World Bank Document · 2016. 7. 16. · 1 document of the world bank report no: icr00001664 implementation completion and results report (ida-39490 ida-h1140 ida-h4100) on a credit

1

Document of

The World Bank

Report No: ICR00001664

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-39490 IDA-H1140 IDA-H4100)

ON A

CREDIT

IN THE AMOUNT OF

SDR 20 MILLION (US$29.0 MILLION EQUIVALENT)

AND A

GRANT

IN THE AMOUNT OF SDR 14.5 MILLION (US$ 21.0 MILLION EQUIVALENT)

TO THE

STATE OF ERITREA

FOR AN

ERITREA POWER DISTRIBUTION AND RURAL ELECTRIFICATION PROJECT

January 22, 2011

Energy Group (AFTEG)

Country Department AFCE2 (Kenya, Eritrea, Comoros, Rwanda, Seychelles, Somalia)

Africa Region

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2

CURRENCY EQUIVALENTS

(Exchange Rate Effective October 2010)

Currency Unit = Eritrean Nakfa (ERN)

1.00 ERN = US$ 0.0667

US$ 1.00 = ERN 15.00

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

EEC Eritrean Electric Corporation

EPC Engineering, Procurement and Construction

EIRR Economic Internal Rate of Return

ESMMP Environmental and Social Management and Monitoring Plan

FIRR Financial Internal Rate of Return

GDP Gross Domestic Product

GIS Geographic Information System

ICR Implementation Completion and Results Report

IDA

ISR

International Development Association

Implementation Status Report

IT Information Technology

kV Kilovolt

kW Kilowatt

kWh Kilowatt Hour

LV Low Voltage

MEM Ministry of Energy and Mines

MV Medium Voltage

MW Megawatt

M&E Monitoring and Evaluation

Nfa Nakfa

NPV Net Present Value

O&M Operation and Maintenance

PAD Project Appraisal Document

PMU Project Management Unit

PPF Project Preparation Facility

QAG

REF

Quality Assurance Group

Rural Electrification Fund

SDR Special Drawing Rights

SIL Specific Investment Loan

TOR Terms of Reference

VA Village Administrator

ZA Zoba Administrator

Vice President: Obiageli Katryn Ezekwesili

Country Director: Johannes C.M. Zutt

Sector Manager: Subramaniam V. Iyer

Project Team Leader: Kyran O’Sullivan

ICR Team Leader: Kyran O’Sullivan

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ERITREA

POWER DISTRIBUTION AND RURAL ELECTRIFICATION 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 Profile

1. Project Context, Development Objectives and Design ............................................... 5 1.1 Context at Appraisal ............................................................................................. 5 1.2 Original Project Development Objectives (PDO) and Key Indicators ................. 6

1.3 Revised PDO and Key Indicators, and Reasons/Justification .............................. 7 1.4 Main Beneficiaries ................................................................................................ 7

1.5 Original Components (as approved) ..................................................................... 8 1.6 Revised Components ............................................................................................ 9 1.7 Other Significant Changes .................................................................................... 9

2. Key Factors Affecting Implementation and Outcomes .............................................. 9 2.1 Project Preparation, Design and Quality at Entry ................................................. 9

2.2 Implementation ................................................................................................... 12

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization .... 15

2.4 Safeguard and Fiduciary Compliance ................................................................. 16 2.5 Post-completion Operation/Next Phase .............................................................. 16

3. Assessment of Outcomes .......................................................................................... 18 3.1 Relevance of Objectives, Design and Implementation ....................................... 18 3.2 Achievement of Project Development Objectives .............................................. 18

3.3 Efficiency ............................................................................................................ 18 3.4 Justification of Overall Outcome Rating ............................................................ 20 3.5 Overarching Themes, Other Outcomes and Impacts .......................................... 20

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ... 21 4. Assessment of Risk to Development Outcome ........................................................ 21 5. Assessment of Bank and Borrower Performance ..................................................... 22

5.1 Bank Performance ............................................................................................... 22 5.2 Borrower Performance ........................................................................................ 25

6. Lessons Learned ....................................................................................................... 26 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 27

Annex 1. Project Costs and Financing .......................................................................... 28 Annex 2. Outputs by Component ................................................................................. 29 Annex 3. Economic and Financial Analysis ................................................................. 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 37 Annex 5. Beneficiary Survey Results ........................................................................... 39

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Annex 6. Stakeholder Workshop Report and Results ................................................... 40

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 41 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 42 Annex 9. List of Supporting Documents ...................................................................... 43

MAP ………………………………………………………………………………….44

i

A. Basic Information

Country: Eritrea Project Name:

ERITREA POWER DISTRIBUTION AND RURAL ELECTRIFICATION PROJECT

Project ID: P057929 L/C/TF Number(s): IDA-39490,IDA-H1140,IDA-H4100

ICR Date: 01/26/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF THE STATE OF ERITREA

Original Total Commitment:

XDR 34.5M Disbursed Amount: XDR 20.0M

Revised Amount: XDR 20.0M

Environmental Category: B

Implementing Agencies: Eritrea Electric Corporation Ministry of Energy and Mines

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 08/29/2000 Effectiveness: 12/20/2004 12/20/2004

Appraisal: Restructuring(s): 06/26/2008

Approval: 07/06/2004 Mid-term Review: 02/28/2008 03/10/2008

Closing: 06/30/2009 07/22/2010

C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: 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: Satisfactory Government: Unsatisfactory Quality of Supervision:Moderately SatisfactoryImplementing Moderately Satisfactory

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Agency/Agencies: Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

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

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing)

Central government administration 10 10

Power 90 90

Theme Code (as % of total Bank financing)

Access to urban services and housing 28 50

Infrastructure services for private sector development 29 5

Regulation and competition policy 14 5

Rural services and infrastructure 29 40

E. Bank Staff Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Johannes C.M. Zutt Makhtar Diop

Sector Manager: Subramaniam V. Iyer Yusupha B. Crookes

Project Team Leader: Kyran O’Sullivan Paivi Koljonen

ICR Team Leader: Kyran O’Sullivan

ICR Primary Author: Anil S. Bhandari

F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)(a) Carrying out a sustainable program for the expansion of access to electricity; (b) improving the quality and adequacy of the electricity supply in its territory; and (c)

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strengthening the institutional capacity of key energy sector agencies, including regulatory and institutional reforms in the sector to increase efficiency and attract private participation. Revised Project Development Objectives (as approved by original approving authority) Restructuring and additional financing was approved by the Board on June 19, 2008 but did not become effective because the Government refused to sign the Supplemental Letter on Financial and Economic Data as they were not agreeable to sharing the national debt information on sovereignty grounds. The revised PDOs of the restructured project were to be: (i) Expansion of electricity access in rural areas; (ii) Improve the quality and adequacy of the electricity supply; and (iii) Regulatory and institutional reforms in the sector to increase efficiency. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Voltage fluctuations in Asmara limited to Value quantitative or Qualitative)

+- 5% of supply voltage

Date achieved 06/30/2009 Comments (incl. % achievement)

Since the Asmara Distribution component was not completed. Therefore it is assumed that there was no improvement in voltage fluctuations.

Indicator 2 : Asmara system losses reduced to Value quantitative or Qualitative)

7% 20%

Date achieved 06/30/2009 12/31/2009 Comments (incl. % achievement)

The target could not be met because the Asmara Distribution component was not completed.

Indicator 3 : Unplanned power interruptions in Asmara reduced by Value quantitative or Qualitative)

90%

Date achieved 06/30/2009 Comments (incl. % achievement)

See comment under Indicator 1 above.

Indicator 4 : Number of consumers connected to Asmara system Value quantitative or Qualitative)

80,000 82,342

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102% achieved.

Indicator 5 : Annual energy sales in Asmara system Value quantitative or Qualitative)

169GWh 153 GWh


90% achieved.

Indicator 6 : Number of consumers connected in Project villages, by consumer category: (a)residential; (b) commercial; (c) industrial

Value quantitative or Qualitative)

(a) 28,600; (b) 1,180; (c) 140

(a) 21,270; (b) 575; (c) 153


Percent achievement (a) 74%; (b) 49%; and (c) 109%. (73% overall)

Indicator 7 : Number of sub-project applications processed Value quantitative or Qualitative)

4 0

Date achieved 06/30/2009 07/22/2010

Comments (incl. % achievement)

The Rural Electrification Fund eventually became functional by 2006, and participating villages made their contributions. However, because of the delays in the preparation of Operational Manual, no disbursements were made at the time of Credit closing.

Indicator 8 : Number of successfully completed sub-projects Value quantitative or Qualitative)

4 0


See comment under Indicator 7 above.

Indicator 9 : Electricity tariffs in Nakfa per kWh meet EEC’s financial needs Value quantitative or Qualitative)

Yes No


The tariffs were not increased to cost-recovery levels as required due to social and economic impact considerations by the Government.

Indicator 10 : Electricity regulator functional Value Yes Partly

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quantitative or Qualitative) Date achieved 06/30/2009 07/22/2010 Comments (incl. % achievement)

The Electricity Regulatory Committee was established but the regulatory body has not yet become autonomous.

Indicator 11 : Number of trained staff retained in the electricity sector Value quantitative or Qualitative)

70 50+


71%+ achieved (only the minimum estimate could be obtained). The anticipated training in the Asmara distribution component was not implemented because the contract was terminated.

Indicator 12 : Number of villages where environmental and social screening has been carried out


80 57


71% achieved. The number of villages was reduced due to the increased cost of equipment and supplies since the project commencement.

Indicator 13 : Solutions to mitigate negative environmental and social impacts carried out in a timely manner


Yes Yes


Achieved.

Indicator 14 : Number of health, school, and water facilities electrified Value quantitative or Qualitative)

90 654


The actual value in 2010 includes churches, mosques, clinics, schools, water pumps, public administration, security posts, and other public facilities.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Proportion of substations rehabilitated

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Value (quantitative or Qualitative)

100% 20%


20% achieved. Cancellation by the Government of private construction contractors’ licenses negatively impacted the carrying out of civil works in the Asmara Distribution component.

Indicator 2 : Proportion of 66kV transformers and overhead and underground cables replaced Value (quantitative or Qualitative)

100% 25%


25% achieved. Not fully achieved because the contract of the Asmara Distribution component was not completed.

Indicator 3 : Proportion of LV system rehabilitated Value (quantitative or Qualitative)

100% 0%


Not achieved because the Asmara Distribution component was not completed.

Indicator 4 : Number of new development areas made ready for connection Value (quantitative or Qualitative)

10 2


20% achieved. Not fully achieved because the Asmara Distribution component was not completed.

Indicator 5 : Number of villages and small towns connected to power supply Value (quantitative or Qualitative)

80 57


71% achieved. The number of villages was reduced due to the increased cost of equipment and supplies since the project commencement.

Indicator 6 : Amount of upfront contributions collected in Nakfa Value (quantitative or Qualitative)

10 million Nakfa 22 million Nakfa


The original target exceeded by 120%.

Indicator 7 : Operational manual and criteria for site selection prepared

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Yes Yes


100% achieved.

Indicator 8 : Funds deposited to Rural Electrification Fund (in million US$ equivalent) Value (quantitative or Qualitative)

2.0 1.5


75% achieved.

Indicator 9 : Regulatory unit established and staffed with qualified persons with adequate facilities


Yes Partly


The Electricity Regulatory Committee was established with part-time members.

Indicator 10 : Number of staff trained Value (quantitative or Qualitative)

50 50+


Achieved.

Indicator 11 : Number of VA, ZA, and MEM staff trained in environmental and social screening


15 10+


67%+ achieved.

Indicator 12 : EEC’s PMU retains an environmental coordinator Value (quantitative or Qualitative)

Yes Partly

Date achieved 06/30/2009 07/22/2010 Comments (incl. %

This function is performed but EEC relies on MEM personnel and consultants engaged by MEM.

viii

achievement)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 12/15/2004 Satisfactory Satisfactory 0.00 2 06/13/2005 Moderately SatisfactoryModerately Satisfactory 3.57 3 12/21/2005 Satisfactory Satisfactory 4.74 4 12/23/2005 Satisfactory Satisfactory 4.74 5 06/30/2006 Satisfactory Satisfactory 7.90 6 12/28/2006 Satisfactory Moderately Satisfactory 11.37 7 06/25/2007 Satisfactory Moderately Satisfactory 14.00 8 12/14/2007 Satisfactory Moderately Satisfactory 15.58 9 06/06/2008 Satisfactory Moderately Satisfactory 20.04 10 12/22/2008 Unsatisfactory Unsatisfactory 26.99 11 06/09/2009 Unsatisfactory Unsatisfactory 30.30 12 11/25/2009 Unsatisfactory Unsatisfactory 30.58 13 06/22/2010 Unsatisfactory Unsatisfactory 31.20

H. Restructuring (if any)

ISR Ratings at RestructuringRestructuring

Date(s)

Board Approved

PDO Change DO IP

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

06/26/2008 N S MS 20.04

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I. Disbursement Profile

5

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Country Background. The project was appraised in March 2004. At the time, the

Government was preparing its Interim Poverty Reduction Strategy Paper, articulating its

development strategy, medium-term investment plan, and priorities to reduce poverty.

The crux of this strategy was to restore economic growth, maintain macroeconomic

stability, and increase the incomes of the poor segments of the population. Eritrea was in

a post-conflict situation recovering from the devastations of war with Ethiopia, which had

ended in June 2000, after two years of fighting on several fronts. The population in 2004

was 4.3 million and the per capita income less than US$200, among the lowest in the

world with GDP growing at less than 2.0 per cent per annum. Nearly 70 per cent of the

population lived below the poverty line. The government was seriously committed,

through its Interim Poverty Reduction Strategy, to undertake bold institutional and policy

reforms with key focus on improving public service delivery.

2. Sector Background. The annual consumption of electricity in 2004 (62 kWh per

capita) was among the lowest in Sub-Saharan Africa (113 kWh per capita, excluding

South Africa), with about 96 per cent of energy consumed by rural households being

from biomass resources. Estimated forest take-off rate for energy was about 2.4 - 2.8 per

cent when the threshold for sustainability was about 1.25 per cent. Given the dwindling

biomass resources and the increasing dependence on imported petroleum products and

the resultant foreign exchange burden on the economy, Eritrea’s pattern of energy

consumption was clearly unsustainable. Only 32 per cent of the population had access to

electricity (78 per cent urban and 3 per cent rural). The power distribution system in

Asmara, which was nearly 50 years old, was incapable of meeting additional loads, such

that frequent power failures, voltage fluctuations, and unacceptably high power losses

were critical problems.

3. Nevertheless, the Government had taken a number of initiatives to improve the

energy supply including: increasing the power generation from less than 30MW in 1991

to over 130 MW in 2004; increasing the length of transmission lines from less than 150

km to over 350 km; increasing the length of distribution lines from 800 km to over 1,400

km; installing over 600 kW solar systems throughout the country. Legislation (Electricity

Corporation Proclamation) had been promulgated to corporatize the public power utility,

Eritrea Electricity Corporation (EEC), with the aim of promoting operational efficiency

and safety, and fair competition in electricity business.

4. Hence, the key issues facing the energy sector at the time were: the necessity to

make further progress in improving the power sector’s institutional and regulatory

framework, following the Electricity Corporation Proclamation, that was the first

important step in the right direction in better sector governance; low access to electricity

in rural areas (only 3 per cent coverage); deteriorating condition of the Asmara

Distribution System (high technical losses and poor quality of supply); and low

utilization of the generating capacity, where the Hirgigo Plant, which is the major

6

generator of electricity in the country, was operating only at 26 per cent of its installed

capacity. As a result, the government’s medium term goals were to: (a) ensure the

availability of reliable, good quality electricity to a wide range of customers, in order to

support economic activity; (b) expand electricity service to rural areas, both to improve

the quality of life in these areas and to provide one of the essential infrastructure inputs

required to facilitate productive activities, especially the establishment of small

businesses; and (c) establish a regulatory and institutional framework that would facilitate

and promote the financial viability of the sector and the introduction of private sector

participation to relieve the financial burden on the state and improve the sector's

managerial capacity.

5. Rationale for Bank Assistance. The Government of Eritrea requested the Bank’s

assistance at a time when the country was going through a post-conflict reconstruction

phase. There was no current Country Assistance Strategy. However, the project’s

objectives were consistent with the Government’s draft Interim Poverty Reduction

Strategy (2003) and the Bank’s Interim Support Strategy (2000 and 2005), both of which

put emphasis on emergency reconstruction and health in response to the humanitarian

crisis following the end of the conflict with Ethiopia, and focusing on improving the

income of the poor segments of the population. Through Bank’s support for the

rehabilitation and expansion of the Asmara electricity distribution system, rural

electrification, and energy sector reforms, the project was envisioned to enhancing public

service delivery; and addressing critical infrastructure bottlenecks and basic human

development.

6. The Government also recognized that the development of an efficient power

sector would require a move away from full government control of power system

administration towards the establishment of a modern institutional and regulatory

framework governing electricity production, transmission, distribution and sales by

efficient independent utilities. The Bank was in a unique position to support this given its

experience on these issues, including establishment of a transparent framework and

mechanism for setting electricity tariffs.

1.2 Original Project Development Objectives (PDO) and Key Indicators

7. The original PDOs were: (a) carrying out a sustainable program for the expansion

of access to electricity; (b) improving the quality and adequacy of the electricity supply in

its territory; and (c) strengthening the institutional capacity of key energy sector agencies,

including regulatory and institutional reforms in the sector to increase efficiency and

attract private sector participation. Key indicators to measure the outcomes were defined

as:

Establishment of the Eritrean Electric Corporation (EEC) as an independent and

financially self-sustaining power corporation;

The adoption of a modern power sector regulatory and institutional framework,

conducive for future private sector participation;

7

Extension of electricity supply to about 30,000 new rural consumers, either

directly or indirectly through improved public services;

Reduction of voltage fluctuations and power outages in Asmara to acceptable

levels; and

Decrease in network energy losses in Asmara from 18 percent to about 7 percent.

1.3 Revised PDO and Key Indicators, and Reasons/Justification

8. Restructuring and Additional Financing was approved by the Board on June 26,

2008. Although the Amended and Restated Financing Agreement and related Project

Agreements were signed on August 21, 2008, the Additional Financing never became

effective due to refusal of the Borrower to sign the Supplemental Letter on Financial and

Economic Data, as required by the Bank. The revised PDOs of the restructured project

were to be: (a) Expansion of electricity access in rural areas; (b) Improve the quality and

adequacy of the electricity supply; and (c) Regulatory and institutional reforms in the

sector to increase efficiency.

9. The Additional Financing in the form of an IDA grant of SDR 10.8 million

(US$ 17.5 million equivalent) would have supported the completion of the ongoing

rehabilitation and expansion of the Asmara Distribution component of the project in view

of cost overruns arising from higher unit costs of electrical equipment and materials. The

grant would also have supported a new project component for the overhaul and

rehabilitation of the key power generation plants at Hirgigo, Beleza and Assab to ensure

that electricity supply is maintained and outages are avoided.

10. However, the performance assessment for this ICR is based only on the original

project design and development objectives since the restructuring and Additional

Financing did not become effective.

1.4 Main Beneficiaries

11. The main beneficiaries of the project were the communities, private sector and

businesses in the rural areas where access to electricity was extended under the project.

About 7,350 electricity meters were installed benefiting an estimated 30,000 households

through meter sharing (or about 150,000 people) in 57 villages and small towns.

However, the main target group, which were households and businesses in Asmara have

not benefited because the rehabilitation and expansion of the Asmara distribution system

was not successful given that the EPC contract was terminated by the Contractor before

the works were completed. The Ministry of Energy and Mines (MEM), and EEC both

benefitted from the project, particularly from the capacity building and institutional

reform components. Staff in both entities received training in financial management,

procurement, power sector regulation and applications of GIS; a training coordinator was

hired to train a number of villagers on rural electrification and conduct stakeholder

workshops. A number of studies were completed to enable MEM and EEC to carry out

8

critical functions successfully, such as tariff setting. Studies included a study for

Establishment of the Regulatory body (Electricity Regulatory Committee), Rural

Electrification Fund Study and EEC Corporate Strengthening Study. The limited reforms

that were undertaken based on the studies made the two entities somewhat more effective

and efficient, though not to the extent anticipated at appraisal, such that only some of the

benefits are likely to be sustained in the long-run.

12. If the Asmara Distribution component is completed in the future, a large

population of Asmara (approximately 600,000) would benefit directly from the improved

supply of electricity and EEC would benefit from reduction in technical losses from over

20 per cent to about 7 per cent that will in turn put it on a path of financial sustainability.

Government would also benefit from reduced capital subsidies in the short term and

possibly through higher tax revenue from EEC in the long-run.

13. Secondary benefits in the Rural Electrification component that result from the

increased access to electricity in the rural areas, are, better education services, better

health services, more economic activities and higher incomes, reduced carbon emissions

from use of wood for fuel, and increased security in the villages connected through

lighting of selected public places where people congregate.

1.5 Original Components (as approved)

14. The components of the project as appraised were the following:

A. Asmara Distribution Rehabilitation and Expansion1 (US$34 million or 60 per cent)

consisting of replacing old systems (5.5 kV) with new ones (15 kV); replacement of

low voltage (127/220 V) systems with more efficient 400/230 V systems;

rehabilitation and construction of several sub-stations; underground placement of

medium-voltage cables in historic city center; replacement of open-wire distribution

network with safer aerial bunched cable systems; and provision of technical

assistance for training and consulting services to EEC for project design, management,

construction, and operation;

B. Rural Electrification (US$16.4 million or 29 per cent) consisting of the electrification

of 28,500 households, agricultural irrigation, pumps and other small businesses,

schools, clinics, churches, and mosques, etc. in about 80 villages around four selected

towns. The villagers contribute by making an up-front contribution to the Rural

Electrification Fund as per Eritrean practice;

C. Contribution to the revolving Rural Electrification Fund (US$1.4 million or 2 per

cent) involves establishing a Rural Electrification Fund to finance capital subsidies to

1 Hereinafter termed “Asmara Distribution component”

9

qualifying schemes to electrify additional villages, either by EEC, village

cooperatives, or private energy service companies;

D. Sector Reform and Institutional Capacity Building (US$4.7 million or 8 per cent) by

supporting the development of the institutional and regulatory aspects of the power

sector, including provision of advisory services, studies, and training; and

E. Environmental and Social Management (US$0.5 million or 1 per cent) for

implementing the Environmental and Social Management and Monitoring Plan

(ESMMP).

1.6 Revised Components

15. Not Applicable. Although the components were revised under the proposed

restructuring and Additional Financing approved by the Board, they are not assessed here

because the Additional Financing did not become effective.

1.7 Other Significant Changes

16. There are no other significant changes.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

17. Project Preparation. Adequate preparatory studies and analyses of the energy

sector and country background were undertaken to formulate the project objectives and

define the requisite interventions. The project was also appropriately aligned with the

Interim Support Strategy of the Bank, which was approved in 2000 and 2005.

Government’s commitment to reconstructing the country’s critical infrastructure was

high and so was its commitment to reforms in the energy sector. The four key issues

facing the energy sector, namely: (a) deficiencies in the power sector’s regulatory and

institutional framework; (b) low access to electricity in the rural areas; (c) deteriorating

condition of the Asmara electricity distribution system; and (d) need for improved

management of generating capacity, were correctly identified and addressed in the

preparation and design of the project. A technical feasibility and preliminary design study

prepared by an international consultant defined the technical components and parameters

for rehabilitating and enhancing the Asmara electricity distribution system and expanding

coverage to the rural areas.

18. Project Design. The project was designed well and kept simple. It addressed the

critical need to rehabilitate the antiquated electricity network in the capital city Asmara

and also to expand access to villages and towns in four rural areas. The design introduced

modern electricity network technology to enhance efficiency and sustainability. It was

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also innovative in its approach to the provision of electricity to rural areas, whereby a

revolving fund was established into which local communities would contribute funds to

meet the up-front cost of making the connections, thereby reducing the burden of subsidy

on the Government. The design of the project took cognizance of the lack of capacity in

the implementing entities by making adequate provision for technical assistance,

institutional strengthening and capacity building and initiating sector reforms. A tariff

study was intended to provide recommendations for tariff setting that would ensure

financial sustainability of EEC.

19. Risk Assessment. The overall risk rating at appraisal was substantial. Experience

during implementation of the project confirms that the rating at appraisal was appropriate.

20. The following critical risks were identified in the PAD:

Government willingness to implement the sector reforms. The willingness and

enthusiasm of Government to implement its reform strategy was high at the time

of appraisal but slowly reduced over time, particularly with regard to greater

involvement of the private sector and full cost recovery. Over time, private sector

activity stagnated due to adverse Government policies (e.g. strict foreign

exchange controls). The risk was partially mitigated by increased pressure on

MEM from the Bank to comply with legal covenants in the Development

Financing Agreement and implementation of EEC’s financial restructuring.

Government commitment to adopt new electrification approach. This risk was

successfully mitigated by adopting a phased approach for the Rural Electrification

component, including the establishment of the Rural Electrification Fund into

which the up-front connection costs contributed by local communities were

deposited.

Community willingness and capacity to implement a community-based

distribution business. The risk was suitably mitigated by the active outreach and

consultative approach adopted by MEM and EEC and the strong willingness of

the communities to participate.

Limited affordability or lower than expected demand in project areas. The risk

was mitigated by connecting only villages that paid an up-front contribution to the

connection costs. As noted above communities were without exception willing to

pay the upfront costs in order to participate in the Rural Electrification component.

Limited response from private entrepreneurs for rural electrification activities.

During the course of implementation of the project, Government policies stymied

the activities of the private sector.

Low-cost distribution designs and practices are not mainstreamed. The EEC

continued to show interest and commitment to adoption of low cost distribution

designs (for example the span between poles in the rural electrification

11

component was increased compared to previous practice leading to cost

reduction). However, since no rural electrification projects were financed outside

of the project, these designs could not be mainstreamed.

Electricity tariffs not timely and adequately adjusted. This risk was assessed as

Modest and to be mitigated by financing a study on electricity tariffs and assisting

the Government in establishing a suitable tariff setting mechanism. The study was

successfully carried out but despite two increases in tariff rates during project

implementation, EEC could not achieve full cost recovery and continues to

operate at a loss because of: (a) government’s inability to implement fully the

recommendations of the study in consideration of social and economic

implications of unaffordable tariffs; (b) the delay in expected efficiency gains due

to non-completion of the rehabilitation of the Asmara Distribution system; and (c)

the lower than expected growth in demand for electricity due to anemic economic

performance. In retrospect, this risk should have been assessed as substantial

given the history of government subsidy in the energy sector, high level of

technical losses, rapid decline in the value of local currency vis-à-vis the

difficulty of obtaining foreign exchange and the volatility of international

petroleum prices (over 80 per cent of EEC’s costs are for fuel purchase for

generation of electricity). Accordingly, although annual financial covenants in the

project encouraged the Government to adjust the tariff levels, these were not

complied with during the early stages of Project implementation and therefore had

to be modified in 2008.

Delays in implementing sector reforms due to inadequate management capability.

The risk was partly mitigated by obtaining government’s commitment prior to

negotiations, provision of technical assistance to conduct the necessary studies,

and ensuring stakeholder participation during the conduct of the studies. However,

the progress of private sector participation in rural electrification activities

remained slow. The Government systematically backed away from its initial

enthusiasm to promote private sector development and participation in the energy

sector. Tariffs were adjusted twice since 2004, but not to the extent recommended

in the study, and an interim committee (Electricity Regulatory Committee) was

set up to act as the regulatory body for the energy sector.

Delays in the implementation of the project. This risk, assessed as Modest, was to

be mitigated by providing implementation support to EEC through the support of

an experienced international management consultant acting as the Employer’s

Engineer; procurement and project management training for EEC and the MEM

staff; coordination of EEC with the Asmara City Council and the Infrastructure

Department to optimize construction scheduling in the city center; regular

monitoring by Bank supervision missions; and implementation of the Asmara and

the rural electrification components through "design, supply and installation" or

Engineering, Procurement and Construction

(EPC) contracts to reduce logistical and coordination problems.

12

21. All mitigation measures were implemented reasonably successfully. However,

while the Rural Electrification component was completed satisfactorily and on time, the

major component – Asmara Distribution component – was greatly delayed and remained

incomplete at the time of Credit closing. This was largely due to: (a) protracted delay and

disagreements between the Bank and EEC during the selection and final clearance by the

Bank of the lowest evaluated bidder arising from ambiguity (regarding pricing of certain

missing items of work) in the lowest bid received and therefore the evaluation; (b) the

rapid deterioration during implementation in the level of cooperation between the

selected EPC contractor and EEC; (c) unsuccessful attempts during implementation from

Bank’s supervision team to persuade either party to the contract (EEC and the

Contractor) to implement recommendations of the Employer’s Engineer; (d) untimely

termination of the contract by the Contractor; and (e) at times, rigid contract management

by EEC compounded by its reluctance to seek independent external professional advice

offered or facilitated by the Bank.

22. Quality at Entry. There was no QAG review done for the quality at entry of the

project. Overall, the quality at entry of the project is rated satisfactory given: (a) the

adequacy of appraising the country context; (b) background studies and analysis of the

energy sector; (c) alignment of the project and its development objectives to the priorities

and poverty reduction strategy of the Government of Eritrea as well as the Interim

Support Strategy of the Bank; (d) design of the components with emphasis on high

impact results considering the post-conflict situation in the country as well as

introduction of modern technology and an innovative approach to sharing of connection

costs by local communities; (e) adequate assessment of the capacity of the Borrower to

implement the project and provision of technical assistance and training to ensure

successful implementation; (f) adequate attention to environmental and social issues and

identification of appropriate measures to mitigate adverse impacts; and (g)

comprehensive consideration of risks to development outcomes and intermediate outputs.

In retrospect, more attention could have been paid to the likelihood of Government’s

reluctance to increase tariffs to the level of full cost recovery because of social and

economic considerations related to unaffordable tariffs as well as the shift in its policy

towards private sector development. Nevertheless, this was recognized by the Bank’s

supervision team during mid-term review, and which also led to the proposed

restructuring of the project and its objectives.

2.2 Implementation

23. The project was approved by the Board on July 6, 2004 and the Financing and

Project Agreements were signed on September 22, 2004. The credit became effective on

December 20, 2004.

24. The Rural Electrification component was implemented smoothly, in a timely

fashion and within budget, under two EPC contracts awarded to an international

Contractor. The Contractor employed local labor force in the project areas in erection of

the distribution lines. EEC assigned staff to supervise the work of the Contractor during

construction and commissioning. The Contract and Employer cooperated well in

13

overcoming constraints that could have caused implementation delays. For instance,

during periods of diesel shortages and rationing, the Contractor was able to provide

enough diesel so that its trucks and equipment could function.

25. In the Sector Reform and Institutional Strengthening component, all the planned

studies, namely, the tariff reforms, establishment of the regulatory body (Electricity

Regulatory Committee), Rural Electrification Fund Study, EEC Corporate Strengthening

were completed satisfactorily which enabled MEM and EEC to carry out critical

functions successfully and strengthen their capacity to manage the sector and deliver

services more effectively though not to the extent envisaged at appraisal. The exception

was the outcome of the Management Information Study which recommended a rather

elaborate and costly IT system for EEC without taking adequate consideration of EEC’s

priority needs or institutional capacity or of the service requirements to sustain it and

which was therefore rejected by EEC. Technical assistance provided to EEC (Financial

Adviser and IT Specialist) enabled the EEC to adopt international standards of

accounting, modernize its financial management and billing systems, and re-engineer its

organizational structure to improve its effectiveness as a public service provider. While

there was adequate provision in the project for training to support implementation of the

recommendations of the studies, staff in MEM and EEC received, only limited training in

accounting, financial management, GIS, procurement and power sector regulation to

enhance their human resource capacity, partly due to a government policy that put

restrictions on people below the age of forty to go out of the country. In addition the

anticipated training under the Asmara Distribution component was not implemented

because the EPC contract in the component was terminated prematurely by the

Contractor.

26. The major component of the project, the Asmara Distribution component, was

greatly delayed because of procurement related issues. When evaluating the EPC bids,

EEC was inclined to declare the eventual lowest evaluated bid non responsive but had

chosen to evaluate it (in view of the fact that there were only three bids) and loaded the

bid with estimated prices for missing items (chiefly civil works). After a protracted

period of consultation and review of the evaluation methodology proposed by EEC, the

Bank did not accept EEC’s proposal of bid loading for contract purposes. After contract

award, when disputes on implementation arose between the EEC and Contractor, EEC

felt its original assessment had been correct. As a result, a good working relationship

between the selected the Contractor and EEC was never established.

27. In the initial stages of the Asmara Distribution component in 2006, serious delays

occurred in finalizing the designs and agreeing on the changes to the specifications and

the approach to installing the cables and the equipment. By March 2007, the Contractor’s

progress was extremely slow and the relationship between the Contractor and EEC

rapidly deteriorated - largely centered on disputes between the two on the agreed scope of

works, timely submission of designs and specifications, change orders demanded by the

Contractor, cost escalation and differencesin interpreting the price adjustment provisions.

These issues were further compounded by the rapidly deteriorating macro-economic

environment in the country, when the Nakfa became grossly over-valued; inflation was

14

high; restrictions became tighter on foreign exchange; it became increasingly difficult for

people under the age of 40 who had not completed their national service to go abroad for

training; and licenses of local private sector construction contractors were revoked.

Efforts were made by MEM, EEC, the Employer’s Engineer and Bank supervision teams

to find amicable solutions, but these solutions, after being agreed, usually lasted for short

periods only. Despite all such efforts, the Contractor unilaterally and unexpectedly

terminated the contract on January 16, 2009. The Adjudicator designated under the

contract found the Contractor at fault and the Contractor has chosen to move to

international arbitration.

28. The Contractor in the Asmara Distribution

component, in a most unusual move, obtained a court

injunction in its home country against cashing of the

performance bond (US$ 3,106,775 equivalent), leaving

the Borrower with no immediate remedial option. About

80 – 85 percent of the materials and equipment have been

supplied under the contract but the Contractor has carried

out very little or no civil works and none of the materials

or equipment have been installed and commissioned

(photo opposite is of transformers supplied). After

termination, the Contractor did not agree with the handover procedures proposed by EEC

for the acquired assets, which were stored in its warehouse in Asmara, requiring EEC to

engage independent auditors to take stock of the equipment and prepare an official

inventory before it could possess them.

29. The two components (Asmara Distribution and Rural Electrification components)

- were supervised by internationally recruited consultants who acted as the Employer’s

Engineer. However, EEC often differed with their technical judgments and, in the case of

the Asmara Distribution component, did not to accept their recommendations in a number

of instances. In this component EEC imposed severe limitations on the Engineer – for

example it severely limited the consultants in communicating directly with the Contractor

and the Bank. Furthermore, personnel changes in the Engineer’s team had a negative

impact on project management. In the adversarial relationship that developed between the

EEC and the Contractor leading up to contract termination, the inflexible and

uncompromising stance of both parties hampered the effectiveness of the Employer’s

Engineer in attempting to ensure compliance by both parties with contract terms and

conditions and in advising the Employer on remedial actions to overcome critical

challenges. This in turn affected the effectiveness of Bank supervision in seeking to

facilitate dispute resolution since effective Bank supervision depends in part on drawing

on the recommendations of the Employer’s Engineer to persuade the parties in reaching

amicable agreement. In the case of the Rural Electrification component a dispute on

payments in Phase 1 (design and bidding) led to the Engineer demobilizing during Phase

2 (supervision of works) and supervision responsibilities were assumed by EEC itself

30. The establishment of the Rural Electrification Fund (RE Fund) was delayed but

eventually it became functional by 2006. At the time of preparing the ICR, the Borrower

15

reported a total contribution of Nfa 22.0 million (US$ 1.47 million equivalent) into the

Fund by participating villages. However, because of the delay in preparing and

submitting the Operational Manual by MEM, which was a pre-condition for disbursement

of IDA grant funds (SDR 0.97 million or $1.4 million) to the Fund, no disbursements

were made into the Fund as of the time of Credit closing. Another reason for non

disbursement of IDA grant funds into the RE Fund is that under the project restructuring

and Additional Financing approved by IDA in 2008, the funds earmarked for the Rural

Electrification Fund were to be re-allocated to the Asmara Distribution component but

this was not done because the Additional Financing did not become effective. Thereafter,

the Borrower continued to anticipate restructuring (with reallocation of the funds

earmarked for the RE fund) and requested so in March 2010.

31. EEC did not comply fully with the financial covenants, especially with regard to

debt service ratio, accounts receivable and self financing ratio, largely due to external

factors such as the sharp increase in fuel costs and the slow growth in the national

economy that slowed electricity consumption and new connections and because the

tariffs were not increased to cost-recovery levels due to social and economic impact

considerations by the Government. As a consequence, many of these financial covenants

were proposed to be dropped and modified in the restructuring and Additional Financing

approved in 2008.

32. Financial management and audit reports have been generally satisfactory with

occasional delays in submission of audit reports and some qualified management letters

that were satisfactorily followed up and issues resolved by EEC and MEM. Overall, SDR

14.5 million remain undisbursed, largely in the Asmara Distribution component (SDR

8.2 million); Sector Reform and Institutional Capacity Building Component (SDR 1.6

million); and Rural Electrification Fund Component (SDR 1.0 million).

33. A comprehensive Mid-Term Review of the project was carried out in February

2008, which led to the restructuring of the project and its development objectives and the

request for Additional Financing.

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

34. Design: The key performance indicators appropriately reflected the PDOs and

guided the monitoring and evaluation (M&E) of the project outputs and evaluation of

impacts. The indicators were adjusted during the project implementation on a number of

occasions to incorporate changing circumstances.

35. Implementation: As originally envisaged at the time of appraisal, the M&E of the

project was carried out through: (a) quarterly progress reports; (b) Bank supervision

missions; (c) project mid-term review; and (d) M&E reports by independent parties. EEC

was responsible for monitoring and evaluating the progress of the Asmara Distribution

and Rural Electrification components and MEM was in charge of monitoring and

evaluating the sector reform component. In general, quarterly progress reports were

submitted regularly until the project experienced serious delays due to the contractual

16

issues in the Asmara Distribution component at which point EEC became preoccupied

with attempts to resolve its disputes with the Contractor at the expense of timely

submission of quarterly reports. Bank supervision missions visited Eritrea regularly, and

discussed key issues related to the progress of the project. The Country Manager

participated in trying to facilitate resolution of the conflicts between EEC and the

Contractor.

2.4 Safeguard and Fiduciary Compliance

36. Overall compliance with safeguard policies is considered satisfactory. Project

design included procedures and implementation arrangements to ensure full consideration

of environmental and social safeguards. The project was categorized as environmental

category B, which requires a partial assessment, and triggered Environmental Assessment,

Cultural Property, and Involuntary Resettlement safeguard policies. The Environmental

and Social Management and Monitoring Plan (ESMMP) was approved by the MEM and

the Bank at the time of project appraisal. The three main areas in which environmental

and social safeguards were relevant to the project were: (a) supervision of the

environmental impacts of civil works linked to power lines and substations, (b)

supervision of involuntary resettlement and compensation, and (c) supervision of

archeological chance finds.

37. MEM was primarily responsible for the supervision of environmental and social

safeguards. The monitoring and mitigation measures of the ESMMP in the Asmara

Distribution component were not deployed as the physical works were not implemented.

In the Rural Electrification component, MEM, in collaboration with EEC, conducted

extensive discussions with stakeholders in the project. Monitoring of safeguard issues

was done with the participation of specialists.

38. Fiduciary compliance: Financial management review of the project is rated

satisfactory. It covered adequately the project accounting and reporting arrangements,

internal control procedures, planning and budgeting, counterpart funding, funds flow

arrangement, external audit reporting arrangements and project accounting staff issues.

2.5 Post-completion Operation/Next Phase

39. About 80-85 percent of the materials and equipment needed to complete the

Asmara Distribution component had already been supplied (amounting to about $16.8

million in value, or 50 per cent of the contract sum), waiting to be installed, when the

contract was terminated by the Contractor. Given that the project is closed and the

Additional Financing did not become effective, the Borrower is making an effort to

allocate government funds to undertake the remaining works. However, this is not likely

to be sufficient to complete the work. Therefore the Borrower is likely to seek assistance

from other development partners. At this stage, however, there is no clear indication that

17

EEC will obtain sufficient funds to complete the work. The cancellation of the US$1.4

million IDA grant will likely impair the sustainability of the Rural Electrification Fund.

18

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

40. The objectives and design of the project were relevant to the strategies of the

Government and the Bank at the time of appraisal and continue to be relevant today given

the critical state of electricity supply in Eritrea and the high priority accorded by the

Government to the improvement of infrastructure and delivery of services in the energy

sector.

3.2 Achievement of Project Development Objectives

41. The objective of improving the quality and reliability of electricity supply,

especially in the city of Asmara, was not achieved because the rehabilitation and

expansion of the Asmara distribution system, which was the major component of the

project, was not successfully completed. Voltages continue to fluctuate, power outages

remain frequent and technical losses in the system are still high (approximately 20 per

cent). On the other hand, the objective of establishing a program for expanding the

population’s access to electricity was reasonably well achieved, considering the highly

successful implementation of the rural electrification program which provided access to

nearly 30,000 new households, and so were some of the intermediate results such as: the

improvement in the organizational structure, accounting and billing system, and

management capacity of EEC; and the adoption of an appropriate regulatory framework

for the power sector including the establishment of the Electricity Regulatory Committee

as a step towards establishing a fully autonomous regulatory body. Nevertheless, the

overall achievement of the development objectives is considered unsatisfactory because

there is no significant improvement in the supply of electricity in Asmara, and it is

doubtful if the highly successful program of rural electrification is sustainable in the

absence of further injection of resources into the Rural Electrification Fund. It should be

noted that up until the ISR of June 2008, except in the June 2005 ISR, the PDO rating

was assessed as satisfactory because the Additional Financing had been approved and the

likelihood of achieving the PDOs was high. The rating was downgraded in December

2008 prior to termination of the EPC contract in the Asmara Distribution component.

This and the failure to make the Additional Financing effective due to Government action,

and the closing of the Credit without extension has made it unlikely for the project to

achieve the Development Objectives. F. Results Framework Analysis and Annex 2

give detailed summaries of the status of implementation of each component and sub-

component of the project.

3.3 Efficiency

42. The Economic and Financial analysis of the two major components, namely the

Asmara Distribution component and the Rural Electrification component are given in

Annex 3. Since the Asmara Distribution component was not implemented, the expected

19

benefits are zero given that at the time of preparing the ICR, there was no assurance that

funding would be provided to complete this component. Nevertheless, for the purpose of

post-review, an analysis is made of the expected benefits and estimated cost to

completion assuming that it will be completed by 2012 using alternative sources of

finance. Tables 1 and 2 below show the Economic and Financial Internal Rates of

Return (EIRR and FIRR) and the NPVs estimated during project appraisal as reflected in

the PAD and at the time of the preparation of the ICR, respectively for Asmara

Distribution component and the Rural Electrification component ).

Table 1 Economic and Financial Analysis at Appraisal and Project Completion

(Asmara Distribution component)

Analysis PAD ICR* Comments

Economic:

EIRR (%) 18.3 16.5 Economically viable

NPV (@ 12%) in

US$

12.3 million 12.8 million No significant difference

Financial:

FIRR (%) 9.7 10.6 Slight improvement financially

NPV (@ 12%) in

US$

-4.5 million -3.2 million

* Based on estimated cost of completing the component and expected benefits if the component is

completed.

43. The differences in the ex-post EIRR and economic NPV of the Asmara

Distribution component (Table 1) from the initial assessment, though not significant,

reflect a combination of the following factors: (a) increase in benefit from incremental

demand served reflecting the updated demand and supply capacity forecast in the Tariff

Study; (b) decrease in net benefit due to the delayed implementation of the project; (c)

increase in costs due to the fuel costs increase; and (d) decrease in economic benefits

from avoided industrial generation costs because of less-than-expected growth in the

industrial consumers segment. The FIRR remains low as before given the low cost-

recovery rates of the tariffs and the drop in the demand growth. Economically, the

component remains viable, given the positive NPV and the EIRR above 12 percent,

which is above the estimated cost of capital.

Table 2 Economic and Financial Analysis at Appraisal and Project Completion

(Rural Electrification component)

Analysis PAD ICR Comments

Economic:

EIRR (%) 12.6 9.8 Decrease in EIRR due to reduced

number of connections than at

appraisal

NPV (@ 12%) in

US$

0.4 million -1.2 million

20

Financial:

FIRR (%) 7.4 7.2 No significant difference

NPV (@ 12%) in

US$

-1.5 million -2.6 million Slight decrease in NPV

44. In the case of the Rural Electrification component (Table 2), the minor differences

between the ex-ante and ex-post estimates stem mainly from the decreased number of

consumers connected by the project. These estimated returns are based on the most

conservative estimate of the number of beneficiaries. The decrease in the EIRR is due to

the increased cost of equipment and supplies since the project commencement; and

because 21 villages had to be dropped from the original list of villages to be supported

under this component.

3.4 Justification of Overall Outcome Rating

Rating: Unsatisfactory

45. The overall outcome rating is judged as unsatisfactory because the main objective

of improving the supply and reliability of electricity to the population of Asmara was not

achieved and there is no certainty that it will be achieved in the near future. Similarly,

although highly successful, there is no certainty that the program for providing access to

electricity in the rural areas is sustainable, given that the IDA grant to the Rural

Electrification Fund was never made or that the program can be scaled up given that EEC

is still financially weak.

3.5 Overarching Themes, Other Outcomes and Impacts

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

46. The Rural Electrification component has benefited

nearly 150,000 people in rural areas, including women and

children (photo opposite is of children in one of the

electrified villages). As a result, there is less consumption of

diesel, kerosene and biomass. Schools and homes have

lights so that children can study in comfort sparing them

health issues from burning fuels. In one instance an electric

immersion pump was being used in a village to pump water

into a tank where it was conveniently collected by villagers,

particularly benefiting women who would save time for

more household and farming activities. Some improvements in schooling of children (e.g.

use of computers) and people’s livelihoods were observed during the ICR mission.

(b) Institutional Change/Strengthening

47. The project contributed to institutional changes and strengthening of capacity in

MEM and EEC. The EEC management structure is re-organized to handle better the

21

commercial and financial aspects; the accounting systems have been modernized to

conform to international practice; the billing system was updated and made more

effective (billing coverage of all consumers is about 95 per cent); the Electricity

Regulatory Committee is partly functional; and staff have been trained in the areas of

procurement, financial management and energy regulation. However, the project was not

successful in installing a new billing system (i.e. billing hardware system) in EEC under

the Management Information System sub-component nor was the anticipated training of

EEC manpower carried out under the Asmara Distribution component and a number of

study tours as well as training programs planned by MEM remain unimplemented. The

implementation of this component is therefore judged as moderately satisfactory.

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

48. There are no other unintended outcomes.

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

49. Not applicable. No formal survey of beneficiaries or stakeholders was conducted

for this ICR. However, during the ICR mission, Bank team interviewed a random sample

of beneficiaries of the Rural Electrification component and it was reported that the

introduction of electricity in the villages had made significant difference to the wellbeing

of the villagers, especially in terms of: (a) improving the schooling of children; (b) access

to water from elevated tanks; (c) use of computers in schools; (d) savings in cost of

kerosene used for lighting lamps; and (e) savings in cost of diesel where generators were

earlier in use. Widespread use of electricity for small businesses had not yet been

observed.

4. Assessment of Risk to Development Outcome Rating: Substantial

50. The risk to the development outcome is rated substantial. While the Rural

Electrification component has almost completed, only part of the equipment and

materials procurement has been done under the Asmara Distribution component with

neither the civil works constructed nor any of the equipment installed and commissioned.

There are four major risks to the development outcomes:

Funding gap: Given that the civil and installation works still need to be carried out

for the Asmara Distribution component, closing of the IDA Credit before

completion of all components poses a serious risk to the achievement and

sustainability of the project benefits. This is particularly a concern in the Eritrean

context where the prospect for accessing alternative funding is uncertain. Even for

the Rural Electrification component, which has been successfully implemented

with substantial up-front contributions made by the local communities in the

project area, the cancellation of the US$1.4 million IDA grant will likely impair

the sustainability of the Rural Electrification Fund.

22

EEC’s financial performance: EEC’s weak corporate financial status poses a

major risk to the implementation of the remaining Project components and

sustaining the development outcomes. Unless the Asmara Distribution component

is fully implemented to reduce the losses in the electricity system and improve

EEC’s revenue position, together with additional measures necessary to improve

the organization’s financial performance, such as the implementation of the

Electricity Tariff Study recommendations and EEC’s financial restructuring,

achieving and sustaining the benefits of the project and its development outcomes

will continue to face challenges.

Materials and equipment management: With about 80-85 per cent of the materials

and equipment purchased and the prospect for continuing and finishing their

installation uncertain, the risk is high that a large part of the equipment will not be

installed and will deteriorate over time – representing a waste of resources.

Generation capacity: As the project implementation was delayed, enhancing the

installed generation capacity has become an urgent priority in Eritrea. Given that

97 per cent of the electricity generated in the country’s inter-connected grid

comes from a single power plant, rehabilitating the existing power plant and

augmenting additional generation capacity will be crucial to allow for appropriate

maintenance of the plant. In the absence of the Additional Financing of the project,

which was targeted to address this issue but did not become effective, this aspect

would need to be addressed urgently to achieve the quality and reliability of the

electricity supply. EEC has indicated that a development partner may support the

rehabilitation of some of the existing power plants.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

51. The Bank’s performance in ensuring the quality at entry is judged satisfactory

given the relevance of the project Development Objectives and their alignment with the

Bank’s Interim Support Strategy and the Borrower’s stated priorities, appropriateness of

the selected interventions, assessment of the Borrower’s capacity to implement the

project and sustain the benefits and facilitation of critical institutional and policy reforms

in the energy sector.

(b) Quality of Supervision

Rating: Moderately satisfactory

23

52. The quality of supervision is judged less than satisfactory or moderately

satisfactory considering that the Bank, despite its numerous attempts to address the series

of disputes that arose between the Contractor and Employer in the Asmara Distribution

contract, did not succeed in its efforts to persuade either party to the contract (the

Employer and the Contractor) to follow recommendations of the Employer’s Engineer. In

all other respects, the Bank supervision team provided timely advice, showed flexibility,

was responsive to Client requests and facilitated the smooth implementation of all other

components. The Bank team offered to approve financing under the project the services

of an independent legal counsel to facilitate a satisfactory resolution of the contractual

differences between the Contractor and EEC, but this was rejected by EEC on the

grounds that they were sure of their legal stand. There were no major issues with the

fiduciary and safeguards policies which were adhered to and supervised well by the Bank

team. Despite the overall poor Eritrea-Bank relationship at the time, the team regularly

highlighted the key issues, proactively sought solutions and undertook restructuring

measures for risks that became manifest or arose in the course of implementation. In June

2008, IDA’s Board approved the proposed restructuring of the project and Additional

Financing required to complete the project successfully. This demonstrates proactivity on

the part of the team in responding to the changed country and sector circumstances since

the project was approved. However, the restructuring did not become effective for the

reasons noted in Section 1.3.

(c) Justification of Rating for Overall Bank Performance


53. The overall Bank performance is rated moderately satisfactory considering the

quality at entry is rated satisfactory, but the quality of supervision is rated moderately

satisfactory. While the net outcome of the project at the time of Credit closing is rated

unsatisfactory, it is clear that the key decisions that led to the failure were outside the

control of the project implementing entities and the Bank’s supervision team. First, the

Government’s refusal to sign the Supplemental Letter for Additional Financing approved

by the Bank Board led to: (a) the abandonment of the Additional Financing and

implementation of the restructured project; and (b) premature closing of the original

Credit without extension of time to complete the Asmara Distribution component. The

poor relationship between the Borrower and the Contractor in the Asmara Distribution

component (for the reasons noted in Section 2 above) overshadowed Bank team’s

proactive efforts to solve the issues encountered during this component’s implementation,

including: the team’s offer to support independent review of contractual issues by a

contract specialist; extensive consultation with Bank’s Africa Regional Procurement

Manager’s office (RPM) and Legal Procurement (LEGPR) on the contractual disputes

between the Contractor and the Borrower in this component; advice given to the

Borrower to change key project management personnel so as to enhance effectiveness;

advice provided to the Borrower in preparing an alternative implementation plan for the

Asmara Distribution component when the first contract failed; re-allocation of funds from

the REF to the Asmara Distribution component; and facilitation of the overall

restructuring of the project including Additional Financing and extension of closing date.

24

54. Even though efforts were made by the Bank to address the implementation delays

in the Asmara Distribution component and in differences in the interpretation of the

contract to the point of elevating the issue to the Ministerial level, the Bank’s team might

have exerted greater influence during supervision missions to enable the Employer’s

Engineer recommendations to prevail, whether against the Contractor or EEC. However,

EEC was rather rigid and uncompromising in its interpretation of the contract provisions

and continued to keep the Engineer mostly in the background and at times to over-rule

his recommendations. It is also noted that these shortcomings need to be seen in the

context of deteriorating Eritrea-Bank relationship during the course of implementation.

25

5.2 Borrower Performance

(a) Government Performance Rating: Unsatisfactory

55. The Ministry of Finance provided good support to the project including temporary

tax exemption and adequate counterpart funding. However, the overall performance of

the Government during project implementation is rated unsatisfactory because of

counter-productive policies and decisions that led to the rapid deterioration in the macro-

economic environment (high inflation, foreign exchange restrictions and an over-valued

local currency); stifling of the private sector (e.g. cancelation of private contractors’

licenses that negatively impacted on the civil works part of the Asmara Distribution

component); and ultimately its refusal to sign the Supplemental Letter which led to the

suspension of the Bank’s assistance program including untimely closure of the project.

(b) Implementing Agency or Agencies Performance


56. The performance of the Ministry of Energy and Mines is judged as moderately

satisfactory considering it undertook satisfactorily the studies planned under the project,

established the Eritrean Electricity Committee in lieu of a fully fledged regulatory body

for the energy sector, established the Rural Electrification Fund and developed an

appropriate framework for its administration, conducted stakeholder workshops, and

imparted training to its staff. However, while it provided periodic support to EEC as the

implementing agency for the major components of the project (such as conducting

stakeholder workshops and facilitating the participation of villagers in the rural

electrification projects), it failed to take decisive actions in resolving the intermittent

conflicts between the Contractor and EEC on the Asmara Distribution component.

57. The performance of EEC is also judged moderately satisfactory considering its

role in the successful implementation of the Rural Electrification component and its role

the Asmara Distribution component and the Management Information System (including

billing system) that were both not successfully completed. EEC was pre-occupied with

the problems facing the implementation of the Asmara Distribution component at the

expense of implementing reforms in the management of EEC and overhaul of its billing

system. After the Asmara Distribution contract was terminated by the Contractor in

January 2009, very little was achieved in the form of developing and implementing an

alternative plan of action until January 2010 following a Bank implementation support

mission in December 2009 when EEC submitted an alternative implementation plan that

was acceptable to the Bank. During this period between termination of the EPC contract

and the formulation of an alternative implementation plan, EEC and the Contractor had

protracted discussions on the handover of equipment. When Bank management

subsequently did not allow extension of the project closing date beyond July 2010 the

plan could not be put into effect.

26

(c) Justification of Rating for Overall Borrower Performance

Rating: Moderately unsatisfactory

58. The overall performance of the Borrower is rated moderately unsatisfactory, in

view of the fact that the overall performance of the Government is rated unsatisfactory

but the performance of the implementing agencies, including the Ministry of Energy and

Mines, is rated moderately satisfactory.

6. Lessons Learned

59. The following lessons can be drawn from the experience with the project, namely:

The Bank and Borrower disagreed in the interpretation of procurement guidelines

in the case of the Asmara Distribution EPC contract evaluation. This lack of

shared common understanding led to protracted delay in finalizing bid evaluation.

The Borrower remained dissatisfied with the outcome and this had a negative

impact on implementation. If a similar case were to arise in the future, it would be

important for the Bank and Borrower to share from the outset, a common

understanding of how procurement guidelines should be applied;

The Contractor in the Asmara Distribution component obtained a court injunction

in his home country against cashing of the unconditional performance bank

guarantee leaving the Borrower with no immediate remedial option. A

performance guarantee is meant to be irrevocable and this action of the Contractor

has very few precedents in Bank financed projects. The Bank should examine this

case to determine if there are lessons to be drawn for the terms of performance

guarantees in Bank financed projects; and

When the Bank and Borrower relationship deteriorates to the point where the

overall dialogue is not in the least constructive, the likelihood of negative spill-

over effects on projects should not be underestimated. In such an environment,

when a project encounters implementation problems, there is little leverage that

can be exerted through the overall country dialogue to resolve the problems.

27

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

60. The Borrower has not formally submitted its own implementation completion

report. Neither has the Borrower formally provided comments on the draft ICR.

61. EEC told the ICR mission that its recommendation not to award the contract to

the selected Contractor was based on their conviction that the Contractor did not price

some major items including civil works in its EPC bid proposal and that adjusting the bid

by using the average price of the other bidders for these items for evaluation purposes

was the correct approach. EEC told the ICR mission that in its opinion, the Bank should

have accepted this approach. The assessment of the ICR mission was that EEC’s view

influenced its contract management approach. When during implementation, EEC

became dissatisfied with the performance of the Contractor its approach to resolving

contractual problems was influenced by its conviction that despite having agreed to

undertake the works at the low bid price, the Contractor did not intend to carry out the

works at the bid price.

(b) Cofinanciers

62. None.

(c) Other partners and stakeholders

63. None.

28

Annex 1. Project Costs and Financing

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

Components Appraisal Estimate

(USD millions)

Actual/Latest

Estimate (USD

millions)

Percentage of

Appraisal

Asmara Distribution

Rehabilitation and Expansion 29.57 16.75 56.6

Rural Electrification 13.78 12.34 89.6

Rural Electrification Fund 1.41 - 0.0

Sector Reform and Institutional

Capacity Building 4.34 1.59 36.6

Environmental Management 0.43 0.06 14.2

Total Baseline Cost 49.53 30.74 62.1

Physical Contingencies

4.50

0.00 0.0

Price Contingencies

3.15

0.00 0.0

Total Project Costs 57.18 30.74 53.8

Front-end fee PPF 0.00 0.00 -

Front-end fee IBRD 0.00 0.00 -

Total Financing Required 57.18 30.74 53.8

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

millions)

Percentage of

Appraisal

Borrower - 7.20 Data not

available

Data not

available

International Development

Association (IDA) - 29.00 14.21 49.0

IDA GRANT FOR POST-

CONFLICT - 21.00 16.49 78.5

29

Annex 2. Outputs by Component

A. Asmara Distribution System Rehabilitation and Expansion

Items Status

Replacement of old 5.5 kV MV system by 15 kV

system

Underground cable, overhead lines and new

cross-arms and insulators are procured.

Installation of new 15 kV/LV distribution transformers

and associated fuse gear

Transformers are procured.

Construction of a new 66/15 kV substation at Asmara

North

Transformers and switchgears are procured and

construction has commenced but not yet

finished.

Upgrading/rehabilitation of the existing substations at

Gejeret

Transformers, switchgear and switchboard are

procured but installation work is not yet done.

Upgrading/rehabilitation of the existing substations at

Denden

Transformers and switchboard are procured but

installation work is not yet done.

Minor works at Asmara East substation Done by EEC.

Minor works at Belesa substation Materials are 90 per cent procured but

installation work is not yet done.

Replacement of 66 kV overhead line between Gejeret

and Denden substations by 66 kV underground cable

Installation is not yet done.

Dismantling and removal of 66 kV lines between

Belesa and Asmara Central substations and between

Gejeret and Denden substations

Replacement of the open-wire distribution systems by

aerial bunched cable (ABC)

Elimination of 127/220 V LV system and replacement

by 400/230 V system

Replacement of service connections and new meters

for affected consumers

Training and consulting services to EEC Not done.

B. Rural Electrification

Items Status

Electrification in 80 villages in the hinterland of four

towns of Keren, Barentu, Dekemhare, and Adi Keih

57 villages are electrified

Training and consulting services to EEC Done

C. Rural Electrification Fund

Items Status

Government to establish a Rural Electricity Fund

(REF) to finance capital subsidies to qualifying

schemes to electrify additional villages

REF was established and initial contribution of

Nakfa 22 million was made, exceeding the

initial target of Nakfa 10 million.

30

D. Sector Reform and Institutional Capacity Building

Items Status

Advisory services, studies, and training to establish a

modern legal and regulatory framework for the power

sector

Done.

Set up a suitable tariff setting policy and mechanism Done.

Training of MEM, EEC, regulator, and REF staffs Not done.

Training and information to entrepreneurs on using

electricity for increased productivity and income

generation

Some training activities were done.

Training and information to rural farmers on the costs

and benefits of shifting to electric irrigation pumps

Some training activities were done.

EEC capacity building Not done except for some workshops

organized by MEM and billing system

consulting provided.

MEM capacity building Not done except for MEM in-house monitoring

and evaluation of the project’s outputs and

impacts.

E. Environment and Social Management

Items Status

Implementation of the Environmental and Social

Management and Monitoring Plan

Done.

31

Annex 3. Economic and Financial Analysis

1. At the time of appraisal, net economic and financial benefits, in terms of net

present value and internal rates of return (EIRR and FIRR), were estimated for the

Asmara Distribution Component (Component A) and the Rural Electrification

Component (Component B) respectively. This section adopts similar

methodologies used in the ex-ante economic and financial analysis, subject to the

availability of data, and updates the analysis undertaken in the PAD.

2. For this ex-post economic and financial analysis, some key assumptions are made.

For example, at the time of this ICR, the Component A was not yet complete.

Accordingly, there is no actual stream of economic benefits from this component,

hence the realized NPV and EIRR are technically non-existent. Nevertheless, for

the purpose of comparison and possible future use, the economic and financial

analysis of this component is made on the basis of estimated cost to completion

and the expected benefits if the component is completed. Where realized data

could not be obtained or was insufficient, the analysis relied on a combination of

actual and estimated figures. The assumptions adopted are described in such

instances.

Economic Analysis

A. Asmara Distribution Rehabilitation and Expansion Component (Component A)

3. In the PAD, the Economic Internal Rate of Return (EIRR) and economic NPV@

12 per cent for Component A were estimated to be 18.3 percent and US$12.3

million respectively. The economic benefits of this component are assumed to

derive from: (i) incremental demand for electricity served by the project, (ii)

avoided cost of industrial generation, (iii) avoided cost of unplanned outages, and

(iv) savings in distribution O&M costs. The economic costs of the component are

assumed to be: (i) distribution investment costs, (ii) consumer appliance switching

costs, (iii) the costs of connecting additional consumers; and (iv) incremental

generation and transmission O&M costs.

4. Ex-post, all these economic cost and benefit items are re-estimated using similar

methodologies except for the costs of consumer appliance-switching, which could

not be estimated in this ex-post analysis because it has continuously been

undertaken in the project area before the project completion and data were

deficient. . It is also assumed that the component A will be finalized in 2012 with

additional disbursements of US$10 million, which is within the resource envelope

of the undisbursed amount in the project. Updating the assumptions used in the

ex-ante analysis, the EIRR and economic NPV are estimated to be 16.5 percent

and US$ 12.8 million respectively. These figures show that this component is

economically viable.

32

Table 3.1: EIRR and Economic NPVs for Component A

EIRR NPV AT 12% DISCOUNT RATE

PAD 18.3% US$ 12.3 million

ICR 16.5% US$ 12.8 million

5. The slight differences in the ex-post EIRR and economic NPV from the initial

assessment, though not significant, reflect a combination of the following factors:

(i) increase in benefit from incremental demand served reflecting the updated

demand and supply capacity forecast in the Tariff Study; (ii) decrease in net

benefit due to the delayed implementation of the project; (iii) increase in costs due

to the fuel costs increase; and (iv) decrease in economic benefits from avoided

industrial generation costs because of less-than-expected growth in the industrial

consumers segment. Updated table on the sales of electricity in Asmara,

indicating both the forecast at appraisal and the actual, is attached below.

Table 3.2: Asmara Sales Forecast and Actuals For the Year Ended December 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Energy Sales (GWh)

Domestic 40.37 40.44 45.85 50.83 55.86 58.11 60.46 64.76 69.38 74.67 80.37 86.10

(Actual) 40.37 40.44 45.85 50.83 55.86 60.64 64.50 62.60 67.03 68.40 73.20

Commercial 16.27 15.68 20.62 25.14 26.65 27.72 28.84 30.60 32.62 34.94 37.42 39.89

(Actual) 16.27 15.68 20.62 25.14 26.65 29.09 30.05 28.05 29.96 31.94 31.42

Street Light 3.04 2.10 2.75 2.27 2.58 2.66 2.74 2.87 3.02 3.08 3.14 3.20

(Actual) 3.04 2.10 2.75 2.27 2.58 3.28 3.20 2.08 2.69 3.67 3.51

Small Industries L.V. 12.03 12.24 11.54 12.39 14.11 15.41 16.83 18.73 20.85 22.98 25.34 27.94

(Actual) 12.03 12.24 11.54 12.39 14.11 16.68 16.34 15.79 18.05 17.53 17.76

Small Industries M.V. 12.32 13.73 13.21 11.76 10.97 11.30 11.65 12.12 12.73 13.63 14.60 15.64

(Actual) 12.32 13.73 13.21 11.76 10.97 8.81 7.02 8.39 8.64 9.60 10.83

Large Industries 17.77 19.48 16.97 16.36 15.99 16.47 16.97 17.82 18.90 20.25 21.68 23.22

(Actual) 17.77 19.48 16.97 16.36 15.99 15.23 14.88 16.27 18.69 12.47 16.01

Total 101.80 103.68 110.93 118.75 126.15 131.67 137.48 146.90 157.49 169.55 182.56 195.99

(Actual) 101.80 103.68 110.93 118.75 126.15 133.73 135.99 133.17 145.06 143.61 152.74 -

1.8% 7.0% 7.0% 6.2% 4.4% 4.4% 6.9% 7.2% 7.7% 7.7% 7.4%

(Actual) 1.8% 7.0% 7.0% 6.2% 6.0% 1.7% -2.1% 8.9% -1.0% 6.4%

Losses (%) 17.5% 7.8% 16.6% 17.4% 17.9% 18.0% 18.0% 18.2% 12.4% 6.6% 6.7% 6.9%

Energy imported to Asmara 123.4 112.4 133.0 143.7 153.7 160.6 167.7 179.6 179.8 181.5 195.7 210.5

Load factor (%) 71.2% 65.0% 58.1% 60.6% 59.3% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%

System peak demand (MW) 19.8 19.7 26.1 27.1 29.6 30.6 31.9 34.2 34.2 34.5 37.2 40.1

Consumer Nos.

Domestic 53,425 52,744 53,390 54,525 57,551 58,702 59,876 61,672 63,523 65,428 67,391 69,413

(Actual) 53,425 52,744 53,390 54,525 57,551 59,084 59,837 61,631 64,120 65,567 68,668

Commercial 10,662 10,059 10,744 11,096 11,309 11,535 11,766 12,001 12,301 12,609 12,924 13,247

(Actual) 10,662 10,059 10,744 11,096 11,309 10,734 10,631 10,570 10,547 10,531 10,505

Street Light 166 170 178 182 192 198 204 212 220 225 229 234

(Actual) 166 170 178 182 192 199 208 211 218 222 224

Small Industries L.V. 1,922 1,879 1,305 1,393 1,481 1,555 1,633 1,731 1,835 1,926 2,023 2,124

(Actual) 1,922 1,879 1,305 1,393 1,481 1,524 1,565 1,589 1,600 1,568 1,569

Small Industries M.V. 70 70 69 70 71 72 72 73 75 76 78 79

(Actual) 70 70 69 70 71 61 60 59 58 58 56

Large Industries 17 17 17 17 18 18 18 19 19 19 20 20

(Actual) 17 17 17 17 18 19 19 19 19 19 17

Total 66,262 64,939 65,703 67,283 70,622 72,080 73,569 75,708 77,972 80,283 82,664 85,117

(Actual) 66,262 64,939 65,703 67,283 70,622 71,621 72,320 74,079 76,562 77,965 81,039 -

33

Table 3.3: Summary of Economic Costs and Benefits (Component A)

Domestic

Street

lighting

Commerci

al

S.

Industries

(LV)

S.

Industries

(MV)

L.

Industries

2004 - - - - - - - - - - 0.74 - - - 0.74 (0.74)

2005 - - - - - - - - - - 3.19 - - - 3.19 (3.19)

2006 - - - - - - - - - - 0.82 - - - 0.82 (0.82)

2007 - - - - - - - - - - 0.37 - - - 0.37 (0.37)

2008 - - - - - - - - - - 9.34 - - - 9.34 (9.34)

2009 - - - - - - - - - - 2.53 - - - 2.53 (2.53)

2010 - - - - - - - - - - 0.10 - - - 0.10 (0.10)

2011 - - - - - - - - - - 3.00 - - - 3.00 (3.00)

2012 - - - - - - - - - - 5.00 - 0.18 2.89 8.07 (8.07)

2013 1.70 0.10 0.94 0.42 0.26 0.27 0.54 0.03 0.08 4.34 2.00 0.01 0.37 5.99 8.37 (4.03)

2014 2.64 0.16 1.46 0.66 0.40 0.41 0.57 0.03 0.17 6.50 0.27 0.01 0.37 5.99 6.64 (0.14)

2015 3.64 0.23 2.02 0.91 0.56 0.57 0.61 0.03 0.25 8.82 0.27 0.02 0.37 5.99 6.64 2.17

2016 4.71 0.29 2.61 1.18 0.72 0.74 0.66 0.03 0.25 11.20 0.27 0.02 0.37 5.99 6.65 4.55

2017 5.86 0.36 3.25 1.47 0.90 0.92 0.70 0.03 0.25 13.74 0.27 0.02 0.37 5.99 6.65 7.10

2018 7.09 0.44 3.93 1.78 1.08 1.11 0.75 0.03 0.25 16.47 0.27 0.02 0.37 5.99 6.65 9.82

2019 8.41 0.52 4.66 2.11 1.28 1.31 0.80 0.03 0.25 19.38 0.27 - 0.37 5.99 6.63 12.75

2020 9.82 0.61 5.44 2.46 1.50 1.53 0.86 0.03 0.25 22.50 0.27 - 0.37 5.99 6.63 15.87

2021 11.33 0.70 6.27 2.84 1.73 1.77 0.92 0.03 0.25 25.84 0.27 - 0.37 5.99 6.63 19.21

2022 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2023 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2024 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2025 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2026 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2027 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2028 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2029 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

2030 12.94 0.80 7.16 3.24 1.98 2.02 0.98 0.03 0.25 29.41 0.27 - 0.37 5.99 6.63 22.78

- - - - -

@ 12% 12.78

@10% 23.44

EIRR 16.49%

(IV)

Distributio

n O&M

cost

savingsYear

(I) Increased demand served

ECONOMIC BENEFITS

Total

Economic

Benefits

(II)

Avoided

industrial

generation

(III)

Avoided

cost of

outages

(V)

Distributio

n

investment

NET

BENEFI

TS

Total

Economic

Costs

ECONOMIC COSTS

(VII)

Increment

al Hirgigo

O&M

(VIII)

Increment

al Hirgigo

fuel

(VI) New

consumer

connection

s

34

B. Rural Electrification Component (Component B)

6. At appraisal, the EIRR and economic NPV@ 12 per cent of Component B were

estimated to be 12.6 percent and US$ 0.4 million. The economic benefits of this

component were the estimated incremental demand served by the project for

different types of consumers and savings in resource cost compared to the demand

served. Assumptions were made on monthly savings in household expenditures

on energy as well as avoided costs of using local diesel generators for commercial,

small industrial, and irrigation consumers. The economic costs of the component

were investment costs and operating costs in the four project areas, and the grid

supply costs.

7. It was estimated at the time of appraisal that average benefits per kWh for each

consumer category were US$0.16 per kWh for residential consumers and public

institutions and US$ 0.24 per kWh for consumers from commercial, industrial and

irrigation sectors. These assumptions were reviewed and reconfirmed on real

basis during the ICR mission, after taking the inflation rates in Eritrea into

consideration. Some sample residential households interviewed told the mission

that they saved about 190-200 Nfa per month for three light bulbs, translating to

about US$ 0.40 per kWh equivalent. Calculation at the time of ICR also indicates

that industries would save about US$ 0.45 per kWh for avoiding the usage of

diesel generators.

8. Ex-post analysis followed the methodology adopted at appraisal with updated

assumptions. Although the Borrower indicated during the ICR mission that about

30,000 households were electrified, to be on the conservative side, this analysis

based the estimated number of households on the most recent written table

available, which suggests about 22,700 households have benefited from this

component in 2010. The EIRR and economic NPV of the component thus

estimated are 9.8 percent and US$ -1.2 million respectively.

Table 3.4: EIRR and Economic NPVs for Component B

EIRR NPV AT 12%

DISCOUNT RATE

PAD 12.6% US$ 0.4 million

ICR 9.8% US$ -1.2 million

9. The differences between the ex-ante and ex-post analysis stem mainly from the

lower than expected number of consumers connected by the project. This is due to

the increased cost of equipment and supplies since the project commencement; 21

villages had to be dropped from the original list of communities to be supported

under this component.

35

Table 3.5: Summary of Economic Costs and Benefits (Component B)

ECONOMIC

COSTS

Total Keren Barentu Dekemhare Adi Keih Total

2004 0.12 - - - - - (0.12)

2005 2.11 - - - - - (2.11)

2006 4.07 - - - - - (4.07)

2007 5.23 0.75 0.49 0.64 0.19 2.07 (3.16)

2008 1.80 0.76 0.49 0.65 0.19 2.10 0.30

2009 1.28 0.77 0.50 0.66 0.19 2.12 0.84

2010 0.83 0.78 0.50 0.67 0.20 2.15 1.32

2011 0.84 0.79 0.51 0.68 0.20 2.18 1.34

2012 0.85 0.80 0.52 0.69 0.20 2.20 1.35

2013 0.86 0.81 0.52 0.70 0.20 2.23 1.37

2014 0.87 0.82 0.53 0.71 0.21 2.26 1.39

2015 0.88 0.83 0.54 0.71 0.21 2.28 1.41

2016 0.88 0.84 0.54 0.72 0.21 2.31 1.43

2017 0.89 0.85 0.55 0.73 0.21 2.34 1.45

2018 0.90 0.86 0.55 0.74 0.21 2.37 1.47

2019 0.91 0.87 0.56 0.75 0.22 2.40 1.49

2020 0.92 0.88 0.57 0.76 0.22 2.43 1.51

2021 0.93 0.89 0.58 0.77 0.22 2.46 1.53

2022 0.94 0.90 0.58 0.78 0.22 2.49 1.55

2023 0.95 0.91 0.59 0.79 0.23 2.52 1.57

2024 0.96 0.92 0.60 0.81 0.23 2.55 1.59

2025 0.97 0.93 0.60 0.82 0.23 2.58 1.61

EIRR 9.78%

NPV@12% (1.23)

NPV@10% (0.14)

ECONOMIC BENEFITS NET

BENEFITS

Financial Analysis

A. Asmara Distribution Rehabilitation and Expansion Component

10. At appraisal, the Financial Internal Rate of Return (FIRR) and financial NPV of

Component A were estimated to be 9.7 percent and US$ -4.5 million. Ex-post,

using cash inflows and outflows caused by this component, these figures are

estimated to be 10.6 percent and US$ -3.2 million. It was assumed that 30 per cent

tax will be levied on the project after its operating revenues become positive.

36

Table 3.6: FIRR and Financial NPVs for Component A

FIRR NPV AT 12%

DISCOUNT RATE

PAD 9.7% US$ -4.5 million


B. Rural Electrification Component

11. The initial FIRR and financial NPV, discounted at 12 per cent, of Component B

were 7.4 percent and -US$1.5 million. At the time of this ICR, these figures are

estimated to be 7.2 percent and US$ -2.6 million.

Table 3.7: FRR and Financial NPVs for Component B

FRR NPV AT 12%

DISCOUNT RATE

PAD 7.4% US$ -1.5 million


37

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Peter Beard Consultant Power Engineer

Ludmilla Butenko Sr. Financial Analyst AFTEG Financial Analyst

Raihan Elahi Senior Energy Specialist AFTEG Financial Analyst

Steve Gaginis Finance Officer Financial

Management

Tesfaalem Gebreiyesus Sr. Procurement Specialist AFTQK Procurement

Alfred Gulstone Lead Power Engineer TTL

Roxanne Hakim Sr. Anthropologist ECSS4 Social safeguards

Helena Mamle Kofi Procurement Analyst Procurement

Paivi Koljonen Lead Energy Specialist AFTEG TTL, preparation

and implementation

Amadou Konare Environmental Consultant Environmental

safeguards

Brighton Musungwa Sr. Financial Management

Specialist AFTFM

Financial

Management

Edith Mwenda Sr. Counsel Legal

David V. Phan Program Assistant MNSED Program assistant

Enrico Pinali Project Analyst Project analyst

Chrisantha Ratnayake Consultant Power engineer

Francesco Sarno Sr. Procurement Specialist Procurement

Supervision/ICR

Rita Ahiboh Program Assistant AFTEG Program Assistant

Henry Amena Amuguni Financial Management Specialist AFTFM Financial

Management

Paul Baringanire Sr. Power Engineer AFTEG Power engineer

Anil Bhandari Consultant AFTTR ICR Primary

Author

Raihan Elahi Sr. Energy Spec. AFTEG Financial Analyst

Efrem Fitwi Procurement Specialist AFTPC Procurement

Tesfaalem Gebreiyesus Sr. Procurement Specialist AFTQK Procurement

Roxanne Hakim Sr. Anthropologist ECSS4 Social safeguards

Paivi Koljonen Lead Energy Specialist AFTEG TTL

Mbuba Mbungu Consultant Procurement

Mitsunori Motohashi Financial Specialist AFTEG ICR support

Brighton Musungwa Sr. Financial Management

Specialist AFTFM

Financial

management

Kyran O'Sullivan Sr. Energy Specialist AFTEG TTL

Chrisantha Ratnayake Consultant Power engineer

38

Colin P. Rees Consultant QLP Environmental

safeguards

Abdolreza B. Rezaian Sr. Energy Specialist AFTEG IT management

information system

Nightingale Rukuba-Ngaiza Sr. Counsel LEGAF Legal

Kurt F. Schenk Consultant AFTEG Procurement

Janine Speakman Operations Analyst AFTEG Operations Analyst

Bernard W. Tenenbaum Consultant AFTEG

Sector reform and

institutional

capacity

Moses Sabuni Wasike Sr. Financial Management

Specialist OPCFM

Financial

Management

(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

FY99 69.6

FY00 22.05 132.95

FY01 11.17 96.60

FY02 2.31 5.13

FY03 8.61 57.43

FY04 33.70 226.12

Total: 77.84 587.84

Supervision/ICR

FY04 0.00

FY05 29.51 147.71

FY06 14.54 100.40

FY07 13.76 92.08

FY08 24.81 170.33

FY09 11.75 74.60

FY10 15.35 88.48

FY11 13.11 77.75

Total: 122.83 751.35

39

Annex 5. Beneficiary Survey Results (if any)

Not applicable.

40

Annex 6. Stakeholder Workshop Report and Results (if any)

Not applicable.

41

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The Borrower has not submitted its own ICR nor made any comments on the draft ICR

prepared by the Bank, before the ICR due date.

The Borrower informed the ICR mission team that it feels strongly that its

recommendation not to award the contract to the selected Contractor was based on their

conviction that the Contractor did not price some major items including civil works in its

EPC bid proposal and that adding an equivalent value to the Contractor’s bid price for

evaluation purposes was the correct approach, which was not accepted by the Bank.

42

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable.

43

Annex 9. List of Supporting Documents

Project Appraisal Document (PAD)

Project Paper, Additional Financing

Development Financing Agreement

Project Agreement

Project Aide Memoires

Implementation Status and Results Reports (ISRs)

Progress Reports

Midterm Review Report

PB Power (2006) Tariff Study Update Asmara Power Distribution and Rural

Electrification Project

44

MAP