Kyrgyz Republic: Power Sector Improvement Project

Power Sector Improvement Project (RRP KGZ 43456-02)

Project Number: 43456 Loan and/or Grant Number(s): {LXXXX; GXXXX} 27 August 2010

Kyrgyz Republic: Power Sector Improvement Project

Project Administration Manual

Contents

Page

I. PROJECT DESCRIPTION 1 A. Objective 1 B. Impact and Outcome 2 C. Outputs 2

II. IMPLEMENTATION PLANS 3 A. Project Readiness Activities 3 B. Overall Project Implementation Plan 4

III. PROJECT MANAGEMENT ARRANGEMENTS 6 A. Project Stakeholders – Roles and Responsibilities 6 B. Key Persons Involved in Implementation 6 C. Project Organization Structure 7

IV. COSTS AND FINANCING 10 A. Detailed Cost Estimates by Expenditure Category 12 B. Allocation and Withdrawal of Loan and Grant Proceeds 12 C. Expenditure Accounts by Financier 13 D. Expenditure Accounts by Yeara 14 E. Contract and Disbursement S-curve 14 F. Fund Flow Diagram 15

V. FINANCIAL MANAGEMENT 16 A. Financial Management Assessment 16 B. Disbursement 18 C. Accounting 18 D. Auditing 19

VI. PROCUREMENT AND CONSULTING SERVICES 19 A. Procurement Capacity Assessment 19 B. Advance Contracting and Retroactive Financing 20 C. Procurement of Goods, Works and Consulting Services 21 D. Procurement Plan 22 E. Process Thresholds, Review and 18-Month Procurement Plan 23 F. Indicative List of Packages Required Under the Project 24 G. Outline Terms of Reference – Project Management Consultants 26 H. Outline Terms of Reference – NEGK Corporate and Financial Management

Capacity Building 27 I. Outline Terms of Reference – Study on Wholesale Electricity Transaction

Settlement System 27 VII. SAFEGUARDS 28 VIII. GENDER AND SOCIAL DIMENSIONS 29

IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND

COMMUNICATION 29 A. Project Design and Monitoring Framework 29 B. Monitoring 31 C. Evaluation 33 D. Reporting 33 E. Stakeholder Communication Strategy 34

X. ANTICORRUPTION POLICY 34 XI. ACCOUNTABILITY MECHANISM 34 XII. RECORD OF PAM CHANGES 34

Project Administration Manual Purpose and Process

The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. The Ministry of Energy (MOE) and the National Electric Grid of Kyrgyzstan (NEGK) are wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB’s policies and procedures. ADB staff is responsible to support implementation including compliance by MOE and NEGK of their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures. At Loan Negotiations the borrower and ADB shall agree to the PAM and ensure consistency with the Financing and Project Agreements. Such agreements shall be reflected in the minutes of the Loan Negotiations. In the event of any discrepancy or contradiction between the PAM on the one hand and the Financing and Project Agreements on the hand, the provisions of the Financing and Project Agreement shall prevail.

After ADB Board approval of the project's report and recommendations of the President (RRP) changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

Abbreviations

ADB = Asian Development Bank ADF = Asian Development Fund AFS = audited financial statements AMDA = automated metering and data acquisition system DMF = design and monitoring framework EARF = environmental assessment and review framework EIA = environmental impact assessment EMP = environmental management plan ESMS = environmental and social management system GACAP = governance and anticorruption action plan GDP = gross domestic product ICB = international competitive bidding IEE = initial environmental examination IFRS = International Financial Reporting Standards IPP = indigenous people plan IPPF = indigenous people planning framework LAR = land acquisition and resettlement LIBOR = London interbank offered rate NGOs = nongovernment organizations OPGW = optical ground wire PAI = project administration instructions PAM = project administration manual PIU = project implementation unit QCBS = quality- and cost based selection RRP = report and recommendation of the President to the Board SBD = standard bidding documents SCADA = supervisory control and data acquisition system SPS = Safeguard Policy Statement TOR = terms of reference

I. 9PROJECT DESCRIPTION

A. Objective

1. Years of neglect since independence have left the Kyrgyz power sector in a state of disrepair. Power infrastructures are dilapidated, losses are high, tariff is below cost-recovery, and financial performance is poor. The power sector needs to be revamped urgently before the integrity of the system is lost. It needs to improve energy efficiency, energy security and regional power trade. The Project is critical in attaining these goals. 2. Reliable supply is also hindered by (i) high system losses (6% transmission loss and 26% distribution loss in 2009), (ii) inefficient system operation using obsolete technology, (iii) faults caused by dilapidated equipments used since the Soviet era, and (iv) poor governance and financial management. Such factors also result in reduced power export. As revenue from export is used to import costly fuel for the combined heat and power plants (CHPs) in the winter, reduced summer export leads to insufficient domestic supply in winter. 3. While the entire power sector needs modernization, the Government places highest priority on loss reduction and strengthening governance. This is not only to improve commercial operations, but to regain the population’s confidence in the power sector and to reestablish political stability. Energy security through generation capacity expansion is a priority, but the short-term solutions are to improve system efficiency and reliability, and to enhance regional power trade. The proposed Project contributes to attaining the goals through the following components:

(i) Automated Metering and Data Acquisition system (AMDA) will bring transparency to the wholesale electricity transaction between the unbundled power companies as well as in regional power trade. AMDA will eliminate errors and rampant metering data manipulation that are untraceable by the current archaic technology. Loss reduction will make more power available domestically and also improve the financial performance of the power companies. Accurate power flow data is indispensible to improve the power companies’ commercial operation performance. The system also enhances regional power trade through (i) meeting the CAPS metering accuracy requirement, and (ii) eliminating unauthorized export.

(ii) Substation Rehabilitation will improve reliability of the Kyrgyz power system by

replacing dilapidated circuit-breakers and instrument transformers that have reached their economic lives, are technologically obsolete, or do not meet the accuracy requirement for regional power trade. Since the Kyrgyz system is intricately interconnected with the CAPS, rehabilitation increases reliability of the regional system and enhance regional power trade.

(iii) Communications and Supervisory Control and Data Acquisition system

(SCADA) will link seven major substations (estimated) and the control centers via optical fiber, and enables the system operator to make efficient dispatching based on real-time data. The scope is limited to system monitoring function of the northern loop. SCADA will reduce technical losses through avoidance of overloading, and also enable faster detection and restoration of faults. The system improves the overall efficiency and reliability of the Kyrgyz system and CAPS.

(iv) Study on Wholesale Electricity Transaction Settlement Mechanism will study

the settlement systems appropriate to bring about transparency and accountability to the Kyrgyz power sector, and to maximize the benefits of the AMDA. It will devise mechanisms to improve the performance of the power companies’ commercial operations, and to enhance regional power trade through streamlining contractual and settlement arrangements.

(v) Corporate and Financial Management Capacity Building for the National

Electric Grid of Kyrgyzstan (NEGK) will improve corporate management through the preparation of a corporate business plan including the review of investment needs, operation and maintenance practices, organizational reforms, internal control, asset revaluation, and cost of transmission service. Financial management capacity will be strengthened through introduction of the International Financial Reporting Standards (IFRS) and appropriate corporate accounting software.

B. Impact and Outcome

4. The project will boost energy security, energy efficiency, and regional power trade. The impact will be stronger reliability of the national and regional power systems in the Kyrgyz Republic and Central Asia. The outcome will be higher operational efficiency of the utilities. C. Outputs

1. Physical 5. The AMDA will be a main output. It will allow obtaining commercial metering data automatically from (i) about 190 substations of NEGK, and (ii) facilities of the Electric Power Plant Company 1 with direct supply to distribution companies and interconnections with neighboring countries. A second output will be the rehabilitation of circuit breakers, and current and voltage transformers in over 50 selected substations of NEGK. A third output will be the SCADA that links seven major NEGK substations (estimated) and control centers. 2. Nonphysical 6. The main outputs will be: (i) project management of physical investments; (ii) recommendations on the settlement mechanism for wholesale electricity transactions including the industry structure; and (iii) development of NEGK's corporate and financial management capacities, and strategic business planning.

1 The Electric Power Plant Company is an open joint stock company established under the laws of the Kyrgyz

Republic. The government holds 93.7% of the shares; the rest is traded on the Kyrgyz Stock Exchange and the Central Asian Stock Exchange.

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II. IMPLEMENTATION PLANS

A. Project Readiness Activities

2010 2011 Indicative Activities 8 9 10 11 12 1 2

Responsibility

Advance contracting actions (Management consultant recruitment) X NEGK

ADB Board approval X ADB

Establish project implementation arrangements X NEGK, ADB

Loan signing X ADB

Government legal opinion provided X GOKR

Government budget inclusion X GOKR

Loan effectiveness X GOKR, ADB

ADB = Asian Development Bank; GOKR = Government of Kyrgyz Republic; NEGK = National Electric Grid of Kyrgyzstan Note: Parliamentary elections expected in October 2010.

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B. Overall Project Implementation Plan

Indicative Activities 2010 (Qtr) 2011 (Qtr) 2012 (Qtr) 2013 (Qtr) 2014 (Qtr) A. DMF [Physical] 1. Consulting services for implementation supervision 1.1 RFP issuance by NEGK Aug 2010 1.2 Contract award by NEGK Dec 2010 1.3 Consulting team mobilization Jan 2011 2. Development of AMDA and Development of SCADA

(Phase 1: system monitoring) 2.1 Outline design completion by consulting team Jul 2011 2.2 Contracts awarded to turnkey contractor by NEGK Jan 2012 2.3 Detail design by turnkey contractor Oct 2012 2.4 Equipment manufacturing and installation Nov 2013 2.5 Commissioning by NEGK Dec 2013 3. Substation Rehabilitation 3.1 Basic design completion by consulting team Jul 2011 3.2 Contracts awarded to supplier by NEGK Dec 2011 3.3 Deliver of equipment Dec 2012 3.4 Installation completed by NEGK Nov 2013 3.5 Commissioning by NEGK Dec 2013 [Non-physical] 1. Advisory Service on Corporate/Financial Capacity

Building of NEGK 1.1 RFP issuance by MOE Oct 2010 1.2 Contract award by MOE Feb 2011 1.3 Consulting team mobilization Mar 2011 1.4 Final report submission by consulting team Feb 2012

2. Study on Wholesale Electricity Transaction Settlement

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Indicative Activities 2010 (Qtr) 2011 (Qtr) 2012 (Qtr) 2013 (Qtr) 2014 (Qtr) Mechanism

2.1 RFP issuance by MOE Oct 2010 2.2 Contracts award by MOE Feb 2011 2.3 Consulting teams mobilization Mar 2011 2.4 Interim report & workshop by consulting teams Sep 2011 2.5 Final report submission by consulting teams Feb 2012

A. Management Activities

Procurement plan key activities to procure contract packages

Consultant selection procedures

Environment management plan key activities

Communication strategy key activities

Annual/Midterm review

Project completion report AMDA = automated metering and data acquisition system; MOE = Ministry of Energy; NEGK = National Electric Grid of Kyrgyzstan; SCADA = supervisory control and data acquisition system.

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III. PROJECT MANAGEMENT ARRANGEMENTS

A. Project Stakeholders – Roles and Responsibilities

Project Stakeholders Management Roles and Responsibilities • Ministry of Finance (MOF) Borrower Ministry representing external borrowing. Ensuring ADF loan/grant proceeds are used in

accordance with Subsidiary Financing Agreement. Handling of issues pertaining to Project-related taxes and

duties. • Ministry of Energy (MOE) Executing Agency – 1 Executing Agency for the advisory service on wholesale

electricity transaction settlement center mechanism, and advisory service on corporate and financial management capacity development of NEGK.

Sector policy. Oversight of physical investment component. Funding of MOE’s project implementation unit (PIU)

recurrent costs. Executing Agency – 2

• National Electric Grid of Kyrgyzstan (NEGK) Executing Agency for the physical investment

components, and Project Management Consultants. National transmission company. Funding the balance of Project cost. Funding of NEGK’s project implementation unit (PIU)

recurrent costs. Overall project implementation and management.

• Project Management Consultants Project administration and quarterly progress reports.

Responsible for Project compliance with ADB regulations and guidelines.

Project accounting, procurement, and withdrawal applications.

• ADB

Main Project financier.

B. Key Persons Involved in Implementation

Executing Agency Ministry of Energy (Executing Agency – 1)

Officer's Name Avtandil Kalmambetov Position Deputy Minister Telephone Email address [email protected]

Office Address 119 Ahunbaev Street, Bishkek, 72005, KGZ National Electric Grid of Kyrgyzstan (NEGK) (Executing Agency – 2)

Officer's Name Durusaliev Murat Jumanalievich Position First Deputy General Director Telephone +996-312-661002 Email address [email protected]

Office Address 326 Jibek Jolu, Bishkek, 720070, KGZ

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ADB Division Director Staff Name Pil-Bae Song

Position Director, Energy and Natural Resources Division, Central and West Asia Department (CWRD/CWEN)

Telephone No. +63-2-632-6356/6393 Email address [email protected]

Mission Leader Staff Name Takafumi Kadono

Position Energy Specialist, CWEN Telephone No. +63-2-632-6418/5594 Email address [email protected]

C. Project Organization Structure

7. The Project has two Executing Agencies (EAs): Ministry of Energy (MOE); and Open Joint Stock Company (OJSC) National Electric Grid of Kyrgyzstan (NEGK).

8. MOE is responsible for (i) managing the study on wholesale electricity transaction settlement mechanism, (ii) managing the capacity building advisory service for NEGK; and (iii) supervising NEGK's Project implementation performance. 9. NEGK is responsible for the management of physical investment of the Project. The existing Project Implementation Unit (PIU) will be the point of contact of NEGK for the Project’s capital investments. International consulting firm will be recruited to assist the NEGK in project management. Its task will include preparation of bidding documents, bid evaluation, contract award, construction supervision, and report to the Government and ADB. 10. The Project organization structure and the staffing of the PIU is shown below.

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11. The PIU Manager will report to the Deputy General Director of NEGK. The PIU will be the main point of contract for day-to-day working communication between NEGK and ADB. 12. The PIU, assisted by Project Management Consultants, will submit necessary project plans, tender evaluation reports, progress reports, applications for withdrawal of funds, and any other required reports to ADB and Government of the Kyrgyz Republic. 13. The PIU Manager and PIU staff will have appropriate academic qualifications with experience of working on transmission metering, communication, data acquisition, and substation rehabilitation. The PIU Manager will be a senior engineer with experience in construction and operation of the national grid. The PIU staff will have relevant academic qualifications and relevant experience in their specialty area.

PIU MANAGER

NEGK Technical Departments

Project Engineer

Project Economist (Accountant)

National Electric Grid of Kyrgyzstan Deputy General Director

Existing Project Implementation Unit (PIU)

Procurement/Contract Engineer

Ministry of Energy

Reporting

Reporting

Advisory Consultants for Study on Settlement System

Advisory Consultants on Corporate Capacity Building / Business Plan

Project Management Consultants

Implementation Support

Asian Development Bank

Reporting

Reporting

Outsourced/ Contract Management

Reporting Contract Management

Turnkey Contractor

Supply Contractor

Contract Management

Implementation Support

Capacity Building

Contract Management

Reporting

Safeguard Specialist (NEGK Operation and Technical Department) Implementation Support

Central Accounting Department Implementation Support

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14. The terms of reference of the PIU Manager and staff are as follows:

Position Terms of Reference PIU Manager • Provide overall direction and management of PIU.

• Focal point of PIU in communications with ADB, MOE, and MOF. • Responsible for control of schedule, quality, quantity, cost, and safety of

the physical investments of the Project. • Ensure Project covenants relevant to NEGK are met. • Ensure all safeguard requirements are satisfied. • Ensure appropriate reporting to ADB, MOE, and MOF. • Ensure Deputy General Director of NEGK is apprised of implementation

status on ongoing basis. Procurement/Contract Engineer and Project Engineer

• Prepare Request for Proposals of consulting services for (i) project implementation, and (ii) financial management capacity development of NEGK.

• Lead evaluation of consultants' proposals and preparation of needed submissions to ADB and the Government.

• Lead consultants' contract negotiations and award of contracts. • Lead preparation of bidding documents. • Lead evaluation of bids and preparation of bid evaluation reports. • Lead contract awards and any negotiations required prior to the award. • Manage consultants' and contractors' contracts.

Project Accountant • Maintain separate Project accounts. • Prepare withdrawal applications. • Monitor loan covenants. • Prepare Project financial reports. • Coordinate with NEGK’s Central Accounting Department.

Safeguard Specialist (Operation and Technical Department)

Environment • Ensure that contractors’ responsibilities identified in the environmental

monitoring and management plan are included in the bidding documents and contracts.

• Ensure the implementation of the environmental monitoring and management plan.

Social • Ensure that the contractors’ responsibilities identified in the Land

Acquisition and Resettlement Framework (LARF) are included in the bidding documents and contracts.

• Ensure that the turnkey contractor drafts the Land Acquisition and Resettlement Plan (LARP) in accordance with the LARF.

• Finalize the LARP for submission to ADB. • Ensure that the LARP is implemented in full prior to commencement of

relevant on-site works. Engineers of Technical Departments

• Assist Procurement/Contract Engineer in preparation of Request of Proposals and bidding documents in area of specialty.

• Assist Procurement/Contract Engineer in evaluating proposals and bids and preparing evaluation reports in area of specialty.

• Manage consultants' and contractors' progress and delivery of contract. • Review submissions by consultants in area of specialty. • Prepare progress reports. • Assist PIU Manager in delivery of his/her duties

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IV. COSTS AND FINANCING

15. The Project costs consist of:

(i) Turnkey Contract. Turnkey contract is for the design, supply and installation of the grid-wide AMDA, and SCADA including optical ground wire (OPGW) and underground optical cable communications linking the seven northern substations (Ala-Archa, Bistrovka, Chuyskaya, Frunzenskaya, Glavnaya, Kara-Balta, and Karagachevaya), National Control Center, Chuy Regional Control Center, and the Emergency Communications Center.

This will be under NEGK's responsibility. It is financed out of the ADF loan/grant proceeds which are relent by the Government to NEGK in accordance with the Subsidiary Financing Agreement.

(ii) Supply Contract. Supply contract includes supply of current transformers, voltage transformers and circuit breakers for the rehabilitation of priority substations including Bistrovka, Frunzenskaya, Glavnaya, Jani-Jer, Kristal, Octoberskaya, and Uzlovaya. This will be under NEGK's responsibility. It is financed out of the ADF loan/grant proceeds which are relent by the Government to NEGK in accordance with the Subsidiary Financing Agreement.

(iii) Equipment Installation. This involves the installation of current transformers, voltage transformers and circuit breakers procured through the Supply Contract.

The installation works are implemented by NEGK and is financed by NEGK as their share of the Project cost.

(iv) Project Management Consultants. Project management will be outsourced to a team of project management consultants. They will be recruited by NEGK to manage the physical investments [items (i), (ii), and (iii) above] under the Projects.

This will be under NEGK's responsibility and recruited by NEGK. It is financed out of the ADF loan/grant proceeds which are relent by the Government to NEGK in accordance with the Subsidiary Financing Agreement. External auditor acceptable to ADB will also be recruited using these proceeds to audit the project accounts annually. An amount of $100,000 ($25,000 annually for 4 years) is allocated from this expenditure category. In case NEGK’s corporate financial audit is carried out by auditors not acceptable to ADB, these proceeds will be used to recruit an auditor acceptable to ADB.

(v) Corporate Management Capacity Development. A team of consultants will

implement corporate management capacity development of NEGK through introduction of International Financial Reporting Standards (IFRS) and preparation of a business plan.

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This will be under MOE's responsibility and recruited by MOE. It is financed out of the ADF grant proceeds which are allocated to MOE as a grant.

(vi) Study on Wholesale Electricity Transaction Settlement Mechanism. A team of consultants will conduct a study on the establishment of a transparent wholesale electricity transaction system, including the possibility of establishing a new independent settlement center.

This will be under MOE's responsibility and recruited by MOE. It is financed out of the ADF grant proceeds which are allocated to MOE as a grant. External auditor acceptable to ADB will also be recruited using these proceeds to audit the project account annually. An amount of $10,000 is allocated from this expenditure category covering two annual project account audits.

(vii) Environmental and social management costs. This includes the costs

associated to environmental impact monitoring and management, as well as envisaged crop compensation for installation of OPGW. Environmental management cost and social management costs (i.e. crop compensation) will be financed by NEGK as their share of the Project cost.

(viii) Taxes and duties. Taxes and duties will be covered under

Government/counterpart contribution, or exempted, as their share of the Project cost.

(ix) Financial charges. Interests during implementation are financed by NEGK as

their share of the Project cost.

16. Recurrent costs of the PIUs are not included in the Project cost. Such costs are to be financed by MOE and NEGK.

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A. Detailed Cost Estimates by Expenditure Category

Item

Cost ($ million) % of Total Project Cost

A. Investment Costs 1 Equipment 18.0 32.1% 2 Works 17.0 30.4% 2 Equipment Installation a 2.8 5.0% 3 Environment and Social Mitigation 0.2 0.4%

4 Consultants 4.3 7.7% 5 Taxes and Duties 5.5 9.8%

Total Base Costs - Subtotal (A) 47.8 85.4% B. Contingencies 1 Physical 6.4 11.4% 2 Price 0.9 1.6% Subtotal (B) 7.3 13.0% C. Financing Charges During Implementation 1 Interest During Implementation 0.9 1.6% Subtotal (C) 0.9 1.6%

Total Project Cost (A+B+C) 56.0 100% a Installation of equipment procured under the goods supply contract. Installation to be done by NEGK using

its own staff, technical and financial resources. B. Allocation and Withdrawal of Loan and Grant Proceeds

ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS (Power Sector Improvement Project)

CATEGORY ADB FINANCING Total Amount Allocated for

ADB Financing (SDR)

Number

Item

Percentage and Basis for Withdrawal from the Loan Account

1 Goods 4,417,000 37.30 percent of total expenditure claimed*

2 Works 4,219,000 37.30 percent of total expenditure claimed*

3 Consulting Services 1,055,000 56.74 percent of total expenditure claimed*

4 Unallocated 1,319,000 Total 11,010,000

* Exclusive of taxes and duties imposed within the territory of the Borrower.

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ALLOCATION AND WITHDRAWAL OF GRANT PROCEEDS (Power Sector Improvement Project)

CATEGORY ADB FINANCING Total Amount Allocated

for ADB Financing ($)

Number

Item

Category Subcategory

Percentage and Basis for Withdrawal from the Grant Account

1 Goods 11,300,000 62.70 percent of total expenditure claimed*

2 Works 10,600,000 62.70 percent of total expenditure claimed*

3 Consulting Services 2,700,000

3A Project management support

1,200,000 43.26 percent of total expenditure claimed*

3B Capacity development and advisory services

1,500,000 100 percent of total expenditure claimed*

4 Unallocated 3,500,000 Total 28,100,000

* Exclusive of taxes and duties imposed within the territory of the Borrower. C. Expenditure Accounts by Financier

Source Amount

($ million) Share of Total

(%) ADB – ADF 44.8 a 80 Government/NEGK 11.2 20

Total 56.0 100 a $28.1 million (62.7%) is ADF grant, and $16.7 million (37.3%) is ADF loan. ADB = Asian Development Bank; ADF = Asian Development Fund; NEGK = National Electric Grid of Kyrgyzstan Source: Asian Development Bank estimates.

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D. Expenditure Accounts by Yeara

($ million) Total Year 1 Year 2 Year 3

Item Cost [2011] [2012] [2013] A. Investment Costs 1 Equipment 18.0 3.2 9.4 5.4 2 Works 17.0 3.0 8.8 5.1 3 Equipment Installation a 2.8 0.5 1.5 0.8

4 Environment and Social Mitigation 0.2 0.2 0.0 0.0 5 Consultants 4.3 1.7 2.2 0.4

6 Taxes and Duties 5.5 1.0 2.9 1.7 Total Base Costs - Subtotal (A) 47.8 9.6 24.8 13.4B. Contingencies 1 Physical and Price Contingencies 7.3 1.2 3.8 2.2 Subtotal (B) 7.3 1.2 3.8 2.2C. Financing Charges During Implementation 1 Interest During Implementation 0.9 0.1 0.3 0.6 Subtotal (C) 0.9 0.1 0.3 0.6

Total Project Cost (A+B+C) 56.0 10.9 28.9 16.2 19% 52% 29%

a Installation of equipment procured under the goods supply contract. Installation to be done by NEGK using its own human, technical and financial resources.

E. Contract and Disbursement S-curve

0

10

20

30

40

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Year

$ m

illio

n

Contract Aw ards

Disbursement

Note: Graph only includes ADB-funded portion excluding price and physical contingencies.

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F. Fund Flow Diagram

Source: Asian Development Bank

ADB ADB

ADB

Con

tract

Invo

ice

MOF

ADB

MOE

Con

tract

Invo

ice

Subsidiary Financing Agreement

Financing Agreement (Grant/Loan)

Withdrawal application

Substation Rehabilitation

Supply Contract

Consultant – Project

Management

Consultant –Corporate management capacity building/Business Plan

for NEGK

Consultant – Study on settlement

system

Direct Payment Procedure and/or Commitment Procedure a

MOF

ADB

Con

tract

Invo

ice


Allocation


Con

tract

Invo

ice

Turnkey Contractor

NEGK (EA-2)Project Implementation Unit

Project Agreement

Con

tract

Invo

ice

MOE (EA-1)

ADB = Asian Development Bank; EA = executing agency; IA = implementing agency; MOE = Ministry of Energy; MOF = Ministry of Finance; NEGK = National Electric Grid of Kyrgyzstan; PIU = project implementation unita For commitment procedure, ADB loan and grant proceeds go directly from ADB to a nominated bank of the

supplier on a reimbursement basis.

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V. FINANCIAL MANAGEMENT

A. Financial Management Assessment

17. Financial management assessment of NEGK found that its financial management capability is limited. NEGK has introduced International Financial Reporting Standards (IFRS) effective January 2001, but current accounting and reporting procedures are not fully in accordance with IFRS principles. 18. NEGK needs to develop capacity to maintain proper accounting data and provide comprehensive financial statements in accordance with IFRS, introduce computerized financial management, put in place adequate internal audits, and ensure external auditing by reputable auditors. 19. The Project provides an advisory service for the financial management capacity development of NEGK. For the Project, project management consultants will assist the PIU with financial management of the project account through establishment of a project management information system and development of a financial management manual in accordance to international audit requirements. 20. The overall risk assessment and risk mitigation measures are summarized in the table below.

Major Risk Assessment without Mitigation

Management Plan or Mitigation Measures

Assessment with Mitigation

Resistance of interest groups willing to keep the sector non-transparent and thus less accountable that delays the reform process and causes lower development effectiveness of the Project; As a result, the public skepticism and widely perceived corruption in the sector that impact reputation of the Project.

High Jointly with other donors to continue policy dialogue with the Government as to ensure political will and strong commitment to power sector reforms; The Government shall establish a hotline for complaints and provide support for whistle-blowers. The Government is to ensure media independence that helps to highlight corruption cases and fraudulent behavior of officials and managers in the sector.

Medium

Inadequate capacity of NEGK, ineffective organizational structure and management information systems.

Medium An international consulting firm will be recruited to implement a capacity development program for NEGK focusing on (i) corporate governance and strategic planning, (ii) financial performance and control, (iii) institutional strengthening and human resource development, (iv) management information systems, and (v) technical performance measurements.

Low

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Funds flow and disbursement arrangements

Medium NEGK has some record with previous externally financed projects. There will be direct payment for all ADB projects. Establishment of an imprest account is not necessary.

Low

Accounting policies, procedures, and systems; weakness of tariff regulation

Medium Coordination with the World Bank and other donors to help with relevant studies; In the medium term (2011–2013) the focus of the Government shall be on establishing independent regulation, reducing corruption in power sector, and defining key transmission infrastructure development frameworks.

Low

Audit

High MOE will maintain one account for the grant proceeds. NEGK will maintain one account each for the grant and loan proceeds. The financing agreements require that MOE’s account and NEGK’s two accounts are audited in accordance with international standards on auditing and in accordance with the government's audit regulations by an auditor acceptable to ADB. MOE and NEGK will submit the audited accounts to ADB within 6 months of the end of the fiscal year.

Medium

Project management, supervision, and reporting. The generic procurement risk and delays of procurement and installment.

Low To enhance project management capacity of the executing agency and ensure timely implementation of the project, international consulting firm will be recruited to assist NEGK in project management. All the procurement, project accounting, withdrawal applications, implementation supervision, and reporting will be carried out by project management consultants.

Low

Equipment delivery and installation delays

Medium Project management consultants will be engaged under the project to assist the executing agency in completing the entire process leading to the award of the supply, and install contracts, and also help with implementation supervision.

Low

Overall Medium The mitigation actions proposed will ensure that the risk is minimized, particularly by the engagement of

Low

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project management consultants. Capacity development consultants will strengthen NEGK’s corporate and financial management capacities.

B. Disbursement

21. The ADF loan/grant proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time), 2 and detailed arrangements agreed upon between the Government and ADB. 22. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS),3 ADB funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. 23. The Project uses direct payment procedure and/or commitment procedure for the turnkey contact and the supply contract for NEGK's physical investments. For the consulting services for both MOE and NEGK, the direct payment procedure will be used. 24. For the NEGK activities, a team of project management consultants will be recruited to assist NEGK in project management including preparing disbursement projections, collecting supporting documents, and preparing and sending withdrawal applications to ADB through MOF. For the MOE activity, MOE will prepare disbursement projections, collect supporting documents, and prepare and send withdrawal applications to ADB through MOF. MOE and NEGK will ensure necessary funds are made available and/or in-kind contributions are made available for their respective counterpart responsibilities. 25. Before the submission of the first withdrawal application, the Borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the Borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is US$100,000, unless otherwise approved by ADB. The Borrower is to consolidate claims to meet this limit. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members, and are eligible for ADB financing. 26. For NEGK, a portion of the expenditure is charged to the ADB loan account and a portion is charged to the ADB grant account. Therefore, for each invoice from the contractor or consultant, NEGK is required to prepare one withdrawal application for each account. The amounts to be charged to each account follows the percentages indicated in the tables attached to Schedules 3A and 3B of the Financing Agreement.

C. Accounting

27. MOE and NEGK's PIU will maintain separate project accounts and records by funding source for all expenditures incurred on the Project. Project accounts will follow international

2 Available at: http://www.adb.org/Documents/Handbooks/Loan_Disbursement/loan-disbursement-final.pdf 3 Available at: http://www.adb.org/Documents/Policies/Safeguards/Safeguard-Policy-Statement-June2009.pdf

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accounting principles and practices satisfactory to ADB. 28. At the PIU, the project management consultants will assist with recording the project costs, preparation of loan/grant disbursements and preparation of progress reports for submission to ADB.

D. Auditing

29. MOE and NEGK will cause the detailed Project accounts to be audited in accordance with International Standards on Auditing and in accordance with the Government's audit regulations by an independent auditor acceptable to ADB. The audited accounts will be submitted in the English language to ADB within 6 months of the end of the fiscal year by the MOE and NEGK. The Government, MOE and NEGK have been made aware of ADB’s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. The respective external auditing fees will be financed by ADB’s grant and loan proceeds as per Section IV (iv) and (vi). ADB reserves the right to verify the Project's financial accounts to confirm that the share of ADB’s financing is used in accordance with ADB’s policies and procedures. For revenue generating projects only, ADB requires audited financial statements (AFS) for each executing and/or implementation agency associated with the Project. 30. The advisory services on financial management capacity development will be used to strengthen internal auditing capacity of NEGK.

VI. PROCUREMENT AND CONSULTING SERVICES

A. Procurement Capacity Assessment

31. A procurement capacity assessment found that the country’s procurement system is weak. Public procurement by procurement entities, including those by joint-stock companies such as NEGK, is governed by the Public Procurement Law (PPL; 28 July 2008). Although the public procurement legislative framework provides a theoretically sound environment for competitive and transparent procurement, it is not strictly enforced. In addition, the capacities of the procurement entities and the supervising authorized state body on public procurement are limited. It is critical for the Project Management Consultant to be deeply engaged in the procurement process to ensure that the procurement procedure conforms to ADB’s policy and guidelines. A summary of the assessment on the country’s procurement system and NEGK’s procurement capacity is shown below.

Assessment of the National Environment

Business Environment and Enterprise Performance Survey (BEEPS 2008) reports that 84% of businesses cited corruption as a problem doing business. The country also ranked 162 out of 180 countries on the 2009 Transparency International Corruption Perception Index. Nevertheless, the Kyrgyz Republic is one of the leading countries in Central Asia to introduce public procurement reform. It enacted the first PPL in April 1997. Many of the recommendation on organizational reforms made by the World Bank’s Country Procurement Assessment Report (CPAR; 2002) were adopted, but implementation and enforcement are weak. On 20 July 2010, the “Decree on Transparency Initiative for Fuel and Energy Sector of the Kyrgyz Republic” was issued by the President. The objective is to improve governance in all aspects of the energy sector. The decree calls for a Monitoring Council to be established under the Ministry of Energy to monitor performances of the energy utilities. This includes enforcement of use of open competitive tenders for export/import of electricity and procurement of fuels, and quarterly publication of performance reports.

General Agency

NEGK has an existing PIU with some experience with donor-funded projects. It is staffed with three engineers plus a Director. One of the engineers is in charge of the procurement

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B. Advance Contracting and Retroactive Financing

32. Advance contracting will be undertaken in conformity with ADB’s Procurement Guidelines (April 2010, as amended from time to time) (ADB’s Procurement Guidelines)4 and ADB’s Guidelines on the Use of Consultants (April 2010, as amended from time to time) (ADB’s Guidelines on the Use of Consultants).5 The issuance of invitations to bid under advance contracting will be subject to ADB approval. The Borrower, MOE and NEGK have been advised that approval of advance contracting does not commit ADB to finance the Project. 33. Advance contracting. Advance contracting is expected for the recruitment of consultants. Advertisement, shortlisting, issuance of requests for proposals, technical and financial evaluations, and contract negotiations may take place prior to signing of the loan/grant

4 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf 5 Available at: http://www.adb.org/Documents/Guidelines/Consulting/Guidelines-Consultants.pdf

Resource Assessment

process. NEGK have agreed that they will further expand the capability of the PIU and appoint additional qualified personnel for (i) project accounting requirements and (ii) for safeguard monitoring. Since the PIU's experience with ADB-financed project is not extensive, an international Project Management Consultant (a firm) will be recruited to assist the PIU with project management and to ensure that procurement activities adhere to ADB’s guidelines. It is also recommended that appropriate training in ADB guidelines and procedures be provided by ADB.

Agency Procurement Processes

PPL calls for the procuring entity to assign a department to handle the tender and to establish a Tender Commission (TC) for each tender. There must be at least three members in the committee and the number of members must be odd. The “Provision on Formation of Tender Committees for Goods, Works and Services Procurement under State Investments Programme Projects (2007)” further elaborates that the TC should comprise a procurement specialist, technical expert, financial specialist, and a representative from the Ministry of Finance (MOF). Its functions are to (i) open bids and record bid opening, (ii) evaluate bids, (iii) recommend winner of the bid to the donor, and (iv) prepare minutes of TC meetings and ensure that the minutes is signed by committee members.

Process Control and Oversight

The TC is expected to provide control and oversight. Department on Methodology of State Procurement under MOF also provides oversight. However, as their capacities are believed to be limited, all the procurement process will be assisted and monitored by the Project Management Consultant to ensure compliance with ADB guidelines and procedures. This will assure the transparency and accountability for all the procurement activities.

Records Keeping and Audit

Project management records including procurement are maintained in the PIU. However, to improve record-keeping practices, a project management information system (MIS) will be developed by the Project Management Consultants. The Project Account shall be an integral component of the MIS. External controls are exercised by the Chamber of Accounts (CA), but the audits are ineffective since the staffs are not properly trained in procurement processes. NEGK has assured ADB that a separate Project Account will be established and that it will be audited annually by an external auditor acceptable to ADB.

Summary Assessment and Recommendations

The country procurement system and the NEGK’s capacity on procurement are weak. The current procurement practice is considered to be insufficient from the standpoint of transparency and accountability. It is recommended that (i) appropriate training in ADB guidelines and procedures be provided by ADB resources, and (ii) the Project Management Consultant closely monitor the procurement progress and undertake timely and adequate actions as necessary to ensure speedy and efficient procurement in a transparent and competitive manner.

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agreements. 34. Retroactive financing. Retroactive financing is not expected.

C. Procurement of Goods, Works and Consulting Services

35. All procurement of goods and works will be undertaken in accordance with ADB’s Procurement Guidelines. As required by the Public Procurement Law (2008), NEGK and MOE, as the “Procuring Entity” will entrust the PIU to organize the procurement proceedings and establish separate tender commissions for each procurement package. The tender commission should have a minimum of three members and the total number of members must be an odd number. One member should be a procurement specialist, and as elaborated in the “Provision on Formation of Tender Committees for Goods, Works and Services Procurement under State Investments Programme Projects (2007)” there must be one representative from MOF. The tender commission is responsible for (i) opening the bids, (ii) record bid opening, (iii) evaluate the bids, (iv) prepare a bid evaluation report, and (v) make recommendation to determine the winner. It will report to the Department on Methodology of State Procurement (DMSP) under MOF, which is the Authorized State Body on Public Procurement. DMSP will forward the bid evaluation report to ADB for review and endorsement. Same procedure applies for consultant recruitment.

36. International Competitive Bidding (ICB) will be used for turnkey and works contracts valued at $1,000,000 or higher. ICB will be used for supply of goods valued $500,000 or higher. Shopping will be used for works and goods below $100,000 37. Turnkey Contract. NEGK will employ a single turnkey contractor to design, manufacture, supply, install and commission the AMDA and SCADA including the stringing of OPGW. The procurement will follow ICB procedures using ADB's single-stage one-envelope bidding procedure. ADB's standard bidding documents (SBD) for Plant – Design, Supply and Install will be used. The turnkey contract will incorporate incentive and disincentive clauses to expedite timely execution of the contract acceptable to ADB. 38. Supply Contract. NEGK will employ a supply contractor (supplier) to design, manufacture, and supply current transformers, voltage transformers, and circuit breakers required for the rehabilitation of substations. The procurement will follow ICB procedures using ADB's single-stage one-envelope bidding procedure. ADB's SBD for Goods will be used. The supply contract will incorporate incentive and disincentive clauses to expedite timely execution of the contract acceptable to ADB. NEGK will install the equipments using internal resources including workers, equipment, and funding. 39. Procurement of equipment under Corporate Management Capacity Development. The consulting services may require purchase of off-the-shelf financial management software and computer equipment. Procurement of such goods will use shopping method. 40. An 18-month procurement plan indicating threshold and review procedures, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Section C. 41. All consultants will be recruited according to ADB’s Guidelines on the Use of

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Consultants.6 The terms of reference for all consulting services are detailed in Section D. 42. Project Management Consultants. Up to 196.0 person-months (72.5 international, 123.5 national) of consulting services are required to (i) prepare conceptual designs, (ii) assist NEGK in the procurement of the turnkey and goods contractors in accordance to ADB's Procurement Guidelines, (iii) develop and implement comprehensive project management plans to ensure the most efficient, timely, and economical implementation of the project; (iv) supervise the turnkey and goods contractors; and (v) supervise the installation of equipment (procured through the supply contract) by NEGK. Estimated contract duration is 34 months. A consulting firm will be engaged by NEGK using the quality- and cost-based selection (QCBS) method with a standard quality:cost ratio of 80:20. 43. Consultants for NEGK’s Corporate and Financial Management Capacity Building. An estimated 55.5 person-months (27.0 international, 28.5 national) of consulting services are required to (i) develop the corporate capacity of NEGK through introduction of the international financing reporting standards (IFRS); and (ii) preparation of a business plan. The business plan will include the review and recommendations on (a) load forecast; (b) load flow analysis; (c) future investment needs; (d) operation and maintenance practices; (e) organizational structure; (f) governance structure; (g) revaluation of existing assets; and (h) service delivery costs and required cost recovery tariff. Estimated contract duration is 12 months. A consulting firm will be engaged by MOE using QCBS method with a standard quality:cost ratio of 80:20. 44. Consultants for Study on Wholesale Electricity Transaction Settlement Mechanism. An estimated 24.0 person-months (11.0 international, 13.0 national) of consulting services are required to study and make recommendations on the establishment of settlement center. Areas of study include (i) investigating optimal structure of the power sector and the appropriate wholesale electricity settlement system; (ii) review/drafting of relevant laws, regulation for establishing the settlement center; (iii) devising market rules; (iv) recommending internal control procedures; and (v) specific responsibilities and authorities of the settlement center or any other entity that is recommended to be responsible for wholesale electricity settlement. Estimated contract duration is 7 months. Consulting firm will be engaged by MOE using QCBS method with a standard quality:cost ratio of 80:20.

D. Procurement Plan

Basic Data Project Name: KGZ: Power Sector Improvement Project Country: Kyrgyz Republic Executing Agency:

National Electric Grid of Kyrgyzstan (NEGK) Ministry of Energy (MOE)

Grant Amount: $28.1 million Loan Amount: $16.7 million Total: $44.8 million

Loan (Grant) Number: TBD

Date of First Procurement Plan: June 2010 Date of this Procurement Plan: 24 August 2010

6 Checklists for actions required to contract consultants by method available in e-Handbook on Project

Implementation at: http://www.adb.org/documents/handbooks/project-implementation/

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E. Process Thresholds, Review and 18-Month Procurement Plan

1. Project Procurement Thresholds

45. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold

International Competitive Bidding (ICB) for Works Including and above $1,000,000 International Competitive Bidding for Goods1 Including and above $500,000 Shopping for Goods Below $100,000

2. ADB Prior or Post Review

46. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project.

Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works Prior ICB Goods Prior Shopping for Goods Prior The first shopping is subject to prior

review, thereafter post review

Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior Least Cost Selection (LCS) Prior The first LCS is subject to prior

review, thereafter post review

3. Goods and Works Contracts Estimated to Cost More Than $1 Million

47. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

General Description Contract

Value Procurement

Method Prequalification of Bidders (y/n)

Advertisement Date (quarter/year) Comments

Procurement of goods for current and voltage transformer, and circuit breakers package

$18 million ICB No 3rd quarter 2011

single-stage, one-envelope

Procurement of turnkey contractor for meters, SCADA and ancillary equipment package

$17 million ICB No 3rd quarter 2011

single-stage, one-envelope

ICB = international competitive bidding; SCADA = supervisory control and data acquisition system.

4. Consulting Services Contracts Estimated to Cost More Than $100,000

48. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

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General Description Contract

Value Recruitment

Methoda

Advertisement Date

(quarter/year)

International or National

Assignment Comments Project Management Consultants

$2.75 million a

QCBS (quality: cost ratio, 80:20)

3rd quarter 2010 International FTP

NEGK’s Corporate and Financial Management Capacity Building

$1.0 million QCBS (quality: cost ratio, 80:20)

3rd quarter 2010 International STP

Study on Wholesale Electricity Transaction Settlement Mechanism

$0.5 million QCBS (quality: cost ratio, 80:20

3rd quarter 2010 International BTP

BTP = biodata technical proposal; FTP = full technical proposal; QCBS = quality- and cost-based selection; STP = simplified technical proposal. a Assignment is for 34 months.

5. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000

49. The following table groups smaller-value goods, works and consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

General

Description Value of

Contracts (cumulative)

Number of Contracts

Procurement / Recruitment

Method Comments

Computer equipment and software under Project Management Consultants

$30,000 Three Shopping Computers, scanner, printer, project management softwares, etc.

Computer equipment and software under Corporate Capacity Development Consultants

$60,000 Four Shopping Computers, scanner, printer, accounting softwares, etc.

Auditors for NEGK $100,000 Four Least-cost Selection

Annual external audit of project accounts, and corporate financial statements. The latter is required to recruit an auditor acceptable to ADB if the auditor recruited by NEGK for their regular annual audit is not acceptable to ADB.

Auditors for MOE $10,000 Two Least-cost Selection

Annual external audit of project account.

F. Indicative List of Packages Required Under the Project

50. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. Contracts financed by the Borrower and others should also be indicated, with an appropriate notation in the comments section.

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Goods

General Description Estimated

Value (cumulative)

Estimated Number of Contracts

Procurement Method

Domestic Preference Applicable

Comments

Procurement of goods for current and voltage transformer and circuit breakers package

$18 million One ICB No Goods contract

Computer equipment and software under Project Management Consultants

$30,000 Three Shopping No Computers, scanner, printer,

project management software, etc.

Computer equipment and software under Corporate Capacity Development Consultants

$60,000 Four Shopping No Computers, scanner, printer,

accounting software, etc.

Turnkey

General Description

Estimated Value

(cumulative)


Procurement Method

Domestic Preference Applicable Comments

Procurement of turnkey contractor for meters, SCADA and ancillary equipment package

$17 million One ICB No Turnkey contract

Consulting Services

General Description

Estimated Value

(cumulative)


Recruitment Method

Type of Proposal Comments

Project Management Consultants - review project design, prepare bidding documents, assist in procurement, conduct design audit and construction supervision

$2.75 million One QCBS (quality: cost ratio,

80:20)

FTP

NEGK capacity building consultant – introduce IFRS and prepare NEGK business plan

$ 1.0 million One QCBS (quality: cost ratio,

80:20)

STP

MOE advisory service consultant - study options for settlement center

$0.5 million One QCBS (quality: cost ratio,

80:20)

BTP

Auditors for NEGK $100,000 Four LCS BTP See table under section 5 of Procurement Plan.

Auditors for MOE $10,000 Two LCS BTP See table under section 5 of Procurement Plan.

BTP = biodata technical proposal; FTP = full technical proposal; ICB = international competitive bidding; LCS = least-cost selection; QCBS = quality- and cost-based selection; STP = simplified technical proposal.

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51. The outline terms of reference for the three main consulting services are provided below. The terms of reference constituting the Request for Proposals (RFP) must be position-based (i.e. terms of reference must be prepared for each position included in the consulting services).

G. Outline Terms of Reference – Project Management Consultants

52. National Electric Grid of Kyrgyzstan (NEGK) is the state owned electric transmission company in the Kyrgyz Republic (KGZ). NEGK wishes to strengthen its transmission system and improve commercial operations through rehabilitation of existing substations, the development of a new SCADA (basic functions for the northern area only), and addition of a new AMDA. The technical feasibility report can be found in the following link: http://www.adb.org/projects/project.asp?id=43456&p=kgzproj. 53. The Project is estimated at $56.0 million including the non-physical components not included in the scope of works of this consulting service. The Government of KGZ requested ADB to fund $44.8 million. The Project is expected to become effective at the end of 2010. Physical completion is expected in December 2013. 54. There is already an existing Project Implementation Unit (PIU) in NEGK with some experience in donor-funded projects. However, its capacity is limited, especially in terms of conforming to the policies and guidelines of ADB. NEGK, as the executing agency (Client), wishes to recruit an Project Management Consultant (the Consultant; a firm) to assist the PIU to review existing designs, prepare bidding documents, assist in procurement of the turnkey contractor and supply contractor, and audit the designs and supervise the works of the turnkey contractor and quality of the supply contractor, as well as the installation of the supplied equipment implemented by NEGK itself. The Consultant will also be responsible for the financial management of Project-related activities including establishing a management information system, accounting, preparation of financial statements, etc. 55. Project components are:

(i) Replacement of existing with new 500kV, 220kV, 110kV, 35kV, 10kV, 6kV circuit breakers and instrument transformers in a range of existing substations.

(ii) Installation of a new optical ground wire (OPGW) and underground fiber cables based communication system connecting seven substations in the northern primary loop with the control centers.

(iii) Installation of basic functions of a new SCADA including upgrade of the national and regional control centers and connection to the seven substations of the northern primary loop.

(iv) Installation of a new commercial metering system to measure billable units at interface points between NEGK and its customers. Such system will include new meters at all interface points and a communications system to bring information back to a central metering system. Communication system envisaged for the commercial metering data acquisition is GSM.

56. Up to 196.0 person-months (72.5 international, 123.5 national) of consulting services are required to manage Project implementation. Estimated contract duration is 34 months from mobilization

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H. Outline Terms of Reference – NEGK Corporate and Financial Management Capacity Building

57. National Electric Grid of Kyrgyzstan (NEGK) is the state owned electric transmission company in the Kyrgyz Republic (KGZ). NEGK wishes to strengthen its transmission system and improve commercial operations through rehabilitation of existing substations, the development of a new SCADA (basic functions for the northern area only), and addition of a new AMDA. The technical feasibility report can be found in the following link: http://www.adb.org/projects/project.asp?id=43456&p=kgzproj 58. The Project is estimated at $56.0 million. The Government of KGZ requested ADB to fund $44.8 million. The Project is expected to become effective at the end of 2010. Physical completion is expected in December 2013. 59. In parallel with the abovementioned capital investments, NEGK wishes to strengthen its corporate and financial management capacity to further improve its performance. NEGK currently faces challenges in operational and financial efficiency, which need to be addressed urgently. High technical losses, antiquated accounting systems and management practices have resulted to a point where NEGK is relying on the Government on budgetary support in order to sustain the operations of the company. The objective of the assignment is to identify and report on areas of improvement in NEGK's operational and financial activities to strengthen the capacity to service debt while providing high quality electricity services. The assignment will also identify the true value of NEGK's assets and produce financial statements in accordance with international standards in order to facilitate the eventual implementation of the recommendations. 60. Through a combination of formal reporting and on-site guidance, the Consultant (firm) will be expected to: (i) develop the corporate capacity of NEGK through introduction of the international financing reporting standards (IFRS) and appropriate software; and (ii) preparation of a business plan. The business plan will include the review and recommendations on, but not limited to, (a) load forecast; (b) load flow analysis; (c) future investment needs; (d) operation and maintenance practices; (e) organizational structure; (f) governance structure; (g) revaluation of existing assets; and (h) service delivery costs and required cost recovery tariff. An estimated 55.5 person-months (27.0 international, 28.5 national) of consulting service is required over the estimated contract duration of 12 months. 61. Given the importance of the energy sector and the performances of the energy utilities, the Ministry of Energy (MOE) is expected to be the executing agency (Client) for this consulting service. The Government has issued the “Decree on Transparency Initiative for Fuel and Energy Sector of the Kyrgyz Republic” on 20 July 2010. The Decree aims to bring transparency and accountability to the energy sector. The Consultant is expected to adapt flexibly to the requirements of the Decree (yet to be announced) and work closely with the “Monitoring Council” expected to be established under MOE. I. Outline Terms of Reference – Study on Wholesale Electricity Transaction

Settlement System

62. National Electric Grid of Kyrgyzstan (NEGK) is the state owned electric transmission company in the Kyrgyz Republic (KGZ). NEGK wishes to strengthen its transmission system and improve commercial operations through rehabilitation of existing substations, the development of a new SCADA (basic functions for the northern area only), and addition of a new AMDA. The technical feasibility report can be found in the following link:

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http://www.adb.org/projects/project.asp?id=43456&p=kgzproj 63. The Project is estimated at $56.0 million. The Government of KGZ requested ADB to fund $44.8 million. The Project is expected to become effective at the end of 2010. Physical completion is expected in December 2013. 64. The AMDA system is expected to improve monitoring of electricity flow across power companies, to large industrial consumers, and across borders. It is deemed equally important for an independent entity to administer the AMDA, record electricity flows, calculate payment order according to contracts, tariffs, and electricity flows, and to ensure settlements are made accordingly. This entity, provisionally called the Settlement Center (SC), should bring transparency to the wholesale electricity market. United States Agency on International Development (USAID), under its Kyrgyz Energy Advisory Services program, has prepared a report on the idea of the SC, but further investigation is necessary to actually establish the SC. A small team of Consultants (firm) will be recruited by the Ministry of Energy (MOE) to design the SC in detail and draft laws and decrees required for its establishment. 65. An estimated 24.0 person-months (11.0 international, 13.0 national) of consulting service is required to study and make recommendations on the establishment of the SC. Areas of study include (i) investigating optimal structure of the power sector and the appropriate wholesale electricity settlement system, including studies on examples from up to 10 other countries with relevant similarities; (ii) review/drafting of relevant laws, regulation for establishing the SC; (iii) devising market rules; (iv) recommending internal control procedures; and (v) specific responsibilities and authorities of the SC or any other entity that is recommended to be responsible for wholesale electricity settlement. Overseas study tour with representatives from the Government may be included subject to budget availability. The consulting service should be conducted with close consultation with MOE and the energy utilities, and its outputs should enable the Government to immediately establish the recommended (and agreed) SC model. Estimated contract duration is 7 months. 66. It may be noted that the Government has issued the “Decree on Transparency Initiative for Fuel and Energy Sector of the Kyrgyz Republic” on 20 July 2010. The Decree aims to bring transparency and accountability to the energy sector. The Consultant is expected to adapt flexibly to the requirements of the Decree (yet to be announced) which is highly relevant to this consulting service.

VII. SAFEGUARDS

67. Environment. The Project is classified as Category B under ADB’s Safeguard Policy Statement (2009). An initial environmental examination (IEE) including an environmental monitoring and management plan (EMMP) was drafted, and is provided as Web-linked Documents #10 of the Report and Recommendation of the President (RRP). The IEE and EMMP will be finalized by the PIU and Project Management Consultants based on detailed design by the turnkey contractor, and implemented by the PIU. The contractors’ responsibilities of the EMMP will be included in the respective contracts. See Section VIII.B for safeguards monitoring. 68. An official inventory on usage of polychlorinated biphenyls (PCB) does not exist. The EMMP provides guidance on testing of PCB, and handling and disposal procedures in case it is identified. The Project will work closely with United Nations Development Programme’s ongoing “Management and Disposal of PCBs in Kyrgyzstan” project. Sulfur hexafluoride (SF6), a potent

29

greenhouse gas, will be used in the new gas-insulated circuit-breakers, but in small amounts. The contractor will be instructed to handle SF6 in accordance with international best practice. 69. Land Acquisition and Resettlement (LAR). The Project is classified as Category B under ADB’s Safeguard Policy Statement (2009). Project investments will be implemented mostly in existing substations where land acquisition and resettlement (LAR) impacts are not envisaged. Work space and access is required only for stringing of OPGW on the existing transmission towers to develop a modern communication system. The towers are located mostly on farmland. Very limited temporary LAR impact such as crop losses during installation is expected. Since the exact location of the work space can only be identified during detailed design and temporary works planning by the turnkey contractor, a LAR framework has been prepared in accordance with ADB’s Safeguard Policy Statement (2009) and Operation Manual F1/OP (see Linked Document #11). The turnkey contractor’s contract will explicitly state that a LAR Plan must be drafted by the turnkey contractor in accordance with the LAR Framework. The LAR Plan will be finalized by the PIU and Project Management Consultants, and submitted to ADB for endorsement. On-site installation works shall not commence until the LAR Plan is fully implemented. See Section VIII.B for safeguards monitoring. 70. Indigenous peoples. The Project is classified as Category C under ADB’s Safeguard Policy Statement (2009). The Project is not expected to affect Indigenous people as defined under the Safeguard Policy Statement.

VIII. GENDER AND SOCIAL DIMENSIONS

71. Gender. The Project is gender neutral, and monitoring is not required. 72. Social dimensions. The Project does not entail impacts on affordability, employment, HIV/AIDS, etc. However, the turnkey contractor’s contract will explicitly state equal opportunities for all social groups, equal pay for equal work regardless of gender, and prohibition of child labor.

IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION

A. Project Design and Monitoring Framework

Design Summary Performance Targets and

Indicators Data Sources and

Reporting Mechanisms Assumptions

and Risks Impact Improved reliability of national and regional power supply.

Net export from the Kyrgyz Republic increases to 3,000 GWh in 2017 from 2,230 GWh during 2000-2008 (average). Substation-related transmission grid outages reduced from 62 times in 2009 to 30 times in 2017.

Annual report of CDC of CAPS. System operation log of NEGK and

Assumptions Generation cost in the Kyrgyz Republic remains lower than in other countries in the region. Electricity demand increases in CAPS from steady economic development. Risk Reduction in export

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and Risks capacity due to reduced water volume.

Outcome Improved operational efficiency of the power companies.

Transmission loss reduced from 5.7% in 2009 to 4.7% in 2014. Distribution loss reduced from 26% in 2009 to 20% in 2014. NEGK receives full payment from DISCOS by 2014. Up to 63,000 tCO2-equivalent/year reduced.

Transmission loss: Annual report of NEGK. Distribution loss: Annual reports of DISCOS. Financial statements of NEGK and annual reports of the proposed settlement center. Calculated from loss reduction figures above.

Assumption Distribution loss reduction measures are taken by the DISCOS once medium-voltage metering data are made available to them. Risk Corporate management capacity of NEGK doesn’t improve.

Outputs [Physical] 1. AMDA linking 190 NEGK substations and EPP facilities commissioned. 2. Over 50 selected substations are rehabilitated. 3. SCADA (Phase 1: system monitoring) developed for the northern transmission grid system. [Non-physical] 1. Appropriate wholesale electricity transaction settlement mechanism is recommended. 2. Improved financial management capacity of NEGK.

[Physical] 1. Accurate time-stamped metering data is automatically logged to be used for financial settlement, export/import transactions and loss reduction by 2013. 2. 500 kV – 6 kV current transformers, voltage transformers, and circuit breakers are replaced by 2013. 3. Real-time metering data is used for system operation by 2013. [Non-physical] 1. The study's recommendations are accepted by the Government by 2012. 2. Audited financial statements prepared in accordance with IFRS are

[Physical] Project progress reports and final report prepared by the PIU, and commissioning and handover certificates issued by NEGK. Project progress reports and final report prepared by the PIU, and commissioning and handover certificates issued by NEGK. System operation logs of substations and dispatch available in NEGK's National Control Center. [Non-physical] Government's acceptance of the consultants’ Final Report. NEGK's audited financial statements.

Assumption Government and power companies remain committed to reduce losses in the sector.

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and Risks 3. NEGK's business plan is prepared.

disclosed by 2012. 3. NEGK accepts the business plan by 2012.

Written consent of NEGK.

Activities with Milestones [Physical] 1. Consulting services for implementation supervision 1.1 RFP issuance by NEGK Sep 2010 1.2 Contract award by NEGK Dec 2010 1.3 Consulting team mobilization Jan 2011 2. Development of AMDA and SCADA (Phase 1: system monitoring) 2.1 Outline design completion by consulting team Jul 2011 2.2 Contracts awarded to turnkey contractor by NEGK Jan 2012 2.3 Detail design by turnkey contractor Oct 2012 2.4 Equipment manufacturing and installation by contractor Nov 2013 2.5 Commissioning by NEGK Dec 2013 3. Substation Rehabilitation 3.1 Basic design completion by consulting team Jul 2011 3.2 Contracts awarded to supplier by NEGK Dec 2011 3.3 Deliver of equipment Dec 2012 3.4 Installation completed by NEGK Nov 2013 3.5 Commissioning by NEGK Dec 2013 [Non-physical] 1. Advisory Service on Corporate/Financial Management Capacity

Building of NEGK 1.1 RFP issuance by MOE Oct 2010 1.2 Contract award by MOE Mar 2011 1.3 Consulting team mobilization Apr 2011 1.4 Final report submission by consulting team Mar 2012 2. Study on Wholesale Electricity Transaction Settlement System 2.1 RFP issuance by MOE Oct 2010 2.2 Contracts award by MOE Mar 2011 2.3 Consulting teams mobilization Apr 2011 2.4 Interim report and workshop by consulting team Sep 2011 2.5 Final report submission by consulting team Mar 2012

Inputs ADB $44.8 million Government $11.2 million Total $56.0 million

ADB = Asian Development Bank; AMDA = automated metering and data acquisition system; CAPS = Central Asian Power System; CDC = Central Dispatch Center; DISCOS = distribution companies; EPP = Electric Power Plant Company (EPP); GWh = gigawatt-hour; IFRS = International Financial Reporting Standards; MOE = Ministry of Energy; NEGK = National Electric Grid of Kyrgyzstan; PIU = project implementation unit; RFP = request for proposals; SCADA = supervisory control and data acquisition system. Source: Asian Development Bank estimates.

B. Monitoring

73. Project performance monitoring. Following indicators will be updated in the quarterly progress reports and at the time of semi-annual meetings and the midterm review expected in two years from the date of loan effectiveness.

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Indicator Units EA responsible for data collection and

reporting • Installed generation capacity by power plants MW NEGK

• Installed transmission line by kV Km NEGK

• Power transformer capacity. MVA NEGK

• Monthly power generation by power plants. GWh/mos NEGK, MOE from Electric Power Plants

• Monthly fuel consumption by power plants. tones or liters MOE from Electric

Power Plants

• Monthly electricity flow between (i) Electric Power Plants and NEGK; (ii) NEGK and each distribution company; (iii) Electric Power Plants and large industrial consumers; and (iv) NEGK and large industrial consumers.

kWh/month NEGK, MOE from Electric Power

Plants, distribution companies

• Monthly settlement of tariffs between (i) Electric Power Plants and NEGK; (ii) NEGK and each distribution company; (iii) Electric Power Plants and large industrial consumers; and (iv) NEGK and large industrial consumers.

Kyrgyz Somoni/ month

NEGK, MOE from Electric Power

Plants, distribution companies

• Posted generation and transmission tariffs. Kyrgyz Tyin/kWh

MOE

• Monthly power trade volume, applied export/import tariff, and amount by country.

kWh/month, $/kWh, $ month

MOE from Electric Power Plants, NEGK,

distribution companies

• Monthly power consumption per customer group and

number of customers per group. kWh/month

MOE from distribution companies

• Monthly system losses in NESK-operated transmission grid (separately for commercial and technical).

% NESK

• Monthly system losses in distribution networks (separately for commercial and technical; and separately for each distribution company).

% MOE from distribution companies

• Tariff collection rates (of distribution companies per customer group, and by distribution company.

kWh, %

MOE from distribution companies

• Posted retail electricity tariff structure and actually applied

tariff. Kyrgyz

Tyin/kWh MOE from distribution companies

• Posted capacity charges. Kyrgyz

Tyin/MW MOE from Electric

Power Plants, NEGK, distribution companies

• NESK's annual report and financial statements (incl.

balance sheet/cash-flow/income statement). n/a NEGK

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74. Compliance monitoring: Loan covenants — policy, legal, financial, economic, environmental, and others — will be monitored through semi-annual project meeting and the midterm review. 75. Safeguards monitoring will be performed by the Project Management Consultants and NEGK’s PIU. The monitoring results will be included in the quarterly progress reports, and semi-annual environmental reports. 76. Gender and social dimensions monitoring: Monitoring is not required for gender as the Project does not have a gender element. Monitoring on equal employment opportunities for all social groups, equal pay for equal work regardless of gender, and prohibition of child labor will be monitored by the Project Management Consultants and NEGK’s PIU. The monitoring results will be included in the quarterly progress reports, and semi-annual environmental reports.

C. Evaluation

77. Inception Mission. ADB will field an inception mission after loan/grant signing to (i) establish a working relationship between ADB and the EAs; and (ii) to ensure that the Borrower and EAs understand ADB's procedures. 78. Review Missions. ADB will field review missions at least once a year to review overall implementation of the project and update project implementation schedule based on mission findings. 79. Midterm Review Mission. ADB will field a midterm review mission after two years of loan/grant signing to assess whether attainment of the Project’s immediate objective (purpose in terms of the design and monitoring framework) is still likely. 80. Project Completion Review Mission. ADB will field a project completion review mission upon physical completion of the Project to commence preparation of ADB's project completion report. NEGK, in coordination with MOE, will submit a project completion report to ADB within 6 months of physical completion of the Project.7

D. Reporting

81. NEGK and MOE will jointly provide ADB with (i) quarterly progress reports in a format consistent with ADB's project performance reporting system; (ii) consolidated annual reports including (a) progress achieved by output as measured through the indicator's performance targets, (b) key implementation issues and solutions; (c) updated procurement plan and (d) updated implementation plan for next 12 months; and (iii) a project completion report within 6 months of physical completion of the Project. To ensure projects continue to be both viable and sustainable, project accounts and NEGK's AFSs, together with the associated auditor's report, should be adequately reviewed. 82. NEGK is responsible for submission of reports to ADB. MOE shall prepare their section of the report in a timely manner.

7 Project completion report format available at: http://www.adb.org/Consulting/consultants-toolkits/PCR-Public-

Sector-Landscape.rar

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E. Stakeholder Communication Strategy

83. Project information will be strategically disseminated through media at main milestones including loan signing, contract awards and project completion. Grievance redress mechanism will establish at the PIU, by phone and email, and through public consultation events.

X. ANTICORRUPTION POLICY

84. The Borrower, through the MOF, the MOE and the NEGK, shall comply with ADB's Anticorruption Policy (1998, as amended to date)8, and operate fully with any investigation by ADB and extend all necessary assistance, including providing access to all relevant books and records for the satisfactory completion of such investigation. ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Project. MOE and NEGK shall ensure that anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of MOE, NEGK and all Project contractors, suppliers, consultants and other service providers as they relate to the Project. Individuals/entities on ADB’s anticorruption debarment list are ineligible to participate in ADB-financed activity and may not be awarded any contracts under the Project.9

85. To support these efforts, relevant provisions are included in the loan agreement/regulations and grant agreement/regulations and the bidding documents for the Project. Procurement will follow ADB's Procurement Guidelines, consultant selection will adopt ADB's Guidelines on the Use of Consultants, and disbursement will be made in accordance with ADB's disbursement policies, guidelines, practices, and procedures.

XI. ACCOUNTABILITY MECHANISM

86. People who are, or may in the future be, adversely affected by the project may address complaints to ADB, or request the review of ADB's compliance under the Accountability Mechanism.10

XII. RECORD OF PAM CHANGES11

May 2010: 1st version drafted. June 2010: 2nd version drafted. August 2010: 3rd version drafted. 24 August 2010: 4th version agreed during Loan and Grant Negotiations.

8 Available at: http://www.adb.org/Documents/Policies/Anticorruption-Integrity/Policies-Strategies.pdf 9 ADB's Integrity Office web site is available at: http://www.adb.org/integrity/unit.asp 10 For further information see: http://compliance.adb.org/. 11 MOE and NEGK shall ensure that changes to the PAM during Project implementation shall be consistent with the

financing and project agreements.