Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Report Number: ICRR0024514 1. Project Data Project ID Project Name P143580 Energy Efficiency Project Country Practice Area(Lead) Bosnia and Herzegovina Energy & Extractives L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-89060,IDA-53930,IDA-55380 30-Jun-2018 59,104,713.18 Bank Approval Date Closing Date (Actual) 13-Mar-2014 29-Feb-2024 IBRD/IDA (USD) Grants (USD) Original Commitment 32,000,000.00 0.00 Revised Commitment 63,991,523.70 0.00 Actual 59,104,713.18 0.00 Prepared by Reviewed by ICR Review Coordinator Group Maria Shkaratan Avjeet Singh Avjeet Singh IEGSD (Unit 4) P165405_TBL Project ID Project Name P165405 AF BEEP ( P165405 ) L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) 0 Bank Approval Date Closing Date (Actual) 30-Oct-2018 Page 1 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) IBRD/IDA (USD) Grants (USD) Original Commitment 0.00 0.00 Revised Commitment 0.00 0.00 Actual 0.00 0.00 2. Project Objectives and Components DEVOBJ_TBL a. Objectives The Original Project Development Objective (PDO) was “to demonstrate the benefits of energy efficiency improvements in public sector buildings and support the development of scalable energy efficiency financing models” (Project Agreement, page 6). The PDO was stated identically in the Project Appraisal Document (PAD) (PAD, page 6). The PDO was revised during Project Restructuring 2 of October 2018, which involved additional financing (AF). The new formulation of the Project PDO was “to improve energy efficiency in public buildings, and to support the development and implementation of scalable energy efficiency financing models”. The change was to clarify the PDO; the substance remained unchanged. For the purposes of this ICR review, the PDO will be broken down, based on the revised version, as follows: PDO 1. To improve energy efficiency in public buildings. PDO 2. To support the development and implementation of scalable energy efficiency financing models. b. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? Yes Date of Board Approval 30-Oct-2018 c. Will a split evaluation be undertaken? No d. Components Page 2 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) 1. Original components Component 1 Energy Efficiency Investments in Public Facilities (appraisal cost: US$27.37 million; actual cost: US$51.3 million) aimed to: (i) support energy efficiency (EE) demonstration subprojects in schools, hospitals, and other public facilities; and (ii) pilot and test various EE contracting/EE financing models. The subprojects would aim at demonstrating the benefits of EE upgrades through investments in energy saving measures, such as building envelopes, modern heating and cooling systems, and advanced electrical networks. Related technical assistance would include energy audits, monitoring and evaluation, technical designs, and subproject management. Financing models would be promoted as follows: (i) in the Federation of Bosnia and Herzegovina (FBiH), cantons and municipalities would use energy cost savings from EE measures to repay the federal government for investment costs, thereby demonstrating the financial viability of the revolving EE financing mechanism to the private sector; and (ii) during the second and third years of Project implementation (2016-17), contracting and financing models would be tested to select those suitable for piloting. Component 2 Support for the Development of Scalable Financing Mechanisms and Capacity Building (appraisal cost: US$2.71 million; actual cost: US$4.5 million) focused on: (i) conducting an Issues and Options Study on Scalable Financing Mechanisms, to propose scalable financing mechanisms for testing and piloting under Component 1 and to develop financial products and services to operationalize revolving mechanisms (e.g., energy service agreements, loans, ESCO financing and re-financing, and technical services); (ii) providing training for municipal staff on managing EE investments in public buildings and issuing energy labels for public buildings; (iii) creating a database of public buildings in Republika Srpska (RS); and (iv) raising awareness about EE. Component 3 Project Management (appraisal cost: US$1.92 million; actual cost: US$3.4 million) aimed to finance additional experts, training for PIU staff, and incremental operating costs. Revised Components: Restructuring 2 of October 2018 introduced additional financing (AF) for new activities under Components 1 and 2, while Component 3 remained unchanged. This restructuring expanded the Project's ambition and scope during the following (second) implementation phase, as per the plans set out at appraisal. The new activities were as follows: Component 1 (Energy Efficiency Investments in Public Facilities) received AF amounting to US$38.9 million. The new activities aligned with the appraisal plan to test EE financing and contracting models in 2016-17 (first phase of implementation), followed by piloting the selected model(s) (second phase of implementation). The AF-financed activities included: (i) scaling up the EE investments in public buildings, which were made under original Component 1; (ii) developing and implementing revolving public sector- based financing models for EE to support a gradual transition to private sector-based financing (the revolving models were selected after piloting three financing options during the first phase of implementation (AF Project Paper, pages 7-8); and (iii) piloting Performance-Based Contracting (PBC) models for certain EE investments to further develop the local energy service company (ESCO) market. Revolving financing model in FBiH under the restructured Project. Under the arrangements made during the first phase under the Original Project, participating cantons and municipalities in FBiH would continue repaying the costs of EE improvements to the federal government over a 10-year period. These repayments, combined with loan proceeds, would be deposited in the Project’s special account, to scale-up Page 3 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) EE improvements in buildings. Over the course of the Project, this revolving financing model would facilitate the reinvestment of EUR 6.5 million. (AF Project Paper, page 16) Revolving financing model in RS under the restructured Project. In RS, 50 percent of the energy cost savings achieved through EE measures would be reinvested, along with loan proceeds, to scale up EE improvements in buildings over the next 10–15 years or until 50 percent of the AF investment is recovered, whichever comes first. The investment approach would vary, as follows: (i) for buildings under the entity budget (such as primary schools or administrative buildings), investment would be made through the regular budget process; and (ii) for buildings under municipal budgets (such as secondary schools) and with independent revenue streams (such as health care facilities), investment would be channeled into the RS EE Fund, a revolving fund established to finance EE. Over the Project’s duration, these revolving financing models would facilitate the reinvestment of EUR 1.4 million. (AF Project Paper, pages 16-17) Piloting of performance-based contracting models. The pilots introduced a payment structure where contractor compensation was partially tied to their performance, verified through the building certification process. These pilots aimed to demonstrate the performance-based contracting model for EE, thereby supporting the development of the local ESCO market. Component 2 (Support for the Development of Scalable Financing Mechanisms and Capacity Building) received AF amounting to US$2.6 million. The new activities included technical assistance for: (i) implementing scalable and sustainable EE financing under Component 1; (ii) strengthening legal and regulatory framework to support the ESCO model, public-private partnership arrangements, and energy service agreements; (iii) enhancing local EE market capacity through training for local service providers, ministry and local governments’ staff, and building administrations; (iv) improving the functionality of the building database; and (v) raising public awareness about EE. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The appraisal estimate was US$32.0 million. In addition, the AF of October 30, 2018, provided US$41.55 million. The AF amount included estimated reflows from EE repayments into the revolving funds, to be allocated to the Project’s special account, separate from the IDA/IBRD accounts (Source: information from the Project’s team; AF Project Paper, page 16). The actual disbursement at closure was recorded as US$59.2 million (Source: ICR, page 24). The difference between the total of the appraisal and AF estimates and the actual disbursement is due to the nature of the Project, specifically the continued operation of the revolving funds after Project closure, and the inclusion of estimated reflows in the AF amount. Project Financing: The Project was financed through two International Development Association (IDA) credits at appraisal (appraisal estimates: US$28.0 million and U$4.0 million, with actual amounts at closure being US$25.2 million and US$3.7 million, respectively) and an IBRD loan at AF (estimated at US$32.0 million, with an actual amount of US$30.2 million at closure). Borrower/Recipient contribution: The Borrower’s contribution, planned at AF, was US$9.55 million and comprised estimated reflows from EE repayments into the revolving funds. These were not recorded as the Bank’s Project disbursements as they were allocated to a non-Bank special account, per the Project design (see paragraph “Project costs” above). Page 4 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Project Dates: The Project was approved on March 13, 2014, and became effective on May 27, 2015. The Project underwent five restructurings: (i) on November 10, 2017; (ii) on October 30, 2018 (AF); (iii) on December 6, 2019; and (iv) on July 13, 2020. The original closing date was on June 30, 2018. The Project was extended three times, for a total of 68 months (five years and eight months), with the actual closing date being February 29, 2024. Restructurings: Restructuring 1 (November 10, 2017) extended the closing date of the two original IDA credits from June 30, 2018, to December 31, 2019. The extension was necessary to provide adequate time for implementing planned activities, which had been delayed due to slow initial implementation and a delay in the Project's effectiveness. Restructuring 2 (October 30, 2018) introduced AF totaling US$41.55 million, comprising an IBRD loan of US$32.2 million and government co-financing of US$9.35 million, provided through the revolving financing models. The restructuring involved an increase in Project ambition and scope. In addition to the new activities in Components 1 and 2 (described in section 2.d.), the changes included: (i) a revision of the PDO, expanding its ambition for the second phase of implementation, as planned at appraisal; (ii) an increase in indicator targets to align with the scaled-up activities; and (iii) changes to the RF: dropping, replacing, and adding RF indicators, in order to ensure effective monitoring of phase 2 results.  The PDO was revised from “to demonstrate the benefits of energy efficiency improvements in public sector buildings and support the development of scalable energy efficiency financing models” to “to improve energy efficiency in public buildings, and to support the development and implementation of scalable energy efficiency financing models”. The change reflected the Project’s shift from demonstrating the benefits of EE to scaling up EE improvements, and from testing EE financing models to their operationalization - both of which were envisioned at appraisal (AF Project Paper, page 15)  The RF indicators were revised as follows: o Targets for six indicators were increased, in alignment with the increased Project scope: (i) for the core PDO indicator “Projected lifetime energy savings”, from 650,000 megawatt-hours (MWh) to 1,322,527 MWh; (ii) for the intermediate results indicator (IRI) “Projected lifetime fuel savings”, from 2,340,000 mega joules (MJ) to 4,723,732,285 MJ (also, correcting a conversion error made at appraisal); (iii) for the IRI “Lifetime GHG savings, tons CO2”, from 170,000 to 504,653 tons CO2; (iv) for the IRI “Number of subprojects commissioned”, from 85 to 174 subprojects (and the phrasing was changed to “Number of subprojects completed”); (v) for the IRI “Increase in end user satisfaction, %”, from 30 percent to 34 percent (also, splitting it into two entity-specific indicators); and (vi) for the IRI “Direct Project beneficiaries, number”, from 80,000 people to 814,000 people. Page 5 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) o Three new indicators were added and three dropped: (i) the PDO indicator “Development and implementation of revolving financing models” was added, replacing two phase 1 PDO indicators that were no longer relevant and were dropped: “Piloting of alternative contracting or financing models”; and “Submission of a proposal on scalable EE financing models to the entity Cabinet of Ministers”; (ii) the IRIs “Reflows generated through revolving financing models” and “Development and implementation of customized skills training for target female beneficiaries” were added; and (iv) the IRI “Number of buildings with EU-compliant energy certification” was dropped because all retrofitted buildings were required to have energy performance certificates.  The overall implementation arrangements remained unchanged; however, additional responsibilities were introduced to support the new activities, including: (i) establishing implementation arrangements for capturing and reinvesting project reflows through the revolving financing models; and (ii) developing and agreeing on a Governance and Accountability Action Plan (GAAP) to strengthening the Project’s governance. There was no closing date extension. Restructuring 3 (December 6, 2019) extended the closing date of the two original loans by six months, from December 31, 2019, to June 30, 2020. The extension aimed to ensure the smooth effectiveness of the approved AF and to retain the existing PIU staff. Restructuring 4 (July 13, 2020) extended the closing date of one of the original IDA credits by five months, from June 30, 2020, to November 30, 2020. The extension provided additional time to complete works in FBiH that were delayed due to the COVID-19 pandemic. This adjustment did not affect the overall project closing date, which remained February 29, 2024. Split evaluation. Restructuring 2 of October 30, 2018 involved the following: (i) a change in the PDO, expanding the Project’s ambition; (ii) addition of new activities, increasing the Project’s scope; (iii) increased targets for several indicators; and (iv) revision of the RF to effectively monitor the more ambitious phase 2 of Project implementation. As the changes represented an increase in the Project’s ambition and scope, a split rating will not be applied, in line with the ICR review guidance; the Project will be assessed based of the revised, more ambitious objectives and outcome targets. 3. Relevance of Objectives Rationale Country and Sector Context. At Project appraisal, Bosnia and Herzegovina (BiH) had an emission intensity (carbon dioxide emissions per unit of GDP) nine times higher than the EU average and 76 percent higher than the Western Balkans average. Key contributors included the high energy intensity of the economy, heavy reliance on fossil fuels, and inefficiencies in energy supply and usage. The buildings sector accounted for the highest share of energy consumption, over 40 percent of the total, with the highest growth Page 6 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) rate in energy consumption, mainly driven by heating. The country’s district heating (DH) systems mainly relied on fossil fuels, such as fuel oil for heat-only boilers and coal for combined heat-and-power plants, while natural gas was used predominantly in Sarajevo. Buildings not connected to DH largely depended on coal and firewood. Efforts to improve energy efficiency (EE) were ongoing but constrained by limited financing. Investment in building energy efficiency (EE) was critical. The Project was designed to address these challenges and leverage opportunities by: (i) providing implementation experience for EE investments; (ii) delivering on-the-job training for implementing selected EE legislations and regulations and strengthening implementation capacity; and (iii) conducting communication and information campaigns to raise public awareness of EE; and (iv) developing scalable entity-wide financing mechanisms. Relevance to Government Strategies during implementation and at closure. During Project implementation, the BiH government demonstrated a strong commitment to aligning with EU EE standards and pursuing ambitious EE objectives. As a member of the Energy Community Treaty, BiH developed a draft National Energy Efficiency Action Plan (NEEAP), published in 2017, which included an indicative energy savings target of eight percent by 2018. Several regulatory measures were adopted, laying the groundwork for secondary laws and regulations, such as building codes for major renovations, appliance labeling, regulations on energy savings performance contracts, and compliance and enforcement mechanisms. To further comply with EU requirements, BiH developed the Long-Term Building Renovation Strategies (LTRS), adopted in October 2024, to support decarbonization of the energy sector by 2050. The LTRS targeted the renovation of 4.4 million m2 of heated area (approximately 4,000 buildings) by 2050, requiring significant financing. The key priorities of the LTRS included transforming buildings into energy- efficient structures, implementing smart solutions aimed at achieving zero-emission buildings, modernizing the heating system, and increasing the share of renewable energy sources. Relevance to the WBG’s Assistance Strategies at AF and at closure. At AF, the Project aligned with the WBG’s Country Partnership Framework (CPF) for BiH FY2016–20, which identified improvements in EE as a key objective to address one of the country’s significant challenges - inefficient energy use. The revised PDO also aligned with broader global and regional initiatives, including: (i) the Sustainable Energy for All Initiative, which aimed to double the global rate of EE improvements; and (ii) the World Bank’s Climate Change Action Plan for Europe and Central Asia (2017–2020). At closure, the Project aligned with the CPF for BiH FY2023–27 under Higher Level Outcome 3 Improved Environmental Outcomes and Climate Change Resilience, and specifically under Objective 5 Improved Air Quality, which emphasized the importance of continued support for improving EE in public buildings and developing and implementing scalable EE financing models. Previous sector experience and related projects. Since the 1990s, the Bank has supported the Government of BiH in enhancing infrastructure and promoting renewable energy through investment financing, policy advisory services, and technical assistance (TA). Key efforts included the following World Bank projects: a series of three Emergency Electric Power Reconstruction Projects (P044395, P045483, and P058521; approved in FY1997, FY1998, and 2001; with a total investment of US$222.1 million), and the Emergency District Heating Rehabilitation Project (P044392, approval FY1990, US$20.0 million). The reviewed Project was followed by the GEF-financed URBANLED program, which piloted three ESCO projects for public street lighting systems and four ESCO projects for public buildings. The Project was well-aligned with the WBG’s CPF at closure, and the government’s objectives of complying with the EU EE requirements and the BiH’s Long-Term Building Renovation Strategies (2024). It also Page 7 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) demonstrated continuity with previous Bank operations and had a follow-up operation. The Project’s objectives were pitched at the right level. Therefore, the Relevance of Objectives rating is High. Rating Relevance TBL Rating High 4. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective PDO 1. To improve energy efficiency in public buildings. Rationale The theory of change (ToC) for the Project was not included in the PAD; it was prepared for the ICR (ICR, pages 2-3). It listed “Project activities”, “outputs/intermediate results”, “outcomes/results”, “PDO” and “long- term outcomes”. According to the ToC, the Project supported the following activities: (i) EE investments in public facilities; (ii) related technical assistance; (iii) support to the development of an EE financing mechanism; (iv) related training for market participants and ministry staff; (v) support to the PIU. The outputs of these activities would be: (i) energy-certified retrofitted buildings; (ii) provided training; (iii) developed integrated EE IT system and databases; and (iv) feasibility study for alternative energy source for buildings. The achievement of these outputs would ultimately result in the following outcomes: (i) reduced energy consumption and GHG emissions, improved regulation of heat supply and better indoor comfort in retrofitted buildings; (ii) development and implementation of EE financing models; (iii) monitoring and data collection system ready for scaling up; (iv) capacity in the Ministry and EE market enhanced. This would enable the achievement of the PDO. The ICR’s ToC had shortcomings, as follows. Instead of illustrating the logic of Project implementation through result chains—by explaining the connections from activities to outputs, then to intermediate results, and ultimately to Project outcomes—it presented lists of Project activities, outputs/intermediate results, and outcomes. This rendered the chain of direct causality unclear, leaving it uncertain which activities produced specific outputs (e.g., which activities led to the outputs of energy certification and the development of the EE IT systems) or which outputs led to specific outcomes (e.g., which outputs resulted in the development of EE financing models or to the creation of the monitoring and data collection system). Additionally, the interconnections among results within each level remain undefined. Also, no assumptions were provided. Outputs/Intermediate Outcomes: 1. “Projected lifetime fuel savings, MJ” (baseline: zero MJ; target at AF: 4,723,732,285 MJ). The achievement at closure was 4,874,928,341 MJ; the target was exceeded. Page 8 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) 2. “Lifetime GHG savings, tons CO2” (baseline: zero tons CO2; target at AF: 504,653 tons CO2). The achievement at closure was 574,497 tons CO2; the target was exceeded. 3. “Increase in end user satisfaction, FBiH, %” (baseline: zero tons CO2; target at AF: 34 percent). The achievement at closure was 37 percent; the target was exceeded. The outcome was assessed through surveys conducted both before and after the implementation of EE improvements in buildings. 4. “Increase in end user satisfaction, RS, %” (baseline: zero ; target at AF: 34 percent). The achievement at closure was 42 percent; the target was exceeded. The outcome was assessed through surveys conducted both before and after the implementation of EE improvements in buildings. 5. “Number of subprojects completed” (baseline: zero subprojects, target at AF: 174 subprojects). The achievement at closure was 156 subprojects; the target was 90 percent (substantially) achieved. The ICR attributed the achievement falling slightly below the target to a higher-than-expected proportion of large buildings. 6. “Direct project beneficiaries, number” (baseline: zero people; target at AF: 814,000 people). The achievement at closure was 925,354 people; the target was exceeded. Outcomes: 1. " Projected lifetime energy savings, GWh” (baseline: zero GWh, target at AF: 1,323 GWh). The achievement at closure was 1,404 GWh; the target was exceeded. The ICR reported that the PIUs oversaw the measurement and verification (M&V) process, while building managers supervised the collection of energy savings and cost data. Energy consumption analysis, based on historical energy data, energy audit baselines, and post-construction energy readings, was conducted and informed the design of the revolving fund. (ICR, page 7) 2. “Development and implementation of scalable EE financing models (Text)” (baseline: no scalable models; target at AF: revolving EE financing models are implemented, and post-closure arrangements are defined). At closure, both revolving funds (in the FBiH and in RS) were operational; the target was reached. The ICR noted that scalable EE financing models became operational in both FBiH and RS before the Project's closure. In FBiH, construction on the first two buildings under the revolving fund began in 2023, with tendering for an additional building expected in the coming months. RS established a revolving energy savings collection mechanism to capture reflows. The budget reflows from energy savings achieved through the AF were transferred to the Environmental Protection and Energy Efficiency Fund to support additional building retrofitting. Additionally, a pilot for performance-based contracting was successfully completed. (ICR, pages 17-18) Rating. Under Objective 1, the Project exceeded one PDO target (on energy savings from EE measures under the Project) and met the other (on development of EE financing models). All but one intermediate results indicator (IRI) targets were exceeded, including key metrics such as fuel and GHG emissions savings, user satisfaction, and revolving fund reflows. The only IRI indicator target not fully reached — the number of completed subprojects —was nevertheless substantially achieved at 90 percent. The rating is Substantial. Page 9 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Rating Substantial OBJECTIVE 2 Objective PDO 2. To support the development and implementation of scalable energy efficiency financing models. Rationale Please see the discussion of the ToC under Objective 1. Outputs/Intermediate Outcomes: 1. “Development and implementation of customized skills training for target female beneficiaries” (baseline: no training; target at AF: training delivered, and at least 75 percent of the trained women are satisfied with the acquired skills). Training was delivered, with 88 percent of the trained women expressing satisfaction with the skills acquired, surpassing the target. Outcomes: 1. “Reflows from EE repayments and captured energy cost savings, US$” (baseline: zero US$, target at AF: US$5,668,119.0). The achievement at closure was US$7,427,025.0; the target was exceeded. Rating. While the Project achieved or exceeded both IRI indicator targets under Objective 2, one of the indicators was at the output level (training delivered) and was supported by a subjective measure (survey- reported satisfaction with skills acquired). As a result, the rating is Substantial. Rating Substantial OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale The Project fully achieved its PDO1 outcomes of energy savings from EE measures and developing EE financing models. The Project also achieved or exceeded targets under Objective 2.. Given the comprehensive achievement of objectives and substantial progress across indicators, the Project's performance is rated as Substantial. Overall Efficacy Rating Page 10 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Substantial 5. Efficiency a. Economic Analysis: Economic analysis was performed at appraisal, AF, and closure using a consistent approach with a discount rate of seven percent. Benefits were estimated based on heat savings, while costs included investments in EE and operation and maintenance (O&M) expenses (fuel/electricity, materials, and services). The analysis considered scenarios both with and without CO2 emission reduction benefits. At appraisal, the analysis relied on energy audits conducted in 35 buildings, with the results extrapolated to the 85 buildings targeted by the Project. The outcomes indicated a payback period of 2 to 8 years, an economic internal rate of return (EIRR) of 9.9 percent (15.0 percent when including CO2 emission reduction benefits), and a net present value (NPV) of US$6.3 million (US$19.05 million when accounting for CO2 emission reduction). At AF, the analysis was based on EE improvements in the 61 buildings retrofitted during the first phase of Project implementation (prior to the AF). The outcomes showed an EIRR of 9.9 percent (18.3 percent when including CO2 emission reduction benefits) and an NPV of US$4.83 million (US$21.07 million when accounting for CO2 emission reduction). At closure, the analysis was based on actual results from the 156 financed subprojects. The outcomes indicated an EIRR of 9.9 percent (15.8 percent when including CO2 emission reduction benefits) and an NPV of US$9.51 million (US$33.02 million when accounting for CO2 emission reduction). Overall, the EIRRs at all three time points (appraisal, AF, and closure) exceeded the opportunity cost (discount rate), confirming the Project's economic efficiency. The positive NPVs further support this conclusion. Additionally, the NPV and EIRR at closure were equal to or higher than those at appraisal, indicating that the appraisal analysis did not overestimate the net benefits. b. Administrative Efficiency: The ICR highlighted the efficiency of Project implementation, noting close coordination between the Bank team and the Project Implementation Unit (PIU), diligent preparation of the AF revision of the Project, and effective financial management and procurement. Although Project implementation was significantly delayed—it was planned for 51 months (4 years and 3 months) but ultimately took nearly 120 months (10 years)—the primary cause was the additional activities introduced at the AF. Other contributing factors included delayed effectiveness and slow initial implementation, which necessitated an 18-month extension at Restructuring 1 (November 2017), and COVID-19, which prompted a 5-month extension at Restructuring 4 (July 2020). The ICR noted that the required implementation period had been underestimated at appraisal (ICR, page 13). Given the EIRRs above the opportunity cost of capital, the positive NPVs, and the realistic EIRR estimate at approval, but also considering the implementation delays, the Project’s efficiency is rated as Substantial. Efficiency Rating Page 11 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Substantial a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 85.50 Appraisal  15.00  Not Applicable 86.70 ICR Estimate  15.80  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome The relevance of objectives is rated as High, the efficacy is Substantial, and the efficiency is Substantial. Thus, the Overall Outcome is rated as Satisfactory. a. Outcome Rating Satisfactory 7. Risk to Development Outcome Financial. To address the significant building retrofitting needs across the country, much larger-scale energy efficiency (EE) investments are required. Greater experience with EE projects is necessary to attract private sector participation, and available budgetary funds might not be sufficient. To mitigate this challenge, capital requirements for revolving funds (to ensure their self-sustainability) have been estimated using financial simulations. To fill the financing gap, additional funding has been already offered by Kreditanstalt für Wiederaufbau (KfW), European Bank for Reconstruction and Development (EBRD), Green Climate Fund (GCF), and UNDP. Institutional. The establishment of the revolving funds near the end of the Project, combined with the dissolution of the PIU, posed a risk of insufficient institutional support for the revolving mechanism. However, relevant institutional structures have been created prior to Project closure, and knowledge transferred from the PIU. In the FBiH, the government established the revolving fund within the Federal Ministry of Spatial Planning (FMSP) and approved its operating rules and procedures. The fund financed the first retrofitting project in 2023, with investments in another 30 buildings underway in 2024. In the RS, the Environmental Protection and Energy Efficiency Fund (EPEEF), an existing entity, was tasked with managing the reflows after the Project’s closure. The EPEEF is well capitalized and staffed. In 2024, it began implementing EE measures in five buildings, with plans to expand its activities further. Page 12 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Technical (innovative technology and systems). Piloting the Performance-Based Contracting (PBC) model presented challenges due to its innovative approach, requiring over two years of preparation to secure a bidder. Despite these obstacles, the contractor ultimately surpassed the energy savings target through meticulous planning and execution. This experience highlights potential challenges during the scale-up of EE investments in buildings. However, this risk can be mitigated by: (i) providing training and facilitating knowledge-sharing initiatives; and (ii) allocating sufficient time for learning and adaptation during project planning. Social. The Project highlighted that achieving the full benefits of implemented building EE measures requires a change in consumer behavior. For instance, users need to learn how to use thermostatic radiator valves on new equipment to control heating levels, rather than relying on outdated practices like opening windows to regulate temperature. To address this challenge, targeted training programs and awareness-raising initiatives are necessary to ensure users understand and adopt these new practices. 8. Assessment of Bank Performance a. Quality-at-Entry The Project’s design was largely robust and effectively addressed identified risks. The implementation arrangement was well-structured, with separate implementing agencies, PIUs, and steering committees for the two entities (FBiH and RS). This setup aligned with the Bank’s focus on fiduciary matters, including finance, procurement, legal compliance, and safeguards. During the preparation phase, extensive consultations were conducted with Project beneficiaries, such as officials from line ministries, local authorities, and end users. This collaborative approach informed the selection of buildings for EE investments, beginning with a comprehensive list of 300–400 public buildings that was subsequently refined based on technical criteria. However, as noted in the ICR, the required implementation period had been underestimated. The design did not fully account for the complexities of the government structure, which required additional time for approvals and processing. These challenges caused delays in the initial implementation phase and necessitated an 18-month extension at Restructuring 1 of November 2017. (ICR, pages 10, 13). Quality-at-Entry Rating Satisfactory b. Quality of supervision The supervision of the Project was inherently complex due to its two-phase structure and the dual-entity implementation arrangement. Despite these challenges, supervision proceeded smoothly, bolstered by the Bank team's close oversight. Supervision missions were conducted regularly (bi-annually), meticulously documented, and supported by detailed and candid Implementation Status and Results Reports (ISRs). Regular reviews of Project outcomes provided valuable insights for Restructuring 2 (AF), during which the Project underwent significant revisions (ICR, page 14). Strong implementation arrangements supported the Page 13 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Project, with a clear division of roles and responsibilities (ICR, page 11). Financial management, procurement processes, and contract administration were of high quality (ICR, page 13). Some deficiencies arose during implementation but were promptly addressed. This included staff turnover within the FBiH PIU in 2018, which caused delays and led to a temporary downgrade in the Project management rating. This issue was mitigated through strengthened organizational arrangements, including the development and implementation of the Governance and Accountability Action Plan (GAAP). Frequent TTL turnover posed a challenge but was offset by the high qualifications of the team and strong support from country and regional offices. Delays in Implementation were primarily caused by the addition of new activities under the AF, a late start to implementation, and disruptions due to the COVID-19 pandemic. Overall, the supervision was well-executed, with proactive measures taken to address challenges, ensuring the Project's continued progress. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Satisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design The RF was well-designed, reflecting the logic of the Project interventions as outlined during appraisal. It was technically sound, manageable, and aligned with the Project's objectives. All RF indicators were time- bound, attributable to the Project, and predominantly quantitative. The PDO indicators were specific, measurable, relevant, and directly tied to the Project's development objective. Intermediate indicators were generally selected appropriately to track the progress of activities and outputs toward achieving PDO outcomes. However, one IRI, “Number of subprojects completed” (i.e., buildings retrofitted), had deficiencies. This indicator did not account for the significant variation in buildings' potential for energy savings, which can depend on factors such as size, baseline energy efficiency, and structural characteristics. As a result, simply tracking the number of buildings retrofitted failed to adequately reflect progress toward achieving the PDO indicator of total energy savings. The M&E arrangements were efficient and well-structured. The two PIUs were tasked with data collection, analysis, and biannual reporting. The data sources were clearly defined and included: (i) energy audit reports and technical M&E reports, submitted before and after subproject implementation; (ii) Social Impact Surveys, capturing end-user satisfaction with the implemented measures; and (iii) public facilities’ records, documenting the number of beneficiaries. (ICR, page 11) b. M&E Implementation Page 14 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) The RF was redesigned during Restructuring 2 in October 2018 to align with the transition to phase 2 of implementation. This included adding new indicators specific to phase 2, removing indicators tied to phase 1, and increasing the targets for several indicators in response to the expanded Project scope. The revised RF maintained alignment with the restructured Project, effectively captured expected outcomes through PDO indicators, and reflected the logic of achieving them though IRIs. Targets were carefully adjusted to strike a balance between Project ambition, institutional capacity, and the remaining implementation timeline. Despite these refinements, some challenges arose during implementation: (i) the quality of data form subprojects was not always sufficient, requiring multiple iterations to ensure accuracy and reliability; and (ii) verifying data proved difficult due to the technical complexity of assessments and a limited culture of timely responses to data requests. To address these issues, the Bank team implemented an additional layer of data verification by conducting frequent meetings with PIUs to discuss data measurement and collection processes; and collaborating with technical consultants to review and validate the data. (ICR, page 11-12) c. M&E Utilization The ICR reported that the M&E findings and data were effectively utilized throughout Project implementation by both entities and the Bank team. They informed discussions on the Project’s progress and critical decisions, including closing date extensions, indicator revisions, and restructurings. For instance, during the Midterm Review (MTR), the issue of low-quality energy audits was identified. In response, the Bank and PIU implemented measures such as an in-depth review of audit reports, feedback from the Bank team, and additional training workshops to improve the quality of the audits. Key M&E data from PDO indicators were instrumental in evaluating the Bank's value-added and are expected to continue being used for tracking energy efficiency (EE) benefits in the future. (ICR, page 12) Considering the sound RF design, both at approval and at Restructuring 2, as well as the robust M&E implementation, and the effective use of M&E data despite challenges with data quality and verification, the M&E quality is rated as Substantial. M&E Quality Rating Substantial 10. Other Issues a. Safeguards Environmental and Social Safeguards. At appraisal, the Project was classified as Environmental Category B, triggering Environmental Assessment (OP/BP 4.01) due to the construction works planned for public buildings. An Environmental Management Framework (EMF) and Environmental Management Plan (EMP) were prepared for both PIUs and publicly disclosed. The EMF included precautionary provisions on cultural heritage, chance finds, and possible asbestos finds. From the outset, both PIUs have been adequately staffed to manage environmental issues and prepare site-specific EMPs. (ICR, page 12) Page 15 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) During implementation, some environmental challenges emerged, including management of asbestos- containing roofing tiles, works on cultural heritage buildings, and works during COVID-19. Both PIUs performed well in identifying and mitigating these and other environmental issues, integrating the EMPs into the works documentation, and ensuring the visibility, consultations, information sharing, and adequate mechanisms for grievances. Works in education and health facilities required minimizing disruptions to their operations, a challenge that was effectively managed. Notably, no social risks were identified, and no social issues arose during implementation. While a grievance redress mechanism was established and functional, no formal grievances were reported. This outcome is attributed to the hands-on approach and effective communication by the PIUs, which enabled the immediate resolution of minor concerns. (ICR, page 12) b. Fiduciary Compliance Financial management (FM). The ICR noted that FM was consistently rated as Satisfactory throughout Project implementation. Compliance with the Project FM covenants was adequate, and no major issues affected FM performance or elevated FM risk, which remained at a Moderate or Low level. Interim financial reports were submitted on time and were confirmed to be of acceptable quality. All audits of the Project’s financial statements were carried out by private auditors acceptable to the Bank. Throughout the Project, the auditors issued unqualified opinions indicating clean financial statements, with no significant internal control issues. (ICR, page 13) Procurement. The ICR noted that procurement processes and contract administration under the Project were generally of good quality and reliability. Both PIUs successfully transitioned from phase 1 to phase 2 procurement guidelines, ensuring continuity and compliance. The Project’s procurement risk was rated as Moderate throughout implementation, primarily due to the need for both PIUs to build familiarity with the Bank’s new procurement framework. While minor inconsistencies were identified during post reviews, these were promptly addressed through adequate corrective measures. Procurement performance was consistently rated as Satisfactory. c. Unintended impacts (Positive or Negative) -- d. Other -- 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment Page 16 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) Outcome Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory Quality of M&E Substantial Substantial Quality of ICR --- Substantial 12. Lessons The following lessons were derived from the ICR (ICR, pages 20-21): 1. Revolving EE funds, such as those established under the Project, have proven to be an effective mechanism for supporting the development of EE markets, provided that proper preparation and capacity-building measures are in place. The reviewed Project highlighted a successful phased approach to EE market development, starting with public sector investment in demonstration projects in public buildings and testing various EE contracting/EE financing models; and then progressing to the implementation of revolving public sector-based financing models for EE to support a gradual transition to private sector-based financing. Risk-sharing models between contractors and building owners, in a form of co-investment arrangements, could be explored instead of directly using the ESCO model. 2. Technical assistance (TA) is critical in advancing EE investments in buildings, fostering a sustainable EE market, and strengthening stakeholder momentum and commitment to future initiatives. The reviewed Project greatly benefited from the outputs of its TA component, including analytical work, pre-feasibility studies, and implementation guidelines for EE activities. These efforts were instrumental in establishing a robust environment for further EE investments in buildings and laying the groundwork for the development of a sustainable EE market. 3. When introducing innovative models and systems, it is crucial to allocate sufficient time for learning, training, and adaptation in project design. The reviewed Project encountered significant challenges when piloting the PBC model due to limited understanding among sector participants. It took over two years of preparation to secure a bidder, during which adjustments, such as reducing the retention requirement from 10–20 percent of the contract to 5 percent, were necessary to attract bids. Despite the difficulties, the contractor eventually exceeded the energy savings target due to precise planning and careful execution. This was a learning experience suggesting that taking account of the learning curve in innovative projects’ planning can be beneficial. 4. Integrating behavior-focused initiatives into EE projects is critical to maximizing their impact and achieving long-term sustainability. Achieving the full benefits of building EE measures necessitates a shift in end users’ behavior, which requires time and targeted efforts. Training and awareness-raising initiatives are essential to ensure that users properly utilize installed equipment and move away from outdated practices. For instance, under the reviewed Project, some consumers continued to regulate indoor temperature by opening windows instead of using the thermostatic radiator valves installed with modern radiators. Failure to address this behavioral aspect can undermine the targeted reductions in energy consumption and energy bills. Page 17 of 18 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Energy Efficiency Project (P143580) 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR is grounded in robust evidence, effectively linking findings to data and providing sufficient technical details to convey the Project's value-added, implementation context, and performance factors. It demonstrates internal consistency and clarity in discussing various aspects of Project implementation, including relevance of objectives, efficacy, economic analysis, M&E quality, and safeguard and fiduciary compliance. The lessons learned are supported by evidence and analysis, reflecting specific Project experiences. However, the ICR has some minor shortcomings: (i) the efficiency section lacks an administrative efficiency subsection; and (ii) the TOC only lists Project activities, outputs, and outcomes without showing the causal links across the result chains, leaving the chain of direct causality unclear. Despite these minor limitations, the ICR provides sufficient information and analysis to draw meaningful conclusions about the Project. On balance, its overall quality is rated as Substantial. a. Quality of ICR Rating Substantial Page 18 of 18