The World Bank...Document of The World Bank Report No: ICR2923 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA – 42230) ON A CREDIT IN THE AMOUNT OF XDR 6.8 MILLION (US$ 10 MILLION

Document of The World Bank

Report No: ICR2923

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA – 42230)

ON A

CREDIT

IN THE AMOUNT OF XDR 6.8 MILLION (US$ 10 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MADAGASCAR

FOR A

POWER AND WATER SECTOR RECOVERY AND RESTRUCTURING PROJECT

February 27, 2014

Energy Practice Sustainable Development Department Africa Region

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CURRENCY EQUIVALENTS Exchange Rate Effective October 28, 2013)

Currency Unit = Malagasy Ariary (MA)

2205 MA = US$1 US$ 1.3788= EURO 1.00

US$ 1.54724 = SDR 1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS ACCT Agence Comptable Centrale du Trésor (Treasury’s Central Accounting

Agency) ADER Agence de Développement Rural (Rural Development Agency) AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank APL Adaptable Program Loan BADEA Banque arabe pour le développement économique de l’Afrique (Arabic

Bank for African Economic Development) BP Bank Procedure CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment CFL Compact Fluorescent Lamp CPAR Country Procurement Assessment Report CELCO Cellule de Coordination (Implementing Unit) DEEL Direction de l’Equipement Electricité (Department of electrical

equipment) DFB Directorate of Finance and Budget EBITDA Earning Before Interests, Taxes, Depreciation and Amortization EIB European Investment Bank EIRR Economic Internal Rate of Return ESMF Environmental and Social Impact Management Framework ESIA Environmental and Social Impact Assessment EMP Environmental Management Plan FA Financing Agreement FDI Foreign Direct Investment FMRs Financial Monitoring Reports GDP Gross Domestic Product GIZ Gesellschaft fur Internationale Zusammenarbeit (German Society for

International Cooperation) GOM Government of Madagascar HFO Heavy Fuel Oil IDA International Development Association

iii

IERR Internal Economic Rate of Return IFC International Finance Corporation IG2P Integrated Growth Poles Project IPP Independent Power Producer IRR Internal Rate of Return ISN Interim Strategy Note ISR Implementation Status Report JIRAMA Jiro Sy Rano Malagasy (Stated-owned water and electricity utility) LSDP Letter of Sector Development Policy MAP Madagascar Action Plan M&E Monitoring and Evaluation MEM Ministry of Energy and Mines NPV Net Present Value OP Operational Policy ORE Organisme Régulateur du Secteur de l’Electricité (Electricity sector

Regulator) PA ` Project Agreement PDO Project Development Objective PRSP Poverty Reduction Strategy Paper RAP Resettlement Action Plan SIL Specific Investment Loan TA Technical Assistance

Vice President: Makhtar Diop Country Director: Haleh Bridi

Sector Manager: Lucio Monari Project Team Leader: Natalia Kulichenko

ICR Team Leader: Natalia Kulichenko

iv

MADAGASCAR

POWER/WATER SECTOR RECOVERY AND RESTRUCTURING PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ................................................. 2. Key Factors Affecting Implementation and Outcomes ................................................ 3. Assessment of Outcomes .............................................................................................. 4. Assessment of Risk to Development Outcome ............................................................. 5. Assessment of Bank and Borrower Performance ......................................................... 6. Lessons Learned ........................................................................................................... 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .............. Annex 1. Project Costs and Financing .............................................................................. Annex 2. Outputs by Component ..................................................................................... Annex 3. Economic and Financial Analysis ..................................................................... Annex 4. Bank Lending and Implementation Support/Supervision Processes ................ Annex 5. Beneficiary Survey Results ............................................................................... Annex 6. Stakeholder Workshop Report and Results ....................................................... Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... Annex 9. List of Supporting Documents ..........................................................................

MAP IBRD34815

v

A. Basic Information

Country: Madagascar Project Name: MAG – Power/Water Sectors Recovery and Restructuring Project

Project ID: P095240 L/C/TF Number(s): IDA-42230 ICR Date: 09/10/2013 ICR Type: Core ICR

Lending Instrument: APL Borrower: REPUBLIC OF MADAGASCAR

Original Total Commitment:

XDR 6.80M Disbursed Amount: XDR 5.71M

Revised Amount: XDR 5.71M Environmental Category: B Implementing Agencies: JIRAMA Ministry of Energy and Mines Co-financiers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 02/28/2006 Effectiveness: 10/15/2006 11/30/2006 Appraisal: 05/19/2006 Restructuring(s): 07/24/2012 Approval: 07/13/2006 Mid-term Review: Closing: 04/30/2009 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Unsatisfactory Government: Moderately

Unsatisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies:

Moderately Unsatisfactory

Overall Bank Performance:


Overall Borrower Performance:


vi

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:


D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing) Central government administration 7 21 General energy sector 63 57 Hydropower 30 22

Theme Code (as % of total Bank financing) Infrastructure services for private sector development 67 95 Regulation and competition policy 33 State-owned enterprise restructuring and privatization 5 E. Bank Staff

Positions At ICR At Approval

Vice President: Makhtar Diop Gobind Nankani Country Director: Haleh Bridi James Bond Sector Manager: Lucio Monari S. Vijay Iyer Project Team Leader: Natalia Kulichenko Stephan Garnier ICR Team Leader: Natalia Kulichenko ICR Primary Author: Nourredine Bouzaher F. Results Framework Analysis Project Development Objectives (from the Project Appraisal Document) The aim of the program is to restore an adequate public utility service for electricity and water in urban areas of Madagascar and to create the foundation for a sustainable expansion of a commercially oriented service in the most cost-efficient way.

vii

Revised Project Development Objectives (as approved by original approving authority):

The project development objective, revised in July 2012, was as follows: The objective of the project is to improve the availability of electricity in the short-term and prepare the ground for a sustainable long-term development of the sector. Table F (a): PDO Indicators1

1 The PAD indicates that the Project Outcome (Key performance) Indicators are determined at end of the APL-2. There are no specific PDO level indicators for APL-1. 2 For the baseline, target and achievement at completion of the Restructured Project, see Table F (b).

Indicators Original Project1 Restructured Project2

PDO Baseline value 2006

End of APL2 Target

Achieved in March 2009

Baseline Value 2011

Target Achieved at Completion June 2013

Comment

Original Project1. Restore an adequate public utility service for electricity and water in urban areas

improve generation efficiency (low) , reduce electricity losses (high) improve revenue management (poor)

improve generation efficiency (high) , reduce electricity losses (low) improve revenue management (good)-

generation efficiency: significant,

electricity losses: moderate

revenue management: significant

2. Create the foundation for a sustainable expansion of a commercially oriented service in the most cost-efficient way.

JIRAMA to: increase return on assets (insufficient); have adequate tariff indexing formula (none); &

JIRAMA to: increase return on assets (sufficient); have adequate tariff indexing formula (in place); &

Financial indicators have improved and some were above the targets at project completion in CY 2009. Tariff indexing formula is in place;

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3 A new private management contract, which was to replace the one separately funded by IDA prior to the implementation of the original project (see paragraph 9 for details). 4 The PDO indicators of the original project were for both APL-1 and APL-2. However, the APL-1 achievements were monitored through a set of Intermediate Outcome Indicators “Arrangement for results monitoring APL-1, p.39-41 of the PAD). Some of these Intermediate Outcome Indicators were chosen as the PDO level indicators in the restructured project.

produce adequate tech., comm., & finan. reporting & communicate to GoM/Regulator (not yet adequate)

produce adequate tech., comm., & finan. reporting & communicate to GoM/Regulator (adequate)

Regular performance reporting is in place

3. JIRAMA under new private management

launch date of prequalification (not yet); launch date of bidding documents (not yet); contract signed (not yet)

launch date of prequalification ( Dec. 31, 2007); launch date of bidding documents (April 1, 2008); contract signed -3

Not achieved

Restructured Project4 1. Improve the availability of electricity in the short term - Improve generation efficiency - Reduction of electricity losses - Revenue Management - Financial

See Table F

(b)

See Table F

(b)

See Table F

(b)

See

See Table F

(b)

See Table F

(b)

See Table F

(b)

See

See Table F (b)

See Table F (b)

See Table F (b)

See Table F (b)

Achieved

Partly achieved

Partly achieved

Not

achieved

ix

Original Project Restructured Project Indicator Baseline

value 2006

End of APL1 Target

Achieved March 2009

Baseline Value 2011


Comments6

Component A. Short Term Investments Improve generation efficiency Number of HFO units

2

22

26

22

NA

NA

Dropped

% of diesel generation over total generation

31%

14%

14.8%

22%

NA

NA

Dropped

Specific oil consumption

247 g/kWh

240 233 245 NA NA Dropped

Generation from rehabilitated hydro under project (MWh)

-

-

-

0

2100

3385

New Indicator7

Reduction of electricity losses Energy billed/Energy produced

76.3% 77.6% 76.9% 70% 75.6% 67% Continued8

Length of 5 kV

5 New indicator added at the project restructuring and chosen as a PDO level indicator for the restructured project. 6 “New” or “dropped” refers to indicators added or eliminated at project restructuring 7 Indicator chosen as a PDO level indicators in the restructured project 8 The same as in Footnote 7 above

outcomes Table F (b)

Table F (b)

2. Prepare the ground for a sustainable long term development of the sector: - Scoping and analytical work and technical studies completed

See Table F

(b)

See Table F

(b)

See Table F (b)

Partly

achieved

3. Direct Beneficiaries (Number) of which females (%)5

- - - 0 875,000 50.2%

736,000 55%

New Indicator. Substantially achieved.

Table F (b) Intermediate Outcome Indicator(s)

x


value 2006

End of APL1 Target

Achieved March 2009

Baseline Value 2011


Comments6

network converted to 20 kV

0

59

13.7

13.7

NA

NA

Dropped

Number of Compact Fluorescent Lamps distributed

0

660,000

Data Not available

Data Not available

500,000

920,000

Revised

Revenue Management Revenue collected/Energy billed: For industrial clients For Households

77% 92%

82% 93%

87% 86%

75% 80%

82% 93%

80% 76%

Continued9 Continued10

Accounts receivable (months of billing)

4

3

3

5

NA

NA

Dropped

Number of pre-payment meters installed

6,897

14,200

8,640

8,640

10,000

10,000

Revised

Financial outcomes EBITDA margin -50% 0% +47.2% -35% >0% -23% Continued11 Adequate technical, commercial and financial reporting in place: yes/no

No

Yes

Yes

Yes

Yes

Yes

Continued

Component B: Technical Assistance Scoping study of 6 potential sites and pre-feasibility study of the selected hydro site completed

-

-

-

Scoping phase only

Yes

Yes

New indicator

Analytical work and technical studies completed

-

-

-

No

Yes. final reports

Partly achieved12

New indicator

9 The same as in Footnote 7 above 10 The same as in Footnote 7 above 11 The same as in Footnote 7 above 12 Subcomponent B1: Technical assistance and communication, and Subcomponents B5: Preparation of environmental studies for future investments were not implemented.

xi


value 2006

End of APL1 Target

Achieved March 2009

Baseline Value 2011


Comments6

submitted

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 12/28/2006 Satisfactory Satisfactory 0.00 2 06/18/2007 Satisfactory Moderately Satisfactory 1.43 3 12/18/2007 Satisfactory Moderately Satisfactory 1.99 4 06/09/2008 Moderately Satisfactory Moderately Satisfactory 3.41 5 12/23/2008 Moderately Satisfactory Moderately Satisfactory 3.93 6 03/02/2009 Satisfactory Moderately Satisfactory 4.68 7 06/30/2010 Unsatisfactory Unsatisfactory 4.83 8 03/27/2011 Unsatisfactory Unsatisfactory 5.17

9 04/01/2013 Moderately Unsatisfactory

Moderately Unsatisfactory 5.68

H. Restructuring (if any) Because of the political crisis in Madagascar, which triggered the application of OP 7.30 to the entire country portfolio, Project disbursements were put on hold in March 2009, thus halting project implementation. In May 2010, the Bank introduced a number of changes in the application of OP/BP 7.30 in the Madagascar portfolio. As a result, the closing date was extended to April 30, 2011, as “an internal measure which does not require any resumption of disbursements”. The Project was authorized only to resume payments for settling contractual arrears for works, goods and services already delivered and related to the contracts, signed before the application of OP/BP 7.30. The project was not included in the selected number of projects with “a strong poverty focus”, which were authorized to resume disbursements for the ongoing or new activities. The authorization to resume disbursements on the entire portfolio was granted in May 2011, shortly after the closing date (April 30, 2011) had lapsed. The amount disbursed by April 30, 2011 was US$5.17 million, representing about 50% of the signed loan amount of US$10,427,936.00. The project was formally restructured, with Board approval on July 24, 2012. The reasons that led to project restructuring, and the key changes made at restructuring, are described in detail in Section 1 below.

xii

I. Disbursement Profile13

13 The historically disbursed amount is US$8.73 million, including the periods before and after restructuring.

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. The Project was prepared in 2005/2006 in the context of a power sector crisis in Madagascar, characterized by capacity shortages, widespread load-shedding and acute financial distress of the national water and electricity utility, JIRAMA.

The three key priorities set out in the Government of Madagascar’s (GOM) Poverty Reduction Strategy Paper (PRSP) of October 2003 were: (i) improving governance; (ii) promoting broad based growth; and (iii) providing human and material security. Achieving rapid economic growth required improved infrastructure, particularly the availability of a reliable electricity supply. The absence of the latter was considered an additional cost to existing businesses and an impediment to attracting inflows of new foreign investment.

2. JIRAMA was in a severe financial situation. Tariffs remained frozen from 2001 to mid-2005, even though this was a period of high inflation, sharp depreciation of the local currency and rising world oil prices. Furthermore, because of the shortages of generation capacity, and the fact that all additional demand had to be met by dispatching expensive diesel-powered units, electricity production costs rose substantially. The inaction on the part of the Government of Madagascar (GOM) to raise tariffs directly contributed to the financial insolvency of JIRAMA. The latter built up large arrears to its fuel suppliers with the resulting inability to service its debt. The failure on the part of JIRAMA to meet its contractual obligations for fuel payments and to run its power plants resulted in power cuts (which lasted from May to September 2005 and later in 2006) and brought matters to a head in mid-2005. The GOM was obliged to intervene and bail out JIRAMA with a cash injection to pay fuel suppliers to ease the power shortages. It was, therefore, crucial to the success of the government’s PRSP that the electricity supply problems experienced in 2005-2006 did not recur.

These shortages badly hurt the manufacturing and export oriented industries, such as the garment manufacturing and seafood processing where factories were unprepared to deal with load shedding because they lacked standby generators. This crisis was a sharp warning to the authorities of the vulnerability of the entire economy and posed risks to the economic growth program.

3. While electricity demand increased substantially as the economy recovered from the political crisis of 2002, very limited new investments in new power took place in the years prior to the crisis of 2009. In 2005, most of the electricity production of JIRAMA’s power plants and distribution services were inadequate to meet the demand in their service areas. Over 6,000 requests for new connections in the capital (backed by down-payments) were on hold, due to the lack of equipment needed to connect new customers and insufficient power supply to serve the incremental load. Additional generation capacity was added on an ad hoc basis, through expensive quasi-Independent Power Producer (IPP)/leasing contracts awarded on a non-competitive basis. The World Bank assessed JIRAMA’s operational performance as unsatisfactory, pointing out the problems of high losses and poor maintenance. Thermal plants were generally in very poor condition. Billing, metering and revenue collection practices were weak. Unpaid bills of large consumers, both public (like universities) and private (e.g. numerous manufacturing enterprises), exceeded three months’ billings at the end of 2005.

2

4. In 2003, the government decided against the immediate privatization of JIRAMA. A diagnostic study and management audit of JIRAMA, which an international consultancy firm carried out at that time, revealed the severity of the problems faced by the utility. The study recommended a two-year management contract as the first step towards improving the JIRAMA’s performance to a level, at which the utility could provide satisfactory service of delivering electricity and water to the consumers. Given the difficult international investment climate in the early 2000s (related to the Asian financial crisis in the late 1990s), and the lessons from privatization of utilities in other developing countries, the Bank concurred with the approach to delay the privatization of JIRAMA. The GOM further decided to have a short-term management contract for JIRAMA, which would be succeeded by a longer-term solution, based on a public-private partnership.

5. Large electricity tariff increases were introduced in 2005 (though belatedly), amounting to a cumulative rise of 75%. A further 10% increase in tariffs took place in April 2006, consistent with the GOM sector reform program. The average tariff in 2006 was about US$0.13/kWh. Average water tariffs were also raised by a third in 2005 and then by a further 20% in April 2006.

6. As there is no national tariff policy for the electricity generation and distribution sub-sectors (an exception for regulated utilities in less developed countries), tariff hikes in the areas entirely supplied by thermal energy were substantially larger than in those areas that had access to cheaper hydroelectricity. As a normal practice, JIRAMA also applied time of day pricing to medium and high voltage customers.

7. Restoring and improving electricity supply to acceptable levels required both substantial new investment and major reforms to the power sector. The JIRAMA top management was replaced in early 2005, and the utility was put under a two-year, IDA-funded management and operation contract (this contract was funded separately and prior to the implementation of the original project, approved in 2006). The management contract, which was part of a two-phase reform process (Step 1: management contract; and Step 2: affermage and corporate restructuring of the isolated grids) brought about some positive results. These included optimization of the generation plant dispatch, optimization of plant operations, increased revenue collection and cost control measures - all these measures contributed to the improved cash flow and reduced financial losses. Financial recovery from a situation of near-bankruptcy seemed to be under way. The JIRAMA’s balance sheet was also restructured through a mix of write-offs and debt-equity conversions. However, the international consultancy firm, which was implementing the IDA funded management contract, was debarred from World Bank business before the contract renewal date (due to an unrelated case elsewhere in Africa). Because of this circumstance, it was decided that a few individual management consultants, paid by the government, would continue providing management services to JIRAMA, without the involvement of the debarred consultancy firm. The objective of this decision was to give enough time to the government to decide on the pace and direction of future utility reform. Later, with the civil unrest and eventual overthrow of the then head of state, some of these individual contractors faced allegations from the new leadership and had to abruptly terminate their services, and in one case to flee the country to avoid arrest.

3

8. At the time of the project preparation/appraisal, the GOM was preparing its “second-generation” PRSP, called the Madagascar Action Plan (MAP) that was to set out the “roadmap”, aiming to produce a quantum leap in the country’s development process. In parallel, the Bank was also preparing a new CAS to support the implementation of the MAP. The CAS was to reflect the GOM’s focus on infrastructure improvement and expansion to underpin growth and private sector development. Therefore, the project was a core element in the Bank’s support to the MAP, because it addressed a critical gap in infrastructure development and a key constraint to private sector engagement into Madagascar’s economy.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

9. According to the original project PDO, the aim of the program was to restore adequate public utility service for electricity and water in urban areas of Madagascar and to create the foundation for a sustainable expansion of commercially oriented service in the most cost-efficient way.

10. Key performance indicators of the APL program (APL-1 and APL-2) at approval were:

(a) JIRAMA was to: improve generation efficiency; reduce electricity losses; improve revenue management; increase return on assets; have a tariff indexing formula in place; produce adequate technical, commercial and financial reporting of current

operations and to communicate this reporting to the authorities (government and regulator); and

(b) Contract signed for JIRAMA to be transferred to a private management firm on a long-term basis.

11. Only the APL-1 was implemented. The APL-2 was not initiated, mainly because the triggers for it were not met (see para. 40 below for details). The complete list of key indicators is presented in section F: Results Framework Analysis, above.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

12. The original project objectives and the key indicators were revised in July 2012 as part of adaptive restructuring of the project to address the 2009 political crisis and its aftermath, which triggered the application of OP 7.30 entitled “Dealing with de facto governments”.

13. The following revised PDO responds to narrower and more targeted goals: “to improve the availability of electricity in the short-term and prepare the ground for a sustainable long term development of the sector”. The rationale was to better align the Project with the strategy outlined in the 2011-2012 Interim Strategy Note (ISN) by preparing technical and analytical basis for future development of the sector, in support of a realistic economic development strategy.

4

14. As shown in Section F above, the results indicators were revised to reflect the changed priorities and realities. The revised monitoring framework documented significant progress achieved during the project implementation before the 2009 crisis and then the backsliding after 2009, primarily because of the political crisis and the subsequent freeze in project implementation. The indicators were adjusted to reflect the project’s revised PDO and planned activities. The following PDO indicators were added: Direct Beneficiaries (of which females %), Generation from rehabilitation of hydropower facilities, and Scoping and analytical activities. Indicators related to the already completed or abandoned activities were dropped as the PDO targets for the restructured project. The baselines for the indicators in the restructured project were defined, based on the 2011 values of the relevant indicators, as 2011 was the year, in which the Bank decided to resume disbursements on the entire Bank portfolio for Madagascar.

1.4 Main Beneficiaries

15. The primary target groups were the economy at large (industry, commerce and households), the Ministry of Energy and Mines (MEM) and JIRAMA, the national power and water utility, as well as the private sector.

1.5 Original Components (as approved)

16. The original APL-1 (of an APL program in two phases) had the following two components:

(a) Component A: (implemented by JIRAMA): Short term Investments:

(i) Subcomponent A1a: Power generation reinforcement

Replacement of hydro-refrigerants system for the Andekaleka hydropower plant (2 x 32 MW);

Rehabilitation of unit N° 3 of the Antelomita 1 hydropower plant (0.8 MW);

Renovation works in the Volobe hydropower plant (6.7 MW); Rehabilitation of small hydropower plants of Ankazobe, and

Tsuazompaniry; Rehabilitation of mechanical auxiliaries of the Ambohimanambola

thermal power plant (3 x 6 MW); and Rehabilitation of thermal plants in Mahajanga (Unit 1303).

(ii) Subcomponent A1b: Retroactive financing

Rehabilitation of the Ambohimanambola thermal power plant (3 x 6 MW)

Rehabilitation of the Antsirabe thermal power plant Rehabilitation of the Mahajanga thermal power plant

Rehabilitation of the Ambohimanambola thermal power plant (3 x 6 MW)

Rehabilitation of the Ambohimanambola thermal power plant (3 x 6 MW).

5

(iii) Subcomponent A2: Reduction of transmission and distribution technical losses Reduction of losses: rehabilitation of transmission networks Reduction of losses: rehabilitation of distribution.

(iv) SubcomponentA3: Revenue Management and modernization of

information systems and acquisition of IT equipment. Revenue management Modernization of information systems and acquisition of IT

equipment

(b) Component B (implemented by the MEM): Technical Assistance and Capacity Building: (i) Subcomponent B1: Technical assistance and communication –

Contracting a private operator to take over JIRAMA (ii) Subcomponent B2: Extension of the current management contract (iii) Subcomponent B3: Preparation of future generation projects in

coordination with IFC’s IPP mandate (iv) Subcomponent B4: Strengthening the Ministry of Energy and Mines (v) Subcomponent B5: Preparation of APL-2 feasibility and

environmental studies for APL-2 investments. (vi) Subcomponent B6: Program monitoring and evaluation; and (vii) Subcomponent B7: Assistance to the Ministry of Energy and Mines in

project implementation.

1.6 Background: The 2009 political crisis

19. The effects of the political crisis of 2009 which took place two months before the initial closing of the original project on Madagascar’s economic and social outcomes have been very severe. The following dimensions of the results of the protracted political crisis are particularly relevant:

The economy has stalled: Overall economic growth has been flat over the period 2009-12. With high population growth (2.9%), income per capita in 2012 has returned to its 2003 level.

Poverty has sharply increased: Preliminary estimates suggest that, from 2008 to 2012, the proportion of the population living under the poverty line, a proportion which was already high before the crisis, may have increased by 10 percentage points, with the larger effects over 2011-12, as the crisis deepened. As a result, and combined with population growth, we estimate that there are now some four million more people in poverty than there were in 2008. Madagascar now has one of the highest rates of poverty in the world.

Social outcomes have worsened: Despite crisis-related aid to social sectors, the number of out-of-school children has increased by more than 500,000. Acute child malnutrition remains a critical problem, having increased in some areas by more than 50%. These developments put the welfare of future generations at risk.

6

The crisis has stalled progress on long-standing challenges of weak governance and rule of law: Increasing insecurity, poor governance in natural resource exploitation (such as illegal rosewood logging), limited progress on the anti-corruption front, and the longstanding issue of weak transparency in the management of public resources have only become more pressing in recent years.

The ability to deal with exogenous shocks is severely curtailed: Current risks to the global economy, especially in Europe, make Madagascar’s economy even more vulnerable, given its connection to exports and tourism. The country is also highly vulnerable to natural disasters—including cyclones as in 2008 and 2012. The political crisis is a major impediment to confronting and mitigating all these exogenous shocks, external and internal.

Infrastructure has deteriorated: In addition to damages from cyclones, severe budget cuts in investment and maintenance have resulted in increasingly deteriorated roads, power and water infrastructure, impairing the medium- and long-term development of the Malagasy economy.

1.7 Revised Components

20. The restructured project had the same components and subcomponents as the original project with the exception of the following which were dropped: Subcomponent B2: Extension of the current management contract; and Subcomponent B6: Program monitoring and evaluation. The changes within the remaining subcomponents are described below:

21. Pursuant to the July 2012 restructuring, Components A and B were modified as presented below. For Component A, all its four subcomponents were considered still relevant, but changes of activities within the following two subcomponents were introduced:

22. Under Subcomponent A1a: Power generation reinforcement, the following two activities were abandoned after their cost increased significantly beyond the available budget, following a revision of the required scope of work:

Activity (c): Renovation works in the Volobe hydropower plant; Activity (d): Rehabilitation of small hydropower plants. Activity (e): “Rehabilitation of mechanical auxiliaries of the Ambohimanambola thermal plant” was also abandoned because the plant was irreparably damaged by fire.

23. Under Subcomponent A3: Revenue management, activity (f): Investment in spot metering equipment and systems was replaced by “Distribution of compact fluorescent lamps (CFLs)”. This change was done because JIRAMA already financed some of the metering equipment and, in the context of capacity shortages, the CFLs appeared to be the most cost effective way to rapidly reduce peak demand without increasing the cost to customers already affected by the social and economic crisis.

24. The title of Component B was changed to “Technical Assistance”. Available resources within this component were reallocated to analytical work and technical studies for which final reports were to be submitted by the project closing date.

25. Subcomponent B2: The extension of the management contract that was in place at time of appraisal was no longer considered relevant and was abandoned (see paragraph 9 above for

7

details). However, a study of management options for JIRAMA, and the diagnostic of sector institutions remained part of the analytical activities of the project (Subcomponent B3 below).

26. Subcomponent B3: This activity was changed to the following: “Analytical work and preparation of future investment projects”. The additional activities financed under this component included the following studies: governance of power sector institutions and management options for JIRAMA, review of the legal framework, tariff review, feasibility and environmental studies for priority investments, and rapid diagnosis of the power system.

27. Subcomponents B5 and B6 were eliminated. The required feasibility and environmental studies for future priority investments and monitoring and evaluation were included in Subcomponent B3.

1.8 Other significant changes

(in design, scope and scale, implementation arrangements and schedule, and funding allocations)

28. In a letter dated June 30, 2011, the GOM requested that the project be restructured and the closing date of the project extended, retroactively, for 26 months, from April 30, 2011 to June 30, 2013. The Bank had rated the overall implementation progress “unsatisfactory”, since the time disbursements were frozen. For this reason, as well as due to the difficult country context and its negative impact on the sector, the achievement of the development objective was also rated unsatisfactory. In addition to the changes to the project’s components, described in section 1.6 above, the restructuring included other elements, listed below.

29. Project name and instrument. The name of the restructured project was changed to “Power Sector Improvement and Recovery Project”, eliminating the reference to the water sector. The original project indirectly covered the water sector, through the transfer of JIRAMA (the power and water utility) to a private management company that would have carried out water services (in addition to electricity services). Without this transfer, the Project activities would have impacted the water sector minimally. Therefore, at the time of the project restructuring, the reference to the water sector in the project name and its PDO was dropped. As part of the restructuring, the instrument was changed from an Adaptable Program Loan (APL) to a Specific Investment Loan (SIL) instrument, which was better suited to the reality on the ground. The APL instrument is usually best suited to accompany a predefined sector reform process, where milestones in the reform could be used as triggers for the different phases on an APL. However, there was no clear roadmap for sector reform after 2009, and the country was in the midst of a difficult political transition. Consequently, the APL instrument was no longer suited to the realities on the ground.

30. Extension of the closing date. As part of the proposed restructuring and as per the request of the GOM, the closing date was retroactively extended from April 30, 2011 to June 30, 2013.

31. Implementation schedule. A new implementation schedule was put in place, and all activities of the restructured project were expected to be completed within the revised closing date of June 30, 2013, including purchases of goods and services, and completion of final drafts for technical studies and other Technical Assistance (TA) activities.

32. Reallocation of funds. A reallocation of funds between the Credit categories was also undertaken to ensure the completion of: (i) targeted activities to improve service delivery and efficiency over the short term; and (ii) preparatory activities for future investments seen as

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critical for the long term development of the sector. The size of the categories stayed about the same, but the composition of activities, as outlined above, changed.

33. Covenants and condition of disbursement. a) In the Financing Agreement (FA), Schedule 1, Section V “Other Undertakings” the

following changes were made: Dated covenant (b), which stated that no later than April 1, 2007, the Recipient shall

have publicly disclosed the Electricity Tariff Indexation Formula and adjusted electricity tariffs in accordance with said formula, had not been complied with. The adjustment was not made on April 1, 2007. Therefore, the covenant was revised with a new date of April 1, 2013 agreed with the Borrower.

The covenants (c) and (d) that related to the recruitment of a private operator for the management of JIRAMA were dropped as they were no longer relevant (see paragraph 9 above).

With regard to the disbursement conditions in the FA, the condition (b) related to the Vatomandry hydropower plant was dropped, following the elimination of this activity from the Project scope. b) In the Project Agreement (PA), the dated covenant in Section IV related to

JIRAMA’s level of accounts receivables was dropped since improving the JIRAMA’s commercial performance was not the primary focus of the restructured Project and its revised PDO.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

(including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable)

34. Soundness of the background analysis: The project was designed on the basis of a solid background analysis, an adequate and inclusive participatory process on the part of both the Government and the World Bank, and with due incorporation of lessons learned by the Bank from previous experiences in Madagascar. Based on the experience accumulated during the preparation, implementation and operation of energy projects in Madagascar, the following factors were identified as important criteria for the original project design:

(a) the prioritization of investments based on technical, financial and economic merit, starting with the rehabilitation and increase in the efficiency of existing assets, and the increase in efficiency of plant and equipment, whenever justified;

(b) the need for analytical work to lay the foundations for a private sector-led development in light of strong and sustained increase in demand for electricity; and

(c) the need for realistic and simplified design, including the need to be more vigilant with respect to tariffs during inflationary periods, cost control, ownership by stakeholders and donors’ coordination. The Project Appraisal Document (PAD) presented the respective lessons learned in: Section B(3) - on project components; Section B(4) - on lessons learned and reflected in the project design; Section C(1) on partnership arrangements; and Section D(1) on economic and financial analyses.

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35. Assessment of adequacy of project design: The Project’s strategy to focus on ways to improve the financial viability of JIRAMA was relevant. While progress in increasing JIRAMA’s revenue generation and establishing better concepts and tools for management was made under a previous Bank financed project (the Energy Sector Development Project), there was still a long way to go to achieve improvement in technical efficiency, cost recovery and financial sustainability of the utility. Therefore, project design provided the right path for assisting JIRAMA to advance further towards these goals. The Project’s strategy to focus on priority investments on the basis of technical, financial and economic criteria was reasonable. The Bank, in coordination with other donors, financed some of the high-priority investments, such as the rehabilitation of existing power infrastructure, included in JIRAMA’s much larger recovery plan. This was the centerpiece of the PWSRRP (APL-1), whose primary goal was to restore the capacity of JIRAMA to a minimum acceptable level of operational and financial performance, as a precondition for attracting private sector investment. The specific investments had been selected, based on their short payback periods and high impact on the JIRAMA’s earnings. The APL-1 also supported the long-term objective of improving the electricity and water sectors’ performance by providing funds for analytical work on tariffs and preparatory work on new investments, particularly in hydropower.

36. Combining utility governance, investments, capacity building, and institutional strengthening under the PWSRRP was the right strategic choice. However, the project activities were numerous, including costly investments in generation and distribution networks (even though these investments were critical), and the available project budget was inadequate to result in any substantial impact. Outputs of the technical assistance and capacity-building component were directed towards establishing a suitable framework and an enabling environment for effective implementation of the physical investments component, such as the establishment of public-private partnerships for JIRAMA. Project design left open the options for the reform of JIRAMA, which were to be assessed in a study financed under Component B of the project. The project activities, such as the focus on the JIRAMA’s financial situation, had contributed to the government decision to increase tariffs to cost recovery levels prior to the 2009 political crisis. This, in turn, had strongly contributed to the sector’s capacity to implement the project.

37. Adequacy of government commitment: The commitment to, and ownership of, the project was strong at the time of project preparation and appraisal. During project design, the GOM repeatedly expressed its interest in the Bank’s continuing support to the energy sector. The government reiterated its interest in Bank support for the energy sector in the Sector Development Policy Letter (briefly summarized in the PAD). The letter described actions that GOM intended to take to ensure the JIRAMA’s financial recovery, long term management options for JIRAMA, as well as other actions to support the sector, including equity contributions and tariffs adjustments.

38. Assessment of risks: The political risk associated with the (then) forthcoming elections to stall the reforms was rated as moderate. The fact that the APL-1 investments were to be committed prior to the elections was considered to be a mitigating factor. A number of risks, including the inability of JIRAMA to make the needed investments due to its difficult financial position; the high fuel costs not compensated by tariff adjustments, the decrease in collection rates, the increase in accounts receivable, and governance problems were addressed through the

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mitigation measures proposed in the PAD. The following actions were seen as mitigating these risks:

(i) In the short run: (a) upfront agreement and close monitoring of JIRAMA’s investment program financing and business plan, and a stricter process for capital budgeting and financing decisions; (b) revision of the electricity tariff adjustment formula, especially to allow for speedy adjustments to changes in fuel prices; (c) strengthened governance of JIRAMA through private sector participation; and (d) strengthened sector institutions; and

(ii) The long-term involvement of the private sector to manage the utility was seen as providing additional mitigation.

39. The risk of weak institutional and implementation capacity of the MEM was identified at appraisal and rated moderate. A strong mitigating measure - the recruitment of a technical adviser as a condition of disbursement of funds to finance activities under Component B –proved ineffective, as it was ultimately waived. The implementation of activities under Component B was significantly delayed, as described in Section 2.2 below. The risks related to labor union resistance to the internal JIRAMA reforms and the insufficient interest by foreign utilities in managing JIRAMA were both rated as moderate at appraisal. These risks, which never materialized, and the related subcomponents were rendered irrelevant at the time of the interruption of the project implementation (following the March 2009 political crisis), and the 2012 restructuring of the project.

40. Overall, the risk analysis of the project was adequate. The mitigation measures were also overall appropriate and commensurate with the identified risks. However, the mitigation measure to address the weak institutional and implementation capacity of the MEM by tying disbursements on Component B to the recruitment of a technical advisor was too rigid and led to delays in the implementation of the component.

2.2 Implementation

(including any Project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) 41. The Project was part of a two-phase, six-year APL program. Only Phase 1, APL-1 (mid-CY 2006 to mid CY 2013) of the proposed APL program has been implemented, and, therefore, it is the subject of this evaluation. The IDA funding for APL-1 was about US$10 million. The APL-1 operation aimed at assisting the Government to prepare JIRAMA for improved operations and private participation. The content of APL-2 was not defined in detail at the time of appraisal, but the intention was to select some of the APL-2 components from the JIRAMA’s investment program. The APL-2 was not implemented for a number of reasons including the political crisis in Madagascar, the availability of funding and the fact that the triggers were not met (among which was the completion of the recruitment of the long-term private management firm for JIRAMA).

42. The efficiency of the Project implementation was mixed, and the capacity of the sector institutions to implement a relatively modest investment program may have been overestimated, especially for Component B, for which the MEM was the implementing agency. There were delays in the implementation of Component B, mainly because of the condition for disbursement (the recruitment of a technical advisor), which the MEM could not satisfy. Although the MEM agreed to recruit a technical adviser, the Ministry reversed its decision later,

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because it thought the work could be done in-house, without external assistance. At the end, the Bank accepted to waive this condition of disbursement. After the condition of disbursement was waived, the implementation of some subcomponents moved more quickly, and the majority of the scoping and analytical work was completed before the project closing date. The planned environmental studies for future investments were not implemented. In the original project results framework there were no intermediate results indicators for Component B. Two intermediate results indicators for Component B were introduced at the time of the project restructuring in July 2012 (see Section F(b) above). With regard to Component A of the original project, by March 2009 (one month before the original closing date), the PDO indicators related to the JIRAMA’s operational and financial performance were mostly met. With regard to the disbursement achieved by March, 2009, only 54% of the project funds disbursed because many of the short-term investments (Component A) were delayed. The delays in Component A were mainly due to procurement issues, such as the delays in the preparation of bidding documents, especially for hydropower rehabilitation, unsuccessful or unresponsive bids and bid re-issuance.

43. Because of the political crisis of March, 2009, the implementation of the initial project (APL-1) was put on hold from March, 2009 to May, 2011. Disbursements were suspended in line with the application of policy OP 7.30 dealing with de facto governments, which also led to the restructuring of the project in July 2012. After the initial turnaround, achieved during the first two years of project implementation, JIRAMA’s financial situation worsened after 2009. The level of deterioration of the gains of the first two years of the project implementation (i.e. prior to March, 2009) can be seen in the intermediate results indicators table of Section F. Almost all of the indicators were revised in 2011, at a level lower than that achieved prior to the political crisis in 2009.

44. The implementation of the restructured project was short-a period of only nine months, between September 24, 2012 (when the amended and revised financing agreement was signed), and the closing date of the project on June 30, 2013. The team focused its attention on the implementation of Component B 14 , which was least advanced, and engaged in an active dialogue with the counterparts (JIRAMA, MEM, and the Regulator (ORE)) with regard to the studies and consultancy services. The team and the counterparts considered Component B important, as it was to lay the ground for future sector development. The team also worked with other donors to facilitate harmonized interventions when re-engagement in the sector becomes possible.

45. Another aspect that had an impact on the project implementation was the fact that the JIRAMA’s management attention focused primarily on responding to the enormous pressure from government authorities and the public to find a solution to the load shedding and the company’s difficult financial situation.

14 Subcomponent B1: Technical assistance and communication, and Subcomponents B5: Preparation of feasibility and environmental studies for future investments, were not implemented (see Annex 2 for details).

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46. Because of the above factors, the implementation pace was slow (spanning about 7 years, including a 3-year period of interruption in project implementation). By project closing on June 30, 2013, disbursements were 87.3% of the IDA Credit of about $10 million.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

47. The baseline data for the indicators (original and revised) were prepared and the monitoring system was simple and based on measurable outputs. JIRAMA, through the Project Implementation Unit (PIU), and to a lesser extent MEM, carried out the overall monitoring of the project and the achievement of the output indicators. These indicators were reported to the Bank quarterly. The monitoring included separate detailed reporting by JIRAMA, covering progress on physical implementation, procurement, financial commitments and other elements of the project progress. The design of the monitoring framework could have been improved to include indicators related not only to the JIRAMA’s performance, but also to MEM.

48. There is no indication that the information, provided by the M&E system, has been used to monitor and evaluate the impact of new and rehabilitated infrastructure on all aspects of the company or sector performance. Furthermore, the sustainability of the M&E arrangements beyond the project implementation period could not be ascertained.

2.4 Safeguard and Fiduciary Compliance

(focusing on issues and their resolution, as applicable) 49. Environment and social safeguards: The project design took into account the Bank’s safeguards policies, including procedures and implementation arrangements to ensure full consideration of environmental safeguards in accordance with OP 4.01. The original project and, to a smaller extent, the restructured project financed generation rehabilitation, distribution reinforcement and rehabilitation of the existing transmission lines and substations in various towns in Madagascar. The investments were aimed entirely at upgrading existing installations. No green field sites were developed or human resettlement undertaken. On the social safeguards side, OP 4.12 was not triggered, since no land acquisition was anticipated from any of the subprojects.

50. Financial management: The financial management of the project was carried out in accordance with the project design and legal agreements. While the financial management system, including budgeting, accounting, internal controls, funds flow, auditing, and reporting was adequate and met the Bank’s minimum financial management requirements at project appraisal, the system was further strengthened and upgraded during the project implementation. The internal controls system under the project was deemed to provide timely information and reporting on the project. Formal audits of the project were carried out on an annual basis. The audits confirmed the adequacy of the accounting system and internal controls and the reliability of the Statement of Expenditure (SOEs) as a basis of credit disbursements and compliance with the legal covenants. For Component A, the JIRAMA implementation unit managed its project activities well and carried out adequate reporting. In addition, this unit continued implementing projects of other donors during the crisis period, when the WB funded activities were suspended. The financial management for Component B was strengthened through the hiring of an administrative and financial manager to support the MEM team. An individual consultant, who has been assisting the MEM team before the political crisis, had to be let go due to the interruption of disbursements.

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51. Procurement: The overall procurement capacity of JIRAMA, and particularly of MEM, was overestimated. Bidding documents were not ready in advance, and procurement actions were delayed. Important packages, such as the rehabilitation of the Andekaleka hydropower plant, had to be rebid, because they failed to attract responsive bids and/or were over the available budget.

52. A Procurement Capacity Assessment of JIRAMA was not conducted during the appraisal because it was agreed with the JIRAMA’s management that the team responsible for procurement under the recently closed IDA financed Energy Sector Development Project (ESDP) would remain in place for the new project. An action plan for improving the JIRAMA team’s capacity, which included refresher procurement training sessions for the project staff, was implemented.

53. A Procurement Capacity Assessment for the MEM’s Procurement Unit was conducted during the appraisal. The key issues and risks concerning the Ministry procurement capacity were identified. Corrective measures, such as the recruitment of a qualified and experienced financial management expert and a procurement officer for the Coordination Unit, were taken. However, the main cause for the delays in the implementation of the Component B can be traced to the condition of disbursement attached to this component (as described in Section 2.2, Implementation).

2.5 Post-completion Operation/Next Phase

(including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) 54. In view of the continuing strong growth of electricity demand, JIRAMA’s investment plans include investments in power generation, transmission and distribution with a large role foreseen for the private sector, especially in generation. However, unresolved issues related to continuous tariff indexation to adjust for fuel cost increases (e.g., due to non-implementation of the periodic indexation during the crisis, including the latest adjustment scheduled for April, 2013), collection and billing, and operational issues will continue to hamper JIRAMA’s efforts to meet future demand. These issues and the lack of capital/equity make it difficult for JIRAMA to access capital markets and attract private investors to finance supply expansion, mainly through the Independent Power Production (IPPs) model. Therefore, currently, given the poor financial situation of JIRAMA, the interest of the private sector seems to be limited to providing services for management and operation, without taking any risk of committing capital upfront for infrastructure investments.

55. Once the political crisis ends in Madagascar, the Bank should consider providing assistance to support a new sector investment and policy project to finance at least part of the JIRAMA’s investment program, to improve its operations and cash flow, and to support a renewed effort at reforming Madagascar’s power sector.

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3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

(to current country and global priorities, and Bank assistance strategy) 56. Relevance of the project objectives is rated High. The project objectives and the activities supported by the PWSRRP were, and still are, highly relevant to the issues in the electricity sector in Madagascar. With the financial difficulties of JIRAMA in mind, the project objective, as stated in the PAD, focused on short-term gains in terms of reducing operational costs and increasing revenues (rehabilitation of hydropower and thermal stations and fuel switching at some thermal stations to use cheaper fuel oil). The short-term focus was reaffirmed in the revised PDO, which also emphasized short-term improvements in the availability of electricity.

57. The higher objectives of the Bank intervention in the sector (e.g. as reflected in the CAS, ISN and the Electricity Sector Development Project, implemented before 2006) were to assist Madagascar with improving JIRAMA’s performance and reducing its fiscal burden, fostering private sector participation in all segments of the electric power industry in Madagascar, and improving infrastructure and electricity service provision to the population.

58. Such high level objectives remain relevant to the current stage of Madagascar’s development. Improving infrastructure service delivery was the central theme of the sector’s development strategy throughout the life of the project, including the current Interim Strategy Note of (ISN) of December 28, 2011, covering the period 2012-2013. It supports the GOM’s PRSP around the pillar of promoting broad based growth. Achieving rapid economic growth requires improved infrastructure, particularly the availability of reliable electricity supply to existing and future businesses and attracting new foreign investment.

59. The Bank’s implementation assistance was responsive to the changing circumstances, especially in light of the political crisis in early 2009, and the consequent application of the Bank’s operational policy O.P/B.P 7.3, which ultimately led to project restructuring.

3.2 Achievement of Project Development Objectives (PDOs)

(including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) 60. Achievement of the original PDO. Although the outcome indicators of the original project were designed for the APL program as a whole, including APL-1 and APL-2, the achievements of APL-1 could still be evaluated as described below.

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a) First Objective: Restore an adequate public utility service for electricity and water in urban areas. The achievement of this objective was moderate. As of March 2009, the improvement in generation efficiency was substantial. The percentage of diesel generation within the total generation was reduced from 31% in 2006 to 14.8% in March 2009, against the APL program (i.e. APL-1 and APL-2) target of 14%. The specific oil consumption of diesel units was reduced from 247 g/kWh to 233 g/kWh, exceeding, in this case, the APL program target of 240 g/kWh. The improvement in revenue management was moderate, as the results for different consumer categories were mixed. The revenue collected for the energy, billed to industrial customers, was increased from 77% in 2006 to 87% in March, 2009, exceeding the program target of 82%. However, revenue collection fell for households; it dropped from 92% in 2006 to 86% in March, 2009, against a program target of 93%. The reduction of electricity losses was moderate: the energy billed over the energy produced increased from 76.3% in 2006 to 76.9% in March, 2009, which was close to the program target of 77.6%. Therefore, the achievement of this objective is rated Moderately Satisfactory.

b) Second Objective: Create the foundation for a sustainable expansion of a commercially oriented service in the most cost-efficient way. The achievement of this objective was relatively significant, measured against the necessity for JIRAMA to increase the return on assets, have an adequate tariff indexing formula in place, and have adequate reporting on technical, commercial, and financial performance and communicate it to the authorities (the government and the electricity sector regulator, ORE). As of March 2009, the financial outcomes indicators had improved and some were, for CY 2008, above the project completion targets, the real term tariff indexing formula was in place (though periodic indexation was not implemented, see paragraph 32), and the regular performance reporting to the government and regulator was effective. Therefore, the achievement of this objective is rated Moderately Satisfactory.

c) Third Objective: JIRAMA under new private management. This objective was not met. The JIRAMA is still under public management. Therefore, the achievement of this objective is rated Unsatisfactory.

Because the third objective of placing JIRAMA under private management that bears the most significant impact on the utility long-term viability and subsequently the sustainability of the project development objectives was not achieved, the achievement of the PDOs of the original project is rated Moderately Unsatisfactory.

61. Achievement of the revised PDO. The restructured project had two objectives: (a) Improve the availability of electricity in the short term; and (b) Prepare the ground for a sustainable long-term development of the sector. The first objective was achieved partially. As shown in Table F above, the improvement of generation efficiency indicator was fully met, the improvement in revenue management and the reduction in electricity losses were partly achieved, while the financial outcomes of the project were not achieved due to the deterioration of the financial situation of JIRAMA. Therefore, the achievement of this objective is rated Moderately Unsatisfactory. The second objective was also partially achieved, as Component B (as restructured) was not fully implemented. In particular, environmental studies for future investments for example were not carried out. Therefore, the achievement of the second objective is rated Moderately Satisfactory. The achievement of the PDOs of the restructured project is therefore rated Moderately Unsatisfactory.

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62. With the restructuring of the project in July 2012, one core indicator was added, namely, the direct project beneficiaries and the percentage of females among the beneficiaries. Three intermediate results indicators were dropped: the percentage of diesel generation over total generation, accounts receivable, and the specific oil consumption of diesel units. The following three new intermediate indicators were added: Generation from rehabilitated hydro under project, a scoping study of 6 potential sites and prefeasibility studies of these sites, and analytical work and technical studies completed, were added. These last two intermediate results indicators, which relate to Component B, were not included in the results framework of the original project. The targets related to the enhancement of the performance of energy sector institutions were only partially achieved. Some training for the staff of the MEM was carried out and a number of studies on investments and reforms were completed (see Annex 2 for details).

63. Therefore, the overall assessment of the achievement of the project development objectives can be rated Moderately Unsatisfactory.

64. There was a clear and logical causal chain between all of the activities that the APL program and restructured project were designed to carry out under Component A and the expected attainment of the objective to restore an adequate public utility service for electricity and water in urban areas.

Outputs: Rehabilitation of power plants, rehabilitation of transmission and distribution networks, installation of pre-payment meters, meter and residential customer records verification, installation of IT equipment and installation of efficient lamps.

Outcomes: Increased generation efficiency and sales, reduction of losses and increased collection and revenues.

As a result of the above-mentioned outputs, the JIRAMA’s financial situation in March 2009 was considerably stronger than prior to the project implementation. This is due mainly to the following actions:

Tariffs were adjusted so as to reach cost recovery; Collection has also improved for industrial consumers from a low baseline of 77% in 2006; Improvements in operating efficiency through (i) the gradual fuel switching in the generation fuel mix from the high-cost gas oil to less costly fuel oil; (ii) improved fuel efficiency in generating units as a result of the rehabilitation of older plants, leading to the reduction of fuel consumption of about 6%, from 247 grams per kWh generated to just over 230 grams; and (iii) lower transmission costs – technical losses calculated as energy billed to energy produced decreased, albeit marginally, from 76.3% to 76.9%.

65. Under Component B, the logical causal chain between all of the activities designed under the APL program and the restructured project and the expected attainment of the objective to create the foundation for a sustainable expansion of a commercially-oriented service in the most cost-efficient way was not very clear to follow. This is because of the way the results framework was presented in the restructuring paper. The achievement of this objective was tied in the original PAD to the achievement of three intermediate indicators: 1) JIRAMA was to achieve a sufficient return on assets to be able to fund interest expenses on its debt and maintenance of its assets from internal sources; 2) to put in place an adequate indexing

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formula for tariffs, and 3) to produce on a monthly basis an adequate technical, commercial and financial reporting of current operations performance and to communicate this information to the authorities (the government and ORE).

Outputs: Technical assistance and communication, analytical work and preparation of future investment projects especially such as the feasibility study of the Fempona regulation dam, the pre-feasibility study of the Antetezambato hydroelectric development, the review of the status of organization modalities of JIRAMA in the context of power sector restructuring in Madagascar and the updating of the investment plans of three JIRAMA area networks and three regions for rural electrification.

Outcome: All these studies under Component B constituted the background work for the future expansion of sector operations and private sector participation.

66. There was a clear causal chain between the objective of putting JIRAMA under new private management and Component B of the project. However, while the study of options for the reform of JIRAMA was completed, it did not lead to having JIRAMA under private management. JIRAMA remains under full public management. 67. US$1.27 million of the credit was not disbursed because some components could not be implemented, including: the renovation works of the Volobe hydropower plant, the rehabilitation of small hydropower plants (which proved to be costlier that the available budget), the rehabilitation of mechanical auxiliaries of the Ambohimanambola thermal plant, which was abandoned because the plant was irreparably damaged by a fire, and the environmental studies for future projects. 68. Overall assessment of the achievement of the PDOs. The assessment of the overall achievement of the PDOs (efficacy) of the project follows the ICR guidelines (Appendix B) on the rating of the outcome of projects with formally revised objectives. The overall efficacy of the project is rated Moderately Unsatisfactory.

Against original PDOs

Against revised PDOs

Overall

1. Rating Moderately Unsatisfactory


2. Rating value 3 3 3. Weight (%

disbursed before/after PDO change)

66%

34%

100%

4. Weighted value (2x3)

1.98

1.02

3

5. Final rating - - Moderately Unsatisfactory

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3.3 Efficiency

(Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) Rating: Low

69. At appraisal, an economic justification of the project was undertaken in the context of its role as part of a least-cost system expansion plan for the power sector. Costs included the capital and operating costs of the proposed sequence of plants, as well as transmission and distribution costs. Benefits were based on an average tariff of UScents13/kWh as a proxy for customer willingness to pay for incremental electricity supply. The economic rate of return on JIRAMA’s 2006-2010 investment program as estimated at the time of appraisal was 14%. JIRAMA was expected to invest about US$184 million over a 5-year period or an average of about US$36.8/year. This was an unrealistic amount, given JIRAMA’s absorptive capacity. JIRAMA managed to invest only about US$83 million over the eight-year period, from 2006 to 2013, or about US$10 million/year on average. This equals the cost of the WB project under review. A re-evaluation of the cost-benefit analysis, using the appraisal methodology, revealed low project efficiency. Recalculations of the Internal Economic Rate of Return (IERR) on JIRAMA’s investment program for the period 2006-2013 using the current average tariff as a proxy for economic benefits show it to be zero, at best. The net present value (NPV) is negative (- $42.76 million, i.e. the present value of costs involved in achieving project objectives was higher than the present value of benefits) is largely explained by the high cost of fuel which was underestimated in the appraisal calculations. Furthermore, the level of investment, as explained earlier, was substantially lower than forecast at appraisal (about half as much) with a subsequent lower sales and the buildup of the stream of net benefits was slow, due to the gradual pick up of incremental sales as a result of the rehabilitated infrastructure in JIRAMA’s investment program coming on stream.

70. The recalculation of the Internal Rate of Return (IRR) and NPV of the restructured project was also carried out and revealed substantial project efficiency. These calculations followed the same methodology as in the project restructuring paper, confirming the strong economic viability of the rehabilitation of the Antelomita hydropower plant and the deployment of Compact Fluorescent Lamps (CFL), which were the most important investments under the restructured project (see Annex 3 for details).

3.4 Justification of Overall Outcome Rating

(combining relevance, achievement of PDOs, and efficiency)

Rating: Moderately Unsatisfactory

71. The overall outcome of the project has a high relevance in terms of increasing the supply of electricity in the system that was, and continues to be, subject to severe load shedding. However, the moderately unsatisfactory achievement of the project development objectives in terms of increasing the efficiency of the operations of JIRAMA, enhancing the efficiency of sector institutions, and failing to put in place a management contract for JIRAMA is detrimental to the rating. Further, while the efficiency of the restructured project was high, that of the original project was low. The combination of the relevance, achievement of project development objectives and efficiency ratings, results in an overall outcome rating of Moderately Unsatisfactory.

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3.5 Overarching Themes, Other Outcomes and Impacts

(if any, where not previously covered or to amplify discussion above)

(a) Poverty Impacts, Gender Aspects, and Social Development

72. The direct impact of the Project on lower-income urban population and other vulnerable groups was not explicitly taken into consideration at appraisal, and no poverty analysis was conducted at the preparation stage. Gender issues were not reflected during the preparation stage, nor was the gender impact monitored during the major part of the implementation of the original project. However, at project restructuring in July 2012, a core indicator was added to measure the number of project beneficiaries and, among them, the percentage of females.

(b) Institutional Change/Strengthening

(particularly with reference to impacts on longer-term capacity and institutional development)

73. The project’s institutional development impact, which is defined in ICR guidelines as the extent to which the project “has improved the agency’s or country’s ability to make effective use of its human and financial resources”, is rated Moderately Unsatisfactory. The development objective of the project i.e. “prepare the ground for a sustainable long term development of the sector” is directly linked to institutional change and strengthening. The institutional strengthening component targeted the delivery of technical assistance and training to MEM in support of the development of the capacity required for effectively discharging its responsibilities in the sector. However, except for a short training of the staff of MEM, little capacity building seems to have taken place, and the scope of the sub-components related to institutional strengthening15 was reduced at restructuring because more funding was added to Component A of the project.

(c) Other Unintended Outcomes and Impacts (positive or negative)

None

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

(optional for Core ICR, required for ILI, details in annexes)

4. Assessment of Risk to Development Outcome

Rating: Substantial

74. There is substantial likelihood that some changes, detrimental to the ultimate achievement of the project’s main development outcome i.e. improved sector efficiency, may occur. This eventuality depends crucially on JIRAMA’s ability to meet its regular debt payments, cover all operating costs, including fuel, and pay for IPP power purchases. The financial and operational performance of JIRAMA improved sharply during the first two years of the project implementation but has since deteriorated. The country’s political crisis triggered the halt of disbursements and created the overall governance issue, also affecting the performance of the sector. Therefore, it is reasonable to assume that the risk to sustained and meaningful private sector participation in the power sector will also remain high as long as the political crisis is not resolved. This is a serious risk, given the history of frustrated attempts at

15 Communication and Project Monitoring and Evaluation, and Strengthening of the MEM.

20

attracting private capital in the power sector of Madagascar, beyond fee for service contracts. Other considerations that may pose a serious risk to the development outcome are (i) technical (such as those related to the lack of proper maintenance or the lack of reliable and affordable fuel supplies, which may dictate a change in the generation mix, etc.); (ii) social disruptions in response to load shedding; or (iii) environmental issues such as dam failures, etc. These threats to the development outcomes may materialize in future if JIRAMA’s operational and financial performance were to deteriorate further.

5. Assessment of Bank and Borrower Performance

(relating to design, implementation and outcome issues)

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase)


75. This ICR assesses the Bank’s performance during identification, preparation, and appraisal of the project as Moderately Unsatisfactory.

76. The composition and balance of the Bank team was adequate. It consisted of four core sector specialists and six fiduciary and safeguards members, though the period for the original project preparation was very short (two and a half months between the concept review and appraisal). The Borrower’s compliance with the Bank’s safeguard policies was assessed adequately. Strategic choices were made appropriately at the design and preparation stage including: (i) the focus on rehabilitation and increasing efficiency; (ii) combining TA and physical investments; and (iii) focusing on the sector’s institutional capacity. This focus was narrowed further at the restructuring of the project.

77. Most of the potential risks were correctly identified though under-rated. The potential risk, posed on the project’s outcome by the JIRAMA’s financial situation, was not identified formally in the project documentation. Nonetheless, the government implemented many of the required actions in terms of tariff adjustment, payment of arrears and equity contributions to put JIRAMA’s finances in order. The execution of these activities by the government led to a turnaround in the financial situation of JIRAMA during the first two years of the project implementation. On the downside however, capacity issues identified such as MEM and JIRAMA procurement capacity and MEM policy/technical adviser recruitment but mitigation measures not followed through which led to implementation delays. The original project readiness for implementation could have been improved through early preparation of bidding documents and the assessment of capacity building measures, especially at the MEM. The lack of such measures was one of the major contributing factors in the partial and slow implementation of component B of the project. Additionally, deficient monitoring framework did not really provide a basis for measuring progress on implementation of the activities and efficiency of the project was low.

78. Overall, the project design was sound in terms of the choice of components, the lead-time for preparation was short, and the preparation team was adequately staffed. The main safeguards were adequately addressed, risks identified and some effective mitigation measures were put in place (e.g. turnaround of the JIRAMA’s financial situation). However, critical mitigation measures such as the implementing agencies’ capacity to implement the project did

21

not receive the required attention, leading to project implementation delays, especially for Component B. Furthermore, the monitoring framework did not really provide an adequate basis for measuring progress on the implementation of project activities, for Component B in particular.

79. Quality at entry, as a whole, is therefore rated as Moderately Unsatisfactory.

(b) Quality of Supervision (including fiduciary and safeguards policies)

Rating: Moderately Satisfactory

80. The quality of project supervision carried out by the Bank is rated Moderately Satisfactory. 81. The quality of supervision was intensive before and after restructuring of the project (excluding the period 2009-2012 where implementation of the project was put on hold because of the political crisis) as the team, first in Washington and Antananarivo, and later in Dar Es Salam, were in constant touch with all stakeholders. The team was proactive in responding to emerging issues and a changed political environment, including the preparation of the restructuring of the project with the binding constraint of the closing date of June 30, 2013.

82. Bank supervision missions were engaged in continued and extensive policy dialogue on the sector issues held with MEM, JIRAMA, and the international donor community based in Antananarivo. Advice provided during the implementation was timely and of high quality, which ensured the expedited process on the preparation of investments, such as the rehabilitation of hydropower stations, and the conversion of diesel stations to cheaper fuel oil. The supervision team comprised, on average, two to three sector specialists, fiduciary and safeguards specialists. The supervision team put a substantial emphasis on the monitoring indicators. Relations with the borrower were generally good though sometimes tense, especially when the team pressed the issue of the JIRAMA’s financial situation, and how to address it. Also, MEM was pressed on the recruitment of the technical advisor. Ultimately, the Bank agreed with the government’s position and waived the requirement. It is not clear whether the Bank sought assurances that the capacity concerns it had originally identified, and which led to the imposition of the disbursement condition, had been addressed or whether efforts had been made to mitigate them.

83. Restructuring of the project came late but the timing was essentially imposed by the political crisis in Madagascar.

84. Based on the above, the ICR rates project’s supervision as Moderately Satisfactory.

(c) Justification of Rating for Overall Bank Performance


85. The rating of overall Bank performance is Moderately Unsatisfactory, being moderately unsatisfactory at entry and moderately satisfactory during supervision.

22

5.2 Borrower Performance

(a) Government Performance


86. The Government performance is assessed as Moderately Unsatisfactory. The commitment to, and the ownership of the project, as discussed earlier, was strong at the time of project preparation and appraisal, and relatively supportive during the implementation (excluding the period when the disbursements were put on hold). Up to March 2009 the government performance was satisfactory for the reasons explained in paragraph 36 above. However, during the suspension of disbursement during the period of about three years (due to the political crisis) the project implementation was rated as unsatisfactory. Furthermore, the MEM delayed the agreed recruitment of the technical advisor and finally insisted on waiving it, which resulted in the delays in the implementation of Component B, for which MEM was the implementing agency. As discussed earlier, the insistence on the waver on the recruitment of a technical advisor had a negative impact on the pace of implementation of Component B of the project. The technical advisor would have helped speed up the preparation of expressions of interest and bidding documents, issuance and evaluation of bids, and provided technical advice on the substance of the studies, produced by consultants, and general advice to the Coordination unit at the MEM and to the Minister on more substantive matters such as JIRAMA’s reform options.

(b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory

87. This is rated Moderately Unsatisfactory because of the following reasons: (i) JIRAMA’s financial situation improved during the first two years of project implementation but then fell afterwards. Its technical and financial performance deteriorated after the crisis of 2009, as shown by the recasting of the new 2011 baseline for the project indicators at levels below those achieved in 2009 (i.e. before the crisis). As shown in section F above, with the exception of the improvement in generation efficiency, none of the other PDO indicators of the restructured project (post crisis), under JIRAMA’s main control was achieved; and (ii) the assessment of the performance of MEM is described under the Borrower’s Performance in paragraph 85.

88. While JIRAMA made adequate reporting on the achievement of project indicators, there is no evidence, as already mentioned in para. 46 above, that the information provided by the M&E system was used by JIRAMA to monitor and evaluate the impact of new and rehabilitated infrastructure on all aspects of its performance or that the utility intends to continue using the established project indicators to monitor system performance in the future.

(c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory.

23

6. Lessons Learned

(both project-specific and of wide general application)

89. Capacity building: When capacity issues are identified, as was the case for MEM, training and other remedial measures should be prioritized for fast track implementation and put in place soon after the preparation/appraisal phase of the project (i.e. either prior to effectiveness or within a couple of months after effectiveness). Regional management should always assess the status of preparation of key capacity building components before authorizing completion of the appraisal phase.

90. Quality of dialogue and pro-activity in the provision of advice to implementing agencies are crucial to the success of a project. The team did a very good job of managing the dialogue and offering advice to the implementing agencies. This was a particularly complex task, given the circumstances at JIRAMA in particular and, more generally, within the country. This project is also a good example of the donor coordination. Various donors (AfDB, SFI, EIB, and AFD, GIZ, etc.) even though directly involved in the project, were kept abreast of the sector developments and difficulties. This was particularly instrumental in attracting several offers from potential partners for the long-term management of JIRAMA.

91. Consider a more modest (preferably single) PDO given the fragile state of the country. This approach would help in focusing all energies on the achievement of a single well defined and circumscribed objective taking into account the prevailing technical, economic, financial and implementation capacity constraints.

92. Regular data collection and focus on impact and results. Careful attention should be given to the results framework. In the case of this project, the data on the results’ indicators achieved at project closing were available, but not regularly collected prior to writing the ICR. This can leave the impression that there was a lack of focus on the impact and results of the project.

93. Project monitoring. In future, it is recommended that indicators linking outputs and outcomes more closely be included as well as designing intermediate results indicators accordingly.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies 94. JIRAMA which is the implementing agency for component A of the project has indicated that it has no particular observation on the version of the Implementation Completion Report (ICR) prepared by the Bank. It offered an update of the results indicators as at December 31, 2013. This update could not be taken into account because it occurred six months after the project was officially closed (June 30, 2013). Even if it were to be taken into account however, the evaluation contained in this ICR would not be affected. (b) Co-financiers Not applicable (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Not applicable

24

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Project Costs (US$ million)

Components/Activities Initial Revised Actual/latest % of Appraisal

Component A: Short term Investments A1(a): Power generation reinforcement 2.0 1.7 1.98 99

A1(b) : Retroactive financing 1.0 1.0 0.93 100

A2: Reduction of Trans. and Distribution. losses 1.3 1.45 1.45 112

A3: Revenue Management & Modern. of info system and IT equipment

2.3 2.7

2.57 112

Component B: Technical Assistance

2.6 2.9 1.8 69

Unallocated (Contingencies) 0.8 0.25 0

TOTAL 10.0 10.0 8.73 87.3

(b) Financing

Source of Funds

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower - - - International Development Association (IDA) 10.00 8.73 87.3%

25

Annex 2. Outputs by Component (*)

Component A: Short term investments Subcomponent A1a: Power generation reinforcement

(a) Replacement of hydro refrigerants system for Andekaleka hydropower plant (work completed in March 2010)

(b) Rehabilitation of unit 3 of Antelomita hydropower plant (unit 3 put back on stream at the end of June 2013)

Subcomponent A2: Reduction of transmission and distribution losses

(a) Rehabilitation of transmission networks (completed early 2009) (b) Rehabilitation of distribution networks (completed April 2013)

Subcomponent A3: Revenue management and modernization of info sys and IT equip Revenue management:

(a) Meter and residential customer records verification program (equipment received, verification program underway)

(b) Purchase and installation of prepayment meters (equipment received, installation underway)

(c) Invest in spot metering equipment and syst. (replaced by Distribution of CFLs). (920,000 CFLs purchased, deployment underway)

(d) Systematic verification of installation premises of the all 800 industrial customers (completed December 2010)

Modernization of information system and IT equipments: (a) Acquisition of IT equipments and training (training, purchase and installation

of IT equipment in various centers and branches of JIRAMA were completed early 2008)

Component B: Technical Assistance (**)

Subcomponent B1: Technical assistance and communication Subcomponent B2: Analytical work and Preparation of future investment projects:

- Feasibility study of the Fempona regulation dam. Final report submitted on June 21, 2013 - Pre-feasibility study of the Antetezambato hydroelectric development. Final report

submitted in May 2013 - Reassessment of the status and financing modalities of the Electricity Regulatory Office

and the Agency for the Development of Rural Electrification. Final Report submitted end of June 2013

- Revision of the legal framework of the electricity sector in Madagascar. Final report submitted end of June 2013

- Review of the status of organization modalities of JIRAMA in the context of power sector restructuring and modernization in Madagascar

- Updating the investment plans of three JIRAMA area networks and three regions for rural electrification. Report submitted end of June 2013

26

Subcomponent B3: Strengthening of the Ministry of Energy - Training for the personnel of MEM at the CIFOPE training center

Subcomponent B4: Preparation and environmental studies for future investments Subcomponent B5: Project implementation

(*) The Project subcomponents reflect those after restructuring (therefore, the list does not include the subcomponents of the original project that were dropped and defunded). The numbering has been adjusted accordingly. (**) All Sub-components were converted into Subcomponents B2 and B3 and, therefore, implemented with the respective budget reallocation.

27

Annex 3. Economic and Financial Analysis (including assumptions for the analysis)

I. Original project. Recalculation of the NPV and IRR

Following the analysis found in the Appraisal report of the PWSRRP of June 14, 2006, the following recalculations are based on JIRAMA’s investment program 2006-2013

(US$ million)

Total Increm.

Capital O&M Increm. Total Sales Sales Value of Net

Year Expend. Costs Fuel Costs Costs (GWh) (GWh) Sales Benefits

2006 7 0 ‐ 7 778 ‐ ‐ ‐7 2007 29 1 1 31 784 6 1.11 ‐30 2008 13 1 12 26 852 68 13.68 ‐13 2009 6 2 11 ‐ ‐3 791 61 ‐ 12.25 ‐ ‐9 2010 3 2 9 14 844 53 10.59 ‐3 2011 9 2 7 18 883 39 7.80 ‐10 2012 10 2 8 21 930 47 9.36 ‐11 2013 6 2 47 55 1,200 270 54.05 ‐1 2014 2 47 49 1,200 270 54.00 5 2015 2 47 49 1,200 270 54.00 5 2016 2 47 49 1,200 270 54.00 5 2017 2 47 49 1,200 270 54.00 5 2018 2 47 49 1,200 270 54.00 5 2019 2 47 49 1,200 270 54.00 5 2020 2 47 49 1,200 270 54.00 5 2021 2 47 49 1,200 270 54.00 5 2022 2 47 49 1,200 270 54.00 5 2023 2 47 49 1,200 270 54.00 5 2024 2 47 49 1,200 270 54.00 5 2025 2 47 49 1,200 270 54.00 5 2026 2 47 49 1,200 270 54.00 5 2027 2 47 49 1,200 270 54.00 5 2028 2 47 49 1,200 270 54.00 5 2029 2 47 49 1,200 270 54.00 5 2030 2 47 49 1,200 270 54.00 5

NPV@10% ($42.76)

IRR ‐0.31%

Incremental sales are valued at , 0.2 US$/kWh which is the average tariff at June 2013. (used as a proxy for economic benefits) O&M cost 3% of Capital expenditures

Fuel costs of 16 UScents/kWh for diesel and 12 Uscents/kWh for HFO (see below)Weighted average fuel cost (51% diesel and 49% HFO) 0.14 US$/kWh Tech and non tech losses 20%Sales are as per JIRAMA's sales for the periodCost of Diesel Cost of HFOGen. effiency gr/kWh 250 Gen effiency gr/kWh 250 Cost of diesel Uscents/liter 64 Cost of diesel Uscents/liter 48Fuel costs per kWHUscents/kWh 16 Fuel costs per kWHUscents/kWh 12

28

II. Restructured project Following the same methodology as the Project Paper, two major investments were singled out for analysis. These are the Antelomita hydropower plant and the Compact Fluorescent Lamps (CFLs).

Economics of Antelomita hydro rehabilitation Economics of the CFL acquisition

Additional generation capacity 552 kW

substituting for HFO 90% Number of CFLs 920,000 units substituting for Diesel 10% Use 1.5 h/day/CFLLoad factor 70% Est Reduction in dem 60 watts/h/CFUseful life 7 years Est. Reduction of dem 32.85 kWhMarginal generation costs (US$/kWh) Useful life of a CFL 2 years Hydro 0 With 920,000 CFLs 30222 MWh/year HFO 0.2 T&D losses 10% Diesel 0.3 Reduction in generati 33580 MWh/yearTotal annual reduction in Part of HFO substitu 62.50%thermal generationn 3385 MWh Part of diesel substitu 37.50%Total annual cost reduction HFO 609 Generation MixTotal annual cost reduction Diesel 102 Hydro 30%Total annual cost reduction 711 HFO 50%

Diesel 20%Net Marginal generation costs (US$/kWh)

(k US$) Cost Benef. Benef. Hydro 0 HFO 0.2

Year 0 1,348 -1,348 Diesel 0.3Year 1 711 711Year 2 711 711 Total annual cost reduction ('000 US$Year 3 711 711 Hydro 0Year 4 711 711 HFO 3358Year 5 711 711 Diesel 2014.8Year 6 711 711 Total cost reductio 5372.8Year 7 711 711

NPV $1,921 NetIRR 50% (k US$) Cost Benef. Benef.

Year 0 946 -946Year 1 5,373 5,373Year 2 5,373 5,373

NPV $7,617IRR 555%

29

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Stephan Claude Frederic Garnier Power Engineer, Team leader AFTEG

Supervision/ICR Saholy Andriambololomanana Senior Program Assistant AFCS4 Noreen Beg Senior Env. Specialist LCSEN Slaheddine Ben-Halima Consultant MNAPC Fabrice Karl Bertholet Senior Financial Analyst AFTG2 Erik Magnus Fernstrom Lead Energy Specialist AFTG2 Stephan Claude Frederic Garnier Sector Leader AFTSN Francois Marie Maurice Rakotoarimanana

Senior Financial Management Specialist AFTME

Vonjy Miarintsoa Rakotondramanana Energy Specialist AFTG1 Patrice Joachim Nirina Rakotoniaina Municipal Engineer AFTU2 Sylvain Auguste Rambeloson Senior Procurement Specialist AFTPE Lalaina Noelinirina Rasoloharison Program Assistant AFCS4 Lova Niaina Ravaoarimino Procurement Specialist AFTPE Lily Wong Chung Seng Program Assistant AFTG2 Thanh Lu Ha Senior. Program Assistant AFTG2

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY05 12.07 FY06 12 112.44 FY07 0.00 FY08 0.00

Total: 12 124.51 Supervision/ICR

FY05 0.00 FY06 0.00 FY07 23 160.25 FY08 35 168.28 FY09 47 0.00

Total: 105 328.53

30

Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR

31

II – Full Borrower Contribution (see below)

32

Annex 6. Comments of Cofinanciers and Other Partners/Stakeholders

33

Annex 7. List of Supporting Documents - ICR Guidelines (August 2006, last updated on 10.05/2011) - Interim Strategy Note (December 2011) - Poverty Reduction Strategy Paper (PRSP), - Joint IDA/IMF Staff Assessment (October 2003) - PWSRRP PAD (June 14, 2006) - Restructuring Paper (June 27, 2012) - Financing Agreement (July 17, 2006) - Project Agreement (July 17, 2006) - ISR - Supervision Aide Memoires

Volobe

Andekaleka

MandrakaAntelomitasI and II

Manandona

Namorana

Manandray

Sahanivotry

Lily

Talaviana

VolobeAmont

Lohavana

Antetezambato

Volobe

Andekaleka

MandrakaAntelomitasI and II

Manandona

Namorana

Manandray

Sahanivotry

Lily

Talaviana

VolobeAmont

Lohavana

Antetezambato

Morafenobe

Bemahatazana

Antsalova

Ankazobe

Anjozorobe

Manja-kandriana

Moramanga

AnosibeFaratsiho

Mandoto

MiandrivazoBeloTsiribihina

Mahabo

MalaimbandyFandriana

Ambatofinandrahana

Marolambo

Nosy Varika

VohilavaAmbohimahasoa

Mananjary

Ambalavao

Ankarmena

Ivohibe

Vondrozo

Vohipeno

VangaindranoMidongy-du-Sud

Betroka

Beroroha

Manja

Sakaraha

Betioky

Manantenina

Amboasary-Sud

BeraketeBekily

Ampanihy

Marovoay

AmbatoBoeni

Boinakely Tsaratanana

Andriamena

Andilamena

Vavatenina

Mampikony

Boriziny

Analalava

Bealanana

Befandriana

Mandritsara

Ambatondrazaka

Vohidiala

Perinet

Vatomandry

Ampasimanolotra

Fanandrana

Soanierana-Ivongo

Mananara

Maroantsetra

Antalaha

Andapa

Vohimarina

Ambanja

Ambilobe

Morombe

Mahanoro

Vohitraivo

Ifanadiana

Irondro

Iharana

MitsinjoSoalala

Besalampy

Ambodifotatra

Fenoarivo be

Kandreho

Ambatomainty

AntanifotsyAntanambao-Manampotsy

Manandriana

Ikalamavony

Ikongo

Ankazoaboatm.

Benenitra

Iakora

Befotaka

Beloha

Tsihombe

Nosy-Be

Ranomafana

ANTANANARIVO

AmbovombeAndroy

Tolagnaro

Farafangana

Ihosy

Manakara

Maintirano

Tsiroanomandidy

Antsirabe

Ambositra

Antsohihy

Maevatanana

Fenoarivo-AtsinananaAmparafaravola

Morondava

Miarinarivo

Sambava

TOLIARA

FIANARANTSOA

TOAMASINA

ANTSIRANANA

MAHAJANGA

ANDROY

ANOSY

ATSIMOANDREFANA

ATSIMOATSINANANA

IHOROMBE

VATOVAVYFITOVINANI

MENABE

MELAKY

BOENY

BETSIBOKA

ALAOTRAMANGORO

ANALANJIROFO

DIANA

SAVA

SOFIA

BONGOLAVAANALAMANGA

ITASY ATSINANANA

HAUTE MATSIATRA

VAKINANKARATRA

AMORON' MANIA

A N T S I R A N A N A

A N TA N A N A R I V O

M A H A J A N G A

TOAMASINA

F I A N A R A N T S O AT O L I A R A

Mahavavy

Onilahy

Fihere

chan

a

Mangoky

Man

drav

e

Cana

l

Mangoro

Pang

alan

es

Anjombony

Sofia

Bemarivo

Mahajamba

Betsiboka

Mah

avav

y

Manambaho

Manambolo

Tsiribihina

Morondava

Mozambique

Channel

I N D I A N

O C E A N

LakeAlaotra

22°

20°

18°

44° 46° 48°

24°

16°

14°

12°

22°

20°

50°48°46°44°

24°

50°

18°

16°

14°

12°

MA

DAG

ASCA

R

MOZA

MBIQUE

Toliara

Fianarantsoa

Mahajanga

Toamasina

Antsiranana

TANZANIACOMOROS

Mayotte(Fr)

ANTANANARIVO

15°

20°

25°

45° 50°40°

25°

20°

15°

45° 50°

Moz

ambi

que

Chan

nel

0 50 100 150 200

KILOMETERS

MADAGASCAR

POWER/WATER SECTOR RECOVERYAND RESTRUCTURING PROJECT

IBRD 34815

JUN

E 2006

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shownon this map do not imply, on the part of The World Bank Group, anyjudgment on the legal status of any territory, or any endorsement oracceptance of such boundaries.

EXISTING TRANSMISSION LINES:

138 kV, DOUBLE CIRCUIT

63 kV

35 or 20 kV

MAJOR PRODUCTION CENTERWITH A CAPACITY OVER 1MW

EXISTING HYDRO POWER STATIONS

CANDIDATES FOR HYDRO DEVELOPMENT

PAVED ROADS

ALL-WEATHER ROADS

RAILROADS

RIVERS

SELECTED CITIES

REGION CAPITALS

PROVINCE CAPITALS

NATIONAL CAPITAL

REGION BOUNDARIES

PROVINCE BOUNDARIES