Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005640 IMPLEMENTATION COMPLETION AND RESULTS REPORT IDA-56750 ON AN IDA CREDIT IN THE AMOUNT OF SDR 21.4 MILLION (US$30 MILLION EQUIVALENT) TO THE LAO PEOPLE’S DEMOCRATIC REPUBLIC FOR A POWER GRID IMPROVEMENT PROJECT October 26, 2021 Energy and Extractives Global Practice East Asia And Pacific 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 March 31, 2021) Currency Unit = Lao Kip (LAK) LAK 9,385 = US$1 US$1.41732 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AMI Advanced Metering Infrastructure CPS Country Partnership Strategy CPF Country Partnership Framework EDL Electricité du Laos EDL-Gen Electricité du Laos Generation Company ENPV Economic Net Present Value ERR Economic Rate of Return FAP Financial Action Plan FIRR Financial Internal Rate of Return FM Financial Management FMIS Financial Management Information System FNPV Financial Net Present Value GIS Geographic Information System GMS Greater Mekong Sub-Region HMTA Technical Assistance for Capacity Building in the Hydropower and Mining Sectors HR Human Resources ICR Implementation Completion and Results Report ISR Implementation Status and Results Report KPI Key Performance Indicator M&E Monitoring and Evaluation MEM Ministry of Energy and Mines MOF Ministry of Finance O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PDSR Power Distribution System Rehabilitation Program PGI Power Grid Improvement PVLD Protocols for Voluntary Land Donation REP I Rural Electrification Project Phase I REP II Rural Electrification Project Phase II SAIDI System Average Interruption Duration Index SAIFI System Average Interruption Frequency Index SCADA Supervisory Control and Data Acquisition T&D Transmission and Distribution TOC Theory of Change WACC Weighted Average Cost of Capital WBG World Bank Group Regional Vice President: Manuela V. Ferro Country Director: Mariam J. Sherman Regional Director: Ranjit J. Lamech Practice Manager: Jie Tang Task Team Leader(s): Leopold Sedogo ICR Main Contributor: Paul Dolan TABLE OF CONTENTS DATA SHEET ................................................................................................................................1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES .........................................................5 A. CONTEXT AT APPRAISAL ............................................................................................................. 5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ....................................... 10 II. OUTCOME .........................................................................................................................11 A. RELEVANCE OF PDOs ................................................................................................................ 11 B. ACHIEVEMENT OF PDOs (EFFICACY) .......................................................................................... 12 C. EFFICIENCY ................................................................................................................................ 15 D. JUSTIFICATION OF OVERALL OUTCOME RATING....................................................................... 16 E. OTHER OUTCOMES AND IMPACTS (IF ANY)............................................................................... 16 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ..................................17 A. KEY FACTORS DURING PREPARATION....................................................................................... 17 B. KEY FACTORS DURING IMPLEMENTATION ................................................................................ 19 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME ...21 A. QUALITY OF MONITORING AND EVALUATION (M&E) .............................................................. 21 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ....................................................... 21 C. BANK PERFORMANCE ............................................................................................................... 23 D. RISK TO DEVELOPMENT OUTCOME .......................................................................................... 23 V. LESSONS AND RECOMMENDATIONS .................................................................................24 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ..............................................................25 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION...........................32 ANNEX 3. PROJECT COST BY COMPONENT ...............................................................................35 ANNEX 4. EFFICIENCY ANALYSIS ...............................................................................................36 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ....39 ANNEX 6. SUPPORTING DOCUMENTS (IF ANY).........................................................................48 The World Bank Power Grid Improvement Project (P149599) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P149599 Power Grid Improvement Project Country Financing Instrument Lao People's Democratic Republic Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Lao People's Democratic Republic (Lao PDR) ELECTRICITE DU LAOS Project Development Objective (PDO) Original PDO The project development objective is to help improve efficiency and reliability of power distribution in the selected load areasserved by EDL. Page 1 of 48 The World Bank Power Grid Improvement Project (P149599) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 30,000,000 30,000,000 29,399,845 IDA-56750 Total 30,000,000 30,000,000 29,399,845 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Total 0 0 0 Total Project Cost 30,000,000 30,000,000 29,399,845 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 23-Jun-2015 30-Dec-2015 26-Feb-2018 31-Mar-2020 31-Mar-2021 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 27-Mar-2020 22.21 Change in Results Framework Change in Loan Closing Date(s) Change in Legal Covenants Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 07-Oct-2015 Satisfactory Satisfactory 0 Page 2 of 48 The World Bank Power Grid Improvement Project (P149599) 02 11-Apr-2016 Satisfactory Moderately Satisfactory 0 03 29-Sep-2016 Satisfactory Moderately Satisfactory 1.86 04 14-Apr-2017 Satisfactory Satisfactory 2.43 05 08-Nov-2017 Satisfactory Satisfactory 10.45 06 08-May-2018 Satisfactory Moderately Satisfactory 15.57 07 26-Nov-2018 Satisfactory Satisfactory 18.69 08 21-May-2019 Satisfactory Satisfactory 20.31 09 11-Nov-2019 Satisfactory Satisfactory 21.44 10 17-Apr-2020 Satisfactory Moderately Satisfactory 22.69 11 12-Nov-2020 Satisfactory Moderately Satisfactory 23.75 SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 100 Public Administration - Energy and Extractives 16 Energy Transmission and Distribution 42 Other Energy and Extractives 42 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 100 Jobs 100 Urban and Rural Development 100 Urban Development 100 Urban Infrastructure and Service Delivery 100 Environment and Natural Resource Management 75 Climate change 75 Mitigation 75 Page 3 of 48 The World Bank Power Grid Improvement Project (P149599) ADM STAFF Role At Approval At ICR Regional Vice President: Axel van Trotsenburg Manuela V. Ferro Country Director: Ulrich Zachau Mariam J. Sherman Director: Anita Marangoly George Ranjit J. Lamech Practice Manager: Julia M. Fraser Jie Tang Task Team Leader(s): Rome Chavapricha Leopold Sedogo ICR Contributing Author: Paul Dolan Page 4 of 48 The World Bank Power Grid Improvement Project (P149599) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. The Lao People’s Democratic Republic is a natural resource rich and landlocked country bordered by Cambodia, China, Myanmar, Thailand, and Vietnam with a gross domestic product per capita of US$1,660 in 2013 and a population of around 6.4 million. The high degree of political stability in recent years and its location in the fast-growing Southeast Asian region facilitated an impressive real economic growth of around 7 percent per year since the turn of the century. The national poverty rate halved in two decades, from 46 percent in 1992/93 to 23 percent in 2012/13. Key ambitions of the Government were to achieve the Millennium Development Goals by the end of 2015 and graduate beyond least developed country status by 2020. 2. Lao PDR’s ambitious electric power development strategy focused on developing its enormous hydropower potential (estimated at over 25 GW, compared to a peak domestic load of under 1 GW in 2014), a national electrification program, and export of electricity as one of the main pillars of the country’s economic and social development. Although the domestic electric load had been growing fast at approximately 13 percent per year during the whole decade up to the time of the Power Grid Improvement (PGI) Project appraisal, this growth was from a low base, and the bulk of the existing and newly built power generation capacity continued to be used to export power out of the country, primarily to Thailand and Vietnam. 3. Electricité du Laos (EDL), founded in 1959, is the state-owned, vertically integrated utility responsible for power generation, transmission and distribution (T&D), and supply to domestic customers. EDL began transferring its generation portfolio to its majority-owned subsidiary Electricité du Laos Generation Company (EDL-Gen) at the latter’s formation in late 2010. EDL then became a ‘single buyer’ of electricity to serve its domestic customers and also had sole responsibility for the T&D businesses. In 2012, it served 963,000 customers, including 908,000 residential, 27,000 commercial, and 14,000 industrial customers. 4. Access to electricity increased impressively from 15 percent in the mid-1990s to close to 90 percent in 2014. This was a major achievement for the country given the predominance of expensive rural electrification that provided a low financial return to EDL. Although the vast majority of rural households were grid based, off-grid solutions were used in remote regions. 5. The main challenges facing the Lao PDR electricity sector included (a) inadequate available power generation capacity for domestic consumption especially in the dry season months (November – April); (b) inadequate transmission/distribution fees for T&D business; (c) end user tariffs averaging around US¢9 per kWh in 2013, providing limited room for further increase due to affordability constraints; (d) the lack of a nationally connected power transmission grid; (e) the prospect of building up a significant surplus of hydropower requires a new energy strategy that will recognize the importance of improving the quantity and quality of power supply in the domestic market while integrating the power grid both internally and in the regional power market, and (f) high distribution losses and uneven levels of service reliability, as detailed in the following paragraph. Page 5 of 48 The World Bank Power Grid Improvement Project (P149599) 6. High distribution system losses and uneven levels of service reliability persisted in the context of fast growth of domestic electric demand. Problems were particularly evident in fast-growing major urban load centers. In response, EDL began implementation of the Power Distribution System Rehabilitation (PDSR) Program in 2013. The PDSR Program covered four major electricity load centers in Vientiane capital, Savannakhet, Thakhek, and Pakse. Phase 1 was budgeted at US$90 million and reached the end of its implementation period of 2013–2016. Phase 2 was budgeted at US$60 million over 2015– 2018. Both phases of the PDSR Program were financed by a Ministry of Finance (MOF)-guaranteed loan from Thailand. The PDSR Program was designed to rehabilitate the physical network and introduce distribution automation system and fault detection, investigation, and restoration system in the four provinces. In addition, a new supervisory control and data acquisition (SCADA) system for power distribution was implemented by EDL. 7. The World Bank Group (WBG) has been supporting Lao PDR’s power sector since the 1960s with a specific focus on expanding access and rural electrification since the 1980s. The Rural Electrification Project1 Phase 1 (REP I) in 2006 and the Rural Electrification Project 2 Phase 2 (REP II) in 2009 focused on expanding on-grid and off-grid access. Under these two projects, over 100,000 rural households were connected to electricity, including 15,900 off-grid connections. These projects also included a variety of additional components on EDL institutional strengthening, power development planning, financing strategy, distribution loss reduction, tariff reform, safeguards capacity building, demand-side management, and energy efficiency. The PGI Project was expected to build on the then ongoing REP II in the area of distribution loss reduction, utility information system improvement, and enabling of future demand-side management through smart customer interfaces. The project was also predicted to have a strong synergy with the Technical Assistance for Capacity Building in the Hydropower and Mining Sectors (HMTA) Project,3 which in part would help create power market and regulatory conditions favorable for the financial recovery of EDL and its future strengthening as a major power market operator in the Greater Mekong Sub-Region (GMS). 8. The PGI Project would complement EDL’s ongoing PDSR Program by using IDA resources to implement key technical and service improvements in a district with the highest distribution losses in Lao PDR. This was the Xaythany district, a fast-growing residential, commercial, and industrial district about 10 km north of the center of Vientiane capital with about 46,000 residential and 1,100 non- residential customers at the time of project appraisal. Electricity demand had been growing faster than the distribution network investment, thus overloading the local network and contributing to the highest distribution loss rate in the country (24 percent compared to an average of 15.8 percent for the nine Vientiane capital districts and 13.5 percent on average for the entire country). The Xaythany district comprises a mixture of low- and high-income residential customers and commercial and industrial customers. The experience to be gained from the PGI Project can be subsequently applied to other load areas with high losses. 1 Rural Electrification Project Phase 1 (REP I) (P075531). 2 Rural Electrification Project Phase 2 (REP II) (P110978). 3 Technical Assistance for Capacity Building in the Hydropower and Mining Sectors (HMTA) Project (P109736). Page 6 of 48 The World Bank Power Grid Improvement Project (P149599) Theory of Change (Results Chain) 9. The PGI Project Appraisal Document (PAD) did not contain an explicit theory of change (TOC) diagram or narrative. Therefore, a TOC has been constructed based on the Project Development Objective (PDO) and the project design as presented in the PAD. The project is a targeted intervention implemented by EDL with clearly defined objectives. It is primarily a stand-alone infrastructure and information technology investment to help improve the power distribution network efficiency and reliability in selected load areas served by EDL. The selected load area was the Xaythany district of Vientiane capital, a fast-growing peri-urban district that had the highest level of distribution losses in the country. The TOC is therefore quite straightforward. The activities were grouped under three active components: (a) smart metering and infrastructure and equipment upgrades to medium and low voltage distribution lines, (b) provision of a modern electric utility information system, and (c) institutional capacity building and implementation support. These activities produced a set of outputs: (a) rehabilitated medium and low voltage lines and installed smart meters, (b) installed communication hardware and software links, expanded Geographic Information System (GIS) to support distribution operation and maintenance (O&M), and updated financial management information system (FMIS); and (c) software, instruments, consultant support, and trainings. These outputs directly led to the PDO-level outcomes, to help improve the efficiency and reliability of power distribution in the project areas. The longer-term outcomes of this project (in tandem with EDL’s complementary PDSR Program and future network upgrades) will be to achieve sustainable improvement of network efficiency and reliability nationwide toward world-class standards. Page 7 of 48 The World Bank Power Grid Improvement Project (P149599) Figure 1. Results Chain Page 8 of 48 The World Bank Power Grid Improvement Project (P149599) Project Development Objectives (PDOs) 10. The objective of the project is to ‘help improve the efficiency and reliability of power distribution in the Selected Load Areas served by EDL’. This PDO statement in the project financing document 4 is the same as in the PAD. Key Expected Outcomes and Outcome Indicators 11. The PDO can be unbundled into two objectives: improving the distribution efficiency (reduction of technical and non-technical losses) and improving the service reliability (reduced frequency and length of service interruptions). The key expected outcomes to be used to assess the project are therefore: (a) Improved efficiency of power distribution in the selected load areas5 and (b) Improved reliability of power distribution in the selected load areas. 12. For the Implementation Completion and Results Report (ICR), the following indicators were used to measure achievement of these two interlinked objectives: (a) Average interruption frequency per year in the project area - ‘System Average Interruption Frequency Index’ (SAIFI) (b) Average duration of outages in the project area - ‘System Average Interruption Duration Index’ (SAIDI)6 (c) Electricity losses per year in the project area7 (d) Residential electric meters installed (e) Non-residential electric meters installed8. Components 13. Component 1: Smart metering, distribution improvement, and distribution losses reduction (Approved: IDA US$19.0 million; Actual at completion: IDA US$21.43 million). This component introduced advanced metering infrastructure (AMI) technology and digital meters for residential and non- residential customers in the project area. In addition, it strengthened the power distribution infrastructure and distribution automation to help improve reliability of power supply and reduce losses in selected parts of the distribution network. This component included rehabilitation of power distribution 4 Financing Agreement between Lao PDR (‘The Recipient’) and the Association, dated August 17, 2015. 5 The selected load areas are those served by all the existing medium voltage distribution lines in the Xaythany district (22 lines totaling about 127 km), connected to low voltage lines (about 239 km). Further details of the selected load areas were described in the Project Operational Manual. 6 SAIDI is the average outage duration (hours per year) for each customer served. SAIDI is calculated by dividing the sum of outages for all customers served by the number of customers served in the project area. SAIDI is used in the ICR to measure achievement of outcomes because it is a relevant and suitable complementary indicator though it was an intermediary indicator in PAD. 7 The difference, measured in percentage, between total net injected generation and total energy billed to customers. This is a PDO-level indicator. 8 Although the last two indicators (d) and (e) were considered as intermediary indicators in the PAD, they have been used to assess the outcomes in the ICR due to their importance and complementarity to the PDO level indicators. Page 9 of 48 The World Bank Power Grid Improvement Project (P149599) lines, upgrading of conductors, increasing of transformer capacity, placement of capacitors for reactive power and voltage control, and installation of load break switches and reclosers and so on. 14. Component 2: Electric utility information system (Approved: IDA US$6.0 million; Actual completion: IDA US$6.64 million). This component improved EDL’s utility information system by ( a) supply and installation of communication hardware and software links to support advanced metering and distribution automation, (b) extension of GIS to support power distribution O&M, and (c) supply and installation of an updated corporate FMIS. 15. Component 3: Institutional capacity building and project implementation support (Approved: IDA US$5.0 million; Actual at completion: IDA US$1.32 million). This component included (a) power system software, distribution equipment, testers, and other instruments; (b) consultancy for the electric utility information system; (c) support to measure distribution system performance indicators; and (d) project implementation support (including training in World Bank procurement procedures and so on) and incremental operating costs. This component enhanced EDL’s institutional capacity to use new technologies to address distribution losses and improve power grid efficiency. Although only US$1.32 million was spent under Component 3, the total expenditure on institutional capacity building and project implementation support was in fact slightly over US$5 million, which was spread across all the active project components9 as detailed in table 3.2 in annex 3. 16. Component 4: Contingent emergency response (Total approved: US$0; Actual at completion: US$0). The objective of the contingency emergency response component with a provisional zero allocation was to allow for the reallocation of financing in accordance with the IDA Immediate Response Mechanism to provide a rapid response to disaster or emergency events, as needed. This component would have financed expenditures on a positive list of goods and/or specific works and services required for emergency recovery. This contingency component was not used as no relevant disaster or emergency events actually occurred. 17. The originally approved and final actual costs by component are shown in table 1. All project cost were financed by IDA resources. Table 1. Estimated and Actual Project Costs (US$, millions) Project Components Approved Actual at Closing 1. Smart metering, distribution improvement, and distribution losses 19.00 21.43 reduction 2. Electric utility information system 6.00 6.64 3. Institutional capacity building and project implementation support 5.00 1.32 4. Contingent emergency response 0.00 0.00 Total costs 30.00 29.39 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) 9Institutional capacity building and project implementation support was also implemented through all three components, among others, to include financing the supply of safety equipment and training to EDL, human resources (HR) and payroll system to improve utility management. Page 10 of 48 The World Bank Power Grid Improvement Project (P149599) Revised PDOs and Outcome Targets None Revised PDO Indicators None Revised Components None Other Changes 18. On March 27, 2020, the project was restructured to (a) extend the closing date by 12 months to March 31, 2021, to use the project cost savings (from major goods and services packages contracted at prices below the initial planned budget) for new activities (delivery of safety equipment and HR/payroll module), (b) waive two financial covenants (‘EDL total debt-to-equity ratio of not exceeding 2:1’ and ‘Update the Financial Action Plan’), and (c) drop the intermediate results indicator on installing 100 km of fiber optic cable10 and align project targets with the new closing date. Rationale for Changes and Their Implication on the Original Theory of Change 19. The restructuring had no material impact on the TOC. II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: High 20. The PDO to ‘help improve the efficiency and reliability of power distribution in the Selected Load Areas served by EDL’ was highly relevant at the time of project appraisal and remained highly relevant at project closure. High distribution losses are a fundamental problem for an electric utility and were contributing to the troubled financial condition of EDL as it was forced to purchase additional power to cover the excessive losses, which it could not recover in revenues. The reliability and power quality issues affected the smooth running of industrial and commercial activities and required some customers to provide expensive back-up generation. The PGI Project design was technically aligned and synergistic with a larger EDL investment program such as PDSR program, already under way covering different geographical areas (including adjacent areas), which was aimed at making fundamental improvements to the electricity network. EDL’s distribution network was controlled manually, and automation was limited to the local equipment. Modernizing the electricity distribution network and reducing losses and improving reliability was and remains a key national priority to benefit the country’s domestic and non - 10The communication infrastructure was changed from fiber optic cable to Worldwide Interoperability for Microwave Access (WIMAX) that was deemed more suitable for the project. Page 11 of 48 The World Bank Power Grid Improvement Project (P149599) domestic electric customers, improve the financial and operational condition of EDL, and ease the burden of actual and contingent financial liabilities on the national treasury that backstops EDL. The PGI Project focused on a key fast-expanding peri-urban network area that was experiencing the highest level of distribution losses in the whole country and was in urgent need of upgrading. 21. The World Bank’s Country Partnership Strategy (CPS) FY12–FY1611 for Lao PDR focused on three themes: (a) competitiveness and connectivity, (b) sustainable natural resource management, and (c) inclusive development with a cross-cutting theme of stronger public sector management. The PGI Project would support all three themes by improving the efficiency, reliability, and quality of electricity supply in the project area. The improvement of electric reliability directly improves competitiveness (particularly for non-residential customers who use electricity to support income generation and who suffer business losses from unreliable service) and connectivity (for all customers). The reduction of distribution losses directly results in the saving of energy and reduced need for new generation. The project would also support the cross-cutting theme of stronger public sector management by improving the financial management (FM) system for the state-owned electric utility, EDL. 22. At closing, the project remained highly relevant with respect to the World Bank’s Country Partnership Framework (CPF) FY17–FY21. It aligned with the CPF Focus Area 1 ‘Supporting Inclusive Growth’ and its Objective 1.3: ‘Investing in infrastructure for growth and inclusion’ and the cross-cutting theme of strengthening institutions and systems for improved policy implementation given the aspects of the institutional building of EDL. The CPF also supported the Government of Lao PDR’s 8th National Socio- Economic Development Plan for 2016–2020, which confirmed that the use of Official Development Assistance loans was strategically focused on the development of economic sectors and infrastructure, such as energy and mining. 23. The relevance of the PDOs is rated High. B. ACHIEVEMENT OF PDOs (EFFICACY) 24. The overall efficacy of the project is rated Substantial. The results indicator targets were all either fully achieved or were essentially achieved and on track for full achievement and, in some key areas, were exceeded. 25. The key project indicators (reduction of losses, SAIFI, and SAIDI) are all highly relevant indicators that are the globally recognized standards for assessing the efficiency and reliability of electric distribution utility operations. The use of these indicators, particularly SAIFI and SAIDI, was also intended to help EDL internalize these key metrics into its O&M activities and planning and hence improve its overall reliability. There were no EDL or other development partners’ investments carried out in the project geographical or technical areas at a time of the project, therefore the achieved project targets are highly attributable to the project (except for natural variations due to severe weather events that impact the reliability of electric distribution systems for short periods). A table below presents summary of indicators targets and their achievements, while more details are discussed by achievement of each project objective. 11The World Bank Group's Country Partnership Strategy FY12–FY16 (Report # 66692-LA) discussed by the Executive Directors on March 8, 2012, and the Country Partnership Strategy Progress Report (Report # 90281-LA) of September 16, 2014. Page 12 of 48 The World Bank Power Grid Improvement Project (P149599) Table 2. Final Targets and Achievement of Objectives Objective Baseline Final Target Result at Closing Achievement (Indicator) SAIFI (number of 19.14 17.23 10.3 Exceeded outages per year) (established for (10 percent below 2018) baseline) SAIDI (hours of 2.35 2.12 1.0 for 2019 Substantially outage per year) (established for (10 percent below exceeded 13 2.4 for 2020 2018)12 baseline) Electricity losses 24 14 14.3 Essentially achieved (percent) at closing date and on track to full achievement14 Direct project 207,000 297,000 306,000 Fully achieved beneficiaries, and 50 50 50 Fully achieved percent female Residential meters 0 15,000 15,163 Fully achieved installed Non-residential 0 1,500 1,875 Exceeded meters installed Assessment of Achievement of Each Objective/Outcome Objective 1: Improved efficiency of power distribution in the selected load areas Rating: Substantial 26. Improved efficiency of power distribution is measured in terms of reduction of distribution losses, both ‘technical’ losses such as heat generated by the flow of current (due to electrical ‘resistance’) and ‘non-technical’ losses such as failure to bill for electricity and theft of electricity. Although the concept of loss reduction is universal, the specific definition and measurement of loss reduction is not. In the case of 12 The enterprise survey results from 2012 estimate that for Vientiane capital as a whole, the average outage duration for a month was about 5.5 hours (equivalent to about 66 hours per year), leading to a sales loss of 2 percent and forcing about 8.4 percent of firms to buy or share generators (PAD, annex 5, paragraph 14). While this situation would have improved by the time of the PGI Project approval in June 2015, there is no credible possibility that it would by then have approached the 2.35 hours per year that was observed for 2018. 13 As already noted, the duration of outages for enterprises in the Vientiane capital region was around 66 hours per year in 2012. By the time the baseline was finally established for the PGI Project at the end of 2018, some activities to improve the network had already been initiated. Overall, there has obviously been a substantial improvement since the approval of the PGI project, which clearly indicates that this target (10 per cent improvement) has been substantially exceeded. The slight natural fluctuation of the SAIDI between 2018 and 2020 is inherent to operational conditions (severe weather events, available resources including spares) and does not compromise the achievement. 14 EDL confirmed, by letter in July 2021, that the implementation of smart metering resulted in the lowering of the power distribution loss to the region (by 14 percent) during May and June 2021 (in line with the target). Reasons provided by EDL for the previously higher level of losses included the age of the meters, screens that were blurry and could not be properly read, non-replacement of dead meters due to the previous lack of new inventory in stock, electricity theft, lack of maintenance including failure to prune trees and bushes under the power lines, and the large increase in the number of customers (from 42,000 to 76,000 in the project area during the implementation period). Note that the definition of electricity losses used for the project relates to the billed energy, not what was actually paid for. Page 13 of 48 The World Bank Power Grid Improvement Project (P149599) the PGI Project, the definition of distribution losses according to the PAD is “the difference, measured in percentage, between total net injected generation and total energy billed to customers.” This definition was highly appropriate for this project, which was primarily focused on key technical improvements and did not focus on the improvement of EDL’s bill collection or theft control activities. 27. EDL kept records of energy supply at substations, billed energy consumptions, and thus energy loss of the distribution network at the country, province, and district levels. Investment in smart meters and digital meters, transformers, medium voltage/low voltage conductor upgrades, and information systems were made to help cut distribution losses toward the country’s level. The cost savings from distribution loss reduction would improve the financial condition of EDL, which was not fully recovering its T&D costs. 28. The targeted reduction in distribution losses has essentially been fully achieved at the closing date and is on track to full achievement in the near term as confirmed by more recent data provided by EDL, which takes account of the positive effects of the installation of advanced metering. EDL confirmed, by letter in July 2021, that the implementation and commissioning of smart metering just before and after the actual project closing date resulted in the lowering of the power distribution loss during May and June 2021 to the region of 14 percent (in line with the target). 29. The deployment of advanced metering was a new initiative for EDL . The implementation of advanced metering under the project covered approximately 20 percent of the customers of the district, while the remaining 80 percent of the customers were still using analog meters at the project closing date. The further expansion of advanced metering is expected to be implemented by EDL when financial conditions allow. Objective 2: Improved reliability of power distribution in the selected load areas Rating: Substantial 30. At project appraisal, there were challenges in accurately estimating the system reliability due to the lack of modern equipment and tools , which resulted in manual recording of outage data in a piecemeal manner and a likely systemic underestimation of the extent of outages, particularly at the higher (sub-transmission) voltage levels. Baselines were established for SAIDI and SAIFI during project implementation with the help of specialized consultants recruited by the project, and the baseline data reflected the metrics at the end of 2018. Although there was no accurate assessment of SAIDI available at approval, there was a dramatic improvement (by a factor of 20 times) between 2012 and 2018. It is evident that a substantial improvement in SAIDI and SAIFI was achieved since the project was approved in June 2015. The progress in both cases well exceeded the 10 percent reduction levels set out in the Results Framework. 31. Accurate measurement of SAIDI and SAIFI brings the added advantage of awareness for network operators, which encourages behavioral changes to improve efficiency in network operations. Before the introduction of modern equipment and tools to accurately measure outage data, these data were not systematically collected. With the introduction of the new tools and measurements, operators can introduce new procedures aimed at minimizing network interruptions, including improved procedures for planned network maintenance to avoid shutdowns, and faster interventions to react to unplanned network failures. Page 14 of 48 The World Bank Power Grid Improvement Project (P149599) Justification of Overall Efficacy Rating 32. The overall efficacy rating is Substantial. As measured by relevant and attributable indicators, all indicator targets except one were fully achieved or exceeded, and the other indicator target was essentially achieved and on track to be fully achieved. C. EFFICIENCY Assessment of Efficiency and Rating Rating: Substantial 33. Economic analysis. The expected economic rate of return (ERR) and economic net present value (ENPV) for the project at completion were a robust 35.8 percent and US$61.2 million, respectively, indicating that the project was highly economically attractive and increased social benefits by distributing more power with improved efficiency and reliability. These updated estimates were comparable to the expected ERR of 37 percent and ENPV of US$62.9 million that were calculated at appraisal based on a standard cost-benefit analysis. The detailed methodology and results are presented in annex 4. 34. Financial analysis. The expected financial internal rate of return (FIRR) and the financial net present value (FNPV) for the project at completion were a robust 19.3 percent and US$149 million, respectively. These updated estimates were comparable to the expected FIRR of 20 percent and FNPV of US$153 million that were calculated at appraisal. The FIRR is well above the 6 percent weighted average cost of capital (WACC) hurdle rate. The financial indicator shows that the project was financially attractive. The detailed methodology and results are presented in annex 4. 35. In addition to a stable macroeconomic environment, some key features of the project design and implementation contributed to enhancing its efficiency. While the scale of the PGI Project was modest when compared to EDL’s overall PDSR Program, it allowed the utilization of IDA resources by EDL for an investment in an area where the additional investment would have a major effect on improving network efficiency and a substantial effect on improving reliability while having a positive demonstration effect for EDL and a high economic, financial, and societal value. 36. Implementation and administrative efficiency. The relatively simple design focused on improving a specific area of the network that was experiencing the highest distribution losses in the country. The physical implementation ran relatively smoothly with the exception of the accidental death of a worker on the project that led to a three-month hiatus to investigate the root cause and institute improved safety protocols.15 The major works were already essentially completed before the onset of the COVID-19 restrictions (including border closures) in March 2020. A one-year extension was agreed until the end of March 2021 to facilitate the installation and commissioning of the new advanced metering and use the project savings from competitive procurement of major packages to provide an electronic HR/payroll system and new safety equipment. The project extension did not have any material negative impacts on the outcomes or efficiency. 37. Value added by the World Bank. The World Bank made substantial contributions to help ensure the success of the project and foster sustainable improvement in EDL operations. The client recognized 15 The accident is described later in the ‘Key Factors that affected implementation and outcome’ section. Page 15 of 48 The World Bank Power Grid Improvement Project (P149599) these contributions in its Completion Report Summary, as provided in annex 5. The introduction and embedding of modern metrics (SAIFI and SAIDI) into EDL’s O&M planning will improve scheduling of maintenance and will help sustainably improve overall system reliability for the public benefit. This is an example of a soft measure that can have a big impact. 38. Rationale for public finance. The project is inherently unsuitable for attracting private finance, as it is an integral part of EDL’s network and does not generate a separate bankable revenue stream. 39. Based on the positive economic and financial analysis results and the lack of seriously adverse design or implementation issues aside from the fatal accident from which important safety lessons were learned, the efficiency of the project is rated Substantial. D. JUSTIFICATION OF OVERALL OUTCOME RATING 40. The overall outcome rating of the project is Satisfactory . The PDO was highly relevant at the time of project design and is still highly relevant to the needs of the Lao PDR electricity sector and the World Bank’s CPS for Lao PDR. All except one of the indicator targets were fully achieved or exceeded, and the other indicator target was essentially achieved and on track to be fully achieved. The efficiency of the project is in line with expectations for the operation’s sector. Given that the relevance is rated High, efficacy is rated Substantial, and efficiency is rated Substantial, the overall outcome is rated Satisfactory. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 41. The project was not designed to address specific gender gaps. However, gender impacts were included in the Results Framework: percentage of female project beneficiaries was included as a PDO- level indicator (target of 50 percent that was met), and targeted training of female EDL staff (which numbered about 20 percent of total staff) on capacity-building activities was fully achieved. In addition, another World Bank-supported operation (HMTA) included a focus on upgrading the technical and managerial capabilities of female staff of the relevant ministry (Ministry of Energy and Mines [MEM]), and this led to significant levels of female staff advancement that set a good precedent for state enterprises, including EDL. Institutional Strengthening 42. Component 3 of the project was intended to cover institutional capacity building, including building EDL staff capacity in areas including safety enhancement, FM, and utilization of management information systems. These activities were actually carried out under multiple project Components 1, 2, and 3, and all the objectives were largely achieved. Further detailed information is included in the client’s Completion Report Summary (annex 5). Mobilizing Private Sector Financing 43. This was not a focus of the project, which was designed to utilize the available IDA resources without the need for co-financing. Page 16 of 48 The World Bank Power Grid Improvement Project (P149599) Poverty Reduction and Shared Prosperity 44. The project improved the efficiency and enhanced the reliability of electricity service in a peri- urban district undergoing fast population and commercial and industrial growth. This contributes to an improved quality of life among the population and enhances the prosperity of commercial and industrial enterprises and vulnerable groups, including small-scale vendors16. It also improved EDL’s financial performance through savings from lower network losses. 45. The project was aligned with the WBG’s 2013 Energy Sector Directions Paper, which pledged to support clients in delivering the affordable, reliable, and sustainable energy needed to help achieve the WBG’s twin goals of eliminating extreme poverty and promoting shared prosperity. This was achieved through the project’s distribution efficiency gains and improving EDL’s financial performance. Other Unintended Outcomes and Impacts 46. Following a tragic safety incident resulting in the loss of a life, EDL has improved its safety protocols, including adopting recommendations made by the World Bank. This issue is discussed below in the section ‘Key Factors During Implementation’. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION Project Design 47. The PGI Project design was aligned with a larger EDL investment program already under way that was aimed at making fundamental improvements to the electricity network . EDL’s distribution network was controlled manually, and automation was limited to the local equipment. In case of failure of a feeder, switching to another feeder (backup) was done manually - initiated by telephone calls by customers or detection of failures at the substation. No fault location isolation and service restoration or volt-VAR17 optimization systems were applied. Pilot activities had started for feeder-level data collection and monitoring. EDL’s PDSR Program was introducing a distribution automation system; a fault detection, investigation, and restoration system; and a distribution management system/SCADA system in Vientiane, Savannakhet, Khammouane, and Champasak provinces. The proposed PGI Project was designed to coordinate with these activities and was focused on a specific fast-growing district (Xaythany) that had the highest level of distribution losses in the country. By focusing on a specific district, the PGI Project was designed to proceed in parallel with the other EDL investments without undue overlap. 48. Due to limited IDA funding, it was possible for the PGI Project to provide AMI for only around 20 percent of the customers in the selected load areas. EDL has indicated its intention to complete the advanced metering rollout throughout the district once additional funding is made available for this purpose. 16 According to the client’s Completion Report Summary, there are more than 73,357 residential and 2,157 non-residential customers that are benefitting through the PGI project intervention. 17 VAR = Volt-ampere reactive. Page 17 of 48 The World Bank Power Grid Improvement Project (P149599) Objectives and Results Framework 49. The objectives of the PGI Project were clearly defined, targeted toward addressing specific issues, and highly relevant to the urgent need to improve the efficiency and reliability of utility operations. The objectives were measured by a realistic set of results indicators to assess their achievement as formulated in the DPO. 50. Baseline values for SAIDI and SAIFI were calculated during implementation and were only available at the end of 2018, almost three years after project effectiveness. This was problematic for the accurate assessment of the SAIDI performance against its target; however, there was clear evidence that the required 10 percent improvement was exceeded. Overall, the targets were realistically set and the indicators provided an adequate assessment of the key intended results of the operation. Risk and Mitigation Measures 51. The key risks associated with the PGI Project were by and large adequately identified at the design stage. The main identified risks that could substantially affect the PDOs revolved around fiduciary aspects and the financial position of EDL. 52. An FM capacity assessment of EDL that was undertaken in January 2015 confirmed that it had adequate FM systems and related capacity in place to satisfy the World Bank’s OP/BP 10.00 with respect to FM. EDL had already implemented multiple World Bank-funded projects in a satisfactory manner. The overall FM risk was assessed as “Moderate” at appraisal. 53. Based on a procurement capacity assessment undertaken in preparation of the project, the overall procurement risk was considered ‘Substantial’. It was agreed that a dedicated procurement consultant acceptable to the World Bank would be engaged for the duration of the implementation period. 54. Prior to and during the project implementation period, EDL’s T&D business incurred financial losses and also experienced financial liquidity problems from fronting new generation investments on behalf of the generation business (EDL-Gen). The World Bank and International Finance Corporation (IFC) jointly facilitated the Lao PDR authorities in developing the Second Action Plan for Financial Sustainability of EDL and the Lao PDR Power Sector (Financial Action Plan [FAP]), covering 2013–2017. Since the PGI project was an important engagement instrument at that time, the respective Financing Agreement between Lao PDR and IDA that governed the terms of IDA credit included covenants, applicable to the recipient and EDL: (a) to implement the existing FAP, (b) to update the FAP by June 30, 2017, and (c) EDL’s total debt to equity ratio to be equal to or less than 2:1. 55. In terms of climate and geophysical hazards, according to the WBG Climate and Disasters Risk Screening Tool, the project was moderately exposed to strong winds and slightly exposed to drought, which may directly affect project implementation and operation. For instance, strong winds may disrupt construction activities or cause physical damages to infrastructure during the operating phase. Excess drought may cause fire accidents, which may cause physical damages. The project was less exposed to flooding as most of the distribution equipment is above ground level and can continue to operate safely during flooding. Page 18 of 48 The World Bank Power Grid Improvement Project (P149599) 56. The PGI Project was a relatively straightforward operation that involved rehabilitation and upgrading activities in a specific distribution network territory. All the proposed costs were covered by the IDA resources, so there were no investment co-financing challenges. EDL had already commenced implementation of the larger PDSR Program that involved complex elements of distribution rehabilitation and upgrading (for example, implementation of the new distribution SCADA system, supply and installation of distribution automation equipment, and so on). 57. EDL had experience in managing the implementation of multiple World Bank-funded projects such as Southern Provinces Rural Electrification, REP I, REP II, and GMS Power Trade (Lao PDR). The same project office structure was to be used for this project, and three staff involved with FM of the previous project were being assigned to manage this project. Over the years, EDL had developed internal capacity to implement World Bank-funded projects, although some experienced staff have been rotated to other responsibilities. The World Bank committed to provide refresher training and hands-on implementation support for the current EDL staff to implement the project. Component 3 of the project was designed to enhance EDL institutional capacity and played an instrumental role in smooth implementation of the project. 58. The operation progressed from initial concept through decision, approval, effectiveness, and first disbursement in a relatively fast 16.8 months. 59. In summary, the objectives were realistic, the technical design was simple and clearly structured, the Results Framework was generally well articulated, key risks were generally adequately identified, and the operation moved rapidly to implementation. B. KEY FACTORS DURING IMPLEMENTATION Factors Subject to the Control of Government and/or Implementing Entities 60. The major goods supply and installation packages—distribution improvement and automation and FMIS—were awarded in good time by January 2017. Field works to install the distribution infrastructure commenced in mid-2017. Procurement of the AMI commenced in mid-2017 based on inputs from the AMI consultancy. The advanced metering implementation was delayed by several months due to the unanticipated need to have the digital meters certified upon arrival in Lao PDR by the Ministry of Science and Technology. 61. A workplace fatality in January 2018 led to a three-month hiatus while the accident was investigated and safety measures in the workplace were enhanced. An EDL technician suffered a fatal fall from near the top of a utility pole after touching an energized line. Although the correct procedure is to de-energize the line before commencement of work by disconnecting it at both of the terminal substations, in this case it was disconnected at only one of the substations and remained live. EDL paid adequate monetary compensation to the family of the deceased worker and also offered employment to his younger brother. EDL agreed to implement the World Bank’s recommendation that the safety checklist procedure and form completion for a power shutdown operation must be done before work can start rather than afterward as had been the practice. EDL took actions to provide more safety trainings and increase safety monitoring at construction sites to ensure proper safety protocols will be followed strictly. The World Bank also recommended that EDL regularly conduct internal safety audits as part of the EDL Page 19 of 48 The World Bank Power Grid Improvement Project (P149599) safety management system. This internal audit will allow EDL to conduct a regular gap analysis to identify safety issues/risks and address them. 62. The overall financial condition of EDL worsened by some measures during the implementation period of the PGI Project. Two covenants related to the financial performance of EDL (as mentioned above in the ‘Key Factors During Preparation’ section) eventually had to be waived. In particular, a covenant regarding the improvement of the debt-to-equity ratio was in hindsight seen to be unrealistic and unachievable in the absence of a balance sheet restructuring (recapitalization) of EDL. 18 A working group had already been established (prior to the approval of the PGI Project) comprising officials from the MOF, MEM, and EDL to propose actions to be undertaken to ensure financial sustainability of the power sector. As reported in the PAD, the Lao PDR authorities were considering the following activities during the proposed project implementation: (a) review of electricity tariffs beyond 2017, (b) clear separation of investment and debt borrowing by EDL and EDL-Gen, (c) review recapitalization of EDL, (d) centralized billing and payment of electricity charges for public sector customers starting in FY15, and (e) additional T&D loss reduction activities. Under the World Bank-supported HMTA project, the Government requested the World Bank’s support to carry out a review of electricity tariffs and a social assessment on tariff affordability in designing a new tariff instruction after 2017. Despite its financial challenges, EDL was able to mobilize additional funding and other support that helped achieve the project objectives, including providing additional metering in areas adjacent to the project, and using support from the HMTA project helped in carrying out a review of electricity tariffs and a social assessment of tariff affordability in the design of a new tariff instruction after 2017. Factors Subject to the Control of the World Bank 63. The World Bank supervision appeared to include good follow-up and resolution of implementation issues. Biannual supervision missions were conducted thoroughly and documented, and the 11 Implementation Status and Results Reports (ISRs) were generally well detailed and appeared to offer a candid assessment of issues and progress. There was good continuity with two task team leaders during implementation and good support from team members consisting of all the relevant resources needed, including those related to technical, fiduciary (finance and procurement), and social and environmental safeguards aspects. It is also well recognized that having task team leaders and task team members located in the country and regional offices has benefitted the project in further assisting with supervision in a more effective and timely manner. Factors outside the Control of Government and/or Implementing Entities 64. While Lao PDR responded well to the COVID-19 outbreak from a public health perspective, the disease nonetheless had a severe impact on the functioning of the economy and disrupted international supply chains for key equipment and supplies. This had a significant negative impact on EDL’s financial 18 The limited nature and the scope of the PGI Project activities and instruments were not designed to realistically support such a level of improvement in EDL’s financial condition. This noncompliance and subsequent waiving did not have any impact on project efficacy or efficiency. Given that the financial condition of EDL worsened in key respects during implementation (partly due to the onset of the COVID-19 pandemic), it was impractical to revise the affected covenants and they instead needed to be waived. Nevertheless, discussions on the covenants were useful in keeping the dialogue going, which paved the way for further work in this area. The World Bank is currently preparing a new operation that will focus on supporting the sustainable improvement of EDL’s financial condition. Page 20 of 48 The World Bank Power Grid Improvement Project (P149599) condition but had a negligible impact on the project outcomes because the project was already nearing completion and was successfully completed during the one-year extension period. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 65. The operation’s TOC is clear and straightforward, although it was not explicitly formulated in the PAD. The baselines for the SAIDI and SAIFI indicators were set during implementation due to the lack of adequate measurement capacity and tools at project approval stage. However, proxy data were available in the PAD, which allowed a reasonable estimate of the original values for use in this ICR and was sufficient to robustly assess the results. M&E Implementation 66. The M&E function was managed satisfactorily by EDL for reporting. EDL monitored progress of the components against the performance indicators and prepared annual progress reports on project implementation. EDL established baseline values for the indicators that did not have them already (although this took almost three years to put in place), and these were validated by the World Bank. The technical assistance activities had their own M&E mechanism. A midterm review was carried out in early 2018 to take stock of implementation progress. M&E Utilization 67. Key M&E data from the project, particularly for SAIFI and SAIDI, are fundamental for optimizing effective O&M of the local distribution network and will no doubt be used more broadly across the entire network in line with good utility practice. Justification of Overall Rating of Quality of M&E 68. There were some shortcomings in the M&E system’s design and implementation ( specifically related to the delay in setting baselines for the SAIFI and the SAIDI as discussed above). Hence, the overall rating of M&E quality is assessed as ‘Modest’. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Social and Environmental Safeguards 69. Overall, the social and environmental safeguards were addressed adequately in the project design to minimize social and environmental impacts. The project was classified as Category B and triggered three environmental and social policies: OP 4.01 (Environmental Assessment), OP 4.11 (Physical Cultural Resources), and OP 4.12 (Involuntary Resettlement), as described in the following paragraphs. 70. OP 4.01 - Environmental Assessment was triggered as certain mitigation measures and monitoring actions needed to be implemented during the civil works both during the construction and Page 21 of 48 The World Bank Power Grid Improvement Project (P149599) O&M phases to minimize, prevent, and reduce possible temporary and site-specific impacts on the environment. 71. The environmental and social risks were limited due to the rehabilitation nature of the project, with no involuntary resettlement or involuntary land acquisition. The expected social impact applied to the project was voluntary land donation for the installation of about 50 new power poles along a 9 km section of provincial public road and was located in the paddy fields. 72. The project triggered OP 4.12 - Involuntary Resettlement. Protocols for Voluntary Land Donation (PVLD)19 and a Resettlement Policy Framework were included in the Environmental and Social Management Plan. 73. The project also triggered OP 4.11 - Physical Cultural Resources as a precautionary measure to avoid impacts to stupas, pagodas, or other cultural and historical resources. From the initial site survey, there were no physical cultural resources found within the existing 22 kV distribution right-of-way, which is located along the existing road (National Road 13 South). A detailed survey to identify physical cultural resources at the location of the additional poles was conducted during the implementation phase. 74. The project complied with the triggered safeguards policies. The project was also well-supported by electricity customers in the project area who stood to benefit from improved reliability of electric services, and no complaints were logged. The safeguards rating at project close was ‘Satisfactory’ for both environmental and social safeguards. Procurement 75. The procurement team included staff members from the EDL procurement office under the Department of Business with support from the international procurement consultant. All packages under the project were procured, and contractual commitments reached US$29.96 million (100 percent), including two contracts totaling approximately US$1.2 million that used project savings. Procurement performance was rated ‘Highly Satisfactory’ at project closure. Financial Management and issues with EDL’s Audited Financial Sta tements 76. This area presented some challenges that were eventually resolved except for one issue (timing of audited financial statements). There were substantial deficiencies in compiling a project asset register, updating contract monitoring arrangements, documenting the use of funds in the Designated Account including explaining questionable expenditures, and the timing of audited report submissions. The provision of audited financial statements on time has continued to be challenging, and the expectation included in the Results Framework (four months after end of financial year) appears to be unrealistic given the complex nature of EDL operations. The audited reports for 2018 and 2019 flagged two irregularities — improper use of project funds to repay interest on the IDA loan on behalf of the Government of Lao PDR and overstatement of certain consultancy expenditures. These issues were flagged to the top management of EDL and were recently resolved. Given the project closing date was March 31, 2021, it was decided to extend the period of the 2020 financial report to cover the first quarter of 2021, and the 19The PVLD included detailed documentation indicating the appropriateness of the voluntary land donation, description of owners and users of land donated, procedures for consultation and disclosure, informed consent of the person donating the land, legal documentation indicating the transference of land donated, and grievance redress procedures and mechanisms. Page 22 of 48 The World Bank Power Grid Improvement Project (P149599) audited report for this consolidated period is expected to be available during the third quarter of 2021. FM performance rating was rated ‘Moderately Unsatisfactory’ at project closure. C. BANK PERFORMANCE Quality at Entry 77. The technical design of the project was sound and well targeted. It sought to improve the efficiency and reliability of power supply by making basic and advanced technical improvements in an area of the network that had sustained the highest distribution losses in the country. The design was relatively simple and self-contained, and the project was sized to use all the available IDA resources without the need for additional co-financing, thus enabling its fast preparation and launch. EDL was already committed to provide substantial amounts of co-financing to support its larger PDSR Program that was already under implementation. 78. The SAIDI and SAIFI are common utility key performance indicator (KPI) that were not monitored by EDL. The project intended to improve EDL’s capacity in assessing these KPIs. Therefore, adequate measurement capability and tools needed to be put in place to set the baselines for these two KPIs which took almost three years. 79. The planned implementation arrangements took proper account of the World Bank’s emphasis on fiduciary matters (finance, procurement, legal, and safeguards). EDL was already experienced in working with the World Bank on previous projects, and this project was within the usual business activities of EDL with the assistance of the specialist contractors and consultants to be procured under the project. EDL’s PDSR Program was already under implementation in adjoining areas of the network using similar technologies, processes, and methods. Quality of Supervision 80. As noted earlier, the World Bank supervision appeared to include good follow-up and resolution of implementation issues. Biannual supervision missions were conducted thoroughly and documented, and the ISRs were generally well detailed and appeared to offer a candid assessment of issues and progress. There was good continuity with two task team leaders during implementation and good support from the country and regional offices. Justification of Overall Rating of Bank Performance 81. The rating of the World Bank Performance is assessed as ‘Satisfactory’. Minor shortcomings in quality at entry and quality of supervision were addressed efficiently on time. D. RISK TO DEVELOPMENT OUTCOME 82. The risk that the development outcomes achieved by the project may not be sustained is low. The risks include (a) deterioration over time in the efficiency and/or reliability of electricity supply arising from increasing energy consumption in the district, (b) insufficient future investment in the power system to properly operate and maintain the distribution network, (c) lack of finance for maintenance, and (d) weather-related disruption and damage to infrastructure. The trend is likely to continue to be positive in Page 23 of 48 The World Bank Power Grid Improvement Project (P149599) line with the long-standing progress to date. All of the project-introduced investments and systems were successfully put into service and are believed to be operating normally. 83. Criminally or politically motivated cyberattacks are an emerging category of operational risk that can disable power grids and need to be protected against, particularly with the wider adoption of advanced digital technologies. It is wise to ensure that critical systems can continue to operate in low- tech or manual mode if high-tech digital components are disabled. However, this should not constitute an ongoing risk to development outcome. V. LESSONS AND RECOMMENDATIONS 84. Projects that are primarily directed at fixing clearly identified technical deficiencies with proven technologies and methods, and that are obviously affordable and supported by adequate governance structures, are more likely than not to achieve their intended objectives. Given that the district selected had the highest levels of distribution losses in the country, it was an obvious candidate for project selection. While improvements can be made in sector regulation, this did not affect the progress or viability of this discrete project. The experience gained from the project can be subsequently scaled up and replicated to other load areas with high losses. 85. The fatal accident that occurred to an EDL workman on the project site is a compelling reminder that safety in the workplace is a top organizational priority that needs to be systematically embedded in utility management and operations. The project works were suspended for three months while EDL assessed the needs related to safety, including equipment, safety training, and technical support, which may be addressed through the project. Additional safety equipment was procured. Though additional equipment and processes were put in place, EDL should further consolidate a robust institutional culture and capacity that ensures that safety is properly prioritized and enforced throughout its own organization and among its interfacing contractors. It is essential to prioritize a culture of safety in the organization that is clearly signaled from the top and extends throughout the organization and its supervision of external contractors. 86. The long delay in setting up baselines for some key indicators is a reminder that good project preparation can take a long time. There can be tension between the need to use IDA resources quickly and taking the time to do the necessary up-front work. Key M&E issues should be flagged to the counterparts as soon as possible during appraisal to facilitate planned operations. 87. Introducing ambitious financial covenants to improve the condition of a large state-owned electric utility is a natural reflex for a multilateral financial institution and is obviously well intentioned for broader engagement; however, experience shows that these can be challenging to implement in the context of a single investment operation. Major setbacks inevitably occur, some global and others more regional and local. There is nonetheless a clear merit in keeping the financial sustainability issue on the table and facilitating dialogue with key government counterparts that would be more difficult to do if the covenants are not in place. Sustained progress is most likely to happen in the context of an ongoing and future involvement, such as what happened with the HMTA Project that was able to successfully contribute to a beneficial sector policy evolution over a 10-year period. Page 24 of 48 The World Bank Power Grid Improvement Project (P149599) . ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Improve efficiency and reliability of power distribution in selected load areas served by EDL Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Average interruption Number 19.14 17.23 10.30 frequency per year in the project area 31-Dec-2018 31-Mar-2020 31-Mar-2021 Customers served in the Number 47060.00 67500.00 70,268.00 project area Comments (achievements against targets): The original target was 17.23 times per customer (10 percent below baseline for the average interruption frequency in the project area is 19.14 times per customer). At project close, the indicator achieved 10.30 times per customer (exceeding the target of 17.23 times per customer). Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Electricity losses per year in Percentage 24.00 14.00 14.31 the project area 31-Dec-2014 31-Mar-2020 31-Mar-2021 Page 25 of 48 The World Bank Power Grid Improvement Project (P149599) Total net injected Megawatt 239100.00 335500.00 362,669.00 generation hour(MWh) Comments (achievements against targets): EDL letter in July 2021 indicating that target was subsequently met. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 207,000.00 297000.00 306,666.00 31-Dec-2014 31-Mar-2020 31-Mar-2021 Female beneficiaries Percentage 50.00 50.00 50.00 Comments (achievements against targets): Calculated 4.5 person per household per meter. A.2 Intermediate Results Indicators Component: Smart metering, distribution improvement and distribution losses reduction Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 26 of 48 The World Bank Power Grid Improvement Project (P149599) Target Completion Residential electric meters Number 0.00 15000.00 15,163.00 installed 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): Target Achieved and Exceeded. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Non-residential electric Number 0.00 1500.00 1,875.00 meters installed 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): Target achieved and exceeded. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Distribution lines Kilometers 0.00 300.00 366.00 rehabilitated under the project 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): Page 27 of 48 The World Bank Power Grid Improvement Project (P149599) Target exceeded. 22 kV Conductor Replacement (150 mm2 & 240 mm2): 127 Km and 0.4 kV Conductor Replacement (ABC 4x9.5 mm2) 239 Km Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Average duration of outages Hours 2.35 2.12 2.40 in the project area 31-Dec-2018 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): SAIDI: Minutes per customer per year in 2018 was 141.34, in 2019 was 56, in 2020 was 234 due to many storm incidents during the second half of 2020. Note: SAIDI in 2021 was estimated at 66 hours per year. Component: Electric utility information system Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of months to issue Number 9.00 4.00 3.00 financial statements 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): The financial statements take only 2-3 months but audited financial statements take almost 12 months because of external factors Page 28 of 48 The World Bank Power Grid Improvement Project (P149599) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Updated financial action plan Number 0.00 1.00 1.00 for financial sustainability 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): The Third Financial Action Plan was completed and endorsed by EDL and MEM. The third financial action plan was partly implemented and more support on sector financial recovery were followed. Component: Institutional capacity building and project implementation support Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of staff undergo Number 0.00 50.00 183.00 training 31-Dec-2014 31-Mar-2020 31-Mar-2021 Comments (achievements against targets): Target exceeded. Number of staff undergo trainings includes trainings on procurement, STEP, Project Management, MBMC Technical Training on Distribution equipment, Financial Management, SAP applications, Safety and Security, etc. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 29 of 48 The World Bank Power Grid Improvement Project (P149599) EDL publishing summary Yes/No No Y Yes reports of impacted household feedback received 31-Dec-2014 31-Mar-2020 31-Mar-2021 during project implementation Comments (achievements against targets): Target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion EDL publishing reports on Yes/No No Y Yes grievance redress mechanism and how issues 31-Dec-2014 31-Mar-2020 31-Mar-2021 were resolved Comments (achievements against targets): Target achieved. Page 30 of 48 The World Bank Power Grid Improvement Project (P149599) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Improved efficiency of power distribution in the selected load areas 1. Electricity losses per year in the project area Outcome Indicators Intermediate Results Indicators 1. Residential electric meters installed Key Outputs by Component 2. Non-residential electric meters installed (linked to the achievement of the Objective/Outcome 1) 3. Distribution lines rehabilitated under the project Objective/Outcome 2: Improved reliability of power distribution in the selected load areas 1. Average interruption frequency per year in the project area Outcome Indicators 2. Average duration of outages in the project area Intermediate Results Indicators Key Outputs by Component 1. Distribution lines rehabilitated under the project (linked to the achievement of the Objective/Outcome 2) Page 31 of 48 The World Bank Power Grid Improvement Project (P149599) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Rome Chavapricha Task Team Leader(s) Khamphet Chanvongnaraz Procurement Specialist(s) Phaymany Philakone Financial Management Specialist Asad Ali Ahmed Team Member Kaysone Vongthavilay Team Member Obert Pimhidzai Team Member Keomanivone Phimmahasay Team Member Vilayvanh Phonepraseuth Team Member Waraporn Hirunwatsiri Social Specialist Sybounheuang Phandanouvong Team Member Satoshi Ishihara Team Member Ruxandra Maria Floroiu Team Member Manush A. Hristov Counsel Sudeshna Ghosh Banerjee Team Member Fowzia Hassan Team Member Dejan R. Ostojic Team Member Masaki Takahashi Team Member Juan Martinez Social Specialist Supervision/ICR Leopold Sedogo Task Team Leader(s) Page 32 of 48 The World Bank Power Grid Improvement Project (P149599) Khamphet Chanvongnaraz Procurement Specialist(s) Maxwell Bruku Dapaah Financial Management Specialist Siriphone Vanitsaveth Financial Management Specialist David Jorge Baringo Ezquerra Social Specialist Thongkham Chanthavong Team Member Asad Ali Ahmed Team Member Alina Phonvisay Procurement Team Reaksmey Keo Sok Procurement Team Keomanivone Phimmahasay Team Member Siriphone Vanitsaveth Procurement Team Adu-Gyamfi Abunyewa Procurement Team Vilija Kostelnickiene Senior Operations Officer Vilayvanh Phonepraseuth Team Member Martin Henry Lenihan Social Specialist Waraporn Hirunwatsiri Environmental Specialist Sybounheuang Phandanouvong Team Member Manush A. Hristov Counsel Rome Chavapricha Team Member Dejan R. Ostojic Team Member Martin Fodor Environmental Specialist B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY15 40.127 205,908.46 FY16 .100 848.87 FY17 0 52.50 Total 40.23 206,809.83 Page 33 of 48 The World Bank Power Grid Improvement Project (P149599) Supervision/ICR FY15 11.725 5,107.90 FY16 27.677 101,353.19 FY17 32.946 127,301.15 FY18 24.655 109,204.81 FY19 18.716 72,428.84 FY20 35.482 139,356.25 Total 151.20 554,752.14 Page 34 of 48 The World Bank Power Grid Improvement Project (P149599) ANNEX 3. PROJECT COST BY COMPONENT Table 3.1. Project Costs by Component Components Amount at Actual at Project Percentage of Approval Closing (US$, millions) Approval (US$, millions) Smart metering, distribution improvement 19.00 21.43 113.00 and distribution losses reduction Electric utility information system 6.00 6.64 111.00 Institutional capacity building and project 5.00 1.32 0.26 implementation support Contingent emergency response 0.00 0.00 0.00 Total 30.00 29.39 97.70 Table 3.2 summarizes all the spending on institutional capacity building and project implementation support formally planned under Component 3 but implemented through all three components. Table 3.2. Expenditure on Institutional Capacity Building and Project Implementation Support Amended/Actual Coverage under Ref. No. Contract (Description) Contract Value Component G-09 HR and payroll system 1,141,910 Component 2 C-01 Consultancy for AMI system 1,889,003.9 Component 1 C-02 International project management and procurement 990,000 Component 3 consultant C-03 Financial auditor 99,299 Component 3 C-04 Environmental and social consultant 48,510 Component 3 C-05 Consultancy for FMIS upgrade 1,005,391 Component 2 C-06 FM consultant 6,700 Component 3 Total 5,180,813.9 Page 35 of 48 The World Bank Power Grid Improvement Project (P149599) ANNEX 4. EFFICIENCY ANALYSIS 1. A detailed ex ante economic and financial analysis was provided in annex 5 of the PAD. The economic analysis of the proposed project was based on a standard cost-benefit analysis, which identified and compared economic costs and benefits in two cases, one ‘with project’ and the other ‘without project’. 2. The primary beneficiaries of the project are EDL and the electricity customers in the Xaythany district. The economic analysis at appraisal focused on three main categories of benefits: (a) reduced distribution losses, (b) reduced power outages, and (c) reduced CO2 emissions from lower energy imports/generation. (a) Reduced distribution losses. This project aimed to help improve efficiency and reliability of power distribution in the Xaythany district, which had a distribution loss estimated at 24 percent—about double the national average. The project aimed to reduce the distribution losses to 14 percent, generating energy savings of 42 GWh in 2019 and cumulative energy savings of 2.3 TWh by 2040. For this economic analysis, the base case value for the saved energy was taken as the willingness to pay, estimated at US¢13.6 per kWh. (b) Reduced outages. Enterprise survey results from 2012 estimated that for Vientiane capital, the average outage duration for a month was about 5.5 hours, leading to a sales loss of 2 percent and forcing about 8.4 percent of firms to buy or share generators. A graphic included in the PAD showed that compared to its regional peers, Vientiane did relatively well in these infrastructure indicators with just 18 percent of firms identifying electricity as a major constraint, compared to Phnom Penh and Yangon, where 36.8 percent and 24.4 percent of firms, respectively, identified electricity as a major constraint. Feeder-level outage data were used to conservatively estimate the outage duration for the Xaythany district. It was assumed that outages would decrease by 20 percent as a result of the project. As the demand for electricity increases, the reduction in outages would lead to a cumulative increase in sales of 1.3 GWh by 2040. The economic benefits from the reduction of outages were valued at the costs of electricity to the end users (that is, the average opportunity cost of the energy when outages occur). For this analysis, this cost was assumed to be US¢30 per kWh, typically assumed as cost of diesel-based generation, anticipated as the opportunity cost of outages. (c) Reduced CO2 emissions. Lower electricity generation resulting from a reduction in technical losses will also yield a reduction in CO2 emissions because part of the generation comes from fossil fuel-fired power plants. The emissions factor used to calculate the avoided CO2 emissions from energy savings was based on the average operating margin emission factor methodology as prescribed by the UNFCCC.20 The average operating margin emission factor is calculated as the average emission rate of all power plants serving the grid. The emissions factor used in this analysis is derived from the CDM 21 projects registered in Lao PDR in 2014. Using an emissions factor of about 560 tCO2 per GWh the project leads to a cumulative CO2 20 UNFCC = United Nations Framework Convention on Climate Change. 21 CDM = Clean Development Mechanism. Page 36 of 48 The World Bank Power Grid Improvement Project (P149599) emissions savings of 1.27 million tons. These emissions were valued at US$30 per tCO2 based on a World Bank Guidance Note. 22 3. At project appraisal, there were about 46,000 residential and 1,100 non-residential customers in the district. The number of households was assumed to grow at a rate of 5,000 per year until 2020, and then at the urban population growth rate, as forecasted by the United Nations, until 2040. The consumption per household in Xaythany was assumed to grow at an annual rate of 4.2 percent, the same as Thailand’s annual household consumption growth rate from 2000–2012, according to the World Energy Council. Thailand’s household consumption growth rate was chosen as a proxy, as it represented a middle- income East Asian economy, which had achieved a steady growth rate and a reasonable household consumption level. 4. Economic benefits and costs were estimated at constant 2014 prices. Taxes (5 percent) and physical and price contingencies (5 percent) were stripped out from the financial capital cost of infrastructure investment, US$27.7 million, to yield an economic capital cost of about US$24.9 million. The O&M of 2 percent was applied from 2017. The analysis was built over 25 years and used a discount rate of 10 percent. The expected project ERR was calculated at 37 percent, and the expected project ENPV was calculated at US$63 million. 5. Economic sensitivity analyses at appraisal showed the following results: (a) Excluding the CO2 benefits, the ERR was estimated at 33 percent and the ENPV at US$53 million. (b) Limiting the economic benefits to technical loss reduction only (not including commercial loss reduction) using two different calculation methodologies showed ERR estimates of 15 percent and 18 percent and ENPV estimates of US$10 million and US$18 million.23 (c) If benefits were valued at the cost of supply (assumed at US¢5 per kWh) instead of the estimated willingness to pay, the estimated ERR was 22 percent and the estimated ENPV was US$24.5 million. 6. The financial analysis at appraisal is based on the estimated incremental financial costs and revenues for EDL deriving from the project. The capital cost considered, including taxes and contingencies, was estimated at US$27.7 million. The IDA project fee of 0.75 percent was applied to the disbursed amount.24 O&M cost of 2 percent was applied from year 4 onward. The project was assumed to derive incremental revenue from two sources: (a) higher electricity revenues due to decrease in outages and (b) higher electricity revenues from reduction in losses. The revenues were valued at the estimated weighted average retail tariff of US¢9.3 per kWh. Given that the project is IDA funded at a concessional rate, the 22 Social Value of Carbon in Project Appraisal: Guidance Note to the WBG Staff. 23 It was stated in the PAD that typically only the reduction in technical losses can be considered as an economic benefit; however, due to lack of data, commercial and technical losses could not be separated. The sensitivity analyses tried to address this by valuing the economic benefits from technical loss reduction only, based on a consultant report prepared for EDL and the World Bank in 2013. 24 An on-lending fee of 2.3 percent was levied on EDL by the MoF. As this was omitted from the analysis at appraisal, it was also omitted from the analysis at ICR stage in order to maintain comparability. Page 37 of 48 The World Bank Power Grid Improvement Project (P149599) WACC was estimated at about 0.4 percent.25 The expected project FIRR was calculated at 20 percent, and the expected FNPV was calculated at US$153.77 million. 7. Updated economic and financial analysis results. After an examination of the expected (base case) and sensitivity case assumptions at appraisal and the actual progress of the project, the only substantive change made to the original base case assumptions was to allow for the one-year delay for the completion of the project. This led to a small reduction in the values of the resultant key metrics, which remained robust, as seen in table 4.1. The additional economic sensitivity cases for the different benefit stream values were not repeated for the ICR as there was no further information available to clarify these assumptions (particularly the split between technical and non-technical losses), and in any case, repeating the same sensitivity analyses with the same assumptions would have had the same effect on the estimated results as before. Table 4.1. Estimates of Key Economic and Financial Performance Metrics (at appraisal, and updated at ICR) Parameter At Appraisal Updated at ICR ERR (percent) 37.0 35.8 ENPV (US$, millions) 62.9 61.2 FIRR (percent) 20.0 19.3 FNPV (US$, millions) 153.7 149.4 8. Implementation and administrative efficiency. The relatively simple design focused on improving a specific area of the network that was experiencing the highest distribution losses in the country. The physical implementation ran relatively smoothly with the exception of the accidental death of a worker on the project that led to a three-month hiatus to investigate the root cause and institute improved safety protocols. The major works were already essentially complete before the onset of the COVID-19 restrictions (including border closures) in March 2020. A one-year extension was agreed to in March 2021 to facilitate the installation and commissioning of the new advanced metering and use the project savings to provide an electronic HR/payroll system and new safety equipment. 9. Value added by the World Bank. The World Bank made substantial contributions to help ensure the success of the project and foster sustainable improvement in EDL operations. For example, the introduction and embedding of modern metrics (SAIFI and SAIDI) into EDL’s O&M planning will improve scheduling of maintenance and will help sustainably improve overall system reliability for the public benefit. This is an example of a soft measure that can have a big impact. 10. Rationale for public finance. The project is inherently unsuitable for attracting private finance, as it is an integral part of EDL’s network and does not generate a separate bankable revenue stream. The project was fully funded by IDA. The counterpart EDL was already severely stretched with trying to finance its ongoing PDSR Program. 25WACC is based on IDA’s regular financing terms of a 38-year maturity, six-year grace period, 0.75 percent per year fee on a declining balance, and principal pay-down starting in year 7. Using these terms, the equivalent interest rate is 0.42 percent. Page 38 of 48 The World Bank Power Grid Improvement Project (P149599) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Page 39 of 48 The World Bank Power Grid Improvement Project (P149599) Page 40 of 48 The World Bank Power Grid Improvement Project (P149599) E Page 41 of 48 The World Bank Power Grid Improvement Project (P149599) Page 42 of 48 The World Bank Power Grid Improvement Project (P149599) Page 43 of 48 The World Bank Power Grid Improvement Project (P149599) Page 44 of 48 The World Bank Power Grid Improvement Project (P149599) Page 45 of 48 The World Bank Power Grid Improvement Project (P149599) Page 46 of 48 The World Bank Power Grid Improvement Project (P149599) Page 47 of 48 The World Bank Power Grid Improvement Project (P149599) ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) • Borrower Completion Report - Executive Summary, 2020 • Project Appraisal Document, 2015 • Implementation Status Reports (No. 1 to No. 11) • Mission Aide Memoires • Project Restructuring Papers, 2020 • Safeguards Incident Report, 2018 • Memo - Findings and Conclusions regarding a fatal incident on one of the project sites (Vientiane Capital), 2018 • 8th National Socio-Economic Development Plan (2016–2020) • 9th National Socio-Economic Development Plan (2021–2025) • World Bank Systematic Country Diagnostic, 2017 • Country Partnership Framework for FY17–FY21, 2017 Page 48 of 48