ICRR 14542 Report Number : ICRR14542 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 01/28/2015 Country : Tajikistan Project ID : P110555 Appraisal Actual Project Name : Energy Emergency US$M ): Project Costs (US$M): 21.5 21.16 Plus Additional Financing L/C Number : CH372 Loan/ US$M): Loan /Credit (US$M): 21.5 21.16 Sector Board : Energy and Mining Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 05/01/2008 Closing Date : 12/31/2010 12/31/2012 Sector (s): Energy efficiency in power sector (36%); Oil and gas (29%); Power (21%); Central government administration (14%) Theme (s): Other social protection and risk management (67% - P); Natural disaster management (33% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Richard L. Berney Ramachandra Jammi Christopher David IEGPS1 Nelson 2. Project Objectives and Components: a. Objectives: The project’s development objective was "to urgently increase the volume and reliability of the national energy supply, especially in the winter season, by supporting the implementation of the Recipient's Energy Emergency Mitigation Action Plan (EEMAP)." (Financing Agreement page 5). The PAD uses the same language . b.Were the project objectives/key associated outcome targets revised during implementation? No c. Components: Rehabilitation of the Electricity and Gas distribution systems : (Appraisal US$6.00 million; Actual US$5.70 million), including (i) Rehabilitation of the electrical transmission system; (ii) Rehabilitation of the gas transmission system and installing an odorizing system to detect gas leaks in the gas network; and (iii) Provision of low sulfur residual fuel oil to the Dushanbe combined heat and power plant . Rehabilitation of heat-supply systems in four cities : (Appraisal US$0.50 million, Actual US$0.46 million). Strengthening project Management and Support for the Implementation of EEMAP (Appraisal US$0.50 million, Actual US$0.067 million) The Additional Financing Project: (Appraisal US$15 million; Actual US$15 million) added two components: Financing for the provision of approximately 2120 GWh of electricity from the Russian -Tajik Joint Venture Sangtuda-1 Independent Power Producer (SIPP) hydro power plant. Financing for the provision of approximately 105 GWh of electricity from UzbekEnergo (the Uzbekistan national power company) to Tajikistan’s Northern region, because this region had not yet been connected to the Tajik grid. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost: Project purchases of goods and services of US$ 21.16 million were financed 100% by IDA. The ICR does not provide the expenditures on the project implementation units of the two implementing agencies . Financing: A Project Preparation Facility (PPF) for US$3.0 million was made available for financing of project materials and equipment before the project became effective . An additional US$ 2.5 million was approved for retroactive financing of materials and equipment . In May 2010, the Bank approved an Additional Financing IDA Grant of SDR 9.9 million (US$ 15 million equivalent) to pay for electricity purchases from a Russian -Tajik joint venture hydropower plant and for imported power from Uzbekenergo . The Borrower made no direct contribution to the financing. Dates: The project was approved by the Bank ’s Board on May 1, 2008, with a planned effectiveness date of May 25, 2008. The project was restructured in September, 2008 to shift the implementing responsibilities from the Ministry of Finance to the institutions responsible for the power and the gas sectors . Effectiveness was delayed to November 2008 until completion of required actions to strengthen the implementation capacity of these two implementing agencies. The original planned closing date of December 31, 2010, was extended by two years to December 31, 2012, at the time that the Additional Financing was approved . 3. Relevance of Objectives & Design: a. Relevance of Objectives: In January 2008, it became apparent that Tajikistan ’s existing sources of energy would be insufficient to meet the increased winter demand. The Nurek reservoir on the Vaksh river experienced dramatic drops in its water levels and by end-February 2008 the Nurek Hydropower Plant was gravely exposed to the risk of a shutdown . With the severe winter conditions in the region, Tajikistan ’s neighbors were unable to increase electricity exports to Tajikistan to the levels needed. Concurrently, severe shortages of gas developed because of supply cuts from Uzbekistan (which supplied 98 percent of Tajikistan’s gas) due to Tajikistan’s accumulated payments arrears . The Government acted swiftly to formulate an Energy Emergency Mitigation Action Plan (EEMAP) to address the crisis. The EEMAP included measures to help manage the country's energy supply during the winters of 2008/2009 and 2009/2010, including: (i) Better management of the Nurek reservoir releases; (ii) Ensuring that there were no impediments to import of gas or electricity (especially arrears for past supplies ) from neighbors; and (iii) Having an inventory of at least 30,000 tons of low sulfur residual fuel oil by October 2008 and maintaining this inventory level through the winter. The project objectives were consistent with the objectives of the 2004 Country Partnership Strategy (CPS) for Tajikistan and addressed one of the three strategic objectives of the CPS, namely, improving the delivery of energy services. The objectives were also in line with the Government ’s 2007 power sector strategy to ensure reliable electricity supply to meet the needs of the population and productive sectors so as to sustain growth and contribute to poverty reduction. They were also consistent with the goal of the FY 10-FY13 CPS of improving the reliability of electricity and gas services and increasing the country ’s export potential by providing electric power to the national aluminum production facilities. Relevance : High b. Relevance of Design: The Original Project focused on three emergency related challenges; (i) improving the reliability and efficiency of the electricity and gas grids; (ii) providing funding for the import of low sulfur residual fuel oil needed to keep the Dushanbe combined heat and power plant in operation; and (iii) rehabilitating municipal coal fired combined heating plants. This program was designed to be complementary to the ongoing policy focused Energy Loss Reduction (ELR) Project by focusing on the specific needs arising from Tajikistan ’s seasonal energy imbalances, which had led to the 2008 emergency situation. Broader and longer-term sector issues, including institutional strengthening of the implementing agencies and advisory support for the energy reforms program, were to be pursued in parallel under the ELR Project. Relevance : Substantial The Additional Financing (which was more than twice the size of the original project ) originally allocated about 85% of its funds for the purchase of electricity from the Russian -Tajik joint-venture SIPP hydropower plant that is located in Tajikistan. This component was consistent with the objective of increasing the volume of energy in winter months . There was no analysis of HD's financial situation that led to the need for this financing, and no plan to alleviate it . Relevance : Modest 4. Achievement of Objectives (Efficacy): Objective : to urgently increase the volume and reliability of the national energy supply, especially in the winter season, Sub- Sub -objective 1: Urgently improve the volume and reliability of Electricity, especially during in the winter season - Substantial Outputs The installation of equipment and materials for improvements in the electricity system was largely completed by December 2010. Bank funds were not used for importing electricity from UzbekEnergo because contracts did not meet Bank contractual requirements. Barki Tajik (BT), the national electricity company paid for these imports . In mid-2011 the new transmission line linking the Northern Regions to the Tajik power grid was completed, and power began to be supplied from the National Grid. Since imports from UzbekEnergo were no longer needed, the Government requested that the funds allocated for importing electricity be applied to purchase of additional power from the SIPP, which was located in Tajikistan . The Bank agreed, subject to the conditions that BT (i) clear the accumulated arrears to UzbekEnergo, and (ii) prepare and submit annual Winter Energy Management Plans (WEMP). BT submitted its WEMP in August 2011, which the Bank found to be satisfactory, and the arrears were cleared in July 2012. Power purchases from SIPP were completed by December 31, 2012. This technical assistance included providing technical and policy advice in support of the preparation and implementation of the country's Energy Emergency Mitigation Action Plan . However, less than 10% of the funds originally available for this component were utilized . A WEMP for managing the water usage of the Vaksh River (where 90% of Tajikistan's hydroelectric facilities were located ) was made an effectiveness condition of the Additional Financing Project. The study was prepared in 2010. Other outputs mentioned in the ICR, including an energy efficiency study for the TALCO Aluminum smelter (which consumes over 40 percent of the electricity in Tajikistan), and an evaluation of the requirements for the rehabilitation of district heating systems, which would be continued under the parallel ELRP . Outcomes Electricity availability in the country as a whole increased by 64% between the 2007/8 and the 2009/10 winter seasons (from 1330 GWh in the 2007/8 winter season to 2184 GWh in the 2009/10 winter season). The winter electricity supply for the country increased by less than 2.5% between the winters of 2009/10 and 2010/11, (from 2184 GWh to 2234 GWh), but then declined in the two subsequent years, to 2155 GWh in 2012/2013, (below the 2009/2010 level). The project provided additional electricity from SIPP only in 2012. The WEMP facilitated better management of energy supply during the periods of shortages during the winter seasons by reducing water usage and electricity generation during the late fall when water was no longer needed for agricultural purposes . Sub- Sub -objective 2: Urgently improve the volume and reliability of Gas, especially during in the winter season :- Modest Outputs The installation of equipment and materials for improvements in the gas distribution system was largely completed by December 2010. Outcomes: Equipment and materials procured under the project for the gas sector, in conjunction with other measures being implemented by the gas company, Tajiktransgas, led to a substantial reduction in gas losses through reduction of leaks in the gas transmission system during the period that gas was available . Gas losses were estimated to have declined from around 16 percent of total supply in 2008 to about 7 percent in 2012. The early detection of gas leaks contributed to a reduction in the number of gas explosions and related fatalities . The new equipment has also enabled a reduction in response times by Tajiktransgas personnel for addressing emergencies and repairs. However, interruptions in gas supply, due to lack of new agreement with the system ’s primary gas supplier in Uzbekistan, have resulted in significant reductions in gas usage in recent years . Sub- Sub -objective 3: Upgrade coal fired boiler plants to provide heat for municipalities and public institutions : - Modest Outputs: Four municipal HOBPs (heat-only boiling plants) were rehabilitated. Outcomes: Two of the four boiler plants are operating satisfactorily and are supplying heat as intended, including to two hospitals. The other two boiler systems are in good operating order, but heat could not be supplied to the targeted residential buildings because the in -house piping system had not been repaired by the local authorities . These distribution systems had fallen into disrepair during the substantial time period when the boiler plants were not operating. At present, the local authorities are reluctant to invest in re -connecting to a heat supply system, because the demand for this heat is unlikely to materialize as long as it costs less for households to use electricity to meet their heating needs . 5. Efficiency: Modest : Implementation was affected by some delays in procurement, and later due to the need for several rounds of re-tendering of the bids for fuel oil purchase because the initial bids came in substantially over the budgeted costs . The contract for the purchase of fuel oil was not placed until in January 2010 and deliveries were completed by May 2010, two winter seasons after this emergency project Grant was approved . The selection of the contractor for rehabilitating boilers was delayed because the original bids came in substantially (about 40 percent) over the budgeted price and new bids had to be invited, and only two of the four boiler plants financed by the project are operating . Two of the four boilers are not in use . Appraisals of Emergency projects are not required to include an economic analysis to confirm their expected efficiency, primarily because the outcome without the emergency is believed to be so severely negative that an economic rate of return would not be necessary as a project justification . In this instance, there is the additional problem that, as stated in the ICR, the specific improvements in the electricity supply system that were financed under the project were only a part of the overall electricity supply system improvements that were carried out concurrently under the country's Energy Emergency Mitigation Action Plan . Even using the Government estimate that the decline in industrial and commercial output during curtailment of electricity supplies resulted in a 0.6 to 0.7 percent reduction in GDP, (which the ICR indicated is equal to losses of about US$ 30 to 35 million equivalents in GDP each day), is insufficient to calculate project benefits . One would still need to determine the improvement due to the subsequent increased availability of electricity, and the percentage of the increased electricity supply directly attributed to the project interventions . And none of this data is available, however, it has been well established that a decrease in electricity availability causes large disruptions in economic processes, which almost always have a very large negative effect on economic activity, so any reduction in the gap can be expected to have a large positive effect . The ICR estimates that the economic benefits from the reduction in gas system losses during the period 2008 to 2012, evaluated at the price of gas imports is about US$ 11 million, compared with an investment cost of US$ 1.2 million, for a benefit/cost ratio of greater than nine . However, the ICR estimates that the economic benefits from the rehabilitation of the district heating plants is estimated at only US$ 0.14 million, compared with an investment cost of US$ 0.55 million, which yields a highly negative return . This result is not totally surprising, since two of the four rehabilitated plants have not been put into operation . ERR )/Financial Rate of Return (FRR) a. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: The relevance of objective is high, and the relevance of project design was, on average, substantial . In the electricity sector,upgrades to transmission system achieved its objective of increasing the volume and reliability of delivered energy. The AF provided needed funds for the purchase of electricity from SIPP in winter months, which supported the objective of increasing the availability of electricity in the winter months of 2012. However, it failed to support a program to ensure payment for this electricity in the longer term . In the gas sector, the initial success was limited to the short period of time before gas imports were stopped . There was also only limited success in increasing household heating through municipal boiler system upgrades . Overall Efficiency was Modest. There were significant problems in the speed of implementation for this emergency project, None of the benefits from the Additional Financing extend beyond the project closing . a. Outcome Rating : Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating: The new transmission equipment and the rehabilitated transformer will ensure the reliability of electricity supply for a long time. A model has been developed that allows BT to maintain a regular routine work for the autumn -winter period. Monitoring of the Nurek reservoir was improved and work in this area is under way . The weak financial position of BT, due to weak corporate management, low electricity prices, and high levels of arrears was identified as a project risk at appraisal. In spite substantial increases in tariffs permitted by the Government, BT continues to face cash flow problems, which are contributing to the problem of continuing arrears of payments to suppliers, including SIPP, . This lack of funds will also negatively impact on BT 's ability to continue maintaining the integrity of its transmission and distribution systems . The reduction and subsequent suspension of gas supplies from Uzbekistan has left Tajiktransgas, the national gas company, with little to do. Tajiktransgas staff continues monitoring the gas supply systems and maintain them in working order in order to avoid any emergencies, and to ensure the smooth supply of gas that might be found through Tajikistan’s latest exploration efforts. Without imported gas, Tajiktransgas is unlikely to become economically self-sufficient. Tajiktransgas is continuing to work with local governments for the connection of the urban population of the two unconnected townships to agree on the rehabilitation of their local heat distribution systems so that the district boilers financed under this project will be able to supply heat to the population in the coming winter . This effort is unlikely to succeed until the cost ratios of heat to electricity are modified sufficiently to create an incentive for consumers to use centralized heating. The electricity purchased under the Additional Financing project has been consumed . There will be no further benefits from this expenditure and the issue of funding for future payments for electricity from SIPP remains unresolved. a. Risk to Development Outcome Rating : High 8. Assessment of Bank Performance: a. Quality at entry: The original project was prepared within a very short time frame (within three months of receipt of the request from the Government) in respond to the prevailing energy emergency . It was processed under OP/BP 8.0 (Rapid Response to Crisis and Emergencies ), which provided rapid response in support of : (i) restoring physical assets (BP 8.04a); (ii) restoring essential services (BP 8.04c); and (iii) supporting measures to mitigate or avert the potential effects of imminent emergencies or future emergencies or crises in countries at high risk (BP 8.04g). The speed and simplicity with which the emergency operation could be prepared under OP 8.00 was also an important factor, since the alternative of financing through restructuring of the ongoing individual operations would have proven unnecessarily complex . However, speed of appraisal did create some problems, one of which was that the interest of local authorities in rehabilitating their central heating systems was not thorough evaluated before this component was added . The choice of the the Ministry of Finance as the implementing had to be revised shortly after the project became effective. The Ministry of Finance was chosen for expediency, since it was already in charge of implementing the ELR Project, but without adequate consideration of its capabilities . It was an appropriate agency for the ELR Project, which consisted mainly of technical assistance for studies . However, shortly after Board Approval the Ministry of Finance informed the Bank that it did not have the technical capacity to implement the project and would not be able to procure the necessary goods in time for the upcoming winter . This led to delays in project implementation and an urgent need for restructuring the project so as to transfer implementation authority to BT and Tajiktransgas, which had the technical capability to determine which equipment was needed and be responsible for its utilization. However, support for institutional strengthening and training to the relevant staff, which was left to the ongoing ELRP, proved inadequate as these agencies proved to be unprepared for complying with the Bank's fiduciary compliance requirements, The evaluation of the rehabilitation of the city central heating systems did not include discussions with the ultimate consumers (the cities), which resulted in two of the four heating systems remaining unused because of the reluctance of the local authorities to rehabilitate the heat transmission systems . The Additional Financing was also processed rapidly . The only policy objective included was a requirement that an annual water utilization plan be established for hydroelectric generation, which should have been included in the original project. There were no condition policy conditions included in this component . There was no analysis of HD's financial situation that led to the need for this financing . There was no requirement for tariff increases to eliminate BT's financial difficulties, which were the primary reason for the urgency of this AF project . at -Entry Rating : Quality -at- Moderately Unsatisfactory b. Quality of supervision: Project supervision was carried out regularly, usually in conjunction with the supervision of the ELR Project . This enabled considerable synergy for the two complementary projects, particularly with the progress of EEMAP in the wider context of the Government ’s energy sector reforms, and the institutional strengthening of BT and Tajiktransgas (which was being pursued mainly under ELR Project ). The Mid-Term Review planned for mid-2010 was combined with the appraisal of the Additional Financing . A timely decision was made to restructure the project by revising the mechanisms for project implementation and shift the implementation functions from the Ministry of Finance to BT and Tajiktransgas . Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9. Assessment of Borrower Performance: a. Government Performance: The Government remained committed to the project providing funds and support as needed . It established and maintaining an Independent Monitoring Group to review the progress of project implementation on a regular basis. There were regular monthly meetings chaired by the Prime Minister and the implementing agency management to discuss the progress of the original project and its problems and solutions . The Government also undertook most of the immediate and short term measures agreed under the EEMAP, and continued to implement its program of energy reforms including the promulgation of substantial tariff increases for the energy utilities. However tariffs are still inadequate to allow the utilities to achieve full cost recovery . One of the reasons that the Government was unable to come to an agreement with Uzbekenergo on importing electricity for the isolated northern region appears to have been its inability to repay its related outstanding liabilities in a timely manner. When the Tajik grid was connected to the isolated areas, the Government rightly requested the reallocation of the funds from the purchase of imported energy to the purchase of domestically generated electricity. Government Performance Rating Satisfactory b. Implementing Agency Performance: The implementing agencies were technically competent, but they were unused to working on Bank projects, and as a result, delays in procurement and financial management issues, were sufficient to downgrade overall implementation progress to Moderately Satisfactory starting mid -2010. It remained at this rating at project closing . The financial management rating remained moderately unsatisfactory at project closing . Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10. M&E Design, Implementation, & Utilization: a. M&E Design: The monitoring indicators selected at project appraisal were relevant to the achievement of the Project Development Objectives. However, during implementation, it was found that additional indicators were needed to cover some important aspects of the project outcomes . Increased availability of electricity in the winter seasons for Dushanbe and for Tajikistan as a whole were therefore added during project supervision . The Additional Financing component included monitoring of the purchase of winter season electricity from the SIPP b. M&E Implementation: The indicators were quantifiable, measurable and relevant . They were collected at regular intervals by the PIUs c. M&E Utilization: Monitoring and evaluation was done on a regular basis and the results were reflected in the periodic ISRs, but the link between their utilization and results could have been made more clear . M&E Quality Rating : Substantial 11. Other Issues a. Safeguards: The project was given an environmental category B (Limited Assessment) under the Bank’s environmental and social safeguards policies, as it was assessed to have only a limited impact on the environment . The project did not involve significant civil works. The main activities were rehabilitation of gas pipelines, the existing electric power grid, and heat-only boilers. Because no new installations were carried out, the main impacts were largely temporary, localized and restricted to the sites of the existing energy infrastructure . The ICR reports that the Recipient and the implementing agencies were in compliance with the agreed safeguard policies . b. Fiduciary Compliance: There were deficiencies in the quality and timeliness of BT ’s and GTT’s financial management reporting to the Bank and in their Annual Financial Reports . The latter included an auditor’s opinion disclaimers, because they were unable to confirm the reliability of the financial statements . Procurement was carried out in accordance with the Bank ’s Procurement and Consultant Guidelines using Standard Bidding Documents. The ICR states that there was no misprocurement . c. Unintended Impacts (positive or negative): The early detection of gas leaks contributed to a reduction in the number of gas explosions and related fatalities . d. Other: 12. 12. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately There were moderate shortcomings in Satisfactory project design, as well as in efficacy and efficiency, as described in section 6. Risk to Development Moderate High The financial condition of both BT and Outcome : TTG are extremely weak and the Government has not increased tariffs sufficiently to cover their costs . Bank Performance : Satisfactory Moderately There were significant shortcomings in Satisfactory the original project design and in the design of the additional financing components. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: The main lessons identified in the ICR are the following : For energy management, both supply side and demand side actions are important . The Government needs to bring Energy tariffs progressively to levels that allow for full cost recovery while encouraging greater efficiency in energy consumption. While emergency recovery assistance projects, by their nature, need to have a limited and specific focus to help address priority needs they also prove effective vehicles for helping the concerned authorities to start putting in place essential longer term policy measures . 14. Assessment Recommended? Yes No Why? This project should be assessed in conjunction with the parallel Energy Loss Reduction Project, which was designed to implement the policy reforms necessary to insure the benefits of this project . 15. Comments on Quality of ICR: The ICR did a competent job of reporting all the strengths and weaknesses of the project design as well as the reasons behind the design decisions . It was clear and concise in its discussion of the outcomes . There were, however, a few areas that could have been improved with an expanded discussion, including : The institutional support that was forgone when funding for consultancy services was effectively eliminated . The quantity and timing of electricity purchased under the Additional Financing; The timing of the new linkage of the Northern Region to the national grid . The actual volumes of gas imported during the project period that were used to calculate the savings from the project's reduction in gas leakages . a.Quality of ICR Rating : Satisfactory