Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Report Number : ICRR0020185 1. Project Data Project ID Project Name P077452 ZM-Incr.Eff.&Access to Elec SIL (FY08) Country Practice Area(Lead) Additional Financing Zambia Energy & Extractives P121325,P121325 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-44460,IDA-47920,TF-92315,TF-97260 31-Dec-2013 176,500,000.00 Bank Approval Date Closing Date (Actual) 20-May-2008 30-Jun-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 53,000,000.00 18,043,107.03 Revised Commitment 46,175,516.39 14,489,916.76 Actual 43,169,012.47 12,716,218.67 Sector(s) Transmission and Distribution of Electricity(32%):Energy efficiency in Heat and Power(32%):Hydropower(18%):Other Renewable Energy(18%) Theme(s) Infrastructure services for private sector development(100%) Prepared by Reviewed by ICR Review Coordinator Group Mario Marchesini Robert Mark Lacey Christopher David Nelson IEGSD (Unit 4) PHPROJECTDATATBL Project ID Project Name ZM-GEF Increased Access to Elec (FY08) ( P076320 P076320 ) Country Practice Area(Lead) Additional Financing Zambia Energy & Extractives L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) 37,500,000.00 Bank Approval Date Closing Date (Actual) 20-May-2008 IBRD/IDA (USD) Grants (USD) Original Commitment 0.00 0.00 Revised Commitment 0.00 0.00 Actual 0.00 0.00 Sector(s) Central government administration(22%):General finance sector(11%):Other Renewable Energy(67%) Theme(s) Infrastructure services for private sector development(20%):Rural services and infrastructure(20%):Climate change(40%):Environmental policies and institutions(20%) 2. Project Objectives and Components a. Objectives The project development objective (PDO) in the Financing Agreement was “to increase access to electricity services and improve the efficiency and quality of the electricity distribution system in targeted areas of the Recipient’s territory.” The statement of objectives in the Project Appraisal Document (PAD, page 6) is the same. The project's global environmental objective (GEO) in the PAD (page 7), in line with the GEF Operational Program (OP) 6, was “to remove barriers to renewable energy technologies to help mitigate greenhouse gas emissions.” Additional Financing in the amount of SDR13.6 million (US$20 million equivalent) was approved on September 22, 2010 to fund two additional components (see Section 2c below). The development objectives were not changed. Two restructurings, one in September 2010 (involving the Additional Financing) and the other in May 2013, partly modified a number of project targets. b. Were the project objectives/key associated outcome targets revised during implementation? No c. Components Component 1 - ZESCO Efficiency Improvement: (cost at appraisal: US$22 million; formally revised estimate at 2010 restructuring: US$21.1 million; cost at 2013 restructuring: US$21.1 million; actual estimate: US$16.7 million). This component, implemented by ZESCO (Zambia’s vertically integrated, state-owned power utility), was for: i) Reinforcement - strengthen and upgrade ZESCO’s existing distribution networks in selected areas of Lusaka. ii) Intensification - intensify connections within the existing ZESCO network in both urban and peri-urban areas; and iii) Energy Efficiency and Demand Side Management - support ZESCO in procuring, marketing, and distributing one million CFLs (Compact Fluorescent Lamps) for use in households. Component 2 - Access Expansion: (cost at appraisal: US$48 million; formally revised estimate at 2010 restructuring: US$30.7 million; cost at 2013 restructuring: US$20.7 million; actual estimate: US$16.3 million). This component, implemented by REA (Zambia’s newly Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) established Rural Electrification Authority), was for: i) Grid Extension - connect about 18,000 new customers in Northern, Central, and Eastern regions, as well as other rural areas; ii) Isolated grids/mini-hydro systems – support the installation of one or two mini-hydro systems, to be constructed by a private developer, to provide electricity to about 6,000 new customers; iii) Solar PV Systems – fund a number of Sustainable Solar Market Packages (SSMP) to enable public institutions and households in rural areas to have access to modern energy services. Component 3 – Technical Assistance (TA): cost at appraisal: US$5.5 million; formally revised estimate at 2010 restructuring: US$4.3 million; cost at 2013 restructuring: US$4.3 million; actual estimate: US$11.6 million). This component aimed at assisting ZESCO and REA through capacity building and project implementation support in a variety of topics, including the technical design of programs and projects. The additional financing approved in September 2010 added the following two new components, equivalent to an additional estimated cost of US$22 million, in response to the urgent need to reinforce the existing bulk supply point at Kanyama in Lusaka, eliminate the peak hour load-shedding in Livingstone, and reduce the burden of electricity connection fees for low-income families in electrified areas. Construction of Kanyama Substation in Lusaka and Lusaka Road substation in Livingstone (actual estimate: US$9.8 million). The Kanyama substation was intended to reduce the load at the nearby Coventry substation and the Lusaka Road substation in Livingstone aimed at mitigating the risk of overload and distribution system failure. Connecting New Low Income Households to the Grid in Electrified Areas (actual estimate: US$6.6 million). The connection fee subsidy program aimed at the provision of electricity grid connections to at least 30,000 low income households in peri-urban and rural areas. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates Cost: The total expected project cost at approval was about US$75.5 million. The estimated cost of a number of project components was revised downward in the 2013 restructuring. Among other items, the mini-hydro component was dropped, reducing the project cost by US$10 million. The overall actual project cost was about $51.3 million. Financing: At appraisal, the estimated external financing was US$ 63.5 million, made up of US$33.0 million in IDA credits, US$15 million from the European Commission, US$4.5 million from GEF, and US$15 million from Project Sponsors' contributions. No Sponsors' contributions materialized. Additional IDA Financing was in the form of a further credit of US$20 million. At closure, external financing amounted to US$51.3 million, of which IDA financing of US$39.9 million, the European Commission US$8.7 million, and GEF US$2.7 million. The undisbursed balance of the two IDA credits (US$13.1 million) was canceled. Borrower contribution: The Borrower, whose estimated contribution at appraisal was US$12 million (reduced to US$4 million at the May 2013 restructuring), did not in the event provide funding to the project. The ICR does not explain why. Dates: The closing date of the project was extended at the May 2013 restructuring from December 31, 2013 to June 30, 2015. 3. Relevance of Objectives & Design a. Relevance of Objectives The project objectives were - and still are - highly relevant to the power sector of Zambia. As stated in the Revised 6th National Development Plan 2013-2016, the priority for the electricity sector is to provide “adequate and reliable supply of energy at the lowest economic, social and environmental cost.” In order to achieve this goal, the government aims to “increase rural and national access to electricity” from 4.25% and 26.25% in 2013 to 8% and 30% in 2016, respectively. As national electricity access had reached just 32% in November 2015 (Central Statistical Office data), further expansion of access to electricity and improvements in the efficiency of the distribution network continues to be highly relevant to national priorities. The objectives were also consistent with the World Bank Group (WBG) country-specific priorities for Zambia at approval. Both the Joint Assistance Strategy for 2007-10 and the Country Assistance Strategy for 2008-11, highlighted the energy sector as a priority area in the context of the country’s development plans. The Bank had been involved in Zambia’s energy sector for over three decades and, in the years prior to appraisal, the Bank had supported ZESCO in the rehabilitation of three hydropower plants and of segments of the transmission and distribution network. The relevance of the project’s objectives remains high, as the project is fully consistent with the need to increase access to electricity, as stated in the WBG Country Partnership Strategy for 2013-16. The GEO of “removing barriers to renewable energy technologies to help mitigate greenhouse gas emissions” was – and remains – fully in line with the United Nations Framework Convention on Climate Change, as well as with Zambia’s national context of limited renewable energy capacity besides large-scale hydropower. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Rating High b. Relevance of Design The Project design was sound in terms of its focus on the objectives. All three components under the project were closely linked to the first three objectives increased access to, improved efficiency and quality of, electricity services). However, design - which included eight sub- components covering grid and off-grid works, a mini-hydro sub-project, compact fluorescent lamp (CFL) distribution, and capacity building – was too broad and complex and this affected implementation. The first restructuring of the project in 2010 was needed to address such design issues, including the revision of the unrealistic target for solar PV household installations, as well as to adapt to emerging power sector issues, including adding further reinforcement sub-components. The second restructuring in 2013 dropped the mini-hydro component. Although implementation accelerated as a result of the restructurings, and it would have been more efficient with a narrower scope. Focusing on one single implementing agency, instead of two (of which one, REA, was newly established), would also have improved the prospects for a more efficient implementation of the project. The GEO (removing barriers to renewable energy technologies) was ambitious, given that Zambia had no prior institutional experience in developing its off-grid or mini grid renewable energy potential. It should also be noted that the project was not designed to address directly barriers to renewable energy technologies, for example, through enabling policies and tariffs. The mini-grid and off-grid components of the project were not ready for implementation at the time of Board approval, due to the absence of a conducive policy and regulatory framework for rural electrification and the lack of the necessary background analysis. If such an analysis had been undertaken, the design of these components may have been more realistic with more achievable targets. Rating Modest 4. Achievement of Objectives (Efficacy) PHREVISEDTBL Objective 1 Objective “Increase access to electricity services.” Rationale Outputs • Reinforcement work implemented in the 22/11kV Kanyama substation, the 66/11kV Livingstone substation, the 88-132/33kV Figtree substation and the 88-132kV transmission line between Figtree and Chibombo. • Constructed about 293 kms of additional distribution lines and installed 121 transformers in areas with already existing network. • Constructed about 361 kms of additional distribution lines and installed 74 transformers in areas which had no pre-existing network. • Delivered various training programs to ZESCO staff in various areas, including ICT-Based Financial Management; Contract Drafting, Negotiations Skills and procurement; Overhead lines; and Substation Engineering. Training was also delivered to about 35 REA staff. Outcomes • The project contributed to increased access to electricity services in urban areas. About 89,655 households were provided access to electricity under the project, 190% over the original target (31,000) and 80% higher than the target revised at restructuring (49,500). Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) • The project contributed to increased access to electricity services in rural areas. About 2,610 households were provided access to electricity under the project, about 74% higher than the target revised at restructuring of 1,500, but well below the original target of 34,000. • The project contributed to increased access to off-grid electricity in rural areas. About 2,563 households were provided access to electricity under the project through Photo Voltaic (PV) Systems, over five times the revised target of 500, but below the original target of 10,000. Rating Substantial PHREVISEDTBL Objective 2 Objective "Improve the efficiency of the electricity distribution system." Rationale Outputs The same outputs as under Objective 1 are also related to this objective. Outcomes The project contributed to improve the operational efficiency of the electricity distribution system. The grid reinforcement component and the Kanyama and Livingstone sub-station components resulted in a reduction in distribution losses in those areas from the baseline of 23% to an estimated 11%, which is comparable with the better performing electricity utilities in sub-Saharan Africa. Also, this reduction in distribution losses exceeded the target by about 3% and results in higher revenue for ZESCO through increased consumption by existing consumers or via additional connections. Rating Substantial PHREVISEDTBL Objective 3 Objective "Improve the quality of the electricity distribution system in targeted areas". Rationale Outputs The same outputs as under Objective 1 are also related to this objective. Outcomes The project aimed to improve the quality of the electricity distribution system in targeted areas, in particular by reducing the number and frequency of unplanned power interruptions. The grid reinforcement and the Kanyama and Livingstone substation enhancements resulted in a reduction in the average interruption frequency in the project areas to 30 per year, consistent with the target, and compared to the baseline of 50 per year. However, as noted in the ICR (pp.24-25), despite progress in reducing the average frequency of interruption, improvement in reliability has been modest and interruptions continue on a regular basis. In particular, in the six months prior to ICR completion, the frequency of interruptions increased, mostly due to electricity supply shortages. Rating Modest PHREVISEDTBL Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Objective 4 Objective Global Environmental Objective: “To remove barriers to renewable energy technologies to help mitigate greenhouse gas emissions.” Rationale Outputs • Identified three Sustainable Solar Market Packages (SSMP) sites in the Kalomo District of Southern Province, the Lukulu District of Western Province and the Isoka District of Muchinga Province. • Implementation of the identified SSMP projects by the contractor, Communication and Accessories Int. of Germany, with assistance from the local sub-contractor, Village Power. Outcomes • The project helped promote renewable energy technologies in Zambia, in particular solar PV systems. Solar systems were provided in the Kalomo, Isoka and Lukulu Districts under “Sustainable Solar Market Packages” (SSMP)”. The SSMP was designed as an integrated tool to supply, install and maintain for five years, on a semi-commercial basis, solar PV systems. 6,848 PV systems were supplied (and verified by REA) to households, of which 5,714 were solar lanterns and 1,134 solar home systems. Counting four lanterns as equivalent to one solar home system, this amounts to 2,563 solar home systems, over five times higher than the target (revised at restructuring) of 500. Also, 104 public facilities (including schools, health centers, and associated staff housing) were provided with solar PV systems, in line with the target. It should be noted, however, that the expected mini-hydro sub-component, that was to have been supported by the GEF grant, was dropped at the second restructuring. Also, while the private sector is increasingly becoming active in marketing solar PV systems and other off-grid products in rural Zambia, barriers to renewable energy technologies, including the policy framework and investor confidence, remain in place. • The project contributed to the replacement of fossil-fuel based electricity generation and the reduction of greenhouse gas emissions by promoting: i) demand-side management through distribution of CFLs, and ii) off-grid solar products. Regarding demand-side management, it is estimated that 5,600 tCO2 was reduced through the project’s successful distribution of about one million CFLs. Moreover, it is estimated that about 6,405 tCO2 was reduced (estimates are based on the Clean Development Mechanism methodology AMS-III.AR "Substituting fossil fuel based lighting with LED/CFL lighting systems"). Overall, an estimated total of 12,005t of CO2 was reduced as a result of the project. Rating Not Rated/Not Applicable 5. Efficiency The grid reinforcement component (accounting for about 36% of project cost at closure) resulted in an estimated ex-post economic rate of return (ERR) of nearly 41%, higher than the appraisal estimate of 32.5%. The analysis in the ICR takes into account the benefit of the increased capacity of supply, which was not considered at appraisal. Since power loads at the reinforcement sites had reached their maximum capacity prior to the project, this component, which more than doubled the transformer capacities, has resulted in significant benefits of increased and more reliable electricity supply. The grid access components (accounting for about 55% of project cost at closure) – comprising of grid intensification, extension, and connection subsidy - resulted in an ERR of nearly 46% and an economic NPV of nearly US$84 million, higher than the overall NPV at appraisal of about US$51 million. This is mainly attributable to the fact that the number of new connections of nearly 90,000 households largely exceeded the target of 65,000. The Solar PV component (accounting for about 9% of project cost at closure) resulted in an ERR of 15.2%, lower than the appraisal estimate of about 26%. This is due to the fact that the actual number of installations of nearly 2,600 solar home systems was much lower than the 10,000 target that was planned to be installed at the appraisal stage. Nevertheless, the Solar PV component also shows an ERR that is higher than the adopted benchmark of 10%. There were some administrative and operational inefficiencies arising from design deficiencies (discussed in Section 3b above). None of the investment components was ready for implementation at the time of Board approval. Implementation was also delayed, especially in the initial stages, by senior management changes at ZESCO, long lead times required for the turnkey procurement arrangements for the intensification and grid extension sub-components, the lack of an adequate regulatory and policy environment to support isolated grids, REA’s capacity limitations, and by the Government’s decision to revoke the project’s tax and duty exempt status, which slowed customs clearances for imported materials. These factors contributed to the need for an eighteen month extension of the closing date. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Nevertheless, by closure, most of the planned physical investments had been completed, and the extension of the closing date was also to enable implementation of new activities supported by the Additional Financing. Given this, and the satisfactory ERRs, efficiency is assessed as substantial. Efficiency Rating Substantial a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome The project development objectives and the GEO remain highly relevant to Zambia’s and the World Bank’s strategies. However, relevance of design is rated modest. Two out of the three development objectives –increased access to electricity services and improved efficiency of the electricity distribution system – are rated substantial, though the third objective – enhanced quality of service in targeted areas – is rated modest. Efficiency is rated substantial, reflecting satisfactory ERRs and operational inefficiencies of a relatively limited impact. Overall outcome is assessed as moderately satisfactory. a. Outcome Rating Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating The financial sustainability of the sector is a key risk to the development outcome of the project. This risk will continue to prevail for as long as tariffs remain below cost-recovery levels. A related risk is posed by the weak financial fundamentals of ZESCO. As noted in the ICR (page 26), the demonstration impact of the project in increasing electricity access has helped the government attract additional resources from different development partners, including the Global Partnership on Output-Based Aid, to support its electricity access agenda. The European Union, the European Investment Bank and Germany's KfW are also considering providing finance to ZESCO to increase urban and rural electricity access in Zambia. Nevertheless, the risks to ZESCO’s financial viability remain substantial going forward, due to high system losses, high labor costs and below-cost tariffs. A significant risk is also posed by frequent power shortages, due to Zambia’s insufficient generation available capacity to meet demand and insufficient additions. In addition, lower than expected rainfall after project closure, in a system where hydropower accounts for more than 90% of generation, has exacerbated shortages. Based on these considerations, the overall Risk to Development Outcome is rated Substantial. a. Risk to Development Outcome Rating Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Substantial 8. Assessment of Bank Performance a. Quality-at-Entry The project’s objectives were closely aligned with the government’s key priorities and the Bank’s assistance strategy for Zambia. The choice to focus on priority investment components, that were urgently needed to improve the operational efficiency of Zambia’s power sector and attract private investment, was also appropriate. As noted in Section 10a below, M&E design was adequate. However, there were a number of significant shortcomings during preparation, which adversely impacted project implementation. First, the challenges and risks of having two implementation agencies – of which one newly established – was not recognized. Second, none of the investment components was ready for implementation at the time of Board approval, which in turn led to extensive implementation delays. In particular, the isolated grids/mini-hydro component was not properly assessed at appraisal and had to be cancelled at the time of the second restructuring. The risks posed by REA’s lack of experience in promoting and packaging mini-hydro projects, were not identified. Following completion of engineering studies, the construction cost of the proposed mini-hydro developments turned out to be in excess of US$70 million, which was significantly higher than the US$5 million allocated for this sub-component and also higher than international norms for similar sized hydro power developments. Third, the decision to include both grid and off-grid investment in the overall design was also questionable, given the absence of a conducive policy and regulatory framework for rural electrification (despite good implementation of the off-grid investments in the final two years of the project). Fourth, the overall project risk was underrated as moderate at appraisal. Although some risks were correctly identified as substantial -- for example, those related to ZESCO’s financial situation -- others were not. For instance, while REA’s capacity was recognized to be weak, mitigation measures to address this were inadequate. Also, the difficulties in attracting private sector developers for the mini-grid component were not recognized. These considerations suggest that the overall project risk should have been more appropriately considered at appraisal as significant rather than “moderate”. Fifth, it should be noted that, despite the objective of removing barriers to renewable energy technologies, the project was not designed to directly address such barriers, for example through enabling policies and tariffs. Quality-at-Entry Rating Moderately Unsatisfactory b. Quality of supervision Overall, the supervision team was proactive in effectively supporting ZESCO and REA in project implementation. The Bank’s supervision helped address the above noted shortcomings identified in the project scope and implementation arrangements. As discussed earlier, two restructurings, one in September 2010 and the other in May 2013, were undertaken to address design issues and respond to the evolving situation during implementation. The two restructurings had a crucial role in placing the project on a more realistic track and improving implementation progress. Together with the Additional Financing, they helped to scale-up outcomes and to complete most of the physical investments. As noted in the ICR (page 28), the project was supervised on a regular basis throughout the entire seven year implementation period with twelve Implementation Status and Results Reports (ISRs) prepared by regular missions from headquarters to the field, supported by the country office in Lusaka. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9. Assessment of Borrower Performance a. Government Performance The Government strongly supported the project development objectives of increasing access and improving the reliability of the existing network through further investment. However, this was not initially reflected in timely implementation. Although the project was approved in Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) May 2008, it only became effective in February 2009, due to delays in fulfilling various effectiveness conditions, including the establishment of a project steering committee and the execution of subsidiary loan agreements between the Government and the implementing agencies. However, government performance strengthened during implementation and enabled the two restructurings, including the additional financing operation, which ultimately led to improved progress towards meeting the development objectives. Government Performance Rating Moderately Satisfactory b. Implementing Agency Performance The implementing agencies were ZESCO and REA. Despite a slow start, ZESCO implemented most of the expected reinforcement and intensification investments (although works at Fig Tree, Chibombo, Mukonchi, and Mangango were not completed by project closure). Overall, the work that ZESCO carried out reduced network losses and expanded urban access above the target levels. In addition, ZESCO carried out the procurement of civil works and equipment satisfactorily. REA faced challenges in project implementation. It was affected by staff turnover, which adversely impacted its already limited capacity. REA also failed to advance preparation of the mini-hydro component, which was later abandoned. However, REA’s performance steadily improved. It played an effective role in helping develop off-grid electricity supplies, based on solar PV systems. By the end of the project period, REA had connected more households than the revised target. It also exceeded the original target for the installation of solar PV systems. Implementing Agency Performance Rating Moderately Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 10. M&E Design, Implementation, & Utilization a. M&E Design Overall, the indicators were appropriately linked to the objectives and properly designed to monitor progress towards the PDOs. The set of chosen indicators also reflected the complexity of the project with its combination of grid and off-grid components, and with both a rural and urban focus. The selected indicators to track progress towards the PDO included: (i) improvements in operational efficiency of the electricity network; (ii) improvements in the quality of electricity service, in particular reductions in unplanned outages per year; (iii) progress made in the intensification of electricity service to new customers in peri-urban areas; (iv) the number of CFLs installed; and (v) the number of new connections in both grid and off-grid areas. Two standard indicators were used to measure progress towards the GEO: (i) generation capacity of renewable energy constructed under the project measured in MW; and (ii) CO2 emissions avoided (measured in tons). Indicators had, as appropriate, quantitative baseline and targets. ZESCO and REA were responsible for monitoring implementation progress. b. M&E Implementation Both implementing agencies prepared quarterly progress reports and submitted them to both the Government and the Bank. During implementation, some indicators were revised in order to align with changes in the scope of the project and to reflect more accurately and realistically outcomes directly attributable to the project. For instance, the dropping of the isolated grids/mini hydro sub-component resulted in a reduction of the target for rural household connections. Also, the renewable energy generation capacity indicator was replaced by “Load reduction through demand side management”. Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) c. M&E Utilization The M&E framework was used to inform project progress and aided project refinement during the course of implementation. M&E Quality Rating Substantial 11. Other Issues a. Safeguards The project was classified as environmental category B and triggered four safeguard policies. Environmental Assessment (OP/BP 4.01) and Involuntary Resettlement (OP/BP 4.12) were triggered due to investments in grid and off-grid extension. Safety of Dams (OP/BP 4.37) and Projects on International Waterways (OP/BP 7.50) were triggered due to anticipated investments in mini-hydro development, which were later cancelled. As part of project preparation, an Environmental and Social Management Framework (ESMF) was prepared. Although the ICR does not state specifically whether or not there was compliance with safeguards policies, it notes that safeguards compliance was rated Satisfactory in supervision reports throughout implementation, apart from a brief downgrade to Moderately Satisfactory in 2014, because of a resettlement issue. During the implementation of the Kanyama substation reinforcement in 2014, ZESCO proceeded to extend distribution lines in the proximity of Mwaboneka Market before an adequate Resettlement Action Plan (RAP) was in place. The Bank requested ZESCO to halt works and prepare a RAP. After the Bank’s approval of the RAP, the ICR reports that appropriate compensation payment for the temporary shutdown of affected businesses was provided. The safeguard rating was downgraded to Moderately Satisfactory as a result. However, by project closing the rating had been upgraded again to Satisfactory. b. Fiduciary Compliance Financial Management. The ICR (page 16) reports that ZESCO submitted its reports on time, whereas REA had difficulties in submitting reports, audited financial statements, and withdrawal applications (WAs) on time and in reconciling its designated accounts. As a result of late submission of WAs, REA experienced cash flow problems during the course of the project. Because of REA’s problems, the financial management rating was downgraded from satisfactory to moderately satisfactory in the supervision report of October 2014. The ICR also notes that disbursements throughout implementation were in general slow. However, the project submitted its unaudited interim financial reports (IFRs) on time and no major issues were identified. The ICR does not report on the external auditing of the project accounts. Procurement: As reported in the ICR (page 16), the overall procurement performance rating for the project was satisfactory. Both ZESCO and REA were able to undertake their procurement activities, despite an initial slow start and challenges with cost estimation. During the course of the project, both ZESCO and REA strengthened their technical and procurement units through hiring of new staff and training on specific procurement and contract management topics. This enhanced the institutional capacity of the two entities to undertake procurement and manage contracts. There were no recorded instances of misprocurement. c. Unintended impacts (Positive or Negative) --- d. Other --- 12. Ratings Reason for Ratings ICR IEG Disagreements/Comment Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) Outcome Moderately Satisfactory Moderately Satisfactory --- Given the sector risks (notably ZESCO’s operational and financial risks due primarily to Risk to Development Outcome Modest Substantial the tariffs being set below cost- recovery levels, a Substantial rating is considered more appropriate. Bank Performance Moderately Satisfactory Moderately Satisfactory --- Borrower Performance Moderately Satisfactory Moderately Satisfactory --- Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons The ICR provides useful lessons that are well grounded in the project’s implementation experience. These are paraphrased below: A selective design would help improve the prospects for a prompt and more efficient implementation. The initial design of the project was ambitious and complex, covering multiple grid and off-grid activities, demand-side management and capacity building. This exacerbated the difficulties in the implementing arrangements. For example, REA managed the funds for the grid extension and connection subsidy sub-components, while ZESCO undertook the actual physical works. A realistic assessment of the capacity of the implementing agencies to perform the expected range of project activities can reduce implementation delays. Given the complexity of the project design, successful implementation required that the implementing agencies were endowed with strong capacity and that coordination mechanisms between ZESCO and REA were in place. As this was not the case in the early stages of project implementation, progress was delayed. Timely restructurings can have an important role putting projects on a more realistic track. The project benefited substantially from the timely restructurings. These had a crucial role in placing the project on a more realistic track, despite the challenges of an initial complex project design. Assessing readiness for implementation should be a key part of project preparation. Project effectiveness was delayed by nine months after Board approval in 2008. Implementation only started after the first restructuring of the project in 2010. These are typical signs that the project was not ready for implementation at the time of Board approval. Presenting projects for approval when the borrower and implementing agencies are not ready is likely to result in slow implementation and disbursement and often requires restructuring and extensions of closing dates. 14. Assessment Recommended? No 15. Comments on Quality of ICR The ICR is well written and offers a good discussion and adequate information on the project’s outcomes. The discussion of implementation challenges, due to weaknesses in design and the assessment of risks at entry, is clear and candid. The ICR could have provided more information on the operational and financial performance of ZELCO (some ICRs provide a useful annex on the financial performance and Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review ZM-Incr.Eff.&Access to Elec SIL (FY08)(P077452) prospects of the major utility involved in the project), as this remains a key risk to the development outcome going forward. External auditing of project accounts is not discussed. However, the ICR provides an overall good and informative presentation of the performance of the project and of the difficulties in its implementation. a. Quality of ICR Rating Substantial