUED resolutions defining the key performance for energy loss, CRI, and outage duration energy loss, CRI, and outage duration indicators and required funds to meet the targets PBC 1 No KPIs defined and resources provided to defined and necessary resources to meet defined and necessary resources to meet the meet the targets defined for the three EDEs (Text) the targets defined for the three EDEs by targets defined for the three EDEs by December 31, 2025 December 31, 2026 CUED resolutions outling the recruitment CUED resolution outlining the required CUED resolution outlining the competitive procedures for the competitive selection of senior Not all senior management of the three qualifications for the senior management selection of the senior management of the PBC 2 EDEs were competitively selected using management of the EDEs using terms of reference of the EDEs and meritocratic criteria used three EDEs using terms of reference meritocratic criteria consistent with meritocratic criteria (Text) in the recruitment process consistent with meritocratic criteria Component 2: Supporting the implementation of the Integrated Loss Reduction Plan Rehabilitated distribution lines in the Project areas 0.00 1,342.00 (Kilometers) Number of installed totalizers (micro-meters) 0.00 10,828.00 (Number) Number of regularized clients (Number) 0.00 225,826.00 Energy losses in the the Project areas (Percentage) 56.00 12.50 Signed Social Pacts (Number) 0.00 30.00 Participation of women as leaders in communities 33.00 45.00 with signed Social Pacts (Percentage) Number of female staff in leadership roles in the 24.00 35.00 EDEs (Number) Number of beneficiaries (Number) 0.00 812,973.00 Page 39 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Component 3: Capacity building, administration, monitoring, and evaluation Action plan to improve financial management procedures and processed identified in the 2020 0.00 1.00 EDE audit (Number) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection The indicator seeks to capture the efforts of CUED and the EDEs in taking The EDEs will provide steps to address the short- Quarterly Implementation by each EDE of the Action inputs on the comings related to financial Quarterly progress EDEs Plan to improve financial management implementation of the management processes reports procedures and processes Action Plan to CUED. and procedures of the three EDEs as identified in the recent audits of the financial statements. The index measures the The calculation of the percentage of cash CRI corresponding to the Quarterly collected from the portion period under evaluation Cash Recovery Index in the supported Quarterly progress EDEs of the energy invoiced to will be extracted from distribution circuits reports customers by the EDEs of the EDEs' commercial the total energy purchased management system. from the generating Page 40 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) companies. In other words, this index correlates energy sales and cash collections. GHG reductions will be driven by the following two factors: (i) reduction of demand due to the metering of previously unmetered (and unpaid) consumption, the EDEs have experienced that demand is reduced significantly as a result of metering; and (ii) The calculation and alleviation of over-charged achievement of the GHG transformers will reduce emission reduction Quarterly Estimated reduction of cumulative GHG technical losses. These corresponding to the Quarterly progress PIU emission in electricity distribution improvements will period under evaluation reports compared to a business-as-usual baseline materialize as soon as the will be extracted from network rehabilitation and the EDEs' commercial meter installation are management system. completed in a given circuit. The indicator captures the amount of GHG emissions in the Project scenario compared with the business-as-usual baseline. It uses the Harmonized IFI Default Grid Factors (version 2021 v3.2), which operates with a grid factor of 426 gCO2 Page 41 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) per kWh for the DR. ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection See B. Project Components Reporting on the section and Annex 2 of this Quarterly implementation of the Commercial management system PAD for a description of the Quarterly progress system will be reported EDEs modernized objective and key reports by the IT team and functionalities of this included in the QPRs. system. See B. Project Components Reporting on the section and Annex 2 of this Quarterly implementation of the Metering Data Management system PAD for a description of the Quarterly progress system will be reported EDEs implemented objective and reports by the IT team and functionalities of this included in the QPRs. system CUED resolutions defining the key See B. Project Descriptions CUED Review of CUED performance indicators and required section of this PAD for a Quarterly EDEs resolutions resolutions issued funds to meet the targets defined for the description of this three EDEs indicator. The senior management positions will include key CUED resolutions outling the recruitment roles such as the general procedures for the competitive selection CUED Review of CUED manager and the directors Quarterly EDEs of senior management of the EDEs using resolutions resolutions issued of commercial and terms of reference consistent with distribution business, meritocratic criteria information technology, procurement, and finance. Page 42 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) The criteria used will include relevant qualifications appropriate for that role, including and especially knowledge and experiences in the distribution business. The process to put in place all qualified personnel for these key roles is expected to be completed within two years of implementation, taking into account potential government changes following the elections taking place in mid-2024. This will build on an evaluation of the alignment of the qualifications of existing management to internationally expected criteria for high performing utilities, which is expected to be completed during the last quarter of 2023, and any update that would be required on the existing job descriptions for those key roles. Rehabilitated distribution lines in the The length of MV network Quarterly Quarterly The EDEs oversee works EDEs Project areas infrastructure completed in progress carried out by Page 43 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) the project areas (poles, reports contractors and provide reinforcements, inputs into the QPRs conductors, transformers, protection and switching equipment). Micro-measurements The EDEs oversee works (totalizers) installed and Quarterly carried out by Number of installed totalizers (micro- are operational in each Quarterly progress EDEs contractors and provide meters) non-exclusive distribution reports inputs into the QPRs. transformer within the Project areas. Standarized cotumers are those clients with installed smart grid technology The EDEs oversee works meters that allows the Quarterly carried out by EDEs to remotely measure Quarterly progress EDEs Number of regularized clients contractors and provide their electricity reports inputs into the QPRs. consumption and, also, remotely connect/disconnect their power supply/service. The calculation of the energy losses corresponding to This indicator measures the the period under losses related to the Quarterly evaluation will be electricity unbalance Quarterly progress EDEs Energy losses in the the Project areas extracted from the EDEs' between points of reports commercial distribution network and management system the end consumers and included in the QPRs. Page 44 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Social pacts are signed agreements by which the The number of signed Quarterly community and the EDEs social pacts will be Quarterly progress EDEs Signed Social Pacts mutually agree on actions reported by the EDEs as reports to be undertaken by each inputs into the QPRs party to achieve specified goals. This captures the Quarterly The EDEs will report on percentage of the Participation of women as leaders in Quarterly progress this as inputs into the EDEs communities with signed communities with signed Social Pacts reports QPRs Social Pacts, where women take leadership roles. Quarterly The EDEs will report on Number of female staff in leadership roles Number of female staff in Quarterly progress this as inputs into the EDEs in the EDEs leadership roles in the EDEs reports QPRs Assuming a typical The EDEs will report on household in the DR has Quarterly the number of 3.6 people, the number of Quarterly progress regularized consumers EDEs Number of beneficiaries beneficiaries will be reports to calculate this number 225,826 x 3.6 persons = as inputs into the QPRs 812,973. The Action Plan will be Action Plan with new Quarterly shared with the WB and Action plan to improve financial processes and procedures Quarterly progress its completion EDEs management procedures and processed identified as opportunities reports documented as part of identified in the 2020 EDE audit for improvements in the the QPRs 2020 EDEs' audits. ME IO Table SPACE Page 45 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Performance-Based Conditions Matrix DLI_TBL_MATRI X CUED resolutions defining the key performance indicators and required funds to meet the targets defined for the three PBC 1 EDEs Type of PBC Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Intermediate Outcome No Text 6,075,000.00 2.70 Period Value Allocated Amount (USD) Formula Baseline No KPIs defined and resources provided to meet the targets Year 1 None 0.00 0.00 Year 2 CUED resolution containing 2026 targets for 3,037,500.00 50% energy loss, CRI, and outage duration defined and necessary resources to meet the targets defined for the three EDEs by December 31, 2025 Year 3 CUED resolution containing 2027 targets for 3,037,500.00 50% energy loss, CRI and outage duration defined and necessary resources to meet the targets defined for the three EDEs by December 31, 2026 Year 4 None 0.00 0.00 Year 5 None 0.00 0.00 Page 46 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) DLI_TBL_MATRI X CUED resolutions outling the recruitment procedures for the competitive selection of senior management of the EDEs using PBC 2 terms of reference consistent with meritocratic criteria Type of PBC Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Intermediate Outcome No Text 6,075,000.00 2.70 Period Value Allocated Amount (USD) Formula Baseline Not all senior management of the three EDEs were competitively selected using meritocratic criteria Year 1 None 0.00 0.00 Year 2 CUED resolution outlining the required 3,037,500.00 50% qualifications for the senior management positions of the EDEs and meritocratic criteria used in the recruitment process by December 31, 2025 Year 3 CUED resolution outlining the recruitment 3,037,500.00 50% procedures for the competitive selection of the senior management of the three EDEs using terms of reference consistent with meritocratic criteria by December 31, 2026 Year 4 None 0.00 0.00 Year 5 None 0.00 0.00 Page 47 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Verification Protocol Table: Performance-Based Conditions DLI_TBL_VERIFICATI ON CUED resolutions defining the key performance indicators and required funds to meet the targets defined for the three PBC 1 EDEs This PBC tracks the setting of the targets for performance indicators for energy loss, CRI, and outage duration of the three Description EDEs and necessary funds for them to meet those targets. Data source/ Agency CUED resolutions Verification Entity Ministry of Finance Review of CUED resolutions Procedure DLI_TBL_VERIFICATI ON CUED resolutions outling the recruitment procedures for the competitive selection of senior management of the EDEs PBC 2 using terms of reference consistent with meritocratic criteria Description This PBC monitors the transparent appointment, improved professionalism, and management of the EDEs. Data source/ Agency CUED resolution Verification Entity Ministry of Finance Review of CUED resolutions Procedure . Page 48 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Dominican Republic Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project Project Institutional and Implementation Arrangements 1. This Project is part of the Dominican Republic Integrated Loss Reduction Plan (ILRP) to reduce energy losses in the country’s distribution systems. Project administration mechanisms 2. At the strategic level, the implementation of the Project, as with any other activities in the sector, is ultimately governed by the Electricity Cabinet. The Cabinet constitutes the decision-makers and key stakeholders in the sector, such as the President and Vice President of the country, the Minister of Finance, the Minister of Energy and Mines, the Superintendent of Electricity, the President of CUED, the Executive Director of the National Energy Commission, among others. The Cabinet meets on a weekly basis to resolve strategic bottlenecks to the sector, given the high priority the current government has placed on sector reform and improved performance. All investments in the distribution sector are overseen by CUED, the President of which signs all contracts on behalf of the EDEs. The Presidency of CUED will coordinate the reporting on the completion of Project activities with inputs from the EDEs. Responsibilities of Parties Involved in the Project Figure 1.1: Project Oversight and Implementation Arrangements Strategic / Oversight Electricity Cabinet Policy High-level GE Sub-Committee on Electricity Sector Reforms Implementation Oversight Consejo Unificado de las Empresas Distribuidoras de Electricidad (CUED) Implementation EDE Sur EDE Norte EDE Este PIU PIU PIU Page 49 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 3. Electricity Distribution Companies (EDEs): Each EDE will be responsible for planning, engineering, and design of their projects within their respective business area, as well as procurement, supervision, contract management, and E&S management. They will prepare the bid packages (e.g., technical and commercial specifications), participate in specific bid evaluations and recommendations for award of contracts, and supervise the implementation of contracts and executive of works in their business area. They will also be responsible for the approval of construction and supply certificates and be responsible for payment and for approval of final acceptance certificates for works, goods, and consulting services. The EDEs will be responsible for the E&S supervision of the Project activities, compliance with safeguards policies and adherence to the agreed ESA/ESMP. 4. CUED: The Presidency of CUED, as the legal representative of the three EDEs, will sign all contracts according to the rules set for contract management by the EDEs, while the EDEs will be responsible for contract implementation. The CUED Presidency will oversee the preparation of all required progress reports for the Project, including those for FM, procurement, and E&S safeguards and be responsible for M&E, MTR report, and the Borrower’s completion report, whereas the inputs to these reports will be provided by the EDEs. Implementation Support Plan 5. To support Project implementation, the WB will provide the necessary training and capacity building activities as needed to the EDEs on fiduciary and E&S aspects. Financial Management, Disbursement, Procurement, and Environmental and Social Financial Management Arrangements Table 1.1: FM Risk Table Comments / Risk mitigating measures Residual Risk type[1] Risk Rating incorporated into Project design Risk Rating Overall Inherent risk Moderate Moderate Country level Moderate FM arrangements will rely upon acceptable country systems Moderate and administrative procedures in place for project accounting and budgeting execution. Entity level Substantial EDE Sur, EDE Norte, and EDE Este do not have experience in external Substantial donors- funded projects. Designation/hiring of dedicated FM staff in each EDE to provide additional fiduciary support. Project level Substantial FM section of the Operations Manual will define roles and Substantial responsibilities of assigned FM staff and administrative procedures. The form of IPF with PBC adds a layer of complexity in project design. Continued close support and supervision. Overall Control risk Substantial Substantial Budgeting Substantial National rules will be used for budgeting. Budget allocations and Substantial execution will be reflected in the DR Government FM Information System SIGEF, under the UEPEX module. EDE Sur, EDE Norte, and EDE Este will be responsible for the project´s annual budget programming, implementation and evaluation activities. Page 50 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Accounting Moderate The UEPEX system, linked to SIGEF, will be used to record all Moderate accounting transactions. This system provides a good ex-ante internal control framework, and it is considered adequate for accounting purposes. Internal Control Substantial The internal approval processes and systems allow for a reasonable Substantial segregation of duties between the various stages of the expenditure cycle, including purchase orders, receipt and verification of services rendered, requests for payment and the custody of purchased goods. Specific procedures in FM will be clearly defined in the OM. Funds Flow Substantial Specific arrangements will be applied to the Project for Substantial disbursement purposes. Use of PBCs for Sub-component 1.2 activities adds a layer of complexity and heightens the likelihood of the FM risk materializing due to the lack of experience on the use of this modality. Financial Reporting Moderate The Borrower will prepare Project quarterly unaudited Interim Moderate Financial Reports (IFRs) and annual audited financial statements using the UEPEX system. Auditing Substantial Project annual financial statements will be audited in accordance Substantial with Bank policy, under terms of reference and by an independent auditor acceptable to the Bank. Overall risk Substantial Substantial [1] The FM inherent risk is that which arises from the environment in which the project is situated. The FM control risk is the risk that the project’s FM system is inadequate to ensure project funds are used economically and efficiently and for the purpose intended. The overall FM risk is the combination of the inherent and control risks as mitigated by the client control frameworks. The residual FM risk is the overall FM risk as mitigated by the Bank supervision effort. 6. Organization and Staffing. Staff mapped to EDE Sur, EDE Norte and EDE Este will be managing the Project’s accounting, budgeting, and treasury activities. Furthermore, FM staff with proper qualifications and prior knowledge of externally funded operations will be hired exclusively to the Project in each EDE. The assigned FM staff will be working full-time on the Project´s FM, for ensuring that Project’s fiduciary obligations are met, transactions are valid, accurate and completely captured, and acting as the main counterpart to the WB regarding the FM and disbursement issues. CUED in its role of consolidating financial information has staff with knowledge in financial reporting for external funded projects and no additional staff is envisaged to fulfill this task. 7. Budgeting Arrangements. EDE Sur, EDE Norte, and EDE Este will be responsible for the Project´s annual budget programming, implementation, and evaluation activities to be included in the scheduling of disbursements investment projects with external resources of the annual budget law. The Project´s annual budget will follow the government budget structure and procedures, including a classification of the Project components, subcomponents, and activities that will be registered under EDEs´ budget allocation. The PIUs will monitor Project’s budget using GoDR’s FM Information System SIGEF/UEPEX module. The EDEs will assume Project disbursements planning, and control of fund transfers and budgetary modifications according to the Annual Operational Plan and Procurement Plan during the year. In this regard, after the loan is approved by the Congress, the EDEs will submit a budget allocation request for the Project. Modifications to the annual budget bill in the DR are passed by the Congress once a year, usually during the second semester of every fiscal year. 8. Accounting System. The DR’s Government Financial Management Information System (SIGEF, for its acronym in Spanish) is an automated modular tool that serves as the instrument to facilitate compliance with the purposes of Page 51 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) the State Financial Administration System (SIAFE – Sistema de Administración Financiera del Estado). SIGEF began operations in 2004 and has been improved in phases and now provides capabilities for modern treasury management, including features to record and control commitments, process payments, account for cash and accrual transactions, and preparation of annual financial statements. SIGEF has a module to execute projects with external financing called SIGEF/UEPEX which has embedded controls providing for the efficiency and transparency in the management of external financing funds. The SIGEF/UEPEX system provides a good ex-ante internal control framework, and it is considered adequate for accounting purposes. 9. National accounting standards will be used for maintaining the Project´s accounting records. The EDEs use an enterprise resource management (ERP) system for its accounting purposes but project transactions will be booked through entries made in the government system SIGEF/UEPEX, using a tailored chart of accounts to allow for recording and reporting within SIGEF/UEPEX according to the Project needs and documented in the POM. Each EDE will perform a conciliation between the two systems to include project´s transactions registered in their ERP. 10. Financial Reporting. The Project’s proposed arrangements will use Cash Basis Accounting for the preparation of quarterly interim financial reports (IFR) and annual financial statements. IFRs should specify sources and uses of funds, reconciling items as needed, as well as the initial and year-end cash balances, with expenditures classified by component and subcomponent, and by disbursement category, and a statement of the Project investment reporting the current semester and the cumulative operations against ongoing plans and footnotes explaining the important variances. Each EDE will be preparing its own set of financial reports based on its accounting records registered in SIGEF/UEPEX and CUED will be in charge of consolidating the information and submitting it to the Bank. 11. IFRs will be prepared on a quarterly basis and will be submitted to the Bank no later than 45 days after the end of each calendar quarter. These reports will be prepared in US dollars. Reports formats have been shared and agreed with the PIU, they will be incorporated in the POM. 12. Internal control and Internal Auditing. The internal control environment to be used for the Project is anchored in the country’s legal and institutional framework. The internal approval processes and systems allow for a reasonable segregation of duties between the various stages of the expenditure cycle, including purchase orders, receipt and verification of services rendered, requests for payment and the custody of purchased goods. The process relevant to the project will be included in a POM. 13. The Comptroller General of the Republic, (Contraloria General de la República, CGR) is the governing body of the DR Internal Control System. It is mandated by the Constitution to conduct ex-ante control and ex-post audits across central government, decentralized agencies, and public companies, including the EDEs. The Internal Audit Units (IAUs) reporting to CGR are responsible for verifying the control, compliance with standards, procedures and applicable laws of the institution's financial processes and fund management. IAUs perform ex ante control of payments, no payment for goods or services is made in the public sector without ex ante approval of these units. Activities implemented under EDEs IAUs could be considered as part of the scope of the IAU annual operational plan for the FY 2024 and reports issued by these units will be reviewed by Bank staff during regular supervision missions as appropriate. 14. External Audit. Project annual financial statements will be audited in accordance with Bank policy, under terms of reference and by an independent auditor acceptable to the Bank. Project annual audited financial statements including the consolidated information from the three EDEs will be submitted by CUED to the Bank up to six months after the end of the audited period. Audit reports will be tagged as publicly disclosable in World Bank records and Page 52 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) posted in its institutional portals upon receipt, to comply with Bank policy. The Bank also requires that the Government of the Dominican Republic discloses the audit report to the public. 15. Disbursements and Flow of Funds. The main disbursement method to be used for the project is the Advance method. Project funds will be advanced into segregated designated dedicated accounts in dollars opened at the Central Bank to be managed by each EDE. In addition, accounts will be established under the Treasury Single Account (TSA) concept in local currency for making payments of project eligible expenditures. The PIUs will use quarterly interim unaudited financial reports (IFR) in a format to be agreed with the Bank to document eligible expenditures paid from advances to the designated accounts. The reimbursement and direct payment methods will also be available for the project and included in the DFIL. 16. Amounts to be disbursed upon achievement of a PBC will be the lower of the incurred and documented associated eligible expenditures or the amount allocated to that PBC. An advance on the PBC mechanism is foreseen and will be further detailed in the DFIL. In that case, the advance to the DAs will be linked to the achievement of the PBC and a refund will be due to the Bank if the PBC is eventually not met. The project operational manual will provide detailed guidance on verification protocols. The eligible expenditures associated to PBC compliance will be the payments made under subcomponent 1.2 for the procurement of the metering data management system. Figure 1.2: Disbursement and flow of funds diagram Page 53 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 17. FM supervision. In accordance with the assessed Substantial FM risk, the FM implementation support will include on-site and off-site supervision. On-site missions will be carried out at least twice a year during the first year of Project implementation and later calibrated following assessed risk and Project performance. Off-site implementation support will comprise desk reviews of interim financial reports and audited financial statements; and ad-hoc support through email, video, and phone calls as needed. Procurement 18. Procurement will be conducted using the World Bank’s ‘Procurement Regulations for IPF Borrowers’, issued in July 2016 and updated in September 2023, for the supply of goods, works, and non-consulting and consulting services. The World Bank’s Standard Procurement Documents (SPD) will govern the procurement of World Bank- financed Open International Competitive Procurement. For procurement involving National Open Competitive Procurement, the Borrower may use the documents agreed with the WB. 19. The WB conducted during project preparation, a procurement capacity assessment of EDE Sur, EDE Norte, and EDE Este, to implement procurement activities under the Project. The EDEs haven't had previous experience implementing a project financed by multilateral organizations, and they are not familiar with the World Bank Procurement Regulations, SPD, and systems. However, these entities have a technical seasoned staff with experience defining technical specifications for project activities managed by the CDEEE, as well as proposal and bids evaluation, supervision, and contract management. 20. Activities planned under the Project include procurement of goods, works, non-consulting services and consulting services. EDE Este will be responsible on behalf of EDE Norte and EDE Sur to carry out the procurement processes to acquire (i) new technical – commercial management system, and (ii) MDM system for management of industrial and residential customers and the contracting of the consultancy firm for both systems implementation support. The MDM system contract under Subcomponent 1.2 will be linked to PBCs mechanism, in which the EDEs don't have previous experience. Likewise, EDE Sur will carry out procurement processes to contract the consulting services for the verification of the technical quality of network rehabilitation works and the audit firm for the project. The remaining activities will be undertaken by each EDE accordingly as reflected in each procurement plan. Under Component 2 goods, works, non-consulting services and consulting services will be financed. Finally, Component 3 will be financing activities related to capacity building such as training, hiring of individual consultants, and financial audits. Page 54 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 21. Based on the risks identified above at this stage, the mitigation measures are defined as follows: (1) The WB will provide hands-on support to the client, including coordination and assistance for the early contracting process of critical activities under Component 1, including the early definition of SPD to be used to carry out the procurement process, set follow-up meetings to review the progress, and ensure timely review of the bidding documents. (2) The WB will provide TA and training for capacity building within the three EDEs, especially on WB Procurement Regulations, the use of SPD, Contract Management, how to manage complaints effectively and STEP will be provided according to project needs. (3) Each PIU shall be staffed at all times with a Procurement Specialist. Additional staff such as a Procurement Analyst and/or Procurement Assistant will be considered to be appointed according to workload, to ensure compliance with the procurement process and timelines. Due to the complexity of the contracts that will be awarded in this project, specifically those undertaken by EDE Sur, the PIU shall appoint a Contract Management Specialist to supervise contractual conditions responsibilities are met. The Bank will provide support to the client on best practices in the Terms of Reference for this position according to the needs of the project. (4) The project will follow World Bank Procurement Regulations and therefore the conflict resolution mechanism will be applied according to the cited Regulations. This will be included in the POM of the project. (5) The WB will support the client to define a realistic timeline to carry out the procurement processes for the most critical activities of the project. The Project’s procurement risk after the proposed mitigating measure is rated Substantial. 22. Procurement activities expected to be carried out during the first 18 months of implementation are detailed in the Project Procurement Plans developed by the EDEs. The rest of the activities will be added to the Procurement Plans once they are defined by the technical areas and any updates on the Procurement Strategy will be reflected during project implementation. 23. Retroactive financing will be available to the Borrower up to one year before the signing date of the Loan Agreement for eligible project expenditures paid and procured in accordance with the World Bank’s Procurement Regulations, ESF requirements, and Anti-Corruption Guidelines, for an amount not to exceed 20 percent of total Project costs. Environmental and Social 24. The Bank will provide guidance to the three PIUs at the EDEs for the development of the necessary E&S instruments needed, as well as during implementation, monitoring and reporting to ensure that the Project is consistent with the ESF. Training in the ESF, E&S risk management and instruments, and additional capacity building during implementation will be provided by the Bank. The three PIUs will also develop and implement an E&S training plan acceptable to the Bank to ensure the required capacity of the three EDEs for the E&S implementation of the Project. The training will focus on PIU and EDE staff, project workers, contractors, companies in charge of supervision, community organizations, and other actors as appropriate. Topics related to training will be agreed with the Bank and will include, but are not limited to: (i) the Project´s E&S instruments; (ii) Occupational Health and Safety; (iii) Gender- based violence, sexual exploitation and abuse, and sexual harassment; (iv) Prevention response to infectious diseases; (v) Codes of conduct; (vi) Emergency preparedness and response Plan; (vii) Management of hazardous and non- hazardous waste; (viii) Inclusion of vulnerable groups; (ix) Grievance Mechanisms for project activity-related grievances and for project workers. The ESMF will further detail the institutional roles and responsibilities, M&E requirements, and an estimated budget for E&S management, including capacity building measures. Page 55 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ANNEX 2: Detailed Project Description 1. Since 2021, the Government has pushed through a number of critical reforms to implement the Electricity Pact. With support from the WB’s recent DPL series with the total amount of US$800 million, the GoDR has advanced critical policies to: (i) improve the transparency and governance of the EDEs that are expected to lead to reduced distribution losses; and (ii) to implement effective, cost-recovery electricity tariffs despite the temporary freeze that was decreed in July 2022 in response to the inflationary pressure caused by the war in Ukraine. GoDR has signaled that the gradual tariff increases are expected to resume when inflation is reduced and the socio-economic conditions allow, after which private sector participation in electricity distribution would be reconsidered. Critical to the financial sustainability of the sector, the GoDR has committed to compensating the EDEs for the revenue shortfall arising from non-cost reflective tariffs, according to a clearly established reference technical tariff regime methodology, while supporting loss reduction through governance reforms. Specific policy actions supported by the DPL series have aimed at enhancing climate mitigation and social and environmental sustainability by supporting measures to implement the country’s low-carbon energy transition and strengthen system resilience to climate change. Table 2.1: DPs’ Support to the DR’s Energy Sector Reforms Operational Financial Viability Governance Efficiency and Security of Supply Performance WB − Financing of − Report on − DPL series (See paragraph 1 − TA on National Energy Efficiency distribution technical tariff of this Annex) Strategy rehabilitation methodology − Report on EDEs performance − TA on economic analysis of (P147277) (P147277) improvement plan (P147277) decarbonization of electricity and − Financing of ILRD (P147277) transport sectors as part of the CCDR IDB − Financing of − Study on tariff − TA on the Amendment to the − Financing for streetlighting with JICA distribution methodology General Electricity Law − TA on economic analysis of upgrade (ongoing) underpinned by a proposal to decarbonization of the electricity − TA on valuation of integrate the planning sector the assets of the function of CNE under MEM EDEs GIZ − TA on one-stop shop for − Studies and TA on grid code for RE permitting for distributed integration and policy generation recommendations − Diagnostics of financial sector capacity for RE financing − Battery energy storage workshop − Studies on green hydrogen potential USAID49 − National awareness plan on − Study on resilience of the national EE grid − Study on solar rooftop potential CAF50 − Financing of and distribution OFID51 upgrade 49 United State Agency for International Development 50 Development Bank of Latin America and the Caribbean 51 OPEC Fund for International Development Page 56 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) A. Key Challenges Affecting the Distribution Sector 2. Operational performance: The grid performance is among the poorest in the region, with high frequency and duration of service interruptions. System Average Interruption Duration Index (SAIDI) was 24.0 hours, while System Average Interruption Frequency Index (SAIFI) was 19.0 interruptions per customer per month, far above the regional average. The many interruptions are an impediment for many small and medium size businesses and also disrupts functions of health clinics, schools and other public institutions. The poor performance is linked to governance issues (see below) and to the fact that the EDEs are cash starved due to the insufficiency of the tariff to cover full costs and the very high non-technical losses. For many years, electricity rationing was the answer to low operational performance and financial losses particularly in areas with high poverty rates, where distribution networks are often poorly maintained and are highly vulnerable to fraud. As a result, poor and vulnerable households are disproportionally affected by unreliable access to basic electricity services. 3. Financial viability: While residential tariffs in the DR are among the lowest in the region, they are heavily cross- subsidized and significantly below the cost of service, encouraging excess consumption and undermining the financial stability of the state-owned electricity sector. However, tariffs only cover about sixty percent of the cost of service52, and rely on heavy cross-subsidies from high consumption residential customers to lower consumption ones, and from commercial and industrial users to residential customers, with industrial users paying US$0.158/kWh and commercial users paying US$0.192/kWh.53 These price distortions result in poor incentives to implement energy conservation measures, higher levels of GHG emissions, and the need for large transfers to the EDEs to cover electricity supply, operational, and investments costs. 4. Non-payment among households further undermines cost recovery through tariffs, with non-poor households representing the majority of non-payers. In the absence of official figures, an indirect estimation of non-payers’ households54 indicates that around 2.7% of dwellings do not pay for electricity services even when they report electric consumption. There is a higher incidence of non-payers among disadvantaged households: 5.7% of poor households and 6.9% of those classified as ICV155 do not pay for their electricity consumption. A sizable proportion of non-payers come from the ranks of the non-poor, as two-thirds of non-payer households are categorized as ICV3 to ICV4 and three- quarters are categorized as monetary non-poor. 5. The combination of inadequate tariffs and high losses have contributed to poor financial performance of the EDEs and led to requirements of considerable government subsidies. The losses are due to illegal connections, issues with energy meters such as delays in the installation or reading errors, contaminated, defective, or non-adapted measuring equipment, very low valid consumption estimates and faulty connections. Close to half of the country’s electricity consumers are not metered, due to either legal non-metered connections or illegal connections. 52 WBG. 2021. 53 CEPAL. 2021. 54 The definition of non-payer household uses an indirect approach based on the ENGIH-18 (National Household Income and Expenditure Survey/ Encuesta Nacional de Gastos e Ingresos de los Hogares – 2018). Non-payers are defined as those households that reported zero expenditure on electricity services but report a connection and have electric appliances in use within the household. 55 The GoDR’s Unique Beneficiary System (Sistema Unico de Beneficiarios, SIUBEN) classifies households as ICV1: extreme poor, ICV2: poor, ICV3: vulnerable, and ICV4: non-poor based on four dimensions of poverty: household infrastructure conditions, household demographics, access to education services, and access to public services, ensuring adequate targeting and coverage of beneficiaries. Page 57 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 6. The total distribution losses are around 34 percent, which is one of the highest in the LAC region. Losses are particularly high in the most impoverished areas where the distribution networks are poorly managed and highly vulnerable to fraud and theft. Losses were at similar levels in the late 2000s but then steadily fell from 36.2 percent in 2009 to 27 percent in 2019 due to the implementation of loss reduction measures.56 The WB-financed Distribution Grid Modernization and Loss Reduction Project (P147277) contributed to this important achievement. However, much of these gains was lost during 2020 and 2021 due to the COVID-19 pandemic response measures where the EDEs were required to reconnect electricity users that had not been paying, and once COVID impacts have receded, those users have continued to receive electricity without being disconnected. 7. In times of crisis, the Government has often resorted to disallowing fuel cost pass-through (to electricity tariffs) as a way to cushion the impacts on the poorest and most vulnerable households. As a result, the combination of high losses and below-cost-recovery tariffs57 have in turn forced the Government to subsidize the sector to keep the EDEs afloat to enable them to the transmission company and the generators. The total annual deficit of the EDEs, before Government subsidy, averaged US$1.2 billion in the period 2017-2021, corresponding to 1.4 percent of the country’s GDP.58 8. Governance. Electricity sector governance faces significant efficiency, accountability, and transparency challenges. The legal framework is outdated with fragmented regulatory authority. The General Electricity Law of 2001 (Law No. 125-01) established several agencies with policy making responsibilities. CDEEE was created as the overall coordinating body of all public entities operating in the sector. Over time, it established de facto policies and was the recipient of all government subsidies while operating within an environment of weak government oversight and lack of transparency. The tariff revenue shortfall, together with high energy losses, produced chronic financial deficits in the EDEs and as a result, the GoDR allocated substantial resources to CDEEE to finance investment projects and cover the financial losses of public enterprises in the electricity sector. 9. In November 2022, CDEEE was dissolved through a law passed in Congress and SIE implemented the first tariff increase in over a decade. In December 2022, legislation was proposed in Congress to increase the transparency and improve the performance and efficiency of electricity sector entities by adopting measures to separate the policymaking, planning, and regulatory functions of governmental institutions in the energy sector, including and especially for the planning and integration of RE. 10. The EDEs have not issued audited financial statements for 2021 and 2022 and management has been unable to address the causes underpinning poor financial performance. These include a politicized process for appointments of management positions and political interference in operational decisions regarding payment enforcement and loss prevention. The GoDR continues to pursue a long-term objective of introducing private sector participation as an efficient means to improve the operational performance and sustainability of the distribution sector. However, in the short to medium term, such PPP modality would not be feasible due to the existing poor governance and operational performance, as well as the pause in tariff increases, which will make it difficult to attract experienced private sector partners. Therefore, the GoDR is now pursuing a two-step strategy starting with the adoption of a governance reform to ensure good performance of state-owned companies to be followed by a second step that will include PPP arrangements with private partners. 56 Government of the Dominican Republic. Integrated Loss Reduction Plan 2022-2028 (Plan Integral de Reducción de Pérdidas 2022-2028) 57 Tariff revenues received by the EDEs covered only about 60 percent of total system costs. 58 World Bank Staff analysis. See: Second Electricity Reform for Sustainable Growth Development Policy Loan (P178570) Program Document (PD) Page 58 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 11. To improve governance of the EDEs, the GoDR is implementing a set of time-bound reforms, regarding: (i) the governance structure of the EDEs, assigning oversight and monitoring role to CUED; (ii) the transparent and competitive process and requirements for appointing top management positions in the EDEs (by the third quarter of 2023); (iii) the restructuring of the EDEs by introducing a matrix structure to enhance efficiency and transparency; (iv) the introduction of processes to ensure effective monitoring and follow-up on the progress toward predefined Key Performance Indicator (KPI) targets, including distribution losses, initially for the years 2023 and 2024, to be renewed on a rolling basis; (v) gradual introduction of a performance-based approach in the outsourcing of specific commercial activities of the EDEs; and (vi) improved transparency measures including periodical publication of KPIs, and commitment to produce annual audited financial statements for each of the EDEs. B. Reasons for High Distribution Losses 12. Four reasons have contributed to the high losses over the last decades: i) community perceptions and attitude; ii) insufficient materials and equipment, iii) sub-optimal contracting models for the outsourced services, and iv) management oversight. 13. Community perceptions and attitude. First, the drive to achieve universal electrification earlier meant that a portion of the users were not able to pay for electricity services. They also became entitled to getting electricity without having to pay. Second, outdated infrastructure and rapid demand growth outpacing supply and investments led to unreliable services, causing deep-rooted perceptions that the services are not worth paying for. Finally, impunity in electricity thefts, through illegal connections or meter tempering, caused it to become more widespread, and distrust in the distribution companies more ingrained. 14. Insufficient and inadequate materials and equipment. Two key investment types are typically needed for controlling electricity thefts: low-voltage (LV) distribution lines and meters. The DR has 12,830 km of LV lines, of which only 99.8 percent (12,799 kms) are Aerial bundled cables (ABC) cables. 87 percent of EDE Norte’s consumers are metered, 91 percent in EDE Sur, and 76 percent in EDE Este. The lack of meters has many negative consequences. i. It has made detection of faults and failures in a circuit, which can include up to 20,000 users, slow and difficult, potentially requiring a large number of field brigades to resolve. ii. The lack of meters lead to inaccurate reading of consumption, erroneous invoicing, and consequently poor collection, missed revenues, and grievance among users, reflecting high inefficiency and operating costs while perpetuating electricity thefts and lack of payment discipline. iii. In addition to meters not being registered in a unified database, there is also insufficient macro- and micro- metering systems to facilitate better control of the energy balance and quicker identification of irregularities (see Section D of this Annex). iv. The lack of uniform approach, clear standards, and specifications in earlier procurement of such equipment has led to great diversity of equipment being used across the country, and consequently, challenges in their usage and management. 15. Table 2.2 demonstrates the state of metering infrastructure in the EDEs, where fifty percent of the users are still on non-telemetering systems. 11 percent of the consumers in the DR do not have a meter. Only about half of those metered have a telemetering system, which allows accurate reading of the electricity consumption and enables remote disconnection. The remainder have older meters, easy to bypass and manipulate or just non-functioning. This leads to high non-technical losses and is one of the factors that contributes to the deficit of the distribution companies, among Page 59 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) others like high operating costs, and socio-economic factors that leads to energy theft and an absence of payment culture. Table 2.2: Type of Consumers and Metering Infrastructure in each EDE Regulated Consumer EDE Norte EDE Sur EDE Este Total Total consumers 1,245,395 1,001,531 796,912 3,043,838 Unmetered consumers 158,014 87,832 187,777 433,623 Metered consumers 1,087,381 913,699 609,135 2,601,215 Telemetered 45% 78% 21% 50% Conventional metering 55% 22% 79% 50% 16. Sub-optimal contracting models for the outsourced services. The EDEs outsource distribution services, such as network maintenance, installation of new materials, cutting services of non-paying users, and bill collection, to contractors. These contractors hire and pay brigades of field workers at a daily fixed rate, which do not incentivize efficiency or high performance. While there are penalties for irregularities related to installation of materials, cutting services and bill collection, they are not strictly enforced due to lack of supervision and control by the EDEs.59 There is a need to reform such contract model to instill discipline in the contractors and align their performance incentives with the EDEs’ loss reduction goals. 17. Management oversight. Government changes following an election, especially with a new political party, have led to turnover of key managerial and technical leadership in the EDEs, resulting in losses of institutional knowledge and know-how. Political appointment for the general manager function in the EDEs has often been disruptive to the business. Cutting electricity services of non-paying, often poor, users has also been highly unfavorable in an election year. Figure 2.1: Electricity Losses by Region and by EDE 59Small-scaled corruption also takes place, where there are people working for the EDEs or their contractors, who know the processes and procedures and who benefit or even profit of such lack of control. Page 60 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Source: Integrated Loss Reduction Plan 2022-2028 Note: The white lines delineate the service areas of each EDE. There is a higher concentration of residential consumption in the North, and industrial consumption and residential urban areas in the South. 18. As shown in Table 2.2, 11 percent of the consumers in the DR do not have a meter. Only about half of those metered have a telemetering system, which allows accurate reading of the electricity consumption and enables remote disconnection. The remainder have older meters, easy to bypass and manipulate, or just non-functioning. This leads to high non-technical losses and is one of the factors contributing to the deficit of the distribution companies, among others, like high operating costs, and socio-economic factors that leads to energy theft and an absence of payment culture. 19. The Table 2.3 summarizes the main features of the DR electricity distribution system. Table 2.3: Key Data on the System System EDE Norte EDE Sur EDE Este Total Average Average Monthly Energy Bought (GWh) 428 495 491 1,413 471 Average monthly energy billed (GWh) 335 364 257 955 318 Number of Consumers 1,185,318 907,865 716,354 2,809,536 936,512 Number of employees 2,690 2,996 2,105 7,791 2,597 Revenue Collection for Energy (Mill USD) $670.35 $748.27 $ 470.79 $ 1,889.41 $629.80 Energy losses (%) 22% 26% 48% N/A 32% Average monthly energy losses' cost (Mill USD) $16.42 $22.12 $39.16 $77.70 $25.90 (value at average energy buying cost) Average revenue collection (%) 95 97 86 N/A 93 Distribution System Number of Substations 68 50 50 168 56 Transformer HV/MV capacity (MVA) 1,134.90 1,505.98 1,550.45 4,191.33 1,397.11 Coverage area (sq km) 19,216 17,473 11,700 48,389 16,130 Medium voltage network length (km) 14,335 8,670 8,362 31,367 10,456 Number of distribution transformers 44,203 58,269 35,751 138,223 46,074 20. Electricity Demand. Electricity users are divided into three categories according to their level of consumption: (i) low voltage, that are residential and commercial users; (ii) medium voltage, that are small industrial user and (iii) nonregulated users, that are large consumer users like big industries. Within low voltage and medium voltage consumers, there are additional subcategories to define the tariff scheme for each of these users as described in Table 2.7. The DR has a total of 2,827,153 electricity users, of which EDE Norte serves most of them with a share of 41 percent, followed by EDE Sur with 32 percent and EDE Este with 27 percent. Table 2.4: Tariff scheme Type of Consumer Billing Simple low voltage 1 (BTS-1) Tariff rate blocks according to energy consumption Low Voltage Simple low voltage 2 (BTS-2) (subsidized demand) Page 61 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Low Voltage with demand (BTD) Hourly low voltage (BTH) Tariff rate according to Energy and Power Medium voltage with demand 1 (MT-1) Medium consumption Medium voltage with demand 2 (MT-2) Voltage Hourly medium voltage (MTH) C. Implementation of the Performance Improvement Plans for the EDEs 21. The Performance Improvement Plans (PIP) for the EDEs envisaged the following key actions: (i) urgent loss reduction work embodied in the ILRP 2022-2028; (ii) adjustment to the organizational structure to prioritize core businesses such as commercial and distribution, to reduce and professionalize senior management positions, to carry out an evaluation of the qualifications of senior management to ensure minimum qualifications for the key roles, and to minimize loss of business knowledge through frequent changes of managers; (iii) improvement to the business processes and systems such as commercial management system, totalizer management and administration system, revenue protection system, and improve the control and monitoring of connection/disconnection, telemetering reading, and claim resolution; and (iv) implement an MDM. A monthly meeting of CUED has been instituted to follow- up on the implementation of such plans. 22. With the increasing losses that manifested throughout 2022, the urgent investments that materialized prompted the Government to request IBRD financing for the proposed Project. CUED issued in February 2023 a resolution committing to improve the governance, transparency, and efficiency of the EDEs through: (i) competitive selection of senior managers of the EDEs using meritocratic criteria; (ii) defining the key performance indicators (KPIs), including the cash recovery index (CRI) and energy losses, for the three EDEs; and (iii) publication of the audited financial statements of the EDEs. The material gaps and management technologies that would be required to realize the PIPs are being delivered under the Phase 1 investment, including actions to support the implementation of the CUED resolution. D. Rationale for the proposed Project Interventions 23. Strategic relevance and lessons learned. The ILRP 2022-2028 highlighted the importance of actions that promote market discipline and control of conventional technical losses. Furthermore, the recent DPL series is testament to the fact that GoDR is putting increased focus on improvement of electricity sector governance and financial performance. It is realized that a financially viable electricity sector is a pre-condition for an improvement in grid performance and for the energy transition that will be necessary for long-term sustainability. 24. The GoDR has a robust energy balance system, with modern metering technology to increase payment discipline. In addition, it will be important to implement social actions to improve the relationship between the EDEs and the customers and promote trust by supplying uninterrupted electricity to consumers that are paying their bills. 25. During the last decade, the GoDR has been making efforts to improve the distribution network infrastructure to reduce the electricity losses through network rehabilitation and installation of meters financed by international development partners including WB. In the circuits where such investments have been made the initial results have been clear improvements in performance. However, the improvements cannot always be maintained due to lack of follow-up through the Distribution Service Providers (DSP), who will have need to be deployed in a coordinated manner Page 62 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) and using third-party outsourced contractors with an incentive to maintain the initial gains. These are important lessons learned, which will be integrated in the design of the present Project. Figure 2.2: Investments in the Distribution Sector over the Last Decade Note: Dark gray bar – own investment, light gray bar – multilateral investment, blue line - % of energy losses Source: Integrated Loss Reduction Plan 2022-2028 26. As illustrated in the figure above, loss reduction was improving steadily until the COVID-19 pandemic, when the EDEs were prevented from disconnecting illegal and non-paying consumers in order to minimize infection risks and because of a government decision to stop disconnections due to the financial hardship experienced in low-income households. The high level of financial losses by the EDEs, around US$985 million in 2021, affects the business performance of the EDEs and CUED has put as their top priority to implement a plan to reduce the losses and thereby improve the financial performance of the EDEs. Technical soundness (i) Software for improved commercial management 27. The scope of the modernization of the technical – commercial and management system lies of the restructuring, substitution or developing of new software applications of the technical and commercial systems currently available of the EDEs. This current system consists of 8 modules, which has a low level of efficiency due to different limitations, like antiquated and not up to date solution, it has high maintenance and support costs, some Page 63 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) process must be done manually because are not included in the system, and among others (Figure 2.4). Due to this, the desired solution will include 14 modules, that represents a 36 percent raised on additional resources of the system (Figure 2.5). Figure 2.3: Diagram of the Current Technical – Commercial System Page 64 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Figure 2.4. Diagram of the new Technical – Commercial System to be installed under the Project 28. The scope of the implementation of an MDM lies in the development of a database system for remote metering and other related applications. This system will offer a flexible data integration and automation engine, with a modular and interoperable system. It will be highly scalable to become the heart of the implementation of the smart metering infrastructure, data metering, management, and control of operations. In addition, this MDM system will be related to the new technical–commercial management system. Figure 2.5. Diagram of the MDM system Page 65 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) (ii) Advanced Metering Infrastructure (AMI) 29. The installation of an AMI will be a crucial part of the efforts to address non-technical losses. The AMI is integrated with smart meters, that are expected to provide real-time data on customer consumption, and it provides an immediate location on distribution losses. Therefore, this system will enable a more efficient detection of technical failure or fraud, and it will provide more accurate billing, which will contribute to reducing the level of technical and non-technical losses. An additional characteristic of this system is the ability to remotely disconnect/reconnect customers, which will strengthen enforcement of theft and nonpayment, contributing to increase the EDEs’ collection rate. The AMI is to be complemented with the energy balance metering systems detailed below. 30. Micro-meters (Totalizers) enable the management, analysis and monitoring of electricity losses remotely in environments limited to only a few dozen of customers (MV/LV transformer), thus irregularities are easily detectable in a short time and this task can be clearly assigned to a single work brigade. The micro – measurement tool allows to calculate the balance and it compares the energy delivered by the transformer in a defined period of time and the consumption registered by the clients associated with it. The key advantage of this tool is the rapid detection of the existence of an irregularity. The limited environment allows to search and to locate the problem faster and the possibility of assigning the minimum operational unit (brigade) to standardized and provide maintenance of the electricity loss level. An adequate management of electricity balance measures together with the speed of action in the field has been essential to achieve market discipline and convince customers that metering systems works, and fraud is not worth it. 31. Macro-meters (to be deployed in polygons or branches of the circuit) are important for the control of the MV network. The existence of irregularities or fraudulent connections in the MV network (sometimes even in the underground network) is also common in the DR, so this balance between the MV branch meter and the meters of each MV/LV (micro) transformer allows to verify the losses of the MV network. Likewise, if there is any irregularity in Page 66 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) the balance of a micro – measuring system, it can also be detected upstream. In general, this macro tool is being used in polygons, shopping centers or specific areas where there are high losses with difficulties to locate. 32. Figure 2.6 details the typical configuration of the distribution network in the DR (radial configuration), including placement of the micro-meters (yellow circle) and macro-meters (light blue circles) in the network. These meters allow for early detection of irregularities, facilitate the detection of problems, enable the control and assurance of a reasonable level of losses in each circuit or polygon. Figure 2.6. Diagram of the Macro and Micro-Metering System in a Distribution Network E. Detailed Project Description 33. The Project includes three components. Component 1: Improving governance of the distribution companies (US$36,500,000). Under Sub-component 1.1, the modernization of the technical – commercial and management system consists of four phases: (i) Software design, (ii) Data migration, (iii) user training of the new system and (iv) roll out. The scope of each of these are described below, but is not limited: a. Software design: During the development of this phase, it would be needed to carry out a parametrization of the software, an analysis of the satellite solutions and its scope, and functionality test of each module. The scope of this software must include: (i) a system that is able to integrate all the commercial and technical information, like payroll, commercial management system, technical management system, energy losses management system, among others; (ii) a commercial system that integrates the information of customer service activities, like call center management, Interactive Voice Response (IVR) systems, Customer Relationship Management (CRM) system, infield management services, sales management system, Business Intelligence (BI) System for bill collection management, chatbot; and (iii) a technical management system that integrates the information of the operation and management of the distribution network, like georeferenced system (GIS), integration system of inbound and outbound processes, management of evidence of infield services, energy losses management, and a demand database system. Page 67 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) b. Data Migration: During this phase it would be necessary to analyze and develop a strategy for the data migration from the old system to the new system. To avoid the risk of losing any data, some test would be carried out during this process. c. User training: This phase includes the preparation of training plans for functional and system infrastructure users. d. Roll out: During this phase it will be necessary to develop a strategy for the implementation and operation start of the new system. This would include: (i) set a date of old system last operation, and (ii) prepare the ground for the launch of the new system. 34. Under Sub-component 1.2, the development of the MDM system will be divided into three activities: (i) improve the capabilities of the current communication network of the remote metering system, (ii) supply, install and implement an information system for meter data management, and (iii) implementation of the communication network for AMI systems. According to this, the MDM system must include: a. All the technological elements that facilitate the integration to the MDM system of the different remote measurement systems (AMR/AMI) that currently exist in the EDEs. These can be existing adapters or open protocol interfaces that facilitate such integration. b. All the technological elements that facilitate the integration to the MDM system of the information coming from the corporate systems of the EDEs. These can be adapters already existing or open protocol interfaces that facilitate said integration. c. All support services for system integration of the EDEs to the MDM system. d. All services to upload and migrate existing historical data. e. All training services on site for 60 people. f. All the software elements are required for the execution of the system. g. All maintenance and support services, as well as 2-year warranties. h. The MDM must integrate superior autonomy provided by Artificial Intelligence (AI) and Machine learning for handling structured and unstructured data. 35. The breakdown for the sub-component costs are as follows: Table 2.5: Budget breakdown of Component 1 Activity Est. Cost (US$) Procurement and implementation of the technical and commercial and management system 24,350,000 Procurement and implementation of the MDM system 12,150,000 Total 36,500,000 36. Component 2: Supporting the implementation of the Integrated Loss Reduction Plan (US$183,470,000). This component supports the investment to rehabilitate the distribution network through meters and distribution line installation works in selected distribution areas and the improvement of commercial management activities of all three distribution companies. The prioritization and selection criteria of the areas to be supported in each EDE include: (i) the total energy to be recovered, (ii) the return on investment, (iii) the operational capacity in the region, and (iv) the financing cap or budget. EDE Este and EDE Sur count each intervened circuit as a project, while EDE Norte uses the polygon as a project given the relative sparseness of the network in their business areas. Figure 2.7 and Table 2.6 provide the locations of the distribution circuits supported under the Project and the breakdown of the expected results in each EDE. Page 68 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Figure 2.7. Locations of the Project areas Table 2.6: Scope of the total intervention of the Project Distribution Intervened Network to Micro-measurements Connection points to Company areas (No.) rehabilitate (km) to install (No.) be standardized (No.) EDE Sur 4 291 6,765 41,845 EDE Norte 4 563 832 40,815 EDE Este 9 488 3,231 143,166 Total 17 1,342 10,828 225,826 Table 2.7: Budget breakdown of Component 2 Activity Est. Cost (US$) Sub-components 2.1 and 2.2 (Rehabilitation of the distribution network for 160,404,700 loss reduction) Sub-component 2.3 (Measurement for commercial operation for loss 17,819,300 reduction) Sub-component 2.4 (Social Pacts signed) 3,550,000 Sub-component 2.4 (Environmental management) 1,696,000 Total 183,470,000 Page 69 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 37. Component 3: Capacity building, administration, monitoring, and evaluation (US$5,030,000). This Component will support Project execution, including, inter alia, with regards to procurement, financial management, monitoring and evaluation, environmental and social compliance, audits, trainings, and operating costs. 38. Achieving and maintaining financial sustainability in the EDEs should be complemented with performance- based contracting for outsourced network rehabilitation and commercial management services. Loss reduction management of the distribution networks is carried out by the so-called “brigades" that are supplied by third-party contractors. At present, these contractors are not necessarily the same as those who also carry out the technical and commercial services in a given circuit, which in the past has led to lower-than-expected improvement in the loss reduction and collection rates. With support from the WB-funded TA, the EDEs have developed a new outsourced management model, which establishes that (i) each network area/circuit should be operated by one contractor, who will undertake loss reduction and all other technical and commercial services; and (ii) that the remuneration of the contractors will be linked to their performance in terms of achieving the desired loss reduction level. As existing contracts expire, this new model will be introduced in the areas included under Component 2. TA will be provided to the EDEs under Component 3 to strengthen the performance-based contracting model for the management of their commercial management brigades. F. Methodology for M&E of Key Indicators in the Results Framework 39. Energy losses in the Project areas (Percentage) (Intermediate indicator of Phase 1): ℎ − Billed energy % = ( ) ⋅ 100% Purchased Energy 40. Cash Recovery Index (CRI) in the supported distribution circuits (Percentage) (PDO indicator of Phase 1): = (1 − %) ⋅ % Where Purchased Energy − Billed Energy % = ( ) ⋅ 100% Purchased Energy And Amount charged for energy sales % = ( ) ⋅ 100% Invoiced amount 41. Reduction of cumulative estimated GHG emission in electricity distribution compared to a business-as-usual baseline (Metric tons of CO2) (PDO indicator of Phase 1): The GHG emission is calculated on a cumulative basis of the total energy conserved, adjusted for grid emission factor (per United Nations “IFI Default Grid Factors 2021 v3.1”), over the assumed project life, which totals the annual difference between energy purchased from generators in a with- project and a without-project estimates. Page 70 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ANNEX 3: Economic and Financial Analysis 1. This section comprises an analysis to assess the economic and financial viability of the project investment. Economic Analysis 2. Economic Costs. The total investment costs of the project amount to US$225 million. The economic cost, which can be found by subtracting price contingencies, taxes, and duties, are assumed to be 90 percent of these financial costs (2022 prices), i.e., US$202.5 million. Please see Table 3.1 for a breakdown of the costs. The implementation of the remote metering and the MDM system in Component 1 are expected to result in a reduction of operational costs compared to the without-project scenario, which by CUED has been estimated at an annual financial saving of US$2.9 million (corresponding to an economic saving of $US$2.6 million) after implementation of the Project. Table 3.1: Investments – financial and economic US$ million (2022 prices) Financial costs Economic costs Component 1 36.5 32.9 Component 2 183.5 165.1 - ESDE Norte 37.3 37.2 - EDE Sur 52.6 52.6 - EDE Este 93.6 93.6 Component 3 5.0 4.5 Total 225.0 202.5 3. Economic Benefits. The proposed investments will have the following quantifiable benefits: • Reduction in technical distribution losses. Through network rehabilitation and upgrades, the project investments are expected to reduce technical losses. The economic benefit only accounts for the reduction in technical losses as reduction in non-technical loss is a form of transfer among domestic stakeholders. • Reduction in demand compared to the without-project situation. At present, few people are metered in the circuits that are going to be rehabilitated by the project. In the absence of metering, consumers either pay a fixed fee (legal direct connection) or hook up to the system without permission (illegal direct connection). Following the Project investments in metering systems and subsequent follow up by service brigades, these direct connections will be eliminated, and consumers will have to pay for every kWh they use. Experience shows that this has a strong effect on demand. The EDEs have reported historical effects of between 0.1 and 0.4 percentage point demand reduction per percentage point reduction of system losses. • Avoided GHG emissions. By decreasing generation of power using fossil fuels compared to a baseline, the Project will reduce GHG emission. 4. Economic value of reduced demand and technical losses. The reduced demand and the lower losses, compared to the without-project scenario, will result in a reduced generation of power from the generation plants. In the absence of simulations to predict which plants would be generating the incremental power in the without-project scenario, it has been chosen to assign a cost of US$0.12 per kWh as an average. This reflects the cost of a mix of coal, gas and renewables at their economic cost without including the social cost of carbon (see below). Page 71 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) 5. Economic value of the reduced GHG emissions. For the sake of calculating the emissions per kWh the EDEs purchase from the generators, it has been decided to use the average grid emission factor of the Dominican grid, which is estimated at 0.426 kg/kWh.60 The social cost of carbon is assumed to follow a curve proposed by The Guidance Note on Social Value of Carbon (2017)61 increasing (in inflation adjusted 2022 value) from US$50.8 per ton of CO2 in 2023 to US$89.8 per ton of CO2 in 2050 in the low case and from US$101.6 per ton of CO2 in 2023 to US$180.8 per ton of CO2 in 2050 in the high case. 6. Economic value of providing access to electricity. To the extent the Project enables the EDEs to serve additional demand that could not be met in the without-project scenario, the value of the additional power supply would be equivalent to the Willingness-to-pay (WTP), which could be valued either at the cost of diesel-based captive generation or, as a more conservative proxy used in these calculations, the average power tariff in the network cost, estimated at US$0.20 per kWh. Outcome of the Economic Analysis 7. With an economic discount rate of 6.0 percent62, over a project lifetime of 25 years exclusive of a 4-year construction period, the Project investments are expected to generate an economic net present value (ENPV) of US$84.7 million with an economic internal rate of return (EIRR) of 10.4%. Three sensitivity cases for (i) an economic discount rate of 10.0 percent, (ii) 20 percent higher investment cost and (iii) 20 percent lower benefits, are presented below. The conclusion is that the project is highly economically viable, and that the conclusion is very robust. More details about the economic analysis can be found in Annex 3. Table 3.2. Project Economic Analysis Base Case Discount rate 10% 20% higher invest. 20% lower benef. ENPV (US$ million) 84.7 5.3 56.3 39.3 EIRR 10.4% 10.4% 8.5% 8.1% Financial Analysis 8. The financial analysis looks at the project from the point of view of the EDEs and uses real transfer costs as the basis for the evaluation of costs and benefits. 9. Financial Costs. The total investment costs of the project amount to US$225 million, which are also considered the financial costs. Please see Table 3.1 for a breakdown of the costs on component and among the EDEs. The implementation of the remote metering and the MDM system in Component 1 are expected to result in a reduction of operational costs compared to the without-project scenario, which by CUED has been estimated at an annual financial saving of US$2.9 million after implementation of the Project. 10. Financial Benefits. The financial benefits of the Project investments will be derived from (i) reduced technical losses compared to the without-project scenario and reduced demand from consumers after they become metered 60 Source: Harmonized IFI Default Grid Factors 2021 v3.2) 61 Source: Source: The Guidance Note on Social Value of Carbon (2017) https://thedocs.worldbank.org/en/doc/911381516303509498- 0020022018/original/2017ShadowPriceofCarbonGuidanceNoteFINALCLEARED.pdf 62 Source: Discounting Costs and Benefits in Economic Analysis of World Bank Projects, OPSPQ, 2016 Page 72 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) and need to pay according to consumption, which result in lower cost of purchasing of power from generators; and (ii) increased revenue from power sales due to the reduction of non-technical losses following the installation of meters. 11. Financial value of reduced demand and technical losses. The reduced demand and the lower losses, compared to the without-project scenario, will result in a reduced generation of power from the generation plants. Average annual costs of generation have been calculated at between 8.4 and 11.3 USc/kWh to reflect the financial cost of a mix of coal, gas and renewables. 12. Financial value of increased revenues from power sales. The loss reduction measures will result in that a share of the power consumed that was previously unmetered (legally or illegally) will now be metered and paid for. The following tables presents the assumptions made per EDE: Table 3.3: EDE Norte – Project Area Without project Annual change With project / After 2026 Networks to be rehabilitated Km - 563 Supplies to normalize # - 40,815 Micrometering to enable and control # - 832 Energy purchased (2023) GWh/yr 139.5 Energy Demand (2023) GWh/yr 118.6 2.06% Energy billed (2023) GWh/yr 47.4 System loss GWh/yr 92.1 System loss (%) (change is for 2023-2026) % 66.0% -17.67% 13.0% Technical loss (change is for 2023-2026) % 13.7% -2.59% 5.9% Commercial loss (2023) % 52.4% Collection rate (change is for 2023-2026) % 90.0% 2.67% 98.0% Table 3.4: EDE Sur – Project Area Without project With project / After 2026 Networks to be rehabilitated Km - 291 Supplies to normalize # - 41,845 Micrometering to enable and control # - 6,765 Energy purchased (2023) GWh/yr 572.8 Energy Demand (2023) GWh/yr 520.1 2.14% Energy billed (2023) GWh/yr 419.0 System loss GWh/yr 153.8 System loss (%) (change is for 2023-2026) % 26.9% -5.62% 10.0% Technical loss (change is for 2023-2026) % 9.2% -0.42% 7.9% Commercial loss (2023) % 17.7% Collection rate (change is for 2023-2026) % 91.0% 2.33% 98.0% Table 3.5: EDE Este – Project Area Page 73 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) Without project With project / After 2026 Networks to be rehabilitated km 488 Supplies to normalize # 143,166 Micrometering to enable and control # 3,231 Energy purchased (2023) GWh/yr 557.7 Energy Demand (2023) GWh/yr 471.8 2.49% Energy billed (2023) GWh/yr 92.0 System loss GWh/yr 465.7 System loss (%) (change is for 2023-2026) % 83.5% -22.83% 15.0% Technical loss (change is for 2023-2026) % 15.5% -3.03% 6.4% Commercial loss (2023) % 68.0% Collection rate (change is for 2023-2026) % 86.0% 3.00% 95.0% Outcome of the Financial Analysis 13. With a Weighted Average Cost of Capital (WACC) of 4.0 percent, the Project is expected to generate a financial net present value (FNPV) of US$2,338.9 million with a financial internal rate of return (FIRR) of 78.0%. Three sensitivity cases for (i) a WACC of 6.0 percent, (ii) 20 percent higher investment cost and (iii) 20 percent lower benefits, are presented below. The conclusion is that the project es highly financially viable and that the conclusion is very robust. 14. The Project will have a substantial medium-term impact on the financial situation of the EDEs. It will reduce the need for annual subsidies to balance their books and alleviate the cash shortage, which has been a major constraint in terms of maintaining the desired service level of service. It is estimated that already in the last year of the Project implementation (2029) the additional cash flow for the EDES created by the Project activities will be around US$110 million, with around US$74 million going to EDE Este, US$21 million to EDE Sur and US$15 million to EDE Norte. Table 3.6: Results of Financial Analysis Base Case WACC 6% 20% higher invest. 20% lower benef. FNPV (US$ million) 2,338.9 1,733.6 2,307.1 1,839.3 FIRR 78.0% 78.0% 63.3% 60.4% Page 74 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) ANNEX 4: Contribution to Corporate Priorities 1. Climate Co-Benefits. The activities under Component 1 and Component 2, specifically Sub-components 2.1- 2.3, support investments that aim to reduce electricity losses in the distribution network in the areas that will be intervened. The investments under this component will contribute to (i) reduction of technical losses and consumer demand after being metered and having to pay according to their consumption, and therefore reductions in power generation that is currently dominated by fossil fuels; (ii) better efficiency in managing and reporting on interruptions in electricity supply, making the services more resilient to disruptions to business continuity in cases of extreme weather events, including heat waves; and (iii) global environmental benefit in terms of avoided GHG emissions, due to the reductions related to the reduced generation from power plants as a result of the technical loss reduction and the demand. Therefore, this project will contribute to mitigate the GHG emissions of the country, and to the WBG target on Climate Co-Benefits during 2021-2025. 2. Citizen engagement. Through the Sub-component 2.4, the Project will support development of the Social Management Strategy to restore trust between users and the EDEs. Under this strategy, the community will be informed about the benefits of the project, through the development of 30 Committees with representatives of community organizations covering all the areas intervened as part of the project. The objective of these committees is to socialize the project intervention, discussion and signing of 30 Social Pacts to establish the Commitments of the Communities and the EDEs for the successful implementation of the project. 3. Gender. The energy sector has been overrepresented by men, which is a widely known global phenomenon. Across the EDEs, women make up less than 40 percent of the workforce, which within the three EDEs it consists of around 7,791 employees. The share of women in technical and leadership roles is even more grave: (i) EDE Este has 24 percent in leadership roles, and 15 percent in technical roles; (ii) EDE Norte has 24 percent in leadership roles and 2 percent in technical ones; and (iii) EDE Sur has 25 percent in leadership roles and 14 percent in technical roles. 4. To address such gender imbalance, the EDEs have started taking several actions. EDE Este and EDE Norte have been organizing workshops and training courses to promote a more respectful work environment and sensitize the workforce about violence against women. They have a plan to develop a gender strategy and a gender equality policy within their institutions. In addition, EDE Este plans to: (i) implement the Nordom 77563, a management system standard for gender equality that certifies the good labor practices in terms of gender equality; and (ii) apply to get the inclusion stamp (Sello Igualando RD64), by the Ministry of Woman. Ede Sur has already established a gender equality policy and it is starting to implement an action plan to promote the participation of women in all roles. 5. EDE Sur is further ahead in its action to improve the gender gap in the institution. Since 2019, they have hired 3 gender experts, with the support of United States Agency for International Development (USAID), to work in the institution’s gender equality program. This program consists in structuring the following actions: (i) a gender equality best practices framework, to provide a methodology based on proven success practices to increase gender equality in each phase of the life cycle on the employee; (ii) an executive leadership program for gender equality, known as GEELP65; and (iii) coaching for change management by an expert hired for two years to implement of various gender equality initiatives that have been identified necessary within the institution. As a result of this work EDE Sur has implemented seven gender policies, one protocol and a gender equality communication strategy that have led them 63 See: https://indocalnormas.gob.do/catalogo/ver/nordom-775-sistema-de-gesti-n-para-la-igualdad-de-g-nero-requisitos 64 See: https://mujer.gob.do/index.php/noticias/item/722-ministerio-de-la-mujer-lanza-igualando-rd-junto-al-pnud-para-el-sector-publico 65 Gender Equity Executive Leadership Program – GEELP Page 75 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) to received two national certifications, Igualando RD (given by the Women Ministry and the United Nations Development Program (UNDP)) and Igualando RD (given by National Council on Disability (CONADIS) an UNDP). 6. Building on this progress, the Project will support the EDEs in their continued development of policies and action plans in order to close their gender gap and open up more opportunities for women to be in technical and leadership roles. This will be supported under sub-component 2.4 or component 3. The target will be the following for each EDEs: (i) EDE Este: 35 percent in leadership roles and 30 percent in technical roles; (ii) EDE Norte: 35 percent in leadership roles and 10 percent in technical roles; (iii) Ede Sur: 35 percent in leadership roles and 25% percent in technical roles. In addition, the social management activities under sub-component 2.4 associated with community engagement to facilitate the network rehabilitation works will also include actions related to promoting the participation of women in leadership roles in the communities, as part of the implementation of the Social Management Strategy. The role is to increase the share of women in social and community leadership roles from the current 33 percent to 45 percent. 7. Inclusion of People with Disabilities. The Dominican Republic has specialized regulations that protect persons with disabilities, among others the “Decree 5-13 on Equal Rights of persons with disabilities”, promulgated on January 15, 2013, which aims to protect and guarantee equal rights and equal opportunities for all people with disabilities. With regard to Universal Access, the Decree indicates, among others: "It refers to the requirements that physical environments, infrastructures, buildings, processes, goods, products, services, objects or instruments, tools and devices must meet in order to be understandable and usable by all people in conditions of equality, security and comfort and in the most autonomous and natural way possible, improving their quality of life and active participation within society”. Likewise, Universal Access is detailed in the "Regulations for designing without architectural barriers" (m007) of the General Directorate of Regulations and Systems of the Secretary of State for Public Works and Communications and in the “Dominican Standard on Accessibility to the physical environment” (NORDOM 779) of 2017. Including persons with disabilities and expanding equitable opportunities are also at the core of the World Bank’s work to build sustainable, inclusive communities, aligned with the institution’s goals to end extreme poverty and promote shared prosperity. The Disability Inclusion and Accountability Framework, updated in 2022, lays out a road map for (i) including disability in the World Bank’s policies, operations, and analytical work; and (ii) building internal capacity for supporting clients in implementing disability-inclusive development programs. Under the World Bank’s ESF, the Bank has strengthened its commitment to working against prejudice and discrimination toward project-affected individuals, groups, and workers, and to enhancing development opportunities, specifically for disadvantaged or vulnerable individuals or groups. The ESF requires the Borrower to: (i) identify the potentially differentiated risks and impacts of projects on persons with disabilities and to prevent and mitigate such risks; (ii) comply with standards on labor and working conditions for project workers on terms and conditions of employment, nondiscrimination and equal opportunity, occupational health and safety, and measures to protect the workforce, specifically including persons with disabilities the procurement of equipment and trainings to support collection, storage and transfer of samples s and highlighting the need for reasonable accommodation; (iii) apply the principles of universal access in design and construction of new buildings and structures; and (iv) apply specific measures to facilitate the meaningful participation of stakeholders with disabilities. 8. The estimated total number of persons with disabilities in the Dominican Republic is 1.24 million people, or approximately 11.9 percent of the national population, and after discussion between the Project Implementation Unit (PIU) and CONADIS, specific measures to facilitate access to project services and inclusion in project activities and benefits were identified and included in detail in the Stakeholder Engagement Plan and will be implemented as pilot activities through Component 2.4. Key specific measures include: (i) Participation of CONADIS and Associations representing different types of disabilities in consultation processes and events during the implementation of the Page 76 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) project; (ii) Implement events that support "awareness of the rights of people with disabilities” and attitudinal changes; (iii) Training of EDE personnel regarding the importance of physical accessibility of authorized health centers and the use of voice, data and sign language, braille in information systems; (iv) In EDEs offices, facilitate the environment for people with disabilities to have access to services: a) procurement of adequate equipment and furniture for EDEs to attend to people with disabilities, especially those that use wheelchairs and b) on a pilot basis, hire personnel in each EDE who practice sign language and can address the needs of people with auditive disabilities; (v) TA to adapt campaigns aimed at users (for example in the efficient use of energy) may be appropriate for people with intellectual disabilities; (vi) Several actions that will facilitate the environment for people with disabilities to have as much as possible independent and autonomous access to EDEs´ services, amongst others: a) the introduction and use of accessibility technology such as digitized voice media and alternative communication systems and formats, including accessible information and communication technologies; b) in EDE service centers, introduce continuous explanatory videos (with subtitles and explanation in sign language(s)) that provide information on how to access certain services; c) make forms, texts of service contracts, and guides available to people with visual disability in a manner so that they can listen to the reading of these through specialized applications; d) introduce the use of WhatsApp so that people with an auditive disability can have access by reading forms, service contracts and guides; e) in addition to a telephone number to request information, arrange for the possibility of making video calls so that people with auditive disability can have access to information about services and procedures explained by someone who uses sign language; f) translation of forms and standard service contracts into Braille and made them available to people who read Braille and for people who do not read Braille, have the option of sending them forms and service contracts in advance, so that they can be read at home with the support of caregivers or people they trust people or with support of specialized applications; and g) for people with mobility difficulties, provide the option of sending forms and service contracts via WhatsApp to be filled out and signed at home without having to go to an EDE service center; (vii) With the National school for people with auditive disabilities, explore sign languages in other relevant languages such as Creole and English and encourage their use in the videos in EDEs service centers and video calls mentioned above; (viii) Make Satisfaction Surveys available in: (a) Braille, (b) through WhatsApp to be read by specialized applications, and (c) through WhatsApp (for example, on Google forms) to be filled out at home without having to move to an EDE service center; (ix) Alliance with BANRESERVAS and its “Mío” banking program to facilitate access to electronic payment of bills, reducing the need to go to an EDE service center; and (x) In coordination with CONADIS and Associations that represent different types of disabilities, implement campaigns for the “assessment, recognition and certification of People with Disabilities” in the area of intervention of the project (1/year). 9. Private sector participation. The MPA is compliant with the WBG’s Maximizing Finance for Development (MFD) approach through: (i) setting the enabling conditions (reduction of distribution losses and improved efficiency and governance) for future private sector participation in the distribution companies; (ii) developing a market for energy service companies (ESCOs) and RE service companies (RESCOs) to implement EE and small-scale RE projects; and (iii) supporting the repurposing and phasing out of coal plants and the scaling up of RE capacity to be delivered by the private sector. (i) The GoDR has a long-term objective of introducing private sector participation as an efficient means to improve the operational performance and sustainability of the distribution sector. However, in the short to medium term, such PPP modality would not be feasible due to the existing poor governance and operational performance, as well as the pause in tariff increases, which will make it difficult to attract experienced private sector partners. Therefore, the GoDR is now pursuing a two-step strategy starting with the adoption of a governance reform to ensure good performance of state-owned distribution companies – which is supported under Phase 1 of the proposed MPA – to be followed by a second step that will include PPP arrangements with private partners. (ii) Most future investments in EE and solar rooftop are expected to be from the private sector for industrial zones and commercial and residential buildings. The planned Phase 2 of the proposed MPA aims to support the Page 77 of 78 The World Bank Dominican Republic Distribution Efficiency Improvement and Utility Strengthening Project (P180512) development of a market for ESCOs and RESCOs where early-stage public funds for EE investments in public buildings will serve as a demonstrate project, facilitating the enforcement of norms and standards and developing the required skills among the workforce that can later be deployed in privately funded projects and green buildings, for example in those that would be well-positioned to obtain the Excellence in Design for Greater Efficiencies (EDGE) certification championed by the International Finance Corporate (IFC). (iii) The GoDR is reviewing the mechanisms to decarbonize the coal-based generation capacity, while needing to ensure the reliability of electricity supply and to minimize the cost of power generation capacity from renewables. The Government envisioned that most of the investments needed for the coal transition would come from the private sector, or as PPP, in a) investments in RE generation capacity, b) investments and/or guarantees to expand the transmission network to interconnect new RE generation capacity, and c) smart grid and storage technologies to provide system flexibility to support the scale-up of RE. The Bank is well-positioned to provide support the GoDR in the decarbonization of coal plants and related improvement in the regulatory framework, while bringing the IFC and the Multilateral Investment Guarantee Agency (MIGA) to ensure that adequate financing can be unlocked to support the Government in its energy transition in a sustainable and cost-effective manner. By providing technical assistance (TA) as an integral part of each phase of the MPA, the WB will continue its ongoing support to GoDR, specifically MEM, SIE and CUED, to improve and update the legislative and regulatory framework to ensure that it will facilitate private sector investments. The extent and timeline for private sector participation will be reassessed during the appraisal of Phase 2 and 3 investments. Page 78 of 78