Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.: 16823

IMPLEMENTATION COMPLETION REPORT

GOVERNMENT OF TANZANIA

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT(Credit 2330-TAN)

June 30, 1997

Water, Urban and Energy 1Africa Region

This document has a restricted distribution and may be used by recipients only in theperfornance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Tanzanian Shilling (TSH)US$1.0 = 230 TSH as of July 1991

US$.004 = I TSH

FISCAL YEAR

Government: July 1 - June 30TANESCO: January 1 - December 31

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft)1 millimeter (mm) = 0.039 inch (in)1 kilometer (Km) = 0.62 mile (mi)

1 square kilometer (kmi) 0.386 square mile (sq mi)

ABBREVIATIONS AND ACRONYMS

AfDB = African Development BankDCA = Development Credit AgreementEIA = Environmental Impact Assessment

ESBI = Electricity Supply Board of IrelandGOT = Government of TanzaniaICR = Implementation Completion ReportICS Interconnected systemIDA = International Development AgencySAR = Staff Appraisal Report

TANESCO = Tanzania Electric Supply Company Ltd.UNDP = United Nations Development Program

Vice President: Callisto MadavoCountry Director: James AdamsTechnical Manager: Jeffrey RackiICR prepared By: Alfred Gulstone

TANZANIA FOR OFFICIAL USE ONLY

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT(CREDIT 2330-TAN)

IMPLEMENTATION COMPLETION REPORTCONTENTS

PREFACE

EVALUATION SUMMARYIntroduction ............................................... iProject Objectives ............................................... iProject Results and Implementation Experience. iiProject Outcome, Sustainability and Future Operation. iiKey Lessons Leared. iii

PART I: PROJECT IMPLEMENTATION ASSESSMENTA. Introduction .1B. Statement and Achievement of Project Objectives .C. Project Implementation Experience .3D. IDA Performance .5E. Borrower Performance .6F. Project Outcome, Sustainability and Future Operation .6G. Major Lessons Learned .7

PART II: STATISTICAL TABLES AND ANNEXES

Tables:

Table 1: Summary of AssessmentsTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project Operation - Not applicableTable 7: Studies Included in the ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and Benefits - Not applicableTable 10: Status of Legal CovenantsTable 1 1: Compliance with Operational Manual Statements -Not applicableTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

Appendices:

Appendix A: Proposed Operational Plan

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

IMPLEMENTATION COMPLETION REPORT

TANZANIA

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT(Credit 2330-TAN)

PREFACE

This is the Implementation Completion Report for the Power Engineering andTechnical Assistance Project for which IDA approved a credit in the amount of SDR 7.5million equivalent (US$ 10 million) on January 14, 1992. The Credit became effectiveon June 12, 1992.

The Credit closed on June 30, 1996, a year later than planned and was fullydisbursed. The final disbursement on the Credit took place on October 11, 1996.

The ICR was prepared by Alfred Gulstone, Principal Power Engineer, and wasreviewed by Fauzia Najm, under the supervision of Jeffrey Racki, Technical Manager,AFTU1. The Borrower had no comments on the ICR and did not provide its owncompletion report.

The contents of this report are based on material in the project file.

IMPLEMENTATION COMPLETION REPORT

TANZANIA

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECTCredit 2330-TA

EVALUATION SUMMARY

Introduction

1. IDA's country assistance strategy for Tanzania, at the time of project appraisal(199 1), was to help the Government of Tanzania (GOT) implement its power sectorobjectives by financing investment and technical assistance projects designed to helpTanzania obviate sector constraints. GOT's policy objectives for the electric power sector,at the time of project preparation were to ensure (a) the ability of the country to meet powerdemand at least cost; (b) the pricing of electricity at full economic and financial cost; and(c) the maintenance of the sector's financial viability. However, growth in power demand,low tariffs, and ineffective systems for billing, collection and accounting threatened thecountry's ability to meet these objectives. Prior to the project, IDA had financed twoinvestment projects for hydropower development in Tanzania. The main lesson from theseprojects was the importance of preparing the detailed design and receiving bids beforefinalizing the financing plan and starting construction, to minimize the risk of delays. Theproject took account of this lesson in preparing its engineering component and its designreflected lessons from IDA's experience with similar projects in Africa and other regions,which had indicated that technical assistance projects were successful when thecomponents were discrete and well-defined.

Project Objectives

2. The project had two major objectives: (a) assisting TANESCO in completing thedesign work for the least-cost hydroelectric generation project at Lower Kihansi; and (b)upgrading the accounting and financial capabilities of TANESCO. The objectives wereclear and operationally focused to support the broader sector objectives of meeting thecountry's power needs at least cost and improving TANESCO's financial performance.They were important for advancing Tanzania's least cost power development program andpromoting TANESCO's commercial orientation and financial viability. The achievement ofproject objectives was realistic as long as TANESCO made effective use of the consultantexpertise which the project provided.

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Project Results and Implementation Experience

3. The project substantially achieved its objectives. It advanced the least cost powerdevelopment program by designing the facilities which are now under construction withfunds from Credit 2489-TA. The project completed this design work according to theoriginal project schedule. It also improved the financial viability of the power sector byupgrading TANESCO's billing and accounting systems. This upgrading began under theproject and is continuing under Credit 2489-TA. The system improvements have increasedTANESCO's average daily revenue collection significantly and should make it possible forthe company to complete its annual audits on schedule. The project completed theconstruction of the training center and trained TANESCO's staff in the operation ofcomputerized accounting and billing systems.

4. The Bank declared the credit for the project effective in June 1992, about six monthslater than originally planned, due to a delay in negotiations and Board presentation . Theproject completed the detailed design of the Lower Kihansi project and the preparation ofrelated bid documents on schedule. There was a delay in the completion of new billing andaccounting systems because both IDA and the Borrower had underestimated the amount oftime required to prepare terms of reference for the consultants and complete the manualreview and adjustment of records necessary before installing the computerized systems. Tofinish the work, IDA extended the project's closing date from June 1995 to June 1996.Actual project costs amounted to US$12.2 million compared to US$ 11.6 million estimatedat appraisal. IDA disbursed a total of US$ 10.6 million. The difference between estimatedand actual figures is due to the change in the exchange rate between the SDR, the currencyof the Credit and the US dollar. IDA's performance overall was highly satisfactorybecause of its innovative approach and flexibility in helping the Borrower to meet the mostpressing needs of the TANESCO system. The Borrower's performance was satisfactory,showing a sufficient commitment to the project and compliance with most projectcovenants except for some delays in audit reporting.

Project Outcome, Sustainability and Future Operation

5. The project's outcome was satisfactory. The design work for future generationfacilities and the accomplishments in approving the billing system were instrumental inpreparing the Power VI project, which currently is the main vehicle for developing thepower system at least cost and maintaining TANESCO's financial viability. Thesustainability of the project is likely. Power VI Project (Credit 2489-TA) is constructing thefacilities for the Lower Kihansi Hydroelectric scheme based on the design work under2330-TA. The new computerized accounting system is in place and TANESCO should beable to maintain adequate cost accounting and timely audit reporting with norrnal updatingof data and equipment maintenance. To ensure maintenance of the integrity of the billingsystem IDA's recommended specialist assistance to supervise the development of the billingsystem for an additional 12-18 months following the departure of the original consultants.TANESCO has hired consultants from the Electricity Supply Board of Ireland (ESB) toprovide this oversight. Furthermore, the Bank has recommended that TANESCO take

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specific actions to ensure timely procurement of equipment; full integration of pre-paymentmetering into the company's operations; improved policies and procedures; monitoring ofservice standards; provision of adequate maintenance; and the development of long-rangeplanning. TANESCO has followed IDA's recommendation and hired the consultants.

Key Lessons Learned

(a) A technical assistance project to advance project design preparation can beextremely useful to the implementation of the least-cost power developmentplan and can be particularly important in a severely supply constrainedpower system as in Tanzania.

(b) A pre-payment metering system can be a very effective way to both improvepower company finances and encourage customers to conserve electricity .However, any power company introducing such a system needs to makesure that its technical configuration can accurately reflect the tariff structure.

(c) TANESCO should manage its consultants closely to ensure the efficient useof time; minimize the need for contract extensions; and detect errors inoperations. One way to achieve this is to request more frequent reports andreviews and use lump sum contracts to encourage adherence to schedule.

(d) A technical assistance project can be useful to continuing the dialoguebetween the Bank and the Borrower on important sector issues while a largeinvestment project is under preparation.

(e) Data clean-up and consolidation for billing and accounting systems whichhave many manual transactions and staff that lack experience in modemfinancial control systems can be very time consuming and theimplementation schedule to should allow at least two years instead of oneyear between the award of the contract and the installation of the newsystem.

TANZANIA

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT(Credit 2330-TAN)

PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. INTRODUCTION

1. The Governnent's policy objectives for the electric power sector, at the time ofproject preparation (1991), were to ensure (a) the ability of the country to meet powerdemand at least cost; (b) the pricing of electricity at full economic and financial cost; and(c) the maintenance of the sector's financial viability. However, growth in power demand,low tariffs, and ineffective systems for billing, collection and accounting threatened thecountry's ability to meet these objectives. IDA's country assistance strategy was to supportthe Government of Tanzania (GOT) in implementing its power sector objectives byfinancing investment and technical assistance projects designed to help Tanzania obviatesector constraints.

2. The Power Engineering and Technical Assistance Project was the first of its kind inTanzania. About 70 percent of the project's funds were for the engineering design worknecessary to construct the Lower Kihansi Hydroelectric Project, a component of the PowerVI Project (Credit 2489-TA) Project which IDA was planning to support. Sectordevelopment studies had indicated that this project was the least-cost solution for Tanzania'spower system expansion to meet demand, beginning in the late 1990s.

3. The design of the project took account of lessons learned from IDA's experiencewith similar projects in Africa and other regions. This experience had indicated suchtechimcal assistance projects were successful when the components were discrete and well-defined. In addition, the Bank had financed two investment projects for hydropowerdevelopment in Tanzania: one at Kidatu (LN 1306-T-TA) and another at Mtera (Cr. 1405-TA). The main lesson from these projects was the importance of preparing the detaileddesign and receiving bids before finalizing the financing plan and starting construction, tominimize the risk of delays.

4. The President's Report for Credit 2330-TA did not indicate any specific lessonsfrom IDA-wide experience concerning improvements in billing and accounting systems.However, the problems were clear and IDA had successful experience in reorganizing andupdating computerized billing and accounting systems in other countries.

B. STATEMENT AND ACHIEVEMENT OF PROJECT OBJECTIVES

5. The project had two major objectives: (a) assisting Tanzania Electric Supply

Company Limited (TANESCO) in completing the design work for the least-costhydroelectric generation project at Lower Kihansi; and (b) upgrading the accounting andfinancial capabilities of TANESCO. The objectives were clear and operationally focused tosupport the broader sector objectives of meeting the country's power needs at least cost andimproving TANESCO's financial performance. They were important for advancingTanzania's least cost power development program and promoting TANESCO's commercialorientation and financial viability. The achievement of project objectives was realistic aslong as TANESCO made effective use of the consultant expertise which the projectprovided.

6. IDA's participation in the project was crucial for several reasons. First, GOT andTANESCO had requested that IDA finance the final preparation activities for the LowerKihansi Hydroelectric Project. Although IDA and the governments of Italy, Norway,Sweden and the Federal Republic of Germany all had been principal financiers/donors inthe power sector, only IDA had expressed an interest in financing the preparatory work.Second, IDA's participation in the preparatory engineering work was important to attractco-financing for the Lower Kihansi Project. Third, IDA's involvement in the project wasimportant to ensure the efficient implementation of major power sector policies, especiallythe level and structure of tariffs. The project included a covenant for substantial increasesin the average tariff. These increases were necessary because the low level of TANESCO'stariffs threatened the company's ability to generate the revenues necessary for investmentin system expansion even with improved systems of billing and accounting. The projectalso took place during the same time as important tariff and sector organization studies.

7. The project was not too demanding for TANESCO, the implementing agency. Itincluded sufficient technical assistance to make project irnplementation of componentswell within TANESCO's capability. The design of facilities for the Lower Kihansi Projectwas straightforward and the project's preparatory work anticipated no major problems. There-design of the financial control systems was a major task because both the billing andaccounting systems were in poor condition, due to substantial arrears, the lack of a reliablecustomer data base, and overdue audit reports. Neither operational procedures nor computersystems provided TANESCO with the capability to exercise the financial control necessaryfor a commercially viable utility. Furthermore, in designing the billing system, the projectpromoted, where economically viable, a relatively new type of technology -- prepaymentmetering. The application of this technology required not only a change in equipment but acomplete reorientation of the billing system with increased emphasis on improved revenuecollection and customer service.

8. The project's design was not very complex. It consisted of four clearly-defined,discrete components: the detailed design for the Lower Kihansi Hydroelectric Project,including site investigations and the preparation of bid documents; the installation of newbilling and accounting procedures along with the procurement of related computer hardwareand software, equipment and vehicles; the construction of a training center; and the trainingof TANESCO staff in the use of computers in their operations and in accountingprocedures. The principal risks to the achievement of the project's objectives were possible

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delays due to slower than expected procurement of project consultants and the lack ofsufficient institution-building resulting from the inadequate provision of local counterpartstaff to work with expatriate consultants. However, the project's preparation took steps tominimize this risk by selecting the consultants for the design work prior to project approval.

9. The project substantially achieved its objectives. It advanced the least cost powerdevelopment program by designing the facilities which are now under construction withfunds from Credit 2489-TA. The project completed this design work according to theoriginal project schedule. The project also improved the financial viability of the powersector by upgrading TANESCO's billing and accounting systems. This upgrading beganunder the project and is continuing under Credit 2489-TA. The system improvements haveincreased TANESCO's average daily revenue collection significantly and should make itpossible for the company to complete its annual audits on schedule. However, since thecompletion of the project, long term financial viability has been threatened by poor paymentperformance of Government Agencies. The project completed the construction of thetraining center and trained TANESCO's staff in the operation of computerized accountingand billing systems.

C. PROJECT IMPLEMENTATION EXPERIENCE

Implementation Record

10. The Bank declared the credit for the project effective in June 1992, about six monthslater than originally planned, due to a delay in negotiations and Board presentation. Theproject completed the detailed design of the Lower Kihansi project and the preparation ofrelated bid documents on schedule. The project also completed the construction of thetraining facility. There was a delay in the completion of new billing and accountingsystems because both IDA and the Borrower had underestimated the amount of timerequired to prepare terms of reference for the consultants and complete the manual reviewand adjustment of records necessary before installing the computerized systems. To finishthe work, IDA extended the project's closing date from June 1995 to June 1996. Actualproject costs amounted to US$12.2 million compared to US$ 11.6 million estimated atappraisal. IDA disbursed a total of US$ 10.6 million. The difference between estimatedand actual figures is due to the change in the exchange rate between the SDR, the currencyof the project credit and the US dollar, the currency used in the description of project costsas they appeared in the President's Report.

11. There were several changes in project's components during the implementationprocess. After beginning the review and clean-up of manual data records, TANESCO andthe IDA recognized the task was much larger than they originally had anticipated.Therefore, they decided to have some of the consultant experts for the accountingcomponent begin their work earlier than planned. However, even with the early deploymentof additional consultants, there was a delay because of the magnitude of the task.Furthermore, the use of additional consultants in the initial clean-up activity led to therequirement for additional funds for consultant supervision of the initial operational phase

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of the accounting system. IDA and the Borrower therefore decided to continue the workunder the Power VI Project, (Credit 2489-TA).

12. Another change in the project was the decision to make pre-payment metering thebasis of the new billing system, where economically viable. This technology consists ofinstalling an electricity meter based on a card-vending system that requires the customer topay for electricity use in advance. The customer purchases a card which encodes thecorresponding amount of electricity based on the customer's tariff category and rate. IDAand TANESCO saw it as a powerful tool both for minimizing TANESCO's collectionsproblem and encouraging consumers to conserve electricity in a supply-constrained system.Initially, during the project's implementation, IDA and TANESCO planned to introduceprepayment metering on a pilot basis only. However, they made the decision to expand thesystem as a result of the impressive performance in improving the company's cash flow -- atripling in the average daily revenues. The system also helped to reduce problems of higharrears in revenue collection.

13. The project also responded well to a technical problem that arose with the operationof the prepayment metering system. TANESCO purchased prepayment metering systemsfrom a major vendor but was not aware that the configuration of the system was suited moreto a flat tariff structure than TANESCO's steep, inverted-block tariff. This block structurecauses the customer's cost per kWh to vary during the month depending on the amount ofelectricity use; i.e. it increases the cost per kWh after specified level of use. At thebeginning of the prepayment metering program's operation (October 1995), IDA andTANESCO discovered that the system was overcharging customers who bought more thana one-month supply of electricity by moving them into a higher tariff step than their normalusage warranted. The system had no provision to adjust such overpayment at the time ofsubsequent purchases. By April 1996, it became evident that the system's adjustmentproblem was serious and required correction. The Bank then advised TANESCO to resolvethe problem promptly to avoid a deterioration in customer relations.

14. After considering various options for correcting the prepayment metering system,the Bank and TANESCO agreed that the most efficient option was to install a correctivesoftware program. This program uses a rolling average of electricity use for each customer.The average is based on the previous year's usage. The program recalculates and updatesthe average at the end of each month. If the purchase of power by existing customersexceeds the monthly average which the system has recorded, the billing software allocatesthe excess kWh forward into one or more future months, to avoid moving the customer intoa higher tariff category. At the same time, the system restricts the purchase of more than thecost of 12 months' average usage in advance, alerting the utility to a sudden, large, upwardchange in load to protect the utility from undercharging the customer. For new consumers,where there is no previous history of electricity consumption, TANESCO uses an averagethat results from a survey of household electrical appliance usage. Reportedly there arevery few complaints about the system.

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Major Factors Affecting Project Implementation

15. Factors not Subject to Borrower or Implementing Agency Control. The mainfactor not subject to the government's control in project implementation was theperformance of project's consultants. Overall performance was satisfactory; however, theconsultants in charge of billing system improvements did not give sufficient attention to thesupervision of the contractor for the pre-payment metering system and the problems withthe system's configuration.

16. Factors Subject to Borrower Control. GOT had control over increases in tariffs,reductions in Government arrears to TANESCO, and the requirement that TANESCO usethe government's audit corporation for the completion of its annual audits. The govermmentincreased tariffs in fulfillment of the related project covenants (Table 10), and reducedGovernment arrears to an acceptable level. Unfortunately, after the completion of theproject, the Government's performance on paying electricity bills has deteriorated. Therequirement that TANESCO use the government audit corporation contributed toTANESCO's inability to submit timely audit reports and comply with the related projectcovenants.

17. Factors Subject to Implementing Agency ControL The imnplementing agency,TANESCO, had control over timely preparation of the information necessary for the auditreports, the management of the project's consultants, and completion of the project's trainingfacility which was funded mostly by TANESCO. The poor condition of TANESCO'sfinancial records and the greater clean-up process required than initially envisagedcontributed to delays in audit reporting. The company could have been more rigorous aboutmanagmg the consultants for the billing and accounting systems in order to reduce projectdelays. However, a major constraint to management improvement is the lack of an adequateincentive structure and the situation should improve with the planned commercialization ofthe utility. At present, GOT is preparing for restructuring TANESCO and inviting privateparticipation.

D. IDA PERFORMANCE

18. IDA's performance in project identification, preparation assistance appraisal andsupervision was satisfactory. In particular, IDA's supervision of the project demonstratedboth innovative thinking and flexibility in working with the Borrower to meet the mostpressing needs in the TANESCO system. The supervision team also helped draw theBorrower's attention to deficiencies in the configuration of the pre-payment meteringsystem and suggested that TANESCO take immediate action to prevent overchargingconsumers and maintain good customer relations. The pre-payment metering systemalready has had a major impact in improving the company's cash flow. Furthermore, sincethe same staff were involved with the supervision of Credit 2330-TA and Credit 2489-TA,there was a smooth linkage between the two projects in extending the accounting andbilling system improvements.

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E. BORROWER PERFORMANCE

19. Borrower performance in preparing and implementing the project was satisfactory.The Borrower (GOT) showed sufficient commitment to the project and complied with mostproject covenants. TANESCO, the implementing agency, also complied with most of therelevant project covenants except for timely audit reporting. There were delays in thesubmission of audit reports due in part to problems in data collection which the project wasaddressing in its re-design of the accounting system. Unfortunately the new accountingsystem was not completed soon enough to improve audit reporting during the project'simplementation period. Some delays were due to the heavy workload of the government'saudit corporation which the government had designated as TANESCO's auditor. Also, asnoted in para. 17, TANESCO could have made a greater effort to manage the accountingand billing consultants to reduce project delays.

F. PROJECT OUTCOME, SUSTAINABILITY AND FUTURE OPERATION

20. The project's outcome was satisfactory. The design work for future generationfacilities and the accomplishments in approving the billing system were instrumental inpreparing the Power VI project, which is the main vehicle for developing the powersystem at least cost and maintaining TANESCO's financial viability. The Power VI projectis implementing the design of hydroelectric facilities which Credit 2330-TA (project underreview) provided. The construction of these facilities is proceeding well. The Power VIProject also is completing the installation of the accounting and billing systems, since thecost of the improvements extended beyond the funds available under Credit 2330-TA.Specialist staff is providing training in the operation of the new systems.

21. IDA's main concern about the future operation of the project's components iswhether or not TANESCO will be able to maintain the integrity of the new billing systemnow that the project is completed. After reviewing the status of billing system developmentIDA has recommended that TANESCO obtain some specialized assistance to supervisethe development of the billing system for an additional 12-18 months following thedeparture of the original consultants. TANESCO has hired consultants from the ElectricitySupply Board of Ireland (ESBI) to provide this oversight. Furthermore, the Bank hasrecommended that TANESCO take specific actions to ensure: timely procurement ofequipment; full integration of pre-payment metering into the company's operations;improved policies and procedures; monitoring of service standards; provision of adequatemaintenance; and the development of long-range planning. Appendix C (Operational Plan)outlines these actions in more detail.

22. The sustainability of the project is likely. The Power VI Project (Credit 2489-TA)is constructing the facilities for the Lower Kihansi Hydroelectric scheme based on thedesign work under Credit 2330-TA. The new computerized accounting system is in placeand TANESCO should be able to sustain the benefits of this system, such as costaccounting and timely audit reportng with normal updating of data and equipment

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maintenance. It also appears that TANESCO will be able to sustain the benefits of the pre-payment billing system if it adopts the operational plan attached as Appendix C. There arealso plans to extend the prepayment metering system under Power VI. AlreadyTANESCO has installed 42,925 prepayment meters under both Credit 2330-TA andCredit 2489-TA. These meters cover about 20 percent of the customer base accounting foraround 60 percent of the company's revenues. Under Credit 2489-TA, TANESCO willcomplete improvements to the conventional billing system and will install an additional10,000 prepayment meters in the Zanzibar power system, which will operate under privatemanagement. There are also plans for installing an additional 10,000 prepayment meters inthe main power system as part of the proposed Songo Songo Power Development Project.

23. Supervision reports for the Power VI project have raised several issues that need tobe resolved to ensure the efficient operation of the billing system since the consultants leftin February 1997. First, it appears that there is no standard set of monthly reports on theoperation of the system, which may indicate that TANESCO still views the prepaymentsystem as a pilot project, rather than a long-term business procedure. Second, a review ofconmection standards is necessary for both interior wiring and external connection to theTANESCO system. Third, the external consultant for the prepayment metering system hasindicated that the interest and competence of the technical personnel varied but that withproper organization and supervision they would be able to install and maintain theprepayment meters properly after the end of the external consultant's contract. To ensurethe sustainability of the prepayment metering system, the supervision work of the Power VIproject has made some recommendations for the future operation of the system which theoperational plan has incorporated.

G. MAJOR LESSONS LEARNED

24. The following are the major lessons learned by IDA in the implementation of theproject:

* A technical assistance project to advance project design preparation can beextremely useful to the implementation of the least-cost power developmentplan. The time saved by early preparation was particularly important due to theemergency power situation that developed during the implementation of theproject, thus increasing the importance of completing the Lower Kihansi projecton schedule.

* A pre-payment metering system can be a very effective way to both improvepower company finances and encourage customers to conserve electricity.However, any power company introducing such a system needs to make surethat its technical configuration can accurately reflect the tariff structure.Fortunately, in the case of Tanzania, both IDA and TANESCO respondedpromptly to the initial problems in the system's technical configuration and

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found a viable cost-effective solution to the problem. The simplification of thetariff structure, which took place during the project's implementation periodbut not part of the project, also enhanced the performance of the prepaymentmetering system by reducing the number of tariff categories and thus lesseningthe likelihood of errors and customer dissatisfaction.

* TANESCO should manage its consultants closely to ensure the efficient use oftime; minimize the need for contract extensions; and detect errors in operations.One way to achieve this is to request more frequent reports and reviews,perhaps on a monthly basis, and a final operational manual to help with thetransfer of skills. In addition, lump sum contracts instead of contracts based ona number of days, which TANESCO has begun to employ, link payments toperformance and are likely to encourage adherence to schedule. However,further commercialization of the utility is necessary to develop a sufficientincentive structure for improved management.

* A technical assistance project can be useful to continuing the dialogue betweenthe Bank and the Borrower on important sector issues while a large investmentproject is under preparation. For example, Credit 2330-TA was able to promotethe move toward pricing electricity at economic and financial cost by includingsubstantial tariff increases as project covenants. Also , the project enabled IDAto maintain a dialogue with the GOT on power sector organization and tariffreform.

* It is important to allow adequate time to the data clean-up and consolidation forbilling and accounting systems which have many manual transactions and staffthat lack experience in modem financial control systems. The timeline whichthe project originally provided was one year between the award of the contractand the installation of the new system. A more realistic timeline, based onexperience with Credit 2330-TA, is about two and a half years.

PART II: STATISTICAL TABLES AND APPENDICES

PART II: STATISTICAL TABLES AND APPENDICES

Tables:

Table 1: Summary of AssessmentsTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project Operation - Not applicableTable 7: Studies Included in the ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and Benefits - Not applicableTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual Statements - Not applicableTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

Appendices:

Appendix A: Proposed Operational Plan

Table 1: Summary of Assessments

A. Achievement of Project Objectives

Assessment Substantial Partial Negligible Not ApplicableCategories

Macroeconomic Policies X

Sector Policies X

Financial Objectives X

Institutional Xdevelopment

Physical objectives X

Gender concerns x

Other social objectives X

Environmental X XPublic sector Xmanagement

Private sector Xdevelopment

Other X

B. Project Sustainability

Likely Uncertain | Unlikely

x

C. Bank Performance

Stage of Project Highly Satisfactory Satisfactory DeficientCycle

Identification X

Preparation X

Appraisal X

Supervision x

D. Borrower Performance

Stage of Project Highly satisfactory Satisfactory DeficientCycle

Preparation X

Implementation X

Covenant XCompliance

E. Assessment of Outcome

Highly Satisfactory Marginally Unsatisfactory HighlySatisfactory Satisfactory Unsatisfactory

x

Table 2: Related Bank Loans/Credits

Loan/Credit Title Loan/Credit Amount Purpose Year of StatusNo. US$m Approval

Preceding Operations

Power IV C1405-TA 35.0 Complete design work for the 1984 Completedleast-cost generation projectand upgrade the accountingand billing systems.

Power I L518-TA 5.2 Meet projected power 1969 Completeddemand by adding 20 Mw ofdiesel capacity.

Power II L715-TA 30.0 First phase of Kidatu 1970 CompletedHydroelectric Project andextension of diesel capacity.

Power III L1306-TA 30.0 Finance second phase of 1976 CompletedKidatu development.

Petroleum Sector TA C1604-TA 8.0 Exploration Promotion for 1985 CompletedI petroleum.

Power Rehab./Energy C 1687-TA 40.0 Rehabilitation of 1986 Completedtransmission and distribution

Petroleum Rehab. C22020-TA 44.0 Rehabilitation refinery and 1991 Completedstorage

Following Operations Construct the Kihansi

Power VI C2489-TA 200.0 hydroelectric plant andstrengthen TANESCO's 19 nonmanagement.

Table 3: Project TimetableSteps in project cycle Date planned Date actual/estimate

IdentificationPreparation Jan 1991 Jan 1991

Appraisal May 1991 May 1991Negotiations September 1991 January 1992Letter of development policy NA NABoard presentation and November 1991 January 1992approval

Signing NA March 1992Effectiveness January 1992 June 12, 1992Project completion December 1994 June 1996Credit closing June 30, 1995 June 30, 1996Source: Project Files, Bank Management Information System and Bank staff estimates.

Table 4: Credit Disbursements: Cumulative Estimated and Actual(in million US$)

FY FY FY FY FY92 93 94 95 96

Appraisal estimate 2.8 4.4 8.0 10.0 10.0

Actual 0.0 4.9 7.0 8.7 10.6

Actual as % of estimate NA 112 87 87 106

Date of final disbursement October 11, 1996

Source: Project Files and Loan Department.

Table 5: Key Indicators for Project Implementation

Key implementation indicators in the Expected Actual/ICRSAR/President's Report Completion Estimate of

Date CompletionDate

Detailed design and bid document preparation

Award of contract 12/31/91 12/91

Completion of mobilization 01/31/92 12/91

Draft inception report 04/30/92 01/92

Draft preliminary works tender documents 06/30/92 04/92

Draft civil works prequalification document 07/31/92 06/92

Draft project definition report 09/30/92 07/92

Bid for engineering/supervision 09/30/92 09/92

Evaluation of preliminary works contract 10/31/92 09/92

Draft field investigation report 11/30/92 10/92

Draft main civil works contract tender documents 12/31/92 11/92

Drafts of all other tender documents 03/31/93 12/92

Billing and Accounting Components 03/92

Award of Contract 04/00/92 31

Installation of new hardware and software 04/00/93 a/

Installation of new procedures 10/00/93 a!

Source: Project Files and Bank staff estimates.

a/ The award of the contracts for these services took place during June/July 1994, a little morethan a year later than originally planned. The delay resulted from longer time required to prepareterms of reference and recruit consultants. The final installation of hardware and software forthe accounting system began in July 1995 and was completed under the Power VI Project. Theintroduction of prepayment meters for the billing system also began in July 1996 and wascompleted in February 1997 under Credit 2489-TA.

Table 6: Key Indicators for Project OperationNot applicable to this project.

Table 7: Studies Included in the Project

Study Purpose Status Impact

Environmental To ensure that the Lower Completed. The projectAssessment Kihansi Hydroelectric consolidated

Scheme will have no environmental worksignificant adverse into a formal reportenvironmental and social which indicated thatimpacts. the Lower Kihansi

project would notcause significantenvironmentalproblems andproduced a mitigationplan.

Source: Project Files.

Table 8A: Project Costs

Item Appraisal Estimate (US$mm) Actual/latest estimate (US$mm)

Local Foreign Total Local Foreign Totalcosts costs costs costs costs costs

Training 0.00 0.15 0.15 0.00 0.18 0.18

Construction of 1.00 0.15 1.15 1.11 0.18 1.29Training Center

Equipment and 0.10 1.90 2.00 0.11 2.24 2.35vehicles

Consultancy -- -- -- -- -- --

Services

Detailed design 0.25 4.30 4.55 0.29 5.06 5.35and preparationof bid documents

Billing and 0.08 1.25 1.33 0.09 1.47 1.56accounting

Finance 0.00 1.20 1.20 0.00 1.41 1.41

Environmental 0.00 0.05 0.05 0.00 0.06 0.06Update

Subtotal 0.33 6.80 7.13 0.38 8.00 8.38

Base Cost 1.43 9.00 10.43 1.6 10.6 12.2

Contingencies

Physical 0.13 0.60 0.73 -- -- --

Price 0.06 0.40 0.46

Subtotal 0.19 1.00 1.19 -- --

TOTAL COSTS 1.62 10.00 11.62 1.6 10.6 12.2

Source: Project Files and Bank staff estimates.

Table 8B: Project Financing(in US$ million)

Source Appraisal estimate Actual/latest estimate

Local Foreign Total Local Foreign Totalcosts costs costs costs costs costs

IDA 0.00 10.00 10.00 0.0 10.6 10.6

TANESCO 1.62 0.00 1.62 1.6 0.0 1.6

TOTAL 1.62 10.00 11.62 1.6 10.6 12.2

Source: Project Files and Bank Staff estimates.

Table 9: Economic Costs and BenefitsNot applicable to this project. No economic rate-of-return calculated at appraisal

Table 10: Status of Legal Covenants

-,kgreement/ Covenant Status Original Revised Covenant description CommentsSection type fulfillment fulfillment

_ _ _ date date _ _ _ _

iCA/3.01(a) Management C NA NA Borrower declarescommitment to projectobjectives; re-lending theproceeds to TANESCO at7.3 % interest for 18 yearsand not amend the loanagreement with TANESCOwithout IDA agreement.

CA/ 3.02 Procurement C NA NA Procurement of goods,works and services subjectto provisions of the PA.

'CA/ 3.03 General C NA NA TANESCO shall carry outconditions obligations outlined in

section 2.03 of the PA.

-CA/4.01(a) Project C NA NA Borrower and IDA toExecution exchange views on

Borrower's electricitypricing policies and plansfor power sectordevelopment.

Agreement/ Covenant Status Original I Revised | Covenant description CommentsSection type fulfillment fulfillment

date date

DCA/4.02(b) Financial C NA NA Borrower agrees to establishprices that allowTANESCO: to earn anadequate return on fundsinvested, meet financialobligations and make areasonable contribution tofuture power systemexpansion.

DCA/4.02(c) Financial C January NA Borrower to approve a tariff1992 increase of at least 15% on

July 1992 agreed dates.

PA/3.01 Management PC NA NA TANESCO to conduct its TANESCOand operations according to was inhibitedoperations sound administrative, in full

financial and public utility compliancepractices. because of the

difficulty ofcollectingGovernmentAccounts.

PAf3.02 Management C NA NA TANESCO to operate andand maintain plant, machinery,operations equipment and other

property according to soundengineering and financialpractices, making repairsand renewals as necessary.

PAf3.03 Management C NA NA TANESCO to haveand insurance in satisfactoryoperations amounts against risks in line

with appropriate utilitypractice.

PA/4.01(a) Financial C NA NA TANESCO to maintainrecords reflecting itsoperating and financialcondition according to soundaccounting practices.

'greement/ |Covenant |Status Original |Revised |Covenant description |Commenbt |Section type fulfillment fulfillment

date date

J4.01 (b) Financial C NA NA TANESCO to have audits ofits records, financialstatements and the SpecialAccount, for each fiscalyear, by independentauditors acceptable to IDA.

./4.01b,ii Financial NC 14 months TANESCO to furnish TANESCO'safter FY90 certified copies of financial performance in

statements for each FY of this area hasNC 10 months the project with a report of improved after

detail and scope as the6 months reasonably requested by introduction of

NC after FY92 IDA. the newand accounting

thereafter system.

/4.Olb,iii Financial C NA NA TANESCO to furnish IDAwith other information aboutrecords, accounts andfinancial statements asreasonably requested.

/4.02 Financial C January TANESCO to increase its1992 average tariff at least 15% 1

July 1992 on agreed dates.

Source: Project Files and Bank staff estimates.Abbreviations: DCA=Development Credit Agreement; PA=Project Agreement; C=compliance;NC=non-compliance; and NA= not applicable.

Table 11: Compliance with Operational Manual StatementsNot applicable to this project.

Table 12: Bank Resources: Staff Inputs

Stage of project cycle | Planned [ Actual 1|_________________ |Weeks US$ Weeks US$000Through appraisal NR NR 3.4 8.3Appraisal NR NR 9.3 23.5Negotiations through NR NR 15.4 39.2Board approval I I l l _l

| Supervision NR NR 33.1 91.9Completion NR NR 6.0 | l

Abbreviations: NR=not reported.

Table 13: Bank Resources: Missions

Stage of project Month/ Number of Days in Specialized Performance Types ofcycle Year persons field staff skills rating problems

represented

Throughappraisal

01-02/91 NR NR NR NR NRPreparation

Appraisalthrough Boardapproval

Appraisal 05/91 2 14 FA, HE NA NA

Post Appraisal 11/91 2 3 FA, PE

Supervision

Supervision 1 06-07/92 2 15 EC, PE NR PS

Supervision 2 06/93 2 15 FA, PE NR AUD

Supervision 3 09/93 1 20 PE NR AUD

Supervision 4 05/94 3 16 ES, FA, 2PE NR F

Supervision 5 07-08/94 2 18 FA, PE 2 AUD, F,

Supervision 6 03-04/95 1 '13 PE NR F, M

Supervision 7 03-04/96 3 14 FA, 2PE NR F

Stage of project Month/ Number of Days in Specialized Performance Types ofcycle Year persons field staff skills rating problems

represented

Completion NA NA NA NA NA NA

The project didnot include acompletionmission.

Source: Project Files and Bank staff estimates.

Problem CodesTypes of problems: AUD=auditing problems; F=financial problems; M=management

problems; PS=power shortages

Mission Staffing CodesES=Environmental Specialist; FA=Financial Analyst; HE=Hydropower Engineer PE=Power

Engineer

Other CodesNA=Not applicable; NR=Not reported

Appendix APage I of 3

TANZANIA

POWER ENGINEERING AND TECHNICAL ASSISTANCE PROJECT(CREDIT 2330-TAN)

PROPOSED OPERATIONAL PLAN

Introduction

The main component of the Power Engineering and Technical Assistance Project,the design of the Lower Kihansi hydroelectric component, is complete and the powerstation is under construction. The new accounting system is in place, the new trainingcenter is operational and TANESCO is capable of sustaining its operation. However, theBank has concerns about the planning and organization for maintain the integrity of the newbilling system after the original system consultants depart in February 1997. Therefore, inthe context of the ongoing Power VI project, TANESCO followed the Bank'srecommendation to obtain some specialized external oversight for an additional 12-18months. The Bank has recommended that TANESCO take specific actions in the followingareas: procurement, the full integration of prepayment metering into the company'soperations, policies and procedures, service, maintenance, and long-range planning. Thefollowing sections summarize these recommendations.

Procurement

TANESCO needs to ensure the timely procurement of materials for prepaymentmetering in order to avoid public relations problems and resulting pressures to useconvention metering in areas where TANESCO has designated prepayment metering as aviable option. The transition to the prepayment metering system should be as smooth aspossible.

Integration into Operations

It is important for TANESCO's staff to view prepayment metering as part of thecompany's normal operations and not as a temporary experiment or pilot. Some regionaloffices with two types of metering must have clear procedures to make distinctions andmaintain the integrity of prepayment areas.

Policies and Procedures

TANESCO needs to provide written policies, procedures and position descriptionsto allocate responsibilities for prepayment operations. Before the departure of consultantsand contractors, they need to ensure that they have appropriate descriptions of all

Appendix APage 2 of 3

prepayment billing functions. TANESCO needs to define both general policy objectivesand several specific policies which are necessary for the efficient functioning of the system.

There should be basically two objectives for the prepayment billing system: (a)improving utility collections and cash flow by eliminating delayed payments and bad debtsand reducing operating expenses; and (b) increasing customer satisfaction by instillingconfidence in the accuracy of the billing system, allowing convenient schedules of customerpayments, and providing real-time information to customers on their electricity usage, inorder to promote energy conservation.

Specific policies which TANESCO should include in its operations are: installingprepayment meters in all areas where economically justified'; calculating the economicbreak-even point for installation and submitting budget proposals for those that meet theeconomic criteria; installing prepayment meters in all locations that meet the economiccriteria for selection; and locating prepaid card vending stations within walking distance ofcustomers.2

Detailed operating procedures are necessary for a broad range of functions such asapplications for new service, transfer of accounts, installation of equipment, procurement ofmaterials, maintenance of inventory, repair of equipment, sale of prepayment cards, database maintenance, and periodic reports. These procedures should consist of operationalinstructions which provide the details for implementing specific policies and desk or fieldprocedures which are step-by-step instructions for training new employees to performspecific functions. Most of the instruction material should be available since the consultantand the contractor are responsible for training TANESCO employees to operate andmaintain the prepayment system. The consultant should ensure that TANESCO has suchinstructions organized in a formal operations manual, which should include positiondescriptions for key personnel performing the functions.

Service Standards

TANESCO should review service standards continuously and revise them ifnecessary to minimize connection costs. In new constructions, TANESCO should provide acustomer all wiring from the household distribution panel to the point of attachment to theTANESCO system, with detailed instructions and drawings on the requirements forinstalling the prepayment meter. In addition all installations in areas likely to haveprepayment meters in the future should have wiring that meets the standards for prepayment

The criteria for selection considers the average cost per installation and the average revenues from thecustomers in the proposed installation area. For example at $150 per installation and present tariffs, anaverage monthly usage of 120 kwh may justify connection.

2Generally no customer should have to walk more than 2000 meters to purchase a prepayment card.

Appendix APage 3 of 3

meters. TANESCO should adopt the contractor's installation documents on service wiringand connections standards, editing, and reformatting it where appropriate.

Maintenance

TANESCO's data indicates that the rate of prepayment meter failure is about 1%annually. Therefore a reasonable estimate for maintenance is that TANESCO should beprepared to respond to one or two failure reports per day. Beginning in March 1997,TANESCO staff will be responsible for evaluating malfunctions and replacing failed unitsin the field. All service personnel should receive training in detecting the reasons for failureand have the proper equipment in the service truck to make immediate replacement andrestore service to the customer. TANESCO also needs to develop a policy for disposing offailed units. Two viable options are (a) obtaining an agreement with the manufacturer orother contractor to maintain repair facilities for repayment meters in Dar es Salaam or, (b)ship the units to the manufacturing plant for repair and return. In making the choicebetween the two, TANESCO will have to evaluate repair costs, shipping costs andestimated downtime of the units.

Long Range Planning

Over the long term, TANESCO should extend the use of prepayment meters to allareas of the country where they are economically justified. The company should reviewareas under consideration and update the necessary cost and benefit information annually.

Position Descriptions

TANESCO needs to more clearly specify the functions of the Manager of Customeraccounts and both the zonal and regional levels.

I ~ ~ ~ ~ ~ ~

IMAGING

Report No.: 18823Type: ICR