Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) Report Number: ICRR0022605 1. Project Data Project ID Project Name P127143 DJ Geothermal Power Generation Project Country Practice Area(Lead) Djibouti Energy & Extractives L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-52620,TF-14757,TF-14765 31-Dec-2018 12,602,592.47 Bank Approval Date Closing Date (Actual) 05-Jun-2013 31-Dec-2019 IBRD/IDA (USD) Grants (USD) Original Commitment 6,000,000.00 7,136,364.00 Revised Commitment 13,012,841.30 7,032,647.53 Actual 12,602,592.47 7,032,647.53 Prepared by Reviewed by ICR Review Coordinator Group Ihsan Kaler Hurcan Fernando Manibog Ramachandra Jammi IEGSD (Unit 4) P127144_TBL Project ID Project Name P127144 DJ-GEF Geothermal Power Generation Prgrm ( P127144 ) L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) 0 Bank Approval Date Closing Date (Actual) 05-Jun-2013 Page 1 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) IBRD/IDA (USD) Grants (USD) Original Commitment 0.00 0.00 Revised Commitment 0.00 0.00 Actual 0.00 0.00 2. Project Objectives and Components DEVOBJ_TBL a. Objectives According to the International Development Association (IDA) Financing Agreement (p.6), the Global Environmental Facility (GEF) Grant Agreement (p.6), the Energy Sector Management Assistance Program (ESMAP) Trust Fund Grant Agreement (p.6), all dated October 13, 2013, and the Project Appraisal Document (PAD, p.11) dated May 14, 2013, the project objective was “to assist the Recipient [Republic of Djibouti] in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region.” b. Were the project objectives/key associated outcome targets revised during implementation? No c. Will a split evaluation be undertaken? No d. Components The project consisted of three components: A. Drilling Program. (Appraisal cost: US$27.18 million including US$4.5 million for contingencies; actual cost: US$48.64 million) This component was to finance the following activities: (i) the preparation of the drilling site in Fiale Caldera, including the strengthening of the roads and crossings between the Port of Djibouti and the drilling site, road construction, preparation of drilling pads, water pumping sites, and other infrastructure necessary for accommodation of operations; (ii) execution of the exploratory drilling program (four wells); (iii) provision of steel material for the execution of the drilling program; and (iv) the inspection and testing of reservoir flow rates. B. Technical Assistance for the Drilling Program. (Appraisal cost: US$1.8 million including US$0.17 for contingencies; actual cost: US$5.49 million) This component was to finance the following technical assistance activities: (i) designing a drilling program to be implemented under Component A; (ii) designing and execution of a well test protocol and third party Page 2 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) certification of the drilling program; and (iii) preparation of a technical feasibility study for a geothermal power plant if the geothermal resource were found commercially viable. C. Project Management. (Appraisal cost: US$1.6 million including US$0.2 million for contingencies; actual cost: US$3.56 million) This component was to support project management, implementation, and M&E through the provision of goods and consultants’ services. Revised Components At the fourth restructuring, the number of wells to be drilled under the first component was reduced from four to three because of cost overruns. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The total project cost was originally estimated at US$31.23 million. The project activities continued after the IDA credit and the GEF grant closed in December 2019 (the ESMAP grant closed six months earlier on June 30, 2019). The revised estimated project cost is US$57.69 million, and the project activities are expected to be completed within the first half of 2022. The project cost increase was because of the drilling cost overruns. The project was to finance the drilling of four wells, but because of the cost increase, the number of wells to be drilled was reduced to three. Financing: At appraisal, the IDA credit was estimated at US$6.00 million, the GEF grant at US$6.04 million, and the ESMAP grant at US$1.00 million. By project closing in December 2019, the project had fully disbursed the IDA credit, the GEF grant and the ESMAP grant. The estimated contributions from other donors at appraisal were US$7.00 million from OPEC Fund for International Development (OFID), US$3.25 million from French Development Agency (AFD) and US$7.34 million from African Development Bank (AfDB). When the Bank financing agreements closed in December 2019, there was no change in the estimated contributions from OFID and the FDA. However, AfDB’s financing increased to US$25.35 million to cover the drilling cost overruns. Borrower contribution: At appraisal, the borrower’s contribution was estimated at US$0.50 million. When the Bank’s financing agreements in December 2019, the borrower’s contribution was estimated at US$9.08 million to cover project implementation unit’s operation expenditures and the part of the drilling cost overruns. Restructurings: There were four project restructurings:  First Restructuring (Level 2 – October 7, 2014): The credit effectiveness and the start of Bank- financed activities were contingent upon the recruitment of a project director and project team that was to be financed by the AfDB. The delay in the signing of the AfDB financing agreement had resulted in a nine-month delay in project effectiveness, and the Bank-financed activities had not started at the time of the restructuring. Therefore, a new category for consultants’ services was created, and funds were allocated to this new category, in consultations with AfDB and other co- Page 3 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) financiers, to support project management through the recruitment of an interim project director, a procurement expert, and an accountant.  Second Restructuring (Level 2 – September 21, 2015): The IDA credit and GEF grant disbursement percentages for drilling services and consultants’ services were amended to finance, with other co-financiers, 100 percent of the cost of both the drilling service company and consultants’ costs to support the project implementation unit. Geothermal consultant was recruited after this restructuring, and this delayed the development of bidding documentation and the launch of the bids for the selection of the drilling contractor (ICR, p.19). By the time of this restructuring, the project had disbursed 0.1 percent of the IDA credit and none from the GEF and ESMAP grants.  Third Restructuring (Level 2 – June 26, 2018): The slow mobilization of the project implementation unit, technical design issues, and coordination issues among donor because of different procurement policies and processes delayed project implementation. The drilling of the three wells was expected to start in July 2018. The procurement of the testing equipment to be financed by ESMAP grant was also delayed because of the same reasons. At the time of the project restructuring, the project had not disbursed any ESMAP grant proceeds. Therefore, at this restructuring, the ESMAP grant closing date was extended by 12 months from June 30, 2018 to December 30, 2019 to allow time for the procurement of testing equipment.  Fourth Restructuring (Level 2 – December 20, 2018): Because of the reasons listed under third restructuring above, the drilling of wells could only start in July 2018. Therefore, the closing date of the IDA credit and the GEF grant was extended by 12 months from December 31, 2018 to December 31, 2019 to allow time for the completion of final production tests, feasibility study on a geothermal power plant, the tender package for the selection of a private geothermal power plant developer and the final project activity report. In the results framework, the number of wells to be drilled was reduced from four to three because of cost overruns, and a new indicator was added, i.e., grievances registered related to delivery of project benefits addressed, to comply with the changes in the Bank’s corporate requirements. Dates: The project was approved on June 5,2013. The financing agreements were signed on October 3, 2013 and became effective on July 2, 2014. The Mid-Term Review was conducted in December 2017. The original closing date of the ESMAP grant was June 30, 2018. At the third restructuring, it was extended by 12 months to June 30, 2019. The original closing date of the IDA credit and the GEF grant was December 31,2018. In the fourth restructuring, the closing date of these two financing agreements was extended by 12 months to December 2019. The project closed on December 31, 2019, but the project activities continued after the closing of the Bank financing agreements and were financed by other donors. The expected completion date of the project activities is the first half of 2022. The reasons for closing date extension have been outlined in the third and fourth restructuring entries above. 3. Relevance of Objectives Rationale The project objective was highly relevant to the country context at project closing in December 2019. Electricity generation in Djibouti depends on thermal resources. Of the approximately 130MW installed generation capacity, only 57MW is reliably available for a population of around 1 million. Only thirty percent of the electricity consumed in the country is generated locally. Therefore, Djibouti depends on electricity Page 4 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) imported from Ethiopia to meet its increasing power demand. The electrification rate is low; around 50 percent in urban areas, i.e., Djibouti City, and only 1 per cent in rural areas. The government’s goal is to achieve universal access by 2035. Djibouti has one of the highest electricity tariffs in the world—around US$0.30 per kWh on average. This is a major barrier to economic growth and a high burden on the budgets of poor households. The development of a 50MW power plant utilizing the geothermal energy potential in the Lake Assal region would significantly improve electricity supply, decrease the country’s dependence on imported energy and power, and lower electricity tariffs. By financing the high-risk geothermal exploration phase to confirm the financial viability of the geothermal source, the project aims at facilitating the development of a geothermal power plant by an independent power producer. Therefore, the project objective is highly outcome-oriented and appropriately pitched for development status in the country. At project closing, the Bank’s Djibouti Country Partnership Framework (CPF) for FY2020-22 was under preparation. The CPF is expected to be issued mid-2021. When assessed against the Djibouti Country Partnership Strategy (CPS) FY14-17, the project objective was highly aligned with the Bank’s strategy for Djibouti. The project objective fell under the second pillar of “Strengthening the Business Environment” of the CPS (p.27) and corresponded to the “Outcome 2.1: Improved access to affordable electricity through stronger capacity to assess the commercial viability of geothermal resources, increased connections, and reduced energy utility losses.” The project sought to address the development problems of poor power supply and high electricity tariffs. This was to be achieved by the development of a 50MW geothermal power plant, and the project was on the critical path for the development of a 50MW geothermal power plant by financing the exploration phase. Achievement of these goals would also support the Bank strategy’s overarching objective to support the Government of Djibouti’s Vision 2035 in reducing extreme poverty and building the foundations for shared growth by harnessing the country’s human and economic potential (CPS, p.18). The project objective is also aligned with the proposed CPF for FY2020-22 as it aims at reducing the cost of doing business in Djibouti (ICR, p.10); high cost of electricity is still an important barrier for doing business in Djibouti. At the time of project appraisal, the Bank had already been implementing the Power Access and Diversification Project since 2006; hence, the Bank had sufficient experience in the energy sector in the country. The Bank also had sufficient experience in the development of geothermal projects in Djibouti in 1984 and 1989, and in other geothermal resource rich countries, such as the Philippines, Armenia, and Indonesia. When assessed with respect to the Bank’s relevant country and sector experience, the project objectives were adequately challenging and consistent with progress over time as compared with earlier and ongoing projects. Overall, the relevance of objectives at the time of project closure was high. Rating Relevance TBL Rating High 4. Achievement of Objectives (Efficacy) EFFICACY_TBL Page 5 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) OBJECTIVE 1 Objective To assist the recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region. Rationale Theory of Change The project was to support the high-risk exploration phase of a geothermal power plant development project by financing the design of a drilling program to be implemented in the Lake Assal region, the drilling of four wells and construction of associated infrastructure, and the procurement of equipment to test the geothermal flow rates. Based on the prior geological analyses, the success of these activities in confirming the financial viability of the geothermal resource for the construction of a geothermal power plant was estimated at 80 percent. Provided that the financial viability was confirmed, the project was to finance a feasibility study on power generation using the geothermal resource identified at the exploratory phase. A follow-on project would finance the construction of a geothermal power plant by an independent power producer to be selected through a competitive tender. The risk perception of the independent power producer would be expected to be lower because of the completion of the exploration phase. The eventual utilization of geothermal resource for power generation was expected to increase the availability and reliability of electricity to meet demand and increase access to electricity, reduce electricity generation costs—hence, lower electricity tariffs—and decrease the country’s dependence on imported fossil fuels for power generation resulting in lower greenhouse gas emissions. The replacement of the thermal generation facilities with geothermal generation capacity was also expected to save the government US$57 million per year, equivalent to around 10 percent of the national budget. Increased economic activity and reduced poverty were the expected long-term impacts of the project. Overall, the causal pathways from project activities to outcomes were valid and direct, and the outcomes achieved could be fully attributed to the project’s intervention. However, the critical assumption that there would be sufficient interest from contractors to implement the drilling program was too optimistic, and the project inputs, i.e., funds, were insufficient to drill four wells. Outputs  Access to the drilling site was constructed.  The drilling program was developed for only three wells because of cost overruns. The target was four wells.  The contractor was recruited to implement the drilling program.  Three wells were drilled but technical issues were encountered, such as the blockage in the second well.  Geothermal well test protocol was developed and ready for implementation.  Testing equipment was purchased. Outcomes  Initial drilling results, as reported by an independent evaluator, confirmed the existence of a high temperature (more than 290 degree Celsius) geothermal resource at depths around 2,000 meters that might be of commercial interest in two of the three wells. But the initial results from the wells were lower than the estimates at appraisal. Therefore, additional exploration activities and testing are still needed to better define the deliverability characteristics of the wells that would form the basis of a Page 6 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) feasibility study (ICR, p.12). This would also include the clearing the blockage in the second well. These activities are planned to be completed during the first half of 2022.  At the time of the project assessment in December 2020, a decision could not be made about the commercial viability of the geothermal resource for power generation because the drilling program was not completed; therefore, the preparation of a technical and commercial feasibility study was not initiated. The feasibility study is planned to be completed during the first half of 2022 along with the completion of the drilling activities. To achieve its objective, the project was to complete the assessment of the commercial viability of the geothermal resource in the Lake Assal region and prepare a technical and commercial feasibility study on the utilization of the geothermal resource for power generation provided that commercial viability was confirmed. The project could not deliver these outcomes because of the delays in the implementation of the drilling program. The main reasons for the delays were the underestimation of the project cost at appraisal that led to issuance of additional financing by other donors, difficulties in recruiting the project director and project implementation team, insufficient interest from contractors to implement the drilling program (only two companies participated in the bidding, and one of them could meet the bidding requirements), technical difficulties encountered during drilling, and coordination issues among donors. At appraisal, it was estimated that drilling of four wells would be completed in 2017, the third year of project implementation. The drilling of three wells could only start in July 2018. However, the initial tests confirmed the existence of a high- temperature geothermal resource and two of the three wells might be of commercial interest. Overall, the project’s efficacy in achieving the project objective to assist the Government of Djibouti in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region is rated modest. Rating Modest OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale Because of the delays in implementation, the project could not achieve its outcomes: (i) the assessment of the commercial viability of the geothermal resource in the Lake Assal region; and (ii) the preparation of a technical and commercial feasibility study on the utilization of the geothermal resource for power generation provided that commercial viability was confirmed. However, the initial tests of the three wells drilled under the project confirmed the existence of a high-temperature geothermal resource, and two of the three wells might be of commercial interest. Additional activities and testing are needed to complete the assessment of the commercial viability of the geothermal resources. These activities are planned to be completed during the first half of 2022. Overall Efficacy Rating Primary Reason Page 7 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) Modest Low achievement 5. Efficiency Economic Analysis At appraisal, the expected reduction in the net present value of the cost of the generation plan because of the addition of a 50MW geothermal power plant was taken as the net economic benefit of the project. Based on the geophysical evidence available at appraisal, the probability of a successful drilling program confirming the commercial viability of the geothermal resource was estimated at 80 percent for each well. But given that this was a new geothermal resource development (greenfield project), a range of probability values were used in the analysis starting from 75 percent to 35 percent for well success. The difference in the net present value of the costs of the expansion plans with and without the drilling program and a possible geothermal power plant was weighted by the success probabilities, and this difference was then compared to the cost of the exploratory drilling program (PAD, p.73). (In the without project scenario, the generation plan included power generation by heavy fuel oil only.) The cost of the drilling program (four wells) was estimated at US$31 million. Other key assumptions were as follows: (i) the capital expenditure for the geothermal power plant was estimated at US$150 million; (ii) fifteen production wells would be needed to reach 50 MW generation capacity; (iii) crude oil prices would increase gradually to US$199 per barrel in 2019 and decrease to US$130 per barrel in 2025; (iv) the long-run electricity generation cost would be around US$0.20 per kWh; and (v) the peak-load demand was estimated to increase from 57MW in 2008 to 218MW in 2035 (PAD, pp.73-79). In the base case scenario with 75 percent success probability and at least two successful wells, the analysis resulted in a net present value of the cost expansion plan of US$930 million without the geothermal power plant and US$839 million with the geothermal power plant. The economic analysis at appraisal concluded that the exploratory drilling program followed by the construction of a 50MW geothermal power plant would result in substantial economic benefits over a wide range well success probabilities (PAD, pp.77-78). At project closing, since project activities were not completed and a feasibility study could not be prepared, an economic analysis was not conducted. Instead, the ICR listed the significant changes in the key assumptions: (i) the cost of the drilling program (three wells) was estimated at US$57.7 million, significantly higher than US$31 million estimated at appraisal; (ii) the oil price per barrel was US$60, less than half of the oil price estimated at appraisal; (iii) the generation plan now includes a possible second interconnection to Ethiopia, construction of a wind power plant, and potential construction of a solar power plant; and (iv) uncertainty about the size of the geothermal power plant that was estimated to have an installed capacity of 50MW. Furthermore, the drilling costs were very high by industry standards (ICR, p.13). Operational and Administrative Efficiency The project implementation was adversely affected by shortcomings at appraisal. The credit effectiveness was delayed because it was contingent upon the signing of the other donors’ financing agreements. Because of the disagreements among the donors on procurement processes, the first tender for the hiring of the project director was canceled and a second tender was announced. The project director arrived at Djibouti in December 2015, more than two years after the signing of the financing agreements. Similarly, the recruitment of the geological consultant, a critical position for the preparation of the bidding documents for the drilling contract, could only be completed in September 2015. This delayed the preparation of the bidding documents and the launching of the tender for the selection of the drilling contractor. The low project budget, the remote geographic location of the project site, the small size of the drilling program and the perceived country risks were the main reasons for receiving two bids for the drilling contract tender, only one of which could meet the bidding requirements. The Page 8 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) eligible bid was much higher than the original cost estimate. This necessitated additional financing from the African Development Bank (AfDB). Drilling could only start in July 2018, five years after the signing of the financing agreements. At the time of the project evaluation in December 2020, the remobilization dates of the drilling contractor could not be confirmed because the AfDB’s no-objection on the extended drilling contract was still pending (ICR, p.20). In the email dated May 13,2021, the project team informed that AfDB had approved the USD$3.25 million additional financing and the parties had signed the financing agreement. However, the work on the field has not resumed yet; remobilization has been delayed because of Covid-19 restrictions. Overall, the project’s efficiency in achieving modest outcomes is rated negligible because of significant decrease in estimated economic benefits due to cost overruns and availability of cheaper power generation alternatives, and significant operational and administrative inefficiencies. Efficiency Rating Negligible 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 relevance of objectives to the country context and the Bank strategy is rated high. The project activities could not be completed to assess the viability of the geothermal resource for power generation; hence, a technical and commercial feasibility study could not be prepared. However, the initial tests show that the temperature of the geographical resource is high, and two wells out of the three drilled under the project are of commercial interest. Additional project activities are needed to better define the deliverability characteristics of the wells that would form the basis of the feasibility study. Although the likelihood of achievement is uncertain, these activities and testing are planned to be completed during the first half of 2022. Therefore, the project’s efficacy in achieving the project objective is rated modest. The project’s economic benefits are expected to be low because of cost overruns and the availability of cheaper power generation alternatives. There were also significant shortcomings in the operational and administrative efficiency, such as delays in operationalization of the project implementation unit and the recruitment of the project director and the geological consultant, and coordination issues among donors. Therefore, the project’s efficiency in achieving limited outcomes is rated negligible. In accordance with the Bank Guidance (p.38), the project’s outcome is rated unsatisfactory. Page 9 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) a. Outcome Rating Unsatisfactory 7. Risk to Development Outcome The possibility of incompletion or substantial delay of additional project activities because of cost overruns and insufficient funds is substantial. The first test results showed that there exists a high temperature geothermal source in the project area, and two of the three wells drilled are of commercial interest. However, additional exploration activities and testing are needed to better define the deliverability characteristics of the wells that would form the basis of a feasibility study. Currently, the AfDB committed funds to finance the additional exploration activities, but the remobilization of the drilling contractor was delayed because of the ongoing Covid-19 pandemic worldwide. Unforeseen technical and geological issues could also further increase the project cost, and in the absence of additional financing, drilling program could not be completed. The availability of cheaper electricity generation alternatives can adversely affect the development of geothermal sources for electricity generation. At appraisal, the impact of a new geothermal power plant on the generation expansion plan was assessed the expansion through thermal generation capacity using heavy fuel oil. At project closing, a wind power plant was under construction and expected to be commissioned in 2021. A solar power plant project is also in the development stage, and the Government of Djibouti is about to secure funding from the World Bank to install a second electricity interconnection to Ethiopia where electricity is generated by hydropower. Because of these recent developments in cheaper generation alternatives, the net positive contribution of a geothermal power plant to the generation expansion plan might be lower than expected at appraisal. As a mitigating factor to the above risk, the geothermal power plant will produce base load electricity that will replace the ageing diesel generation capacity, hence the Government of Djibouti is highly committed to complete the project to assess the commercial viability of the geothermal resource. Unlike wind and solar power generation, which are intermittent because of their dependence on the availability of wind and solar irradiation, respectively, geothermal power plants, like coal-fired power plants but much cleaner, produce base load electricity due to the availability of continuous geothermal steam. The Government of Djibouti is highly committed to exploit the geothermal potential of the country to increase the availability and improve the reliability of power, and to increase the electrification rate. The government established the Djibouti Office for Geothermal Development (ODDEG – Office Djiboutien de Développement de l’Energie Géothermique), a national institution, to coordinate the geothermal resources in the country and exploration activities are currently being implemented in other sites in the country. 8. Assessment of Bank Performance a. Quality-at-Entry At entry, the goal of developing Djibouti’s geothermal resources for power generation to improve the availability and reliability of electricity supply, and to decrease the country’s reliance on imported energy and power was of high strategic priority. The project’s approach was straightforward, i.e., implementation Page 10 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) of an exploratory drilling program—the high-risk exploration phase—to assess the commercial viability of the geothermal resource. Technical aspects of the project were adequate; industry standard state-of-the- art systems were to be used for drilling and testing. The technical design benefited from the geothermal data gathered in the project site since 1980s and most notably in late 2000s by a renowned geothermal resource development company. The safeguard aspects of the project were adequately assessed. The M&E system was sufficiently designed to assess the achievement of the project objectives and test the links in the result chain. The project implementation unit’s lack of experience in implementing such a high-risk drilling program and unfamiliarity with the Bank procedures were to be mitigated by the recruitment of an international project director, a geological consultant, and independent geothermal consultant. However, the cost of the drilling program was significantly underestimated. In estimating the costs, conditions specific to Djibouti were not taken into consideration, such as logistical constraints, the remote geographical location of the project site, potential security risks, the size of the drilling program, and the limited geothermal drilling experience in the country (ICR, p.13). The limited availability of funds because of underestimation of project costs and the risk perception about the country resulted in only two companies bidding for the implementation of the drilling program. The identification of the donor coordination risk was inadequate, and mitigation measures, such as signing a Memorandum of Understanding among the donors, were not considered (PAD, pp.18 and 20). At the start of the project, coordination issues delayed project implementation by around 18 months. The project implementation schedule was unrealistic for such a high-risk operation. According to the original schedule, the drilling of all four wells would be completed by 2017, but the drilling program could only start in July 2018 and is expected to be completed in the first half of 2022. Risks inherent to geothermal exploratory operations were not adequately identified, such as drilling, mobilization of drilling equipment, maintenance and repairs, and staff (ICR, p.25). An important lesson learned from previous experiences, i.e., early start of procurement processes for key consultant positions and the mobilization of the project implementation unit during project preparation, was not incorporated into the project design. Overall, because of the significant shortcomings in the preparation and appraisal of the project, the quality at entry is rated moderately unsatisfactory. Quality-at-Entry Rating Moderately Unsatisfactory b. Quality of supervision Supervision missions were held every six months, including seven joint donor missions. There was continuity in the project team, which was led by three different task team leaders from project preparation phase to project closing. The Implementation Status and Results Reports and Aide Memoires were detailed and candid in reporting performance. The project team’s supervision of the safeguard aspects of the project was adequate. However, although the Bank was the lead donor, the Bank’s project team was reactive, rather than proactive, to the procurement issues stemming from insufficient donor coordination that initially delayed project implementation by more than 18 months. The first and second restructurings reallocating funds to the hiring of the project director and mobilization of the project implementation unit were necessary, but they did not have the intended effect of accelerating project implementation. The project director could only arrive at the country in December 2015. The Mid-Term Review was carried out Page 11 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) with substantial delay in December 2017 during which issues related to procurement were addressed (ICR, p.21). Because of moderate shortcomings listed above, the quality of supervision is rated moderately satisfactory. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Unsatisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design The project’s theory of change was sound, and the expected outcomes could be attributed to the project’s intervention. The objective of assisting the Government of Djibouti in assessing the financial viability of the geothermal resource for power generation was clearly defined. The implementation of the exploration drilling program was to provide sufficient data to make a decision whether to construct a geothermal power plant or not. The geothermal test protocol to be developed under project was to be implemented to gather technical data that would be reviewed and certified by an independent technical consultant. The results framework included indicators to adequately capture these outcomes. The intermediate outcome indicators were adequate to monitor the progress in the project activities, such as the construction of the access to the project site and number of wells drilled. The indicators were specific, measurable, relevant, and time- bound. b. M&E Implementation All indicators in the results framework were adequately measured and reported in the Implementation Status and Results Reports. The drilling contractor, geological consultant, and geothermal independent expert monitored and recorded the test results daily that provided the essential data to assess the technical quality and potential commercial viability of the geothermal source. The implementation of a state-of-the-art drilling and data collection system produced reliable and good quality data. These functions and processes could be sustained after completion of the drilling program if the commercial viability of the geothermal source is confirmed and the construction of a geothermal power plant is decided. The M&E implementation was effective. c. M&E Utilization The M&E findings were sufficiently communicated to various stakeholders. The M&E findings, with some delay, informed reallocation of Bank funds for the recruitment of the project director and the geological consultant to accelerate project implementation. The M&E data were sufficiently used to assess the achievement of the project outcomes as opposed to only providing evidence of achievement of outputs. Page 12 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) If M&E findings confirm the technical and financial viability of the geothermal resource, the decision on a project for the construction of a geothermal power plant could follow. Overall, as a result of the use of a state-of-the-art drilling and testing system, the M&E system was sufficient to assess the achievement of the objectives and test the links in the results chain, and the M&E findings were used to inform the direction of the project, though with some delay. The M&E quality is rated substantial. M&E Quality Rating Substantial 10. Other Issues a. Safeguards At appraisal, the project was classified as Category B under Environmental Assessment (OP/BP 4.01) and triggered the Natural Habitats (OP/BP 4.04) safeguard policy. Environmental Assessment (OP/BP 4.01): The project was classified as Category B because of the limited adverse environmental impacts expected during the exploration activities and the construction of associated infrastructure including access roads, the operation of a quarry, drill pads and rigs, drilling, temporary accommodations, seawater supply, solid waste management, and power generation for drilling. The expected environmental implications of these activities were surface disturbances, noise, fluid withdrawal, thermal pollution, chemical pollution, and degradation of ecological environment. But the exact nature of the impacts could not be determined at project appraisal because the detailed design of the drilling program was not prepared. Therefore, an environmental and social impact assessment framework (ESIAF) was prepared detailing the process to be followed to manage environmental risks associated with the project (PAD, p.31) and disclosed in Djibouti and the Bank’s InfoShop on December 1, 2012. The ESIAF was to serve as a blueprint for the preparation of a detailed environmental and social impact assessment (ESIA) and the environmental and social management plan (ESMP). After the preparation of the drilling program, the ESMP was prepared and implemented. A grievance mechanism was established, but no complaints were received. The Bank’s safeguard specialist was located in the country office during project implementation. The safeguard specialist visited the project site regularly to monitor the implementation of the safeguard policies. The reporting of the implementation of safeguard policies in the project documents was detailed. There were no major safeguard-related issues, but the selection of an environmental auditor was delayed (Implementation Status and Results Report, No:11, p.7). Overall, the project was compliant with the requirements of the environmental safeguard policy. Natural Habitats (OP/BP 4.04): This safeguard policy was triggered because of the proximity of the project site to Lake Assal, a protected area under the Djiboutian law, and the Gulf of Goubet, a potentially sensitive ecosystem. The ESIAF contained measures to manage the risk of untreated geothermal and drilling fluids discharge to these water bodies or their watersheds. The ICR did not report about the implementation of this safeguard policy. In their email dated May 13, 2021, the project team stated that the environmental Page 13 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) auditor reviewed the procedures for the use of natural resources and natural habitat reservation and were found to be compliant with the requirements of this safeguard policy. All drilling well liquid and solid releases were analyzed. The analysis of water discharges and sludge from boreholes was carried out—occasionally with delay—and was certified to satisfy the requirements of environmental rules and procedures. b. Fiduciary Compliance Financial Management The financial management arrangements were adequate. The Bank’s financial management specialist was located in Djibouti and provided support to the newly formed project implementation unit in financial management. The project’s quarterly unaudited financial reports were submitted to the Bank without delay. The independent audits were completed within the timeframe defined in the financing agreements, except the audit in 2018 that was delayed because of the hiring of a new firm financed by the AfDB. The audits were unqualified and acceptable to the Bank. There were no issues with the availability of counterpart funds. Internal control procedures were in place and there were no issues of corruption or misuse of funds associated with the project. The project’s financial management complied with the Bank’s requirements. However, there were coordination issues in planning and budgeting and flow of funds. The effectiveness of the Bank’s financing was contingent upon the execution of the co-financing agreements between the Government of Djibouti and other donors. Because of the delays in the execution of these co-financing agreements, the Bank’s financing could only become effective about one year after the signing of the financing agreement, which resulted in two project restructurings to allocate funds to activities originally to be funded by other donors. At project closing, all Bank funds were accounted for. Procurement Procurement of Bank-financed activities was implemented in accordance with the Bank’s procurement policies and procedures. The Bank’s procurement specialist was stationed in Djibouti and provided support to the project implementation unit and the procurement consultant hired under the project. However, the donor coordination and procurement risks were not adequately identified at appraisal (ICR, p.19). The project implementation was adversely affected by delays in procurement because of different procurement policies and procedures of the donors. For example, the initial procurement of the project director was cancelled and relaunched because of disagreements among donors on procurement processes. There were also delays in issuing no-objections by other donors. Such procurement issues contributed to a delayed start of drilling program in July 2018, five years after the signing of the financing agreements. As the lead donor, the Bank intervened to improve donor coordination on procurement through frequent and direct consultations with the project implementation unit and the donors (ICR, p.21). c. Unintended impacts (Positive or Negative) None. Page 14 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) d. Other None. 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment The ICR erroneously rates the outcome of the project as moderately unsatisfactory. According to the Bank guidance (p.38), with relevance of Moderately Outcome Unsatisfactory objectives rated high, Unsatisfactory achievement of the objectives rated modest, and efficiency of the project rated negligible, the outcome rating should be unsatisfactory. Quality at entry is rated moderately unsatisfactory because of shortcomings in estimating the project cost and identifying the risks. The quality of supervision is rated moderately satisfactory. According to the Bank guidance Moderately Moderately (p.23), when the assessment of Bank Performance Satisfactory Unsatisfactory one dimension is in the satisfactory range, and that of the other dimension is in the unsatisfactory range, overall Bank performance depends on the outcome rating. Since the outcome rating is unsatisfactory, the Bank performance is rated moderately unsatisfactory. Quality of M&E Substantial Substantial Quality of ICR --- Substantial 12. Lessons Three lessons are taken from the ICR. Page 15 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) If the cost of the high-risk exploratory drilling phase of a geothermal resource development project is not appropriately estimated including an allocation for contingencies, it can result in low interest from contractors and critically affect the achievement of project outcomes. At appraisal, project costs were estimated based on international industry benchmarks. In estimating the costs, conditions specific to Djibouti, a country with limited experience in geothermal resource development, were not taken into consideration, such as logistical constraints, the remote geographical location of the project site, the size of the drilling program and the overall country risk. The project budget was much lower than the actual costs of implementing such a high-risk drilling program in the Djibouti country context. Two companies bid for the implementation of the program, of which only one satisfied the bid requirements, but the bid was much higher than the cost estimated at appraisal. This delayed the implementation of the project because of lengthy negotiations, and at project closing, the expected outcomes were not achieved. An early start of the procurement processes of the main contracts for key professionals during project preparation can prevent lengthy delays in project implementation. Since the skills and experience of the borrower’s staff in geothermal resource development was limited, the project was to hire professionals to key positions, such as project director and geothermal adviser. The procurement processes were not started during project preparation and bidding documents were not prepared. These were to start after project effectiveness, which was delayed by almost one year. Subsequent coordination issues among the donors further delayed the hiring of these professionals. After the completion of the hiring processes, the project director and the geothermal adviser arrived in Djibouti in the second half of 2015, more than two years after project approval. Weak and fragmented coordination among donors can adversely impact project implementation. The Bank was the lead donor of the project, and the AfDB and the FDA were the co-financiers. A protocol or a memorandum of understanding defining the coordination mechanisms among the donors was not concluded during project preparation. Donors had different procurement processes that conflicted with each other. The first hiring process of the project director was cancelled because of these conflicting procurement processes. These led to significant delays in project implementation. 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR is concise and provides a detailed overview of the project. The narrative is candid in explaining the shortcomings in project implementation. There is sufficient clarity in the report’s message. It is internally consistent and focused on what occurred as a consequence of the project. The report is generally evaluative and consistent with the Bank guidance. There is a logical linking and integration of the various parts of the report. The theory of change is adequately presented. The lessons are mostly useful and based on evidence outlined in the report. However, the outcome is erroneously rated moderately satisfactory. Given the sub-ratings for relevance of objectives (high), efficacy (modest) and efficiency (negligible), the outcome rating stipulated by the guidelines should be unsatisfactory. Moreover, the economic analysis at project closing was incomplete Page 16 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review DJ Geothermal Power Generation Project (P127143) because of the absence of a feasibility study. The ICR also did not provide information about the implementation of the Natural Habitats safeguard policy that was triggered at appraisal. a. Quality of ICR Rating Substantial Page 17 of 17