Aide Memoire Project: Sustainable Energy Development and Access Project (SEDAP) Project Stage: Implementation Team Leader(s): Alain Ouedraogo Country: Federated States of Micronesia (FSM) Key Data Project Number P165183 Closing Date 30�Sep�2025 IDA/IBRD Financing USD 30 m IDA/IBRD Disbursements 31% Counterpart Financing Not Applicable (NA) [other funding source] NA Other Disbursements NA Board Approval Date 06-Dec-2018 Date of Last Mission 09-Mar-2024 Mission Start Date 11-Nov- 2024 Effectiveness Date 08-Apr-2019 Site Visit Date 14-Nov-2024 Mission End Date 15-Nov- 2024 Introduction Representatives of the Government of Federated States of Micronesia (FSM) met with the World Bank mission from November 11 to 15 to jointly review the implementation progress of the Sustainable Energy Development and Access Project (SEDAP), including a site to the Nanpohnmal Power Plant (NPP) in Pohnpei. The Mission would like to express its appreciation to the counterpart staff of the Department of Resource and Development (DoR&D) and its Project Implementation Unit (PIU), the Central Implementation Unit (CIU), the four state power utilities—Pohnpei Utility Corporation (PUC), Chuuk Public Utility Corporation (CPUC), Kosrae Utilities Authority (KUA), and Yap State Public Service Corporation (YSPSC)—and their supervising engineering firms and contractors for the hospitality and co-operation extended by all those met. The Annex 1 presents the list of persons met during the mission. This Aide-Memoire records the major findings of the mission and agreements reached between the DoR&D, the PIU, the CIU, the four state power utilities, and the World Bank mission team. The key findings and main next steps from the mission were discussed at the wrap-up meeting chaired by the DoR&D Assistant Secretary of the DoR&D on November 15, 2024. The final version of the Aide Memoire was endorsed by the Bank management after the mission. Summary Project Status Progress Towards Achieving Project The project is slowly progressing and is on track to meet the Moderately Satisfactory Development Objective (PDO) PDO [if not or if downgraded state why]. ◄ ► No change Implementation Progress The implementation is progressing at slower pace than Moderately Satisfactory planned. The 830 kW diesel generator for YSPSC is ◄ ► No change commissioned and has been operational. The KUA BESS was shipped, and installation is expected to be completed by July 2025. Udot mini grid supplies are being shipped. PUC’s NPP rehabilitation and Weno solar PV facility design/supply are advancing with delays. Performance Trends: ▲ Improving; ▼ Deteriorating; ◄ ► No change. Project Progress and Key Issues by Component / Section Overall Progress: Despite delays, the project implementation continues to progress in a moderately satisfactory manner with good progress under Component 3, adequate progress under Components 4 and 5, and slower progress than expected under Components 1 and 2. The slow progress under Components 1 and 2 are mainly due to the largest contractor’s ineffective management and delays in mobilizing experienced staff timely for designs and field work. The 1 Bank team raised concerns with the contractor’s managing director, and it was agreed that the DoR&D will meet with the Chinese Ambassador. Considering the delays, there are two activities that are likely to be uncompleted by the closing date and will be closely monitored moving forward. The paragraphs below provide more details on the implementation progress by component, summarize the fiduciairy aspects, highlight the activities likely to be uncompleted by the closing date, and present current and forecasted disbursement. Component 1 - Improving Reliability of Electricity Supply in Pohnpei State: The implementation progressed at a slower pace than expected mainly because of delays from the contractor (Sinosoar). About 95% of the waste oil in the Nanponhmal Power Plant (NPP) has been pumped out and shipped out of the FSM. The removal of the four old and nonoperational diesel generators is ongoing, with two generators removed at 90% and 60%. The manufacturing of the switchgear, though delayed (with an unsatisfactory factory acceptance in September 2024), is now completed, and the November 2024 factory acceptance testing was successful. The switchgear will be shipped to Pohnpei, but its installation and commissioning, previously planned to be completed in January 2025, is postponed in March 2025, because Sinosoar has not yet provided a satisfactory revised version of the protection study for an adequate commissioning/cutover. To avoid further delays on the protection study, the mission recommends that Sinosoar subcontracts the protection study to a capable engineering firm, as suggested by the supervisory engineering firm (Entura) and endorsed by the PIU. In addition, considering the multiple rounds of revisions on the designs without complete approvals, the mission requested that Sinosoar complete all designs by December 2024. Looking ahead, Sinosoar indicated that the new diesel generators are expected to be delivered in Pohnpei by June 30, 2025; installed by September 2025; but their testing and commissioning are planned to be completed by October 31, 2025, about 1 month after the project closing date (September 30, 2025). The Bank team requested that Sinosoar, Entura (supervisory engineering firm), and the PIU confirm that the factory acceptance testing of the diesel generation will be done by April 30, 2025, and provide the Bank team with a realistic planning till completion. In addition, the team noted that DoR&D has not yet met with the Chinese Ambassador, as previously agreed, and reiterated the need for such a meeting to raise Sinosoar’s poor performance issues. Component 2 - Expanding Access to Electricity in Chuuk State: The component implementation progressed slower than expected, partially due to unforeseen changes, remoteness of Satowan location, and Sinosoar’s delays. The detailed designs of the mini grids in Udot/Eot and Satowan have taken more time than initially planned for various reasons. Some reasons are linked to mini grid 4 solar PV site change, relocation of technical building, lack of charter plane to Satowan, and unpredictable/rarely available boat schedules to Satowan. Other reasons are due to Sinosoar’s lack of experienced staff, poor management, and ineffective communication. Consequently, for Udot/Eot, about 5% percent of the designs for Udot mini grids are uncompleted. Nonetheless, the manufacturing and testing of solar PV modules and batteries were completed and expected to be shipped. The construction of the mini grids in Udot/Eot is now planned to be completed by August 05, 2025, about 7 months later than initially planned. The Bank team was informed that (i) a priest in Fanono is not authorizing the installation of solar PV panels on the roof of the church (as agreed) and (ii) some residents are requesting payments to use the state-owned dock and passage to unload and deliver equipment. To address the priest’s concern, the Bank team suggested that the project funding be used to replace the entire church roof instead of half of the roof as agreed. For the use of the dock, CPUC was encouraged to liaise with the communities to find a way forward as providing payment is not an acceptable practice. For Satowan, about 15% of the designs are uncompleted, and no manufacturing of equipment has started. The construction of the mini grids in Satowan is now planned to be completed by September 10, 2025, only few days before the project closing date, which is extremely risky. The Bank team emphasized the need for close supervision to avoid further delays and encouraged DoR&D, with support from engineering consulting firms, to activate penalty clauses under the contracts. Component 3 - Scaling up Renewable Energy Generation in Chuuk, Yap, and Kosrae States: The Yap’s activity was completed; the Kosrae’s activity progressed well; but the Weno solar PV construction started very late and is likely to not be completed before the project closing date. The supply and installation of the 830 kW diesel generation at YSPSC was completed in May 2024. The PIU and CIU were reminded to process the overdue payment (about US$31k) to PM control 2 (supplier of electrical components of the generator), which has been pending for over 6 months. The design, manufacturing, supply, and installation of battery energy storage system (BESS) at KUA advanced satisfactorily. The order to manufacture the BESS was placed in March (last mission), and the BESS was manufactured, shipped, and expected to be delivered in Kosrae in December 2024. The installation is planned in January and the commissioning in July 2025 (2 months before the closing date) to coordinate with the completion of the solar PV system installation, funded by the Asian Development Bank. With regards to the Weno solar PV facility, the contract was signed in July 2024, as it took a long time to acquire the land, prepare the associated environmental and social management plan (ESMP), and initiate procurement. The contractor submitted an advance payment, which was approved by the engineering supervision firm on September 26, 2024, but remained unprocessed by the PIU by November 12, 2024. The contractor did an inception site visit and initiated designs. The current planning shows an expected completion date on April 30, 2026, about 08 months after the closing date. The mission requested that the planning be shorten to the extent possible, with the option of providing incentives to accelerate completion. Component 4 and 5 - Institutional Strengthening and Capacity Building, and Technical Assistance and Project Management: The implementation of the component 4 and 5 progressed slowly. The Component 4 funds two main activities: (i) a study on clean cooking fuels, and (ii) a performance contract between PUC and the State of Pohnpei. The study on clean cooking fuels was started in May 2024 and survey questionnaires were prepared. But the study is on hold as the contract expired and a new contract was routed for signature and validation. The study is expected to be completed by May 2025. The performance contract between PUC and the State of Pohnpei was prepared and reviewed. The final version includes a request to the State to amend the tariff adjustment methodology to enable PUC to increase the electricity tariffs below a threshold without following the current lengthy procedures. The performance contract was sent to the State of Pohnpei, whose new administration has not yet approved it. To support the adoption of cost reflective tariffs for efficient operation, the Bank is funding a tariff study (bank-executed study) that will develop a strategy for tariff adjustment. A consultant firm was selected and will start the study in January 2025. The Component 5 continues to provide resources for adequate project management, including assistance to state power utilities and project monitoring. As there are three requests for additional funding for ongoing activities, the Bank team requested that the contract register be updated, and the annual budget revisited to ensure that the remaining balance is accurate and can fund the requests. Procurement, Financial Management, Environmental & Social (E&S): The mission provided hands-on support on procurement, reviewed the financial management, and assessed social and environmental aspects. Two World Bank procurement staff travelled to Pohnpei and helped the PIU finalize the drafting of several contract amendments, including amendments to include mandatory new requirements for site signage. On financial management, the team reviewed the contract registry, the IFR, the budget (whose preparation was supported by the Bank Financial Management Consultant who resides in Pohnpei), and other financial management aspects. It was agreed that the Bank will provide no objection on the previous version of the budget, and the PIU, with support from the CIU, will update the contract registry and the budget to ensure accurary of remaining available budget. The fiscal year 2023 audit, which is part of the whole Bank portfolio audit, is overdue. The Bank technical team suggested that a single source procurement method be used to select the auditing firm to reduce delays in delivering the audit. On environmental and social (E&S), both the Bank Social Development Specialist and Environmental Specialist travelled to Pohnpei, joined the mission, and reviewed the project E&S aspects, including through a site visit to the PUC’s Nanpohnmal Power Plant (NPP) and a field travel to Chuuk, where the Bank Social Development Specialist visited the Weno solar PV facility. The CIU E&S advisors were encouraged to document concerns and complaints as part of the Grievance Redress Mechanism (GRM). Agreed action plans from the site visits will be sent to the PIU/CIU for implementation. Activities that are likely to be uncompleted after the closing date: The review of the plannings/schedules of the main project activities showed that two activities are likely to be uncompleted by the closing date (September 30, 2025). The first activity is the final designs, supply, construction (of canopies/technical rooms), installation, and commissionning of a 1.02 MW of solar PV facility in Weno. It took a long time for the power utility in Chuuk (CPUC) to acquire the land, then the PIU to prepare the environmental and social management plan (ESMP) and launch the bidding process. Consequently, 3 the contract to implement the activity was signed very late, in July 2024. The contractor has mobilized to the site, but the finalization of the designs is delayed. It is expected that, after the closing date, it will remain some construction and installation of the solar PV systems, which would be completed in April 2026, about 7 months after the closing date. The second activity is the final designs, ordering, manufacturing, installation, and commissionning/testing of the new diesel generators for the Pohnpei Utility Corporation (PUC). The ordering of the diesel generators took time, and their delivery in Pohnpei is planned in July 2025 and installation by the closing date. Additional 2 months after the closing date would be needed to complete the commissioning/testing of the generators. The PIU and the supervisory enginnering firms were requested to closely monitor these activites and consider activating penalties or providing incentives. Disbursement: The mission reviewed the disbursement and estimated projected disbursements. US$1.69 million were disbursed since July 01, 2024 (fiscal year disbursement ration of 7.87 percent); about US$1.7 million disbursement is expected in Quarter 2 (Q2); and more disbursement is expected in Q3 and Q4. From the last ISR (in May 2024), the overall project disbursement rate increased from 24% to 31%. The expected disbursement in Q2 will come from the shipping of the solar PV modules and batteries for the mini grids in Udot, the shipping of the battery energy storage system for KUA, and the advance payment for the Weno solar PV facility. The mission estimated the disbursement expected by June 30, 2024 and found that at least US$1 million might be disbursed in Q3 and another US$1 million in Q4. These disbursements will depend on the timely shipping of the switchgear for PUC power plant, the completion of the factory acceptance testing of the new diesel generators, and the advancement of works on Udot & Satowan mini grids. If the disbursement projections (in Q2, Q3, and Q4) materialize, about US$5.39 million would be disbursed this fiscal year, which would increase the overall project disbursement to at least 46%. Other disbursement items were also identified. The figure below details the projected disbursement. Next Steps Key Actions by Component/Section Responsible Unit(s) Deadline Component 1 (Improving Reliability of Electricity Supply in Pohnpei State) Inform the Bank about Sinosoar’s decision/confirmation to hire an engineering firm to PIU (Entura/Sinosoar) Nov. 21, 2024 complete the protection study Ensure that Sinosoar submits all final designs that address satisfactorily Entura’s PIU (Entura/Sinosoar) Dec. 20, 2024 comments Inform the Bank about the approval of the protection study PIU (Entura/Sinosoar) Jan. 31, 2025 4 Provide a confirmation (upon meeting with Caterpillar) that the diesel generator FAT PIU (Entura/Sinosoar) Nov. 29, 2024 date and delivery date in Pohnpei are realistic Ensure that the construction of the MV switchgear room is completed by March 15, 2025 PIU (Entura/Sinosoar) Mar. 15, 2025 Ensure that the switchgear cutover is performed by April 04, 2025 PIU (Entura/Sinosoar) Apr. 04, 2025 Perform the factory acceptance testing of the diesel generators PIU (Entura/Sinosoar) Apr. 30, 2025 Inform the Bank about the outcome of DoR&D meeting with the Chinese Embassy DoR&D Jan. 31, 2025 Component 2 (Expanding Access to Electricity in Chuuk State) Complete all Udot/Eot mini grid designs Sinosoar (TTA/PIU) Jan. 15, 2025 Complete all Satowan mini grid designs Sinosoar (TTA/PIU) Jan. 15, 2025 Submit a proposal for service line installation and household wiring PIU (CPUC/TTA) Dec. 02, 2024 Address the concerns of the priest in Fanomo (Udot MG2) CPUC (DoR&D) Dec. 02, 2024 Address the issue of payment for using dock and passing to deliver equipment CPUC (DoR&D) Dec. 15, 2024 Conduct the Satowan pegging mission by January 30, 2025 PIU/CPUC (TTA/Sino.) Jan. 30, 2025 Ensure that Deputy Manager and Construction Manager are on the field Sinosoar (TTA/PIU) Jan. 15, 2025 Review the CESMP to ensure accuracy of the description of works TTA (PIU) Dec. 02, 2024 Review the CESMP, update the table of comments/responses, and send to the Bank CIU and PIU Dec. 06, 2024 Document the concern of the Fanomo Priest as part of the GRM CIU and PIU Dec. 15, 2024 Component 3 (Scaling up Renewable Energy Generation in Chuuk, Yap, and Kosrae States) Ensure that the installation of BESS starts in January 2025 Feb. 03, 2025 Send a note (approved by the supervision firm) on the need for additional equipment for PIU (IT Power) Dec. 02, 2024 KUA BESS installation Send to the Bank the contract amendment for the supply of the additional equipment for PIU (IT Power) Dec. 02, 2024 KUA BESS Send the ESMP to Vergnet and ask that it ensures compliance during the BESS PIU (IT Power) Dec. 02, 2024 installation Complete the geotechnical studies for the Weno solar PV facility MEA (TTA/PIU) Feb. 03, 2025 Complete the electrical designs for the Weno solar PV facility MEA (TTA/PIU) Feb. 03, 2025 Complete the civil designs for the Weno solar PV facility MEA (TTA/PIU) Feb. 03, 2025 Submit the CESMP for the Weno solar PV facility to the CIU and TTA for review MEA (TTA/PIU) Feb. 21, 2025 Send the revised Weno solar PV facility CESMP to the Bank for review PIU (CIU) Feb. 28, 2025 Component 4 and 5 Notify the Bank of the validation of the East West Center contract PIU (CIU) Dec. 02, 2024 Introduce the tariff study firm to the FSM counterparts WB Jan. 15, 2025 Send the evaluation report for the selection of the project implementation officer PIU Dec. 06, 2024 Budget and Disbursement Send the official no objection on the previous version of the budget WB Nov. 29, 2024 Ensure that the contract register includes all signed contracts with correct figures PIU & CIU Nov. 29, 2024 Update the budget (including audit fee and new requests) PIU & CIU Dec. 02, 2024 Send the draft amendment contract for Entura additional supervision PIU Dec. 02, 2024 Send the draft amendment contract for TTA additional supervision PIU Dec. 02, 2024 Submit all supporting documents to the CIU for the advance payment to Mitsubishi PIU Nov. 29, 2024 Submit to the Bank a direct payment for Mitsubishi advance payment CIU Dec. 10, 2024 Submit all supporting documents to the CIU to pay PM Control PIU Nov. 29, 2024 Make payment to PM Control and notify the Bank team CIU Dec. 02, 2024 Submit all supporting documents to the CIU to pay Vergnet for BESS shipping PIU Nov. 29, 2024 Submit to the Bank a direct payment for Vergnet BESS shipping CIU Dec. 02, 2024 Provide all required documents for loading the PUC’s NPP switchgear Sinosoar (Entura) Dec. 02, 2024 Submit all supporting documents to the CIU for PUC’s NPP switchgear shipping PIU Dec. 15, 2024 Submit to the Bank a direct payment for PUC’s NPP switchgear shipping CIU Jan. 15, 2025 The next supervision mission is tentatively envisioned for March 2025. 5 Annex 1: Persons Met and Mission Members Name Organization Position Contact Information DoFA/CIU Kwame Shiroya DoFA Program Manager shiroya.k.s@gmail.com Shiva Dhakal CIU Social Dev. Advisor shiva.dhakal@dofa.gov.fm Alvaro Hoyos CIU Communications Spec. alvaro.hoyos@dofa.gov.fm Jane Muhiri CIU Procurement Advisor Eugene Oswalt CIU Finance Officer eugene.oswalt@gmail.com Sanju Adhikari Finance Management Advisor sanju.adhikari@dofa.gov.fm Steve Lindsey CIU Environmental Advisor steve@iasaustralia.com Melanie King CIU PIM Consultant melanieking2017@gmail.com DoR&D/PIU Faustino Yarofaisug DoR&D Assistant Secretary Fyarofaisug@rd.gov.fm Anthony Jude DoR&D Energy Advisor anthonyjjude@icloud.com Andrew Daka PIU Project Manager adaka@rd.gov.fm Utilities Nixon T. Anson PUC CEO nanson@mypuc.fm Dackson Solomon PUC Assistant CEO dackson.solomon@mypuc.fm Mr. Kembo Mida CPUC Managing Director kembo.mida@cpuc.fm Lei Shirai CPUC CFO lei.shirai@cpuc.fm Casey Freddy KUA General Director caseyfreddy5@gmail.com Victor Nabeyan YSPSC CEO vnabeyan@gmail.com Contractor Jacky Zheng Sinosoar Project manager zhengxinlong@sinosoarhybrid.com Wiston Chin Mitsubishi General manager Wiston.Chin@asia.meap.com Kenneth Chang Mitsubishi Project manager Kenneth.Chang@asia.meap.com Anurag Raizada TetraTech Senior Director, Utility Anurag.raizada@tetratech.com Shreyas Pahade TetraTech management shreyas.pahade@tetratech.com Arben Gjnkaj TetraTech Energy Sector Manager arben.gjukaj@gmail.com Alfredo Colombano TetraTech Distribution Specialist Alfredo.Colombano@tetratech.com TetraTech General manager riteshkumar.singh@tetratech.com Owner’s engineer Serme-Mariam Vergnet Jr. project manager Sm.kah@vergnet.com Nathan Allie Entura Technical specialist nathan.allie@entura.com.au Alicia Scanlon Entura Mechanical engineer alicia.scanlon@entura.com.au Julia McDonald IT power Project manager jmcdonald@itpau.com.au Alberto Jerónimo TTA Project manager Alberto.jeronimo@tta.com.es Bank Staff Name Title Unit Alain Ouedraogo Senior Energy Specialist and Task Team Leader IEAE1 Yangji Kim Senior Energy Specialist IEAE1 Rome Chavapricha Senior Infrastructure Finance Specialist MIGIG Nicholas Williams Procurement Analyst EEAR2 Anika Fletcher Social Development Specialist SEAS1 Qingyuan Wang Economist IEAE1 6 Hua Du Energy Consultant IEAE1 Trevor Fry Renewable Energy Consultant IEAE1 Hung Tan Tran Senior Energy Specialist IEAE1 Maria Cristina Villani Senior Procurement Consultant EEAR2 Ciliaka Gitau Financial Management Specialist EEAG2 Dane William Financial Management Consultant EEAG2 Suzanne Dray Environmental Specialist SEAE3 Fiona Bingham Program Assistant EAPCF 7