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P003523 | Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No\. 17935
IMPLEMENTATION COMPLETION REPORT
CHINA
SHANDONG PROVINCIAL HIGHWAY PROJECT
(LOAN 3073-CHA/CREDIT 2025-CHA)
June 1, 1998
Transport Sector Unit
East Asia and Pacific Regional Office
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties\. Its contents may not otherwise be disclosed without
World Bank authorization\.
CURRENCY EQUIVALENTS
Currency Unit = Yuan (Y) = 100 Fen
1989 $1= Y 3\.76
1990 $1= Y 4\.78
1991 $1= Y 5\.32
1992 $1= Y 5\.76
1994 $1= Y 8\.60
1995 $1= Y 8\.35
1996 $1= Y 8\.30
1997 $1=Y8\.30
FISCAL YEAR
January 1 - December 31
WEIGHTS AND MEASURES
1 meter (m) = 3\.28 feet (ft
1 kilometer (km) = 0\.62 mile (mi)
1 square kilometer (km2) = 0\.4 square miles (mi )
1 hectare (ha) = 0\.01 km = 2\.47 acres (ac) = 15 mu
2
1 mu = 666\.7 m = 0\.0667 ha
Vice President Jean-Michel Severino, EAPVP
Country Director Yukon Huang, EACCF
Sector Manager Jeffrey Gutman, EASTR
Task Manager Hatim Hajj, Principal Transport Specialist, EASTR
FOR OFFICIAL USE ONLY
ABBREVIATIONS AND ACRONYMS
ADT - Average Daily Traffic
DF - Diversion Factor
E&M - Electronic, Electrical and Mechanical
ERR - Economic Rate of Return
FRR - Financial Rate of Return
HPDI - Highway Planning and Design Institute
HSRI Highway Scientific Research Institute
ICB - International Competitive Bidding
ICR - Implementation Completion Report
JQE - Jinan-Qingdao Expressway
JQEMB - Jinan-Qingdao Expressway Management Bureau
LCB - Local Competitive Bidding
MOC - Ministry of Communications
NPV - Net Present Value
PCR - Project Completion Report
pkm - Passenger-kilometer
PMS - Pavement Management System
RDB - Road Data Bank
SAR - Staff Appraisal Report
SPTD - Shandong Provincial Transport Department
tkm - Ton-kilometer
TOR - Terms of Reference
vkm - Vehicle-kilometer
VOC - Vehicle Operating Cost
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties\. Its contents may not otherwise be disclosed without
World Bank authorization\.
CONTENTS
PREFACE \. iii
EVALUATION SUMMARY \.v
PART I: PROJECT IMPLEMENTATION ASSESSMENT \.1
A\. Project Objectives and Description \. 1
B\. Achievement of Project Objectives \. 2
C\. Implementation Record and Major Factors Affecting the Project \. 11
D\. Project Sustainability \. 12
E\. Bank Group Performance \. 13
F\. Borrower Performance \. 14
G\. Assessment of Outcome \. 15
H\. Future Operations \. 16
I\. Key Lessons Learned \. 16
PART II: STATISTICAL TABLES \. 18
Table 1: Summary of Assessments \. ;\.18
Table 2: Related Bank Group Loans/Credits \. 19
Table 3: Project Timetable \. 20
Table 4: Loan/Credit Disbursement: Cumulative Estimate and Actual \. 20
Table 5: Key Indicators for Project Implementation \. 21
Table 6: Key Indicators For Project Operations \. 21
Table 7: Studies included in Project \. 21
Table 8a: Project Costs \. 22
Table 8b: Project Costs \. 23
Table 8c: Project Financing \. 24
Table 9: Economic Costs and Benefits \. 24
Table 10: Status of Legal Covenants \. 25
Table 11: Compliance with Operational Manual Statements \. 26
Table 12: Bank Group Resources: Staff Inputs \. 26
Table 13: Bank Group Resources: Missions \. 26
ANNEX 1: ECONOMIC AND FINANCIAL EVALUATION \. 27
TABLE 6: FINANCIAL EVALUATION \. 44
ANNEX 2: BORROWER'S CONTRIBUTION TO THE ICR \. 46
ANNEX 3: APRIL 1997 SUPERVISION MISSION'S AIDE MEMOIRE \. 57
I
- 111 -
IMPLEMENTATION COMPLETION REPORT
CHINA
SHANDONG PROVINCIAL HIGHWAY PROJECT
(LOAN 3073-CHA/CREDIT 2025-CHA)
PREFACE
This is the Implementation Completion Report (ICR) for the Shandong Provincial
Highway Project in China for which Loan 3073-CHA in the amount of $60 million
equivalent and Credit 2025-CHA in the amount of SDR 38\.8 million ($50\.0 million
equivalent) were approved on September 8, 1989 and made effective on December 11,
1989\. The loan and credit were frilly disbursed and the last disbursement took place on
July 24, 1997\.
The ICR, under the guidance of Messrs\. Otto Raggambi (Consultant, Highway
Engineer) and Hatim Hajj (Task Manger), Transport Department (EASTR) of the East
Asia and Pacific Region was prepared by Manzoor Rehman (Consultant)\. Mr\. Han-Kang
Yen (Research Analyst) carried out economic and financial analysis for the completed
project\. The borrower's implementation evaluation summary for the project is annexed to
the ICR\.
Preparation of this ICR began in April 1997, and an ICR mission had discussions
with representatives of the Ministry of Communications (MOC) and the Shandong
Provincial Transport Department (SPTD) regarding the preparation of the ICR\. The ICR
is based on discussions held in the field, materials available in the project file and
additional data provided by SPTD\. SPTD has also submitted to the Bank Group a copy of
its evaluation report for the Jinan-Qingdao Expressway (JQE) and other project
components\.
CHINA
SHANDONG PROVINCIAL HIGHWAY PROJECT
(LOAN 3073-CHA/CREDIT 2025-CHA)
EVALUATION SUMMARY
Introduction and Project Objectives
1\. In response to increasing demand for road transport services arising from the
accelerated development of the economy during the early 1 980s the Chinese Government
decided to accord high priority to increasing road transport capacity in heavily trafficked
corridors connecting major cities and industrial centers in the various regions of the
country\. The Shandong Provincial Highway Project was formulated to provide adequate
road transport capacity in the Jinan-Qingdao corridor through the construction of a new
high-class highway\. In addition, the scope of project also included the following
components for technology transfer to provincial institutions involved in the road
transport subsector: (a) improving road planning techniques; (b) evaluating paved road
network condition and preparing pavement strengthening and maintenance management
programs; (c) developing institutional capacity for supervising road construction works;
(d) carrying out staff training; (e) strengthening highway research; and (f) improving road
safety\.
2\. The objectives and the scope of the project reflected the road infrastructure
improvement priority of Shandong Province, the Central Government's developmental
strategy and the Bank Group's assistance strategy for the road transport subsector\.
Implementation Experience and Results
3\. The main objective of the project of meeting road transport demand in the heavily
trafficked corridor between Jinan and Qingdao was achieved by completing the
construction of the 319 km Jinan-Qingdao Expressway (JQE) by the end of 1993\. The
1997 average daily traffic on the Expressway was higher than that projected at appraisal\.
However, because of the substantial increase in the overall investment in the JQE
compared to appraisal assumptions, the ICR's estimate of about 19 percent for the ERR
falls below the appraisal estimate of 23 percent\. In addition to cost increases over and
above appraisal estimates, mostly due to the impact of high inflation during the
implementation period, additional items of works were undertaken and further
expenditures incurred, which were not taken into account at the time of project appraisal\.
However, most of the additional investments were made in the interest of enhancing the
operational efficiency of the JQE\. These included the cost of the installation of traffic
- vi -
monitoring, telecommunications and tolling systems, the construction of service and
maintenance facilities and fencing of the JQE's right-of-way along its entire length\.
4\. Civil works were completed as scheduled and the JQE was opened to traffic at the
end of 1993\. However, the completion of the project as a whole was delayed by about
two years, due primarily to the delayed completion of the installation of traffic
monitoring, telecommunications and tolling systems\. The circumstances leading to the
delay were such that the Bank Group had no objection to extending the loan and credit
closing dates by two years to June 30, 1997\.
5\. The key features of the implementation of the other project components are as
follows:
(a) Equipment acquisition for the maintenance of the JQE was delayed by almost two
years and the type and number of units acquired were modified resulting in an
about 50 percent increase in cost\. There was no substantial change in the
acquisition of equipment for road condition survey and road research\. Equipment
for traffic monitoring, telecommunications and tolling systems were not procured
separately as originally planned\. Instead, the Bank Group agreed to the financing
of a contract covering both the supply of equipment and the installation works for
establishing these systems\. A small amount was used for acquiring safety
equipment following the recommendations of a study of the JQE's safety
problc
(b) The staff training program was implemented more or less as planned and with
only minor deviation in cost\. However, almost twice as many people were
involved in the training programs but over shorter periods of training\.
(c) A pilot study for pavement evaluation and formulation of road improvement and
management programs was satisfactorily completed under a Finnish bilateral aid\.
The expansion of the program for the primary 17,000 km national and provincial
network of the Province commenced in the early 1990s and made good progress
to date\.
(d) Because of the excessively high rate of traffic accidents on the JQE a highway
safety study was conducted in early 1997\. This study was a substitute for a pilot
road safety study originally formulated for addressing the road safety concerns on
the national/provincial road network of the province\. The study's
recommendations are being followed up by the agencies responsible for the
management and traffic safety aspects of the JQE\.
Summary of Findings, Future Operations, and Key Lessons Learned
6\. Notwithstanding some of the deficiencies noted during the implementation of the
JQE, the two-year delay in project completion and the significantly higher-than-
envisaged overall cost, the project was completed satisfactorily\. The ICR estimate of the
- vii -
ERR, although lower than that at appraisal, confirms that the project's development
objectives were also achieved\. Furthermore, the condition of the JQE's civil works and
the benefits emanating from the investment are sustainable, and are not expected to be
exposed to future risks\.
7\. The Jinan-Qingdao Expressway Management Bureau (JQEMB), which was set up
as the agency responsible for the administration of the JQE at the end of 1993, is
adequately staffed and has the material and financial resources to ensure the satisfactory
operation and maintenance of the Expressway\. The relatively high rate of accidents
remains a major concern despite the measures being taken by JQEMB, jointly with the
Traffic Safety Unit of the Public Security Administration, to mitigate accident hazards as
a follow-up to the findings and recommendations of the traffic safety study completed in
May 1997\.
8\. The following lessons learned are relevant to the still ongoing and future Bank
Group-financed highway projects:
9\. Project Preparation and Costing\. The scope of the highway component of the
project lacked clear definition and consistency\. Thus, the project highway was not built
according to a well-conceived and well-defined concept; it rather "evolved" into an
expressway facility in the course of implementation\. As it happened, this deficiency has
not been detrimental to the viability of the JQE\. The higher cost of the JQE was
compensated by higher-than-expected stream of benefits on account of the higher-than-
expected diversion of the corridor traffic to the JQE\. Nevertheless, the deficiency of the
formulation of the project has been transparent enough to put it on record, even if there
were mitigating circumstances for it at the time of project formulation: (a) the Borrower
had no clear policy for the development of the strategic highway network for the country;
(b) constraints on the availability of counterpart funding for the project must have been
seen as a major risk; and (c) limited experience with the design and operation of the
electronic, electrical and mechanical works (traffic monitoring, telecommunications and
tolling) for tolled highways that could explain the initial omission of some highway-
related expenditure items from the project\. Notwithstanding these considerations, it could
be argued that the Bank Group could have been more alert to the potential disadvantages
in proceeding with the financing of the Jinan-Qingdao Highway with a vague definition
of its scope and ultimate objectives\.
10\. Highway Safety\. The traffic safety record of recently completed Bank Group-
financed highways has been a major cause for concern\. The high rates of accidents on
recently built expressways also bring into question the conventional notion that
expressways are safer than the arterial roads of the network\. Although there is no
conclusive statistical evidence either way, the indications are that the Chinese drivers'
lack of experience in handling vehicles at high speeds, combined with the relatively poor
condition of the vehicle fleet, have been the major causes of the excessive rate of
accidents on high-standard highways\. Since the road safety is a complex issue, which
extends well beyond engineering aspects, the ICR issued for the Jiangxi Provincial
- viii -
Highway Project already highlighted the importance of formulating a comprehensive road
safety strategy for China and recommended to the Bank Group to intensify its dialogue
with the Central Government on the issues involved\. Well-documented evidence of the
safety record of the JQE adds further urgency to the earlier recommendation regarding
highway safety issues\.
11\. Preparation and Execution of Electronic, Electrical and Mechanical (E&M)
Works for Expressways\. The two-year delay of the completion of the project is partly
attributable to the fact that initially the project covered only the acquisition of equipment
associated with traffic monitoring, telecommunications and tolling but not its installation\.
Although, the decision to include the full extent of the works in the project under Bank
Group financing was made soon after the commencement of civil works, the preparation
and processing of the E&M works proceeded very slowly\. Since similar delays occurred
under other Bank Group-financed highway projects under implementation in the early
1990s, the Bank Group, in consultation with MOC, initiated steps that now ensure that
the design and technical specifications for E&M works are completed more or less at the
same time as the design and the technical specifications for the civil works contracts\.
CHINA
SHANDONG PROVINCIAL HIGHWAY PROJECT
(LOAN 3073-CHA/CREDIT 2025-CHA)
PART I: PROJECT IMPLEMENTATION ASSESSMENT
A\. PROJECT OBJECTIVES AND DESCRIPTION
1\. China joined the World Bank Group in 1980 and lending operations began soon
after\. However, Bank Group involvement with highway infrastructure only began in
April 1983, with the identification of the first Highway Project (Loan 2539/Credit 1954-
CHA)\. The project provided funding for the improvement of provincial roads and the
construction of critical missing links in nine provinces, particularly those that constrained
interprovincial road transport\. Although the involvement was limited, this initial step
helped familiarize the Bank Group with the highway subsector issues in China and to
identify subsectoral priorities in subsequent projects\. It became apparent that the shortage
of capacity in heavily congested corridors of the national and provincial road networks
constitutes one of the major impediments to the development of the country's economy at
an accelerated rate\. Under the Seventh Five-Year Plan (7FYP, 1986-90) and subsequent
five-year plans, measures were taken to address the needs for road transport capacity
improvements in the key corridors of the national and provincial road networks\. The
Bank Group was supportive of such objectives of the Government as reflected in the
Bank Group's lending strategy for the development of the highway subsector in China\.
From FY85 until the present, in addition to this project, the Bank Group approved the
financing of 17 highway projects as listed in Table 2, Part II, of this report\. A PCR was
issued for the first Highway Project, and ICRs have been issued for the Shaanxi, Jiangxi
and Sichuan provincial highway projects, the Beijing-Tianjin-Tanggu Expressway Project
and the Jiangsu Provincial Transport Project\.
2\. The existing arterial roads between Jinan and Qingdao were of low capacity and
became heavily congested by the end of the 1980s\. The project's primary objective
therefore was to provide a high-capacity, high-standard highway in this important
corridor between Jinan the capital of Shandong Province and Qingdao, one of the main
ports in China\. The project also aimed to achieve the following policy and institutional
development objectives: (a) improving road planning techniques; (b) evaluating
pavement conditions on selected sections on the road network and preparing a pilot
pavement strengthening and maintenance management programs; (c) developing
institutional capacity for supervising road construction works; (d) carrying out staff
training; (e) strengthening highway research; and (f) improving road safety\.
- 2 -
3\. Under the overall supervision of the Ministry of Communications (MOC) and the
Shandong Provincial Government the Shandong Provincial Transport Department
(SPTD) was designated as the executing agency for administering the preparation, design
and implementation of the project\. The project comprised: (a) the construction of a
319 km four-lane divided highway between Jinan and Qingdao; (b) consulting services to
assist SPTD in construction supervision and help train SPTD staff in day-to-day
supervision and quality control functions; (c) acquisition of road condition survey
equipment, evaluation of existing road pavements and preparation of a pavement
strengthening and maintenance management pilot program for 560-km of the road
network; (d) acquisition of equipment for road maintenance, traffic monitoring,
telecommunications and tolling systems, and road research; (e) conducting training
courses for SPTD staff; and (f) improving road safety\.
4\. The Bank Group approved the Bank loan and the IDA credit for the project in
May 1989\. The scope of the project was in line with investment priorities for road
transport infrastructure improvement in Shandong Province, and was also consistent with
the Central Government's policy and the Bank Group's assistance strategy for the
development of the road transport subsector in China\.
B\. ACHIEVEMENT OF PROJECT OBJECTIVES
5\. Project objectives were substantially achieved as indicated by the implementation
summaries of the various project components in the following\.
Jinan-Qingdao Expressway (JQE)
6\. Preparation, Design and Scope\. The preliminary engineering and the economic
feasibility study for the highway was completed in the latter part of 1986, and the study's
recommendations were endorsed in principle shortly thereafter by the Central
Government\. A Bank Group contact mission visited Shandong Province in February
1987, following which the survey and design institutes of MOC, located in Xian and
Beijing, and the Shandong Provincial Highway Design Institute proceeded with the
preparation of the engineering design for the highway\. Later on a local/foreign joint
venture of consultants helped finalize the design and the preparation of bidding
documents\. These services were partially financed under the US Trade Development
Program\.
7\. Originally, the highway was designed to Class I highway standards, although
already during the project appraisal SPTD expressed its preference to change the
geometric standards of the highway from Class I to expressway standards\. Since the
highway's alignment traverses flat terrain throughout its length, the only major difference
in geometric parameters between the two alternatives was the formation width, which
was 23 m for Class I highways and 26 m for expressways (Table 1\.4 of SAR)\. In October
1987, the Shandong Provincial Transport Department requested the Bank Group's
assessment regarding the economic viability of building the Jinan-Qingdao highway to
expressway standards\. In December 1987, the Bank Group advised SPTD as well as the
-3 -
Central Government that, according to its analysis, the expressway design option with
26 m formation width yielded a higher "net present value", and that, the Bank Group, in
general, was supportive of the concepts of longer-term objectives, and had no objection to
building the new highway with a 26 m wide formation\. Considering that the difference in
the economic viability of the alternatives were not significant, the Bank Group also
indicated that it was prepared to finance either alternative\. However, SPTD failed to
obtain Central Government endorsement for the change, seemingly for budgetary reasons\.
A likely other reason for the Central Government's position could have been that it had
no strategy at that time for the development of an interprovincial expressway network for
the country and its standards, and that had not crystallized until the early 1990s\. China
now has a clear strategy and well defined design standards for its expressway network\.
8\. As a compromise, shortly before negotiations an understanding was reached
between SPTD and the Bank Group, with the consent of the Central Government, that the
most heavily trafficked section between Jinan and Zibo (120\.3 km), would be built with
26 m formation width, while on the other segments of the highway the formation would
remain 23 m wide\. While this was a relatively slight change in scope, the partial
acceptance of expressway geometric standards was significant because it opened the door
for the broadening of the scope of the works, and during implementation additional
investments were made to ensure that by the time all works were completed, the
requirements for operating the new highway as a tolled expressway are fully met\.
9\. Civil Works\. The JQE is located more or less centrally between the northern and
southern arterial roads and carries motorized vehicles only\. The two parallel arterial roads
in the corridor will continue to serve motorized and nonmotorized local traffic\. In
addition to serving a densely populated rural corridor, JQE links four major cities-Jinan,
Zibo, Weifang and Qingdao-with a population of 3\.4, 2\.7, 7\.8 and 6\.2 million,
respectively\. There are 21 interchanges to connect JQE to the corridor's arterial and
secondary road network\. Civil works were executed under eight contracts, of which seven
contracts were awarded following ICB procedures and one contract award was made
following national bidding\.
10\. Compared to similar major highway projects constructed under Bank Group
financing, such as the Beijing-Tianjin-Tanggu Expressway, and those in Shaanxi, Jiangxi
and Sichuan provinces (Table 1 of Part II), there were relatively few major deviations
from the original engineering design\. The major additional works and variations that have
occurred included: (a) the change of the type of material for backfilling of embankments
at structures to reduce the risk of excessive settlements; (b) adding retaining walls to
bridge approaches to reduce the extent of acquisition of valuable agricultural land; (c)
building one additional interchange in the vicinity of Shouguang township at
km 158+640 to provide for traffic to be generated by new residential and commercial
developments; and (d) providing guard rails on embankments exceeding 3 m in height,
rather than 4 m in height as originally envisaged\. The major works executed to meet
expressway operational requirements, which were originally not covered by the scope of
the project, included (a) the construction of roadside facilities along the Expressway,
-4 -
comprising 21 toll stations, 7 service areas and 11 buildings for general and toll
administration and maintenance depots; and (b) erecting protective fencing along the
Expressway\.
11\. Implementation and Supervision\. The Expressway was substantially completed
and opened to traffic in December 1993\. The execution of the works was not proceeding
without problems\. Although the local contractors were prequalified, they lacked
experience in carrying out major highway works of comparable magnitude and
complexity, managerial skills and material and financial resources\. As highlighted in the
quarterly progress reports and observed during Bank Group supervision missions, the
civil works were not carried out consistently according to the technical specifications\.
The Bank Group's April 1993 supervision mission, for example, noted defective
workmanship and materials during the execution of several phases of the ongoing works
as well as the lack of adequate supervision\. Consequent on such observations, an
understanding was reached with SPTD about the measures to be taken for improving the
quality of construction and the effectiveness of supervision operations\. The Bank Group
also insisted that a foreign supervisor be mobilized, in addition to two site supervision
engineers already on site, to assist with the quality control in general and with the critical
phase of asphalt paving works in particular\. The executing agency complied with the
Bank Group's requests and also assured the Bank Group that the contractors, as instructed
by the supervision units, had corrected and will be correcting deficient works to ensure
that the technical specifications are met\.
12\. A foreign consulting firm, engaged to assist SPTD in construction supervision,
provided 124 person-months of services\. A combined team of SPTD and foreign and
local engineers were responsible for on-site supervision and quality control, and ensuring
that works on the JQE were carried out in full compliance with the technical
specifications\. The supervision organization set up for this purpose comprised a Central
Supervision Unit, headed by the Chief Supervision Engineer, and five Resident
Supervision Units located along the alignment of the Expressway\. The foreign
engineering personnel helped establish the framework and procedures for the supervisory
work and trained the SPTD staff, local engineers and technicians\. Such training was not
only a significant means of technology transfer but also an essential measure for trying to
ensure effective control of the quality of JQE construction with adequately trained
personnel\. The performance of the supervision units was generally satisfactory, except for
periodic lapses, as highlighted in para\. 11\. Despite these difficulties, the intervention of
SPTD and the supervision units eventually ensured that the quality of construction met
the technical requirements\. Overall, the effectiveness of supervision seems to be proven
by the relatively infrequent and only minor correcting works emerged following the
completion of JQE\.
13\. Traffic Monitoring, Telecommunications and Tolling Systems [Electronics,
Electrical and Mechanical (E&M) Worksl\. The original scope of the project covered
only partially the equipment requirements of the E&M works and did not include at all
the systems' software development and installation works\. However, the Bank Group
-5 -
already in the early phase of the implementation agreed to utilize a portion of the
unallocated loan/credit proceeds for financing a supply and installation contract to
undertake the entire E&M works\. Because SPTD primarily focused on the timely
completion of JQE's civil works and it lacked experience with the type of E&M works
required for expressway operations, the formulation and design of this component was
delayed\. The bidding documents were issued only in March 1995, and further delays
were encountered during ICB procurement, bid evaluation and clearance of the contract
award processes at provincial and national levels as well as in the Bank Group\.
Consequently, the for E&M works supply and installation contract was awarded only in
May 1996\. Moreover, there were delays in establishing the letter of credit for this
contract\. The contractor's mobilization of sufficient manpower and other resources
proceeded slowly, and the installations of the systems suffered further delays\. Thus, the
commissioning of systems was completed only at the end of June 1997 and trial
operations commenced in July 1997\. Fortunately, the delays had no substantive adverse
effect on the operation of the JQE\. Traffic has been using the Expressway since
December 1993, and tolls were collected since then using temporary toll collection
facilities\. The supervision of the E&M works was carried out satisfactorily by a group of
local experts specially selected for the task from various institutions\. The personnel and
the scope of sevices of the group was approved by the Bank Group\.
14\. Improving Road Safety\. Road accident statistics for the Province, which was
reviewed during project preparation revealed that road safety concerns warranted urgent
attention\. It was therefore agreed at negotiations that a Road Safety Program will be
carried out under the project\. The scope of the Program was designed to be in line with
the recommendations of the China Road Safety Project, which was financed under the
first Highway Project (Loan 2539-CHA/Credit 1594-CHA), and the experience gained
from the Sichuan Road Safety Pilot Program, executed by the Highway Scientific
Research Institute (HSRI) of MOC with the assistance of foreign experts during 1987\.
The objective of the Shandong Road Safety Program was to collect and analyze traffic
accident data on two major provincial roads (200 km in total length), which would have
helped identify high frequency accident locations (black spots)\. Such data would have led
to the implementation of safety measures for reducing the number of traffic accidents
(Annex 3 of the SAR)\. This pilot exercise for identifying road safety measures was to be
eventually extended to cover the more heavily trafficked segments of the national and
provincial road network of the Province\. However, SPTD had encountered administrative
difficulties in the execution of this project component since in the late 1980s the Central
Government decided to transfer the responsibility for traffic safety, including accident
data collection and decisions on improvement measures for accident reductions, from the
Provincial Transport departments to the Public Securities departments nationwide\.
Initially, SPTD requested the Bank Group's concurrence to the deletion of this project
component\. However, soon after the JQE was opened to traffic, there was a rapid buildup
of an alarmingly high number of accidents\. Thus the Bank Group agreed to SPTD's
request that a comprehensive assessment should be made of the prime reasons for the
high accident rates on the JQE instead of the original pilot road safety program\. During
- 6 -
1994-97, the average annual number of accidents was about 1,000, resulting in 300
injuries and 100 fatalities\.
15\. With the support of SPTD, reputable international road safety experts carried out,
according to terms of reference approved by the Bank, a 45-day investigation during
February and March 1997\. The experts' June 1997 report details the findings of the study
and also outlines a 13-point action plan for accident reduction measures\. The report
identified poor driver behavior and excessive speed as the major causes of accidents\. This
is also reflected in the high proportion (49 percent) of single-vehicle accidents of which
many resulted in fatalities\. In addition to the drivers' lack of experience in traveling on
high-speed highways, overloaded vehicles and vehicle defects, narrow shoulders on the
23 m wide sections of the JQE, poor geometry of exit and entry points at interchanges,
and lack of safety provisions for maintenance crews were also substantive contributing
factors to the poor safety record of the JQE\. The implementation of the recommended
safety plan for the JQE will require the coordinated effort of JQEMB and the Traffic
Police Unit of the Public Security Department\. As a first step, JQEMB proceeded with
the acquisition of traffic safety-related goods and equipment, including computer
hardware and software, warning signals for vehicles, beacon lights, and reflective
clothing for expressway maintenance crews\. Some of these equipment were financed
under the project\.
16\. Land Acquisition and Resettlement\. The cost of land acquisition and
resettlement related costs increased from Y 37\.06 million to Y 262\.00 million\. The
expenses covered the removal and relocation of communication and electricity cables,
intersecting and service roads, drainage and irrigation systems, dwellings and other
buildings, and compensation payments for land and resettlement\. Additional works were
required and higher cost incurred in infrastructure relocation and rehabilitation than
originally expected\. Higher cost was also incurred at an archeological site to ensure the
adequacy of protection\. The substantial difference between the estimated cost and
eventual expenditure can also be explained by the difficulties in making realistic cost
estimates during project preparation of a massive program involving the acquisition of
about 6,600 acres of land and relocation of about 30,000 individuals without prior
experience in carrying out a program of similar magnitude and complexity\. Moreover,
because of the substantial interval between the time when the original estimates were
made and the time of compensation payments, inflation and property value appreciation
had a major impact on the final cost\. As confirmed by the Bank Group's
November/December 1994 Resettlement Review Mission, the land acquisition,
resettlement and compensation procedures agreed at negotiations were substantially
followed\.
17\. Environmental Protection\. Since the JQE traverses flat terrain, the construction
of the JQE was expected to have only very limited adverse impact on the environment\.
The engineering design and technical specifications provided specific treatments for the
protection of embankment slopes and roadside drainage, which were applied during
implementation\. During the construction of the JQE, no adverse environmental problem
-7 -
emerged\. Some erosion or slope failure could occur on the higher embankment section of
the JQE, with a risk of temporary disruption and potential pollution to irrigation channels\.
However, JQEMB would be well equipped to handle such emergencies promptly and
efficiently\. Also, it is plausible to assume that there has been a reduction of noise and air
pollution in towns and villages along the arterial roads because of the diversion of traffic
to the JQE from the parallel arterial roads\.
18\. Investment Costs\. In the SAR the civil works construction cost of the highway
was estimated at Y 1,603\.24 million, including physical and price contingencies\. A
comparable final cost of JQE's civil works was Y 1,975\.94 million, representing a cost
increase of Y 372\.70 million, about 23 percent, in current prices\. Of this amount, about
40 percent was related to greater-than-expected physical quantities and extra works
carried out under variation orders, and the remaining amount was paid to the contractors
as compensation for price escalation\. Other major Expressway-related expenditures
included (a) supply and installation of equipment for E&M works\. (Y 125\.34 million); (b)
consultant services for construction supervision (Y 40\.50 million); (c) construction of
facilities along the Expressway, such as service areas, administration buildings and
maintenance depots (Y 203\.50 million); (d) acquisition of equipment for the maintenance
of the Expressway (Y 51\.13 million); (e) land acquisition and resettlement (Y 262\.0
million\.); (f) design and survey (Y 30\.92 million); (g) administrative overhead (Y 52\.02
million); and (h) foreign exchange adjustment cost (Y 99\.26 million)\. Including the
above, and some other minor cost items, the final investment cost of the JQE in current
prices became Y 2,850\.39 million, as detailed in Table 2A of Annex 1\. This cost is not
directly comparable to the about Y 1,700\.00 million investment cost for the highway
presented in the SAR because the substantial expansion of the scope of the highway
works to meet expressway operational requirements were not contemplated at the time of
project appraisal\.
19\. Economic Evaluation\. The ICR economic analysis is presented in Annex 1\. The
ERR on the JQE investment is estimated at 19\.1 percent versus the SAR estimate of 23\.0
percent\. The reestimation of the ERR was based on the JQE's final investment cost,
converted to economic cost at 1997 prices\. The ICR analysis of ERR also included
revised indices for shadow pricing, actual corridor traffic data on the JQE reflecting the
split of traffic between the two parallel arterial roads and JQE during 1994-97, revised
traffic forecast during 1998-2015, and updated vehicle operation costs (VOCs)\. The
relatively small difference between the SAR and ICR estimates for ERR is the combined
effect of the higher cost being well compensated by the higher benefits accruing from the
greater-than-expected buildup of JQE traffic during the last four years, and the
expectation that a similar trend will continue during 1998-2015\. The key conclusion of
the economic evaluation are:
(a) The economic cost of Y 4,229\.90 million arrived at in the ICR calculation is about
67\.9 percent higher than the Y 2,520\.00 million presented in the SAR, based on
December 1997 constant prices\.
-8 -
(b) The 1997 average daily traffic (ADT) in the corridor of the Expressway differed
only marginally from that forecast in the SAR\. However, the split of traffic
between the two arterial roads located on the northern and southern side of the
JQE and on the JQE was somewhat different from that expected at appraisal\. The
rate of diversion of traffic on Section I of the Expressway (Qingdao-Weifang)
was about 55 percent higher than forecast\. On Section 2 (Weifang-Zibo) it was
about 8 percent higher, while on Section 3 (Zibo-Jinan) the difference was
insignificant\.
(c) The 1997 daily traffic on Sections 1 and 3 well exceeded SAR forecast but fell
below somewhat of the forecast level on Section 2\. However, the net result was
that the 1997 ADT traffic on the JQE, in terms of the weighted average daily
traffic per kilometer on the three sections of the JQE, was 390,000 vehicle-
kilometer (vkm)/day higher than the SAR forecast, a difference of about 12
percent\. Such increase represents a substantially higher level of VOC savings for
1997 than assumed during project appraisal\.
(d) Higher VOCs and associated benefits are expected to be sustainable in the future,
even with somewhat lower annual traffic growth rates than presented in the SAR
(para\. 8 of Annex 1)\.
20\. Financial Evaluation\. The toll revenue is the only source of income from the
JQE\. The toll charges were changed once (in July 1995) since the opening of JQE to
traffic in December 1993 and are still in force\. The revenues increased by an average of
38\.3 percent a year during the first three years of operation (1994-96)\. The financial cost
of Y 3,063\.65 million included the investment cost of Y 2,850\.38 million for the JQE, as
well as Y 212\.97 million, representing loan/credit servicing cost, taxes and the cost of
minor project components (Table 2A of Annex 1)\. The estimated financial rate of return
(FRR) against the financial costs is 8\.8 percent\. The revenue stream generated is expected
to cover future operating and maintenance costs of the JQE and also meet still
outstanding financial obligations on borrowings\. The detailed financial analysis is
presented in Table 6 of Annex 1\.
21\. Tolling\. The expressway is operated as a closed toll system with 21 toll stations\.
The toll rates are determined according to the types of vehicle and distance traveled\. As
stipulated in Section 2\.06 of the Project Agreement, the toll rates charged should not
exceed 30 percent of the VOC savings for the various groups of vehicles\. On average, the
toll rates for large-size vehicles are comparable to, and on medium-size vehicles, tractor-
trailers, are only slightly higher than 30 percent of the VOC savings\. However, the toll
rates for small-size vehicles well exceed 30 percent of the VOC savings\. The sections of
the JQE on which the travel distance is significantly shorter than on the parallel arterial
roads, the 30 percent of VOC savings are close or even higher than the toll rates\. This
could indicate that toll rates higher than 30 percent of VOC savings are not necessarily a
deterrent to road users, if it results from substantial distance and time savings\. The
economic and financial VOCs and 30 percent of the VOC savings, as of 1997, are
- 9-
presented in Table 7 of Annex 1\. The outcome of the analysis is approximate and
indicative only\. A comprehensive origin and destination survey-based study of the JQE
traffic would be required for reaching more reliable conclusions regarding the
relationship between toll charges and VOC savings\. Obviously, this could not be done
within the scope of this ICR\.
Equipment Procurement
22\. The following groups of equipment were to be purchased under the project at an
estimated cost of $13\.20 million, including physical and price contingencies: (a)
maintenance equipment, including five types, 25 units for $4\.00 million; (b) instruments
and equipment for the road condition survey program, three types and four units for $0\.25
million; (c) research equipment for central road laboratory, three types, 19 units for $0\.80
million; and (d) equipment for traffic monitoring, telecommunications and tolling for
$8\.15 million\.
23\. The maintenance equipment acquired under item (a) exceeded the original
estimate in terms of types, number of units and cost\. SPTD had requested and the Bank
Group agreed to the procurement of additional equipment and altogether 18 types, 28
units were acquired for $6\.16 million\. The about 50 percent increase in investment for
highway maintenance equipment was well justified, considering the close to 320 km
length of the JQE and SPTD's complete lack of modern maintenance equipment for high-
class highways\. The additional cost was covered from the unallocated contingency
category of the loan proceeds\.
24\. The acquisition cost of instruments and equipment for road condition survey and
Road Data Bank (RDB), item (b) above, as well as instruments and equipment for the
road laboratory, item (c) above, were within the budget allocated for these purposes\. The
actual expenditures were $0\.18 million and $0\.49 million, respectively\. However, the list
of items purchased differed somewhat from those listed in Tables 3\.1 and 3\.4 in the SAR
based on a further review of requirements during project implementation\.
25\. As elaborated in para\. 13, traffic monitoring, telecommunications and tolling
systems for the JQE were provided through a supply and install contract, and equipment
related to this component of the project was not procured separately\.
26\. The road safety measure-related equipment acquisition was an addition to the
project, at a cost of $17,000, including computer hardware and software, warning signals
for vehicles, beacon lights and reflective clothing for expressway maintenance crews\.
Staff Training
27\. Training of SPTD Staff\. The training program implemented comprised training
courses and study tours conducted in several European countries, the United States,
Canada and Thailand\. The training courses, under 15 separately organized programs,
covered the following topics: highway planning and design, highway and bridge
- 10-
construction, project, pavement, equipment, highway maintenance and financial
management, expressway operations including tolling and overall highway
administration, and RDB and Pavement Management System (PMS) programs and
applications\. Most of the training courses were prepared and administered under an
MOC-coordinated program, involving the staff of several other provincial transport
departments, which were executing agencies of simultaneously ongoing Bank Group-
financed highway projects with staff training components\. The training program
commenced in July 1991 and was completed during the first half of 1997\.
28\. A total of 89 persons participated in the program, involving about 112 person-
months, at an overall cost of $920,000, i\.e\. about $8,200/person-month\. The program as
envisaged would have included the training of 37 persons involving 150 person-months
at an estimated cost of $900,000, corresponding to $6,000/person-month\. The training
program as executed involved more than twice as many trainees but with shorter periods
of training\. This resulted in higher overall costs of travel and accommodation, which, in
addition to inflation, could explain the higher-than-expected per person-month cost of
training\. The person-months cost of training is similar to those incurred under other
recently completed Bank Group-financed highway projects in China\.
Pavement Evaluation, Road Data Bank and Pavement Management System
29\. Originally, the road pavement evaluation component of the project was to be
carried out by SPTD with the assistance of consultants financed from the proceeds of the
Bank Group loan/credit in accordance with the terms of reference presented in Annex 2
of the SAR\. However, shortly before the conclusion of the loan/credit negotiations, an
agreement was reached between the Chinese and Finnish governments that this project
component will be undertaken by SPTD with the assistance of a Finnish technical team
under bilateral aid\. Thus, SPTD and a team from the Finnish National Road
Administration proceeded with a pilot study during March 1989 and June 1990 to
evaluate existing pavement conditions of road segments totaling 560 km in the Jining
District of the Province\. The report of the study was completed in April 1991\. The pilot
study identified equipment, materials and manpower resources required for road
condition survey, prepared programs for pavement strengthening and maintenance
management for the pilot district\. The comprehensive computerized system established
was suitable for determining investment priorities for the paved roads, and also laid the
groundwork for the development of a program for paved road strengthening and
maintenance management for Shandong Province\.
30\. The system developed under the pilot study was functional and quite suitable for
applying it to the main paved network of the Province\. However, it was decided to bring
the system developed under the pilot program in line with the nationwide programs,
which evolved in the interim based on the Chinese RDB and PMS\. In the early 1990s
good progress was made on the development and pilot application of both programs by
the Highway Planning and Design Institute (HPDI) and the Highway Scientific Research
Institute (HSRI), respectively, under the guidance and coordination of MOC\. The
merging of the Jining District pilot program and the nationwide programs took place
during 1991-93\. Thereafter, the RDB has been built up gradually for the core 17, 000 km
national and provincial network, and the PMS has been introduced in all 17
prefectures/municipalities of the Province\.
C\. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT
31\. Although the overall completion of the project was delayed by about two years,
its main objective, i\.e\., to relieve traffic congestion in the Jinan-Qingdao corridor, was
achieved with the opening of the JQE to traffic at the end of 1993 as planned\. The two-
year project completion delay was predominantly due to the delay in the preparation,
procurement and implementation of the E&M works\. However, it was possible to
commence toll collection through taking temporary measures; thus, cost recovery
suffered no delays\.
32\. Delays in the implementation of E&M works occurred for a number of reasons\. It
seems that at the time of project preparation there was no firm timetable for operating the
Jinan-Qingdao Highway as a tolled facility\. Such uncertainty is reflected in the scope of
works presented in the SAR, which did not cover the installation component of E&M
works, the construction of roadside facilities and fencing of the highway's right-of-way,
provisions that are normally required for the efficient operation of a tolled expressway\.
One of the reasons for the somewhat vague definition of the scope of the Expressway
works could have been the absence of the Central Government's firm policies on tolled
expressways in the early 1990s\. During implementation, at SPTD's request, the Bank
Group agreed to the financing of the foreign exchange components of a supply and
installation contract for the E&M works from the uncommitted balance of the loan/credit
proceeds\. However, with the limited experience in China in the planning, design and
procurement of this type of works, the delays that occurred are understandable\. Some
further delay occurred also during the execution of the contract\.
33\. The additional investments for providing roadside facilities, covering the
construction of buildings for general and toll administration and maintenance depots, and
fencing of the JQE's right-of-way to ensure that motorized vehicle entry to and exit from
the JQE can take place only at interchanges, and to keep away pedestrians, tractors,
animal-drawn vehicles from the Expressway, were made by the Province under local
financing, following consultation with the Bank Group\.
34\. Despite the limited experience of the civil works contractors in similar large-scale
highway works, the periodic lapses in performance and lack of consistency and
effectiveness of quality control by the supervision units the JQE was completed
satisfactorily\. This is substantiated by the fact that no substantive technical deficiency
surfaced during the almost four-year operation of the JQE\. However, the very high level
of accidents remains a major concern, although with the execution of the safety program
recommended by the recent safety study there is a good chance that the safety record of
the JQE would improve over time\.
- 12-
35\. The timing of the completion of the relatively minor components of the project
shifted also because of the lower priority accorded these components after realizing that
an overall delay of about two years could no longer be avoided on account of the delay to
the E&M works\. Thus, equipment acquisition and some of the training prograrn were
finalized only during the first half of 1997\. Regarding the acquisition of maintenance
equipment for the JQE, delays were encountered during the preparation of bidding
documents by designated procurement agencies and internal clearance processes, which
required the submission of documentation for all imported equipment to a designated
State agency\.
36\. The objectives of the pilot program for pavement evaluation and the development
of a methodology for the preparation of road investment and maintenance programs were
achieved, and its extension to the 17,000 km core arterial road network of the Province
proceeded well\. Such progress was supported by the development of the RDB and PMS
programs nationwide under the Central Government's initiative and coordination and
their introduction to all prefectures and municipalities of the Province\. The SAR did not
stipulate any particular timetable for such expansions of the programs but the advances
made to date by the Province in this respect are commendable\.
D\. PROJECT SUSTAINABILITY
37\. The physical condition of the JQE has shown no signs of adverse deterioration
since it has been in service\. The increase in corridor traffic is expected to continue in line
with the trend of the economic development in the influence area of the JQE, and the
Expressway's share of traffic is expected to remain significant\. Thus, there is no
discernible risk to the steady growth in toll revenues, which should be adequate for
funding the administrative and maintenance expenses of the JQE, the servicing of debt
and the repayment of the loan and credit as scheduled\.
38\. The maintenance equipment fleet acquired under the project should provide
adequate long-term service, since operators have been trained, sufficient stock of essential
spares have been purchased and maintenance facilities have been provided\.
39\. The information from the staff training program is expected to be disseminated
within the provincial institutions involved, reach the majority of SPTD personnel and
have a long-term influence on provincial road administration and management methods
and highway-specific technology\.
40\. The methodology of the pavement evaluation pilot study and application of the
Chinese RDB and PMS programs have been deployed in all prefectures and
municipalities of the Province\. It is expected that, with the regularly collected input data,
the system will provide the necessary output information to help make improved
investment decisions for road improvement and maintenance as part of the budgetary
process\.
- 13 -
E\. BANK GROUP PERFORMANCE
41\. The scope of the project, in general, was in line with the sectoral investment
priorities and the development objectives of the Province and the Central Government
and with the Bank Group's assistance strategy for China in the late 1980s\. However, the
formulation of the project lacked clarity regarding the requirements for the construction
of a new highway in the Jinan-Qingdao corridor\. The Province was in favor of adopting
an expressway design standards for the new highway from the beginning; however,
during the project's preparation the Central Government was unwilling to endorse the
Province's request, seemingly for budgetary reasons, and Class I highway design
standards were adopted for the new highway over most of its length (para\. 7 and 8)\.
During implementation, the scope of the Jinan-Qingdao Highway was expanded into a
full-fledged tolled expressway, except that the formation width remained 3 m narrower
over a 200 km section of the highway\. It could be argued whether the Bank Group should
have had the foresight and firmness to formulate the highway component of the project
fully meeting expressway requirements from the beginning\.
42\. A comparative economic evaluation for the highway design standard alternatives
was not carried out as part of the ICR evaluation\. However, the traffic safety study (para\.
15) identified the narrower shoulders and central medians as safety risk features with very
limited recourse for corrective measures\. Since the width of the pavements are the same
for both a Class I highway and an expressway design alternative, the 3 m reduction in the
formation width required the narrowing of shoulders and central median\. The other
negative aspect of the lack of clarity concerning the exact nature of the specifications for
the new highway was that substantive additional investments had to be made during
implementation, as detailed in para\. 10, to achieve the requirements for operating the new
highway as a tolled expressway\.
43\. Despite these negative aspects of the piecemeal adjustments made to the scope of
the JQE during its construction, it would be farfetched to level the blame on the Bank
Group for the way the highway was formulated\. It should be recognized that the
development of the strategic interprovincial expressway system at the end of the 1980s
and the beginning of the 1990s was in a transitional phase\. The Bank Group would not
have been prudent to insist on a higher-level investment in this project against the firm
views of the Central Government\. Furthermore, the economic evaluation methodologies
were not sufficiently refined to draw firm conclusions from minor geometrical differences
on the overriding merits between the alternatives\. As it happened, other than the safety
aspect referred to in para\. 15, no adverse impact has been noticed regarding the operation
of the JQE as an effect of the manner the JQE was implemented\.
44\. The Bank Group mounted 10 supervision missions during 1990-97, which is on
average just slightly more than one mission per year\. On other Bank Group-financed
highway projects that were implemented more or less simultaneously with the Shandong
Provincial Highway Project, the frequency of supervision missions was closer to two per
year\. A plausible explanation for this is that considering staff resource constraints and the
-14-
fact that most of the other ongoing highway projects encountered greater implementation
difficulties than this project, there was no major risk involved by lowering the frequency
of missions\. Furthermore, SPTD gained experience during the execution of the Shandong
provincial road component of the first Highway Project, and the advantage of such
experience was well manifested in SPTD's ability to handle the execution of the project
without major risk and difficulty\. Thus, the Bank Group's involvement in the
implementation of the project was adequate and commensurate with the level of local
experience and complexity of the project\.
45\. The Bank Group has shown flexibility in dealing with the changes in the project's
scope, such as the financing of one additional interchange, the supply and installation
contract for E&M works and not just the equipment acquisition as originally planned, and
a safety study for the JQE instead of a pilot safety study for the provincial road network\.
Also, in response to the Borrower's request to extend the closing date by one year, the
Bank Group concluded that a two-year extension was more realistic for completing the
still outstanding works\. During this period SPTD also proceeded with the extension of the
scope of the JQE by providing administrative and maintenance facilities along the JQE
and fencing the right-of-way of the JQE\. The Bank Group had no objection to carrying
out these works as part of the project, although these works had to be financed entirely by
the Province since the loan and credit funds had already been fully committed\.
F\. BORROWER PERFORMANCE
46\. SPTD under the first Highway Project was exposed to implementation
management practices normally associated with Bank Group-financed projects\. The
benefit of that experience was apparent during the preparation and administration of the
project\. Moreover, SPTD has had a reputation as one of the most experienced road
administrations in China with a well-constructed and well-maintained road network\. The
Borrower and SPTD have complied substantially with the conditionalities of the loan,
credit and project agreements\. The Bank Group's procedural requirements were
substantially followed, although there were gaps and delays in SPTD meeting progress
reporting requirements\. The cooperation between the Borrower, the Executing Agency
and the Bank Group was cordial and professional throughout the preparation, appraisal
and implementation of the project\.
47\. SPTD can take credit for the substantial completion of the JQE's civil works as
scheduled\. As indicated in the preceding, the experience of civil works contractors in the
implementation of highway works to international specifications was limited\. However,
despite the problems encountered by the contractors from time to time on account of a
shortage of material supplies, lack of financial resources and contract administration
skills, SPTD was able to help overcome such difficulties with its managerial and
technical experience and the support of the supervision units\.
48\. Since the experience with the supply and installation of traffic monitoring,
telecommunications and tolling systems in China was very limited in the early 1 990s, it is
- 15 -
understandable that SPTD had problems in defining the scope of the required E&M
works for the JQE\. Delays occurred not only in the preparation but also in the
procurement and execution of the works\. The process for obtaining internal clearances for
the bidding documents was also much slower than expected due to the cumbersome
internal clearance process of equipment procurement involving some departments of the
Central Government\.
G\. ASSESSMENT OF OUTCOME
49\. The project was implemented satisfactorily and its objectives have been
substantially achieved\. The main component of the project, the construction of the JQE,
was completed and opened to traffic at the end of December 1993, as scheduled\. The
development objectives of the project have also been achieved and the economic
reevaluation presented in this report confirmed that the investment in the JQE was
economically viable, with a slightly lower estimate for the ERR than that of the SAR\.
Furthermore, the economic benefits are considered to be sustainable without any
predictable elements of risk\. Because of the favorable prospect for continued strong
economic activity in the influence area of the JQE, the road user benefits as well as toll
revenues are expected to increase proportionally with the rate of traffic growth\.
50\. Overall, the contractors' performance was adequate despite periodic lapses in the
quality of works and recurrent problems with material and financial resources\. The
executing agency's prior experience in the administration of Bank Group-financed road
works, combined with technical and administrative competence, was a major attribute to
the satisfactory outcome of the project\. The supervision units also performed
satisfactorily, despite periodic lapses in their perseverance and effectiveness in
controlling quality\.
51\. The level of impact of technology transfer through training is not easy to measure
due to a lack of well-defined baseline parameters\. Nonetheless, the training courses and
study tours were a useful means of technology transfer and provided a satisfactory level
of exposure to new concepts and incentives for adoption in the Chinese environment\.
Similarly, technology transfer through modern equipment for the operation and
maintenance of the JQE should achieve its objectives and ensure that the JQE will be
efficiently operated and adequately maintained\.
52\. The pilot pavement evaluation study was implemented satisfactorily\. The local
personnel participating in the pilot program gained valuable experience in the various
aspects of the system's development\. The progress on sectoral development in the context
of the expansion of RDB and PMS programs for the core arterial road network of the
Province has been also good\. This was achieved through the adoption of the Chinese
RDB and PMS programs, which were developed for nationwide applications and required
some adjustment to the system evolved from the Jining District pilot study\. At present,
the RDB and PMS programs are operational in all 17 prefectures/municipalities of the
Province and cover the primary paved network of 17,000 km\.
- 16-
53\. Overall, the project was implemented within the terms of the development credit
and loan agreements, and in substantial compliance with the Bank Group's procedural
requirements\. The credit and loan proceeds were not extended to any component of the
project without obtaining prior clearance from the Bank Group\.
H\. FUTURE OPERATIONS
54\. Since the end of 1993 the operation and maintenance of the JQE, has been the
responsibility of JQEMB\. As demonstrated over the last four years, JQEMB is a well-
organized and technically competent institution to have such responsibility\. The
operational and financial parameters of the JQE, such as traffic volume, tolling revenues,
traffic accident records, annual maintenance fees and administrative overhead
expenditures will be monitored routinely, and the performance of the JQE will be
periodically reassessed in terms of ERR and FRR\. JQEMB is in the process of
consolidating administrative and operational rules and regulations in staff manual
formats\.
55\. SPTD will continue to make improvement to the RDB and PMS programs\. A new
version of the computer model for PMS should be operational by the end of 1998\. Having
the RDB and PMS programs in place, the appropriate application of these programs
should help optimize the benefits from road improvement and maintenance investments\.
56\. There could be a major change in the ownership and management of the JQE if
Shandong Province succeeds in selling a portion (60 percent) of the JQE to a Hong Kong-
based financial institution\. The remaining portion of the assets of the Expressway would
be administered by a stock holding company to be established, and the shares of the
company would be listed on one of the Chinese stock exchanges\. The JQE was valued at
Y 5\.2 billion in early 1997\. The Bank Group has informed the Province and the Central
Govermment about its no-objection to such transformation of ownership for the JQE in
principle, subject to receiving specific documentation on the terms of the transactions and
regulations involved, as required by the Bank Group\.
I\. KEY LESSONS LEARNED
57\. Project Preparation and Costing\. The scope of the highway component of the
project lacked clear definition and consistency\. Thus, the project highway was not built
according to a well-conceived and well-defined concept; it rather "evolved" into an
expressway facility in the course of implementation\. As it happened, this deficiency has
not been detrimental to the viability of the JQE\. The higher cost of the JQE was
compensated for by higher-than-expected stream of benefits on account of the higher-
than-expected diversion of corridor traffic to the JQE\. Nevertheless, the deficiency of the
formulation of the project has been transparent enough to put it on record, even if there
were mitigating circumstances for it at the time of project formulation: (a) the Borrower
had no clear policy for the development of a strategic highway network for the country;
and (b) constraints on the availability of counterpart fumding for the project must have
been seen as a major risk; and (c) limited experience with the design and operation of
- 17-
electronic, electrical and mechanical works (traffic monitoring, telecommunications and
tolling) which could explain the initial omission of some highway-related expenditure
items from the project\. Notwithstanding these considerations, it could be argued that the
Bank Group could have been more alert to the potential disadvantages in proceeding with
the financing of the Jinan-Qingdao highway with a vague definition of its scope and
ultimate objectives\.
58\. Highway Safety\. The traffic safety record of recently completed Bank Group-
financed highways has been a major cause for concern\. The high rates of accidents on
recently built expressways also bring into question the conventional notion that
expressways are safer than arterial roads of the network\. Although there is no conclusive
statistical evidence either way, the indications are that the Chinese drivers' lack of
experience in handling vehicles at high speeds, combined with the relatively poor
condition of the vehicle fleet, have been the major causes of the excessive rate of
accidents on high standard highways\. Since road safety is a complex issue, which extends
well beyond engineering aspects, the ICR issued for the Jiangxi Provincial Highway
Project already highlighted the importance of formulating a comprehensive road safety
strategy for China and recommended to the Bank Group to intensify its dialogue with the
Central Government on the issues involved\. Well-documented evidence of the safety
record of the JQE adds further urgency to the earlier recommendations regarding highway
safety issues\.
59\. Preparation and Execution of E&M Works for Expressways\. The two-year
delay of the completion of the project is partly attributable to the fact that initially the
project covered only the acquisition of equipment associated with traffic monitoring,
telecommunications and tolling, but not its installation\. Although, the decision to include
the full extent of the works in the project under Bank Group financing was made soon
after the commencement of civil works, the preparation and processing of the E&M
works proceeded very slowly\. Since similar delays occurred under other Bank Group-
financed highway projects under implementation in the early 1990s, the Bank Group, in
consultation with MOC, initiated steps that now ensure the design and technical
specifications for E&M works are completed more or less at the same time as the design
and the technical specifications for the civil works contracts\.
- 18-
PART II: STATISTICAL TABLES
TABLE 1: SUMMARY OF ASSESSMENTS
A\. Achievement of Objectives Substantial Partial Negligible Not Applicable
Macroeconomic policies x
Sector policies X
Financial objectives (cost recovery) X
Institutional development X
Physical objectives X
Poverty reduction X
Gender issues X
Other social objectives X
Environmental objectives X
Public sector management X
Private sector development X
B\. Project Sustainability Likely Unlikely Uncertain
x
C\. Bank Group Performance Highly Satisfactory Satisfactory Deficient
Identification x
Preparation assistance X
Appraisal X
Supervision X
D\. Borrower Performance Highly Satisfactory Satisfactory Deficient
Preparation X
Implementation X
Covenant compliance X
Operation (if applicable) X
E\. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly
Satisfactory Unsatisfactory
x
- 19 -
TABLE 2: RELATED BANK GROUP LOANS/CREDITS
Year of
Loan/credit title Purpose approval Status
Highway Project Provincial road network FY85 completed
Ln\.2539-CHA/Cr\. I 954-CHA expansion/ improvement
Beijing-Tianjin-Tanggu Expressway Project see footnote La FY87 completed
Ln\.281 I-CHA/ Cr\. 1792-CHA
Sichuan Provincial Highway Project see footnote La FY88 completed
Ln\.295 I -CHA/ Cr\. 1917-CHA
Shaanxi Provincial Highway Project see footnote La FY88 completed
Ln\.2592-CHA
Jiangxi Provincial Highway Project see footnote La FY89 completed
Cr\. 1984-CHA
Jiangsu Provincial Transport Project see footnote La FY91 completed
Ln\.3316-CHA/Cr\.2226-CHA
Zhejiang Provincial Highway Project see footnote La FY92 ongoing
Ln\.3471-CHA
Henan Provincial Highway Project see footnote /a FY93 ongoing
Ln\.3531-CHA
Guangdong Provincial Highway Project see footnote La FY93 ongoing
Ln\.3530-CHA
Fujian Provincial Highway Project see footnote La FY94 ongoing
Ln\.3681 -CHA
Hebei/Henan National Highway Project see footnote La FY94 ongoing
Ln\.3748-CHA
Xinjiang Highway Project I see footnote La FY95 ongoing
Ln\.3787-CHA
Shanghai-Zhejiang Highway Project see footnote La FY96 ongoing
Ln\.3929-CHA
Second Shaanxi provincial Highway Project see footnote /a FY96 ongoing
Ln\.3986-CHA
Second Henan Provincial Highway Project see footnote La FY96 ongoing
Ln\.4027-CHA
Second Xinjiang Highway Project see footnote La FY97 ongoing
Ln\.4099-CHA
Second National Highway Project see footnote La FY97 ongoing
Ln\.4124-CHA
/a These highway projects, typically, have had the following components: (i) construction of a major highway; (i)
improvement of provincial roads; (iii) procurement of road maintenance equipment; and (iv) institutional
development components, such as RDB and PMS programs, staff training and selected subsector-oriented studies\.
- 20 -
TABLE 3: PROJECT TIMETABLE
Steps in project cycle Date planned Date actual
Identification (Executive Project Summary) 08/87 08/87
Preparation 10/87 04/88
Appraisal 01/88 07/88
Negotiations 04/88 04/89
Board presentation 06/88 05/89
Signing 09/89 09/89
Effectiveness 12/89 12/89
Project completion 12/94 06/97
Loan closing 06/95 06/97
TABLE 4: LOAN/CREDIT DISBURSEMENT: CUMULATIVE ESTIMATE AND ACTUAL
(US$ million)
FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98
Appraisal estimate 11\.00 22\.00 48\.40 77\.00 101\.20 110\.00
Actual 7\.00 18\.05 46\.29 74\.03 87\.76 89\.95 94\.00 105\.73 110\.00
Actual as % of adjusted estimate 64\.0 82\.0 95\.0 96\.0 86\.0 82\.0 85\.5 96\.1 100\.00
Date of final disbursement July 24, 1997
-21 -
TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION
Estimated LZ Actual
Key implementation indicators in SAR Start Complete Start Complete
1\. Highway Construction 04/89 06/94 06/90 12/93
2\. Equipment for Pavement Evaluation 06/89 04/90 01/92 02/93
3\. Equipment for Road Maintenance 09/91 10/92 07/95 06/97
4\. Equipment for Traffic Monitoring 05/93 05/93 06/96 06/97
5\. Road Data Bank 12/90 12/94 02/96 06/97
6\. Consulting Services 08/89 12/94 07/90 12/93
7\. Staff Training Lb 06/89 12/92 07/90 07/97
8\. Road Safety NA NA 02/97 06/97
La Pages 73-74 of the Staff Appraisal Report\.
Lb Most of the staff training program was completed by the end of 1996\.
TABLE 6: KEY INDICATORS FOR PROJECT OPERATIONS
Length (Iam) Traffic (1997 ADT)
Estimated Actual Estimated Actual
Highway Construction
Qingdao-Weifeng 100\.00 100\.00 7,541 10,763
Weifeng-Zibo 98\.00 98\.00 11,946 10,609
Zibo-Jinan 121\.00 120\.30 10,680 12,317
Total 319\.00 318\.30
TABLE 7: STUDIES INCLUDED IN PROJECT
Study Purpose as defined at Appraisal/Redefined Status Impact of Study
Pavement Management SPTD proposed to evaluate the condition Completed Implemented in all 17 prefec-
and Strengthening Study of the paved roads in order to prepare a tures and covers full length of
strengthening program and to review the the 17,000 km paved road
organizational and operational aspects of network\.
paved roads maintenance to bring them up
to date\.
- 22 -
TABLE 8A: PROJECT COSTS
(Y million)
Appraisal estimate Actual/atest estimate
Item Local Foreign Total Local Foreign Total
Jinan-Qingdao highway 563\.28 585\.89 1,149\.17 1383\.16 592\.78 1,975\.94
Consultant services for supervision 20\.00 4\.80 24\.80 26\.80 13\.70 40\.50
Equipment for road strengthening program 0\.00 0\.75 0\.75 0\.00 1\.48 1\.49
Road planning (Road Data Bank) 0\.00 1\.85 1\.85 0\.00 4\.32 4\.32
Road maintenance equipment 0\.00 11\.10 11\.10 0\.00 51\.13 51\.13
Research equipment for central road 0\.00 2\.22 2\.22 0\.00 4\.07 4\.07
laboratory
Traffic monitoring and communication 0\.00 22\.80 22\.80 44\.00 81\.34 125\.34
equipment
Staff training 0\.00 3\.33 3\.33 0\.00 7\.64 7\.64
Technical assistance and road safety 0\.00 0\.37 0\.37 0?00 0\.83 0\.83
equipment
Subtotal 583\.28 633\.11 1,216\.39 1,453\.96 757\.29 2,211\.25
Additional Cost Items
Design and Survey 30\.92 0\.00 30\.92
Facilities along JQE 203\.50 0\.00 203\.50
Research; test-section of JQE 4\.88 0\.00 4\.88
Overhead 52\.02 0\.00 52\.02
Foreign exchange loss 99\.26 0\.00 99\.26
Loan/credit serivicing and tax 199\.82 0\.00 199\.82
Subtotal 590\.40 0\.00 590\.40
Base Cost 583\.28 633\.11 1,216\.39 2,044\.36 757\.29 2,801\.65
Physical contingencies 58\.33 63\.31 121\.64
Price contingencies 232\.54 99\.89 332\.43
Subtotal 874\.15 796\.31 1,670\.46
Land acquisition cost 37\.06 - 37\.06 262\.00 0\.00 262\.00
Total Project Cost 911\.21 796\.31 1,707\.52 2,306\.36 757\.29 3,063\.65
- 23 -
TABLE 8B: PROJECT COSTS
(US$ million)
Appraisal estimate Actual/latest estimate
Item Local Foreign Total Local Foreign Total
Jinan-Qingdao highway 152\.24 158\.35 310\.59 346\.56 148\.53 495\.09
Consultant services for supervision 5\.40 1\.30 6\.70 3\.23 1\.65 4\.88
Equipment for road strengthening program - 0\.20 0\.20 0\.00 0\.18 0\.18
Road planning (Road Data Bank) - 0\.50 0\.50 0\.00 0\.52 0\.52
Road maintenance equipment - 3\.00 3\.00 0\.00 6\.16 6\.16
Research equipment for central road - 0\.60 0\.60 0\.00 0\.49 0\.49
laboratory
Traffic monitoring and communication - 6\.15 6\.15 5\.30 9\.80 15\.10
equipment
Staff training - 0\.90 0\.90 0\.00 0\.92 0\.92
Technical assistance and road safety 0\.00 0\.10 0\.10 0\.00 0\.10 0\.10
equipment
Subtotal 355\.09 168\.35 523\.44
Additional Cost Items
Design and Survey 7\.73 0\.00 7\.73
Facilities along JQE 29\.07 0\.00 29\.07
Research; test section of JQE 0\.70 0\.00 0\.70
Overhead 10\.40 0\.00 10\.40
Foreign exchange loss 19\.85 0\.00 19\.85
Loan/credit servicing and tax 39\.96 0\.00 39\.96
Subtotal 107\.72 0\.00 107\.72
Base Cost 157\.64 171\.10 328\.74 462\.81 168\.35 631\.16
Physical contingencies 15\.76 17\.11 32\.87
Price contingencies 24\.87 27\.00 51\.87
Subtotal 198\.27 215\.21 413\.48
Land acquisition cost 10\.02 - 10\.02 70\.81 0\.00 70\.81
Total Project Cost 208\.29 215\.21 423\.50 532\.62 168\.35 701\.97
- 24 -
TABLE 8c: PROJECT FINANCING
(US$ million)
Appraisal estimate Actual/late estimate
Source Local Foreign Total Local Foreign Total
IBRD/IDA 0\.00 110\.00 110\.00 0\.00 110\.00 110\.00
Central Government 40\.50 0\.00 40\.50 191\.69 0\.00 191\.69
Provincial Government 167\.79 105\.21 273\.00 345\.93 58\.35 400\.28
Total 208\.29 215\.21 423\.50 533\.62 168\.35 701\.97
TABLE 9: ECONOMIC COSTS AND BENEFITS
Costs La Benefits Lb NPV k ERR (%)
Jinan-Qingdao Highway
The ICR 4,229\.90 411\.70 2,689\.80 19\.1
The SAR 2,520\.00 397\.80 4,771\.20 23\.00
La December 1997 prices\. See table 2A of Annex 1\.
& First-year benefits (December 1997 prices)\. See Table 5 of Annex 1\.
LI Discount rate = 12 percent\.
- 25 -
TABLE 10: STATUS OF LEGAL COVENANTS
Cove- Original Revised
Agree- nant Present fulfillment fulfillment
ment Section type Status date date Description of covenant Comments
Credit 2\.02(b) I C Open Special Account and operate it according to
Schedule 4 of the Development Credit Agreement
3\.01(a) 5 C Commitment to project objectives and meeting
obligations by Beneficiary under the Project
Agreement
3\.01(b) 3 C Satisfactory onlending arrangement to Beneficiary
3\.02 5 C Compliance with Schedule 3 of the Development
Credit Agreement
3\.03 5 C Meeting requirement of General Conditions,
Section 9\.03-9\.08
4\.01 I C Maintaining adequate financial recording and
auditing reporting requirements
Project 2\.01 5 C Commitment to project objectives and meeting
obligations by Beneficiary under the Project
Agreement
2\.02 5 C Compliance with Schedule 3 of the Development
Credit Agreement
2\.03 5 C Meeting requirement of General Conditions,
Section 9\.03-9\.08
2\.04(a) 9 C Exchange of views with the Bank Group
2\.04(b) 9 C Information on interference with project
implementation
2\.05 12 C Carry out Resettlement Plan
2\.06 9 CP Toll charges not to exceed 30% of vehicle
operating cost savings
Covenant Class: Status:
I = Accounts/audits 8 = Indigenous people C = covenant complied with
2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD = complied with after delay
generation from beneficiaries 10 = Project implementation not CP = complied with partially
3 = Flow and utilization of project covered by categories 1-9
funds 11 = Sectoral or cross-sectoral
4 = Counterpart funding budgetary or other resources
5 = Management aspects of the allocation
project or executing agency 12 = Sectoral or cross-sectoral policy/
6 = Environmental covenants regulatory/institutional action
7 = Involuntary resettlement 13 = Other
- 26 -
TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS
There was no significant lack of compliance with an applicable Bank Group Operational
Manual Statement (OD or OP/BP)
TABLE 12: BANK GROUP RESOURCES: STAFF INPUTS
Planned Actual
Stage of project cycle Weeks $ Weeks $
Preparation to Preappraisal NA NA 62\.2 169\.5
Appraisal NA NA 44\.8 109\.9
Negotiations to Board NA NA 5\.8 16\.4
Supervision NA NA 64\.5 187\.4
Completion NA NA 7\.0 15\.8
Total 184\.3 499\.0
\.a As of November 25, 1997\.
TABLE 13: BANK GROUP RESOURCES: MISSIONS
Performance rating
Specialized staff Imple- Devel-
Stage of project cycle Month/ Number of Days skills represented mentation opment Type of
year persons in field La status L objectives problems La
Identification 2/22/87 6 6 E, 00, Sp, OA
Identification 7/12/87 4 5 E, 00, Sp, OA
Preparation 10/12/87 3 6 E, 00, Sp
Appraisal 6/19/88 3 15 E, 00, Con
Board through 7/20/89 1 16 E
Effectiveness 10/23/89 3 20 E, E, Sp
Supervision 1 7/16/90 1 3 E 2 1
Supervision 2 3/3/91 3 5 E, 00, Con 2 1
Supervision 3 10/17/91 3 6 E, Con, 00 2 1
Supervision 4 7/25/92 2 6 E, 00 2 1
Supervision 5 4/11/93 2 6 E, OA 2 1
Supervision 6 4/7/94 2 2 E, Sp S S
Supervision 7 7/15/95 1 5 E S S
Supervision 8 7/14/96 3 2 E, RA, OA S S
Supervision 9d 11/2/96 3 6 E, RA, OA S S
Supervision 10d 4/11/97 3 6 E, RA, OA S S
la 00: Operations Officer; E: Engineer; OA: Operations Analyst; Con: Consultant; FA: Financial Analyst; Sp: Transport Specialist;
OS: Operations Specialist; EN: Environmentalist; CO: Counsel; DO: Disbursement Officer; RA: Research Analyst; TS: Training
Specialist\.
1 I\. Highly satisfactory; 2: Satisfactory; S: Satisfactory
Lg Typically the problems included: lack of operational and financial resources of the contractor; quality deficiencies and lack of
consistently effective control of supervision and implementation delay issues
Ld These missions served also as completion missions\.
-27 - ANNEX I
ANNEX 1: ECONOMIC AND FINANCIAL EVALUATION
Preface
1\. The economic analysis presented in this ICR for the Jinan-Qingdao Expressway
(JQE) is based on updated data on traffic, vehicle operating costs (VOCs), economic cost
and road user benefits and revised assumptions regarding future traffic growth rates\. The
methodology used in the economic analysis is similar to that used in the SAR and is
summarized as follows:
(a) capital investment and maintenance costs have been revised to reflect December
1997 prices and are included in the cost stream;
(b) the benefit stream, also reflecting December 1997 prices, consists of savings in
VOCs reduced traffic congestion on the existing roads, and cost savings on account
of accident reduction;
(c) a project life of 20 years has been assumed and the capital investment period for the
Expressway was from 1989 to 1997; and
(d) full benefits started to accrue on the Expressway in January 1994\.
2\. As in the SAR, the Expressway was divided into three sections for economic
evaluation\.
Section 1: from Qingdao to Weifang (100\.0 km);
Section 2: from Weifang to Zibo (98\.0 km); and
Section 3: from Zibo to Jinan (120\.3 km);
3\. In addition to the JQE, there are two main existing arterial roads, a north road and
a south road, along the Jinan-Qingdao corridor\. Cost and benefit analyses were carried
out separately for each section, as well as the JQE a whole\.
Corridor Traffic
4\. The 1997 corridor traffic and its distribution between the two arterial roads and
the JQE is presented in the following table, indicating the SAR forecast and the latest
traffic census data:
-28 - ANNEX I
NUMBER OF MOTORIZED VEHICLES PER DAY (ADT) FOR 1997
The The The New Total Diversion
North Road South Road Expressway Corridor Factor (DF)
(1) (2) (3) (4)=(1+2+3) (5)=(3/4)
SAR
Section 1 4,600 6,835 7,541 18,976 39\.7%
Section2 5,685 1,182 11,946 18,813 63\.5%
Section 3 5,440 6,218 10,680 22,338 47\.9%
ICR
Section 1 3,911 2,838 10,763 17,512 61\.5%
Section 2 3,210 1,654 10,609 15,473 68\.6%
Section 3 5,718 7,850 12,317 25,885 47\.6%
(ICR/SAR) Ratios
Section 1 85\.0% 41\.5% 142\.7% 92\.3%
Section 2 56\.5% 139\.9% 88\.8% 82\.2%
Section 3 105\.1% 126\.2% 115\.3% 115\.9%
Sources: Jinan-Qingdao Expressway Management Bureau and the Bank Group staff\.
5\. As shown above, the total corridor traffic for 1997 (i\.e\., the sum of traffic on the
sections of the two existing arterial roads parallel to the JQE and the JQE) was either
close to or higher than the SAR estimates, with the exception of Section 2\. Also, the
actual diversion of traffic to the JQE was at a higher rate than forecast (Section 1) or at
about the same rate (Sections 2 and 3)\. The higher Diversion Factor (DF) ratio indicates
that the JQE attracted a higher proportion of the corridor traffic\. As a result, the volume
of traffic in 1997 was considerably higher than the appraisal forecast on Sections 1 and 3
of the JQE but lower on Section 2\. The actual DF ratio, based on four-year operation of
the Expressway, shows that the ratio was quite steady for each section as shown in the
following table\. The net increase of the 1997 average traffic above SAR estimate, in
terms of the weighted average of traffic on the three sections of the JQE in vehicle-
kilometers per day, is about 390,000 or 12 percent\.
TRAFFIC DIVERSION FACTORS TO THE EXPRESSWAY (in %)
Section 1 Section 2 Section 3
1994 59\.7 65\.4 49\.7
1995 54\.3 70\.1 46\.3
1996 62\.1 69\.6 48\.2
1997 61\.5 68\.6 47\.6
Traffic Projection
6\. The projected traffic for the three sections of the expressway for the years 1997-
2015, by type of vehicle, is detailed in Table 1 of this Annex\. During 1994-97, actual
-29 - ANNEX I
traffic census data were used while for subsequent years the following growth rates have
been assumed:
(a) normal traffic, except for small cars, would increase by 7\.0 percent a year between
1997 and 2000, 6\.0 percent a year between 2000 and 2005, and 5\.0 percent a year
thereafter;
(b) since small cars constitute the major portion of the traffic and the traffic demand
is very strong, the growth rate for small cars is estimated to be 2\.0 percent higher
than for other types of vehicles, and
(c) generated traffic is assumed to be 2 percent to allow for additional traffic which
results from the expansion of the national trunk highway system in China in
general and Shandong province in particular\.
7\. In the SAR, by comparison, the normal traffic growth rate for the new expressway
was estamated at 11\.4 percent a year between 1994 and 2000; and 7\.6 percent a year
thereafter\. The generated traffic growth rate was assumed to be 13\.5 percent of the normal
traffic\. It was further assumed that some of the railway traffic, both passenger and freight,
would divert to the JQE\. Diversion of railway traffic has been discounted in the revised
projection for the ICR because:
(a) Most of the railway traffic between Qingdao and Jinan is through traffic\. On the
other hand, it was estimated that, in 1996 and 1997, less than 10 percent of the
road traffic had origins and destinations directly between Qingdao and Jinan and
vice versa\. Thus, traffic diversion from rail to road is of little significance\.
(b) Highway tariffs [about 40 fen per ton-kilometer (tkm) or passenger-kilometer
(pkm)] are much higher than those for rail transport (6-8 fen per tkm or pkm)\.
8\. Based on the historical data and projection of the economic development of the
Province and in the influence area of the JQE, the long-term normal traffic growth rate
(1994-2010) for the JQE has been estimated in the range of 5\.6 to 9\.0 percent, compared
to the SAR estimate of uniform growth rate of 9\.0 percent for all three sections of the
Expressway\. On this basis and the assumptions presented in the above paras\. 6-7, the ICR
overall traffic forecast for the expressway is more conservative than that of the SAR\. The
SAR and ICR traffic projections by sections are shown in the following table:
-30 - ANNEX I
TRAFFIC FORECAST COMPARISON (ADT)
Section I Section2 Section3
Qingdao-Weifang Weifang-Zibo Zibo-Jinan
SAR
1994 5,458 8,647 7,731
1995 6,079 9,631 8,610
1996 6,771 10,727 9,589
1997 7,541 11,946 10,680
2000 10,418 16,505 14,753
2005 13,848 21,900 19,612
2010 21,660 33,950 30,690
Average growth per year
1994-2010 9\.0% 9\.0% 9\.0%
ICR
1994 6,241 8,364 10,130
1995 7,094 9,970 10,846
1996 10,461 10,357 12,008
1997 10,763 10,609 12,317
2000 13,165 13,004 15,145
2005 18,462 18,173 19,218
2010 24,759 24,285 24,320
Average growth per year
1994-2010 9\.0% 6\.9% 5\.6%
Note: All figures are rounded\.
Economic Costs
9\. The financial cost for the JQE was converted to economic cost (Table 2A) by applying
the shadow prices shown in Table 3\. The overall effect of the revised financial cost and
shadow prices is that the total economic cost of JQE is 67\.9 percent higher than the SAR
estimates, both at constant December 1997 prices\. The foreign and domestic price
indexes used for the economic cost determination are presented in Table 2B\.
ECONOMIC COST COMPARISON
(Y million)
SAR ICR ICRISAR
(in%)
1989 prices 1997 prices Current prices 1997 prices 1997 prices
Total Costs 1,743\.4 2,520\.0 2,850\.4 4,229\.9 167\.9
Economic Benefits
10\. The economic analysis includes the benefits derived from: (a) VOC savings, (b)
passenger time savings, (c) relieved congestion on the two parallel arterial roads; (d)
-31- ANNEX I
accident cost saving, and (e) construction cost savings (Table 5)\. The updated VOC per
km for the various types of vehicles used in the ICR and the SAR are presented in Tables
4A and 4B respectively\.
11\. The actual traffic census data for 1994-97 shows that, on average, about 60
percent of corridor traffic diverted to the JQE\. The drop in traffic level on the two
existing arterial roads reduces traffic congestion on these roads\. The benefits resulting
from the lower level of congestion were quantified on the basis of the' parameters shown
in Table 4C\.
12\. The value of passenger time savings was estimated as Y 1\.0 per passenger-hour\.
This level of cost saving is an overall average of the economic value of travel time for
passengers in cars, vans and buses for Chinese highway projects, based on a recent
study\.'
13\. Accident cost savings were calculated according to the following formula:2
B =C * (Ro -Rw )* V
Where:
B = annual benefit from accident savings;
C = cost per accident;
R = accident rate (per 100 million vkm) without (Ro) and with (Rw) the
project; and
V = annual vkm of travel (in 100 million vkm)\.
The constants used in the above formula for "R' (for different classes of roads and the
value of direct property damage) and "C" (for the various classes of roads in China) are
as follows:
R (100 million vkm) C (Y/accident)
Expressway - 40 + 0\.005 ADT 15,000
Class I road 37 + 0\.003 ADT 10,000
Class 11 road 133 + 0\.007 ADT 6,500
Class IlI road 140 + 0\.03 ADT 4,500
14\. The condition of the two parallel arterial roads will need to be upgraded when the
traffic reaches about 12,000 ADT\. With the diversion of traffic to the JQE, there will be a
delayed need for such upgrading\. The upgrading/periodic maintenance cost of the parallel
arterial roads is estimated to be Y 5\.0 million per kilometer in 1997 prices\.
Rust PPK\. Australia Feasibility Study Methodology report (March 1996) page 5, Annex G\.5
2 From the above study report, page E-1 9, Appendix E\.
- 32 - ANNEX I
Economic Evaluation
15\. The economic rate of return (ERR) on the JQE investment is estimated to be 19\.1
percent versus the SAR estimate of 23\.0 percent\. Although the recalculated ERR is lower
than that presented in the SAR, the high investment cost has been offset by the higher-
than-estimated benefits generated by a greater volume of traffic than estimated at
appraisal\. Total costs and benefits streams, ERR and Net Present Value (NPV) for JQE
are presented in Table 5\.
SAR ICR
Best estimate of ERR 23\.0% 19\.1%
NPV (12%, Y million) 4,771\.2/a 2,689\.8
/a NPV was Y 2,182\.7 million at 1989 prices and updated
to 1997 prices by multiplying with a factor of 2\.1859\.
16\. Besides the normal traffic growth scenario, two traffic growth alternatives have
also been considered: e\.g\., a lower traffic growth projection (30 percent lower than the
normal traffic growth) and a higher traffic growth projection (30 percent higher than the
normal traffic growth)\. The traffic growth and annual average growth rates under these
two scenarios are as follows:
THE EXPRESSWAY TRAFFIC FORECAST SCENARIOS (ADT)
Section I Section 2 Section 3
Qingdao-Weifang Weifang-Zibo Zibo-Jinan
The Low Projection:
1994 6,241 8,364 10,130
2000 12,097 11,950 13,918
2005 14,716 14,485 15,967
2010 17,098 16,770 17,936
Average growth per year
1994-2010 6\.5% 4\.4% 3\.6%
The High Projection
1994 6,241 8,364 10,130
2000 14,291 14,123 16,442
2005 23,013 22,664 23,052
2010 35,476 34,818 32,854
Average growth per year
1994-2010 11\.5% 9\.3% 7\.6%
Note: All figures are rounded\.
17\. The overall ERR and NPV for the different traffic growth scenarios are
summarized in the following table\. It shows that even with the lower traffic projection,
33 - ANNEX 1
which is most unlikely to happen, the JQE investment still would yield an ERR of 16\.8
percent\.
The low traffic growth scenario The high traffic growth scenario
Best estimate of ERR 16\.8% 21\.5%
NPV (12%, Y million) 1,544\.9 4,359\.5
Sensitivity Analysis
18\. The ERRs summarized below show the effects of possible changes in the
assumptions made in the evaluation and could alter the yields on the investment\. Since
the cost of operation and maintenance of the JQE is a relatively small portion of the
investment cost, any variation in these costs would have no discernible impact on the
ERR\. The impact of changes in the traffic levels is covered in paras\. 16 and 17\. The
ERR of 16\.8 percent is still an acceptable yield in case the traffic level is 30 percent
below the most probable level assumed\. The effects of 50 percent reduction in benefits
attributable to lower operating cost savings, 50 percent reduction in benefits due to less-
than-estimated saving in travel time cost savings, 50 percent reduction in benefits on
account of cost savings due to reduced congestion, and a 20 percent reduction in total
benefits are also shown Table 5\. In all cases listed, the ERR still remains at least 14
percent, exceeding 12 percent, a percentage normally regarded to be the minimum for
highway investment in China\.
SENSITIVITY ANALYSIS
ERR (in %) NPV(12%, Y million)
VOC savings reduced by 50% 14\.1 676\.0
Passenger time savings reduced by 50% 18\.3 2,394\.3
Congestion savings reduced by 50% 18\.4 2,352\.0
Total benefits reduced by 20% 16\.0 1,401\.3
Financial Evaluation
19\. The toll revenue is the only major financial income from the operation of the JQE\.
The toll charges have been changed once (in July 1995) since the Expressway was
opened to traffic in December 1993\. The actual total revenue increased by an average of
38\.3 percent a year during the first three years of operation (1994-96)\. The estimated
financial rate of return (FRR) against the full costs of the JQE is 8\.8 percent\. This
estimate indicates that the revenue from the JQE is expected to cover fully the operation
and maintenance costs of the JQE and also meet all financial obligations such as loan/
credit servicing and repayments\. The details of the financial analysis are shown Table 6,
and the results are summarized in the following table:
-34 - ANNEX 1
FINANCIAL ANALYSIS RESULTS
Input Data:
Total cost Y 3,063\.65 million
Total debt Y 523\.44 million
Total equity Y 2,540\.21 million
Period of loan 20 years
Grace period 5 years
Loan interest rate (onlending rate) 5\.3%
Results
Rate of return on equity 10\.1%
Financial rates of return:
Best estimate 8\.8%
Toll revenue (-10%) 7\.2%
Operating costs (+10%) 8\.4%
Toll revenue (-10%) and operating costs (+ 10%) 6\.8%
Level of Toll Charges
20\. The expressway operates as a closed toll system with 21 toll stations\. The tolls are
determined by the type of vehicle and distance traveled\. There are five groups of vehicles:
(a) passenger cars and small trucks; (b) medium buses and trucks; (c) large buses and
trucks; (d) tractor and trailer; and (e) extra-large vehicles\. The longer the distance
traveled, the lower is the toll per kilometer (Y/vkm), as listed below:
Distance Small Vehicles Medium Vehicles Large Vehicles Tractor Trailer Extra-large
vehicles
Under 100 km 0\.32 0\.40 0\.48 0\.72 1\.12
100-200 km 0\.29 0\.39 0\.45 0\.69 1\.09
Over 200 km 0\.24 0\.32 0\.40 0\.64 1\.04
21\. According to Clause 2\.06 of the Project Agreement, the toll rates charged should
not exceed 30 percent of the total VOC savings\. In the absence of a comprehensive traffic
origin and destination survey and VOC savings calculation for various trips involved, an
approximating analysis has been used to highlight the present relationship between the
prevailing toll rates and the financial VOC savings on the three sections of the
Expressway for which economic evaluations have been carried out, and the economic and
financial VOCs have been available, as of 1997\. On the basis of the prevailing toll rates
and VOC savings shown in Table 7, the following tentative conclusions may be drawn:
(a) The JQE toll charges for large-size vehicles are reasonable and are slightly high
(compared to VOC savings) for medium-size vehicles, tractor and trailers\. The
charge is quite high on small-size vehicles (small passenger cars, vans, minibuses
and small trucks)\. The high toll charge on small vehicles may reflect the high
traffic demand by this type of vehicle, and the greater propensity to pay by the
- 35 - ANNEX 1
operators/owners of these vehicles\. In 1997 small passenger cars constituted about
35-50 percent of the total Expressway traffic\.
(b) On the section where the travel distance on the Expressway is significantly shorter
than on the parallel arterial roads, the driver may prefer to use the Expressway\. In
such a case, as on Section 1, the toll level has less effect on the decision to use the
Expressway\. This could indicate that toll rates higher than 30 percent of VOC
savings are not necessarily a deterrent to road users, if it results from substantial
distance and time savings\. Toll rates are high on Sections 2 and 3 because the
savings in travel distance, compared to the distance of travel on the parallel
arterial roads, are relatively small\.
TABLE 1A: JINAN-QINGDAo HIGHWAY CORRIDOR TRAFuFnc SummARY
(Qingdao-Weifang Section, AADT)
Nok So\.,1 X3\. Mo SO"l Sot% No\.13\. load\. Nra Nartl\. Sw\.* SC\. North 50\.1)1 North33ai sooth' Ido
Mtod good Yo\.,LoI lbS Koa %*3o"l !4*4 Kt !a3s od a~ s ~a4 Ifliriloot Mfi- l ls ood !o*d 06t*\.oo
o 33* 7\.0 3S\.1 3 4 F F F II 311 E\.Prmu Fair fair Good 31-10 I"- 80-330
1* to t 23\.0 3\.114 311% 3,0% 0P\.od3 (?o40d3 IFo"d3
--\.--4\.11 Car- "\.f\.-3rdor 1o\.-\. ----lArK Bad-- *\.3,oTrolk\.-- -llo\.6o\.a Trod- --Lar Trmk- --Tro\.tor\.Trollr- -- Tol*-----
30\.1)4 3i~lhokt UMM11\.A l 1\.31100 w1)130o1 witbao wth*ow W4Ilool WiIhooi
old S*\. 034 'ar 01\.1 0 Nm, Old Old 'ae Old Old SC\. Omd Old Nr Old Old NM\. Old Old N, Old Old N\.* Old
rood road rood rood rood road rood rood rod rood road road r08 road r ood ro rood 1*04 roa rood Ij rood rood rood rood ,Od rood road
3994 103 70 11030 3\.r34 1\.333 339 477 31)3 273 133 3 4 III 771 343 112 634 303 3Jul 193 710 39 M4 44 1333 3\.7*7 3,7*4\. 2\.473
3993 2\.71?~~~~~I 3\.393 1,374\. 737 279' *3 73 13 396 944 M3 733 7M1 4311 72 1,013 703 306 344I 337 33 6\.616 3,121 3\.403
*996 ~~~~~~~3\.621 I,1m k\.432 3*3 4011 423 226 is 2013 31)10 243 33 932 61)3 333 1,322 S"1 334 341 236 92 11\.333 4\.61)3 3,730
3997 3~~~~~~~\.71\.3 ,1)210 1,417 931) 4310 330 236 19) 3*3 3\.333 M7 473 9)1 636 I74 1,3731 920 3331 362 762 Wo) 11\."6 4,73 3\.933
73311) ~~~~~~4\.61* 2\.1134 3,14 3,30%4 493 394 377 73 33 3\.373 3*3 *073 3,3\.1 73 433 3,49 I\.3m 3337 423 314 333 *0\.463 3\.793 4,669
313) 6\.014* 4\.33\. 3,734 1,411 636 74 33 39) 341 1\.331 399) 3,72 3,363 9114 077 2,0333 1\.472 331 37 433 133 34,613 6\.124 6,491
3131 9,0\.6 5\.1)433 3\. 1, 4311 3,u 37 1\.3333 471 33 43 2,763 34\.9 3\.133 *,"3 3\.336 736 3\.'3 3\.179 6711 719 s36 393 MM33 3\.99 1,629
30*3 13\.330 \.1\.91 S3,39 O\.36 u 36 13\.293 6312 47 333 2\.1113 0\.3 2\.333 7\.312 1,6313 939 3,763 2,390 1163 931) 614 246 2G\.J33 34,6431 1\.4'34
*993 330 3413 03 t t 2\.39 1\.71)1 39 w 3,93 23 134 76 is 331 6*1 *09 497 633 3t3 731 3,03 1193 *4 *4 33 39 3,743 3,493 1,741
M99 7,0113 1,770 3,1)4 3Ito 133 22 33 Is 93 $1)3 *93 623 IV3 Its 71\.2 3\.1)3 91*1 is) 369J 233 69) 6\.43 3,973 2,477
W4 ~~~~~3\.9*7 2\.713 1\.133 743 3139 339 $17 34 *1)3 932 309 163 1\.1)4l 763 277 1,30 1,143 *60 399 326 73 0,31) 3,w11 2,6\.43
MY9 4\.3373 3\.4113 *313 77 323 336 131 is *1)3 1\.010 31 6930 1,037 33 333 1,334 1\.170 3114 433 333 so) 3\.644 6,131) 2\.833
2*041 1,473 3\.617 *166 oil 674 39 M1 29) *26 I,1m )9 9111 1,276 933 341 1\.39$ 1,399 *96 43S 399 39 30\.693 3,372 3,323
21093 3,433 S\.3\.u\. z 14 1,322l 13 37 21)1 39 369 l\.3144 31*3 3,1)0 1\.31)7 3\.331 436 2\.134 3\.073 262 633 334 139 14,977 10,331 4\.639
71013 loi5)4\. 7 )?4 3433 3\.1\. *L 46 301 766 31 3, \.3\.1)3 647 3,3317 \.3 1\.37 '97 3533 3\.73) 2,309 334 334 6*3 132 70,497 33,163 6,397
240131,\.4 333 4,333 I\.99 3\.363 633 140 64 MP1 3\.9, 36, 1\.7,17 3,731 3\.1)34 343 3\.475 3\.3349 476 3\.06\. 1170 3114 36\.9*9 13\.633 32324\.
3934 ~~~~~ ~~4393\. 3,l7¶ I 331 0*) 413 OIl 3u3 33 331 3403 33 3115 1\.327 6011 339 2,033 1\.393 441 376 99) *79 *0\.41 6\.241 4,239
P\.133 3~~~~~~,333 3*163 3,330 1,3 034 603 336 33 39 1,74 331 1\.4*3 1,343 933 394 IOw9 3\.61)7 437 3*3 33 *36 *3\.046 7,1\.9 3,973
W\.)G3 3,337 3,97 3,364 *113 'An 72 33 47 III 31\.33 sit 0,343 3,993 11\.36 630 1\.34 7,040 414 747 332 *63 363139 30,441 6,371)
1993 71 0*3 I,7\.1 1\.69 933 766 363 44 374 !2\.33 367 3\.31) 7,073 I,39 674 3,634 2,im9 334 177 397 331) 17\.112 1)1,763 6,749
31601 4,6 ,443 13\.333 \.1331 1\.04 101 437 31 3111 3\.33 6177 3\.113 7\.447 11\.63 717 I\.39 2\.439 "93 9*3 733 2333 33\.315 13,163 T\.993
Z30* 14,342 v,46A4 ,33* 3,1)7 3,\.973 3,'l13 3in 61 31) 3\.33'3 396 I\.4m )\.263 I,33 1 4,337 3,344 793 3,234 934 230 39,397 *11462 13,130
333110 311\.116 *3,334 6,442 1\.4*1) 1,993 1,51* 73t 33 601 4\.294 1\.13M 3,1330 4\.171 3,30 3,33 3,333\. 4\.613 it 1,131 \.6 1,330 343 39,330 34,739 44\.673
31*1 31,334 *4\.6*0 9),396 A-33\. 7,439I 1,933 942 M1 *3* 3,43* 3\.436 4,3)3 3,3li 3\.4* 1,613 n 67 1 3447 3,20 3,964 3,34 440k 133\.14 33\.776 39,7711
Idowr I~L a\. Rooldbsaomo0\. 4\. WA#owwbo I,,3 F\. nbI 11 Hlly, M\. m3owwiftw* I)j AN the figobotAmr,o\.ded\.
TABLE iB: JINAN-QINGDAO HIGHWAY CORRIDOR TRAFFc SummARY
(Weifang-Zibo Section, AADT)
66665(m)? 1 N~~~~~~~~~S\.? Lftar Gro,2\., 1ads\. In%)l 3' Road Mras RoadS Ceedlia\." Ay\.ros Spail tIkoloor)
N\.b Sooth Nt\. Norok South Nra Snorh Sooth Nor North South NM\. North S\.tgh New North Soot NCs\.
Repad Road IIit\.g\., Read Road Ilmihoio Rea-d Reid n!&rba\. Read Paead Ifith\.s) Road Road 111h,war Raid Raid HIilh\.or
a \.0 7\.0 15\.6 2 2 a p H5 7 II III Kspr20o ftair Boar Good 3S583 25-411 00120
b \.e 9\.0 23\.6 \.% 35 \." IP&tcd) 1Pesrd) PI'srd)
-SmomSCar- -Strdfivao Boo-\.-Li,\.c Boo\.-- -Smelt Truck- \.-Altldk Trok\.- \.La,,r Truck- --TatrTrl --- Toa
Rlood 11iohoo Witheal Withoat Witham WitlIto Without Withaut WithouA
ka\.th (k\.e) praro Wit P -r\.j-r proelm WthPaia sor_eir 'Li t15 trejrrt pro,icrt Wdub pcaro,, pRaiot Wit Prjc prtojrra 'do Pojact poject with Project project With Frojrcs
old N\. Ol N Old Olm NM\. Old Old N-o'o 01\.1 Ol N\. Otd Old NM\. Old Old Na Old Old NM\. Old Old NMa Old
r\.*d teed crod cred read read red ,oad cred ra\.id read reed read read coed crad read read read reaid road road reed rood roand roaid
Secrja 22; 'ddfaa5- Zib\.
199 6890 9500 )\.263 2\.323 742 347 435 117 SI 31 30 1,316 215 2\.106 1\.046 644 402 1\.622 2\.527 104 503 97 406 1,449 3\.S22 2\.927
599 )\.513 2\.9310 21 669 567 102 1s0 36 44 1\.366 326 1\.2442 1\.127 1530 277 L1*59 1\.761 45 322 106 216 9\.31s 6\.353 2,13
1996 3\.934 Z\."55 936 745 633 10S 03 36 47 1\.6\.17 333 01\.4 1\.242 940 294 1\.757 1,744 43 376 147 229 9,5312 6,539 2,991
19"1 \.1A11 3,073 5\.039 740 649 III 53 27 is 1\.712 342 1,370 1\.92 972 320 1\.159 1\.3m 71 392 131 241 10,212 1\.002 3\.210
1111 $\.110 3,552 1\.235 907 333 132 020 44 31 2,011 401 1\.610 1\.321 1,161 3601 2\.119 2,136 53 461 2Ito 211 12\.310 0,356 3,732
20119 7\.323 5701 1\.119 1\.!14 1\.037 173 137 39) Is 2\.7,11 346 2\.13~3 2,036 1\.334 452 2\.929 2\.535 71 617 341 376 17,157 I 1,5949 5,135
:0111 111\.31 1\.119 2AH3 1\.5341 1\.324 22'6 273 33 14\.0 3\.447 69)7 2\.3301 2\.341 1\.903 613 3\.739 3\.641 91 316l 305 455) 22\.545 16,033 6\.313
i051% I ANI4 11\.22\. 3\.371 1\.935 1\.690 25 2214 96 11% 4\.4\.0, Aw, 3\.314 3\.316 2\.533 713 4\.772 4,636 116 1\.0416 393 623 30\.494 21,476 9,010
A\.4ct\. Ibd 9 40 -
Sooth Rd
1994 5444 '11101 I 1\.65\., 1\.291 352 251 221 00 42 16 '\.1 72' 144 50,9 '39 332 241 533 751 34 219 SIt 2419 4\.349 2,542 1\.3027
1999 1\.963 2\.341 436 311 N%0 33 5 53 440\.)03 U 56 bill SW0 141\. 541 911 9645 it 666 Ss 15 \.4,913 3,317 l,IAsS
8996 2\.435 1\.943 492 III 3235 36 \.02 1 II 214 14'i 132 677 639 455 131 929 597 22 193 73 IIII 3,0311 3,511 1,3403
1991 2~~~~~~~~~1114 5\.55! 534 396 313 63 44 29 25 03 276 7017 666 3101 166 933 935 33 201 77 224 3\.2162 3,6127 2\.654
2066 2~~~~~~~~~1633 2\.'p 637 467 39$0 W 69 I 21 2' 01041 22 52', 753 395 513 1,126 lOin 27 237 92 243 6,339 4,416l 1,921
24053\.7 2 936 936 \.63 J333 92 65 29 3,1 1\.5911 2021 12119 IltIl 1wr) 245 1\.5417 1,471 36 327 223 194 5\.8120 6\.174 2,634
2010 ~~~~~~ ~~~3\.431 4\.115 0\.13 793 6X11 113 7 33 54~012\.733 3604 1\.411 1\.133 1,521 327 2\.923 1,577 46 403 137 245 11\.736 5,230 3\.306
3055 ~~~~~~ ~~~7,655 5\.7761 ,1\.42 1,027 565 249 M2 47 (4 2\.2o3 449 1\.51406 1\.71, 2\.3013 405 2,4S 2,396 39 527 200 313 13,691 11,049 4\.642
A\.C\.o Read 0a W
Total Cerridar:
2994 4\.943 3\.021 1\.124 525 635 277 123 47 76 2,4rt 424 1\.675 5\.3153 976 6419 2,436 2\.295 131l 762 247 623 22,795 8\.364 4,434
199" 3\.733 4\.437 5\.345 1\.053 535 133 III 13 07 213721 493 2\.579 5\.707 1\.251 429 2\.740 3,675 62 455 162 327 14\.220 9,970 4\.230
1996 $\.g59 4\.341 2\.440 1\.122 935 164 133 54 71 2\.496 3415 1\.991 5\.558 1\.436 443 2,706 2\.642 63 369 222 347 54,1155 210\.337 4,5335
21993 6\.220 4\.633 1\.373 5\.236 952 574 229 46 13 Z\. '93 320 3\.077 2\.935 2,432 4916 2MIA 2,755 241b 593 225 36S 153473 523\.642 4\.964
lOU 7,33 3,550 1\.573 1,37 1,173 205 133 A 7 3\.031 629 2,439 2\.V41 1\.739 343 3\.323 3\.33 5to 695 272 426 25,637 13\.004 3\.633
2095 22~~~~~~~~1\.33) 5\.640 2\.735 1\.239 5\.330 269 203 05 223 4\.002 525 3\.264 3\.554 2\.354 730 4\.436 4\.329 507 934 364 370 23\.955 1\.1\.73 7\.122
loll 13\.952 52\.125 3\.564,4 2\.347 2\.112 343 362 112 236 3\.22 2\.037 4\.156 3\.936 34204u 932 3\.662 3\.323 237 1\.193 465 725 34,6104 24\.253 15\.329
2625 ~~~~~~~~~22\.426 56\.996 3\.4241 2\.993 2\.355 Ai7 333 243 192 6\.663 5\.349 3\.3516 3\.024 3\.534 2,2190 7,337 7\.052 273 1\.323 393 930 46\.25:3 32\.325 13\.660
Nola5 IIS1 a Rood paIraw",t S INVAIDN' todhd \.2 P F05\.1 of 52\.22\. M1 U5\.aeeior"\. J AU d\. filtata \. we mmid\.d
TABLE 1C: JINAN-QINGDAO HIGHWAY CORRIDOR TRAFFIC SUMMARY
(Zibo-Jinan, AADT)
Width (M) /_1 No\. of Laoa Gradinot (( it\. in%) /2 Rood a oos Road Condition Averoje Speed (ho/bor)
Nenh Sooth New North Sooth NMw North South Nrv, Noth South New North Sooth New North South New
Rood Rood lligh\. Rood Rood Iliohooc Rood Rood flighoo Road Road lfifh\.oc Road Rood llthwov Rood Road llihhwv
0 7\.0 7\.0 I9\.0 2 2 4 P It P 11 III E\.preot\. Foir Poor Good 3S-S01 2-433 Ith-12t
b 9\.0 9\.0 26\.0 13\.0% t\.0% 3\.1% (tPed) (P8vod) (PsAed)
--\.-\.Stooll Cor\.---\.- \.--\.-Alvdiord,--th iu OI or-- \. Loc Boo--\.--- -----Smolt lrot/--- _\. \.r-tidio, lr-ck-o - ------- _-Troct\.8Tr7iler--- -\.uTo f-- \. _ _
Road Without Wilhoul Withat Without Wilhol Wilhout Wihoul Without
knylhl (n) I-rjet With Project project With Project Project With Prject \.I-cct With Project pr'ject With Project ptrojct With Project Irojet With project projCct With Pojec
Old New (ltd NCo Old Old Ne\. Old Old N Ol (ld (11 NPo Old Old New Old Old New Old Old New Old Ohl New Old
rood reod ro\.d rood road road rood road rood rood rood rood \.od road rood rood road rood road rood rood rood rood rood rood rood
SCctioo I3: Zibho Jin\.o
Nonh Rood:
1994 129\.10 12030 3,720 2\.9 1,634 670 350 290 148 23 123 1\.260 233 11)27 1,168 570 390 1,52) 1,120 41 361 02 4) 9\.064 4,302 4,362
195 3\.934 2\.139 1\.793 724 302 342 174 20 146 1316 231 1\.27S I40' 573 836 1,93S 1\.304 534 719 76 643 101414 4,820 W\.594
199f 4\.431 3\.065 1,393 700 417 363 171 23 153 1\.635 210 1\.353 1,512 626 YY6 1,726 1,139 5Y7 771 t9 612 1 1,060 5,639 5,421
1997 4,636 3,142 1\.494 *12 420 304 IIS 25 161 1,7W0 287 1,413 1,372 642 930 1,796 1\.16t 620 t01 92 709 11\.302 5,714 3\.711
2110 35,773 3,969 1,104 956 5)1 445 21S 28 IX0 2111)3 343 1,660 1,152 761 105S 2\.114 1,395 719 945 109 133 13\.161 7\.123 6,731 1
20tl5 1,J43 3\.532 2,651 1\.279 604 395 292 33 234 2,600 439 2,221 2,479 1\.126 1\.453 2,t30 1,067 962 1\.264 146 1,11 1911K3 t 10,12 9,234 t,
2010 11,919 t\.,\U 3,711 1,632 172 760 3712 4 324 3,421 S/3i 2,735 3,164 1,310 1,Y54 3,611 2,303 1,2l1 1,613 It6 1\.427 25,711 13,566 12,146 00
2015 16,647 11\.473 3\.214 2\.0Y3 1\.114 969 475 61 414 4,366 740 3\.61, 4,038 1,672 2,366 4,60') 3,042 1,56Y 2,059 230 1,21 34,317 1,346 15,971 1
Aces Road a Oa
South Rood;
39 I14J00 120830 4,660 2,611 2,142 138 475 363 104 20 156 1,573 291 1,204 1,439 712 747 1,912 1,4111 S11 7112 103 509 11,330 5G,62 5,702
1995 4,919 2,673 2\.244 9W4 477 427 219 36 13 I\.1YS 297 1,591 1,761 716 1,1145 2,423 1,7311 693 ISO 93 X04 13,0211 6,026 6,994
199G 5,573 31149 2,424 973 322 453 223 29 194 2\.044 350 1,694 1,891 7J3 1,103 2,160 3,425 735 963 III 032 133\.29 6,369 7,460
1997 35796 3\.227 2,536 1\.,14 535 479 232 34 192 2\.126 3Go 1,766 1,967 003 1164 2,246 1,460 706 1,0112 114 HIS 14,383 6,333 7\.8511
20I0 7,217 4,078 3,139 1,194 639 S55 273 36 238 2\.50W 429 2,075 2,317 93' 1,357 2,646 1746 900 1,10 136 1,044 17,331 111023 9,300
2005 3,516 4,742 3,775 1,353 716 641 310 46 263 2,045 402 2,363 2,632 1,9175 3\.550 30tK16 1,934 1,032 1,341 133 1\.18Y 20,0011 9,166 10\.Y42
20R0 101123 5\.7210 4403 1,524 *16 700 349 45 303 3,196 547 2,649 21957 1,224 1,732 3,377 2,220 1,149 1,506 174 1\.332 231131 10,754 12\.277
2013 - 11,9J4 6,650 5i29' 1,732 91 si 396 35 331 3\.631 615 3,016 3,360 1,371 I\.9J0 3,036 2J494 J\.343 1\.711 195 1\.317 26,611 12,297 14\.314
Acets Road 0 I10
Total Corridor;
IS9J0 *3tY 4,712 3\.676 1,01 *355 653 332 31 211 2t\.35 324 2,311 2,627 1,212 1\.345 3,441 2,521 920 1,263 1Y 1,0171 20,394 10,130 10,264
IW5 Y,S33 4\.J14 4,039 1,621 059 769 393 G4 329 3\.411 535 2\.876 3,170 1,2Y9 1IYY1 4,361 3,114 1,247 1,61 171 1,447 23\.434 189,46 12,581
1996 10\.1t31 1\.214 3\.17 1,75i 939 *IG 401 52 349 3\.679 630 3,049 3,403 1,41) I ,;94 3,806 2,564 1,322 1,734 200 1,534 24,119 123,014 12\.10S
I"97 10\.432 6,569 4,1163 1,126 963 I03 417 59 350 3,26 647 3,179 3,539 1,445 2,19)4 4,042 2,620 1,414 1,803 206 1,597 25,005 12,317 13\.56
210t1 Il,W9U *,J47 4,943 lIS0 1, 1,1 1,000m 491 64 426 4,S07 772 3,73S 4,169 1,726 2,443 4,761 3,141 16t10 2,124 249 t,179 31\.192 11,145 t6\.j47
210111 699 10H\.l574 6,425 2,636 1,4110 13,36 602 *3 519 5,521 941 4,5t3 5,111 2,101 3,010 5,035 3,Y21 2,014 2,603 27YY 2,306 39,314 19,21Y 20\.I11%
2dl0 22,uU02 13,1uo 0,IU 3,136 1,609 1,460 721 93 620 6617 1\.133 3,404 6,121) 2,534 3,506 6,919 4,611 2,377 3,119 3611 2\.739 41,742 24,320 24,422
201u 23\.6531 IY\.127 10,5U1 3,115 2,027 1,737 372 120 732 7,997 1,363 6,63S 7,397 3,043 4,354 Y,445 5,333 2,910 3,770 432 3,331 60,927 30,643 30,2t4
Nors /-I: a: Iotdpr eoleota bh Wihdroodhcd L2: F\. FbI; II: illy; hM Mountainous; 03: Alldteflyo,scagorounded\.
- 39 - ANNEX 1
TABLE 2A: ECONOMIC COST SUMMARY
(Yuan million)
1989 1990 1991 1992 1993 1994 1995 1996 1997 Total
A\. Financial (current):
Qindao-Weifang 18\.05 90\.26 90\.26 180\.54 270\.80 90\.26 45\.13 45\.13 72\.21 902\.64
Weifang-Zibo t8\.87 94\.36 94\.36 188\.73 283\.09 94\.36 47\.18 47\.18 75\.49 943\.62
Zibo-Jinan 24\.35 121\.74 121\.74 243\.48 365\.21 121\.74 610\.87 60\.87 97\.39 1217\.39
Total 61\.27 306\.36 306\.36 612\.75 919\.10 306\.36 153\.18 153\.18 245\.09 3063\.65
B\. Economic (December 1997 constant):
Qindao-Weifang 34\.71 154\.13 146\.35 276\.18 370\.27 103\.59 45\.50 45\.06 69\.05 1244\.84
Weifang-Zibo 36\.42 161\.71 153\.53 289\.69 381\.10 108\.48 47\.64 47\.15 72\.19 1304\.91
Zibo-Jinan 46\.86 20S\.08 197\.57 372\.80 499\.70 139\.77 61\.40 60\.79 93\.14 1680\.11
Total 117\.99 523\.92 497\.45 938\.67 1258\.07 351\.84 154\.54 153\.00 234\.38 4229\.86
For Economic Evaluation (Yuan million) For Financial Evaluation (Yuan million)
Works: Economic Cost:
Jinmn- Qingdao highway 1\.975\.94 Co\.t as for economic evaluation 2\.350,39
Consultant services for supervision 40\.50
Road maintenance equipment 51\.13 Additional investment itenax:
Road laboratory 4\.07 Equipment for road strengthening program 1\.45
Traffic monitoring 125_t4 Road daita bank 4\.32
T'echnical assistance 0\.B3 Staff training 7\.64
Facilities along the route 203\.50 Loan/ credit servicing atiul tax t99\.81
Subtotal 2,401\.31 Subtotal 213\.26
Adidlitional invesment items: Total 3\.063\.65
LIanl actluisition andl resettiement 262\.00
Design and survey 30\.92
Rcsearch and testing 4\.55
Overhead 52\.0-
Foreign exchange lo\.s 99\.26
Subtotal 449\.08
Total 2,550\.39
TABLE 2B: PRICE INDEX FOR CALCULATION OF ECONOMIC COST
(in %)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Foreign prices 7\.30 -0\.70 5\.70 2\.10 4\.30 -0\.30 3\.60 8\.20 -4\.40 -5\.50
Domestic prices 12\.50 8\.90 6\.30 5\.70 6\.20 13\.60 21\.70 14\.80 6\.50 2\.00
TABLE 3: SHADOW PRICE CALCULATION
(December 1997 prices, Million Yuan)
Qindsu-eei'ant Wcifang-Zibu Zibo-Iinan
Gonver Total
-sion Financial Financial Financial
factor Local Foreign Total Economic local Foreign l'otal Economic Local Foreign Total Economic Financial Economic
Land I 00 70 22 000 70 22 70 22 68 82 0\.00 68 82 68\.82 84\.26 0\.00 84\.26 84\.26 223\.30 223\.30
I\.abor:
t'nskIilled I 0O 4101 000 4101 41\.01 1326 000 4326 4326 55\.44 0\.00 55\.44 55\.44 139\.71 139\.71
Semili sIdlledfl'echinician 1 50 33 55 0\.00 33 55 50\.33 35\.40 0\.00 35\.40 53\.10 45,36 0\.00 45\.36 68\.04 114\.31 171\.47
Superisor 300 939 6\.28 15\.67 3445 991 628 16\.19 36\.01 12\.70 8\.38 21\.08 46\.48 52\.94 116\.94
Mactrials:
Steel I00 62\.63 0\.00 62\.63 62\.63 6607 0\.00 6607 66\.07 84\.67 0\.00 84\.67 84\.67 213\.37 21337
l'imber 100 21\.85 0\.00 21\.85 21\.85 23\.05 0\.00 23\.05 23\.05 29\.53 0\.00 29\.53 29\.53 74\.43 74\.43
Cement 1\.00 25\.57 0\.00 25\.57 25\.57 26\.98 0\.00 26\.98 26\.98 34\.57 0\.00 34\.57 34\.57 87\.12 87\.12
Sand 0\.80 52\.19 0\.00 52\.19 41\.75 55\.06 0\.00 55\.06 44\.05 70\.56 0\.00 70\.56 56\.45 177\.81 142\.25
Stone 0\.80 47\.57 0\.00 47\.57 3806 50\.19 000 50\.19 40\.15 64\.31 0\.00 64\.31 51\.45 162\.07 129\.66
Bitumen 1\.00 42\.13 50\.25 92\.38 92\.38 44\.44 50\.25 94\.69 94\.69 56\.95 67\.00 123\.95 123\.95 311\.02 311\.02
Others I\.0 21\.40 0\.00 21\.40 21\.40 22\.58 0\.00 22\.58 22\.58 28\.93 0\.00 28\.93 28\.93 72\.91 72\.91
Fuel:
Diesel 1\.00 11\.33 000 11 33 11\.33 11\.96 0\.00 11\.96 11\.96 15\.32 0\.00 15\.32 15\.32 38\.61 38\.61
Gasoline 1\.00 14\.99 0\.00 14\.99 14\.99 15\.81 000 15\.81 15\.81 20\.26 0\.00 20\.26 20\.26 51\.06 51\.06
lIeasy oil l\.W 0\.07 0\.00 0\.07 0\.07 008 0\.00 0\.08 0\.08 0\.10 0\.00 0\.10 0\.10 0\.25 0\.25
Others L\.00 5 00 0\.00 5\.00 5\.00 5\.27 0\.00 5\.27 5\.27 6\.75 0\.D0 6\.75 6\.75 17\.02 17\.02
Water 080 38Si 000 3\.88 3\.10 409 0\.00 4\.09 3\.27 5\.24 0\.00 5\.24 4\.19 13\.21 10\.56
EIletricit) 200 5 96 000 596 11\.92 629 0\.00 6\.29 12\.58 8\.06 0\.00 8\.06 16\.12 20\.31 40\.62
Mobilization I 0Do 2 39 000 2\.39 2 39 2 52 0\.00 2\.52 2\.52 3\.23 0\.00 3\.23 3\.23 8\.14 8\.14
M1echanlical equipment I 00 8127 100 49 181 76 181\.76 85 74 100 49 186\.23 186\.23 109\.87 134\.01 243\.88 243\.88 611\.87 611\.87
Otheri I 00 193 22 0 00 193\.22 193 22 20'9\.08 0\.00 209\.08 209\.08 271\.89 0\.00 271\.89 271\.89 674\.19 674\.19
'rotal 745\.6 157\.02 902\.64 923\.43 786\.60 157\.02 943\.62 965\.56 1008\.00 209\.39 1217\.39 1245\.51 3063\.65 3134\.50
O%erall conwersion factor 1\.02 1\.02 1\.02 1\.02
/_I: All the figure are rounded\.
/_2: Shadmu echaunge rage 1\.01\.
-41- ANNEX 1
TABLE 4A: ECONOMIC VEHICLE OPRATTNG COSTS
(Yuan per km, December 1997 prices)
Good F air Poor
Flat Roll llill Mount\. Flat Roll flill Mlount\. Flat Roll llill Mount\.
North Road:
Small car 0\.598 0\.624 0\.644 0\.673 0\.700 0\.719 0\.871 0\.898 0\.917
Small bus 0\.805 0\.955 1\.077 0\.893 1\.037 1\.156 1\.141 1\.273 1\.391
Medium bus 0\.912 1\.099 1\.259 1\.027 1\.218 1\.375 1\.274 1\.455 1\.611
Large bus 1\.019 1\.242 1\.441 1\.162 1\.399 1\.594 1\.408 1\.636 1\.831
Small truck 0\.874 1\.092 1\.257 0\.969 1\.184 1\.345 1\.184 1\.373 1\.562
Medium truck 0\.954 1\.175 1\.396 1\.059 1\.302 1\.522 1\.279 1\.522 1\.765
Large truck 1\.188 1\.457 1\.725 1\.353 1\.643 1\.900 1\.610 1\.900 2\.175
Tractor/trailer 2\.243 2\.958 3\.577 2\.591 3\.372 4\.030 3\.084 3\.825 4\.503
South Road:
Small car 0\.598 0\.624 0\.644 0\.722 0\.751 0\.771 0\.934 0\.963 0\.983
Small bus 0\.805 0\.955 1\.077 0\.935 1\.087 1\.212 1\.196 1\.334 1\.459
Medium bus 0\.912 1\.099 1\.259 1\.068 1\.267 1\.431 1\.326 1\.513 1\.676
Large bus 1\.019 1\.242 1\.441 1\.202 1\.447 1\.649 1\.456 1\.692 1\.894
Small truck 0\.874 1\.092 1\.257 1\.014 1\.239 1\.408 1\.239 1\.437 1\.635
Mledium truck 0\.954 1\.175 1\.396 1\.102 1\.355 1\.584 1\.331 1\.584 1\.837
Large truck 1\.188 1\.457 1\.725 1\.387 1\.685 1\.948 1\.650 1\.948 2\.230
Tractor/trailer 2\.243 2\.958 3\.577 2\.655 3\.456 4\.130 3\.161 3\.920 4\.614
Notc: /_I: Excluding the value of passcnger timc\.
TABLE 4B: THE SAR'S ECONOMIC VEHICLE OPERATING COSTS
(Yuan per km)
Good t Fair --Poor
Flat Roll llill NMounL Flat Roll Hlill Nlount\. Flat Roll lHill Miount\.
Mid-1988 prices:
Small car 0\.273 0\.295 0\.350 0\.341 0\.369 0\.437 0\.385 0\.416 0\.492
Small bus 0\.435 0\.479 0\.608 0\.543 0\.599 0\.760 0\.679 0\.710 0\.891
Large bus 1\.145 1\.366 1\.653 1\.432 1\.7\.08 2\.066 1\.558 1\.859 2\.352
Small truck 0\.273 0\.295 0\.379 0\.341 0\.369 0\.474 0\.382 0\.412 0\.519
Mledium truck 0\.380 0\.441 0\.535 0\.475 0\.551 0\.669 0\.527 0\.612 0\.728
Large truck 0\.548 0\.604 0\.733 0\.648 0\.755 0\.916 0\.709 0\.826 0\.994
Iractor/trailer 1\.079 1\.306 1\.570 1\.348 1\.633 1\.963 1\.458 1\.765 2\.107
Decembcr-1997 prices:
Small car 0\.597 0\.645 0\.765 0\.745 0\.807 0\.955 0\.842 0\.909 1\.075
Small bus 0\.951 1\.047 1\.329 1\.187 1\.309 1\.661 1\.484 1\.552 1\.948
Large bus 2\.503 2\.986 3\.613 3\.130 3\.734 4\.516 3\.406 4\.064 5\.141
Small truck 0\.597 0\.645 0\.828 0\.745 0\.807 1\.036 0\.835 0\.901 1\.134
Mledium truck 0\.831 0\.964 1\.169 1\.038 1\.204 1\.462 1,152 1\.338 1\.591
Large truck 1\.198 1\.320 1\.602 1\.416 1\.650 2\.002 1\.550 1\.806 2\.173
'Ilractor/trailer 2\.359 2\.855 3\.432 2\.947 3\.570 4\.291 3\.187 3\.858 4\.606
-42 - ANNEX 1
TABLE 4C: SPEED, CONGESTION AND HIGHWAY CAPACITY
(By highway class)
80\.0
70\.0
60\.0 -*_- +Seriesl IF
50\.0 --- Series2
40\.0 \. Series3,
30\.0 - X Series4
-E 2Sernes5
10\.0
0\.0 \.
t 2 3 4 5 6 7 8 9 10 11
Express- Maximum
way Class I Class If Class Ill Class IV Free-flow
(Series I) (Series 2) (Series 3) (Series 4) (Series 5) Capacity
Congestion
(V/C) Speed (km/hour) Jinan-Qingdao Highway Corridor (MTE/dav):
1\. Qingdao- Weitang section
0\.0 79\.0 66\.0 52\.0 38\.0 34\.0 North (2 lanes, F, ll) 15\.600
0\.1 78\.0 65\.0 51\.0 37\.0 33\.0 South (2 lanes, F, 1I1) 9,200
0\.2 77\.0 64\.0 50\.0 36\.0 32\.0 Expressway (4 lanes, F, Exp\.) 44,000
0\.3 76\.0 63\.0 49\.0 35\.0 31\.0
0\.4 75\.0 62\.0 48\.0 34\.0 30\.0 11\. Weifang- Zibo section
0\.5 74\.0 60\.0 46\.0 33\.0 29\.0 North (2 lanes, F, 11) 15,600
0\.6 73\.0 57\.0 44\.0 32\.0 28\.0 South (2 lanes, Fl, 111) 7,800
0\.7 72\.0 53\.0 42\.0 31\.0 27\.0 Expressway (4 lanes, F, Exp\.) 44,000
0\.8 70\.0 48\.0 39\.0 28\.0 24\.0
0\.9 65\.0 42\.0 35\.0 25\.0 21\.0 Ill\. Zibo- Jinan section
1\.0 55\.0 35\.0 30\.0 20\.0 16\.0 North (2 lanes, F, 11) 15\.600
South (2 lanes, H, 111) 7,800
Gradients Maximum Free-flow Capacity (MTE/dayllane) Expressway (4 lanes\. F\. Exp\.) 44,000
rFR 11,000 9,600 7,800 4,600 1,600
H/M 10,000 7,100 6,400 3,900 1,500
F - Flat\. R - Rolling\. St - Hilly\. NM - Mountainous
Sourcc: Rust PPK Feasibility Study Methodology, March 1996, p\.38\.
TABLE 5: ECONOMIC EVALUATION
QINGDAO-JINAN HIGHWAY PROJECT
(Y Million, December 1997 Prices)
Basc Case Sensitivity Analysis
Case I Case 2 Case 3 Case4
Benefits \.--\.''' ''''''
Costs Constr\. VOC Passeng\. Conges
Capital Road VOC Passelig\. Conges Cost Net Net Time -tion Total
Constru Nfaint\. & Net Timie Generated -tion Savings Reduced Cash Savings Savings Savings Benefits
Year -ction Operation Total Savings Sasings Tiallic Savings 1_2 Accidents Total Flow (\.50%) (-50%) (-50%) (-20%)
1989 11799 117\.99 (117\.99) (117\.99) (117\.99) (117\.99) (117\.99)
1990 523\.92 523 92 (523\.92) (523\.92) (523\.92) (523\.92) (523\.92)
1991 497 45 497\.45 (497\.45) (497\.45) (497\.45) (497\.45) (497\.45)
1992 938 67 93867 (938\.7) (938\.67) (93867) (938\.67) (938\.7)
I993 1258\.07 1\.25807 (1,258\.1) (1,258\.07) (1\.258\.07) (1,238\.07) (1,258\.1)
1994 351U84 19919 55103 270\.70 8006 7\.01 33\.78 0\.00 20\.10 411\.65 (139\.38) (274\.73) (179\.41) (156\.27) (221\.71)
1995 154\.34 283\.79 438\.33 308\.22 84\.02 7\.85 41\.60 171\.00 23\.90 636\.59 198\.26 44\.15 136\.25 177\.46 70\.94
1996 15300 274\.35 427\.35 378\.33 10274 9\.63 49\.18 228\.00 29\.19 797\.07 369\.72 180\.56 318\.35 345\.13 210\.31
1997 23438 27140 505\.78 430\.90 11602 10\.94 56\.54 171\.00 30\.60 816\.00 310\.22 94\.77 252\.21 281\.95 147\.02 1
1998 271\.03 271\.03 504\.45 122\.91 12\.54 65\.66 391\.65 22\.39 1,119\.60 848\.57 596\.35 787\.12 815\.74 624\.65
1999 270\.63 270\.63 589\.16 130\.22 14\.39 76\.81 522\.20 31\.35 1,364\.13 1,093\.50 798\.92 1,028\.39 1,055\.10 820\.67
2000 270\.14 270\.14 682\.23 127\.76 16 19 90\.54 713\.55 29\.29 1,659\.56 1,389\.42 1,048\.31 1,325\.54 1,344\.15 1,037\.51
2001 26967 269\.67 795\.57 135 37 1862 105\.92 429\.20 34\.65 1,519\.33 1,249\.66 851\.88 1,181\.98 1,196\.70 945\.79
2002 269 19 269\.19 91827 14345 21\.23 124 14 321\.90 31\.08 1,560\.09 1,290\.90 831\.77 1,219\.18 1,228\.83 978\.88
2003 26871 268\.71 1,034\.30 15205 24\.12 145\.71 0\.00 42\.51 1\.41869 1,149\.98 622\.83 1,073,96 1,077\.13 866\.24
2004 26824 268\.24 1,20727 161 19 27\.36 171 32 000 29\.71 1,596\.85 1,328\.61 724\.98 1,248\.02 1,242\.95 1,009\.24
2005 379 17 1 1 379 17 1,380\.75 17089 3103 201\.77 0\.00 57\.17 1,841\.61 1,462\.44 772\.06 1,376\.99 1,361\.55 1,094\.12
2006 378\.69 1_I 37869 1,548\.93 17987 34 57 23370 0\.00 61\.43 2,05850 1,679\.81 905\.35 1,589\.88 1,562\.96 1,268\.11
2007 26682 26682 1,707\.63 189\.33 3794 27123 0\.00 6604 2,272 17 2,005\.35 1,151\.54 1,910\.69 1,869\.74 1,550\.92
2008 26635 26635 1,936 12 99 31 42 72 31548 0\.00 71\.02 2,564\.65 2,298\.30 1,330\.24 2,198\.65 2,140\.56 1,785\.37
2009 26588 26588 2\.10065 20984 4620 36782 000 76\.41 2,800\.92 2,535\.04 1,484\.72 2,430\.12 2,351\.13 1,974\.86
2010 265\.42 265\.42 2,44456 22091 53\.30, 429\.93 126\.00 82\.25 3,356\.95 3,091\.53 1,869\.25 2,981\.08 2,876\.57 2,420\.14
2011 26475 264\.75 2,706\.61 23256 5877 52197 16800 88\.65 3,776\.56 3,511\.81 2,158\.51 3,395\.53 3,250\.83 2,756\.50
2012 264 49 264 49 2,998 27 244 84 64 86 637 91 126\.00 95\.60 4,167\.48 3,902\.99 2,403\.86 3,780\.57 3,584\.04 3,069\.49
2013 26402 26402 3,323\.17 25779 7162 78533 000 103\.17 4,541\.08 4,277\.06 2,615\.48 4,148\.17 3,884\.40 3,368\.84
2014 26402 264\.02 3,68543 271 45 79 14 97461 000 III 40 5,122\.03 4,85801 3,015\.30 4,722\.29 4,370\.71 3,833\.60
2015 26402 26402 4,089\.75 285\.86 87 50 1,21\.99 0\.00 120\.35 5,803\.45 5,539\.43 3,494\.56 5,396\.50 4,929\.44 4,378\.74
Total 4229\.86 ERR= i9\.1% 14\.1% 18\.3% 18\.4% 16\.0%
NPV (12%) 2,689\.8 676\.0 2,394\.3 2,3S2\.0 1\.401\.3
First Yeasr Return (1994) = 9\.7%
I1: hlajor resurfacing of expressway to be carried out over a two-year period\.
I_2: The existing roads need to be upgraded when traffic reaches about 12,00 vehicles per day\. The estimated upgrading cost would be Yuan 5\.0 million per kls\.
-44- ANNEX 1
TABLE 6: FINANCIAL EVALUATION
(Y MILLION)
Base Case Net Sensitivity
Cash Revenue
Costs Benefits Net Flow Total Operating (-10%)
Self- Loan- Total Total Operat\. Loan Net Cash Onl Revenue Costs Operating
Year financing IBRD Cost Maint\. Total Revenue Costs Repay\. Revenue Flow Equity (-10%) (+10%) (+10o%)
(1) (2) (3=1+2) (4) (5=3+4) (6) (7) (8) (9=6-7-8) (10) (11=9-2-4) (12) (13) (14)
1989 50\.80 10\.47 61\.27 61\.27 045 /_I -0\.45 -61\.72 -51\.25 -61\.72 -61\.72 -61\.72
1990 254\.02 52\.34 306\.36 306\.36 3\.31 I_1 -3\.31 -309\.67 -257\.33 -309\.67 -309\.67 -309\.67
1991 254\.02 52\.34 306\.36 306\.36 6\.81 / l -6\.81 -313\.17 -260\.83 -313\.17 -313\.17 -313\.17
1992 508\.05 104\.70 612\.75 612\.75 13\.55 /_1 -13\.55 -626\.30 -521\.60 -626\.30 -626\.30 -626\.30
1993 762\.06 157\.04 919\.10 919\.10 24\.19 /_I -24\.19 -943\.29 -786\.25 -943\.29 -943\.29 -943\.29
1994 254\.02 52\.34 306\.36 111\.40 417\.76 183\.00 59\.00 25\.00 99\.00 -318\.76 -266\.42 -337\.06 -324\.66 -342\.'96
1995 127\.01 26\.17 153\.18 111\.40 264\.58 263\.00 141\.00 98\.00 24\.00 -240\.58 -214\.41 -266\.88 -254\.68 -280\.98
1996 127\.01 26\.17 153\.18 111\.40 264\.58 350\.00 153\.00 98\.00 99\.00 -165\.58 -139\.41 -200\.58 -180\.88 -215\.88
1997 203\.22 41\.87 245\.09 111\.40 356\.49 400\.00 160\.00 88\.34 151\.66 -204\.83 -162\.96 -244\.83 -220\.83 -260\.83
1998 111\.40 111\.40 444\.01 167\.68 90\.05 186\.28 74\.88 74\.88 30\.48 58\.11 13\.71
1999 111\.40 111\.40 493\.80 176\.06 91\.12 226\.62 115\.22 115\.22 65\.84 97\.61 48\.23
2000 111\.40 111\.40 569\.47 185\.74 93\.26 290\.47 179\.07 179\.07 122\.12 160\.50 103\.55
2001 111\.40 111\.40 638\.02 195\.96 95\.41 346\.65 235\.25 235\.25 171\.45 215\.66 151\.116
2002 111\.40 111\.40 714\.89 206\.74 97\.55 410\.60 299\.20 299\.20 227\.71 278\.53 207\.04
2003 111\.40 111\.40 801\.09 218\.11 99\.70 483\.28 371\.88 371\.88 291\.78 350\.07 269\.956
2004 111\.40 111\.40 897\.77 230\.11 101\.84 565\.82 454\.42 454\.42 364\.64 431\.41 341\.6\.3
2005 222\.80 222\.80 1006\.20 242\.77 101\.84 661\.59 438\.79 438\.79 338\.17 414\.51 313\.89
2006 222\.80 222\.80 1120\.98 256\.12 101\.84 763\.02 540\.22 540\.22 428\.12 514\.61 402\.51
2007 111\.40 111\.40 1248\.90 270\.21 101\.84 876\.85 765\.45 765\.45 640\.56 738\.42 613\.54
2008 111\.40 111\.40 1391\.44 285\.07 101\.84 1004\.53 893\.13 893\.13 753\.99 864\.63 725\.48
2009 111\.40 111\.40 1550\.31 300\.75 50\.92 1198\.64 1087\.24 1087\.24 932\.21 1057\.16 902\.13
2010 111\.40 111\.40 1727\.36 317\.29 0\.00 1410\.07 1298\.67 1298\.67 1125\.93 1266\.94 1094\.20
2011 111\.40 111\.40 1924\.70 334\.74 0\.00 1589\.96 1478\.56 1478\.56 1286\.09 1445\.09 1252\.62
2012 111\.40 111\.40 2144\.66 353\.15 0\.00 1791\.51 1680\.11 1680\.11 1465\.65 1644\.80 1430\.33
2013 111\.40 111\.40 2389\.85 372\.57 0\.00 2017\.28 1905\.88 1905\.88 1666\.89 1868\.62 1629\.64
Total 2540\.21 523\.44 3063\.65 2450\.80 5514\.45 Financial Rate of Return = 8\.8N% 10\.1% 7\.2% 8\.4% 6\.8%
Net Present Value (I2%) = -653\.3 -345\.3 -933\.9 -731\.7 -1012\.2
I: Represents interest on amount withdrawn from the Bank loan as wellas commitment charges on unwithdrawn balance of the loan\.
-45 - ANNEX 1
TABLE 7: FINANCIAL VOC SAVINGS vS TOLL RATES
(Y/km, 1997 current prices)
Small Medium Large Small Medium Large Tractor-
Distance Savings Car Bus Bus Truck Truck Truck Trailer
Section 1:
Qingdo-Weifang
North Road Savings 0\.41 0\.33 0\.04 0\.11 0\.68 1\.44 2\.81
45\.7 km 30% of Savings 0\.14 0\.11 0\.01 0\.04 0\.23 0\.48 0\.94
South Road Savings 0\.64 0\.78 0\.10 0\.16 1\.01 3\.16 4\.08
32\.0 km 30% of Savings 0\.21 0\.26 0\.03 0\.05 0\.34 1\.05 1\.36
Section 2:
Weifang-Zibo
North Road Savings (0\.54) (1\.61) (0\.13) (0\.07) (0\.92) (8\.66) (0\.38)
-29\.1 km 30% of Savings (0\.18) (0\.54) (0\.04) (0\.02) (0\.31) (2\.89) (0\.13)
South Road Savings 0\.80 2\.42 0\.39 0\.11 1\.45 15\.07 0\.83
-14\.0 km 30% of Savings 0\.27 0\.81 0\.13 0\.04 0\.48 5\.02 0\.28
Section 3:
Zibo-Jinan
North Road Savings 0\.25 0\.20 0\.03 0\.03 0\.12 0\.47 0\.07
8\.8 km 30% of Savings 0\.08 0\.07 0\.01 0\.01 0\.04 0\.16 0\.02
South Road Savings 0\.43 0\.63 0\.11 0\.11 0\.41 1\.32 0\.20
-6\.3 km 30%ofSavings 0\.14 0\.21 0\.04 0\.04 0\.14 0\.44 0\.07
Small Medium Large Tractor- Extra
Vehicless Vehicless Vehicless Trailer Large
Jinan-Qingdao Expressway 1997 Toll Charges
- Under 100 km 0\.32 0\.40 0\.48 0\.72 1\.12
- 100-200 km 0\.29 0\.37 0\.45 0\.69 1\.09
-over 200 km 0\.24 0\.32 0\.40 0\.64 1\.04
Average 1 0\.28 0\.36 0\.44 0\.68 1\.08
30% of VOC Savings (1997):
Section 1 100\.00 km 0\.11 0\.24 0\.39 1\.15
Section 2 98\.00 km 0\.03 0\.11 0\.56 0\.08
Section 3 120\.30 km 0\.07 0\.12 0\.16 0\.05
Average 30% of VOC Savings (1997): | 0\.07 0\.15 0\.37 0\.42
Ratios: 30% of VOC Savings / Toll rate
Section 1 (1\.34 0\.59 0\.82 1\.60
Section 2 0\.09 0\.30 1\.23 0\.11
Section 3 0\.23 0\.31 0\.36 0\.07
Average 30% of VOC Savings ! 0\.22 0\.40 0\.80 0\.59
- 46 - ANNEX2
ANNEX 2: BORROWER'S CONTRIBUTION TO THE ICR
Introduction
1\. The Shandong Provincial Highway Project was appraised in July 1988\. A loan of
US$60\.0 million and a credit of SDR 38\.8 million (US$50\.0 million equivalent) was
approved by the Board of Executive Directors on May 25, 1989\. The Loan, Credit and
Project Agreements were signed on September 8, 1989, and the loan and credit were
declared effective on December 11, 1989\. The original closing date for the loan and credit
accounts was to June 30, 1995, but such date was extended June 30, 1997\. Each of the
tasks referred to in the SAR and the Credit, Loan and Project Agreements were
performed, and the execution of these tasks is formally evaluated in this report\.
A\. Project Description
2\. The major objective of the project was to assist the Shandong Provincial
Government in meeting the transport demand in the most important and congested
corridor in the province and to improve the management of the road network by
introducing modem planning and management techniques\.
3\. The project consists of: (a) construction of 319 km, four-lane divided, access
controlled highway between Jinan, the capital of the province, and Qingdao, one of
China's major seaports; (b) consulting services for construction supervision and training;
(c) provision of specialized equipment and technical assistance for pavement evaluation,
and paved road strengthening; Road Data Bank; (e) provision of maintenance equipment;
(f) traffic monitoring, telecommunication and tolling systems; (g) staff training; and (h)
assistance in improving road safety\.
B\. Achievement of the Project Objectives
4\. The project achieved all major objectives for the various components as indicated
in the following: (a) 319 km of Jinan-Qingdao Highway Project, traffic monitoring,
telecommunication and tolling systems, as well as the service areas along the whole
route; (b) consulting services in construction supervision and training; (c) Pavement
Management System (PMS); (d) Road Data Bank (RDB); (e) equipment for central
laboratory and research; (f) equipment for highway maintenance; (g) staff training; and
(h) road safety\. Although the objectives of the project were essentially achieved, the
implementation of the project was delayed and required the extension of the loan and
credit closing date\.
- 47 - ANNEX2
C\. Project Identification
5\. The Bank expressed interest in the Jinan-Qingdao Highway Project in September
1986, when a World Bank Mission visited Shandong Province to supervise the
rehabilitation of the Yan-Gao road, which was a component one of the first Highway
Project financed by the World Bank in China\. The proposed project was first discussed in
November 1986 and approved by SPC, MOF and MOC shortly thereafter\. A Bank's
mission identified the Jinan-Qingdao Project in February 1987\. The formal appraisal was
conducted by the Bank in July 1988\. The negotiations were held in April 1989 in
Washington DC\. The Development Credit, Loan and Project agreements were signed on
September 8, 1989 and the loan and credit became effective on December 11, 1989\.
6\. During the evaluation period, the Bank had many discussions with the Shandong
Provincial Transport Department (SPTD)\. After having appraised the project, the Bank
missions concluded that the project would be a good investment, and the Bank would like
to assist the Province and cooperate with SPTD in the implementation of the project\. The
Bank's mission and SPTD reached an understanding on the Shandong Highway Project,
according to which: the project in addition to help meeting the road transport demand in
one of the most important corridors in China by financing the construction of a high-
capacity high-standard highway, would also support the Province's objectives of
increasing the cost effectiveness of the road transport subsector\. Specific policy,
institutional and technological objectives would be the following: consultants services to
help train the SPTD staff in the supervision and quality control of the highway
construction, provision of equipment, material and technical assistance to strengthen
pavements, provision of equipment for improving road planning by setting up a
computerized road data bank and training of SPTD staff\.
D\. Project Planning and Design
7\. According to the planning targets in the SAR the project would help in: (a)
introduction of improved road planning techniques; (b) developing the methodology for
evaluating existing paved roads and estimating strengthening needs; (c) modernizing
design, construction and materials specifications and contract documents; (d) supporting
the province's move to competitive bidding for civil works and developing the
institutional capacity for the supervision of civil works construction; and (e) training of
staff\.
8\. To accomplish these objectives, the project's scope includes the following: (a)
construction of a 319 km, four-lane divided, access controlled highway, connecting Jinan,
the capital of Shandong province, with Qingdao, one of the major ports of China; (b)
consultants services for construction supervision and training; (c) provision of specialized
equipment and expertise for pavement evaluation and strengthening paved roads; (d)
provision of research equipment for the Central Road Laboratory; (e) provision of
equipment to set up a computerized Road Data Bank to improve road planning; (f)
provision of equipment for traffic monitoring, telecommunications and toll systems; (g)
-48 - ANNEX2
provision of road maintenance equipment; (h) improving road safety; and (i) staff
training\.
E\. Project Implementation
9\. Jinan-Qingdao Highway\. The highway was divided into nine constructior
contracts\. Contracts No\. 1-8 were for civil works and Contract No\. 9 was for traffic
monitoring, telecommunications and toll systems\. The civil works construction of the
highway started section by section from December 1989 and completed by the end of
1993\. The Contract No\. 1 (16 km) at the Jinan terminal was awarded under Local
Competitive Bidding (LCB)\. A new airport was under construction about 16 km east of
Jinan and just south of the JQE, as it was expected to be completed and be in use in late
1989\. The Contract No\. 1 of JQE had to be completed at the same time so as to provide
access to the airport\. As International Competitive Bidding (ICB) procedures would
delay the start of construction by several months, it was agreed that this first contract
would be awarded following LCB procedures\. Contracts No\. 2-8 were awarded following
ICB procedures\. The whole length of the highway (319 km) was opened to the traffic on
December 8, 1993\. The construction of all toll buildings, administration buildings,
maintenance depots and service areas along the highway started in early 1993 and was
completed in mid-1997\. The Agreement of Contract No\. 9 (traffic monitoring,
telecommunications and tolling systems) was signed on April 2, 1996\. A Spanish
contractor was selected to carry out the works, following ICB procedures
10\. Consulting Services in Construction Supervision and Training\. A Danish
consulting firm was engaged to carry out these services\. The allocation for this
component in the SAR was US$1\.30 million\. The contract price was US$1\.465 million\.
The actual payment amounted to US$1\.6547 million\. The contract was completed along
with the civil works\. The Consultant provided 124 person-months of consulting services,
including supervision training of local technical personnel\.
11\. Pavement Evaluation and Strengthening\. Shandong Provincial Transport
Department and Finnish National Road Administration implemented this work with the
cooperation of the Jining District, which was selected for this pilot project\. The work was
completed on three national roads and five provincial roads with a total length of 560 km\.
Then the system was converted to the standard Chinese PMS format (CPMS)\. The system
was introduced and is operational in all 17 prefectures/ municipals, and covers the full
length of the 17,000 km paved road network of the Province\.
12\. Road Data Bank\. The developing of Road Data Bank is a complex system with
extensive technology and complicated structure\. Ministry of Communications made the
unified planning for the development of RDB for the whole country\. The components,
structure, model and hardware should be standard in accordance with MOC's nationwide
program\. SPTD made a series of documents, such as specifications, coding and data
dictionary through the pilot prefecture development\. The equipment procured for RDB
- 49 - ANNEX2
are as follows: (a) sideways force coefficient measuring vehicle and (b) GPS system
instrumentation\.
13\. Provision of Road Maintenance Equipment\. The allocation for this component
in the SAR is US$2\.97 million\. The Bank approved the reallocation of loan/ credit
proceeds for this component to be US$6\.10 million\. The procurement for all maintenance
equipment as completed by mid 1997\. The main reasons for the differences are that the
price of equipment has clhanged a lot with time, and some necessary equipment was
added after advice was obtained from foreign and local experts\.
14\. Provision of Research Equipment for the Central Road Laboratory\. The
allocated cost was US$0\.60 million\. The actual cost amounted to US$0\.485 million\. A
skid-resistance test vehicle that was listed in the SAR was not acquired because the
equipment available at the time of the procurement did not meet the required
specifications\. The following equipment has been procured: (a) 19 Nuclear Densitometer;
(b) 7 Automatic Bitumen Elevator; (c) 7 Bitumen Content Testing Equipment;(d) 5
Pavement Core Sampling Machines; and (e) Fittings\.
15\. Traffic Monitoring, Telecommunication and Toll Systems (Contract No\. 9)\.
The International Bidding Documents of Contract No\. 9 were prepared by the Highway
Research Institute of MOC, and reviewed by the Employer\. The Bidding Documents
were issued on March 21, 1995\. The bids were opened on May 24, 1995\. Thirteen bids
were received from nine countries\. The final evaluation report was submitted to the
National Review Committee on September 21, 1995 and approved by the Committee, and
submitted to the World Bank on December 11, 1995\. The World Bank approved on
March 11, 1996 that the contract be awarded to a Spanish firm at a contract amount of
US$9,770,334 and Y 42,891,225\. The contract was signed on April 2, 1996\. The
estimated cost in the SAR is US$6\.15 million, but it covered the cost of equipment only
and did not include the cost of installation of the systems\. The installation of equipment
for the three systems was completed by the end of May 1997 except for lane monitors and
printers\. The commissioning of the systems was completed at the end of June 1997 and
trial operations started from first of July 1997\.
16\. Staff Training\. The total training program involved training 37 persons for 150
person months at an estimated cost of US$0\.90 million, according to the SAR\. Training
programs as executed included 112\.1 person-months and 89 persons at a cost of
US$0\.915 million\. Training courses were conducted as follows: (a) in July 1991, on
project management for 6 persons over one month in England; (b) in 1991 and 1992, on
highway design for 11 persons involving 28 person-months was conducted in England;
(c) in 1991, on highway planning for 10 persons involving 15 person-months in the
United States; on equipment management for 2 person involving 2 person-months in
Germany and France; on financial management for 6 persons involving 4\.8 person-
months in Thailand; and on highway maintenance for 4 persons involving 2\.6 person-
months in France and Italy; (d) in 1992, on pavement management for 6 persons
involving 4\.8 person-months in Canada; (e) in 1993, on highway and bridge construction
-50- ANNEX2
for 6 persons involving 4\.8 person-months, on traffic engineering for 5 persons involving
5 person-months in Spain, and on Road Data Bank for 7 persons involving 10\.5 person-
months in the United States; (f) in 1994, on highway organization for 5 persons involving
5 person-months in Italy; (g) in 1995, on financial management for 5 persons involving
3\.5 person-months in France, Italy and Switzerland; (h) in 1996 on expressway
administration for 2 persons involving 1\.33 person-months in United States, and on
highway maintenance in Germany and France; and (i) in 1997, on traffic engineering for
9 persons involving 9 person-months in the United States\. The cost overrun was only
about US$15,000\. It was related to the inflation and higher consultant services fees\.
17\. Road Safety\. A UK based consulting firm provided 45 days of services for this
programn\. The contract was signed on February 17, 1997\. During a four week visit in
China the consultant had discussions with the representatives of JQEMB and Traffic
Police, visited all sections of JQE and reviewed traffic data and black stops\. The draft
final report, including the recommendations of the consultant was submitted to JQEMB
in March 1997\. It has been updated following its review by a World Bank Mission and
sections had been added on road safety objectives, a program for improvements, cost
estimates and equipment specifications\. For equipment procurement, international
shopping was adopted\. The bids were issued on May 1, 1997\. The contract was awarded
to Shandong Expressway Developing Company\. The equipment for the program was
delivered at the end of June 1997\. Based on original program in SAR, the objective of
Shandong Road Safety Program was to apply the experience of Sichuan Province pilot
study in collecting and analyzing traffic data and identifying black spots on the Xindiang-
Tongyin (76 km) and Weifang-Wulian (124 km) road sections of Shandong provincial
road network\. SPTD wanted to cancel this component for special reasons but then SPTD
expressed the intention to conduct this safety program on JQE, the World Bank agreed to
this alternative\.
F\. Operation Experience
18\. The operation conditions of the JQE and other project components of the
Shandong Provincial Highway Project are basically good\.
19\. Jinan-Qingdao Expressway The expressway was opened to traffic in December
1993\. The condition of the expressway remained very good during four years of
operations\. The Average Daily Traffic (ADT ) is now reached about 15,600 vehicles,
which is more than predicted in the SAR\. The toll collection reached Y 350 million in
1996\. The toll rates are being adjusted in three-year intervals according to the price index
from the previous year\. The JQE has great economic and social benefits and has been
very beneficial to the Province and to the areas along its alignment\. It became the
"economic corridor" of Shandong Province and brought about a great advance in
industrial and agricultural development\. The Jinan-Qingdao Expressway Management
Bureau (JQEMB) was set up in December 1993 when the JQE was opened to the traffic\.
JQEMB is an administrative unit of SPTD\. It is responsible for the operation and
maintenance of JQE\. A new Expressway from Weifang to Laiyang is under construction\.
-51- ANNEX2
The JQEMB it is also in charge of the management of this Expressway\. The Road
Administration Bureau of SPTD is in charge of the provincial road network\.
20\. Traffic Monitoring, Telecommunication and Tolling System\. There was a
good team supervising the works during construction\. The project quality and progress
were ensured\. The payment was based on the terms of payment as specified in the
standard contract documents of the World Bank, and Bank procedures were followed\.
The main lesson learned is that the Contractor did not mobilize enough manpower and
material resources, which caused implementation delay\.
21\. Pavement Management System ( PMS )\. After the successful completion of the
pilot program the data collection and analysis have been extended to cover all national
roads in the province\. SPTD issued two documents: "Temporary Provisions for using
PMS in Shandong Province" and "Management Provisions for short-, medium-, and long-
term Road Maintenance in Shandong Province" in order to make the most of the PMS
program and improve road maintenance level\.
G\. Work by Contractor and Consultant
22\. JQE was built under contracts awarded through competitive bidding\. The JQE
was divided into 9 contracts\. Contract No\. 1-8 were for civil works: (a) Contract No\. 1,
16 km, was built under LCB procedures, Contractor: Shandong Transport Engineering
Company (joint venture); (b) Contract No\. 2, 35\.2 km, Contractor: 14th Engineering
Bureau of Ministry of Railways; (MOR) (c) Contract No\. 3, 25\.4 km, Contractor: Beijing
Municipal Engineering Co\. (joint venture); (d) Contract No\. 4, 54\.1 km, Contractor: 20th
Engineering Bureau of MOR; (e) Contract No\. 5, 41\.4 km, Contractor: First Highway
Bureau of Ministry of Communications; (f) Contract No\. 6, 46\.6 km, Contractor: China
Metallurgical Construction Co\.; (g) Contract No\. 7, 47\.6 km, Contractor: 4th Engineering
Bureau of MOR; and (h) Contract No\. 8, 47\.6 km, Contractor: Beijing City Construction
Co\.
23\. The contract periods were: 36 months for Contract No\. 1 and No\. 7-8 and 40
months for Contracts No\. 2-6\. Contract No\. 9 covered the supply and installation of
traffic monitoring, telecommunications and tolling systems\. The contract was awarded to
a Spanish company and the contract period was 9 months\. The major quantities for civil
works performed by the contractor were: 29\.8 million cubic meter of earthworks, 4
special major bridges, 15 major bridges, 118 small bridges, 450 underpasses, 726
culverts, 21 interchanges, 45 grade separations and 6\.594 million square m of pavement\.
The quality and operation conditions of the JQE are good\.
24\. Work by Consultant The consultants (Denmark) mobilized 5 persons and
assisted local technical staff to supervise the construction of the highway over a three-
year period\. The consultant's engineers were involved in all aspects of supervision work\.
They were working closely with local engineers and contractors to improve job
organization and management\. The consultant provided 124 person-months of services on
construction supervision and training\. World Bank officials expressed their satisfaction
- 52 - ANNEX2
with the work of the consultant when they supervised the project\. JQE was also praised
by MOC and the Shandong Provincial Government\.
25\. Work by Supervision Engineer\. Jinan-Qingdao Expressway was contracted
following International Competitive Bidding procedures\. The supervision engineers
controlled quality, duration of contracts and payments for works in accordance with the
clauses, supervision procedures and methods of the "FIDIC" conditions of contract\. To
guarantee the work quality, the engineers implemented an overall supervision system of
tasks "before, during and after construction\." The construction was not allowed to start
until materials and equipment were tested and found satisfactory\. The spot-checking and
inspection of ongoing works method adopted during construction were such that every
aspect of the construction was tested or inspected for quality\. No payments were made for
completed works if the quality was unacceptable after checking\. In this way, the work
quality and investment were efficiently controlled\.
26\. Experience We have gained much experience through implementation of the
Jinan-Qingdao Expressway\. The main experience is: (a) setting up rigid supervision
procedures to enforce construction supervision as an effective method to ensure works
quality, progress, investment control and satisfactory level for the management of works;
(b) helping contractors to improve their work abilities based on the conditions of contract
and technical specifications before each work item were to start was a foundation to
improve work progress and reach quality standard at the same time; (c) strengthening site
control, that is, the supervision engineers should be on-site and supervise each key phase
of the procedures since checking and inspection of works are the guarantee to reach the
quality required; (d) insisting to do pilot work before the start of each new construction
item was an effective method to meet quality requirements; (e) the Employer was an
organization center for implementation to control quality, progress and investment
through coordinating relationship with each of the units involved; and (f) consciously
accepting the instructions of the World Bank and actively cooperating were the guarantee
to successfully complete the project\.
H\. Works by the Executive Division
27\. Project Preparation\. SPTD made a thorough preparation of the JQE\. The
feasibility study report was completed in October of 1985\. The task-planning document
was approved in January of 1988\. The Jinan-Qingdao highway project was listed as one
of the major projects in China by the State Planning Commission in 1990\. The design of
the Jinan-Qingdao highway was prepared by the MOC's First Survey and Design
Institute from Xian, the MOC's Highway Planning and Design Institute and Shandong
Provincial Highway Design Institute\. The joint venture of China Highway Engineering
Consultants and Louis Berger International (LBI), United States, assisted in the
completion of the design and in the preparation of Bid Documents\. LBI's services were
financed by the United States under its Trade Development Program\. The project
approval, preappraisal, appraisal and negotiations were completed between September
- 53 - ANNEX2
1986 and April of 1989\. The project was approved by the Executive Directors of the
World Bank on May 25, 1989 and became effective on December 11 of 1989\.
28\. Project Implementation\. To implement the Jinan-Qingdao highway component
of the project, the Shandong Provincial Government established a Construction
Headquarters while SPTD established a Construction Headquarters Office in November
1986\. The Headquarters Office was responsible for the bidding, management,
coordination, land acquisition and resettlement, planning and financial management,
building materials supply, etc\.
29\. The Highway Administration Bureau of SPTD was responsible for the
implementation of Pavement Evaluation and Strengthening and Road Data Bank
component of the project\. The Jining Division was selected to do carry out the pilot
works\.
30\. Experience-Jinan-Qingdao Highway\. The Employer took the FIDIC condition
of contract clauses as the basis of administering the implementation and ensure the
progress and the quality of works\. The experience had been that when the Employer paid
attention to quality control good results were achieved\. Attention was paid in particular to
the following four areas of the works: (a) expansion joints of bridges; (b) pavements; (c)
compaction of subgrade; and (d) backfilling of abutments\.
1\. Major Factors Affecting the Project
31\. Jinan-Qingdao Highway\. The civil works of JQE were completed on time
according to the contracts but the traffic engineering (traffic monitoring,
telecommunications, and tolling systems) was started only after the highway was opened
to traffic at the end of 1993\. The implementation agency did not pay great attention to
traffic engineering because the leaders were busy with civil works, and had different
views about when the traffic engineering works should commence\. Also, initially no
specific unit was set up to organize and coordinate the traffic engineering works\.
Consequently, the implementation of this component was delayed and it was necessary to
request the extension of the loan and credit closing dates\.
J\. Work by the World Bank
32\. Project Preparation\. The World Bank started to work on Shandong Highway
Project in August 1986\. A Bank mission reviewed the feasibility study report, which was
prepared by SPTD\. The Bank sent six more missions to investigate the technical,
institutional and economic aspects and complete the appraisal of the project\. The SAR
described the scope, economic benefits and the organizational arrangements for the
implementation of the project\. During the project preparation and implementation, the
Bank staff provided a lot of assistance to the Implementation Agency\.
33\. Project Implementation\. Bank missions visited Shandong Province many times
to supervise the project during implementation and provided lots of practical suggestions
- 54 - ANNEX2
on quality, financial management and institutional matters\. With the Bank's assistance a
joint foreign/local supervision unit was set up to supervise civil works construction\. Such
arrangement not only ensured the quality of works but also helped the training of local
staff\.
34\. Cooperation between the Executive Agency and the World Bank\. The
cooperation of the World Bank and the project Executive Agency was good\. The World
Bank officers had full understanding of the transport infrastructure development needs
and were helpful in providing support to the Province\. In recognition of the situation, the
World Bank agreed to extend the closing date for the loan and credit\. Shandong
Provincial Governient and SPTD would like to express heartfelt thanks to the World
Bank for its cooperation and support, and hope to have further opportunity to get the
Bank's assistance and the chance for even better cooperation\.
35\. Experience\. The major benefits have been: (a) through World Bank-financed
highway project the FIDIC clauses of the conditions of contract have been widely
adopted in Shandong Province for highway construction works since this system is very
advantageous and effective; (b) through the training of personnel, a batch of professionals
were trained on highway management, highway design and planning, finance
management, highway maintenance and traffic engineering\. These people were well
trained, and broadened and made full use of their knowledge during project
implementation and they played important roles in their work; (c) on Road Data Bank
and Pavement Management System, the two components promoted the Shandong
highway management system and staff learned a lot about gaining new technology and
got much experience through the implementation of this project component\.
K\. Operation Planning
36\. Comments on Future Operation Planning:
(a) Jinan-Qingdao Highway\. The design of some section is conservative\. For the
Weifang Qingdao section, the width of designed subgrade is 23 m, the median
divider is only 2\.5 m, the shoulders are 2x2-\.75 m wide\. This design does not meet
the operational requirements and the foundation needs to be widened\. In fact, it
would be very difficult to widen because the layout design of overpasses,
interchanges, toll stations and service areas did not consider the additional land
requirements\. On the other hand, the traffic of JQE is higher than the SAR
estimates and has 3-5% of growth rate per year\. SPTD plans to build a new
expressway from Jinan to Qingdao south of existing JQE around the year 2010
and before the traffic of JQE reaches saturation\. Also, SPTD would like to
transfer 60% of operations rights (tolling rights) of JQE to China Merchants
Holding Co\. of Hong Kong\. The transfer would be for 24 years\. A new company
(Joint Venture) would be set up to operate, maintain and manage JQE during the
period of transfer\.
- 55 - ANNEX2
(b) Pavement Management System\. CPMS has actually been used in Shandong
province, but with different level of use in different areas\. It is necessary to make
further improvements in the level of usage as follows: (1) improving and
perfecting the system itself; (2) improving the methods or ways of policy-making
and management\. The study program on the "Second Stage Development of
CPMS," which is being jointly conducted by SPTD and the Highway Scientific
Research Institute of MOC, will be completed soon\. The study will modify the
original cost model, deterioration model and policy model through a large number
of data and perfect the functions of network level and project level systems,
expand the content of pavement data bank and change the system operation
environment into Windows\. It is expected that the new system of CPMS 3 will
replace the existing version in 1998\. Without doubt, CPMS 3 will be easier to
operate and will be more effective\.
(c) Road Data Bank\. SPTD is planning to develop the provincial level RDB based
on computer network working platform\. It is planned that RDB will be built up
and operational in the whole Province before 1999\.
(d) Supervision and Implementation Indicators for the JQE\. The indicators by
which the Expressway's performance can be monitored and evaluated in the
future are: Internal Rate of Return, Economic Net Present Value, Pay Period,
Dynamic Payoff Period, Net Benefit Values, Traffic Volume, Generated Traffic
Growth Rate, Traffic Accidents, Average Annual Maintenance Fee and Overhead
,as well as Tolling Rate and Tolling Revenue\.
57- ANNEX3
ANNEX 3: APRIL 1997 SUPERVISION MISSION'S
AIDE MEMOIRE
1\. A World Bank supervision mission composed of Messrs\. Hatim Hajj, Han-Kang
Yen and Ms\. Xin Chen supervised the Shandong Provincial Highway Project during
April 7-11, 1997\. It met with representatives of the Shandong Provincial Transport
Department (SPTD), Jinan-Qingdao Expressway Management Bureau (JQEMB), Sainco
Trafico, the contractor for Contract No\. 9 (traffic engineering for the Jinan-Qingdao
Expressway-JQE) and its subcontractors and the Supervision team for Contract No\. 9\.
This Aide Memoire (AM) records the major points of discussion and understanding
reached and is subject to management approval\. The list of participants is shown as
Annex 1 and the documents received are listed in Annex 2\. The mission would like to
thank SPTD and JQEMB for their hospitality and cooperation and the excellent
arrangements for the mission's visit to JQE\.
REMAINING WORKS
2\. All project components have been completed except for the: (a) traffic
engineering (Contract No\. 9) for JQE; (b) a hotel in the service area of Qingdao: (c)
procurement of equipment for the Road Data Bank (RDB), and some additional
maintenance equipment; (d) 9 person-months of training; and (e) safety component\.
Jinan-Qingdao Expressway
3\. JQE was opened to traffic on December 18\. 1993\. The quality of the completed
works is reasonable and it seems that JQE is being well maintained and operated as a toll
road\. Presently, the toll traffic is around 16,900 vehicles per day (vpd) near Jinan,
13,800 vpd between Jinan and Weifang and 14,600 vpd between Weifang and Qingdao\.
Toll collections increased from Y 183 million in 1994 to Y 263 million in 1995, Y 350
million in 1996, and Y 83 million for the first quarter of 1997\. SPTD/JQEMB have
invited a panel of experts to review the contributions/benefits of JQE and found it to have
been very beneficial to the Province and to the areas along its alignment\. A copy of the
panel's report was received by the Bank in November 1996\.
4\. Toll Buildings, Administration Buildings, Maintenance Depots and Service
Areas for JQE\. All these buildings and facilities have been completed except for a hotel
in the service area at Qingdao\. This is expected to be completed before the end of June
1997\. The quality of these buildings and their facilities is considered to be very good\.
5\. Traffic Engineering for JQE\. The contract for these works (tolling, monitoring
and telecommunications) was signed on April 2, 1996 with Sainco Trafico of Spain, and
- 58 - ANNEX3
the hardware design was conducted in Jinan during May 10-16, 1996\. The software
design was reviewed in Spain during August 6-22, 1996\. The implementation of this
contract is smooth\. Laying of metal and optical fiber cables has been completed\.
Installation of equipment is almost complete and is expected to be finished by the end of
April 1997\. About 22 engineers/technicians from the contractor are expected to arrive in
China around the middle of April to speed up the works including software installation
and testing and commissioning\. It is expected that commissioning will be completed by
the end of June 1997\. This will be followed by a 6-month trial operation (July 1-
December 31, 1997) and a one-year warranty (January 1 -December 31, 1998)\. Not all due
payments to the contractor have so far been fully made\. It was agreed that any payments
to be made to contractor after commissioning could be released against a nonconditional
Bank guarantee that fully protects the interests of the Employer\.
6\. In a meeting on April 9, 1997 attended by the Employer, the Contractor and his
subcontractors, the Supervision Team, and the Bank, it was agreed that:
(1) The Employer would speed up payments to the Contractor,\. especially those in
local currency;
(2) The Contractor would, by April 14, submit to the Employer a revised realistic
implementation program to complete Contract No\. 9 and a copy of this program
signed by the Employer/Supervision and the Contractor would, by April 18, 1997,
be submitted to the Bank's Resident Mission\.
(3) The Contractor will do his best to complete one center/subcenter to meet the
requirements of the Employer with regard to the visit by senior leaders from
SPTD and other Provincial agencies to JQE during the first half of May 1997\.
(4) The Contractor and the Employer would, by June 15, 1997, reach agreement on
the numbers of staff by specialty and spare parts and tools that the Contractor has
to provide during the trial period to minimize down time of the system(s)\.
(5) The Employer would, by April 29, 1997, submit to the Bank (RMC) a revised
cost estimate of Contract No\. 9 showing costs according to the contract, costs of
variation orders (additions\. deletions, modifications), estimated costs for claims if
any, and costs of likely additional works\. Also, the Employer would, at the same
time, submit a report showing the justification for the additional works, their order
of priorities, as well as the time program to implement these works\. On the basis
of this information and the revised project cost estimate (to be submitted to the
Bank-RMC by April 29, 1997), a decision would be made on whether it is
possible for the Bank loan to finance these additional works (in whole or part)\.
7\. Supervision of Traffic Engineering for JQE\. The Bank representatives found
that the organizational chart for supervision of Contract No\. 9 for JQE as well as the
staffing and the key staff to be adequate\. The performance of the supervision team is
considered reasonable\.
- 59 - ANNEX3
Equipment
8\. All the equipment for the project has been procured and delivered except for two
pieces of maintenance equipment and equipment for the Road Data Bank (RDB)\.
Contracts for the remaining maintenance equipment have been signed and the equipment
is expected to be delivered by May 15, 1997\. Contracts for the RDB equipment have also
been signed and the equipment will be delivered during May 31-June 15, 1997\.
Training
9\. All training under the project has been implemented except for 9 person-months
in traffic engineering\. A contract for this training has been signed with Louis Berger
International\. Arrangements are presently being made for completion of selection of
trainees and their travel to the United States\. The training is expected to be completed
before June 30, 1997\. Because of the tightness of the schedule, the Bank mission
emphasized the need to speed up the procedures and to ensure that a qualified interpreter
accompanies the trainees to the United States\.
Safety
10\. A contract with Ross Silcock, Ltd\. (LTK) was signed to provide two person-
months of services of a qualified traffic safety specialist to study the traffic accident
situation along JQE\. Accordingly, Mr\. Mike Goodge visited Shandong for a month
during February/March 1997 and submitted a rough draft report on his findings on
March 22, 1997\. The mission reviewed this report with representatives of JQEMB\. It was
agreed that the submitted report cannot be considered as a draft final report and that Ross
Silcock will have to submit a proper draft report as soon as possible for review and
comment by JQEMB and the Bank\. Also, the report should include a statement of safety
targets, a defined program of improvements, approximate cost, and order of priorities\.
Safety equipment needs (in the amount of about $60,000) were reviewed and it was
agreed that these equipment would in principle consist of those for protection of road
works and accident sites\. Mr\. Goodge's revised report would have to include a well
defined list of these equipment and their specifications as well as their approximate cost
and procurement schedule\. The Bank would have no objection to the purchase of such
equipment through international shopping provided that they can be delivered by the
closing date of the loan (June 30, 1997)\.
PROJECT COST ESTIMATE
11\. The mission reviewed the draft cost estimate prepared by JQEMB/SPTD for the
project and found that it requires further detailing and explanation of how it was
determined\. Also, comparisons should be made with the cost estimate in the Staff
Appraisal Report (SAR) and the reasons for the main differences between the two
estimates should be adequately explained\. It was agreed that SPTD would prepare a
revised report on the project cost estimate (by component) and deliver it to the Bank
- 60 - ANNEX3
(RMC) by April 29, 1997\. This report would be discussed in a meeting to be held in
Beijing by May 2, 1997\.
REPORTING
12\. It was agreed that a combined summary report for the months of March and April
1997 would be faxed to the Bank by May 10, 1997\. This report should summarize
progress during the reporting period and percent complete; payments to contractor and
summary of variation orders and claims, if any; problems faced and proposed solutions;
major changes to cost estimate or to completion time; and major activities planned for the
following month\. Succeeding monthly reports would be submitted within 10 days of the
end of the month\. The progress report for the first quarter of 1997 is to be submitted to
the Bank by April 30, 1997\. Succeeding quarterly reports would be submitted within a
month of the end of the quarter\. Furthermore, the audit report for 1996 should be
delivered to the Bank by June 30, 1997\.
PLANS FOR SALE OF JQE
13\. SPTD/JQEMB raised with the mission their plans to sell 60% of JQE to China
Merchants Holdings Company of Hong Kong and to offer the remaining 40% as B-shares
on either the Shanghai or Shenzhen Stock Exchanges\. JQE was valued by China
Accounting Office at Y 5\.182 billion\. This assessment has been accepted by the Hong
Kong Company\. SPTD intends to use the proceeds to finance new expressways in the
Province\. SPTD and Shandong Province will be responsible for repaying the Bank loan/
credit and not the new company to be set up for JQE\.
14\. The proposed sale is expected to be submitted by the end of April 1997 to SPC,
MOC and MOF\. SPTD hopes to get the required approvals including that from SETC by
the end of July 1997\. A feasibility study is being undertaken by local firms to form the
basis for the prospectus for the shares offering (40% of value of JQE)\. Approval from
MOF, MOC, SPC and the State Stock Exchange Supervision Management Committee\.
will be sought\. The last agency would also decide the size of the stock offering\. SPTD
wants Bank approval of these plans\. Consequently\. it was agreed that SPTD would, as
soon as possible, submit to the Bank a brief report explaining its intentions and plans,
status of implementation of these plans\. and time schedule and asking for Bank,
requirements for documentation in this regard\.
IMPLEMENTATION COMPLETION REPORT
15\. In accordance with the agreements reached during the November 1996
supervision mission, the Bank on March 17, 1997 received the draft implementation
completion report prepared by SPTD\. The Bank faxed its comments on this report to
SPTD/JQEMB on March 18, 1997 and a prelimirary report on economic and financial
evaluation of the project on March 31, 1997\. These comments and report were discussed
with representatives of SPTD/JQEMB\. It was agreed that:
-61- ANNEX3
(1) The cost estimate for the project by component (two tables-in the first cost is
expressed in Yuan and in US dollars in the second table) and its comparison with
the SAR and explanation of the reasons for major differences would be delivered
to the Bank (RMC) on April 29, 1997 (see para\. 11)\.
(2) The cost estimate (broken down into local-yuan-and foreign-US dollars-
components) for JQE by year (1989-1997) and for each of the three sections
(Qingdao-Weifang, Weifang-Zibo and Zibo-Jinan) would be delivered to the
Bank (Washington, DC) by May 31, 1997;
(3) SPTD/JQEMB would submit its revised draft ICR to the Bank by May 31, 1997\.
(4) On the basis of the ICR report by SPTD/JQEMB and the above requested data as
well as the information collected by the mission, the Bank would prepare the draft
ICR and submit it to SPTD/JQEMB for review and comment by June 30, 1997;
(5) SPTD/JQEMB would submit its comments on the draft ICR to the Bank by
July 31, 1997\.
(6) The final ICR would be submitted to the Bank's Board of Directors by
December 31, 1997\.
(7) In order to meet the above-mentioned schedule, it is essential that JQEMB is
strengthened by qualified manpower\.
NEXT STEPS
16\. It was agreed that the following documents/reports would be submitted to the
Bank:
(a) By April 18, 1997: A signed copy of the revised implementation program for
Contract No\. 9 (para\. 6)\.
(b) By April 29, 1997: (i) Revised cost estimate of Contract No\. 9 (para\. 6), and (ii)
Report on revised project cost estimate (para\. 11)\.
(c) By April 30, 1997: Project Progress Report for the first quarter of 1997 (para\. 12)\.
(d) By May 10, 1997: Summary Progress Report for Contract No\. 9 for the months of
March and April 1997 (para\. 12)\.
(e) By May 31, 1997: Cost estimate for JQE by each of its three sections (para\. 15)\.
(f) Undated, but preferably by April 30\. 1997: A report on sale of 60% of JQE to a
Hong Kong company and offering of stocks for the remaining 40% (para\. 13)\.
(signed) (signed)
Hatim Hajj Zhang Junren
Principal Transport Specialist Deputy Director, JQEMB
Jinan, April 11, 1997
Note: The original copy of the Aide Memoire with Annexes 1 and 2 thereto is in the
Project File\.
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APRIL 0996 | REVIEW |
P114766 |  ICRR 14383
Report Number : ICRR14383
IEG ICR Review
Independent Evaluation Group
1\. Project Data: Date Posted : 06/27/2014
Country : Kazakhstan
Project ID : P114766 Appraisal Actual
Project Name : Kazakhstan Moinak US$M ):
Project Costs (US$M):
Electricity
Transmission Project
L/C Number : L7738 Loan/ US$M):
Loan /Credit (US$M): 48\.0 44\.73
Sector Board : Energy and Mining Cofinancing (US$M):
US$M ):
Cofinanciers : Board Approval Date :
Closing Date : 12/31/2012 04/30/2013
Sector (s): Power (95%); Public administration- Energy and mining (5%)
Theme (s): Infrastructure services for private sector development (100% - P)
Prepared by : Reviewed by : ICR Review Group :
Coordinator :
Mamundi G\. Sri-Ram Robert Mark Lacey Christopher David IEGPS1
Aiyer Nelson
2\. Project Objectives and Components:
a\. Objectives:
According to the Loan Agreement, Schedule 1, and the PAD, the project objective is âto increase and improve the
supply of electricity to business enterprises and households in southern Kazakhstan in an economically and
environmentally sustainable manner â?\.
b\.Were the project objectives/key associated outcome targets revised during implementation?
No
c\. Components:
There were three components:
Component A: Construction of Transmission Lines -- (Costs: Appraisal US$45\.8 million; Closing US$44\.0 million)\.
A1\. Construction of a 97\.3 km long 220 kV single-circuit overhead transmission line (OHTL) from the Moinak
Hydroelectric Power Plant (MHPP) to Shelek substation; Construction of two 220kV transmission lines from 220kV
MHPP Switchyard to MHPP (circuit 1-0\.484 km, circuit 2-0\.553 km)\.
A2\. Construction of a 227\.78n km long 220kV single-circuit OHTL from MHPP to Robot substation \.
Component B : Modernization of Substations-- (Costs: Appraisal US$21\.1 million; Closing US$18\.8 million)\.
B1\. Construction of 220/110 kV outdoor switchyard to transfer power from MHPP to Kazakhstan Electricity Grid
Operating Company (KEGOC) transmission lines\.
B2\. Modernization of 220 kV Robot substation\.
B3\. Modernization of 220 kV Shelek substation\.
Component C : Consulting and Technical Services -- (Costs: Appraisal US$2\.5 million; Closing US$2\.5 million)\.
C1\. Procurement and project management, including preparation of bidding documents, construction supervision and
quality control\.
C2\. Technical services, which include support for selection of transmission routes, engineering surveys and
construction supervision of turn -key contracts\.
None of the components was revised during project implementation \.
d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:
Project cost \. At appraisal the total project cost was estimated at US$ 69\.6 million, including a US$0\.2 million IBRD
Front End fee\. The financing required was estimated at UD$ 73\.4 million, including interest during construction \. The
Borrower, KEGOC, was to finance US$ 25\.4 million from its own resources\.
The final project cost was US$65\.6 million (including the IBRD front end fee of US$ 0\.2 million), 5% below the
appraisal estimate\. The final cost of the transmission lines was US $ 44\.0 million, 4% below the appraisal estimate of
US$ 45\.8 million; substations cost US $18\.8 million, 11% below the appraisal estimate of US$ 21\.1 million\.
Consultancy and technical services cost US $ 2\.5 million, as estimated at appraisal\. There were no significant
changes in the scope of the project \.
Financing \. US$44\.7 million (97%) of the IBRD loan of US$46 million was disbursed\. At closing, the unutilized US$
3\.27 million of the Bank loan was cancelled \. There were no other external sources of financing \.
Borrower contribution \. The Borrowerâs contribution of US$ 20\.8 million was some 88% of the amount of US$ 23\.6
million anticipated at appraisal\.
Dates\.
Dates The Closing Date of the IBRD loan was extended by 4 months from December 31, 2012 to April 30, 2013 to
allow KEGOC to complete testing of the MHPP before acceptance from the contractor \.
3\. Relevance of Objectives & Design:
a\. Relevance of Objectives:
High\.
High
The projectâs objectives are relevant to the strategy of the government, which had chosen to invest significant
efforts in support of the modernization and expansion of the power sector in order to address growing
constraints to reliable power supply \. The Moinak Hydroelectric Power Plant (MHPP) was included in the
2010-2014 State Program of Accelerated Industrial and Innovative Development in the country \.
The objectives are relevant to the March 2012 Country Partnership Strategy (CPS) for the Fiscal Years
2012-2017\. The CPS highlights as one of the country âs priority development goals the development of
infrastructure connectivity to reduce economic distance \. The CPS lists as one of the outcomes improving energy
transmission to poor areas, by building on investments in transmission, focusing on the development of the
countryâs vast renewable energy resources, particularly wind and hydro power, into the national grid, and
strengthening key regional power interconnections to alleviate severe network bottlenecks \. The objectives were
also consistent with the CPS of 2004, and updated in a Progress Report dated May 1, 2008 to cover the period
through 2010\. One of its key pillars was âinvesting in human capital and infrastructure â?, given that the major
segments of infrastructure (i\.e\., roads and power transmission networks ) did not meet the needs of a rapidly
expanding economy\.
b\. Relevance of Design:
Substantial \.
There is a clear causal chain between the activities designed to be supported by the project and the expected
attainment of the development objectives \. The investment in the physical facilities, namely construction of
transmission lines and modernization of substations combined with consulting and technical services (among
others, to support selection of transmission routes that are least -cost and environmentally neutral ) are aimed at
increasing the supply of electricity from the MHPP (already nearing completion) to the Southern Region\. This
would not only increase the available supply of electric power but also improve quality and reliability, thereby
enabling a reduction in load shedding and power outages that affect business and households \. Thus, the design
enables supply of electricity in an economically and environmentally sustainable manner \. Design was optimized
by choosing to link MHPP supply to the Southern Region, as the length of the transmission line from MHPP is far
shorter than the national system âs average\.
The lending instrument (a Specific Investment Loan) was appropriate, while the three-component design that
was selected was simple and tried before in similar electric power transmission projects \. Also, under previous
projects with KEGOC, turnkey contracts for construction of transmission lines and substation rehabilitation had
proved to be an efficient approach to implementing projects in a cost -effective manner without overburdening the
companyâs supervision capacity\. The project was critical to transmission of power from the MHPP, and thus had
strong support from GOK\.
4\. Achievement of Objectives (Efficacy):
The projectâs development objectives were: âTo increase and improve the supply of electricity to business
enterprises and households in southern Kazakhstan in an economically and environmentally sustainable manner\.
Outputs and Outcomes:
The supply of electricity to southern Kazakhstan was increased by providing the facilities needed to evacuate
electricity generated by MHPP\. The first high voltage line began operation in November 2011 and the second in
August 2012âwithin 2 months of the original schedule\. The project has specifically resulted in several benefits listed
in the ICR\. Thus, MHPPâs 300 MW of additional generating capacity has contributed to the reduction of the regional
power deficit of Kazakhstanâs Southern Region\.
1\. Increased Supply of Electricity--rated High: The Southern Region is expected to be provided with 1000 GWh pa
of hydro-electric power, much of which will be used to cover peak demand, which was hitherto unmet\. MHPP has
provided some 430 GWh of power in its first 6 months of full capacity operation\.
2\. Improved Supply of Electricityârated High: In terms of quality of supply, there has been no load shedding in the
Almaty power region since the project came on stream\. While this is to a considerable extent attributable to the
availability of MHPP, the expansion of the North-South transmission line, which had been a limiting factor in the past,
also contributed to the elimination of load shedding\.
3\. Economic Sustainabilityârated Substantial: The difficulty of fully accessing MHPPâs cost data makes an
evaluation of the projectâs contribution to the change in the average cost of power in the region difficult\. A moderate
downward pressure is plausible, according to the ICR, since MHPP hydro-electric power is produced at a lower cost
than the alternatives, including power supplied from the North over larger distances\. KEGOC has contracted with
MHPP for 350 MWh of additional output (to make up for its transmission losses) at a price significantly lower than
the cost would have been from power plants in Kazakhstanâs Northern region
While the project did not contain any institutional strengthening component, the Bankâs engagement with KEGOC
and GOK in the electric power sector over several years, including the ongoing Alma Electricity Transmission
project, has contributed significantly to KEGOCâs operational and institutional strengthening\. According to the ICR
(page 13), Kazakhstan has become a model for other countries in the region, having created an efficient, profitable
and commercially oriented power system operator, a reasonably effective sector regulator and a competitive power
market, with a sound overall institutional and legal framework\. Full recovery of justifiable costs including the cost of
new investments are ensured by the Law on Natural Monopolies, and KEGOCâs tariffs were approved by the Agency
for Regulation of Natural Monopolies on a cost-plus basis and included a 10 percent rate of return\. Also, the
provisions of the Guarantee Agreement signed by the Government of Kazakhstan ensures that the transmission tariff
would be maintained at levels sufficient to cover KEGOCâs longer term cash flow requirementsâtransmission tariff
increases of about 10 percent per year have already been approved for the next three years\. All this contributes to
financial sustainability\.
4\. Environmental Sustainabilityârated High: IMHPP is physically closer to the Southern Region\. MHPPâs annual
output of about 1000 GWh of electric power would replace the equivalent amount of energy generated by coal-fired
plants, thereby saving about 1\.2 million tons of CO2 emissions, contributing to the environmental element of the
development objectives\. MHPP was expected to reach this level of output by the end of its first year of operation, i\.e\.,
end 2013\. Indeed, economic efficiency and environmental sustainability are both served as hydro power is cheaper
and more environmentally beneficial than other sources\.
5\. Efficiency:
The project was implemented on time and under budget in spite of a tight implementation schedule that needed
to be closely coordinated with completion of the MHPP (since operation of MHPP and construction of the
transmission lines were mutually dependent \.
The economic rate of return (ERR) for the entire project estimated by the ICR, using projections as of October 2013
is 16%, including the monetized value of the CO 2 emission savings, and 13\.6% if CO2 savings are excludedâthis
compares with the appraisal estimate of 17\.1% including CO2 savings\. The financial internal rate of return (FIRR) to
KEGOC from the transmission component alone, according to the ICR is 20\.8%--high because KEGOC receives the
same price for a kWh transmitted regardless of where the electricity is generated or consumed --the transmission line
is shorter than KEGOC's average\.
The assumptions that the ERR calculations are based upon are considered reasonable (electricity valued at
consumerâs willing ness to pay; unserved demand reduced to zero; use of actual production figures in 2012 and
projections for 2013; use of KEGOCâs assumption about peak demand requirements (in months where power
utilization is assumed to exceed and average 100 MW, it is assumed that all outputs is used to cover peak demand )\.
Efficiency is rated Substantial \.
ERR )/Financial Rate of Return (FRR)
a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the
re-
re -estimated value at evaluation :
Rate Available? Point Value Coverage/Scope*
Appraisal Yes 17\.1% 0%
ICR estimate Yes 16% 0%
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome:
The relevance of the project objectives is rated High, based on the countryâs needs and priorities in the
infrastructure and energy sectors, and overall economic development \. Based on the clarity of the links between
inputs, outputs and outcomes, and of the results framework the relevance of design is rated Substantial\. The planned
outputs and outcomes were fully achieved or exceeded, with the project having been completed below the estimated
costs and having achieved substantial economic and financial benefits \. Efficacy of three of the four sub objectives,
increased supply of electricity, improved supply of electricity, and environmental sustainability are rated High, while
that of the fourth objective, economic sustainability, is rated substantial \. Efficiency is rated Substantial\. Thus the
overall project outcome is rated Satisfactory\.
a\. Outcome Rating : Satisfactory
7\. Rationale for Risk to Development Outcome Rating:
As mentioned earlier, MHPP was expected to reach its full output by the end of 2013, the first full year of
operation\. The dialog between the Bank and GOK on the electric power sector continues under two further
transmission projects agreed upon according to the current FY 12-17 CPS\. The risk factors are listed below \.
Technical: The technology introduced through this project is well established, tried and tested in Kazakhstan and
elsewhere, and is relatively straightforward \. Furthermore, KEGOCâs staff is qualified and fully trained, and has
operated earlier facilities such as those of the earlier North South Transmission project \. Thus, the likelihood of the
project not achieving its development outcomes due to technical risks is low\.
Financial: KEGOCâs overall financial position is sound, and it had no difficulty financing its share of project costs \. The
Agency for Regulation of Natural Monopolies (ARNM) has consistently approved tariff increases to cover KEGOC âs
full operating and investment costs \. Although it cannot be totally ruled out that future requests for tariff increases may
not be approved at the level requested, transmission tariff increases of about 10% per annum have been regularly
approved for the subsequent three years \. Therefore, the likelihood of not achieving the development outcomes due
to financial risks is also low\.
Environmental: The projectâs Environmental Assessment rating of âBâ appropriately reflected the initial assessment
that the environmental risks were limited in scope and manageable \. KEGOC fully complied with the requirements of
all environmental protection covenants \. Therefore, the likelihood of not achieving developments due to environmental
risks is low\.
Governance/Institutional: KEGOC had held discussions with the Bank on possible support for a Third North -South
Electricity Transmission Project, which is included in the Bank âs 2012-2017 Country Partnership Strategy\. That would
strengthen the national power network and improve the reliability of electricity supply in Southern Kazakhstan, while
also providing the basis for sustaining the dialog with the government on further sector reforms \. KEGOC has
benefitted in the past from strong and capable management, which has had the support of government agencies
responsible for overall policy setting \. As a result, the commercial focus of KEGOC has been âexemplaryâ? (ICR, page
14) with minimal political interference\. In February 2012, KEGOC informed the Bank that it had been included in the
governmentâs âPeopleâs Initial Public Offering (IPO)â? program for selected major state owned enterprises, whereby
shares (from 5-15%) would be floated on the stock market \. The exact timing of the float is still to be determined \.
While this is expected to strengthen the corporate governance practices, the IPO may introduce some element of
uncertainty as to how KEGOC will be managed in the future \. Nonetheless, given the low percentage of shares
offered, the likelihood of not achieving development outcomes due to governance/institutional risk is low\.
a\. Risk to Development Outcome Rating : Negligible to Low
8\. Assessment of Bank Performance:
a\. Quality at entry:
Project preparation was short and efficient \. It took 10 months from Concept Review to Board \. The project
benefitted from sound technical, economic and financial analyses, and used tried and tested technologies \.
Project design was optimized, as MHPP requires a substantially shorter transmission line than the national
systemâs average, reducing capital and operating costs \.
The Bank mobilized a team with all the necessary skills including expertise in electricity markets, engineering,
procurement, environment and financial management \. The PAD (p 9) says KEGOCâs implementation financial
management and procurement capacity were adequate \. This was demonstrated by its performance under prior
and ongoing Bank financed transmission projects \. As stated in the PAD (p 39), the Bank team recommended the
hiring of a project management consultant, and the use of a turnkey approach for the major contract to minimize
the additional work for KEGOCâs implementation team\.
The Bankâs environmental specialist identified the limited environmental impacts and verified that the
environmental management plan (EMP) had adequate arrangements for mitigation and monitoring of the
environmental impacts, and that the public consultations during project preparation were adequate \. The
technical, environmental and social risk assessments were thorough, and identified adequate risk mitigation
measures (PAD, pp16-21)\.
The Bank considered the Borrower âs suggestion that prequalification criteria be restricted to contractors who had
performed similar contracts in countries other than their own countries of origin, but decided to proceed on the
basis of the Bankâs Guidelines for Procurement, so that the process remained open to a broader cohort \. This led
to some unanticipated difficulties during implementation (see Section 11 b below)
at -Entry Rating :
Quality -at- Satisfactory
b\. Quality of supervision:
The Bank team undertook supervision mission missions regularly during the three years of implementation \.
Delays in the implementation schedule and the need to make up for lost time were recurring themes of ISRs and
Aide Memoires\. The majority of the procurement issues were handled by the regional field office \. The EMP and
its adherence were regularly monitored, and there were two FM /fiduciary missions\. A collaborative relationship
was maintained with GOK and KEGOC, and the Bank was regarded as a trusted partner, as indicated in the
Borrowerâs Comments on the ICR (Annex 7, ICR)\.
Although the Bank provided rigorous implementation support from a fiduciary perspective, according to the ICR,
the Borrower was not able to complete the Land Acquisition Plan (LAP) in a timely manner to secure the Bank âs
formal approval\. However, prior approval of the LAP by the Bank to ensure compliance with the Bank âs OP 4\.12
would have meant delaying work on the transmission line construction \. Therefore, the Borrower was alerted to
this, and the Bank team worked with the Borrower to approve a LAP acceptable to the Bank, which included
retroactive measures to ensure that all project -related compensation was in compliance with OP 4\.12\. The ICR
states that all compensation was completed prior to loan closing \.
As mentioned, the prequalification process did not eliminate potentially inexperienced contractors \. The Bank
team was fully aware of the delay in preparation of detailed design packages, but delays were overcome after
KEGOC undertook arrangements for their completion by hiring additional consultancy capacity \.
The Bank agreed to extend the Closing Date from December 31, 2012 to April 30, 2013 in mid-December 2012,
as a first and only extension requested by the Borrower \. Although construction works were fully completed and
contract was to close by end December 2012, KEGOC required additional time to properly review and accept the
works, carry out guarantee tests, and equally important, obtain signed acceptance certificates from a number of
relevant GOK agencies\. The final payment could only be processed after the acceptance certificate was signed \.
Thus, the Closing Date extension met the needs of the implementing agency without compromising project
performance\.
Quality of Supervision Rating : Moderately Satisfactory
Overall Bank Performance Rating : Moderately Satisfactory
9\. Assessment of Borrower Performance:
a\. Government Performance:
The government accorded high national and regional priority to the MHPP \. It was included in the 2010-2014
State Program of Accelerated Industrial and Innovative Development in the country \. The project was assessed
and cleared by the Ministries of Energy and Mineral Resources, Environmental Protection, Economy and Budget
Planning, and Ministry of Finance \. Thus, the project enjoyed strong support from the government \. The Bank team
coordinated with the key government agencies on the project âs design, processing schedule and implementation
plan\. The government monitored project implementation at the highest levels, with a site visit by the Prime
Minister, and ensured timely financing and support for the speedy construction of the MHPP \.
Government Performance Rating Satisfactory
b\. Implementing Agency Performance:
The Implementing Agency was KEGOC\. It obtained the approval of the âState Expertsâ? and support of the
relevant ministries for the feasibility study, environmental impact assessment, and the project âs financing plan
during preparation\. KEGOC had a fully staffed, effective Project Management Unit (PMU) with much experience
implementing Bank financed transmission projects \. In order to ensure that the project was implemented in the
shortest time possible, KEGOC hired an international consultant to assist with preparation and evaluation of
bidding documents, and employed a turnkey contractor to ensure adequate coordination of all design and
construction activities\. KEGOC provided financing for the Robot and Shelek substations and for the switchyard at
MHPP, and ensured that these were completed on the agreed timetable \.
The project faced initial implementation delays, because the turnkey contractor had difficulties in mobilizing the
requisite team to complete detailed design on time, and because of difficulties completing contracts with local
sub-contractors\. These were highlighted in supervision reports, and, following consultations between the Bank
team and KEGOC, delays were overcome after KEGOC took over the task of completing detailed designs \. The
contractor was pressed continually by KEGOC to speed up implementation activities to meet the tight timetable
for the transmission line, which undertook key tasks in the early stages to avoid a serious slippage \. Thus it took
remedial measures when the project was getting off track following the turnkey contractor âs initially inadequate
performance\.
KEGOC developed an Environmental Management Plan (EMP) in compliance with Bank requirements and
prevailing Kazakhstan legislation \. It implemented an effective environment monitoring system that included
appropriate quarterly reports to identify problems as they arose, while also working closely with the
contractors to ensure that the whole project was implemented on schedule \. Two Bank financial management
missions found that accounting and auditing procedures were well designed and implemented at both the
project and corporate levels \. The government and KEGOC ensured that the project remained in full
compliance with the Bankâs fiduciary requirements and ensured that the project delivered the expected
development objectives on time\. All audit reports were âcleanâ, there were no environmental issues and
affected farmers were compensated for the short -term use of their land and for purchase of land permanently
acquired for the project\.
In all KEGOC was highly proactive, efficient and effective in decision -making, which contributed to the timely
implementation of the project, below the original cost estimates \.
Implementing Agency Performance Rating : Highly Satisfactory
Overall Borrower Performance Rating : Satisfactory
10\. M&E Design, Implementation, & Utilization:
a\. M&E Design:
The outcome indicators were well designed to reflect project objectives and outcomes, except for one âreduction in
the average wholesale price of electricity \. That was reexamined during supervision, determined to have little
relevance, and was dropped \. Intermediate outcome indicators were adequate to monitor implementation progress
and included: (i) timely completion of tender documents; (ii) contracts awarded in accordance with the deadline of the
projectâs Procurement Plan (PP); and (iii) exact items of equipment delivered, installed and commissioned in
accordance with the PP\.
The PAD Annex on Project Monitoring includes a quantitative indicator for measuring the project âs impact on
reducing the regionâs power deficit: the GWh amount generated by MHPP\. The indicated target was 1027 GWh,
reasonable for determining the deficit reducing impact of the MHPP and project transmission facilities \. It also
contains a load shedding indicator, to be reduced to zero after project completion from a baseline that was
subsequently determined to be 80MW\. Load shedding is also affected by factors other than the increase in MHPP
generation capacity -- the increased electricity supply from the Northern region after completion of the second
North-South Interconnector enabled elimination of load shedding before MHPP power supply became available, and
this was recognized in M&E design \. Baseline data were included in the PAD for the four quantitative measures that
wereto be tracked, namely the reduction of power deficit in the southern region, load shedding in the Almaty power
region, average wholesale price of electricity, and CO 2 emissions based on demand growth to be met by thermal
generation (PAD Annex 3)
b\. M&E Implementation:
Progress indicators were consistently used to keep track of and identify problems in implementation progress \.
The slippages in implementation of procurement packages were identified on all supervision missions and agreement
was reached on needed efforts to speed up the process and bring it in line with the procurement plan, which, in turn,
was closely tied to the MHPP completion schedule \.
At completion, KEGOC was to continue to collect information covering transmission of power from MHPP, and the
amount of load shedding in the Southern Region, as part of its regular data collection process \.
c\. M&E Utilization:
Intermediate outcome indicators were used to ensure that project implementation remained on schedule \. The
value of MHPP output continues to be collected \. The quantitative indicators related to increased capacity available
during peak demand periods have been achievedKEGOC is to continue to providing operation data for the MHPP
and electricity supply in the Southern region for the Bank âs monitoring of project performance \.
M&E Quality Rating : High
11\. Other Issues
a\. Safeguards:
The project triggered OP 4\.01 (Environmental Assessment), OP/BP 4\.12 (Involuntary Resettlement), and OP/BP
4\.37 (Dam Safety)\.
Environmental Management (OP/BP 4\.01): The project was classified as Category B, as its potential impacts
were expected to be for a limited duration and extent \. Key issues included the regular construction matters
associated with the movement of machines, material and workers, dust, noise, engine exhaust and disposal of
solid non-hazardous wastes largely from packaging and land preparation \. KEGOC prepared an EMP, held
public consultations and subsequently posted the EMP on its public website and disclosed it in the Bank âs
InfoShop\. âThe project is in full compliance with the environmental assessment regulations of the Borrower and
World Bank environmental safeguard policies â? (ICR, page 9)\.
Involuntary Resettlement (OP/BP 4\.12): KEGOC acquired about 14 ha of land for permanent use and some 555
ha for temporary use, all agricultural and razing land, with a total of 316 affected persons\. According to the ICR
(page 9), none had to resettled and all received reasonable cash compensation \. A Land Acquisition Policy
Framework was prepared during project preparation \. However, construction of the transmission line started prior
to the Bankâs formal approval of the Land Acquisition Plan (LAP), and the Borrower was alerted to this \. The
Bank team worked with the Borrower to approve a LAP acceptable to the Bank and which included relevant
retroactive measures to ensure that all project -related compensation was in line with OP /BP 4\.12\. This was
completed prior to Loan Closing\.
Dam Safety (OP/BP 4\.37): Although MHPP was not formally part of the Bank financed transmission project, it
was considered a âconnectedâ? project, thus triggering the safeguard \. The Bank hired an independent dam safety
expert to perform a due diligence assessment of the MHPP design, construction and envisaged operation \. The
assessment found that the dam was designed by qualified engineers \. The design drawings were of high quality
with sufficient details and quantitative assessments to confirm the dam âs safety\. The Bank therefore concluded
that the dam was consistent with the OP /BP (ICR, page 9)\.
b\. Fiduciary Compliance:
Project procurement was implemented in accordance with the Bank âs Procurement and Consultant Guidelines
and with the provisions in the Loan Agreement \. Procurement review missions were carried out regularly by the
Bank team\. KEGOCâs administration of the procurement process was tight and well done for the turnkey
contract, whose eventual value was some US$ 2\.7 million below the original cost estimate\. There were no
reported cases of misprocurement \.
The Bank considered the Borrower âs suggestion that prequalification criteria be restricted to contractors who had
performed similar contracts in countries other than their own countries of origin, but decided to proceed on the
basis of the Bankâs Guidelines for Procurement, so that the process remained open to a broader cohort \. In the
event, the process failed to eliminate companies with limited experience in turnkey contracts with a tight
schedule\. The eventually selected contractor had difficulty in mobilizing the full team needed to meet the project â
s extremely tight implementation schedule \. To avoid the delay, the implementing agency, in consultation with the
Bank team, took over some tasks including arrangements for detailed designs and identification of local
subcontractors\.
Financial management \. The PAD (Annex 7) states that according to the Transparency International âs Corruption
Perception Index (CPI) of 2007 and 2008, there is a perception of high corruption in Kazakhstan \. However, the
company that will implement the project has maintained strong governance structures that ensure compliance
with corporate rules and policies as well as strong financial management arrangements \.
KEGOCâs financial management procedures had been reviewed regularly as part of supervision of all ongoing
Bank financed transmission operations and considered fully satisfactory \. Noteworthy elements were:
--a sound project accounting system integrated with the corporate accounting system;
--an experienced and skilled project management team including qualified FM staff;
--timely and regular submission of satisfactory interim financial reports to the Bank;
--timely submission of satisfactorily audited project and corporate financial statements;
--effective internal control procedures that ensured completeness and accuracy of financial transactions \.
Procedures followed under this project also included (i) regular reviews of compliance with the internal control
framework; (ii) regular monitoring of activities of the Designated Accounts, including timely reconciliation of
Designated Accounts with bank statements; (iii) quarterly submission of project Interim Financial Reports; (iv)
audit of project financial statements by independent auditors on terms acceptable to the Bank; and (v) regular
FM supervision reviews\.
Project financial supervision missions were carried out in 2010, 2011 and 2012\. All missions confirmed the
adequacy of the financial management system, including sound internal controls, and that KEGOC and the
project were in full compliance with the Loan Agreement âs financial covenants, and that there were no issues
with counterpart funds\. KEGOCâs financial statements and project statements for 2010, 2011 and 2012 were
audited by independent auditors acceptable to the Bank \. The auditors issued an unqualified (clean) opinion on
the consolidated entity and project financial statements \.
c\. Unintended Impacts (positive or negative):
A positive outcome easily overlooked is that electricity blackouts and brown outs adversely affect poor
households and those run by females\. Stability of electricity supply will have a positive benefit in terms of
gender and poverty as well\.
As mentioned in Section 4 above, the project did not contain any institutional strengthening component \.
However, the Bankâs engagement with KEGOC and GOK in the electric power sector over several years,
including the ongoing Alma Electricity Transmission project, has contributed significantly to KEGOC âs
operational and institutional strengthening \. Kazakhstan has become a model for other countries in the region,
having created an efficient, profitable and commercially oriented power system operator, a reasonably effective
sector regulator and a competitive power market, with a sound overall institutional and legal framework \.
d\. Other:
None
12\.
12\. Ratings : ICR IEG Review Reason for
Disagreement /Comments
Outcome : Satisfactory Satisfactory
Risk to Development Negligible to Low Negligible to Low
Outcome :
Bank Performance : Moderately Moderately
Satisfactory Satisfactory
Borrower Performance : Satisfactory Satisfactory
Quality of ICR : Exemplary
NOTES:
NOTES
- When insufficient information is provided by the Bank
for IEG to arrive at a clear rating, IEG will downgrade
the relevant ratings as warranted beginning July 1,
2006\.
- The "Reason for Disagreement/Comments" column
could cross-reference other sections of the ICR
Review, as appropriate\.
13\. Lessons:
The following lessons are taken from the ICR with some adaptation of language :
Early consultation with civil society and NGOs can help avoid project implementation problems \. In this project,
during preparation, it proved to be critically important to hear from the NGO community and take into account their
concerns in the final project design \. The concerns related to initial routing of the 2 transmission lines, and a timely
re routing decision ensured that the lines did not encroach upon GOK -defined Specially Protected Natural Areas \.
The development of a relationship of trust and confidence is key in projects of a relatively specialized nature
involving sector reforms and institutional change \. In this case the continued involvement of the same Bank staff
over a few projects has led to the modernization of the electric power sector in Kazakhstan that is far ahead
ofother Former Soviet Union countries \.
Even projects with limited land acquisition and no relocation of people require adequate attention from the
outset from the Bank team \. The lack of consistent involvement of a qualified social scientist experienced with land
acquisition issues both during preparation and implementation resulted in delays in approving the Land Acquisition
Plan (LAP), and risked the project becoming out of compliance with the relevant safeguard covenant in the Loan
Agreement\. This lesson also highlights the importance of early technical assistance and capacity building with in
the clientâs institutions\.
14\. Assessment Recommended? Yes No
15\. Comments on Quality of ICR:
The ICR provides adequate detail on objectives, outputs and outcomes \. The document is analytical and arrives
at conclusions that are largely supported by evidence, with clear explanations for the ratings \. Overall, the ICR is
both internally consistent and consistent with OPCS guidelines \. The economic and financial assumptions
informing the efficiency analysis are clearly set out \.
a\.Quality of ICR Rating : Exemplary | REVIEW |
P088520 | Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
IN: Biodiver Cons & Rural Livelihoods (P088520)
Report Number : ICRR0021425
1\. Project Data
Project ID Project Name
P088520 IN: Biodiver Cons & Rural Livelihoods
Country Practice Area(Lead)
India Environment & Natural Resources
L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD)
IDA-49430 31-Mar-2018 8,906,927\.80
Bank Approval Date Closing Date (Actual)
17-May-2011 31-Mar-2018
IBRD/IDA (USD) Grants (USD)
Original Commitment 15,360,000\.00 0\.00
Revised Commitment 15,360,000\.00 0\.00
Actual 3,170,222\.24 0\.00
Prepared by Reviewed by ICR Review Coordinator Group
Katharina Ferl Ridley Nelson Christopher David Nelson IEGSD (Unit 4)
PHPROJECTDATATBL
Project ID Project Name
P088598 IN: Biodiver Cons & Rural Livelihoods ( P088598 )
L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD)
TF-96651 31-Mar-2018 5,960,589\.32
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Bank Approval Date Closing Date (Actual)
17-May-2011 31-Mar-2018
IBRD/IDA (USD) Grants (USD)
Original Commitment 0\.00 8,140,000\.00
Revised Commitment 0\.00 5,960,589\.32
Actual 0\.00 5,960,589\.32
2\. Project Objectives and Components
a\. Objectives
According to the Project Appraisal Document (PAD) (p\. 5) the objective of the project was âto develop and
promote new models of conservation at the landscape scale through enhanced capacity and institution
building for mainstreaming biodiversity conservation outcomesâ\. The objective as stated in the Financing
Agreement of June 14, 2011 (p\. 4) only differed slightly by using landscape âlevelâ instead of âscaleâ\.
The Project Global Environmental Objective is to enhance the conservation of globally significant biodiversity
and ensure its long-term sustainability by promoting appropriate conservation practices in biodiversity-rich
landscapes\.
b\. Were the project objectives/key associated outcome targets revised during implementation?
No
PHEVALUNDERTAKENLBL
c\. Will a split evaluation be undertaken?
No
d\. Components
The project included four components:
Component 1: Demonstration of Landscape Conservation Approaches in Two Pilot Sites (appraisal
estimate US$13\.11 million of which US$3\.12 million from Global Environmental Facility (GEF) and
US$6\.73 million from the International Development Agency (IDA), actual US$3\.43 million): This
component was to finance the development of tools, techniques, knowledge and skills towards improved
conservation and rural livelihoods outcomes in the Little Rann of Kutch in Gujarat and Askot in
Uttarakhand\. These landscapes were to include protected areas, biological corridors, and high-value
conservation sites in production landscapes\. This component was to include activities such as participatory
ecological and social mapping to identify areas of high biodiversity value and resource dependencies and
threats, improved management of biodiversity rich areas within and outside the protected areas in the
landscape, and mainstreaming of biodiversity considerations in production areas within the
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landscapes\. Furthermore, activities such as the development of common agreement and frameworks for
the coordination among stakeholders, and technical assistance and training to facilitate the integration of
biodiversity considerations in development plans of sectoral line agencies through dialogue and
collaboration with sectoral agencies were to be financed\. Also, this component was to support the
development and implementation of livelihood strategies to enhance local community benefits from
sustainable management of natural resources linked to conservation\.
Component 2: Strengthening knowledge management and national capacity for landscape
conservation (appraisal estimate US$6\.22 million, of which US$2\.49 million from GEF and US$2\.28
million from IDA, actual US$2\.20 million): This component was to finance support to improve knowledge
and capacity building based on learning and experience from the two demonstration landscapes (in
Component 1) and other local conservation models\. Two sub-components were to support field learning
centers and a national capacity-building program which was to draw on and distil good practices from the
two pilot sites (in Component 1) and the three field learning centers as well as other successful
conservation initiatives in the country\.
Component 3: Scaling up and replication of successful models of conservation in additional
landscape sites (appraisal estimate US$7\.57 million of which US$2\.06 million from GEF and
US$3\.28 million from IDA, actual US$3\.10 million): This component was to finance further testing and
replication of landscape conservation approaches to two additional high biodiversity landscapes from the
third year onwards with project financing\.
Component 4: National Coordination for Landscape Conservation (appraisal estimate US$4\.12
million, of which GEF US$0\.48 million from GEF and IDA US$3\.06 million from IDA, actual US$0\.24
million): This component was to finance the coordination for landscape conservation at the Ministry of
Environment and Forests (MOEF)\. Activities to be financed were to include the establishment of a
Management Information System (MIS) for project and landscape monitoring, impact evaluation, and
limited operational and technical support to enable MOEF to coordinate and administer the implementation
of project activities and facilitate replication elsewhere in India\. This component was also to support
preparation activities for the two additional landscape sites to be supported under Component 3 as well as
the establishment of a national communication system for the project, policy and legal studies relating to
conservation, impact assessment and review, and third-party monitoring of the project\.
e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: The project was estimated to cost US$31 million\. Actual cost was US$8\.51 million\.
Financing: The project was financed by a US$15\.36 million IDA credit of which US$3\.17 million was
disbursed and a US$8\.14 GEF Trust Fund of which US$5\.96 million was disbursed\.
Borrower Contribution: The Borrower was to contribute US$6\.59 million and local communities were to
contribute US$930,000\. Both contributions did not materialize since at appraisal, the estimated
contributions from borrower and local communities expected were in kind only\.
Dates: The project became effective on July 13, 2011\. The Mid-Term Review was held as planned on
February 27, 2015 and project closing was as planned on March 31, 2018\.
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3\. Relevance of Objectives
Rationale
India is one of 12 mega-diversity countries in the world and accounts for approximately 10 percent of the
worldâs biodiversity\. Indiaâs biodiversity is critical for sustainable livelihoods\. It is estimated that around 27
percent of Indiaâs population is dependent locally on forests for their subsistence and livelihoods, which they
earn from fuelwood, fodder, poles, and a range of non-timber forest products\. However, the countryâs
biodiversity is threatened by increased population pressure, overutilization of resources, and by sectoral
planning and development which largely do not support conservation objectives\. The government of India
has established more than 500 protected areas (PAs)\. However, these PAs are often surrounded by other
form of land use which often does not support conservation efforts\. Therefore, in 2005, the Prime Ministerâs
Office established a task force which developed a set of conservation actions and emphasized the
importance to include larger production systems surrounding PAs when addressing conservation and
livelihood concerns\.
According to the Bank team (November 19, 2018) important lessons from the project informed the latest
National Wildlife Action Plan (NWAP) 2017-2031\.
The objective of the project was in line with the Bankâs Country Assistance Strategy (FY09-12) which aimed
to ensure sustainable development by working for improving livelihoods in high biodiversity landscapes
under its second pillar\. Also, the objective of the project supported the Bankâs Country Partnership Strategy
(FY13-17) which focused in its engagement area âtransformationâ on bringing 500,000 hectares under
enhanced biodiversity protected area management\. The objective of the project is also in line with the
Bankâs most recent Country Partnership Framework (FY18-22) which includes âresource efficient growthâ
as a focus area
Rating
Substantial
4\. Achievement of Objectives (Efficacy)
PHEFFICACYTBL
Objective 1
Objective
To develop new models of conservation at the landscape scale through enhanced capacity and institution
building for mainstreaming biodiversity conservation outcome:
Rationale
The projectâs theory of change linked the development of protected area (PA) management plans, the
preparation of village based micro-plans that included economic activities and biodiversity conservation, the
development of national courses on landscapes, and government institutions receiving capacity building
support with enhancing capacity and institution building for mainstreaming biodiversity conservation
outcomes\.
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Note that this objective is to âdevelop new models of â¦â, Objective 2 is to âpromote new models of â¦\.â\.
Outputs:
⢠Four landscape conservation approaches were successfully adopted in two landscape sites\. However,
the ICR (p\. 29) stated that the scale of implementation remained low and several project activities that
would have contributed to a successful adoption were only partially implemented\. Therefore, the target
was only partially achieved\.
⢠550,000 hectares of areas were brought under enhanced biodiversity protection, achieving the target of
500,000 hectares\. The ICR (p\. 31) stated that the evidence for this indicator came from the published
management plan, expenditure vouchers for habitat improvement works and population census reports\.
However, the ICR did not specify what the "enhancement" entailed\.
⢠The amount of forest areas which were brought under management plans increased from 300,000
hectares in 2012 to 600,000 hectares in 2018, achieving the target\.
⢠Over 400 micro-plans with identified investments of about US$7 million were developed but actual
investment fell significantly short of target (less than $3 million spent)\.
⢠About 500 youth were trained in hospitality services and about 350 youths were gainfully employed for
over a year\.
⢠Sustainable resource use practices including production and use of organic fertilizers, gravity-based
storage and harvesting, sustainable forestry management practices were introduced\.
⢠Landscape management approaches were adopted in two additional sites with project funding,
achieving the target of two additional sites\.
⢠Five staff were hired for the national coordination unit within the MOEF to actively supporting landscape
approaches, not achieving the target of 11 staff\. The ICR (p\. 39) stated that some key positions such as
communication expert was never appointed\. This indicator contributed to both parts of the PDO\.
⢠Key project outputs were not completed on time compared against the implementation plan\.
Consolidated bi-annual progress reports were not submitted, updated procurement plans were not shared
and uploaded to the Systematic Tracking of Exchanges in Procurement (STEP) platform and IUFR
submission was generally delayed\. Therefore, this indicator, which was to contribute to both parts of the
PDO, was not achieved\.
Outcomes:
⢠Four new landscape approach-based models emerged including the decentralized planning and
mainstreaming centric, the traditional institutions and local governance centric, the community participation
and financial inclusion centric, and the convergence centric\.
⢠The amount of landscapes that were more effectively managed for conservation outcomes increased
from 300,000 hectares in 2011 to 600,000 hectares 2018, achieving the target of 600,000 hectares\. This
indicator contributed to both parts of the PDO achieved\.
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Rating
Modest
PHREVDELTBL
PHEFFICACYTBL
Objective 2
Objective
To promote new models of conservation at the landscape scale through enhanced capacity and institution
building for mainstreaming biodiversity conservation outcome:
Rationale
Outputs:
⢠An institutional and methodological framework was under consultation for finalization at the time of
project closing\. However, the framework has not been field tested and formally approved by the MOEFCC\.
Therefore, the target was only partially achieved\.
⢠Six government institutions (the Forest Departments of Madhya Pradesh, Uttarakhand, Gujarat, Tamil
Nadu and Kerala, and the Wildlife Institute of India) were provided with capacity building to improve
management of forest resources, fully achieving the target\.
⢠Landscape management approaches or specific elements of it were adopted in three additional sites
and funded from the state government budget, achieving the target\.
⢠1,000 key stakeholders from at least five national priority landscapes were trained in landscape
conservation approaches, surpassing the target of 250 key stakeholders\.
⢠15 new documents on good practices were prepared and knowledge dissemination events were
sponsored, surpassing the target of ten documents\.
Outcomes:
⢠The population of all key indicator species across all project landscapes showed stable and/or
increasing trend\. The project supported a census in 2014 which found that the wild ass population at LRK
was estimated at 4,451 against the baseline of 3,863 in 2004\. Therefore, the target was achieved\.
However, first the period from 2004 to 2014 was only covered by three theoretical years of project support
and probably barely 2 years of practical support so the quoted change in population could have come
before the project completed any significant intervention\. Second, changes like this can be impacted by
external variables such as rainfall\. Therefore, there may be limited causation\.
⢠550,000 hectares are reported to have been covered by strengthened management\. However, the ICR
(p\. 34) stated that no Management Effectiveness Tracking Tool (METT) score was undertaken so it was
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not possible to estimate the percentage increase in management effectiveness as this indicator would
have required\. Therefore, this indicator is considered only partially achieved\.
⢠10 percent of target user groups adopted alternate and/or sustainable resource use practices, not
achieving the target of 20 percent\.
⢠75 percent of targeted villages or user groups completed 400 micro-plans across the four project
landscapes\. However, the implementation of micro-plans remained partial\. Therefore, this indicator was
only partially achieved\.
⢠A large part of the population are reported, qualitatively, to have benefited from non-cash incomes
through sustainable access and use of natural resources, agro-forestry, improved pastures etc\. However,
real income was not measured and was only based on anecdotal evidence\. Therefore, it is not clear to
what extend the target of at least 20 percent of targeted population was achieved\.
⢠50,000 hectares of new areas outside protected areas were managed as biodiversity friendly, achieving
the target of 50,000 hectares\.
⢠documents\. This indicator contributed to both parts of the PDO\.
Rating
Modest
PHREVDELTBL
PHOVRLEFFRATTBL
Rationale
The achievement of both objectives was Modest\.
Overall Efficacy Rating Primary reason
Modest Low achievement
5\. Efficiency
Economic Efficiency:
The PAD did not include a traditional economic analysis due to the lack of data to monetize benefits\.
Furthermore, the PAD stated (p\. 69) that available methodology for quantifying biodiversity benefits of this
project would result in estimates of relative weights for various benefits that would not be consistent with
judgments by specialists\. The PAD did not explain what it meant by "estimates of weights not being
consistent with judgments by specialists"\.
The ICR (p\.13) estimated the Net Present Value (NPV) and Internal Rate of Return (IRR) for specific
investment activities with measurable outputs\. In terms of livelihood improvements only 40 percent of
committed project funds were disbursed, and outcomes achieved were lower than expected\. The ICR
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estimated an IRR of around 14 percent\. Based on projections for the next 10 years and applying a discount
rate of 12 percent for four investment activities including cash crops, honey production, revenue from park
entry fees and job placements following skill training, the ICR estimated the NPV at INR 3\.03 crores (US$0\.44
million)\. The ICR did not indicate the basis for the use of the 12% discount rate\.
Furthermore, the ICR (p\. 14) stated that a recent study in India estimated the monetary value of flow benefits
of 25 ecosystems services from six protected areas\. The benefits ranged from INR 50,000 to INR 190,000
(US$725 to US$2,758) per hectare per year\. The economic value of provisioning water to downstream
regions from Kanha Tiger Reserve was estimated at approximately INR 400 (US$58) per hectare per year\.
The ICR used the Benefits Transfer Method to calculate benefits of investments to improve habitats and
Protected Area Management\. Taking the low disbursement of 40 percent into account, water provisioning
services of about INR 1,600 (US$25) per hectare per year (a total economic value of INR 96 core or US$14
million) were estimated from protected areas within project landscapes\. However, these estimates were not
included in the calculation of the NPV and IRR since actual valuation of flow of benefits was not estimated for
project sites\.
Operational Efficiency:
During project implementation the project experienced delays in the release of funds and delays in
contracting staff for the PMU\. Furthermore, the project experienced implementation delays due to low
financial management and procurement capacity\. All these delays suggest inefficiency in the use of project
resources\.
Given the modest IRR relative to the discount rate and the fact that it was only based on some of the
investments and given the significant implementation delays, the overall Efficiency is rated Modest\.
Efficiency Rating
Modest
a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal
and the re-estimated value at evaluation:
Rate
Point value (%) *Coverage/Scope (%)
Available?
0
Appraisal 0
ï¨Not Applicable
0
ICR Estimate 0
ï¨Not Applicable
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome
Relevance of objective was Substantial given the importance of Indiaâs biodiversity for sustainable livelihoods\.
Achievement of both objectives and efficiency was Modest\. The overall outcome rating was Moderately
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Unsatisfactory\. The project exhibited significant shortcomings in efficacy and efficiency and warranted early
restructuring\.
a\. Outcome Rating
Moderately Unsatisfactory
7\. Risk to Development Outcome
The Ministry of Environment, Forest and Climate Change (MOEFCC) has funded the continuation of the project
as a central sector scheme and has allocated approximately US$2 million for the year 2018-2019 out of its own
budget\. Also, the Ministry has issued an impact assessment to identify potential areas which require continuous
support by the government\. The ICR (p\. 27) reported that stakeholders are motivated to continue to build on
conservation-linked livelihood opportunities\. Also, the government of Gujarat, has decided to replicate the
project\.
However, the risks of slow budget transfer and disbursement in addition to limited technical and administrative
capacity persist, posing a threat to the sustainability of outcomes achieved under the project\. Furthermore, the
Bank team (November 20,2018) stated that even though all project supported landscape societies want to
continue their activities, only some societies that had already existed before the project, and were co-opted by
the project, have a higher possibility of continuing as they have access to financing and technical resources\.
The newly formed societies may find it challenging to arrange funds and technical resources, in absence of
project financing\. This is primarily because resources to augment and establish these societies for operating
independently could not be found due to limited available funding from the project\.
8\. Assessment of Bank Performance
a\. Quality-at-Entry
The project design was informed through site specific studies and indicative plans for landscape\. The
objective of the project reflected the governmentâs priorities and was realistic\. The Bank team conducted
several multi-stakeholder consultative workshops, prepared investment plans for identified landscapes and
complied with its fiduciary role and developed a Governance and Accountability Action Plan (GAAP) and a
Project Process Framework\.
Project preparation was extensive and lasted over seven years which resulted in a change and reduction in
project scope and in implementing agency\. Also, the ICR (p\. 19) stated that even though the preparation
phase was long, the readiness of the implementing agencies was low and the staff was not ready at the
beginning of project implementation\. Furthermore, the project design was overly complex, lacked an
adequate Results Framework and did not plan for sufficient resources for project monitoring (see section
9a for more details)\.
The Bank team at appraisal identified relevant risks\. The risk of the implementing agencies being new and
widespread with limited financial management and procurement capacity was identified as High\.
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The following risks were rated Substantial: i) strict interpretation of existing and proposed policies and laws
relating to conservation hindering the promotion of local decision-making and participation in conservation
action; ii) project benefits not being captured by intended beneficiaries due to lack of adequate measures
of transparency and disclosure and absence of a grievance-handling system; iii) inadequate and inaccurate
flow of information resulting in misconceptions about the project and hence leading to opposition by some
civil society groups; iv) MOEF lacking capacity to coordinate and monitor project effectively and ensure
timely fund flows to landscape and training sites\. Mitigation measures were not adequate and there were
several risks such as challenges to financial management and procurement, flow of funds and lack of
capacity for project monitoring materialized resulting in implementation delays and shortcomings such as
poor fiduciary oversight\.
Quality-at-Entry Rating
Moderately Unsatisfactory
b\. Quality of supervision
According to the ICR (p\. 26) the Bank team conducted ten implementation support missions and one mid-
term review mission\. Several interim technical missions on specific topics such as preparing the landscape
atlas were also conducted\. The Bank conducted an annual post-procurement review and findings were
shared with the client in a report\. Also, the Bank built capacity through conducting procurement trainings on
a regular basis at the MOEFCC and implementing agencies\. Furthermore, the Bank supported the
implementing agencies in addressing complaints to improve internal controls and provided technical and
operational advice to address implementation issues\. The Bank raised the issue of insufficient budget and
delayed release in tri-partite portfolio review meetings, aide memoires and implementation status reports\. At
the mid-term review and every mission afterwards, the Bank team suggested a project restructuring\.
However, the Bank was unsuccessful\. This failure to achieve a substantial early restructuring was a
significant weakness in both Bank and Borrower supervision and contributed directly to the weak
implementation and monitoring\.
Quality of Supervision Rating
Moderately Unsatisfactory
Overall Bank Performance Rating
Moderately Unsatisfactory
9\. M&E Design, Implementation, & Utilization
a\. M&E Design
The objectives of the project were clearly specified\. However, the projectâs theory of change and how outputs
would lead to intended outcomes was not well reflected in the selected indicators in the Results Framework\.
Some of the indicators were not sufficiently well defined\. For example, PDO Indicator 3 âInstitutional and
methodological framework and guidelines for landscape conservation approaches developed and tested in high
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biodiversity landscapesâ aimed to measure two outputs at the same time, the development and test of
framework and guidelines\. Also, some indicators were not sufficiently specific and required interpretation
instead of unit-based or target-based assessment, making it subjective\. Furthermore, most indicators measure
outputs than outcomes\. According to the ICR, no comparators were selected during the preparation process of
the Results Framework\.
According to the ICR (P\. 23) the M&E design was not well-embedded institutionally\.
b\. M&E Implementation
According to the ICR (p\. 21) the M&E specialist was only working in the PMU for less than two years\. After
2015, the position remained empty until project closing\. Also, the PMU did not track any results or outcomes,
a M&E system was not implemented, and no progress report was produced throughout project
implementation\. Monitoring activities only included monitoring the achievement of annual physical and
financial targets for releasing grants to Implementing Agencies\. The ICR (p\. 24) stated that the external
monitoring tool, Management Effectiveness Tracking Tool (METT) was not used\. Also, no mid-term and end-
term evaluations by an independent third party to assess some of the social benefits due to project activities
were not conducted\. The Bank team assessed project implementation through field visit observations and
conversations with project beneficiaries, implementing agency staff and other stakeholders\. According to the
ICR (p\. 24) the Bank team recommended the revision of the Results Framework to assess project outcomes,
however, the borrower did not agree to a project restructuring, leaving a weak Results Framework in place
until project closing\.
c\. M&E Utilization
The ICR (p\. 24) stated that M&E was not used to inform decision making, to improve project performance, to
inform investment decisions during in regards to the approvals of Annual Plans for Operations (APOs) since
the Borrower did not conduct any systematic data collection\.
M&E Quality Rating
Negligible
10\. Other Issues
a\. Safeguards
The project was classified as category B and triggered the Bankâs safeguard policies OP/BP 4\.01
(Environmental Assessment), OP/BP 4\.09 (Pest Management), OP/BP 4\.10 (Indigenous People), and
OP/BP 4\.36 (Forests)\. According to the ICR (paragraph 53) the project complied with all safeguard policies\.
According to the PAD (p\. 19) An Environmental and Social Monitoring Framework (ESMF) and consultative
framework was to ensure that environmental and social assessment and management and mitigation
Page 11 of 14
Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
IN: Biodiver Cons & Rural Livelihoods (P088520)
processes were to be incorporated into the entire landscape planning and management process from the
village, landscape, state, and national levels\.
The Bank team (November 20, 2018) stated that given that the funded activities were small scale and
geographically spread, the environmental and social risks were modest, and there were adequate
provisions to address any potential impact\. Each landscape society appointed a qualified ecologist and
livelihood specialist, in addition to a few social mobilizers who monitored the investments and project
activities\. Other than site selection criteria for constructing small infrastructure, such as water trough for
animals, minor connecting paths, etc\. no major mitigation action was required to be undertaken\. The project
ensured good participation and social inclusion of women and other vulnerable communities\.
b\. Fiduciary Compliance
Procurement:
According to the ICR (paragraph 44) the project experienced implementation challenges due to low fiduciary
capacity\. The project included a large amount of small value procurement activities across four landscapes and
three field learning centers, putting a lot of pressure on the limited capacity of the PMU\. The ICR also stated
that the project experienced frequent changes of procurement focal points in the implementing agencies,
inconsistencies in the use of standard bidding documents, poor record keeping, late payments to
contractors/vendors, and slow administrative decision making, all resulting in implementation delays\.
According to the ICR (paragraph 53) the project complied with the Bankâs legal covenant\.
Financial Management:
Due to low financial management capacity, the project faced several challenges\. According to the ICR
(paragraph 44) Interim Unaudited Financial Reports and annual audit reports were generally submitted late\.
With the exception of one year the Ministry of Environment, Forest, and Climate Change did not have an
internal auditor which resulted in poor financial management oversight\.
According to the ICR (paragraph 55) the Bank team conducted trainings to build fiduciary capacity\.
The Bank team (November 20, 2018) stated that in general, no significant qualifications were given by the
external auditors\. The external audits at the landscape level were mostly in time\. However, audits of the central
ministry and that of the Wildlife Institute of India were generally delayed\. Overall the delay happened as the
central ministry had to consolidate the audit reports from all the implementing agencies\.
c\. Unintended impacts (Positive or Negative)
---
d\. Other
---
Page 12 of 14
Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
IN: Biodiver Cons & Rural Livelihoods (P088520)
11\. Ratings
Reason for
Ratings ICR IEG
Disagreements/Comment
Moderately Moderately
Outcome ---
Unsatisfactory Unsatisfactory
Moderately Moderately
Bank Performance ---
Unsatisfactory Unsatisfactory
Quality of M&E Negligible Negligible ---
Quality of ICR Substantial ---
12\. Lessons
The ICR (p\. 27-28) provided several lessons learned which were adapted by IEG:
⢠Bank teams working with entities at different institutional levels in a pilot project need to identify a
strong champion at each entity to ensure ownership for implementation\. In case of weak leadership, it
is critical to analyze institutional mandates and technical and administrative capacities to ensure successful
project implementation\. This project lacked ownership and commitment by the Project Implementation Unit
(PMU) and Implementing Agencies resulting in weak implementation and significant delays\. It needed a
restructuring\.
⢠Sound data derived from benefit assessments and impact analysis is critical for providing evidence
to guide policy decisions on biodiversity conservation\. In this project, the positive results of beneficiary
engagement and the prospect of potential gains for the communities made the government of Gujarat decide
to replicate the project out of its own budget\.
⢠In a landscape conservation project with a vision for outcomes beneficial to a wide range of
stakeholders, building partnerships with stakeholders from different sectors, including particularly
technical agencies, is important\.
13\. Assessment Recommended?
No
14\. Comments on Quality of ICR
The ICR provided a good overview of project preparation and implementation\. Also, the ICR was candid,
internally consistent, and concise\. A shortcoming of the ICR is that it did not provide sufficient information on
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Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
IN: Biodiver Cons & Rural Livelihoods (P088520)
how the triggered safeguard policies were managed or mitigated\. More information about the issue of the Bank
proposed, but never agreed, restructuring would have filled a gap in the performance narrative\.
a\. Quality of ICR Rating
Substantial
Page 14 of 14 | REVIEW |
P069376 |  ICRR 13990
Report Number : ICRR13990
IEG ICR Review
Independent Evaluation Group
1\. Project Data: Date Posted : 12/12/2013
Country : India
Project ID : P069376 Appraisal Actual
Project Name : India - CFC US$M ):
Project Costs (US$M): 83\.02 87\.48
Production Sector
Closure Project
(ODSIII)
L/C Number : Loan /Credit (US$M):
Loan/ US$M ): 83\.02 87\.48
Sector Board : Environment US$M):
Cofinancing (US$M ): 0 0
Cofinanciers : N/A Board Approval Date : 06/09/2000
Closing Date : 06/30/2011 12/31/2011
Sector (s): Other industry (97%); Central government administration (2%); Banking (1%)
Theme (s): Pollution management and environmental health (50% - P); Environmental policies and
institutions (50% - P)
Prepared by : Reviewed by : ICR Review Group :
Coordinator :
Richard C\. Worden Robert Mark Lacey Soniya Carvalho IEGPS1
2\. Project Objectives and Components:
a\. Objectives:
The Ozone Projects Trust Fund Grant Agreement (Schedule 2) stated the objective of the project as: âto assist India
in implementing its Country Program for phasing-out CFC [chlorofluorocarbon] production within its territory\.â? Indiaâs
Country Program was officially called the CFC Production Sector Phase-out Plan\. It consisted of five objectives,
which were enumerated in the Memorandum and Recommendation of the World Bankâs Country Director for India to
the Regional Vice President of the South Asia Region (hereafter called the âRVP Memoâ?) on page 5 as follows:
a) to meet India's obligations under the MP [Montreal Protocol] by gradually phasing-out production and consumption
in a coordinated program;
b) phase-out CFC production in a manner that is cost-effective for both India and the MLF [Multilateral Fund], while
assuring that demands for substitutes are also met in a cost-effective manner;
c) use policies and incentives to support and promote the phase-out of CFC production;
d) channel MLF funds to beneficiaries through an efficient mechanism that encourages compliance with the goals of
the CFC Production Sector Phase-out Plan ; and
e) develop and implement monitoring, reporting and auditing mechanisms that permit India to demonstrate to the
Bank and the Executive Committee of the Multilateral Fund that phase-out has been accomplished according to the
plan\.
b\.Were the project objectives/key associated outcome targets revised during implementation?
No
c\. Components:
Originally, the project had two components (RVP Memo, Schedule A, p\.15; and ICR, p\.12):
1: Enterprise compensation (appraisal estimate: US$80\.0 million; actual cost: US$80\.0 million)\. This component
provided grant funds as compensation payments to the four CFC producers in return for meeting the CFC annual
phase-out target volumes\.
2: Technical assistance (appraisal estimate: US$2\.0 million; actual cost: US$2\.0 million)\. The United Nations
Environmental Program (UNEP) was responsible for supervising this component\. The component activities consisted
of: (a) staffing support for the Project Management Unit to be established by the Ministry of Environment and
Forests, (b) development of an MIS for collecting and managing production data, (c) consultant services for technical
support to the Project Management Unit in fulfilling its responsibilities, (d) design and implementation of public
awareness programs, (e) support for research activities on substitute chemicals, (f) support for training, seminars
and workshops, (g) support for research on CFC recovery and recycling, (h) technical support to the CFC producers
with environmental analysis and preparation of environmental management plans, and (i) support for other
governmental departments and agencies collaborating in the CFC phase-out program\.
Two changes were made to the projectâs structure at different times during implementation:
Halon Component (appraisal estimate: US$2\.3 million; actual cost: US$2\.3 million)\. In July 2001, the Executive
Committee of the Multilateral Fund decided to finance the dismantling, removal and destruction of the only two plants
producing halon in India, and US$2\.3 million was added to the Grant Agreement\. The project was not formally
restructured\. Instead, the OTF Grant Agreement was amended on March 10, 2003 and became effective on April 17,
2003\.
Accelerated CFC Phase -out Program (ACPP, appraisal estimate: US$3\.2 million; actual cost: US$2\.1 million)\.The
ACPP compensation mechanism was added to the project in November 2008 as a financial incentive to reward
manufacturers for accelerating the complete phase -out of CFC production by August 2008, or 17 months ahead of
the Montreal Protocol schedule \. The project was amended through a separate âProject Agreementâ between the Bank
and Government\. However, this program did not become effective until December 21, 2011 due to manufacturersâ
slow preparation of the required documents \. As a result, compensation was not paid even though the project closed
six months later than originally planned \.
d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:
Project Cost :
Actual total project cost was US$ 87\.48 million, US$1\.06 million less than the appraisal estimate plus the additional
Halon Phase-Out and ACPP activities, which totalled US$ 88\.54 million\.
Financing :
The project was entirely funded by grants from the Multilateral Fund under the Montreal Protocol\.
Borrower Contribution :
There was no Government contribution apart from in -kind administrative and policy support from the Ministry of
Environment and Forestryâs Ozone Cell unit\.
Dates:
Dates
The closing date was extended once by six months until December 30, 2011 on June 20, 2011\. In January 2012, one
month after the project closed, but during the standard four -month grace period, US$2\.134 million was paid as the
first of two programmed disbursements under the ACPP \. However, at that time, the ExCom raised unresolved
questions with the Government regarding its efforts at âproduction closure and dismantling â? and âdocumentation on
CFC stockpile destruction\.â? When the ExCom did not receive acceptable documentation with regard to these issues,
it deferred payment in April 2012 of the second (and final) disbursement of US$1\.057 million until July 2012\. When
the disbursement grace period expired in July, the Bank officially closed the project without making the final
disbursement of US$1\.057 million\. The Ozone Cell within the Ministry of Environment and Forests (MoEF) believed
the Bankâs decision to close the project before final payment under the ACPP had been made was âunacceptable,â?
and did not acknowledge closure of the project (ICR, page 19)\.
3\. Relevance of Objectives & Design:
a\. Relevance of Objectives:
Substantial \.
India was the worldâs second largest producer of CFCs at the time of project effectiveness in 2000 with more than
20,400 tons of Ozone-depleting potential (ODP) CFCs, or nearly one-quarter (23\.7%), of total global production\. The
projectâs objectives were therefore relevant to reducing and then eliminating global production, export and
consumption of CFCs\. However, the projectâs objectives were less relevant to the Bank âs Country Partnership
Strategy (CPS) with India covering fiscal years 2009 â 2012 (when the project closed) due to the success already
achieved in lowering emissions of CFCs and Halons \. in view of this success, Bank strategy now focuses more on
climate change and disaster risk management \. According to the RVP Memo (para\. 25), the Bank leveraged the
opportunity presented by the project to expand its interactions with Indian stakeholders in other areas of
environmental concern, such as industrial safety, energy efficiency, environmental assessments, and waste
management issues\.
b\. Relevance of Design:
High\.
High
The projectâs goal was simply stated, and design was straightforward and relevant \. The targets for national CFC
reduction were clearly defined in the Government âs CFC Phase-Out Plan, and the ODS regulations banned the
creation of new CFC facilities or the expansion of existing ones \. Supplemented by the Production Quota System,
producers were given some flexibility to vary their production and trade among themselves beneath the overall quota
ceiling, which was steadily lowered \.
The Technical Assistance activities under Component 2 were relevant to building Indiaâs institutional and regulatory
capacity to eliminate ODSs, their export, and the future potential to re -activate their production or commercialization
in the future\. Reliance on the sector expertise of the UNEP was relevant as it had a comparative advantage in terms
of the legal, administrative and technical challenges of implementing Montreal Protocol projects \. The focus on
developing an MIS to collect and manage production data was relevant, as provision of technical support to the
Project Management Unit assisted it in fulfilling its responsibilities, including ongoing monitoring, verification,
independent performance audits, and implementation of the quota system \. The design and implementation of public
awareness programs and provision of training, seminars and workshops were expected to reduce demand for new
ODSs, as was support for research activities on substitute chemicals and on CFC recovery and recycling \. Technical
support to the CFC producers in environmental analysis and preparation of environmental management plans was
expected to increase their ability to comply with applicable regulations \. Support to be provided to other governmental
departments and agencies collaborating in the CFC phase -out program (e\.g\. customs and excise) was relevant as
they had key roles in regulating and suppressing the illegal trade in CFCs \.
Annual financial and technical audits were to be used to ascertain the participating enterprises' actual CFC
production phase-out and progress toward targets agreed in the annual MLF programs, and were relevant to the
development and implemention of monitoring, reporting and verification mechanisms \. In addition, the 2003
add-onHalon Component and ACPP were designed to help India meet its obligations under the Montreal Protocol\.
4\. Achievement of Objectives (Efficacy):
The Governmentâs CFC Production Sector Phase-out Plan 1999-2010 was broken down into five specific
objectives, each of which is evaluated separately:
a) Meet India's obligations under the Montreal Protocol by gradually phasing-out production and
consumption in a coordinated program\. Rating: High\.
The project resulted in the elimination of more 22,589 metric tons of CFC production from four manufacturing
plants in India and 288\.8 metric tons of halon from two plants between 2000 and mid-2008, 17 months ahead of
the original target of January 1, 2010 set by the Montreal Protocol (ICR, p\. 7)\. This represented the second
largest productive capacity in the world at the time the project was appraised in 1999\.
Ceiling targets for CFCs were achieved during each year of the project, and were directly attributable to the
projectâs compensation payments to CFC production facilities \. India met its obligations under the Montreal
Protocol to phase-out production and consumption of CFCs and halon by January 1, 2010\.
b) Phase-out CFC production in a manner that is cost-effective for both India and the MLF, while assuring
that demands for substitutes are also met in a cost-effective manner\. Rating: Substantial\.
The project's cost effectiveness ratio at project closure was a weighted average of US$ 3\.58 per kilogram of ODS
production eliminated\. This compares favorably to the cost of the ODS phase -out project of one CFC
manufacturer in Venezuela at US$4\.45/MT and 16 plants in Malaysia at US$10\.11/MT\.
There was no discussion in the ICR regarding whether the demand for CFC substitutes was accomplished in a
cost-effective manner\. However, since all four CFC production facilities were âswing plantsâ capable of producing
an alternative ODS (i\.e\., HCFC-22) with no need to undergo any partial or total modification of those plants (only
âcleaning of the linesâ?), it may be reasonably assumed that the cost to transition to this alternative was relatively
minor\.
c) Use policies and incentives to support and promote the phase-out of CFC production\. Rating:
Substantial\.
The production of CFC and halon was successfully phased -out due to policies put in place by the Indian
Government supported by financial incentives provided by the Multilateral Fund of the Montreal Protocol \.
ODS regulations (Government Order of March 2, 2000) banned the creation of new CFC facilities or the
expansion of existing ones, and established maximum production limits at both the individual plant and national
aggregate levels\. This was supplemented by a Production Quota System, under which producers were given
some flexibility to vary their production and trade among themselves beneath the steadily declining quota
ceiling\.
The Accelerated CFC Phase-Out Program (ACPP) also used financial incentives to encourage those firms to
eliminate all remaining CFC production before the Montreal Protocol imposed deadline of 1 January 2010\. All
production of CFCs ceased 17 months prior to this deadline in August 2008, but the extent to which this can be
attributed to the ACPP is not entirely clear given that the second tranche payment of US$ 1\.06 million (out of the
total program cost of US$3\.17 million) was never made to these manufacturers due to delays in providing
adequate, verifiable documentation to the ExCom about CFC stockpile destruction and equipment dismantling \.
d) Channel MLF funds to beneficiaries through an efficient mechanism that encourages compliance with the
goals of the Sector Phase-out Plan\. Rating: Substantial\.
The Industrial and Development Bank of India (IDBI) channeled compensation payments to the four CFC
producers in India for which it received a one percent (1%) fee\. These payments were tied to meeting annual
CFC production phased-out targets, and subject to third -party audits, thereby encouraging full compliance \.
Based on previous experience with the ODS -II Project, the Bank believed that having a financial intermediary act
between the Bank and the beneficiaries would minimize transaction costs and remove any perception of a
conflict-of-interest in serving these two roles \. An analogous mechanism was established for the halon
component and the Accelerated CFC Phase -Out Program\. The ICR noted that there were âsome minor delays in
fund transfers, which was mainly due to the grant being held in foreign currency in the United States, â? (ICR, p\.
23) but that, âDuring the course of implementation, the beneficiaries never faced any problem with disbursement
of fundsâ? (ibid)\.
e) Develop and implement monitoring, reporting and auditing mechanisms that permit India to demonstrate
to the Bank and the Executive Committee of the Multilateral Fund that phase-out has been accomplished
according to the plan\. Rating: Substantial\.
To track Indiaâs compliance with the annual plant -level and national aggregated CFC production ceilings
established by the ExCom of the Montreal Protocol, the Project Management Unit (PMU): (i) entered into
performance agreements with each of the four CFC producers, (ii) developed a Management Information
System to collect and manage production data as inputs to the annual programs submitted to the Bank, (iii)
monitored project implementation and reported on whether targets were being achieved, (iv) administered the
CFC production quota system, and (v) enforced production phase -out policies and the ODS Regulation \.
The project assisted the Directorate General for Foreign Trade to develop a reporting framework for the PMU
and the Ozone Cell in the Ministry of Environment and Forests \. Importers and exporters of all controlled ODS
were required to obtain licenses from the Ozone Cell before engaging in any trading activities, which were then
checked by customs officers at all entry points \. These checks-and-balances increased the credibility of
information generated by the project due to the triangulation of data sources and independent confirmation \. This
information was reported back to the UNEP, the World Bank, and the ExCom of the MLF to document
compliance with the Montreal Protocol quotas \. The Ozone Cell continues to maintain a database on the
movement and consumption of controlled ODS (MDIs and HCFCs) within the country\.
Monitoring of compensation payments was conducted by independent auditors, with annual disbursements of
Montreal Protocol grant funds made once those audits were verified by the IDBI \.
5\. Efficiency:
No economic or financial analysis was carried out for this project given the inherent difficulty of monetizing the
local and global benefits of reduced ultra -violet radiation caused by CFCs and other ODS \. The implementation of
Indiaâs CFC production phase-out project was completed in a satisfactory manner with all objectives being
substantially accomplished within budget and with only a six -month extension of the project required to provide
incentive payments to manufacturers to accelerate the complete elimination of CFC production and destroy existing
stockpiles\. The project's weighted average of US$ 3\.58 per metric ton (MT) of ODS production eliminated was less
than two other comparable ODS phase -out projects in Malaysia and Venezuela \.
There were frequent changes in the Project Management Unit that, at times, slowed down the implementation of
project activities and its lack of adequate authority and independent financial autonomy affected its ability to function
effectively and efficiently\. However, these relatively minor administrative problems did not appreciably affect the
projectâs ability to ultimately meet its objectives in an effective, timely, or cost -efficient manner\.
Efficiency is rated Substantial \.
ERR )/Financial Rate of Return (FRR)
a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the
re-
re -estimated value at evaluation :
Rate Available? Point Value Coverage/Scope*
Appraisal No
ICR estimate No
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome:
Relevance of Objectives is assessed as substantial since the project was instrumental in helping India meet its
obligations as a signatory to the Montreal Protocols while theRelevance of Design is rated high in view of the clear
and logical causal chain between project inputs, activities and structure to achieving its objectives \. Efficacy in
attaining the project development objectives is substantial in four cases and high in one; efficiency is rated
substantial\. Overall outcome is assessed as satisfactory \.
a\. Outcome Rating : Satisfactory
7\. Rationale for Risk to Development Outcome Rating:
Given that all production of CFCs by the four manufacturers has been phased out, and that national policy
prohibits the manufacture, import/export, or use of CFCs within India, the risk to development outcome is low \.
The consumption quota system and import /export data reporting system were established to avoid illegal CFC
transactions\. For example, CFC production equipment at the plants of the four producers related to solely CFC
production, such as piping and day tanks, were dismantled, making it economically unattractive, as well as
illegal,to resume CFC production in the future \.
Since all four CFC production facilities were âswing plantsâ capable of producing an alternative ODS (i\.e\.,
HCFC-22), the Ministry still has responsibility to ensure their dismantling by 2040 when the phase-out of HCFCs
production takes place\. Thus, the data triangulation work between manufacturers, the Directorate General for
Foreign Trade, and customs officials to develop a database and reporting system will enable officials to track
HCFC elimination during its phase-out\.
In addition, the two halon production plants were also dismantled during the project \.
a\. Risk to Development Outcome Rating : Negligible to Low
8\. Assessment of Bank Performance:
a\. Quality at entry:
The preparation and appraisal of the project built upon two lessons learned from the two ODS
consumption-oriented predecessor projects (ODS-I and ODS-II): first, to appoint an effective financial
intermediary (FI) between the Bank and the beneficiaries to minimize transaction costs; and second, to establish
performance-based disbursement tied to CFC production reduction, subject to third -party audits\. Continuity of
ODS programmatic operations was ensured by enlisting the support of the Industrial Development Bank of India
(IDBI) with its successful experience as a financial intermediary on previous Bank projects \. The Bank was also
responsive to the Government âs request to help design and develop the necessary policy platforms to support
ODS phase-out activities, such as the ODS (Regulation) Rules (January 2000) and the Production Quota System
(March 2000) as part of its appraisal\. A number of activities under the technical assistance component were also
included to ensure that the necessary inputs, such as training, research, and awareness -raising materials, were
provided to help develop and implement monitoring, auditing and reporting mechanisms \.
at -Entry Rating :
Quality -at- Satisfactory
b\. Quality of supervision:
The Bank conducted regular supervision missions to identify key issues during implementation and to raise
concerns at the appropriate level within the Government \. The Bank provided substantive help in reaching
consensus on the ACPP that the four CFC producers and the Executive Committee of the MLF agreed to in late
2007\. However, the Ozone Cell within MoEF expressed dissatisfaction with the supervisory oversight exercised
by the Bank\. According to the ICR (p\. 21), âthe Ozone Cell spent an inordinate amount of time questioning the
Bankâs fiduciary and reporting procedures \.â? After the last supervision mission in May 2010, the last three Bank
supervision reports (ISRs) were prepared without the benefit of MoEF staff accompanying them or being allowed
to speak with Ministry staff or beneficiaries \. The Bank verified the findings of the performance audits preceding
compensation payments by the IDBI, reported them in the Annual Programs, and authorized the IDBI to make the
payments from the MLF grant directly to the beneficiaries \.
The anchor management indicated that coordination between the Bank's regional staff and anchor staff was not a
problem, but the Bank's regional staff and management pointed out a number of issues caused by inadequate
coordination\. Following this, the Environment Anchor team in Washington instituted new processes and placed
responsibility with its own staff to improve collaboration and information flow with the Ozone Cell during
implementation of the on-going ODS-IV Project\.
Quality of Supervision Rating : Moderately Satisfactory
Overall Bank Performance Rating : Moderately Satisfactory
9\. Assessment of Borrower Performance:
a\. Government Performance:
The Government approved the ODS Regulation banning the creation of new CFC facilities or expansion of
existing ones as well as the Production Quota System, which gave manufacturers the flexibility to trade
production quota rights among themselves \. The Government had no financial requirements to meet \.
On the negative side, the Ministry of the Environment and Forests decided to contest the Bank âs right to assign
project management staff or sector specialists to in -country field offices, conduct regular and independent
supervision missions, follow standardized fiduciary and reporting procedures, and communicate with
implementing agencies or project beneficiaries \. Following ExComâs decision to defer approval of the final
disbursement of US$1\.057 million under the ACPP beyond the project âs four-month âgrace periodâ extension, and
the Bankâs subsequent decision to officially close the project on December 31, 2011, the Ozone Cell did not
acknowledged the closure of the ODS -III Project, did not communicate with the Bank project team or allow any
communication between the Bank and the four ODS manufacturers \.
Government Performance Rating Moderately Unsatisfactory
b\. Implementing Agency Performance:
The Project Management Unit (PMU) for the ODS-III Project was established in the Ozone Cell within MOEF
as an independent organization (a âregistered societyâ?) with full autonomy\. This was a special legal designation
created for the ODS project, but the PMU âs terms of reference were not restricted to the project since it was
intended to continue beyond the project âs life\. However, a number of problems affected the PMU âs ability to
function effectively and efficiently, including a lack of adequate autonomy and authority (despite its theoretically
independent status)\. The ICR states on page 24: âin practice, the PMU was not given financial autonomy and this
resulted in the PMUâs reporting to the Ozone Cell, which was responsible for its day -to-day functioning\. This
made the role of the PMU very difficult \. On the one hand, the PMU had to report to the Ozone Cell \. On the other
hand, it also had to report to various multilateral and bilateral agencies \. In certain cases, the differing views
between the Ozone Cell and the multilateral agencies put the PMU in a difficult situation operationally \.â? During
implementation, the Project Coordinator within the PMU played a critical role in the implementation of the project,
but when he resigned in 2009 for personal reasons, the position remained vacant for the last two years of the
project\. As a result, the Ozone Cellâs ability during this period to address pressing issues in a timely manner was
adversely affected\. There were delays in settling the final compensation disbursement for the ACPP were
exacerbated by the Ozone Cell âs decision to forbid the Bank's project team from conducting supervision missions
and from contacting its staff or the beneficiary manufacturing firms directly \.
The Industrial Development Bank of India was the Financial Intermediary for the project and performed its
functions well, according to all accounts \. However, there were âsome minor delays in fund transfers, which was
mainly due to the grant being held in foreign currency in the United States â¦â? (ICR, p\. 15\.) These delays appear to
have been resolved with the introduction of a more streamlined Real Time Gross Settlement system for
disbursing funds in late 2005\.
Implementing Agency Performance Rating : Moderately Unsatisfactory
Overall Borrower Performance Rating : Moderately Unsatisfactory
10\. M&E Design, Implementation, & Utilization:
a\. M&E Design:
The M&E system was developed to track the disbursement of grant funds to the four CFC manufacturing
companies (accounting for US $85\.3 million) and the procurement of technical assistance services \. The M&E
system, operated by the staff of the PMU, also contracted consultants to provide technical services to prepare
performance monitoring, verification, and reporting audits, and to track implementation of the tradable ODS quota
system\.
The technical assistance component was implemented by the PMU with the assistance of the UNEP, which was
required to submit semi-annual progress reports on the status of those activities, with the Bank disbursing grant
funds on a semi-annual basis\. There were nine monitoring indicators set up for activities undertaken under the
technical assistance component, several of which had multiple elements each \. However, these defined outputs and
deliverables rather than outcomes \.
There were two Global Environmental Outcome Indicators : (i) to phase out CFC production completely; and (ii)
establish a tradable quota system to track and monitor CFC production and commercialization \. There was one
Intermediate Outcome Indicator: CFC manufacturers in compliance with production targets \. There were 22
monitoring indicators, many of which have multiple parts, specified in Annex 4 of the RVP Memo, but they were not
used or mentioned in the ICR\.
b\. M&E Implementation:
The central mechanisms established to track disbursements were the annual performance audits, which were
commissioned by the Ministry and conducted by independent auditors \. These audited results were compared to the
targets agreed to in the Annual Programs at the individual plant and aggregated national levels \. Then they were
cross-checked by the PMU and verified by the Bank before authorizing the IDBI to disburse annual tranches of grant
funds to the four beneficiaries \. The system appears to have worked well, and the quality of data collection and
analysis was consistently high, as ascertained by the ExCom of the MLF, which reviewed the annual audits \.
An online project management information monitoring system was installed in the early years of project
implementation, and was subsequently expanded to cover all ODS reduction activities managed by the Ozone Cell \.
Producers of ODSs continue to submit quarterly production level data online, which are still reviewed by the PMU \.
These data are then compiled, analyzed and submitted to the Ozone Secretariat, in compliance with India âs
continuing obligations under the Montreal Protocol \.
c\. M&E Utilization:
The M&E system was used to monitor reductions in CFC and halon production against MLF annual ceilings \. It was
less useful in providing feedback to support the CFC production phase -out process over time\. With regard to the
Technical Assistance Component, it was not possible to determine the extent to which feedback from the M&E
system was used to facilitate or alter the project âs implementation\.
M&E Quality Rating : Substantial
11\. Other Issues
a\. Safeguards:
The project was classified as Category "B" and triggered one Bank safeguard policy -- Environmental Assessment
(OP 4\.01)\. CFC producers would have been required to prepare Environmental Management Plans (EMPs) for plant
modification or dismantling in case both CFC and HCFC 22 production was terminated\. However, all the CFC
production facilities were swing plants capable of producing HCFC -22 in addition to CFCs\. There was hence no need
to dismantle the plants as they phased out CFC production and moved to production of only HCFC -22 and metered
dose inhalers (MDI), both of which are allowed until 2040\.
b\. Fiduciary Compliance:
There were no financial management or procurement issues during implementation, according to the ICR (p\. 16)\.
This was due to the involvement of the IDBI as the project âs financial intermediary with its broad experience in the
Bankâs financial management procedures and requirements \. There were only a small number of procurement
transactions under the technical assistance component \. All but US$ 2 million of the US$ 87\.5 million of final
disbursements were made to CFC manufacturers as compensation for phasing out CFC production \.
c\. Unintended Impacts (positive or negative):
None reported \.
d\. Other:
Not applicable
12\.
12\. Ratings : ICR IEG Review Reason for
Disagreement /Comments
Outcome : Satisfactory Satisfactory
Risk to Development Negligible to Low Negligible to Low
Outcome :
Bank Performance : Satisfactory Moderately The anchor management indicated that
Satisfactory coordination between the Bank's
regional staff and anchor staff was not
a problem, but the Bank's regional staff
and management pointed out a number
of issues caused by inadequate
coordination\.
Borrower Performance : Satisfactory Moderately The Ozone Cellâs effectiveness was
Unsatisfactory seriously undermined during the last
two years of implementation, following
the resignation of the Project
Coordinator who was not replaced \. In
addition, the opening by the Ozone Cell
of a parallel channel of communication
with the Bank's Environmental Anchor
resulted in mixed signals\. Delays in
settling the final compensation
disbursement for the ACPP were
exacerbated by the Ozone Cell âs
decision to prevent the Bank's project
team from conducting supervision
missions\.
Quality of ICR : Satisfactory
NOTES:
NOTES
- When insufficient information is provided by the Bank
for IEG to arrive at a clear rating, IEG will downgrade
the relevant ratings as warranted beginning July 1,
2006\.
- The "Reason for Disagreement/Comments" column
could cross-reference other sections of the ICR
Review, as appropriate\.
13\. Lessons:
The following lessons are taken from the ICR with some modifications :
Advantages would stem from stronger coordination of donors by ExCom : The CFC Production Phase-out Project
that was assisted by the Bank was only one part of the overall national ODS phase -out program in India; there
were other ODS projects implemented with UNDP, UNIDO and GTZ support \. The ICR noted that while the Ozone
Cell provided some level of coordination among these various activities, greater effectiveness could have been
achieved if more formal mechanisms to coordinate and integrate them had been built into the design of the overall
portfolio of ODS projects\. Given its global overview of national ODS elimination programs and projects around the
world, ExCom is in a good position to identify the most appropriate donors to assist with different aspects of the
issue as well as the overall level and kind of financial support that donors could or should provide to countries
phasing out ODS\. Related to this point was the observation made by Bank staff interviewed by IEG that it may
have been more efficient to start with efforts to stem the production of CFCs before addressing the issue of
consumption , the opposite of the way it was done in the series of ODS projects in India \.
There is a need for greater intra -Bank clarity and communication about the respective roles of Anchor and
Regional staff : It is imperative that Regional project management staff are kept well -informed of discussions and
decisions in which the Anchor is involved, whether these are with the ExCom of the MLF or the Recipient \. This
would avoid the mixed messages sent in this case by the Bank to the Ozone Cell regarding the final disbursement
of grant funds under the ACPP\.
It is important to get the right balance between PMU autonomy and integration within the Implementing Agency :
Despite the issues that arose in this case (see Section 9b above), it could still be advantageous to house the PMU
within the governmentâs implementing agency, while at the same time endowing it with substantial authority \.
However, this would require a case -by-case approach involving careful consideration of the situation on the
ground\.
14\. Assessment Recommended? Yes No
Why? To verify the ratings and document lessons learned \.
15\. Comments on Quality of ICR:
The ICR provided sufficient factual information to assess the outcomes achieved by the project in terms of reductions
in CFCs and the use of cost-effective and efficient mechanisms to create incentives to make those reductions in a
timely fashion\. Many of the issues presented in the âKey Factors Affecting Implementation and Outcomes â? and
âLessons Learnedâ? sections were based on solid evidence and analysis, and the ratings were results -oriented rather
than being overly focused on outputs \. However, the ICR could have provided more information about the project âs
M&E system, in particular why the indicators developed in the RVP âs Memo were not fully used\. The ICR might also
have been more forthcoming about the nature of a number of internal Bank communication and control issues
involving the PMU and the Ozone Cell within the Ministry during the final two years of project implementation, and
reflected that in rating both Bank and Borrower performance \.
a\.Quality of ICR Rating : Satisfactory | REVIEW |
P000437 | The World Bank
FOR OFFICIAL USE ONLY
Report No: 21648
IMPLEMENTATION COMPLETION REPORT
(IDA-2566)
ON A CREDIT
IN THE AMOUNT OF US$8\.91 MILLION
TO THE REPUBLIC OF CAPE VERDE
FOR A PUBLIC SECTOR REFORM AND CAPACITY BUILDING CREDIT
JANUARY 24, 2001
This document has a restricted distribution and may be used by recipients only in the performance of their
official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.
CURRENCY EQUIVALENTS
Currency Unit = Cape Verde Escudos (CVE)
US$1 = 70\.00 CVE (1/07/1994)
= 116\.9175 CVE (6/30/2000)
CVE 1 = US$0\.014286 (1/07/1994)
= US$0\.008553 (6/30/2000)
FISCAL YEAR
July 1 - June 30
ABBREVIATIONS AND ACRONYMS
CAS Country Assistance Strategy
ERP Early Retirement Program
MEC Ministry of Economic Coordination
OED Operations Evaluation Department
PC Project Coordinator
PCM Project Components Managers
PCU Project Coordination Unit
PER Public Expenditure Review
PPIP Pluri-Annual Public Investment Program
PSR Project Status Report
PSRCB Public Sector Reform and Capacity Building Project
RAIMB Reform Advisory Implementation Monitoring Board
TSO Technical Support Unit
VDP Voluntary Departure Program
Vice President: Callisto Madavo
Country Manager/Director: John McIntire
Sector Manager/Director: Brian Levy
Task Team Leader/Task Manager: Helene Grandvoinnet
FOR OFFICIAL USE ONLY
REPUBLIC OF CAPE VERDE
PUBLIC SECTOR REFORM AND CAPACITY BUILDING CREDIT
CONTENTS
Page No\.
1\. Project Data 1
2\. Principal Performance Ratings 1
3\. Assessment of Development Objective and Design, and of Quality at Entry 2
4\. Achievement of Objective and Outputs 8
5\. Major Factors Affecting Implementation and Outcome 13
6\. Sustainability 15
7\. Bank and Borrower Performance 16
8\. Lessons Learned 17
9\. Partner Comments 19
10\. Additional Information 19
Annex 1\. Key Performance Indicators/Log Frame Matrix 20
Annex 2\. Project Costs and Financing 23
Annex 3\. Economic Costs and Benefits 25
Annex 4\. Bank Inputs 26
Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 28
Annex 6\. Ratngs of Bank and Borrower Performance 29
Annex 7\. List of Supporting Documents 30
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties\. Its contents may not be otherwise disclosed without
World Bank authorization\.
Project ID: P000437 Project Name: Public Sector Reform and
Capacity Building Credit
Team Leader\. Helene Grandvoinnet TL Unit\. AFTI2
ICR Type\. Core ICR Report Date: January 24, 2001
1\. Project Data
Name: Public Sector Reform and Capacity L/C/TFNumber\. IDA-2566
Building Credit
Country/Department: CAPE VERDE Region: Africa Regional
Office
Sector/subsector: 61 - Institutional Development
KEY DATES
Original Revised/Actual
PCD: 03/0111993 Effeciive 05 ' 13/1994 05113i 1994
Appraisal: 03/22/1993 MTR: 10/01/1996 12/13/1996
Approval: 02/08/1994 Closing: 12/31/1998 06/30/2000
Borrower/lImplementingAgency: |GOVT OF CAPE VERDEIMIN FINANCEIMIN P\.A\.
Other Partners:
STAFF Current At Appraisal
IVice President: Callisto Mada%o Ed%%ard V\.K\. Ja)cox
Country Manager: John McIntire Katherine Marshall
Sector Manager: Brian Levy Jean-Louis Sarbib
Team Leader at ICR: Helene Grandvoinnet Emmanuel Mbi
ICR Primary Author: Helene Grandvoinnet
2\. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN\.=Unlikely,
HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)
Outcome: S
Sustainability: L
Institutional Development Impact: H
Bank Performance: S
Borrower Performance: S
_ QAG (if available) ICR
Quality at Entry: S
Project at Risk at Any Time: No
- 2 -
3\. Assessment of Development Objective and Design, and of Quality at Entry
3\.1 Original Objective:
CONTEXT:
Cape Verde was the first single party state to hold pluralistic elections in the African
subcontinent\. The elections, won by the opposition party, the MPD (Movement for
Democracy) in 1991, gave way to an extraordinary momentum for reforms\.
In September 1991, a World Bank mission assisted the government in elaborating its
Country Strategy Note\. Three areas were given priority, all of which translated into the World
Bank portfolio:
* cutting down the state (privatization),
* improving infrastructures,
* creating an enabling environment for investment and private sector growth
The third priority was the goal of this first Capacity Building and Public Sector Reform
project\. It was designed to promote participation, through partnerships within ministries but
also with civil society (for instance, the government insisted on having a component to
provide training on economic issues to the media)\. The project comprised a very specific
communication strategy to get all stakeholders on board, which contributed to sustaining the
enthusiasm and a pluralistic approach to the challenges of reforms\. It took advantage of a
momentum for changes created by the new political situation\.
ORIGINAL OBJECTIVE
The principal objective of the project was to support the Government's broader
program to transform and modernize key public institutions, the laws supporting them, and
the personnel staffing them, thereby helping sustain the overall economic and social reform
program which the Government had initiated\. The project was to support improvements in
economic policy analysis and management, and in legal, judicial and administrative
environment for investment and for business operations through institutional development and
capacity building in public administration, both at the central and municipal levels\.
The government which took office in 1991 was elected on a platform of reforms and
liberalization of the economy\. The objectives of the project were crucial for the Cape Verdean
government, to increase effectiveness, efficiency, and transparency in public sector functions
critical to the long-term success of its overall economic and social reform program\.
The project's goal of assisting the government in implementing its long-term public
sector institutional development strategy also fit the World Bank's strategy for the country,
and complemented two ongoing initiatives, the privatization technical assistance project (Cr\.
2377-CV) and transport and infrastructure modernization (Cr\. 2466-CV)\.
Finally, the project benefited from a set of cumulative opportunities:
- 3 -
* Strong commitment from the government, which had actively participated in the
project design from the outset, had already demonstrated its capacity to pursue
reforms, even when they entailed difficult measures and was fully committed to
transforming the economy from a public sector dominated to one outward-looking
economy\. This required fundamental shifts in policies and institutions, which the
government was ready to make\.
* Public support, stirred by a public information campaign on necessary changes to
address a new economic and social environment\. Besides, the general public had
accepted the necessity of the privatizations, which cast promising light on its
acceptance of the public sector reform project, presented as a logical complement
to privatization\.
* Increasing support from the business community, which had a clear interest in the
success of the reform, whose implementation would improve the environment for
investment and reduce the time in dealing with bureaucracy and civil courts\.
The project, with five main components and 16 sub-components, appears extremely
complex for a first of its kind in the country\. The high number of key government agencies
involved,' the geographic dispersion of the country (ten scattered islands) and the time
required for managing and supervising such a project were three points that had to be taken
into account to make sure the project could be satisfactorily implemented\.
As shown by the good performance of the Privatization TA project at the date of the
appraisal of this project, the track record of implementation of World Bank projects in Cape
Verde was positive\. The objectives were clearly identified at appraisal\. Furthermore, the
design of the project took into account its complexity and dealt at the outset with some of the
potential difficulties that could arise\. Hence, the public sector reform and capacity building
program translated the government strategy into a series of inter-connected activities, with
detailed goals and outputs\. To facilitate the coordination of the different activities, which
involved many actors (many government agencies, the municipalities, the judiciary and the
press), the government appointed Project Component Managers (PCM) for each component
or major sub-component of the project within the respective agencies, prior to negotiations\. A
central project coordinator (PC) was also appointed at the Ministry of Economic Coordination
(MEC)\. A coordinating unit (PCU), led by the PC based at the MEC, was set up to coordinate
with the PCMs and their task forces in each of the agencies involved\. A high-level advisory
Board had also been established to oversee the pace and direction of reform implementation
(Reform Advisory Implementation Monitoring Board, RAIMB)\.
Three risks were identified at appraisal\. The risk of resistance of the civil servants was
considered low because of Cape Verdean record of adaptability to modernization, and their
knowledge that they would be given choices to stay, transfer or leave\. These assumptions
The Ministries of Public administration, of Internal administration, of Economic Coordination, of Finance -
through the departments of Planning, Statistics, Research, Public Finance and Public assets- of Justice and
Labor, of Communication\.
-4 -
proved correct, and there was no significant resistance to the reform from the civil service\.
The second identified constraint was a limited capacity for training\. Measures were taken to
strengthen the public and private capacity for training, and the ambitious program of training
took place as planned\. The third identified constraint, the risk of inadequate coordination in
the implementation of reforms, was mitigated as described above\.
The question of capacity for implementation was another potential problem, which
partly explains the delays needed to complete the objectives (end of project delayed by 18
months)\.
3\.2 -Revised Objective:
There has not been any major revision of objectives, and the government commitment
to the project's objectives remained firm during the whole life of the project (and beyond)\.
However, the mid-term review identified the necessity to redefine the role of the
Reform Advisory Implementation Monitoring Board (RAIMB)\. The role of the RAIMB in
monitoring the overall reform process, supporting the government in defining the pace and
direction of reforms and advising on key matters, had proved difficult to implement, given the
heavy political agenda of its members\. At the mid-term review, it was decided to split the
RAIMB into two boards, at a political level (meetings every 3 months) and at a technical level
(monthly meetings)\.
3\.3 Original Components:
a) Modernization of the Civil Service:
Responsible agency: Ministry of Public Administration
i) Human resources management: methodology and instruments conducive to
quantitative and qualitative analysis of the present and forecast demand and
supply of personnel in public administration, essential to develop comprehensive
strategies and action plans, redeployment and alternative means of delivering
services\.
ii) Civil service training:
* Technical and professional training for the staff of the Ministry of Finance,
Economic Coordination, Communications, Justice, municipalities etc\. (supported
under the respective components)
* In several line ministries training in project management, personnel
management, budget and accounting for staff managers and supervisors, in
communication and computer-related skills for administrative support
personnel
iii) Support to the government Retrenchment Program comprising:
* a voluntary departure program (VDP) aimed at reducing the number of lower-
level staff by about 1600
- 5 -
* an early retirement program (ERP) aimed at about 400 civil servants
retraining and assistance to VDP participants to help them reintegrate into the
economy\.
b) Decentralization and municipal strengthening (building local capacity to participate
and to manage):
Responsible agency: Ministry of Internal Administration
i) Institution building:
* Further detailing, where necessary, of the guidelines for the decentralization
process (e\.g\. revenue sharing formulae, responsibility for maintenance of
certain public infrastructures, etc\. )
* Preparation and implementation of action plans for the establishment, for
groups of municipalities, of inter-municipal Technical Support Offices
(TSOs)
* Equipment, materials and logistical support for intra-municipal
deconcentration
ii) Administration and Management:
Technical assistance to all municipalities,
* to design and implement planning, budgeting and inventory systems
* to evaluate options and develop local fiscal administration and revenue
mobilization capacity
iii) Human Resources Development and Management:
* technical assistance to qualitatively and quantitatively identify necessary staff
for each municipality and to design actions to help attract and retain qualified
personnel
* training needs assessment for each municipality, and training\.
iv) Internal organization strengthening:
* assistance for the organization of the various municipal services that could
eventually become autonomous services or be contracted out
* provision of a minimum quantity of basic material support to each
municipality\.
c) Strengthening Economic Management Capacity:
Responsible agencies: Ministry of Economic Coordination, Ministry of Finance
(Departments of Planning, Statistics, Research, Public Finance), Ministry of
Communication
i) strengthening communications:
- 6 -
Responsible agency: Ministry of Communication
* design and implementation of an electronic communication system for about 200
users
* design a shared computerized information database of economic information and
statistics which could be shared among ministries and government agencies
* improvement in the communication of economic and social policy (strong
emphasis on private and public media)
ii) planning support:
Responsible agency: Department of Planning
* preparation of a multi-year rolling public investment program (PIP), instrument of
aid coordination
* establishment of a a pre-investment studies fund (PIF)
* preparation of a planning manual adapted to Cape Verde's realities
* \. training of the staff involved in planning and provision of equipment\.
iii) National accounting and statistics system restructuring:
Responsible agency: National Institute of Statistics
* transformation of the General Directorate of Statistics into an autonomous
institution, the National Institute of Statistics (INE), and training and provision of
equipment and material to this institution
* organization and gradual processing of the backlog of national accounts (accounts
for 1989-1992 and possibly more), and review of the basis and methodology of
national accounts including specific survey needs
* development of demographic and social statistics
-7 -
iv) Public finance support:
Responsible agency: Department of Treasury
* computerization of the debt management system, and training of staff involved in
this monitoring
* improvement in aid coordination
* carrying out a feasibility study to increase public resource mobilization (expansion
of the market for treasury bills)
d) Legal and judicial reform and modernization of the justice system:
Responsible agency: Ministry of Justice and Labor
i) Legislative reform:
* Revision of the Labor code, the Commercial Code, the Registry and Notarial
Legislation, and the Civil Procedural legislation
* Assistance to the Directorate General of Studies, Legislation and Information
(DGELDI) at the Ministry of Justice to help supervise the legislative drafting
activities (training, computerization)
ii) Specialization of courts: creation of a separate commercial jurisdiction within
each of the regional courts, as well as separate industrial tribunals, through a pilot
exercise in Praia and Mindelo\.
iii) Modernization of notary and registry system (DGNRI) (computerization)
iv) Judicial information strengthening, through creation of a law library at the
Ministry of Justice and publication on a regular basis of a Law Review Journal by
the Ministry of Justice
v) Training and specialization: in particular in commercial and business law\.
e) Public Procurement reform:
Responsible agency: Ministry of Finance, Department of Public Assets\.
* training for about 40 staff, short-term advisory services and equipment to help
modernize the Public Procurement and Assets Management Department
(PATRIMONIO) and selected Department of Administrative Services in the
ministries
* selective revision of legislation on procurement
* streamlining and strengthening of institutional procedures to improve public
procurement (consolidation of the regulations into one set of regulations,
clarification of existing regulations and uniform application regardless source of
funding, more realistic threshold for delegations of authorities)
-8 -
3\.4 Revised Components:
There was no revision of components during the life of the project\.
3\.5 Quality at Entry:
The project's design pre-dates many of the quality control mechanisms that have since
been introduced for Bank-financed operations\. However, potential risks were accurately
identified at the design stage and implementation was supported by intensive, regular and
frequent supervision by both the Bank and the borrower\.
Consistency of the project with the CAS and government priorities\.
Capacity building in public administration, both at the central and local levels, had
been identified in the Country Economic Memorandum (June 1993) and in the Country
assistance Strategy paper (March 1993) as the necessary keystones in the consolidation and
acceleration of past and present reforms, and in the passage to a new phase of economic and
social development\.
Project objectives were consistent with government priorities for public sector reform,
published in the Official Gazette in August 1991\. In 1994, the Government formulated
specific objectives to improve and modernize public administration\. These were approved by
the National Assembly, making the public sector reform one of the four pillars of the
government 's Third Development Plan\. This, together with opening the country to external
investment and liberalizing the economy, made the private sector the engine of growth while
working towards reducing poverty and protecting the environment\.
Compliance with safeguards policies: not applicable for this project\.
Quality of the design\.
The project was carefully designed, with detailed components and sub-components,
global program targets and activities, and monitoring indicators fully covering the first three
years\. Implementation and revision mechanisms were already in place at the beginning\. Risks
were accurately identified, and mitigated (strengthening of the public and private capacity for
training, establishment of structures of coordination of the different project components)\.
4\. Achievement of Objective and Outputs
4\.1 Outcome/achievement of objective:
The project design preceded the use of the Logical Framework and systematic use of
measurable indicators\.
Measuring the achievement of the objectives is therefore best viewed through the list
of the achievements (however, this is an imperfect measure, see Lessons for further discussion
on this issue)\.
-9-
Overall, the project has satisfactorily met its objectives, albeit with some delays\.
It has had a major impact on the debate on governance issues\. Commitment to project
objectives permeated all levels of government as well as the private sector, and the project, a
central piece of the strategy to reform Cape Verde, has strengthened administrative capacity
and created an enabling environment for private sector development\. This is a very valuable
asset for the ongoing public sector reforms\. The project also improved the country's ability to
make effective use of its human and financial resources\. The following improvements have
been achieved\.
* Two-third of the civil servants followed training courses, depending on their
fumctions and field\. This strengthening of skills was accompanied by a
strengthening of the local training institution, which will allow further human
resource development in the future\.
* Capacity for planning and monitoring financial resources has been greatly
improved, through the establishment of a National Institute of Statistics, the catch-up
on national accounts backlog, and the development of modern tools for economic
management (Training on the macroeconomics model RMSM-X)\. Investment can be
more adequately planned and targeted through the Public Investment Program\.
Furthermore, a conceptual debate has been initiated on planning, which opened
the way for profound restructuring in the organization of the economy\.
* Revision or drafting of legal texts contributed to a more secure environment for
business, and upheld the rule of law in the country\.
* This institutional development included measures to broaden participation\.
Hence, the decentralization program increased the administrative capacity of the
municipalities, which will benefit local government\. And training programs for
the press and television encouraged a professional and independent media\.
4\.2 Outputs by components:
Issues of sequencing or absence of some areas of reform are discussed in the Lessons
section\.
a) Modernizing the civil service: this objective can be rated as satisfactory\.
The project has made progress in modernizing the civil service through;
* extensive technical and computer training (see Annex 3, Government ICR)\.
* a first phase of an Early Retirement Program (427 persons)
* and a successful pilot for voluntary departure of civil servants (311 persons)
Assessment:
Training:
- 10-
During the course of the project, some worries were expressed regarding low
attendance to some training, that have been addressed by the implementing agency through
communications from the PCU to all heads of Ministry agencies to match training schedules
with holidays planning and work programs\. Regarding the evaluation of the training, the
January 1999 Supervision mission discussed the need for benchmarks of effectiveness, least-
costs, and benefits\. An evaluation is still ongoing\. Questionnaires were designed and
distributed after the completion of the training program, after the end of the project (June
2000)\. The finding of this evaluation will be incorporated in the training program for the
second project\.
ERP
The second phase of the ERP never took off\. The number of people who benefited
from the program slightly exceeded what was planned in the SAR, and the first phase was
duly evaluated, but the absence of comments from the government on this evaluation in part
prevented the launch of a second phase\. Besides, the impact of the program was
controversial\. As the only criteria for joining was the number of years in the civil service, or
the age of the civil servants, some people volunteered whose skills were essential in their
respective institutions\.
VDP
An analysis of the VDP program was completed and published by the Secretary of
State for Public Administration, and retraining of the VDP participants was completed\. The
structures are in place for further departures, and have been assessed\. But completion of the
Voluntary Departure Program (VDP) has been delayed due to lack of financing (a roundtable
to seek donor support did not achieve results) and because of competing demands for
financing investment and social programs\. However, some ministries (foreign affairs,
agriculture, culture) are using the structures designed through the VDP project for
streamlining their staff with their own budget-currently for a total of 109 civil servants\.
Even if it was mitigated through information campaigns and interesting retrenchment
packages, laying off civil servants was a difficult task, taking into account the limited
capacity of the economy to create jobs (26% of unemployment in 1996)\. It was politically
sensitive (the component management was actually moved to the Prime Minister's office)\.
If this sub-component has met its target outcome - pilot VDP operational and assessed,
as exemplified by the use of the VDP concept by line ministries, due to lack of funding, the
total number of departures remains low\. Government's target in 1994 was 1600, which was in
itself rather modest\. The evolution of the number of (central) civil servants is as follows: in
1985: 7800, in 1990: 11300, in 1993: 11172, in 1997: 12421\. However, the increase in the
latest years is explained by an important increase in the numbers of teachers (from 2550 in
1990-91 to 4769 in 1998-99\.
Improving personnel systems and services:
Intensive efforts required for the VDP occurred at the disadvantage of some of the
others activities which were as important for the ultimate goal of a modem civil service, if not
- 11 -
more in the long-term\. The project did not focus on improving personnel systems and
services, such as recruitment, organizational planning and career management, described as
the most critical areas to be addressed in the SAR\. A proposition from the Minister of
Economic Coordination to study job descriptions, and ways to simplify task was never
pursued\.
b) Decentralization and municipal strengthening: this objective can be rated as
satisfactory\.
* New local public finance and budget framework laws were passed in 1998 to
regulate fiscal decentralization and accountability\.
* Capacity of the municipalities to manage social and economic programs has been
strengthened with the delegation of revenue generation and financing authority,
accompanied by training (2/3 of the civil servants) and transfer of key civil
servants from central to municipal governments\.
* Inter-municipal TSOs (Technical Support Offices) have been set up and
integrate 270 civil servants covering 12 municipalities in S\. Antao, Fogo/Brava
and Santiago\. Their work has been evaluated\. The difficulty of combining support
for municipalities, in particular when they are located in different islands, was
recognized and alternatives solutions taken\. Thereafter, Municipal Support
Offices in S\. Vicente, Santa Catarina, Sal, Boa Vista, S\. Nicolau, Maio and S\.
Miguel were strengthened\.
* Contacts were initiated with other municipalities in the region and resulted in the
growing involvement of the Canary Islands in all levels of economic activity in
Cape Verde\.
The launch of the RAFE (State Administrative and Financial Reform), in particular the
reform to bring the public finance system in line with internationally accepted accounting
standards, competed with one of the planned actions of the PSRCB project\. Ongoing actions
to introduce new municipal accounting and registry, budgeting and planning systems were
interrupted after the pilot phase, pending to the introduction of the RAFE\.
c) Strengthening economic management capacity: this objective can be rated as highly
satisfactory, given the design of the operation (see below)\.
* A macroeconomics model (RMSM-X) has been installed (its usefulness for
guiding fiscal and financial policies is however limited by the fact that it is
based on a simple set of variables)
* A management information system for Pluri-annnual Public Investment Program
(PPIP) has been installed\.
* The National Institute of Statistics has been established with a stronger capacity
and mandate to coordinate statistical analysis across government agencies, and
the national accounts have been processed (production of definitive accounts for
1989-1995 and temporary accounts for 1996 and 1997)\.
- 12 -
* A legal framework for planning is under preparation to integrate investment and
recurrent budgets at the central and local levels\.
* A debt management system using the Commonwealth Secretariat Debt reporting
System (CD-DRS) was set-up\.
* Economic management is now firmly governed by laws, including the law on the
budget preparation process and execution, the public procurement law, the laws
on domestic debt reduction and the related overseas trust fund, the emergency
and economic development fund law, and the protocol regulating currency
convertibility arrangements with Portugal\.
The work on redefining the methodology and establishing the new base year for
National Accounts suffered from systematic delays, and was not completed\. Delays were in
part due to the volume of work under this component (catch-up on the backlog of accounts)
that may have been underestimated at the time of appraisal\. It was also due to a change of
vision in the newly-created Institute of Statistics, and a shift in the ongoing studies, to adopt
1998 and not 1994 as planned as the new base year\. This change will allow to take into
account the evolution of the economy during these key years\.
Assessment:
The Economic management component did not target budget formulation and budget
execution mechanisms, that could have usefully been incorporated up front\. In particular,
enhancing accountability and transparency of the budget planning and execution processes are
important elements of a reform of a public management system (see Lessons for further
discussion on this issue)\.
d) Legal and judicial reform and modernization of the justice system: this objective
can be rated as satisfactory\.
* In legal and judicial reform and in the modernization of the justice system, the
PSRCBP supported the drafting of new regulations to promote private sector
activities and the training of staff of the Ministry of Justice and the courts in
computers and legal areas (15 magistrates were retrained in Portugal)\.
* Different legislation and regulations to promote private sector activities were
drafted, and are at different phases of enactment/enforcement\. (Commercial Code
enacted in October 1999, Notary and Registry Code adopted 1999, project of
modification of the Civil Procedural Code to be approved by the government)\.
* A pilot Family and Labor Court was created\.
* The law library has been improved (remodeled and equipped/book cataloguing
completed), and a bi-annual Law Review established\.
However, the creation of a separate commercial jurisdiction within each of the
regional courts, as well as separate industrial tribunals, as planned in the SAR, did not take
place\. This is explained by an ongoing debate on the viability of such specialized courts due
in particular to the inherent capacity constraints of the country\. The second project will
- 13 -
address the issue of the creation of a Commercial Court by a pre-feasibility study, to provide a
clear assessment prior to the creation of such a court\. Where there was clear and proven need
for a separate court, however, this was done as planned, as for the pilot Family and Labor
Court in Praia\.
e) Public procurement:
This objective can be rated as satisfactory\.
All activities under this component were satisfactorily completed, i\.e\. the enactment of
the legislation on harmonization of the procedures and guarantees of transparency, the
installation of a computerized system to manage public assets, and the training of staff for the
inventory of public assets\.
4\.3 Net Present Value/Economic rate of return:
Not applicable for this project
4\.4 Financial rate of return:
Not applicable for this project
4\.5 Institutional development impact:
See 4\.
S\. Major Factors Affecting Implementation and Outcome
5\.1 Factors outside the control of government or implementing agency:
The legislative and municipal elections held in succession (respectively, December
1995 and January 1996) slowed down decisions, in particular those affecting the politically
sensitive Voluntary Departure Program\.
5\.2 Factors generally subject to government control:
During the Mid-term review, the World Bank stressed two elements subject to
government control:
* The RAIMB, the high-level advisory board, could have been more effective in
carrying out the role assigned to it, as its operation proved difficult to materialize\.
* The importance for Component managers to ensure that their staff was more
involved in the execution of the project and to institute a system of back-up so
that in their absence the project would not come to a standstill\. During the course
of the project, many component managers were changed, which caused delays
(the legal and judicial component had a succession of four component managers
creating discontinuities, and a change of director at the local training institute in
1999 created delay for the VDP retraining program)\.
- 14-
Other elements subject to government control were reported in supervisions mission
reports:
* Commitment of the government to the reforms was not always translated into
adequate funding\. In fact, some budget cuts negatively affected the planned
course of the project (for instance a 50% cut in the 1998 operational budget of the
Institute of Employment and Professional Training delayed the VDP program,
and delays in providing the NIS with its full operational budget in 1998\.)
* Cabinet reshuffles also created delays (for instance, reshuffle in the ministry of
Justice caused a delay in the establishment of the Law Library, which was one of
the reasons of the second extension of the project)\.
* Implementation was in several cases delayed or even abandoned by an absence of
response from the government to recommendations from the World Bank (for
instance, no response to the need to appoint a local consultant for the RMSX-
system, no comments on the evaluation of ERP which prevented the launching of
its second phase)\.
5\.3 Factors generally subject to implementing agency control:
The change of the Coordinator of the PCU (May 1995) had an initial adverse effect
on the timeliness of implementation\.
* Discrepancies and delays have been a cause of concern in the processing of
contracts submitted to IDA by the PCU\.
* The accounting system's software of the PCU took a long time to be put in place,
and had to be changed during the lifetime of the project because the first version
did not respond well to the requirements of the project (training for the newest
accounting system took place at the beginning of 1999)\. However, project
accounts were maintained manually during this time and all audit reports were
unqualified\. The PCU accounting system has now been thoroughly overhauled
and evaluated as satisfactory by the Africa Region s Financial Management
Specialist, and the new accountant has been trained in its use\.
5\.4 Costs andfinancing:
Comparison actual cost/original costs:
The only major change has been the rise in the cost for the Pre-investment study
component\. This is justified by the fact that this component, once its objectives had been fully
understood, was well-received\. Therefore, a higher number of feasibility studies were
required than had been expected (three studies were launched during the course of the project:
a study on the feasibility of creating a self-funding agency for revenue defaulters, a study on
the first phase of the development program of the Island of Boa Vista, and a study on the
creation of the Cape Verdean Agency for Development Planning, Investigation and
Research)\.
- 15 -
Implementation and disbursement delays:
Many components were implemented with delays, which is explained by various
reasons (complexity of the project, unsatisfactory reports by external consultants, budget cuts,
change of managers, technology changes which rendered obsolete newly acquired
technology)\.
During the supervision mission of July 1998, it was therefore agreed to postpone the
closing date by a year (end of 1999)\. A further 6 months extension was agreed upon at the end
of 1999, for reasons beyond the control of the PCU and the PCM: internal restructuring
problems in the training institute (several changes of director), government reshuffle which
slowed down decision-making in the Ministry of Justice, delay in approving the PIF legal
instrument due to legal complexities, and delays in using it due to inexperience of the sector
ministries\.
This extension allowed for the completion of all activities, and also for the
continuation of the PCU which was also preparing the follow-up project\.
6\. Sustainability
6\.1 Rationale for sustainability rating:
The sustainability of the reforms accomplished so far is likely\.
First, reforms accomplished under this project were successful in improving the public
sector capacity\. As described above, this project put in place several instruments for better
governance: a macro-economic modeling management system, the structure for voluntary
departure of civil servants, improvements in the press's capacity to cover economic issues,
essential pieces of legislation updated and enacted, and global improvement of public sector
capacity, at the central and also at the local level , through training programs and provision of
necessary material support\.
Second, this project was immediately followed by a Second Public Sector Reform and
Capacity Building Project (Cr\. 3294-CV), whose development objectives are, given the short
and longer term needs 1) to consolidate and deepen the reforms of the public sector
accomplished under PSRCB in the areas of economic and financial management, regulatory
and legal reforms, and 2) to prepare the next phase of public sector reforms to achieve the
Government's vision of an efficient, productive, and modern public sector\.
The institutional arrangements established for the implementation of the project are
functioning efficiently\. The Project Coordination Unit (PCU) which operates under the Vice
Prime Minister's Office, has acquired experience with project implementation, Bank
procedures, financial management, and procurement and reporting requirements\. The RAIMB
has been replaced by an inter-sectoral committee comprising the Vice Prime Minister as the
chairman, the Minister of Finance, the PCU coordinator, the Coordinator of Economic
Reforms Program, and selected representatives from the technical ministries and the private
sector\.
- 16-
6\.2 Transition arrangement to regular operations:
The extension of the first PSRCB project to June 2000 permitted the continuation of
the Project Coordination Unit (PCU) before the effectiveness and start-up phase of the second
project (Cr\. 3294-CV)\.
7\. Bank and Borrower Performance
Bank
7\.1 Lending:
The Bank's performance was satisfactory in identification, which matched closely the
government's needs and commitment to reforms, and the World Bank's strategy for the
country\. It was equally satisfactory in preparation and appraisal\.
7\.2 Supervision:
Supervision missions reports and annual reports show that Bank performance on
supervision has been overall highly satisfactory\. The team did not change from identification
to implementation\. Supervision missions were held regularly, were well documented and
Project Status Reports were completed and provided realistic assessments of the project's
performance\. Appropriate mix of skills was present during supervision missions, and the
frequency of missions was appropriate for the support required\. A close working relationship
with the PCU staff was also established\.
Collaboration with other donors avoided duplication, and devolved some components
to other donors (the PER for instance, was later financed by the European Union, the
population census by the FNUAP)\. This translated into the reallocation of saved funds to
other components\.
- 17-
7\.3 Overall Bank performance:
Overall, the World Bank performance has been satisfactory\.
Borrower
7\.4 Preparation:
The Borrower has satisfactorily participated in the preparation of the project\. Already
at the preparation stage, the different ministries and agencies participated in the design of the
activities for their ministry/agency\.
7\.5 Government implementation performance:
The Government consistently demonstrated its commitment for the project, and
provided its support for its successful implementation, but not always in a timely manner\.
Some delays in the timely deposit of the counterpart funds have been noted (PSR/CPPR)\.
7\.6 Implementing Agency:
The PCU performance was equally satisfactory\. The PCU also acquired strong skills
that will be useful for the implementation of the second project\.
7\.7 Overall Borrower performance:
Overall, the Borrower performance has been satisfactory\.
8\. Lessons Learned
Finding the appropriate balance between best practices and country setting
Current practices stress the benefits of starting by an initial reform of institutions to
increase the likelihood of sustainable efforts in downsizing and capacity building (see OED
report "Civil Service Reform: A Review of World Bank Assistance, 1999")\.
However, at the outset of this project, the client's demand was clearly for immediate
actions, to take advantage of the extraordinary and pluralistic momentum for changes\.
Therefore, the client's way guided the approach, which proved to be successful\. Capacity has
now been built, and the country is ready to move forward\. This is reflected in the goal of the
second capacity building project: "to prepare the next phase of public sector reform to
achieve the Government's vision of an efficient, productive, and modem public sector"\.
Government commitment and partnerships fostered by communication strategy are key for
success
The commitment of the govermment for the project never faltered, and support from
opposition parties demonstrated a national consensus on these reforms\. A specific
communication strategy helped sustained support for the project\. It targeted not only potential
- 18-
resistance pockets (civil servants fearing retrenchment) but also beneficiaries (involvement of
stakeholders in discussing new laws)\.
Project's complexity is not always a problem if the project is adequately supervised and
flexible in design
The design of this comprehensive project was cost effective in terms of project
preparation, and also justified by the size of the country\. Its complexity was not a problem for
implementation, due to a heavy involvement of the world bank team (the team did not change
from appraisal to completion, and fully-staffed missions were held on a regular basis) and of
the counterparts\. The regularity and adequacy of the supervision mission helped find
alternatives solutions when needed\. Thus adaptability and flexibility were major factors of
success\.
Economic management: necessity to address budget formulation and execution and to
emphasize issues of transparency and accountability
The Economic management component of this project comprised several capacity
building activities\. However, it did not target budget formulation and budget execution
mechanisms\. Though some of the essential elements of a sound public management system
were improved through the project-creation of an independent institute of statistics and
progress in the accounting function of the government-those missing elements might have
been usefully included at the outset\.
Some of these issues were picked up in 1998 by the Cape Verdean government,
through a government-led RAFE - Public Finance Management Reform Program\. One of the
four main objectives was described as "increase the accountability of the use of public
resources by all public institutions"\. This program therefore filled in a gap in the reform of the
public management system\.
Those issues also received technical assistance from the World Bank through the
Economic Reforms Support Operation, launched in 1997, and described as addressing the
failings in the implementation of the 1993 CAS by incorporating a viable medium-term
economic framework, a multi-year PIP and viable financing plan, and timely public
expenditures review (see ICR, Republic of Cape Verde, Economic Reforns support Operation
Credit, 2000\.)
Assessment of the impact of the project
Capacity building efforts must be systematically linked with monitorable performance\.
If a monitoring and evaluation system is not established sufficiently early, the absence of
benchmarks will undermine the evaluation of the impact of the project\.
The developmental impact of capacity building such as training personnel, providing
computers and other equipment, may be difficult to assess in the short-term\. The long-term
impact can only be measured in terms of increased productivity, efficiency and viability of
institutions over many years\. However, it is possible and necessary to monitor accuracy and
quality, for instance trough benchmarks of effectiveness, least-costs, and benefits of the
training\.
- 19 -
9\. Partner Comments
(a) Borrower/implementing agency:
Extracts from the Government of Cape Verde's comments (see Fax from H\.E\. Jose
Ulisses Correia e Silva, Finance Ministry, January 9th, 2001)\. Weak and strong points have
been jointly identified during the ICR mission\. Among the strong points, it was noted that:
the Cape Verdian reality was rightly assessed and integrated in the design of the project; there
has been a permanent support for the project at all levels (World Bank, Government,
Beneficiaries); an adequate supervision allowed to introduce flexibility when needed\.
Two main weak points were identified: delays of implementation occurred, which
underlines the necessity to reinforce coordination (essentially through the functioning of the
Supervision Committee); weaknesses were noted in the definition of performance indicators\.
(b) Cofinanciers:
Not applicable for this project\.
(c) Otherpartners (NGOs/private sector):
Not applicable for this project\.
10\. Additional Information
None
- 20 -
Annex 1\. Key Performance Indicators/Log Frame Matrix
Outcome I Impact Indicators
IndicatorlMatnx Projected in last PSR1 Actual/Latest Estimate
Civil Service Reform: increased 1\. intensive public information 1\. the number of voluntary
efficiency and effectiveness of civil campaign on the Voluntary departure reached 311, of which
service\. Departure Program an estimated 95% was able to
2\. 309 civil servants participated in reintegrate the job market
the early retirement program 2\. 427 civil servants participated in
3\. 3) on-going training and the early retirement program
strengthening of the local 3\. career paths have been
training capacity implemented and standardized
4\. an annual plan of training has
been put in place, and the
training program provided
training to 663 civil servants (3 B
training courses)
Decentralization/Municipal 1\. study on an alternative solution 1\. creation and equipment of inter-
Strengthening: for inter-municipal Technical municipal Technical Support
(i) Better municipal operational support Offices when not Offices integrating 270 civil
capabilities; and appropriate servants and covering 12
\. \. 2\. traing of the civil servants immunicipalities m S\. Antao,
(ii) All municipalities are well equipped the municipalities Fogo/Brava and Santiago,
to carry out their functions in a 2\. Increase in the resources directly
satisfactory manner\. 2\. Inr\.ei\.h esucsdrcl
managed by the municipalities
(from US$ 14\.4 millions in 1992
to US$ 26\.6 millions in 1999)
3\. increase in the number of civil
servants in the municipalities
(from 1200 in 1993 to 2800 in
1998) 4) 383 civil servants
followed training (24 training
courses)
Economic Management:
(i) enhanced capacity of the media to Training of joumalists ongoing 12 journalists have been trained in
treat economic questions whether Lisbon for 3 months, and one
they are domestic or international; journalist received a grant to study in
Europe for 10 months
(ii) smooth flow of information among Study on the electronic mail system A network links the majority of the
key personnel in the ministries, completed\. ministries, and intemet has been
government agencies; introduced in many administrations\.
- 21 -
Indicator/Matrix Projected in bst PSRI ActuaVLatest Estimate
Economic Management:
(iii) efficient monitoring of reporting on Good progress in setting up the debt Implementation of the Debt
debt evolution; management system and related Management System CS-DRMS in
capacity building the Department of Treasury; the 103
ongoing projects have been
introduced in the debt monitoring
system
(iv) maximized benefit from External Equipment acquired for the external Data on external aid are
Aid; aid management system systematically registered and
integrated into a single management
system
(v) better organization and regular National accounts for 1990-92 1\. Creation of the autonomous
production of statistics\. produced, national accounts for National Institute of statistics
1993-1994 in preparation\. (INE)
2\. Production of definitive accounts
for 1989-1995 and temporary
accounts for 1996 and 1997 3)
increased access to this
information by users\.
Legal Reform: Preliminary version of Commercial Registration of enterprises: from April
code completed and publicly to September 1999, 99 private
(i) reduced time necessary to constitute discussed\. Preliminary draft of Civil commercial enterprises and 46
commercial ventures; Procedural Code completed\. Law commercial enterprises established,
(ii) available statistical data on library creation study completed\. from October 99 to April 2000,
registered ventures; First edition of the Law Review respectively 133 and 83, and from May
published\. to October, respectively 215 and 56\.
(iii) reduced backlog of pending civil
cases; and The time necessary to constitute
\.iv) speeding up notary, property and commercial enterprises decreased
-(IV) speeding Up notary, property and fo -1 ast 4huswt
commercial registration procedures from 7- 15 days to 24 hours with
reduced cost\. The time necessary for
notary, property and commercial
registration procedures went down
from one week to 3 to 4 days\.
Public Procurement: Legislation approved\. New Enactment of a law to harmonize the
(i) modernization of legal and technical management information, procedures and guarantee the
organizational mechanisms of the monitoring and control system in transparency of public procurement
process of public procurement; place\.
(ii) accountability for purchases; and
(iii) simplification and speeding up of the
bidding process\.
The performance indicators in the first column were established after the mid-term review
mission, to retrofit the project with the new World Bank guidelines\.
The second column states the progress at the mid-term review\.
- 22 -
Output Indicators:
Indicator/M-atrix Projected In last PSR Actua /Latest Estimate
End of project
The project implementation, as stated in the SAR, was carried out on the basis of
annual work programs for each component and sub-component\. These programs detailed the
different steps and timeframes necessary to complete each activity\.
- 23 -
Annex 2\. Project Costs and Financing
Table A\. Project Cost by Component (in US$ million equivalent)
Project Component R t ActuanLatest Percent of
Estknkt\. flOS 1909 Estmate Appraisal
Modernization of Civil Service 0\.71 3\.49 491\.55
Reform
Decentralization & Municipal 2\.0 2\.25 112\.50
Strengthening
Economic Management Support 1\.9 2\.4 126\.32
Legal Framework & Judicial Reform 1\.75 1\.41 80\.57
Public Procurement 0\.34 0\.17 50\.00
Operations & Project Implementation 0\.84 3\.03 360\.71
PPF Refinancing 0\.2
Contingencies 1\.17
Total 8\.91 12\.75
Table B\. Project Costs by Procurement Arrangement (Appraisal Estimate)
(US$ million equivalent)
Procurw_t Method (Appiakat Estimate) (lUS mflion)
Ex_~Cd§y R
[Co NCO Other N\.B\.F\. Total
1\. Training 1\.46 1\.46
2\. Retraining (Voluntary Departees) 0\.20 0\.20
3\. Advisory Services/Studies 1\.65 1\.65
4\. Good-s 3 0\.77 0\.30 _ 4\.07
5\. Operational Costs _ _ 0\.22 0\.22
6\. Public Information Campaign 0\.10 0\.10
7\. Pre-Investmnent Studies 0\.20 0\.20
8\. PPF Financing _ 0\.20 0\.20
Total Costs 3 0\.77 4\.33 8\.10
- 24 -
Annex 2 (cont'd)
Table C\. Project Costs by Component (ActuallLatest Estimate)
(US$ million equivalent)
Procurement Method (ActuallLatest Estimate)
Expenditure Category (US$ Ii-on equ alent)
ICB NCB Other N\.B\.F\. Total Cost
1\. Training 1\.46 1\.46
2\. Retraining (Voluntary Departees) 0\.41 0\.41
3\. Advisory Services/Studies 1\.65 1\.65
4\. Goods 3 0\.77 0\.30 4\.07
(Equipment/vehicles/fumriture)
5\. Operational costs 0\.92 0\.92
6\. Pre-Investment Studies 0\.2 0\.2
7\. PPF Refinancing _ 0\.2 0\.2
Total Costs 3 0\.77 5\.14 8\.91
Table D\. Project Financing by Component (in US$ million equivalent)
Projec-t Component Appraisal Estimate ActuaULatest Percent\. ofA raisal
L________________________ Bank Govt\. Bank Govt Bank Govt\.
Modermization of Civil Service 0\.30 0\.41 0\.55 2\.94 183\.3 717\.07
ReforI_
Decentralization & Municipal 1\.75 0\.25 2\.12 0\.13 121\.1 52\.00
Strengthening
Economic Management Support 1\.65 0\.25 2\.35 0\.00 142\.4 0\.00
Legal Framework & Judicial 1\.55 0\.20 1\.41 0\.00 91\.0 0\.00
Reformn
Public Procurement 0\.26 0\.08 0\.17 0\.00 65\.4 0\.00
Operations & Project 0\.30 0\.54 1\.43 1\.60 476\.7 296\.30
Implementation
PPF Refinancing 0\.20 _ _ _ _
Contigencies 0\.94 0\.23
Total 6\.95 1\.96 8\.03 4\.67
- 25 -
Annex 3\. Economic Costs and Benefits
Not applicable for this project\.
- 26 -
Annex 4\. Bank Inputs
(a) Missions:
No\. Of P, sn an Apvv
SCazhvw cy,f Ob,,d PrmneRaf
a ~cn d U, I-FMS, sa)
MonthNw Count 8poh kiNWai omp-n
--~~~~~~~~~~~~~~~~~rm 2N!E s
Identification/Preparation
03/1993 1 Task Team Leader S S
1 Economist
1 Training Specialist
1 Procurement Specialist
1 Private Sector Specialist
Environment Specialist
I Financial Analyst
I Lawyer
3 Consultants
Appraisal/Negotiation
07/1993 1 Task Team Leader S S
I Economist
1 Training Specialist
2 Private Sector Specialist
1 Lawyer
1 Capacity Bldg Specialist
I Procurement Specialist
Supervision
09/1993 6 Task Team Leader, Private S HS
Sector Specialist, consultants
06/94 5 Task Team Leader, Economist, HS HS
Operations Analyst, Operations
Officer, Res\. Representative,
Consultant
11/94 4 Task Team Leader, Economist, HS HS
Training Specialist, Operations
Analyst
02/95 4 Task Team Leader, Economist, HS HS
Training Specialist, Operations
Analyst
10/95 5 Task Team Leader, Economist, HS HS
Training Specialist, Projects
Officer, Operations Analyst
06/96 2 Task Team Leader, Projects Officer S\. HS
- 27 -
Stageof Prject ycleNo\. of Permons and Specialty PromneRtn
Stage of ProJect Cycle (e\.g\. 2 Economists, 1 FMS, etc\.) Prfomance Ring
mplementation Development
MonthNYear Count Specialty Progress Objective
Mid-term Review
11196 7 Task Team Leader, Economist, S HS
Projects Officer, Operations
Analyst, Training Specialist,
Operations Officer, Task Team
Assistant
06/97 3 Task Team Leader, Projects S HS
Officer, Task Team Assistant
Annual Review & SPN
12/97 3 Task Team Leader, Projects S HS
Officer, Task Team Assistant
06/98 3 Task Team Leader, Projects S HS
Officer, Task Team Assistant
Annual Review & SPN
11/98 2 Training Specialist, Projects S HS
Officer
05/99 4 Economist, Training Specialist, S HS
Projects Officer, Financial
Management Specialist,
Program Assistant
Annual Review & SPN
11/99 2 Projects Officer, Program S HS
Assistant
05/00 3 Projects Officer, Financial S HS
Management Specialist,
Program Assistant
ICR 3 Task Team Leader, S HS
Consultant, Program
Assistant
(b) Staff
Stage of Project Cycle No\. ActualJLatest Estimate
\._Stage_of_Project_Cycle No\. Staff weeks USS (,000)
Identification/Preparation 43\.0 85\.0
Appraisal/Negotiation 27\.3 91\.8
Supervision 145\.9 555\.0
ICR 0
Total 216\.2 731\.8
- 28 -
Annex 5\. Ratings for Achievement of Objectives/Outputs of Components
(H=High, SU=Substantial, M=Modest, N=Negligible, NA=-Not Applicable)
Rating
Macro Policies SU
Sector Policies SU
Physical NA
Financial SU
Insitutional Development SU
Environmental NA
Social
Poverty Reduction NA
Gender NA
Other (Please specify) NA
Private Sector Development SU
Public Sector Management SU
Other (Please specify) NA
- 29 -
Annex 6\. Ratings of Bank and Borrower Performance
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)
6\.1 Bank performance Rating
Lending S
Supervision S
Overall S
6\.2 Borrowerperformance Rating
Preparation S
Government implementation performance S
Implementation agency performance S
Overall S
- 30 -
Annex 7\. List of Supporting Documents
Staff Appraisal Report (January 7, 1994)
Mid-term review Project Status Report
Final Mission Project Status Report
Back-to-office report and Aide Memoire of the ICR mission
Government of Cape Verde's ICR | REVIEW |
P094146 |  ICRR 12923
Report Number : ICRR12923
IEG ICR Review
Independent Evaluation Group
1\. Project Data: Date Posted : 07/08/2008
PROJ ID : P094146 Appraisal Actual
Project Name : NCO - Second US$M ):
Project Costs (US$M): 100\.0 0\.0
Broad-based Growth
Development Policy
Loan
Country : El Salvador Loan/
Loan /Credit (US$M ):
US$M): 100\.0 0\.0
Sector Board : EP US$M ):
Cofinancing (US$M):
Sector (s): Central government
administration (45%)
General industry and
trade sector (30%)
General finance sector
(20%)
Capital markets (5%)
Theme (s): Regulation and
competition policy
(29% - P)
Public expenditure
financial management
and procurement (29%
- P)
Legal institutions for a
market economy (14%
- S)
Tax policy and
administration (14% -
S)
Export development
and competitiveness
(14% - S)
L/C Number : L7348
Board Approval Date : 12/13/2005
Partners involved : Closing Date : 06/13/2007 06/13/2007
Evaluator : Panel Reviewer : Group Manager : Group :
Fareed M\. A\. Hassan Ismail Arslan Ali Khadr IEGCR
2\. Project Objectives and Components:
a\. Objectives:
The operation was the second in a programmatic series of Development Policy Loans (DPLs) intended to support
the Government's medium term development strategy to : (i) reignite growth mainly by promoting trade expansion and
improving business climate; (ii) reinforce macroeconomic stability and fiscal sustainability by increasing tax revenues
and reducing government debt; and (iii) improve public sector management by implementing policy reforms including
e-government and procurement\. The DPL II was expected to build on the first operation and focus on further
deepening fiscal reform and on strengthening the international trade and businesses environment \. However, the
DPL II did not become effective and was cancelled \. As such this ICR Review also examines the overall DPL
program and a summary of the ratings is given in Section 11\.
b\.Were the project objectives/key associated outcome targets revised during implementation?
No
c\. Components (or Key Conditions in the case of DPLs, as appropriate):
The DPL II contains the following actions /reforms\.
(i) Actions aimed at reigniting growth include :
Ratification of the US\. Central America-Dominican Republic Free Trade Agreement (DR-CAFTA)\.
Approval of a new Consumer Protection Law \.
Presentation of a national law for securitization \.
(ii) Reforms supporting macroeconomic stability and fiscal consolidation include :
Approval of a fiscal reform to increase excise taxes \.
Formulation of 2006 budget consistent with medium term fiscal targets (i\.e\. consistent with Non-financial Public
Sector (NFPS) deficit target of 2\.3% of GDP)\.
Issuance of new rules on loan classification and provisioning for financial institutions consistent with
international best practice\.
(iii) Actions supporting public sector management include :
Issuance of new procurement regulations \.
Measures to implement the e-government strategy, including the launch of the payments portal \.
Finalization of the project for internal control systems regulation by the Ministry of Finance \.
While all of the above mentioned measures were met, a few number of regulations awaited the approval of the
National Assembly of El Salvador, including the Financial Supervision Law and the Mutual Funds Law \.
d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:
The DPL II was approved by the Bank's Board on December 13, 2005, and was to be made effective within 18
months of Board approval\. El Salvador's approval process for foreign loans requires two steps : (i) "approval" of the
loan occurs prior to Government signing of the loan agreement and requires a simple majority in the National
Assembly (50% plus 1); (ii) "ratification" of the loan occurs after signing but prior to loan effectiveness, and requires a
two-thirds majority in the National Assembly \. In the case of the DPL II, the first step was achieved but the second
step was not\. After the mid-term congressional election in March 2006, political polarization increased rapidly \. The
main opposition party exercised its veto power over decisions requiring a two -thirds majority, adversely affecting the
ratification of the loan\. As a result, the Bank terminated the Loan Agreement as of June 13, 2007 after reaching the
18-month effectiveness deadline \.
3\. Relevance of Objectives & Design:
The objectives of this operation and of the overall program were relevant\. They were consistent with government
requests for assistance in supporting key reforms, and with the Bank's Country Assistance Strategy (CAS) covering
the FY05-08 period\. The operation intended to support the CAS pillars of broad - based growth; macroeconomic
stability and fiscal consolidation; and public sector management and governance \. The DPLs were the backbone of
the CAS base case scenario \. Of the US$485 million base case CAS lending envelope, US$ 300 million were
envisioned for a series of three DPLs, each amounting to US$ 100 million\.
The DPL II was a high-risk operation because of the unstable domestic political environment as well as other
external and fiscal risks\. However, these risks had been identified in the project documents and mitigating strategies
had been included\.
4\. Achievement of Objectives (Efficacy):
The DPL II did not become effective \.
5\. Efficiency (not applicable to DPLs):
ERR )/Financial Rate of Return (FRR)
a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the
re-
re -estimated value at evaluation :
Rate Available? Point Value Coverage/Scope*
Appraisal % %
ICR estimate % %
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome:
Outcome is not rated for projects which do not become effective \.
a\. Outcome Rating : Not Rated
7\. Rationale for Risk to Development Outcome Rating:
Rated non-evaluable because the operation did not reach effectiveness \.
a\. Risk to Development Outcome Rating : Non-evaluable
8\. Assessment of Bank Performance:
The Bank prepared the project in close collaboration with the government, and quality at entry was satisfactory \.
The operation drew on a number of analytical work, including the CEM, the PER, and the Investment Climate
Assessment\.
The risks of delayed effectiveness and division in the National Assembly were recognized, but underestimated \.
The Bank attempted to mitigate these risks through pro -active communication with members of the relevant
committees in the National Assembly, and with other stakeholders \. The Bank provided technical information to
make the case for ratification of the loan, including estimates of the loan's impact on achieving and accelerating
El Salvador's poverty reduction goals \. Top Bank management missions visited El Salvador to make the case for
loan ratification, including the Regional Vice President and the Country Director \. However, the risks of political
polarization and lack of consensus in the National Assembly were underestimated by the Bank, and in the end
the efforts of Bank management to make a convincing case for ratification failed \.
Despite the cancellation of the loan, the Bank has continued its engagement via non -lending technical assistance
to pursue reforms (e\.g\. the Bank supported the Government with a PHRD technical assistant grant )\. Furthermore,
the Bank adjusted its engagement strategy by leveraging non -lending, minimizing lending targets, mobilizing
grant funds, and strengthening partnership /collaboration ( see 2008 CAS Progress Report)\.
at -Entry :Satisfactory
a\. Ensuring Quality -at-
b\. Quality of Supervision :Not Applicable
c\. Overall Bank Performance :Satisfactory
9\. Assessment of Borrower Performance:
The Government was not able to secure ratification of the loan \. Political polarization seriously limited
Government's capacity to reach consensus, despite negotiations \. The main opposition party, Farabundo Marti
National Liberation Font (FMLN), with 38 percent of Congress, exercised its veto power affecting five Bank
loans (including the DPL II), as well as other multilateral loans from Inter American Development Bank (IADB),
International Fund for Agricultural Development (IFAD) and Central American Bank for Economic Integration
(CABEI) for a total of US$500 million in cancelled multilateral loans\.
However, the Government mobilization of alternative funding sources that did not require approval of a qualified
majority in Congress are positive developments \. For example, the Government issued local bonds through the
recently created Pension Trust to replace DPL borrowing, and bilateral grants were raised to fund social
programs, though the sustainability of bilateral grants is unclear \.
a\. Government Performance :Moderately Satisfactory
b\. Implementing Agency Performance :Not Applicable
c\. Overall Borrower Performance :Moderately Satisfactory
10\. M&E Design, Implementation, & Utilization:
The project documents show that M&E arrangements were put in place \. Since the project was not implemented,
the M&E was not utilized\.
a\. M&E Quality Rating : Non-evaluable
11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts):
The following is a summary of the ratings for all two programmatic loans (DPL I and the cancelled
II )\.
DPL II)\.
Ratings ICR IEG Review Reason for Disagreement /Comments
Outcome :
DPL I Satisfactory Satisfactory
DPL II Not Rated Not Rated Not rated because the operation did not
become effective\. The NCO rating is "not
applicable\."
Risk to Development
Outcome :
DPL I Moderate Moderate
DPL II Non-evaluable Non-evaluable Non-evaluable because the operation did not
become effective\. The NCO rating is "not
applicable\."
Bank Performance :
DPL I Highly Satisfactory Highly Satisfactory
DPL II Satisfactory Satisfactory
Borrower Performance :
DPL I Satisfactory Satisfactory
DPL II Moderately Moderately
Satisfactory Satisfactory
ICR Quality :
DPL I Satisfactory
DPL II Satisfactory
12\.
12\. Ratings : ICR IEG Review Reason for
Disagreement /Comments
Outcome : Not Rated Not Rated Not rated because the operation did not
become effective\. The NCO rating is
"not applicable\."
Risk to Development Non-evaluable Non-evaluable Non-evaluable because the operation
Outcome : did not became effective\. The NCO
rating is "not applicable\."
Bank Performance : Satisfactory Satisfactory
Borrower Performance : Moderately Moderately
Satisfactory Satisfactory
Quality of ICR : Satisfactory
NOTES:
NOTES
- When insufficient information is provided by the Bank for IEG to
arrive at a clear rating, IEG will downgrade the relevant ratings as
warranted beginning July 1, 2006\.
- The "Reason for Disagreement/Comments" column could
cross-reference other sections of the ICR Review, as appropriate \.
13\. Lessons:
The Note on Cancelled Operation contains numerous lessons, including :
During project preparation, the Bank consultation process needs to be extended beyond the executive branch
of government in order to engage with the country's legislative branch and other stakeholders \.
Information, education and communication strategies are key risk mitigation components in highly politicized
environment\.
Project management in volatile political environments requires Bank staff to have skills in negotiation, conflict
resolution, and alliance building \.
The changing socioeconomic environment in many Latin American countries requires the Bank to define a
strategy to work with clients throughout the political and ideological spectrum, as well as the appropriate mix
of lending and non-lending assistance\.
14\. Assessment Recommended? Yes No
15\. Comments on Quality of ICR:
The Note on Cancelled Operation (NCO) is of good quality, providing a complete and frank explanation of the
reasons for loan cancellation, and a balanced assessment of Bank and Borrower Performance \. The lessons learned
section covers broader strategic issues for the Bank with respect to the mix of lending and non -lending services,
particularly in the Latin America Region \.
a\.Quality of ICR Rating : Satisfactory | REVIEW |
P062991 | Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 22619
IMPLEMENTATION COMPLETION REPORT
(SCL-44050)
ONA
SPECIAL STRUCTURAL ADJUSTMENT LOAN
IN THE AMOUNT OF US$2\.52525 BILLION
TO THE
ARGENTINE REPUBLIC
FOR A
SPECIAL STRUCTURAL ADJUSTMENT LOAN (SSAL)
07/30/2002
Argentina, Chile, Paraguay and Uruguay Country Management Unit
Poverty Reduction and Economic Management
Latin America and the Caribbean Region
This document has a restricted distribution and may be used by recipients only in the performance of their
official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of July 30, 2002)
Currency Unit = Argentine Peso (Arg $)
Arg $3\.6 = US$ 1
FISCAL YEAR
January I - December 31
ABBREVIATIONS AND ACRONYMS
BHN Housing Mortgage Bank
BNA Federal Bank
CAS Country Assistance Strategy
ESW Economic Sector Work
FSAP Financial Sector Assessment Program
GDP Gross Domestic Product
ICR Implementation Completion Report
IDB Interamerican Development Bank
IFI Intemational Finance Institutions
IMF International Monetary Fund
INSSJP National Health Institute for Retirees
IPO Initial Public Offering
LIBOR London Interbank Offer Rate
MERCOSUR Common Market of the South
OPS Operation Policy Strategy
QAG Quality Assurance Group
REPO Repurchase Facility Support Loan
SAL Structural Adjustment Loan
SSAL Special Structural Adjustment Loan
SSN Insurance Suprintendent
USA United States of America
VAT Value Added Tax
Vice President: David de Ferranti
Country Director: Myrna Alexander
Sector Director: Emesto May
Task Team Leader/Task Manager: Paul Levy
ARGENTINA
AR SPECIAL SAL (SSAL)
CONTENTS
Page No\.
1\. Project Data 1
2\. Principal Performance Ratings 1
3\. Assessment of Development Objective and Design, and of Quality at Entry 2
4\. Achievement of Objective and Outputs 8
5\. Major Factors Affecting Implementation and Outcome 17
6\. Sustainability 19
7\. Bank and Borrower Performance 20
8\. Lessons Learned 24
9\. Partner Comments 26
10\. Additional Information 27
Annex 1\. Key Performance Indicators/Log Frame Matrix 28
Annex 2\. Project Costs and Financing 36
Annex 3\. Economic Costs and Benefits 37
Annex 4\. Bank Inputs 38
Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 40
Annex 6\. Ratings of Bank and Borrower Performance 41
Annex 7\. List of Supporting Documents 42
Project ID: P062991 |Project Name: AR SPECIAL SAL (SSAL)
Team Leader: Paul Levy TL Unit: LCC7A
ICR Type: Core ICR Report Date: September 19, 2002
1\. Project Data
Name: AR SPECIAL SAL (SSAL) LUC/TF Number: SCL-44050
Country/Departmenit: ARGENTINA Region: Latin America and
Caribbean Region
Sector/stubsector: Banking (28%); Central government administration
(28%); General finance sector (17%); Compulsory
pension and unemployment insurance (15%); Other
social services (12%)
KEY DATES
Original Revised/Actual
PCD: 09/12/1998 Effective: 11/03/1998
Appraisal: 09/10/1998 MTR:
Approval: 11/10/1998 Closing: 12/31/1999 10/31/2000
Borrower/lmplenmenting Agency: GOVERNMENT OF ARGENTINA/Agencies
Other Partners: IDB & IMF
STAFF Current At Appraisal
Vice President: David De Ferranti Shahid Javed Burki
Country Manager: Myrna L\. Alexander Myrna Alexander
Sector Manager: Emesto May Guillermo Perry
Team Leader at ICR: Paul Levy Paul Levy
ICR Primarv Author: Desmond McCarthy; Herman J\.
Nissenbaum; David Rosenblatt
2\. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL-Highly Likely, L=Likely, UN=Unlikely, HUN=Highly
Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)
Outcome: U
Susrainabilitj': UN
Institutional Development Impact: M
Bank Performance: S
Borrower Performance: S
QAG (if available) ICR
Quality at Entry: HS S
Project at Risk at Any Time: No
3\. Assessment of Development Objective and Design, and of Quality at Entry
3\.1 Or-iginal Objective:
Background
Following two decades of economic stagnation, hyperinflation in the late 1980s and a
poverty rate that had reached 40 percent of the population, Argentina embarked in 1991 on a set
of economic policies collectively known as the Convertibility Plan\. The name derives from the
currency board arrangement that established full convertibility of the peso with dollar backing\.
The currency board itself provided for fiscal discipline, since government deficits could no longer
be financed by borrowing from the Central Bank\. But the Convertibility Plan encompassed much
more than just this monetary arrangement\. Trade barriers were lowered, capital controls were
eliminated, state enterprises were privatized, the tax agency was revitalized and government
expenditure programs were refocused\.
The results during the early 1990s were dramatic\. The poverty rate that had reached 40
percent in 1990 was reduced to 22 percent in 1994\. Economic growth averaged 7\.9 percent over
the 1991-1994 period\. Following Mexico's devaluation in late 1994, Argentina's commitment to
the Convertibility Plan was tested\. Many local and foreign investors expected the currency board
to be abandoned, capital began to flee the country and, by March 1995, the banicing system was at
serious risk of a systemic crisis\. Argentina's renewed commitment to the Convertibility Plan, a
strong program of multilateral financial support and President Menem's reelection in 1995 all
helped renew consumer and investor confidence\. The economy suffered a contraction of 2\.8
percent that year\. Nevertheless, this crisis was also an opportunity and structural reforms at the
provincial level began to accelerate, as did regulatory reforms and restructuring of the financial
system\. By the second quarter of 1996, the economy began to recover strongly - eventually
registering growth of 5\.5 percent and 8\.1 percent during 1996 and 1997, respectively\. During the
first half of 1998, growth continued at a 6 to 7 percent pace\.
At the time of the Annual Meetings in 1998, Argentina was at a turning point in its recent
economic development\. Growth had been restored following the 1995 crisis; however, social
conditions (including poverty and unemployment rates) had not fully recovered\. The reforms of
the early 1990s that had unleashed strong productivity gains needed to be supplemented by
additional "second generation" reforms\. Indeed, Argentina had entered into a period of
consolidating reforms, especially at the provincial level, at a more measured pace as compared to
the early 1990s\. Meanwhile, the external environment had deteriorated dramatically with a
reduction in international capital flows following the Asian crisis in 1997 and the Russian crises
that hit in August 1998\. These shocks resulted in a decline in international commodity prices and
sharp increases in risk premiums for emnerging markets\. Furthermore, there were fears of
contagion with growing concerns that a crisis could unfold in neighboring Brazil - an event that
did in fact occur within two months after Board approval of the SSAL\.
As a result, by the second part of 1998, Argentina's economy began to slip into distress\.
External capital flows dropped dramatically, jeopardizing the country's capacity to roll over its
-2-
debt and finance its fiscal deficit\. The latter increased as revenues began to fall during 1998 with
the decline in economic activity, the trade balance and service accounts deteriorated, credit
expansion slowed, employment and the stock market fell, leading to a rapid deterioration in the
economy\. As one indication of the deteriorating 1998 conditions, urban poverty in Buenos Aires
increased to 29\.4 percent\.
The Government had been preparing for such possible shocks, and there was heightened
awareness among the IFIs of the risks facing Argentina (See the Bank's CAS Progress Report, dated
February 1998)\. as well as other emerging market economies\. The Government had already set up
the Repurchase Facility with private banks to help the banking system face possible liquidity
shocks and established a practice of accumulating substantial cash reserves, with advanced
borrowings in the markets by approximately one-quarter of its annual needs\. The Government
has also converted its IMF stand-by arrangement (approved in February 1998) into a US$2\.8
billion Extended Fund Facility which it had treated as precautionary and began to increase its
primary surplus\.
But it also recognized the need for far more help in order to avoid a deflation comparable
to that of the 1995 Tequila crisis\. Typically, the Fund would have been the first one to be called
upon to bolster defenses and strengthen market confidence but it was facing a potential liquidity
problem because of other demands on IMF resources and the projected US$90 billion capital
increase it sought had not yet been approved\. Thus, at the juncture of the September 1998
Annual Meetings, there was considerable concern that the crisis affecting emerging markets that
had started in Asia in 1997, and was exacerbated by the events in Russia (as well as the failure of
an important hedging financial institution in the USA), could spread uncontrollably to other
countries, especially those in Latin America known to be highly dependent on international capital
flows\. Argentina was one of those countries\. Moreover, the Argentine authorities had publicly
indicated that the Fund's support was precautionary and that its use could be taken by the markets
as a sign of weakness\. Facing these circumstances, the Bank, in collaboration with the IMF and
together with the IDB, was asked by Argentina to be partners to mitigate the impact of market
closure resulting from this series of external shocks, taking advantage of the new instrument-the
Special Structural Adjustment loan-that was being especially designed as a key part of the
Bank's arsenal in the face of global market shocks facing emerging markets\.
This support package was predicated on the macroeconomic framework, with the
currency board in place, agreed with the Fund as part of its series of programs\. Since the late
1980s, Argentina had almost continuously operated under a Fund-supported program and there
was a history during the 1990s of the Bank setting its support for Argentina within the context of
such a Fund program\. With the Convertibility plan in place, there were several sine qua non to
sustain that program: one was fiscal discipline since the Government could not rely on printing
money, and another was productivity increases, since it was not possible to alter relative prices in
the economy other than through productivity changes\. Fiscal discipline thus had to be at the core
of Argentina's macro-program and the focus of Fund support\.
Given Argentina's history-with fiscal deficits that had averaged about 8 percent of GDP
during the 1980s-there had been admirable progress in reducing the overall fiscal deficit even
-3-
though weaknesses persisted\. Only in 1993 did the public sector reach a consolidated fiscal
surplus, helped considerably by privatization proceeds\. The Tequila crisis in 1995 set back fiscal
performance further as the economy declined sharply and interest costs rose\. During the recovery
years of 1996 and 1997, the Government continued to pursue a relatively expansionary fiscal
stance-with deficits in the order of 1-2 percent, reflecting both the need to address the
continuing high unemployment (in the range of 15 percent) and the structurl deficit created by
the pension reform in 1994 (estimated at 1-1\.5 percent of GDP)\. By 1998, the federal fiscal
deficit had been reduced to 1\.4 percent of GDP, down from 2\.2 percent in 1996, and the
provincial deficit had declined to 0\.8 percent of GDP\.
With an IMF program in place, further progress was thus expected in fiscal management
as well as those elements of the remaining reform agenda that Argentina was facing\. This
included among other things reform of labor regulations, reform of federal-provincial fiscal
relations, deepening of reforms in the social sectors that had begun only a few years back, as well
as entering into the new areas of governance, anti-corruption, justice, and public sector efficiency
and effectiveness\. These latter actions were broadly part of the second generation reforms
Argentina had yet to undertake or needed to reinforce\. Equally important were continuing
reforms in the financial sector and the deepening capital market development, as an essential
ingredient of sound macro-economic management and a key vulnerability in the context of the
Convertibility plan\.
Thus, when the full impact of the Russia crisis hit Argentina-and other emerging
markets--in August 1998, the Government turned to the Bank and the IDB for extra-ordinary
support\. Looking back at that period, it was clear that the overwhelming concern globally was to
prevent contagion if possible and to respond favorably to those countries-other things being
equal-that had been following policies that were conducive to sustainable development\. Such
borrowers had to have had a solid track record on past reforms and a sustainable debt position
over the medium term\. But it was also understood that such lending could entail heightened risks
for the Bank and as such there were special terms and conditions, consisting of a significantly
higher spread for the Bank and a much shorter amortization period\. Argentina, followed by
Brazil, were the first two countries to benefit from this new kind of support from the Bank\.
Original Objectives
The objectives of the Special Structural Adjustment Loan (SSAL) and accompanying
Special Repurchase Facility Support (Repo) Loan were clearly stated in the President's Report
(paragraph 107) \. In general, the goal was to reduce Argentina's "vulnerability to extemal
financial shocks" while simultaneously "increasing (Argentina's) capacity for sustainable and
equitable growth\." The more specific objectives were to: (i) facilitate the reentry of Argentina to
the intemational capital markets and avoid the social and economic costs of forced adjustment to
the closure of market access; (ii) protect vulnerable groups during a period of high uncertainty;
(iii) add to the lines of defense of the banking system against potential liquidity shocks; and (iv)
continue Argentina's successful reform program in several key sectors, described in more detail in
section 4\.2\. The REPO specifically was to contribute to meeting objective (iii) above\.
-4 -
These objectives were fully consistent with the 1997 CAS\. That document recognized
that Argentina continued to be vulnerable to a reversal of capital flows and included the possibility
of higher levels of lending under a shock scenario, foreshadowing the SSAL\. The February 1998
CAS Progress Report further noted the increase in risks to Argentina after the East Asia crisis and
again indicated the possibility of additional support in the event of an external shock\.
The Bank approved the Special Structural Adjustment Loan (SSAL) and Repurchase
Facility Support Loan ("REPO") in November 1998, barely three months after the Russia crisis, in
keeping with the nature of the crisis and the intended purpose of the instrument\. A recently
completed Financial Sector Review, the accumulation of country knowledge built up by years of
ESW and operational activities in the areas of provincial finances, labor markets and poverty
analysis, and ongoing policy dialogue in health and social sectors provided a sound knowledge
base for designing the reform program supported by the SSAL\. The knowledge base was critical
in facilitating a rapid response to the Government's request for special assistance: the SSAL and
its companion Special Repurchase Facility Support Loan were prepared, appraised and negotiated
in approximately two months\.
The SSAL was to provide financing to the Government during what was perceived to be a
temporary disruption in international capital flows, aggravated by the Russia crisis that occurred
in August 1998\. The financing by the IFIs would permit continued servicing of existing debt (that
would have normally been rolled over in the international capital market) and meeting of the cash
flows of the normal operation of the state during this period of temporary closure\. Argentina at
the time had to meet financing needs of some US$ 1-1\.5 billion per month, and was facing
particularly large debt repayments at the end of 1998 and early 1999\. Thus, timing was critical\.
Moreover, support would allow the Government to focus on the remaining reform agenda
during its last five quarters in office\. With key social programs protected and a set of reforms
moving forward, it was expected that the social and economic impact of the intemational financial
crisis could be ameliorated\.
The SSAL was part of a broad intemational package\. The $2\.5 billion SSAL was
designed as a three-tranche loan, originally to be drawn over an about 14-month period\. The
companion $505 million "REPO" Loan was a contingent loan, intended to be drawn only if the
Central Bank required additional resources mainly to meet margin calls on a repurchase
agreement with commercial banks\. The IDB co-financed these two operations with its $2\.0
billion Special Structural Adjustment Program Loan and an accompanying $0\.5 billion "REPO"
facility loan\. The Fund's support first comprised $2\.8 billion, approved at the start of 1998, as a
precautionary package\. Over time, however, as conditions changed, the Fund's support for
Argentina was later expanded to $8\.3 billion and further increased to $15\.5 billion with the
approval of new Fund Stand-by Arrangements in March 2000 and January 2001\. The private
sector's contribution was essentially via the participation of private banks in the REPO facility,
roughly US$ 7 billion, followed later in the period with several voluntary debt swaps as part of the
expanded Fund program\.
Because of the program's emergency nature, the operation focused on incremental steps
that would advance the on-going policy dialogue and keep the reform program on track,
- 5-
addressing the next measure required in a sequence of medium term reforms of considerable
breadth, building on the body of knowledge in diverse sectors already accumulated on Argentina\.
As outlined in the prior CASes, Argentina was seen as a country in the consolidation phase of
reforms, moving at a more measured pace than in the early 1990s, and requiring more time and
consensus building\. It was acknowledged that embarking on reforms in totally new areas would
not have been consistent with the timing and nature of the proposed operation, nor would reforms
that necessarily required considerable consensus building ex ante\. Fortunately, the Bank's years
of experience in Argentina and the breadth of the Bank's activities in the country were amenable
to such an approach\. (One of the differences with the other emergency type operations considered in this same
period and under similar circumstances--- notably those for Korea and Thailand-did not have this same
advantage, a point raised in the QAG reviews of these operations)\. Government officials interviewed
report that the program represented a high degree of consensus between Bank staff and
government staff in terms of priorities, realism for enactment given the time period and political
schedule, as well as specific policy design\. Nevertheless, these limitations also meant that the
reform package would only be partial in several instances, especially those of an institutional
nature that could take years to develop and internalize fully\. Thus, many of these reforms
involved complex stepwise processes, involving a combination of legislative action and
institutional development\. They also built on prior experiences in the various sectors-each one
moving ahead in a process that would take more time and effort to complete in its entirety\. (The
inherent difficulties in these second generation reforms and the step-wise process of these reforms were highlighted
in the 1997 CAS and again in the 2000 CAS)\.
An example is the insurance sector\. It was apparent that future private sector
development would be affected by inefficiencies in the insurance sector\. Prior to the SSAL, with
the support of the Bank under a previous adjustment operation, the Government had already
reduced its direct production role in the sector by privatizing the largest insurance company and
closing the state-run reinsurance company\. In addition, new capital requirements and other
regulatory reforms had been initiated\. However, much remained to be done and, taking
advantage of the SSAL, additional measures to deepen the existing reform program were
undertaken: for example, new laws for separating life and non-life businesses, strengthening of
the resolution process and consumer protection norms\. In addition, the Superintendency of
Insurance needed to adapt an early warning detection system for identifying firms in trouble, as
well as effectively implement the new capital requirements\. This example illustrates the
complexity of the process and the SSAL's role in promoting the continuation of the reform
process\. It further highlights the operation's technical complexities and the political uncertainties,
heightened by the short time span that the administration had to work: November 1998 to
December 1999 when a new Government would take office\.
All these factors escalated the operation's risks and its complexity\. Under more normal
circumstances, one might have argued for a smaller, longer phased or otherwise different kind of
Bank-supported effort, or even perhaps awaiting the next administration\. Programmatic lending
might have been considered if the approach had been developed at that time\. However, there
were compelling concerns about the possible international as well as domestic consequences of a
lack of prompt multilateral intervention, in view of the difficulties which Argentina then faced, and
the risks of further deterioration in the region, more notably Brazil\. These and the scale of
Argentina's needs well justified the inclusion of this operation as the first of the Special Structural
-6-
Adjustment operations approved by the Bank and launched to help mitigate the global crisis'
effects\.
3\.2 Revised Objective:
N/A
3\.3 Original Conmponents:
Paras\. 4\.1- 4\.2 describe the components of the project and its rating\.
3\.4 Revised Components:
N/A
3\.5 Quality at Entrv:
The quality at entry of this operation is judged as satisfactory\. As noted above, it
responded well to the concerns at that time, reflected and was well founded in prior ESW and
country knowledge, was consistent with the Bank's policies and objectives, and was highly
relevant\. The problems which the operation sought to address may be summarized as those of a
highly indebted country facing a liquidity constraint and\.fiscal deficit, all set in a rather complex
political milieu\. In the face of these factors, the Bank appropriately selected the SSAL instrument
to help Argentina deal with the problem\. The latter clearly met the criteria for SSALs:
exceptional support for a client with a good track record that was facing a potential or real crisis
so as to help them meet extraordinary external financing requirements\. (This was discussed in
greater detail in the May 7, 2001 note to the Board on this instrument\.)
The above assessment is consistent with the conclusions of the Quality Assurance Review
carried out by QAG after the SSAL's approval and while it was being implemented, which the
QAG panel had judged as "highly satisfactory"\. The QAG panel had also carried out a review of
comparable operations in Korea, Malaysia and Russia, and the operation for Argentina was
considered as superior to these other similar operations\. This panel applauded the operation's
quick preparation\. It also said that its technical due diligence had been good, with which the ICR
evaluation generally concurs\. In addition, the panel considered the operation's preparation to
have been commendable in its selection of the relative priorities of the projected reforms and to
significant aspects of country performance, which this review endorses\. Further, the loan
documentation reflected precise, well formulated criteria for judging the achievement of the
envisaged objectives, along with reasonable assumptions about the SSAL's inherent risks\.
In assessing quality at entry for the ICR, several dimensions were tested\. The most
pertinent is the range of sectors covered and the number of specific conditions addressing the
concern that the breadth of the operation may have distracted from the main objectives\. An
alternative might have been to select only a few sectors and reduce the number of conditions\.
However, the risk of this alternative would be not to maintain momentum and perhaps lose the
opportunity to advance the policy dialogue in those areas not selected\. Moreover, since the loan
amount was substantial, the task team rightly felt that the loan conditions should be wide ranging
and engage diverse actors in the Government's program\. In retrospect, one of the loan's
advantages was to engage a broad set of actors and to have clear steps across a broad front in
order to guide the administration in its final months\. This helped the authorities in ensuring that
- 7 -
policy makers were moving along the agreed paths and ultimately did provide continuity with the
in-coming administration at the end of 1999\. Inevitably this requires judgment on how best to
balance between "broad" and "specific" targets and between moving ahead a process, while
searching for high impact on the short run\.
This process required that the team use its understanding of the country constraints,
especially political and social\. Such judgments were particularly evident in the case of the
condition on labor modernization\. The long term goal was to secure a complete modernization of
labor regulations; however, this has been tried in 1995 and had failed to secure congressional
approval, while equivalent measures by the executive had been declared unconstitutional\. Thus
the SSAL focused on only one dimension-severance payments-rather than the more
contentious issues of collective bargaining\. Even the effort on converting severance payments
from lump-sum to individual employee saving "unemployment" accounts was difficult\. As it
developed however, by reviving the previous draft law on collective bargaining in early 2002, the
new authorities were able to secure its passage\. Thus they were actually able to achieve much
more than the SSAL called for\. Consequently a waiver was granted on the condition on
converting severance payments\. At the same time, the team judged during preparation that it did
not have sufficient understanding of some potential public sector reforms, and so decided to drop
them from the loan\. In one area--judicial reform--it was clear that the Argentine counterparts
were ill-prepared and their conviction to undertake genuine reform was dubious\.
The second main dimension, given the eventual negative outcome of Argentina's
macro-economic policies by the end of 2001 and early 2002, is whether or not the task team
should have predicted such an outcome at the time the SSAL package was put together in
mid- 1998 and if so, should a different package have been supported, notably one which involved
Argentina's exit from the Convertibility regime\. There continue to be differing views on the
causes of the crisis and if, when and how it might have been avoided\. But, there continues to be
consensus that the circumstances faced in 1998 justified the kind of support provided by the Bank
and the other IFIs\. The Bank's approach under the SSAL was consistent with the Concordat
between the Bank and the IMF and the stance taken by the Fund on key macro-economic
questions; there were no obvious early warning signs at that time; due diligence was undertaken
to cross-check and to seek external opinions on the appropriate economic policy package for
Argentina; and there was a viable range of policy options for Argentina to pursue that were
considered to be sufficient at that time to overcome the difficulties then faced\. Indeed, some
economists indicate that the current crisis could have been avoided as late as mid 2001 with the
appropriate policy responses by the Argentine authorities\. While this may continue to be one of
the more controversial aspects of this implementation completion report, the conclusion of this
ICR is that the many intervening events-some external and some internal to Argentina-could
not have been predicted at the time the SSAL was developed\.
4\. Achievement of Objective and Outputs
4\.1 Outcome/achievement of objective:
The ICR considers that the SSAL's overall objectives were not met even though the
specific outputs were all achieved\. It is clear, in retrospect, that the package of policy reforms
- 8-
supported by the SSAL were necessary but ultimately insufficient to redress the cumulative
impact of the series of shocks that confronted Argentina in 1999 and 2000\. Designed for largely
what were expected to be the transitory effects of an external shock stemming from Russia's
devaluatiorn and default in August 1998 (akin to the Tequila crisis), the SSAL eventually was the
main instrument used by the Bank to redress: (i) the devaluation of the Brazilian real in January
1999; (ii) the negative impacts of adverse campaign rhetoric by the leading presidential candidates
in July 1999; (iii) the appreciation of the US dollar vis a vis the Euro; (iv) market nervousness
because of Y2K towards the end of 1999; (iv) the increasingly weak executive capacity of the
governing Alliance party that took over in December 1999; and (v) allegations of corruption and
the resignation of the Vice President in October 2000\. All of these events occurred while general
market trends deteriorated: country risk premiums for all emerging markets were rising and
commodity prices fell\.
As is well known, the economic, political and social situation in Argentina deteriorated
dramatically during the course of 2001, after the SSAL was fully disbursed, leading to a new
international support package, called the blindaje\. This time, the IMF took the lead in providing
resources, eventually disbursing US$16 billion between January 2001 and September 2001, with
the Bank's support concentrated on provincial reform and a new SAL of $400 million in August
2001\. There were three Ministers of Economy in quick succession in March 2001, with the final
economic team resorting to increasingly risky and debilitating economic measures in an attempt to
restore confidence\. Even the injection of substantial resources in September 2001, when the
Repo was activated and the Bank's financing for that program disbursed along with that by the
IDB and IMF, could not restore confidence in the banking system\. This ultimately led to the
imposition of banking controls, a popular backlash, and the change of government in December
2001\. At the end of 2001, default was declared on Argentine public debt (except for that with the
IFIs) and in early 2002 the peso was allowed to float\. In the meantime, the country continued to
be in a deep recession with poverty reaching 50 percent of the population by July 2002\.
A recent retrospective on Argentina suggests that the current economic crisis resulted
from the interaction of the country's vulnerabilities with inadequate policy responses, the result of
weak institutions and political impasse that worsened as time went by (particularly in the period
following the last disbursement under the SSAL)\. The retrospective points out that while external
shocks may have been the root of the problems at the end of the 1990s, Argentina-specific factors
became increasingly important by the end of 2000, notably with the resignation of the Vice
President in October 2000, the two resignations of the Economy Ministers in quick succession in
March 2001, the resignation of the President of the Central Bank in April 2001, and other events,
combined with the Government's inability to deal with the situation ultimately proved to be the
downfall\. It may have been possible to avoid the crisis, or at least to reduce its costs, if the
authorities had the political backing to act in a more timely and consistent fashion\. Unfortunately,
the retrospective concludes that it is not likely that anyone outside of Argentina could have
effectively prevented the crisis from happening\.
Despite the overall outcome, a number of the SSAL's accomplishments were highly
relevant\. The loan, along with the Repo, facilitated the Government's access to international
capital funds for the period 1999-2000, and bolstered the banking system's defenses to deal with
-9-
volatile global markets until such time that poorly conceived domestic policies reversed the many
hard fought reforms of the banking sector in late 2001\. The SSAL's achievements were also
important from a sector perspective\. The proposed assistance was significant in keeping up the
momentum of reforms that had been initiated under previous operations and were still part of the
Bank's policy dialogue with Argentina, thus seeking to enable the Govenmment to remain focused
on its reform agenda even while attending to pressing financing difficulties and the coming
electoral campaign (with national elections held in October 1999)\.
The SSAL agenda, furthermore, constituted the bridge from one administration to
another, thus facilitating the transition of power at the end of 1999 and gave impetus to reforms
by the new Administration\. Although the SSAL was originally conceived to be disbursed within
the remaining period of the Menem administration (that is by end 1999), there were delays in
realizing third tranche conditions\. Thus, when it became apparent that the new government
would likely be formed by the Alliance party, the Bank sought to confirm ownership of the
remaining measures with the new Administration\. This was done starting as early as September
1999 and continued into 2000 when a new CAS was prepared\. Following an extensive review of
priorities, the new authorities endorsed the program and the SSAL served as a vehicle for
maintaining a policy dialogue and providing the new officials with the instruments for addressing
their reform priorities\. It is important to highlight that the new Administration was committed to
maintaining all important facets of Argentina's economic policy framework including the
exchange rate regime\.
The beginning of the SSAL's implementation was auspicious and Argentina was the first
emerging market to return to the international capital markets after the Russian devaluation and
default\. In late February 1999, Argentina successfully transacted a 20-year billion dollar issue,
despite the Brazilian devaluation in January 1999 and the continuing impact of the Russian crisis
on intemational capital flows\. Access was expensive and somewhat restricted, however, in part,
due to the extemal circumstances just described\. During 1999, the Argentine federal government
raised nearly $12 billion (about 4 percent of GDP) in intemational capital markets\. Of this
amount, the SSAL's second-tranche played a direct role in the issuing of $1\.5 billion in
intemational bonds in September 1999, when $250 million of the second tranche was converted
into a Policy-Based Guarantee (Report No\. P-7331-AR)\. Such market access lasted until
October 2000, when country risk premiums rose once again to unsustainable levels following the
resignation of the Vice-President\.
On the other hand, the shock created by Brazil's devaluation had a significant negative
impact on Argentina's economy\. Mercosur trade collapsed in all directions, with Mercosur
countries the destination of about one-third of Argentine exports in preceding years\. While
Argentina's trade balance with Brazil continued to register a surplus, both imports and exports
with Brazil declined sharply (exports to Brazil fell by 28 percent and imports from Brazil fell by
21 percent in 1999)\. A similar result occurred with the smaller partners of Mercosur\. The
appreciation of the dollar, weak international commodity prices and growing domestic concerns
over the outcome of upcoming presidential elections added to the country's difficulties\. In this
environment, an economic contraction was extremely difficult to avoid, and real GDP fell by 3\.4
percent in 1999\.
-10-
A decline in GDP of this magnitude imposes inevitable social consequences\. Therefore,
establishing a list of effective social programs to be protected in the 1999 and 2000 budget, the
SSAL helped to at least preserve key social services during the downturn\. However, the need to
convince markets of progress on the fiscal front made it impossible to significantly increase social
support programs during the recession\. Due to some improvements in labor market distortions,
unemployment in 1999 did not rise as substantially as during the aftermath of the Tequila crisis,
despite the more severe GDP contraction experienced in 1999\. The unemployment rate rose from
an average of 12\.4 percent in 1998 to an average of 13\.8 percent in 1999\. While the early part of
2000 showed signs of recovery, these were not sustained and the economy continued in recession
during 2000 and 2001 before collapsing in early 2002\. Social indicators have progressively
worsened, necessitating a more concerted approach to income support for unemployed heads of
households with children\.
The continuing financial sector reform effort under the SSAL, along with the financing
itself and the accompanying Special "REPO" loan probably played a significant role in the
relatively strong performance of the banking system during 1999 through to mid 2001\. Despite
the recession, deposits in the banking system expanded by 2\.9 percent during 1999 - continuing
the re-intermediation of the economy that began with the onset of the Convertibility Plan\.
Domestic credit grew by 1\.1 percent, reflecting a cautious use of the expanded deposit base\.
International reserves of the financial system grew by nearly five percent\. Thus, in many respects,
it is likely that the reforms supported by the SSAL and Repo, building on previous SALs and
FSALS, all contributed to maintaining confidence in Argentina's banking system for a longer
period than might have been expected\. It was not until early July 2001 that depositors began to
withdraw their funds from the system and there were no major bank closings or disruptions to the
payments system until the end of 2001, although a number of small banks were closed as part of
the consolidation of the banling system that had been occurring in previous years\. The present
collapse of the banking system reflects the cumulative impact of measures taken during 2001 that
reversed the earlier reforms by lowering reserve requirements, capturing banking credit by the
public sector, imposing deposit restrictions, and converting dollar loans and deposits to pesos at
different rates in early 2002\.
There were advances in certain other sectors\. In general, advances were made in
rationalizing social programs, improving health sector regulation, advancing the dialogue and
understanding of provincial finance reforms, and advancing regulatory reforms\. As is the case of
the financial sector, some of these have now been reversed by intervening policy decisions but
others continue in force\. As acknowledged at the outset, some reforms remain only partial,
reflecting the incremental approach to reform adopted in several areas\. Some accomplishments
consisted of the completion of reports, guidelines and plans which may or may not be pursued in
the future\. Others resulted in the preparation of legislative proposals without any immediate
assurances of their subsequent adoption by the Congress Details are summarized in section 4\.2
and elaborated on in Annex I\.
To be sure, the SSAL involved numerous instances in which the Bank sought to push the
envelope and to lay the basis for reforms in the future as part of a continuing, evolving process\.
- 1 1 -
Thus, in many areas the ultimate achievements may only be realized if the Bank and the
Government continue to be engaged\. Given the nature of the Bank's relationship with Argentina,
there is every expectation that this will be the case\. While the immediate impacts may not yet be
felt, some authorities believe that the various measures-including some of those which have not
so far had an obvious impact--have created a cultural change that could prove to set the stage for
valuable long lasting effects\.
4\.2 Outputs by conmponents:
Human Development Sector Actions
The labor reform objectives sought under the SSAL were successfully achieved and went
beyond the initial targets set under the SSAL\. These reforms should have long lasting impact
even though implementation of the new legislation has been slow\. During loan preparation, as in
past attempts at labor reform, the pervasive and rising joblessness plus strong union resistance
appeared to crimp the prospects for transforming the rigid, tightly regulated labor regime,
especially rectifying the way in which collective bargaining is conducted\. Thus, the Bank
accepted a commitment to study possible options for creating a fully capitalized unemployment
insurance scheme to replace the costly and outdated system of severance payments\. However, the
new administration in 2000 set its sights on bringing about an actual, direct and more
comprehensive reform and resurrected an earlier reform package that had been developed by the
previous administration with the Bank's support\. This time, the measures won Congressional
approval, along with legislation providing for the trimming of labor taxes and easing of
restrictions on new workers\. In the process, the specific target of developing proposal for
lowering severance payment costs and creating individual worker accounts-a reform that has not
yet been fully debated-was substituted via a waiver with the more comprehensive reform that
had previously been sought\. In mid-2001, the Labor Ministry established regulations that would
lead to renegotiating the many contracts involved, according to the new, more flexible labor
legislation\. Once the reform is fully implemented, these new contracts could increase labor
mobility substantially, easing the re-absorption of displaced workers in the market, and boosting
productivity\.
In the health insurance sphere, the Government sought to extend its previous reforms for
the liberalization of the market under the Health Insurance Reform Loan\. That loan had opened
competition among union-run health insurers, set up a mandatory package of health services and
established a health superintendency\. Building on these reforms, the SSAL called for the National
Health Institute for Retirees (INSSJP) to outsource its services and improve its cost effectiveness\.
While this condition was technically met, this approach suffered a legal setback\. Consequently, the
new authorities recast the goal to aim at substantially expanding the number of providers and
engaging them through far more transparent procurement procedures than had previously
prevailed\. This was achieved\. Early on, INSSJP signed 75, mainly new, contracts covering the
vast majority of eligible services\. These were initially reported to be generating savings exceeding
$17 million monthly, thereby helping to reduce the Institute's serious budget deficit (although
under current crisis conditions the situation appears to be worsening)\. In the process also, some
beneficiaries obtained freer choices of providers\. Meanwhile, the Government verified the
implementation of the new prudential and consumer protection norms set to govern beneficiary
services, regulation of medical programs, marketing, etc\. Likewise, it fixed suitable standards for
- 12 -
the union-run carriers' public performance reporting, and triggered more open, frequent
publication of the results\. These actions were constructive but much more basic improvements are
needed for the development of a competitive health care market and to make the Government's
program cost effective\.
Three federal nutrition programs were consolidated into a single entity while steps were
also taken to better target their services in order to cut duplication and overlap\. To the same end,
the Government prepared new eligibility criteria for recipients of pensions granted by the
legislative and executive branches in order to raise this program's efficiency and its curb abuses\.
It called for their better auditing and cross-checking of beneficiaries, while also extending
improved poverty measurement criteria to a new total of 14 social programs\.
Several well intended proposals were introduced which could signal the directions for
significant higher education system changes-but they gained little standing\. A plan was set out,
with active Bank assistance, for improving the equity and efficiency of public university finance\.
Its implementation could provide badly needed improvements: greater opportunities for low
income students, expanded cost recovery, and stronger weight in student selection on merit and
transparency\. While budget cuts have curtailed the use of this formula, it is currently being
applied during 2002 as a way of rationalizing the distribution of at least some resources to public
universities with the prospect for more general application over time\. In addition, the
Government issued a resolution to create a national fund which would help initiate actions to
these ends\. Nevertheless, these initiatives are not assured of sustained backing, and the
constituency for changing education funding is not very powerful so far\. The hope is that these
initiatives will lead to a broad debate on how to finance the tertiary education system more
generally\. The Government also arranged for aptitude testing of all third year secondary school
students and for distribution of its findings to schools, parents and the public\. The resulting data
could be useful for meeting Argentina's need to demonstrate the school system's accountability
for its performance to the public, as well as increasing the skilled labor supply and better aligning
the system with changes in the economy\. But so far there is not a "culture" of using such
standardized test results, and the ultimate use rests on the Federal authorities' success in
persuading their provincial counterparts (who bear the sector responsibility) to pursue this effort
more actively\.
The authorities undertook several direct poverty alleviation measures in addition to the
aforementioned improvements in social protection activities for better targeting and effectiveness\.
The action with immediate consequences was to provide some protection of adequate spending
levels for effectively targeted, high quality social programs against the 1999 budget cutbacks, and
give them further support in 2000\. This broke with tradition since Argentina's social expenditure
pattern has been one of declining spending on priority programs when economic activity fell and
poverty increased\. The Government moreover enlarged the list of these programs agreed in the
SSAL targets with added health and employment assistance\. It also put in place a better
methodology for calculating " basic needs" indices and moved to apply it starting in 2000\. The
authorities expanded the usage of this methodology to install proxy means testing in fourteen
social programs and the same number of provinces, which should help to eliminate inappropriate
beneficiaries\. These measures should likewise lend more transparency to these programs\.
- 13-
Financial Sector Actions
After the Tequila crisis, the banking sector was strengthened through improvements
mainly in regulation and supervision, together with privatization\. However, the mid-1990s'
experience had also demonstrated a need for further reductions in the public banks' role in the
sector\. One of the SSAL's goals accordingly called for bringing the Government's second-tier
housing mortgage bank (BHN) to the point of sale to private enterprise\. In the event actually, the
Government surpassed the target and sold commercial investors a controlling interest in the bank\.
On the other hand, national sentiment continued to oppose the privatization of the
remaining federal bank (BNA)\. It was decided therefore to only seek a more transparent
accounting of BNA's financial condition\. This was obtained: BNA was comprehensively audited;
its operations and guarantees were documented more openly; its accounts are published in Stock
Exchange reports; and its condition is shown in BNA's "website\." These have lifted some of the
"veil of secrecy" regarding the institution--but not altered its problematic status\. The current
banking crisis leaves the role of the public banks unresolved and will no doubt have to be the
focus of a renewed reform effort\.
The SSAL assisted in enhancing the private banks' regulatory framework\. With its
assistance, a new "Permanent Commission on the Evaluation of Financial Regulation" began to
engage in better coordinated surveillance of, and attempts to resolve, banking system problems\.
It produced recommendations on liquidity management which led to rule changes\. It also
proposed changes regarding security markets and insurance from which legislative proposals were
prepared\. A parallel temporary inter-agency committee reviewed bank failure and closure
procedures in order to assess the adequacy of the mechanisms for resolving problems in these
fields\. It produced recommendations that could improve existing laws and regulations by
upgrading the legal security of assets, deposit carve-outs and transfers\. Further, the committee
and a consultant examined the Central Bank's governance regulations, which they found adequate\.
Also, proposals were drafted to amend the Central Bank charter so as to tighten bank licensing
and other governance requirements\. These so far have not won Congressional approval for
political reasons\. In complementary activity, the Government and Central Bank jointly reviewed
the criteria being used for supervising public banks vis a vis private banks, as well as their
enforcement\. They found these criteria compatible\. Further, the authorities submitted to the
Congress proposals for protecting banking regulators and supervisors from personal liability for
good faith actions\. These failed to obtain a favorable reaction, reportedly because of differences
over the immunity provisions\. (This action was also politically inopportune since the Central Bank
President then faced Congressional investigation, and so the proposed law appeared to be
self-serving\.) This recommendation was followed up in the 2001 FSAP, jointly undertaken
between the Bank and the IMF\. This proposal continues to be debated in mid-2002 for
Congressional consideration\. Separately, the Central Bank established a special unit dealing with
"money laundering" that reviews suspicious transactions in line with Argentina's newly revised
legislation (which is consistent with the international Financial Action Task Force
recommendations)\.
-14 -
In order to deepen the capital market, the Government won Congressional approval of
new laws for facilitating the growth of leasing finance and permitting mutual fund investments
outside the MERCOSUR area\. It also requested, but has not yet won comparable approval of
legislation which would promote the use of secured transactions in credit contracts\. Under the
SSAL as well, there was a study of the tax treatment of different financial instruments to
determine whether corrective legislation was needed to achieve greater tax neutrality\. This
concluded that there was not any but it found the prevailing framework unclear and inconsistent\.
The Government therefore created a commission which addressed these problems and a March
2000 decree resolved issues of differential treatment of repurchase agreements versus pledges or
guarantees\. These findings were followed up through an IDB operation\.
Further, the Government reviewed, and then prepared an action plan to reform, the ratings
industry\. This would eliminate obligatory ratings on IPOs, debt instruments and equities while
lessening the Securities Commission's reviews\. Similarly, it sent the Congress high quality
proposals to modernize the insurance market's framework, regulation and practices\. Neither of
these efforts have so far progressed to the accomplishments desired but there already have been
some commendable improvements in the insurance area\. Under the SSAL's influence, "best
practice" concepts of solvency monitoring and early warning systems, along with greater attention
to consumer protection concerns, are beginning to enter the industry\. Meanwhile, the Insurance
Superintendency constructively tightened life insurance companies' compliance with minimum
capital requirements\. And its more rigorous enforcement policies led to orders to over 40
companies to cease operations over the subsequent two years\.
Intergovernmental Fiscal Sector Actions
The Federal and provincial authorities reached a long sought accord in principle on
revising Argentina's complex way of financing sub-national governments and revenue sharing, a
significant advance\. The 1994 Constitutional Reform had called for Congressional enactment of
changes in the system by the end of 1996, given the widespread appreciation of its inadequacies\.
But such changes had been hard to realize, even after several rounds of difficult negotiations with
the provincial governments\. Accordingly, the SSAL addressed the issues, taking into account the
large sums involved (just under 6 percent of GDP in 1997) and their contribution to Argentina's
public finance problems\. It called for measures to help advance the dialogue, particularly about
simplifying intergovernmental transfers and changing the formula for their allocation among the
provinces\. Under the program, intergovernmental proposals were prepared which would
substantially change the rules and procedures governing transfers to the provinces\. Their creation
plus subsequent Congressional approval of the "Federal Commitment" document affecting the
system presaged important changes\. In fact, the reform proposals already influenced the adoption
of a moving average provincial share of transfers for 2001-05 as part of a Federal-provincial
agreement reached in November 2000\. This was considered to constitute an agreement to
simplify the system and to include social security finances in the primary distribution package\.
Moreover, arrangements were made for Federal-provincial negotiations on propositions for
simplifying the revenue distribution formula to make it more transparent, equitable and more
capable of motivating stronger provincial accountability and efficiency\. At least, these major
issues are now on the table and are the basis for ongoing negotiations in the design of a new
-15-
federal provincial fiscal agreement\. Correspondingly, there are also proposals for decentralizing
the tax system, which would provide the provinces new instruments and greater
revenue-generating authority\.
Infrastructure Sector Regulatory Actions
The extensive restructuring of and participation of new players in infrastructure services
by the late 1990s have made it necessary to rationalize the myriad changes\. This coincided with
greater recognition that Argentina's high transport costs and poorly integrated modes were
causing costly economic difficulties\. In response, the SSAL supported an effort to improve the
institutional framework\. It supported the preparation of proposals for the creation of an
integrated freight transport regulatory agency keyed to encouraging multi-modal services\.
In addition, the Government designed a plan to increase the autonomy and independence
of sector regulatory agencies through advancing the implementation of improvements in
regulators' selections and tenure, as well as in these entities' funding sources\. A draft law
previously submitted to the Congress for harmonizing regulatory standards was revised to tighten
some elements but it has not yet been passed\. Meanwhile, the Attorney General sanctioned the
abstention of traditional executive branch agencies from technical and economic issues in
regulatory disputes, thereby fortifying regulatory entities' independence in these matters\.
4\.3 Net Present Value/Economic rate of return:
N/A
4\.4 Financial rate of return:
N/A
4\.5 Institutional development impact:
There were constructive advances made, including some of long term importance, such as
placing the housing mortgage bank under commercial management\. The consolidation of
responsibilities for nutrition programs and the further strengthening of banking supervision and
regulation mechanisms figure as well\. The Insurance Superintendency progressed, although it still
needed to be fortified\. In general, the supervision and regulation of the financial system served as
strong points during the prolonged recession/stagnation of 1999-2001\. Clearly, the bank run of
late 2001 - due to macroeconomic considerations and concerns about the currency regime -
along with the devaluation of 2002, led to tremendous stress on the financial system, perhaps
permanently destroying some of the institutional achievements gained during SSAL
implementation\.
Institutional improvements could accrue from the emerging consensus with the provinces
on intergovernmental finances\. The process of preparing high quality technical analysis of the
reform of provincial taxes and transfers, along with the debate engaged with the provincial
authorities, advanced the policy dialogue significantly\. The ideas developed and presented at that
time continue to serve the basis of discussions in Argentina on this complicated and politically
difficult reform\.
-16-
All these are judged to more than balance the unsuccessful efforts to rationalize the
National Health Institute (INSSJP) and the so far unpromising development of the transport
regulatory agency\. On these grounds, the SSAL's institutional development impact is rated
"Modest" for the period covered during the project implementation\. Sustainability of these
institutional reforms will be discussed in Section 6\.
5\. Major Factors Affecting Implementation and Outcome
5\.1 Factors outside the control of government or implementing agency:
Argentina confronted severe external shocks that affected its economic performance, and
the implementation of this loan\. After growing by 3\.9 percent in 1998, the economy suffered a
contraction of 3\.1 percent in 1999\. A recession begun in the fourth quarter of 1998, following the
Russian crisis and subsequent turbulence in international financial markets\. These financial factors
initiated the recession, but then the Brazilian devaluation of early 1999 (Argentina's largest trading
partner), falling commodity prices (terms of trade fell by over 10% in 1998/99), the appreciation
of the US dollar vis a vis the Euro, and unfavorable weather conditions for the agricultural sector
contributed to the downturn\. In the second half of 1999, uncertainty over the presidential
elections further complicated the panorama\. So did the market fears about the costs and
disruptions of Y2K in developing economies\. As a consequence of external developments in
1999, part of that year's second tranche release was diverted to a policy based guarantee
operation, enabling the authorities to strengthen the liquidity position of the government, and
facilitate the transition to the new administration\.
Tracing the evolution of country risk ratings reveals the sensitivity of the markets to the
impact of both external and internal events\. Argentina's country risk ratings rose sharply when
first Russia and then Brazil devalued\. There was a jump again when statements were made by
leading political figures about the desirability of defaulting the country's external debt in July 1999
during the presidential campaign\. These jumps reflected increases in sovereign spreads, domestic
interest rates with an impact on economic activity, and Argentina's ability to access the
international markets and its pattern of capital flows\. A pronounced contraction in capital flows
became evident starting in 1998, which was accentuated in 2000\. The electoral campaign period
and the presidential transition had a significant impact on the conduct of economic policy, and
slowed the loan's implementation\. The other source of adverse real shocks was the global growth
decline that started in 2000\.
Various parties involved in this operation likewise affected its outcome\. For one, the
SSAL's preparation and subsequent implementation benefited to a very large extent from the
aforementioned earlier sizeable Bank investment in economic and sector work, as well as its
intensive Government dialogue\. There was also close coordination with the IMF, especially in the
development and review of the Government's program and preparation of the Loans\. The EFF in
place provided an essential element for the underlying macroeconomic program, and there were
frequent consultations on Argentina's conditions and prospects;
The IDB participated comprehensively as well\. The two banks' loans were well
coordinated during identification and preparation through joint missions, followed by continuous
- 17 -
dialogue in the course of implementation\. The closely parallel conditionality of the Loans and
working cooperation helped keep the Government focused on the shared reform program\. The
IDB made a special contribution in seeking to strengthen the quality of social services, for
example in co-supervising the extension of irnproved poverty measurement methodology to
additional Argentine programs\. It also aided the activity in the education sector\.
5\.2 Factors generallv subject to governnent control:
The implementation of the SSAL was affected considerably by the change in the
Borrower's counterparts following the late 1999 elections, impacting the pace of reforms and the
disbursement of the third tranche\. The short timeframe planned for the three tranches imposed a
tight schedule for complying with conditionality\. The change in Government affected the
timetable of meeting the SSAL's conditions in order to give the new administration the time to
intemalize and commit to the remaining reforms\. Ultimately, one waiver was granted at the time
of the third tranche release concerning the labor reform condition (mentioned in section 4\.2)\. This
waiver, however, was largely technical\. While the specific action was not completed, the
Government secured legislative approval of a much broader labor reform than was originally
established in the legal agreement\. The advent of the new administration furthermore necessitated
an initial extension of the Loan's Closing Date\. The Bank worked with the new administration
to take time and assess the SSAL's consistency with its own policy objectives, and to confirm its
commitment to them\. This led in tum to a further delay subsequently in order to help ensure
Government's compliance with all Loan conditions and the solution of some procedural problems\.
In August 2000, a final extension was approved in order to enable the administration to complete
the administrative processes required for submitting legislation to the Congress\.
The severity of Argentina's macro problems helped to shape the outcome\. This was
judged to have aided in pushing the reform agenda more forcefully than would have occurred
without that impetus\. This might have contributed to the Govenmment's exceeding some SSAL
targets and its especially strong support of reforms under the direct purview of the Ministry of
Economy\.
The fiscal situation remains a weak spot, as it did earlier when it led the Government to
sponsor a Law of Fiscal Responsibility, passed in July 1999\. This law laid out the path to a
balanced fiscal budget by 2003, and the creation of a "rainy day" fund\. Albeit well intended, this
law never had teeth\. The Govemment did not meet the fiscal targets included under the
accompanying Fund program and there was a considerable overshooting of public spending in
1999, an election year\. The lack of fiscal discipline-at a time when it was needed to generate
confidence in the Government's ability to adhere to its commitments-proved to be one of the
factors that affected the market's perceptions of Argentina's ability to stick to underlying tenets of
the Convertibility plan\. The new government, moreover, addressed its larger than expected fiscal
deficit with new taxes in early 2000, as part of the expansion of the Fund's program\. Again, while
well intended, the negative impact of these measures on consumer confidence (as they mainly
increased taxes on the middle class) and on the market's perception of the Government's ability to
address the underlying fiscal issues more than offset the positive impact on tax revenues\. Thus,
once again, the lack of a real effort to tackle Argentina's fiscal imbalances continues to drag down
confidence\.
-18 -
By late 2000, the continuing concerns over fiscal performance were compounded by a
political crisis that eventually divided the two-party alliance governing Argentina\. Economic
activity, which had been largely flat during the first three quarters of the year, turned sharply
negative during the fourth quarter\. Access to international capital markets became restricted, and
the Government sought a new international financial package at the end of 2000\. Thus, when the
SSAL had fully disbursed in September 2000, the Government soon faced an even worse crisis of
confidence that ultimately led to another international support package led by the IMF\.
However, despite this new much more substantial international financial package, political
tensions and an unfavorable external environment contributed to continuing economic difficulties
during 2001\. A greater crisis of confidence unfolded as Argentines began to withdraw deposits
from banks, and capital flight followed starting in July 2001\. By the end of the year, in the midst
of a full-fledged bank run, capital controls were imposed, as well as restrictions on the withdrawal
of cash from banks\. President De la Rua was forced to resign, and during a period of a week, five
interim Presidents passed through the Presidential palace\.
5\.3 Factors generally subject to implementing agency control:
N/A
5\.4 Costs andfinancing:
During the implementation of the SSAL, Government financing needs surpassed
expectations due to the depth and persistence of the economic downturn\. Part of the Bank's
response to this situation was to leverage the second tranche, canceling $250 million and
allocating this amount to a Policy-Based Guarantee that raised about US$1\.1 billion in the capital
markets in October 1999\. As noted above, the SSAL program, once disbursed, was subsequently
followed by an even larger program, amounting to about US$ 40 billion, including the voluntary
participation of private banks in public debt swaps\.
6\. Sustainability
6\.1 Rationale\.for sustainability rating:
The events that followed the closing of the loan demonstrated that the reforms supported
by the SSAL and the accompanying and subsequent Fund programs were not sufficient to sustain
Argentina's economic policy framework\. Moreover, the collapse of the banking sector is a clear
case of past efforts to strengthen the system being undermined\. Nevertheless, a number of
specific actions from the SSAL reform program may still prove to be sustainable\. For example,
the Mortgage Bank (BUN) is still in private sector hands; however, the banking system is in dire
straits and suffers from a variety of governmental restrictions\. Other examples include the
proposals for intergovernmental fiscal reform prepared under the SSAL, which remnain in the
center of discussions between the federal government and the provinces, and will likely have its
impact when a new revenue sharing agreement will need to be approved by the end of 2002\.
Some of the health sector reforms advanced somewhat over the last year, but they may face an
uncertain future\. Further consolidation of social programs, initiated under the SSAL, is now more
necessary than ever\. Efforts to provide legal protection to Central Bank managers in the
- 19-
execution of their lawful duties, a proposal tabled to Congress in the context of this loan,
continues being debated today in Argentina\.
Currently, the authorities are contemplating a stabilization and reform effort that would
bolster credibility in national institutions and renew confidence among domestic and international
investors towards the recovery of economic activity and reduction in unemployment and poverty\.
The SSAL established a framework for a number of operations which could be activated by the
Bank and the IDB in such renewal efforts\. As part of the Bank's contribution to the subsequent
international package, the focus was on intensifying reforms in the social sectors, public sector
institutional reforms, and intergovernmental fiscal relations\. The IDB meanwhile also moved to
follow up on some of the SSAL social sector, insurance, and capital markets initiatives\.
Currently, the consolidation of the social sectors, protection of social expenditures, reform of
federal provincial and federal fiscal relations, reforms in public administration, financial sector
reform, and private sector development, all having roots in the SSAL operation, are under
consideration by the authorities for a renewed multilateral support effort\.
On balance, the overriding factor in rating sustainability as "unlikely" is that the general
political and economic environment does not bode well for continuing some of the specific fiscal,
regulatory and social sector reforms that had advanced well during the SSAL implementation\.
However, the continued implementation of such reforms remain an integral part of the new
agenda for the current Administration in the context of an ongoing stabilization and reform effort\.
6\.2 Transition arrangement to regular operations:
N/A
7\. Bank and Borrower Performance
Bank
7\.) Lending:
The Bank's performance during lending is judged to have been satisfactory\. It was
especially notable in providing timely and atypical assistance to a borrower impaired by
exceptional and unanticipated financing needs\. In particular, the time it took to proceed from the
agreement to consider the Borrower's urgent loan request and bring it to fruition was exemplary\.
The Government requested the Bank support in August 1998; it was agreed to at the Annual
Meetings, and the SSAL was prepared in about three months\.
It bears noting that a QAG sub-panel did not consider the Bank's work in preparing the
SSAL fully adequate in terms of the treatment of fiduciary concerns regarding accounting and
auditing\. But the overall QAG report differed from the sub-panel's finding on the grounds of lack
of clarity of the Bank's expectations in these areas with respect to adjustment operations\. Since
the sub-panel's criticism appears to have related more to IBRD adjustment operations generally
rather thain this SSAL, it will not be fully addressed here\. Nonetheless, it merits attention that the
Bank met two of the overall QAG report's recommendations before the SSAL's approval\. These
were that a preliminary assessment be made of the adequacy of accounting and auditing
arrangements relating to the Government's use of the funds, and general consideration be given to
their institutional framework\. The Bank had already assessed the Government's audit agency and
found its practices and standards with project audits, acceptable\.
-20-
7\.2 Supenrision:
The Bank's performance during supervision is judged to have been highly satisfactory,
particularly in light of the operation's complexity and broad coverage\. This necessitated the
management of specialized teams in numerous sectors, including highly qualified external and
internal experts on issues such as tax laws, regulation, banking supervision, health insurance,
poverty measurement, and so on\. This generated some high quality Bank and Bank-supervised
analytic work done during the SSAL's execution, e\.g\., in drafting the proposed legislation on
insurance sector policies and secured transactions\. Bank supervision also is reported to have
helped bridge divergent interests of the two Governnent teams responsible for conducting the
program without substantial slippage on policy grounds\. This was deftly done, considering that
the second administration was faced with satisfying the conditionality for the final tranche, some
of whose provisions they had disagreed with when they were in the opposition\. In this
connection, a former Economy Ministry Undersecretary commended the Bank's team for helping
to overcome "public choice" difficulties and resolving differences among Government officials\.
The Bank supervision team also displayed constructive flexibility in meeting some requests for
modification of the original conditionality from some of the second administration's officials, for
which the latter praised the Bank\. The record shows intensive, sharply focused, sustained, highly
responsive attentiveness to program implementation and high level problem solving, abetted by
heavy Bank staff inputs\. While only 7\.4 staffweeks were expended on lending through December
1998 leveraged by substantial and relevant ESW available at the time of the request for such
operation\. this multiplied to over 47 sw by end FY99, and, ultimately to over 128 sw by FYO1 for
supervision\.
A request for an inspection by the Bank's independent Panel was received during the
course of implementation\. This request, focusing on the budgetary protection provided to the
targeted social programs, was considered to be without foundation by the Panel based on a
preliminary review of the Bank's supervision efforts\.
The Bank supervision also took special precautions on the fiduciary side\. In addition to
supplementing the safeguard checks the measures on the fiduciary side taken before approval, the
Bank requested an external audit of the disbursements which generated an unqualified satisfactory
opinion on the Special Account\. The Bank undertook a special review of this Account covering
later transactions associated with the policy-based guarantee\. Its conclusion was also satisfactory\.
The only area in which one might reflect upon is whether or not there was adequate
assessment of the impact of the very rapidly changing conditions as the successive external and
domestic shocks hit Argentina during implementation and whether these changing conditions
should have triggered a different stance by the Bank as it proceeded with the SSAL\. This
question could be raised for example, when Brazil devalued in early 1999 in terms of what impact
this had on the sustainability of Argentina's overall economic program\.
While in many dimensions the answer to this question goes beyond the SSAL program
itself and goes to the heart of the reflection by the IFIs on whether or not the Argentine crisis
could have been avoided, if alternative policy options had been pursued earlier\. The general
- 21 -
response provided in the Region's retrospective on Argentina is no\. Many leading economist
consider that Argentina's economic program remained viable until mid-2001 or later\. Even with
the exchange rate shock of the 1999 Brazil devaluation, there were reasonable prospects that
Argentina could have regained competitiveness\. This was borne out by ESW carried out in
August 1999, assessing Argentina's competitiveness vis a vis Chile, Uruguay and Brazil, and was
consistent with the Fund's calculations of Argentina's effective exchange rate at the time, even
though more recent calculations by the Bank may show that the real exchange rate had
appreciated considerably by 1999\.
More broadly, the Bank was cognizant of the additional effort-going beyond the
SSAL--that Argentina would have to had undertaken to sustain its economic program and the
risks of alternative exchange rate regimes, particularly if such a change were to be done under
crisis conditions\. On the fiscal side, the Bank's concerns were borne out by the risk assessment
carried out in February 2000 that identified issues of debt sustainability if the persistent fiscal
problems were not addressed while the Fund continued to insist on fiscal targets as part of its
continuing support\. Equally, the Bank had diagnosed and formulated an agenda to enhance
productivity as well as strengthen the social safety net, all underpinning the Convertibility plan\.
Thus, the need for more intensive reformns in the public sector-particularly public expenditure
management - and competitiveness was clearly laid out in the May 2000 CAS (see paragraphs 52
and 53)\.
7\.3 Overall Bank performance:
Overall the Bank's performance is considered satisfactory\.
Nevertheless, this operation flags the issue of the appropriateness of the IFIs - particularly
the Bank--helping countries prevent or mitigate vulnerability to economic shocks, or cope with
volatile capital market access\. However, such questions appear to have been resolved when the
Board approved assistance to such countries as Korea in response to the 1997/98 crisis, per the
"Financial Crisis and Structural Reform: The Bank's Role and Instruments" paper ( ref\.
SecM98-743)\. These issues were moreover debated during the EDs' discussion on the
SSAL/"REPO" in November 1998\. And the EDs' approval in April 1999 of the extension of the
Bank's credit guarantee program to encompass sovereign borrowings is considered to have
augmented Bank sanction of the SSAL's approach (ref\. "World Bank Policy-Based Guarantees,"
R99-53)\.
In addition, this operation raised the question of the proper price and fee structure for
program lending that is large, unexpected, and has strong liquidity features\. The incremental
financial risk to the Bank and discouraging the abuse of an incremental financing option justified
a higher charge\. The formula set provided that these loans would have five-year maturity periods,
including three years of grace, and interest rates of LIBOR plus 400 basis points, in addition to a
one percent front end fee and a commitment charge of 75 basis points over LIBOR\. These
conditions were judged adequate to compensate the Bank for its extra risk\. On their face, these
terms provided considerable price differentiation between IBRD products\. They also took into
account the SSAL's differential costs and attractiveness to the Borrower (especially after the
Board approved more austere conditions for such lending in October 1998 than had applied to the
first Korean emergency loan)\. It is believed therefore that they were appropriate for the
-22 -
circumstances\. But a more specialized, extensive assessment than this review can provide would
be needed to definitively determine whether or not these terms fully reflected the costs to the
Bank, as well as efficiently rationed the Bank's constrained capital and covered all relevant risks
including those to cash flow\. Additionally, in the context of the current crisis, the use of special
terms with their significantly shorter than customary repayment needs, bears reexamination\.
Borrower
7\.4 Preparation:
Ref para\. 7\.7
7\.5 Government inmplementation performance:
Ref para\. 7\.7
7\.6 Iniplementing Agency:
N/A
7\.7 Overall Borr7ower peifoirnance:
The Borrower entered into the commitments under the SSAL with the understandable
imperative of obtaining its resources\. But despite this, the Government generally pursued the
reforms satisfactorily\. To this extent, the SSAL accomplishments derived from and reflected a
considerable degree of "broad ownership" of the thrust of the proposed changes, especially from
the more reformist-minded officials\. This was evident at the outset\. Moreover, some of the
second administration's leaders provided fresh momentum and desire for reforms which proved
useful, especially on the labor regime\. Certainly, there were mixed Government views on many of
the planned actions, as well as (with the benefit of hindsight) what was ultimately achieved\. But
there was a reasonable consensus, even among differing government groups, on the issues for
which new directions were needed, and those were reflected in the SSAL\. Further, there was
often good professional accord with the Government and partner institutions on the appropriate
policy responses\. However, this sometimes tended to be truer in dealing with technical rather than
top Argentine policy-making levels, particularly with the waning enthusiasm and political capital
of the outgoing officials towards the end of the Menem Administration\. The Ministry of
Economy, Central Bank, and the Chief of Cabinet's Office, in addition to the Attorney Generl's
Office, made especially helpful contributions in the implementation of this loan\.
Conversely, others manifested less avid backing, especially those concemed with the
education and health system reforms, with outright dissent in some instances\. Even the forceful
support of Economy Ministry officers was sometimes insufficient to persuade their colleagues,
some of whom appeared hesitant about the political costs and benefits of the proposed changes\.
And several had to contend with strong vested interest groups, whose powers stood to be
possibly jeopardized\. The officials responsible for these sectors are also understood to have
resisted some proposals on the grounds that they were asked (during strong fiscal restraint) to
perform difficult tasks without adequate incentives such as compensation from the Loan\.
Furthermore, quite a few proposals also encountered opposition from the Congress\. These
problems indicate that stronger Executive Branch control and backing for the proposals were
needed\.
-23 -
Overall, the extent of the Borrower's collaboration in the preparation and implementation
of the operation is judged to have been suitable under the circumstances\.
8\. Lessons Learned
An OPS review of experiences with the first SSALs aptly drew the following lessons, with
which this ICR concurs:
(a) The Bank had developed a "rapid response capability" to help borrowers deal quickly
and effectively with unexpected, turbulent international financial and economic difficulties\.
(b) The Bank could successfully adapt its instruments to emerging, unforeseen needs-in
this case, to help overcome the severely limited ability of developing nations to access private
capital markets\. It confirmed that it could offer loans and guarantees to finance the attendant
requirements to retrieve long-term stabilization, including financial system reconstruction\. This
does not indicate that the Bank should become a short-term crisis lender\. Nor does it deal with
whether the Bank has adequate flexibility for rapidly managing its risk profile or raising additional
risk capital\. But the new instruments demonstrated that the Bank can provide an important
element of long term finance when it is not available for timely support of urgent reforms\.
(c) These lessons also point that for recent or possible IBRD "graduates", graduation
does not mean that the Bank could not return quickly to support them during a crisis, even middle
income countries with prior access to private capital markets\.
This SSAL allowed the Bank to respond flexibly and in an exceptional manner to the
special circumstances of Argentina's 1998 crisis\. This experience however raises some questions
about this new instrument, which bear review\. -
(a) This SSAL was prepared with the intention of sustaining a reform effort under
restricted financial conditions\. It also played a role in assuring a dynamic reform trajectory
leading up to elections that would occur approximately one year after the loan's approval\. This,
however, begs the question of whether local political institutions would be strong enough to carry
on the reform agenda following the political transition\. While intensive supervision efforts
contributed to the new Government's eventual compliance with third tranche conditions (with one
notable technical exception discussed above), these efforts did not prove sufficient\. Although the
Bank recognized the risks of the political transition, it may not have been in a position to predict,
based on previous experience, that political institutions would later fail under a new
administration, leading to serious doubts about the sustainability of the reform program\.
Nevertheless, the trade off between the desire to sustain a reform effort under tight financial
constraints, and institutional capacity to implement it during unpredictable political transitions,
remains an issue of concern in other operations;
(b) There may be a potential conflict in the concept of SSALs advancing structural
reforms simultaneous while meeting urgent liquidity objectives\. The Argentine experience
illustrates the practical limitations of attempting this approach in a country with a potential to
enter into a crisis\. In this circumstance, it took a prodigious effort in the limited time available to
-24-
define and fix the reform package with the desirable detail\. Fortunately as noted, the requisite
analytical background was largely available thanks to a reservoir of several years' ESW studies
supported by local competence\. But it is questionable if this would normally prevail in most
circumstances\.
(c) An inherent conflict/moral hazard may be created, on the government side, between
the commitment to enact structural reforms of sufficient depth, and the desire to circumvent
difficult external financing problems\. Implementation of structural reforms entail laborious,
time-consuming efforts within the broad government spectrum\. Not all parts of the Government
may have a similar incentive to support such an effort\. As a result, the need to solve such
problems in a SSAL situation can create undesirable tensions between activities to mobilize funds
while pressing for definitive reform measures\. It may not therefore be always true that such
emergency-type circumstances as trying to manage grave external finance shortages afford good
"windows of opportunity for reforms that might otherwise have remained closed\."
(d) The failure to achieve legislative approval for many of the proposed laws under the
SSAL indicates a continuing lack of effectiveness of this form of conditionality and may point to
the need to reassess when and how such conditionality is applied\.
This ICR did not address the issues of whether there might be better ways of addressing
liquidity crises, and whether this could be done in a more efficient and less costly way\. The Bank
might devote some effort to analyzing whether alternate instruments might be more appropriate in
various circumstances, as well as whether the Bank needs to have a more comprehensive arsenal
of instruments available\. In particular, in terms of financial conditions, this SSAL points to the
risks inherent in providing short-term financing that complicates, rather than alleviates the
medium-term financing requirements\. In the case of Argentina, "special terms" resulted in a loan
maturity that was significantly below the average maturity of Argentine public sector debt at that
time\. We also need to look at which types of structural reforms may be best combined with
liquidity support operations\.
The experience under this SSAL offers lessons about ways of seeking good structural
adjustment results\. In this instance, those were obtained where three conditions were satisfied:
(i) conditions need to be based on a good understanding of the country situation;
(ii) all government counterparts need to have commitment to, and the authority to carry
out, the desired changes; and
(iii) the incentive structure needed to be sufficiently supportive for both the individuals in
charge and those likely to be impacted, possibly requiring a large effort to inform and win
over these parties\.
It is also important to ensure that the aforementioned good understanding of the country
situation is readily available at the design stage\. The Bank therefore needs to retain a minimum
level of pertinent knowledge of each of its client countries, which has to be updated on a regular
-25-
basis\. This could be somewhat along the lines of the periodic Fund updates but putting emphasis
on those areas of most interest to the Bank\. In addition to traditional economic information, it is
also essential to have at least a basic understanding of the political, social and cultural dimensions\.
Ultimately, however, even this knowledge base in this case was not sufficient to foresee
the unfortunate events of 2001 and early 2002\. An understanding of political, economic, social
and cultural dimensions may not be sufficient in predicting the institutional collapse that ensued\.
9\. Partner Comments
(a) Borrotver/i,nplententing agency:
(b) Cojinanciers:
IMF\. The IMF official concerned commended the Borrower for its successful fiscal
adjustment performance in 1996-98\. But the program began to go off the track towards the end
of that period\. He said that the Asian and Russian crises and the hedge fund debacle in the US
were substantially involved\. He noted that Argentina had pioneered borrowing in advance, since
1996\. As a result, he said, when the global contagion spread, there was an immediate possibility
that the Government would run out of funds by December 1999\.
Against that backdrop, he considered that the program supported by the SSAL and the
confinanciers to help the country was successful\. He underscored its contribution in assisting the
Government to regain access to the markets\. In this connection, he questioned whether the
accompanying "REPO" loan was the most suitable method for providing Argentina's Central Bank
the guarantee it entailed\. Perhaps a better vehicle might have involved a direct IBRD loan to that
Bank, and for the latter to have established an escrow account for the purpose\.
He agreed with the SSAL's provisions, especially in addressing what the Fund considered
to be the right issues\. He felt that the targets relating to Federal-provincial revenue/sharing were
particularly important\. He hoped that the new intergovernmental pacts would be fully
implemented, which would be quite beneficial\. He commended the Bank's support of these efforts,
including the envisaged replacement of the tumover tax\.
EDB\. An IDB official judged that the SSAL along with the complementary assistance
from the IDB and the Fund had been well justified in the light of Argentina's difficult
circumstances in 1998\. He said that the IDB had also been concerned about the potential dangers
of the spillage of Argentina's crisis to affect other Latin American economies\. In retrospect, the
aforementioned assistance had been salutary in helping to stem the country's immediate liquidity
shortage\. The IDB is currently evaluating the performance and impact of the program which the
SSAL and IDB's parallel loans supported\. He added that the two banks' collaboration, had been
positive and beneficial\.
(c) Other partners (NGOs/private sector):
-26-
10\. Additional Information
The individuals interviewed in the course of this preparation of this Report included:
Marcelo Acuna
Myrna Alexander
Miguel Angel Broda
Guillermo Collich
Daniel Cotlear
Ariel Fiszbein
Rogelio Frigerio
Ricardo Garcioffi
Jose Luis Guasch
Pablo Guidotti
Norman Hicks
Anjali Kumar
Miguel Kiguel
Paul Levy
Moises Lichtmajer
Roberto Garcia Lopez
Luis Lucione
Jose Luis Machinea
Donald McIsaac
Margaret Miller
Ferenc Molnar
Ronald Myers
John Page
Carola Pessino
Thomas Reichmann
David Rosenblatt
Maria Cristina Uehara
Rene Vandenvries
Walter Zunic
-27-
Annex 1\. Key Performance Indicators/Log Frame Matrix
Outcome /Impact Indicators:
|Indcator lat :\.-x ProjectedrlnlasltPSR - Achta1Labtst EsUnmate
INTERGOVERNMENTAL FISCAL None of the Indicators shown in the left hand
RELATIONS oolumn were amended
a\. Reform of the "copartidpation system' to a\. An agreement (the 'Federal
improve Federal revenue transfers to Commitrent") now exists to move towards a
Argentina's provinces and to simplify the new system for the divison of revenues
systern between the Federal and provincial levels\.
It constituted a de facto simplification of
the system for 2001-03 (which was later
extended to 2005)\. A second
inter-governmental accord calls for a further
simplification under which all federal taxes to
be shared would enter a general pool\.
b\. Rationalization of the distribution of b\. Under the Government proposals,
Federal revenues provinces with srnaller tax bases would
receive larger transfers per capRta than those
wih larger tax bases (application of the
"equalization" formula)\.
The proposals would strengthen the
use of needs-based crteria in revenue
allocations\.
The present five-fold disparity in per
capita revenues between the highest and
lowest provincial recipients would be
reduced\.
-Improvement of data bases as a -Better tax bases should facilitate more
foundation for determining per capita tax aocurate fund distributlon
bases
\. Consolidabon of numerous special c\. Under the Govemment proposals, all
c\. Consolidation of numerous spearal revenue tansfers would follow a single
sector programs for whIch earmarked taxes formula\. The sector programs induded In the
are now levied pool would no longer obtain "automatic"
resources\.
Govemrnent spending would become
more transparent
d\. Strengthening the provinoes abiltimes to
raise greater revenues on their own d\. A proposed provincial VAT would be
superior to the present gross receipts tax\.
Its administrative costs should be less
than the combined costs of the current gross
receipts tax and federal VAT\.
A dual VAT should fadlitate
cross-checking between Federal and
Provincial agendes, and facilitate more
automatic complance\.
The proposed provision that provindal
residents pay the VAT where they lve could
help link tax payments with the corresponding
services taxpayers receive\.
FINANCIAL SECTOR
a\. Neutralizing the impact of tax policies on a\.-The Govemments decree on the tax
-28 -
financial instruments so that they better treatrent of repurchase agreements and
respond to market forces pledges/guarantees brought Argentina in line
with intemational practices on these
instruments\. However, the decree only
affects a relatively small set of these
instruments\. Greater activity was limited by
the need to ensure neutral fiscal effects\.
In this connection, the Govemment
created a commission to pursue the fiscal
neutrality of financial instruments\. It is
working to reduce or eliminate distortions\.
b\. Greater protection of sector regulatory
officers b\. The Govemments proposal to increase
these officers' liability protection was not
approved by the Congress, partly because of
opposition to the immunities recommended\.
c\. Coordination of financial sector regulabon c\. A new permanent commission on
and supervision regulatory coordination recommended new
rules for banks' liquidity management, which
were changed, It also provided the basis for
draft laws on security markets and insurance\.
Studies on the consistency of regulatory
practices showed that the criteria for and
regulabtion of public and private banks are
essentialy similar, as are supervision and
enforcement procedures\. No additional
actons for achieving greater homogeneity
were found to be needed\.
The Commission's acUvities have
encouraged greater cooperation and
coordinaton among financial entifies\. It is
reported to be contributing to the solution of
sector issues\.
BANKING SECTOR
a\. Reduced public sector role in the banking a\. The sale of the Govemmenrs housing
system mortgage bank (BHN) to private investors
resuled in their obtaining control of its
board\.
BHN's sale reduces the Govemmenrs
fiscal burden\. It also lessens possible
systerric risk In the event of associated
financial and fiscal crises\.
-The Central Banks audit of the Banco de
la Nacion (BNA) and the publication of its
Govemment guarantees and data on its
accounts provided a clearer, more
transparent picture of its financial condition
than existed before\. The extent of this
information is limited though\.
Meanwhile, BNAs problematic status is
unchanged\.
b\. Facilitate weak banks' departures from the
system
b\. An inter-agency committee's review of
bank closure mechanisms led to some
proposals which were not implemented\. \.
The committees review of aspects of
bank govemance found the Central Bank's
c\. Enhance the marketability of residual bank regulations generally adequate\.
-29-
portfoios
c\. The new authorization to sell loan
ACCESS TO CREDIT portfolios from liquidated public banks could
stimulate future prnvatiztions
a\. Providing small businesses greater
access to non-bank finance
a\. The new lasing law would eliminat
barrlers to the growth of lasing finance\. It
b\. Overcome constraints to the use of could produce more flexible term finance than
movable collateral (secured transctions) in traditional loan contracts\. The law is
credit conbacts considered to represent a substantial
improvement over its predecessors\.
CAPITAL MARKETS b\. The proposed secured transactions law
was not approved by the Congress\.
a\. Diversify financial instruments
a\. The amendment of the Fund Law to
b Improve the rating lndusts quality and remove restrIctions on intemational
competitiveness Investments of mutual funds could Improve
the diversification of portfolios
b\. The acton plan produced after review of
the rating Industry was not implemented
because of strong opposition\.
c\. Modemize the insurance indusbys c\. The legislative proposals on the
framework insurance industry incorporated some 'best
practie concepts, e\.g\., "early waming,
solvency monitoring\. " However, the
Congress failed to pass them\.
-Secure more adequate captalizaton of
the insurance companies Greater industry competition is not yet
forthcoming\. But there are advances towards
greater consumer protectbon and the new
capltal requirements are being enforced well\.
-Strengthen preventive supervision of the Quarterly reporting to the Insurance
Industry Superintendent (SSN) is now the practice\.
The new data SSN received and its more
rigorous monitoring led to the suspension of
40 oompanies in the past two years\.
HUMAN DEVELOPMENT
a\. Improved targeting and efficiency of a\. The new methodology for measurng
poverty-reducing social programs\. poverty eliminates some deficiencies of the
previous index, i\.e\., the absence of a health
indicator and excessive relianoe on housing
yardstcks\.
The expanded application of improved
beneficary Identification (to 14 more
programs) pefmits cross-checidng among
programs\. It could help limit duplicatory
b\. Improved efficiency of overlapping, poorly servbes\.
targeted programs\. b\. The establishment of an integrated
nutrition program with coordination
arrangements unified the three previous
operations under the Social Develpment
Secretariat\.
Collateral actions produced a unified
registry of beneficaries, which could help
- 30 -
control duplication and overlapping of food
and nutrition assistance activites\.
c\. Improved targeUng of the program of c\. Review of the program showed that, save
non-contributory pensions (granted at the for pensions issued at legislators discretion,
discretion of the legislative and executive the remainder generally followed reasonable
branches) needs-based criteria
The Govemments acton plan for
improvements includes better guidelines,
beneficiary cross-checking, limits on pension
transfers, and auditing\. Its effective
implementation could cut the number of
d\. Safeguarding the social programs critical non-elgibles\.
for the poor frorn budget cuts d\. The Govemments commitments to
1999-2000 expenditure levels for agreed
programs protected the maternal and child
health and nutrftion services, AIDS, small
farmers' extension services, primary schools
upgrading and community garden activities
which were IBRD/IDB-supported\.
The Govemment subsequently added
employment programs and activifles to
Improve indigenous peoples' health to the
protected list\.
e\. Improved system of unemployment e\. The Govemments proposal for
insurance and lower non-wage labor costs decentralized collective bargaining was more
comprehensive and surpassed the policy
Impact of the original SSAL goal (a fully
funded capitalized Insurance scheme)\. The
decentralization:
-gives lower level unions more
jurisdiction in negotiations;
-permits more choices on negotiations
levels;
-phases out the systems which kept
lapsed oontracts valid; and
-provides incentives for resolving
conflicts through mediation and arbitration\.
The Congress approval of a
complmentary law provides for simplifying
registration of new workers, lengthening their
probationary period, and reducing taxes on
them\.
Additional cuts in labor costs and
strengthening the safety net for the
unemployed, along with other improvements,
still await changes in the
severance payments and unemployment
Insurance systems\.
f\. Improved equity and efficency In public f\. The Govemments strategy plan on higher
spending on higher education education financing signalled efforts to make
appropriate policy changes\. However, the
plan failed to receive high level, widespread
support and was not Implemented\.
A parallel proposal to launch a "national
fund for university equity' recommends cost
recovery measures, merit-based
scholarships, consolidated university
budgeting\. It was not implemented and, In
any event, would not apply to the 85% of
- 31 -
public funding for tertiary education that the
Congress allocates\.
9\. Improved secondary education g\. The standardized aptitude testng of 5th
year public secondary students produced
useful data on their achievements and on the
education evaluation system\.
However, the attempt to distribute the test
results was poorly received and
Implemented\. Consequenty, public
accountability to parents and students is
unlikely to have been increased\.
h\. Strengthened regulatory framework of h\. The Govemmenfs implementation of new
health insurance\. prudential and consumer protection norms
for the union-run health plans (Obras
Sociales-OS) provides a basis for improved
govemance of beneficiary services and their
marketing and regulation\. It also fixed
suitable standards for OS' public
-Better public information on OS perfornance reportng\.
performance and consumer satisfaction\. -The Health Insurance Superintendent
began issuing annual reports on
benefidaries' services, medical program
regulabtion, marketing and treatment of
complaints\. Consumer satisfaction polls were
launched and their findings publicized\.
I\. Development of a competitive mansged I\. The scheme for the Health Institut for
care market for providing health services to Retirees (INSSJP) to out-source its services
pensioners was replaced by measures to contract many
more providers to meet pensioners' health
care needs\.
Initially some 23 (now 75) providers
were contracted through more transparent
bidding procedures than previously
employed\. A limited number of beneficiaries
gained freer choices of providers\. These
acUons however do not consttute substantial
strides towards the competitive health care
market goal
REGULATORY REFORMS
a\. More efficient regulation of Infrastructure a\. The approval of the Executive Branch's
services abstention from regulatory disputes on
technical and economic issues could make
the regulatory agendes more independent
The proposed new law on harmonizing
regulatory practices, r passed, could:
-strengthen the division of
responsibilites between the executive and
legislatve branches;
-limit legislators oversight of
regulatory agendes in the process;
-stabilize operating conditions for
presidents of regulatory commissions\.
but Congressional support for the proposal
has been limited
b\. Integration of transport regulaton b\. The creation of a multi-modal transport
directorate provides a potential mechanism
for seeking consistency among different
freight carriers and possible rationalization of
- 32-
roads, ports and railways\. It has been slow
however In moving towards that goal\.
Output Indicators:
v \. IndlcatorlMatrix Projected In last PSR Actla/Latest Estimate
INTERGOVERNMENTAL FISCAL
RELATIONS
a\. Proposal of new system of inter a\. Prepare a proposal for putting all major a\. Develped policies to revise the present
govemmental financial transfers federal taxes to be distributed Into a single methods of dividing federal tax proceeds
pool, and otherwise simplify the system between the Federal and provincial levels
-Obtain agreement with the provincial -Intergovernmental agreement endorsed by
authorities on the proposal the Congress, changes the amounts to be
transferred, moving to a fixed sum
-Consensus has been reached with
provincial authorities to discuss further
changes
b\. Rationalization of the distribution of funds b\. Prepare proposals for future funds b\. Designed "equalization-oriented" formula
distribution in line with an "equalization" and disswsed it with the provincial
formula authorities
c\. Improvement of data bases as a c\. Improved data on provincial consumpton,
foundabtion for determining per capita tax autormrobile and property values
bases
d\. Consolidation of special sector programs d\. Prepare proposal for incorporation of d\. Designed and advanced the proposal with
for which earmarked taxes are now levied special programs In the Federal budget as the provinces
line items or including them in the general
e\. Strengthening the provinces capabilities co-participabon pool
to raise more revenues on their own e\. Design proposals for decentralized tax e\. Prepared proposal for new provinial tax
powers\. Instrument to replace present distortUonary
powers\. taxes\. It calls for a provincial VAT whose
rates would be set kxlally\.
FINANCIAL SECTOR
a\. Neutralizing the Impact of tax policies on a\. Review tax treatment of financial a\. Review perfomed did not Indicate any
financial instruments Intem ediation and propose measures to need for corrective legisltion\. Govemment
achieve neutrality established a commission aimed at Improving
tax rules and guidelines
b, Improving the protecton of financial b\. Design proposals to strengthen bank b\. Preparation of a draft law aimed at
sector regulators regulators' and supervisors' protection Increasing Iability protection\.
against legal actions affecting them
c\. Coordinating financial sector regulation c\. Establish and make operational an c\. Creation and activation of a Permanent
and supervision inter-agency committee of financial regulatory Commission on the Evaluation of Financial
agencies Regulation
BANKING SECTOR
a\. Reducing public sector role in the a\. Bring the second Uer housing mortgage a\. The Govemment sold its controlling
banking system bank (BHN) to the point of sale interest In the BHN to private investors
b\. Facilitating weak banks' departure from b\. Creaton of an inter-agency mechanism to b\. A temporary inter-agency commission
the system improve the resolution of bank failure reviewed bank falure mechanisms and
problems and govemance guidelines, and govemance provisions
propose remedial measures
c\. Enhancing the marketability of residual c\. Authorization of federal banks to sell loan c\. Authoriation provided
- 33 -
bank portfolios portfoltos from liquidated banks
ACCESS TO CREDIT
a\. Developing competitive leasing industiy a\. Submission of revised leasing law to the a\. Draft revision submitted to the legislature
Congress
b\. Overcoming legal Impediments to the b\. Submission of new legislative proposals b\. New proposals given to the Congress
use of secured transactions
CAPITAL MARKETS
a\. DiversIfying financial hstruments a\. Presentaton to the Congress of draft bw a\. Government submitted such proposals
to remove the restriction on mutual funds
Investments intemationally
b\. Increasing compettiveness in the ratng b\. Contract a review of the Industry and b\. Govermment review and plans completed
Industry Implement proposals based on Its findings
and recommendations
c\. Proposals submitted for revised legislation
c\. Modemizing the insurance industry's c\. Present revised laws to Congress
framework, supervision and regulation incorporating more advanced concepts and
greater attentiveness to consumer protection -Draet pegislatin calls fr early waming
interests detKon practkes
-Strengthen preventive supervision -Install early waming detection system in - Stricter SSN enforcement launched
Insurance Superintendent (SSN)
-Securing more edequate industry
capitalization -Adoption of SSN plan to enforce new
capItl requirements
HUMAN DEVELOPMENT
a\. Improved targeting of poverty-reducing a\. Proposal of new poverty line and a\. Definition of new methodology for
social programs methodology for measuring unsatisfied measuring poverty
'basic needs'
-Expanded coverage of beneficiary - Application of improved information -Extension to 14 more social programs
identification systems systems to more social programs
b\. Trm cetainsocil prgmms b\. esig andimplnion proosal fbr b\. Merger under the Social Development
b\. Trim certain social programs' b\. Dtesign and implement proposals for Secretariat of food and nubtition programs
overlapping and poor targting Integrating food and nutrition programs Into an Integrated acvtivty\.
-Review the distribution of -Review was conducted and plan
non-contributory pensions programs and prepared for improved distribution
propose new eligibility criteria
c\. Safeguarding spending levels for key \. \. c\. crttsraa
social programs against budget cuts c\. Obtain commitments for 1999 spending c\. Commitments obtained
on key programs
d\. Improving unemployment insurance d\. Examine options for installing fully d\. The study was carried out\. it was then
system and lowering non-wage labor costs capitalized unemployment insurance scheme replced by a Govemment proposal for, and
and prepare the instruments needed Congressional ratification of, the
decentralIation of collective bargaining\.
e\. Preparation of funding policy changes and Addition of complementary supportive law\.
e\. Achieving greater equiy and efgiency in resolution for Education Ministry fntroduction e\. Plan prepared and Government
of incentives for greater cost recovery, announcement of intention to establish
merit-based scholarships and consolidated national fund for university equity releding
university budgets those principles
f\. Improving secondary education f\. Aptitude testing of all 1998 fifth year
secondary education students, and f\. Testing perfomied and resutts provided to
certifcation of the resuling grades Federal Council education officers for public
-34 -
distribution
g\. Strengthenirg health insurance's g\. The Health Supenintendents g\. SHSs reports attesting to satisfactory
regulatory tramework implementation of prudental and consumer implementation provided
protecion norms, and reportng on the
union-run health programs' performance -2\.500 beneficdaies were surveyed
under consumer polls, comparing services of
restructured union-sponsored providers with
those not restructured\.
h\. Development of more competitive heft h\. INSSP (GovemmenVs health p ISJPcotatigrxenernmero
car prvelogoramst for more compensionersfor the retired) out-souring servces to major care providers with some provisions for
providers greater transparency and service choices
REGULATORY REFORMS
a\. Rationalizfaon of infrastructure regulation a\. Reducfion of Executive Branch's role in a\. Verification that Executve Branch
regulatory disputes organizations need not hear appeals of
regulatory agendes' decisions on technical
and analytical matters\.
Govemment prepared plan for increasing
b\. Integraton of transport servie regulation regulatory agendies autonomy
b\. Preparafton of design and implementaton
plan for an integrated Federal agency on \.
freiht ranpor b\. Proposed agency established\.
,fr3ight transport
End of project
- 35 -
Annex 2\. Project Costs and Financing
N/A
N/A
N/A
N/A
- 36-
Annex 3\. Economic Costs and Benefits
SSAL operations do not lend themselves to conventional rates or return or equivalent calculations of
economic costs and benefits\.
- 37 -
Annex 4\. Bank Inputs
(a) Missions:
Stage of Project Cycle No\. of Persons and Specialty Performance Rating
(e\.g\. 2 Economists, I FMS, etc\.) Implementation Development
Month/Year Count Specialty Progress Objective
Identiflcation/Preparation
September 1998 13 Mission Leader, Fiscal Sector,
Financial Sector, Human Capital,
Regulatory Issues, Public Sector
Supervision
December 1998 11 Mission Leader, S S
Sub-national Issues,
Financial Sector, Labor
Regulation, Health Sector,
Education Sector, Social
Sectors, Regulation,
Insurance
May 1999 9 Mission Leader, Financial S S
Sector, Health Sector, Social
Sector, Regulation, Labor
Regulation, Sub-National Issues,
Education
November 1999 9 Mission Leader, Social Sector, S S
Sub-National Finances, Labor &
regulatory, Social Sector,
Financial Sector, Education
Sector, Health Sector
February 2000 10 Mission Leader, Social Sector, S S
Labor & Regulatory,
Sub-National Finances,
Transport, Health Sector,
Insurance, Financial Sector,
Education Sector
March 2000 3 Mission Leader, Sub-National S S
Finance Labor & Regulatory
July 2000 8 Mission Leader, Labor & S S
Regulatory, Sub-National &
Finance, Finance, Health
ICR
June 2001 1 Consultant
-38 -
(b) Staff:
Stage of Project Cycle Actual/Latest Estimate
No\. Staff weeks US$ (000)
Identification/Preparation 33\.92 231\.90
Supervision 128\.11 740\.60
ICR 9\.00 40\.32
Total 171\.03 1012\.82
Costs include travel and consultant fees\.
- 39 -
Annex 5\. Ratings for Achievement of Objectives/Outputs of Components
(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)
Rating
O Macro policies O H OSUOM * N O NA
OI Sector Policies O H *SUOM O N O NA
OI Physical O H OSUOM O N * NA
L] Financial OH *SUOM ON ONA
3I Institutional Development 0 H O SU 0 M 0 N 0 NA
F Environmental OH OSUOM O N * NA
Social
O Poverty Reduction O H *SUOM O N O NA
L Gender O H OSUOM O N * NA
LI Other (Please specify) O H OSUOM O N * NA
Ol Private sector development 0 H * SU O M 0 N 0 NA
OI Public sector management 0 H O SU * M 0 N 0 NA
l Other (Please specify) O H OSUOM O N * NA
-40-
Annex 6\. Ratings of Bank and Borrower Performance
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)
6\.1 Bankperformance Rating
D Lending OHS OS OU OHU
El Supervision OHS OS O U O HU
O Overall OHS OS O u O HU
6\.2 Borrowerperformance Rating
O Preparation OHS OS O u O HU
rl Government implementation performance O HS O s 0 U 0 HU
El Implementation agencyperformance OHS OS O U O HU
Ol Overall OHS OS O U O HU
-41 -
Annex 7\. List of Supporting documents
Argentina: A Retrospective Review
-42 -
Report No\.: 22619
Type: ICR | REVIEW |
P114042 | Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
Report Number: ICRR0022064
1\. Project Data
Project ID Project Name
P114042 PNG - Urban Youth Employment Project
Country Practice Area(Lead)
Papua New Guinea Social
L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD)
IDA-48540,TF-94791,TF-A1282 30-Apr-2016 26,304,141\.42
Bank Approval Date Closing Date (Actual)
11-Jan-2011 31-Jul-2019
IBRD/IDA (USD) Grants (USD)
Original Commitment 15,800,000\.00 11,400,000\.00
Revised Commitment 27,130,262\.74 11,330,262\.74
Actual 26,304,141\.42 11,330,262\.74
Prepared by Reviewed by ICR Review Coordinator Group
Cynthia Nunez-Ollero Fernando Manibog Christopher David Nelson IEGSD (Unit 4)
P154412_TBL
Project ID Project Name
P154412 PNG Urban Youth Employment Project AF ( P154412 )
L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD)
0
Bank Approval Date Closing Date (Actual)
18-Nov-2015
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Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
IBRD/IDA (USD) Grants (USD)
Original Commitment 0\.00 0\.00
Revised Commitment 0\.00 0\.00
Actual 0\.00 0\.00
2\. Project Objectives and Components
DEVOBJ_TBL
a\. Objectives
According to the Financing Agreement (FA, p\. 5), and the Project Appraisal Document (PAD, paragraph 12),
the Project Development Objective was "to provide urban youth with income from temporary employment
opportunities and to increase their employability\."
This review will assess the achievement against the following objectives:
ï to provide urban youth with income from temporary employment opportunities, and
ï to increase the employability of urban youth
The PDO was not revised even when the Papua New Guinea (PNG) Strategic Partnerships Multi Donor Trust
Fund provided Additional Financing (AF, see Financing below)\. According to Bank guidelines, AF may
increase outcome target indicators and change project ambition\. However, in this case, the additional
resources increased the value of the outcome targets but did not raise the projectâs ambition\. Hence, the AF
did not trigger a split rating\.
This project used a workfare program to provide welfare benefits or social safety net services to its target
constituents\. Workfare programs provided eligible social welfare benefits to unemployed or underemployed
constituents in exchange for some work or job training\.
b\. Were the project objectives/key associated outcome targets revised during implementation?
No
c\. Will a split evaluation be undertaken?
No
d\. Components
1\. Youth Job Corps (YJC) (US$ 6\.9 million at appraisal, US$4\.2 million in AF for a total of US$11\.1 million,
US$11\.1 million, actual)\. This component financed community awareness and information campaigns to
reach target youth participants; selecting disadvantaged, unemployed youth from the National Capital
District target area; and training them in basic life skills for employment and the work environment\. Training
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Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
included appropriate on-the-job behavior, personal presentation, health and hygiene, and working as a
team\. This component also financed a two-month short term placement in maintenance of public works
such as road maintenance, landscaping, drainage clearing, vegetation control, and refuse collection\.
2\. Skills Development and Employment Scheme (SDES) (US$ 5\.4 million at appraisal, US$4\.2 million in
AF for a total of US$9\.6 million,US$9\.6 million, actual)\. This component financed the participation of the
target youth in (i) two Pre-Employment Training (PET) programs equivalent to entry level vocational training
programs delivered by local vocational training organizations; (ii) on-the-job training (OJT); and (iii) work
experience\. One PET program covered trade, industrial and commerce-related employment\. A second PET
program covered basic bookkeeping, data entry, business practices, and information technology\. PET
training would be followed by five months of OJT work placement\. OJT host employers could retain trainees
as full- or part-time, or released to other prospective employers\.
3\. Project Management (US$ 4\.4 million at appraisal, US$2\.4 million in AF for a total of US$6\.8 million,
US$6\.8 million, actual) This component financed the operating costs of the Project Management Unit
(PMU), training of key personnel, technical assistance to the PMU, and other support costs\.
e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: The total project cost reached a total of US$27\.2 million consisting of US$15\.80 million
(excluding US$1\.2 million in contingency costs), original commitment, US$0\.6 million in grants, and
US$10\.8 million in AF (see below)\. US$26\.3 million was disbursed at closing\. The balance of US$0\.8
million was due to exchange rate losses (SDR to US$)\.
Financing: The project was financed by a credit from the International Development Association (IDA)\. The
Republic of Korea provided an initial grant for project preparation\. The Papua New Guinea (PNG) Strategic
Partnerships Multi-Donor Trust Fund provided AF\.
Borrower Contribution: The Government committed US$1\.58 million in counterpart financing and
disbursed US$3\.89 million\.
Dates: The project was approved on January 11, 2011 and became effective on November 2, 2011\. The
Mid Term Review (MTR) was conducted on March 31, 2014\. The project was originally scheduled to close
on April 30, 2016 but was extended by 39 months to July 31, 2019\. There were three restructurings:
ï on August 29, 2013 to make the following changes:
o adjusted the age of eligible urban youth from 16-25 to 16-35 years old\. By PNG law,
16 years old was the minimum employment age\. Youth was defined as unmarried,
unemployed, and economically dependent on their families or others for financial support
between 16 - 35 years\. Older participants in leadership roles would benefit the project (ICR,
footnote 18)\.
o reduced the target of YJC workfare days from 480,000 to 300,000 days\. The target was
reduced because of higher than expected attrition rates (youth working an average of 26 of
the 40 days offered, resulting in cost and placement inefficiencies), delays in the award and
implementation of works because of insufficient market response, escalation of costs in
procuring contracts and the appreciation of the PNG Kina, and suboptimal levels of wage
efficiency (average higher ratio of labor to labor inputs)\.
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PNG - Urban Youth Employment Project (P114042)
o reduced the percentage of youth in the bottom 40 percent of household income levels from
70 to 50 percent\. This target was reduced because the heterogenous project area included
households above and below the targeted income levels\. A lower percentage of youth self-
identified as being in the bottom 40 percent of the target population\.
ï on November 18, 2015, provided AF and extended the closing date by 30 months to October 31,
2018\. The following indicators were revised to better measure outcome:
o Total target workfare days completed increased (from 300,000 to 660,000 days)
disaggregated into YJC (420,000 days) and OJT (240,000 days)
o Target percentage of OJT graduates with an offer of a paid job (30 percent)\.
o Target percentage of trainees with a job (salaried or otherwise) three months after graduating
(10 percentage points higher than comparable controls)
o Two new outcome indicators were introduced: (i) direct beneficiaries (target 11,500); direct
female beneficiaries (target 40 percent); and (ii) percentage of grievances addressed by the
project (target 90 percent) as a new core indicator to track citizen engagement (see Section
9, Monitoring and Evaluation below)\. Other intermediate outcome indicators were added (see
Section 4, Efficacy below)\.
ï on September 25, 2018 extended the closing date by nine months to July 31, 2019 and help the
Project Management Unit (PMU) to transition to the follow-on project and complete the impact
evaluation\.
3\. Relevance of Objectives
Rationale
The PDO remained relevant to the country's various development plans including Vision 2050,
Development Strategic Plan (2010-2030), National Youth Policy (2007-2017), and Medium Term
Development Plan (2018-2022), which focused on the country's youth unemployment\. Vision 2050 focused
on improving the country's human development\. One of its seven pillars focused on improving human
capital development, gender, youth, and people empowerment\. The Development Strategic Plan (2010-
2030) called for secondary education for all, providing all those who leave school with employment
opportunities, and halving the rate of youth crime\. The National Youth Policy (2007-2017) incorporated
youth development in its national development planning\. The Medium-Term Development Plan (2018-2022)
attributed the high levels of youth unemployment to high school drop out rates and lack of appropriate skills
and knowledge for employability\.
The PDO was also relevant to the World Bank's latest Country Partnership Strategy (CPS) for PNG (2013-
2016)\. This strategy was extended to remain valid to coincide with the country's latest Medium Term
Development that began in 2018\. The PDO was relevant to two of the three pillars of the CPS\. The first
pillar was aimed at increased and more gender equitable access to physical and financial infrastructure\.
The second pillar was aimed at gender equitable improvements in lives and livelihoods\. The PDO closely
supported the second pillar\. The PDO significantly contributed to the outcome that youth in urban areas had
more access to improved training and job opportunities\. This outcome was reflected in specific targets that
300,000 workfare days were completed by beneficiaries and at least 50 percent of OJT beneficiaries gained
Page 4 of 19
Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
a 20 percent increase in incomes\. These targets coincided and were supported by the outcomes under this
project\.
Rating Relevance TBL
Rating
High
4\. Achievement of Objectives (Efficacy)
EFFICACY_TBL
OBJECTIVE 1
Objective
- to provide urban youth with income from temporary employment opportunities
Rationale
The Theory of Change: Community awareness and information campaigns targeted 17,500 potential youth
trainees in the poorer communities of the National Capital District (NCD)\. Each trainee would be offered 5
days or 40 hours in Basic Life Skills for Employment (BLS) training and an understanding of the working
environment such as appropriate on-the-job behavior, personal presentation, health and hygiene, occupation,
road safety management, and working as a team\. After receiving basic financial literacy training to set up their
own bank accounts, trainees would be compensated for up to a maximum of 8 hours per day of the 5-day
training\. After BLS training, youth facilitators would assess participants to match their socio-economic profile,
skills, previous experience, and aspirations with work placement options\. Trainees would be offered two
months of short-term employment in the public works sector\. The YJC's skill augmenting labor-based public
works would proceed in two phases:
ï Phase 1 covered labor-intensive public works according to the maintenance needs of the NCD's and
those implemented by the Parks and Gardens Unit and the Works Unit road network, feeder and
community access roads that lead to poorer neighborhoods, and those not receiving routine
maintenance\. The road maintenance activities included simple road maintenance, cleaning, and
environmental protection such as vegetation control and drain cleaning\. The PMU would compensate
trainees based on time and performance records for up to a maximum of six hours a day for 39 days
using SMS banking platform\.
ï Phase 2 would expand eligible work activities after the first year of implementation (phase 1)\. Decision
to expand would be based on (i) the satisfactory management and disbursements rates; (ii)
satisfactory labor intensity rates of the activities; and (iii) a reasonable period of work was maintained\.
These work activities included existing urban renewal and environmental and social protection
programs, higher skilled activities, and minor works such as tree planting, brick making, market
cleaning, rehabilitation of the city's footpaths using interlocking tiles, and other waste management or
environmental protection activities\.
Income from these temporary employment opportunities would achieve this objective\.
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Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
The Key Outcome Indicators were:
ï number of workfare days completed by beneficiaries (original target 480,000 revised target, 300,000,
further revised to 660,000 and disaggregated into YJC (420,000 days) and OJT (240,000 days)\.
ï percent increase of OJT beneficiary incomes relative to control group (target 20% increase)\. This
indicator was revised at restructuring to the percentage of trainees with a job (salaried or otherwise)
three months after graduating (target 10 percentage points higher than comparable controls)\.
OUTPUTS:
ï Participating youth completed 819,037 workfare days (original target 480,000, revised to 300,000,
further revised to 600,000, target exceeded)\. The original target was reduced from 480,000 to
300,000 workfare days because the original NCD road length target was overestimated\. Labor
intensive maintenance works covered 121 km of the reduced 600 to 700 km roads\. Reduced target
was due to higher than expected attrition rates resulting in cost/placement inefficiencies where youth
worked an average of 26 of the 40 days offered; slow implementation of works; and suboptimal levels
of wage efficiency (average higher ratio of labor to labor inputs at 60/40)\. The AF increased the total
target workfare days completed from 300,000 to 660,000 and disaggregated it into YJC (420,000
days) and OJT (240,000 days)\.
ï YJC participants completed 425,388 labor days (revised target 420,000, target exceeded) with 11,506
YJC participants (target 11,500, target achieved)
ï OJT participants completed 346,755 labor days (revised target 240,000, target exceeded) with 4,548
OJT beneficiaries (target 3,000, target exceeded) and 2,890 OJT graduates (original target 2,400,
target exceeded)
ï 24,000 youth applicants were screened, with 18,497 or 77 percent meeting the basic eligibility criteria
(original target 10,500, revised target 15,500, target exceeded); 7,584 (target 6,200, target exceeded)
or 41 percent of those screened were female (original target, 40 percent, target achieved)\.
ï The project reached about 2,000 participants from each of the 12 wards or 17 neighborhoods of the
project area (NCD), even those with security risks\. 12 percent of the participants were Indigenous
Motu-Koita, the traditional landowners of Port Moresby (original target 10 percent, target exceeded)\.
ï 31\.8 percent (target 33 percent, target almost achieved) of beneficiaries who self-reported as being
from the bottom two steps of the six-step economic welfare ladder\. This target indicator assessed the
project's impact on poverty reduction but there was no available data\.
OUTCOMES: The outcomes for increasing temporary employment opportunities due to the project were rated
against two control groups\. The 2015 control group consisted of similar youth in NCD who did not participate
in the project\. The 2017 control group consisted of participants who did not receive PET or OJT training but
completed YJC training and were part of the FIFA volunteer work program\. Samples from both participants
and from the control groups were re-interviewed in the 2015 and 2017 Follow-Up Surveys\. Income from
the temporary employment opportunities delineated above indicates the achievement of this objective as
discussed below\.
ï Incomes increased based on temporary employment opportunities\. Almost US$ 6 million in stipends
were paid for training and work (original target, revised target, target reached)\. Income was used for
basic household consumption, family support beyond the project area, and to start or expand small
businesses\.
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Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review
PNG - Urban Youth Employment Project (P114042)
o 74 percent of the youth accepted to the project, of which 41 percent were female, never had a
bank account prior to participating in the project (original target, 30 percent, revised target 40
percent, target achieved)\. The project increased financial literacy training; provided reference
for identification; and its partner, the Bank of South Pacific (BSP) waived its required fee
(PGK20) to open a bank account\. As a result, participating youth established 17,800 BSP
accounts\. Of those trained, 33 percent reported never having attended high school while 70
percent reported never having a waged job\.
o The 2015 Follow Up Survey results were offered as evidence of the increase in temporary
employment opportunities:
ï§ 36 percent of participants upon enrolment in the training programs reported friends
involved in fights or robbery in the 3 months prior to the program, which decreased to
23 percent\. For the control youth, the numbers increased from 35 to 39 percent over
the same period\.
ï§ Participants who reported using threat or force with somebody decreased from 16 to 7
percent after participating in the project\. For the control group, the number increased
over the same period\.
ï§ During the ICR consultation, some of those interviewed indicated that the training
created connections and positive friendships among diverse groups of young people\.
ï Stipends paid to YJC temporary employment were commensurate to the minimum wage (PGK3\.52 or
US$1\.04 an hour) over a six-hour working day for 40 days for civil works and routine maintenance
activities\.
ï Stipends paid to OJT participants placed in local firms equal to the minimum wage over an 8 hour
working day for a period of 3 months\.
ï 31\.8 percent of beneficiaries self-reported as being in the bottom 2 of the economic welfare ladder
(target 33 percent, almost achieved)\. According to the ICR, this indicator was to be expressed as 50
percent of participants from the bottom 33 percent of the economic welfare ladder\. Economic welfare
was initially estimated as proxy indicators from Household Income and Expenditure Survey (HIES)
data\. However, lack of data did not generate reliable estimates\. As an alternative, the Follow
Up Surveys asked participants to self-report against a six step economic welfare ladder\. Fewer
participants than expected identified themselves as being among the 33 percent of the poorest in the
population compared to when they started with the project\. Data was collected from the baseline and
eligibility screening surveys (ICR, Annex 1, p\. 37 of 64)\.
In summary, both PDO outcome indicators (technically, outputs) were exceeded\. Incomes from temporary
employment increased for the target youth (only summary figures were provided) resulting in a substantial
achievement of the outcomes\.
Rating
Substantial
OBJECTIVE 2
Objective
to increase the employability of urban youth
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PNG - Urban Youth Employment Project (P114042)
Rationale
Theory of Change: After completing training in basic life skills, numeracy and literacy, and pre-employment
trainings (PETs) described above, targeted youth would be provided OJT and more permanent work
placements\. Support would focus on how to compete in the existing job market by improving skills for
workplace entry, build confidence in job seeking behavior, and linking directly with prospective employers and
works contractors\. The project focused on increasing employability as evidenced by on going employment
offers rather than on increasing employment opportunities by directly intervening in the job market through
labor market insertion schemes\.
The Key Outcome Indicator to reflect an increase in the urban youth's employability was:
ï percent of OJT beneficiaries with a job (salaried or otherwise) relative to comparable controls (target
10% increase)\. This target was revised at restructuring to percent of OJT graduates with an offer of a
paid job (target 30 percent)
OUTPUTS:
ï 2,890 OJT participants (original target 2,400, target exceeded) completed 346,755 labor days (target
240,000, target exceeded)
ï 1,148 or 41 percent reported that they were employed, full or part time, in the six months prior to the
2017 Follow Up Survey (target 30 percent, target exceeded)\. The control group reported a 15 percent
employment rate)\.
OUTCOMES: The employability of the urban youth was achieved using two impact evaluations or follow up
surveys in 2015 and 2017, several community and employer surveys\. At the ICR workshop held in November
2019 (proxy beneficiary survey), participants confirmed that (i) proportions reported in the ICR were valid and
significant in showing a positive mix of NCD population; and (ii) benefits were likely to spread beyond the
NCD because some beneficiaries noted they sent funds back to their families in locations outside the project
area (ICR, page 14 of 64)\.
ï About 100 employers consisting of private, public, and civil society organizations participated in the
OJT activities\. They provided project trainees a "second chance," invested time and effort in orienting
and mentoring participants, and followed procedures\. The project reported mobilizing US$1 million
from Exxon Mobil to finance design and supervision of the first Follow Up Survey\. The project
established a partnership with the Bank of South Pacific to deliver financial literacy training, waive fees
to set up and maintain accounts for over 18,000 project participants\. Employers confirmed that they
retained trainees after completing their OJT\. Some were given full time permanent positions, others as
casual registers, and called to work part time when needed\. Numbers of retained OJT trainees were
unspecified\. Employers expressed that PET trainees had unrealistic high expectations of securing full
time employment and were unwilling to take on menial tasks because they were trained for skilled
work\. Employers appreciated the availability of low-cost trainees, ready to be hired after their OJT,
and screen those with positive attitudes\.
ï Employers and contractors of OJT participants who responded to the 2017 Employers Survey
reported that 97 percent were satisfied with trainee performance and qualified for full time jobs
(original target 60 percent, revised to 70 percent, target exceeded)\. During the ICR consultations,
employers confirmed their high level of satisfaction with the project outcomes, that project participants
displayed a willingness to work in a team and aimed for continuous improvement\. Employers surveyed
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also reported that project participants were promoted within host employers with some reaching
managerial or valued senior officer level\. (ICR, page 18 of 64, top of the page)\.
ï According to the 2015 community survey:
o 36\.8 to 29\.6 percent of participants were less likely to hang out with friends late at night, and
would be more selective of their social circle/friends
o 23\.7 to 15\.7 percent reported incidence of having a best friend involved in crime in the last
three months\.
ï According to the 2015 Follow Up Survey:
o 32 percent of youth sought paid employment in the last three months (baseline 21 percent at
start of project)\. OJT graduates reportedly sought formal sector jobs, increased confidence in
finding such jobs, and were motivated to further their education\.
o 19 percent of unemployed project participants who looked for a job compared to control group
provided evidence of an increase in job seeking behavior (target 8 percent, target
exceeded)\. Anecdotal feedback indicate that those who were more active in job searches were
more successful in securing work, even if temporary\. Anecdotal information that
participants who went for self-employment training started small businesses by selling small
goods\.
ï According to the 2017 community survey,
o 85 percent of community members (target 50 percent, target exceeded) reported positive
impact of the project on the youth because of reduced crime, anti-social behavior:
o 86 percent reported a reduction in crime and anti-social behavior\.
o 77 percent of respondents also reported that project participants were less likely to be involved
in crimes\.
o 82 percent of respondents also reported positive character and behavioral changes in
participating youth\.
o 68 percent reported an increase in employment opportunities,
o 55\.4 percent reported an increase in knowledge and skills of project participants\.
o 76 percent found the program to be well organized\.
ï According to the 2017 Follow Up Survey:
o 41 percent of OJT graduates received offers of a paid job (target, 30 percent, target
exceeded)\. 2,890 OJT graduates (original target 2,400 graduates, target exceeded)\.
o 26 percent were offered employment three months after completing training (target 10percent,
target exceeded) compared to the control group\. Exceeding the target was evidence of
increased employability\.
o a statistically significant 19 percentage points of OJT youth were likely to seek formal sector
jobs compared to youth in the control group who reported no change\.
o Participants and employers appreciated work readiness skills\. 83\.2 percent of participants
acknowledged that the project increased their knowledge, skills, and confidence to participate
in the labor market (original target 60 percent, revised target 75 percent, target exceeded)\.
ï Participant youth were more likely to be employed in the formal sector\. According to the Project
Completion Report prepared by the implementing agency, the OJT data showed that the top
employing occupation was clerical and administrative workers (17 percent) followed by works, general
labor, and maintenance (14 percent), retail customer services (13 percent) hospitality (12 percent) and
catering (4 percent)\. The single highest place trade was carpentry (ICR, page 17 of 64, top of the
page)\.
ï 26 percent of YJC participants and 36\.5 of OJT participants dropped out of their respective programs\.
The higher OJT drop out rate was attributed to the longer commitment period (five months, compared
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to 30-40 days under the YJC)\. The dropouts were due to competing family priorities (gardening for
food, child care, illness)\. Incentives such as transport, more regular coaching, and follow up, were
introduced to improve retention rates\. A moderate drop out rate was experienced even though the
literature claims a high drop out rate was endemic in youth work readiness programs due to a lack of
continuum of care that was meant to assist disadvantaged youth to address complex issues in their
lives such as housing, young parenthood, family, relationships, involvement in criminal factions, low
income, and adolescent health issues (ICR, page 14 of 64, bottom of the page)\.
ï 12 percent of project beneficiaries were Motu-Koitabuan (target 10 percent, target exceeded)
In summary, employability was evidenced by the extent to which OJT participants were offered ongoing
employment\. Employers surveyed indicated that an unspecified proportion of project trainees who became
employed were retained, promoted, or made permanent\. The PDO outcome indicator - percent of OJT
beneficiaries with a job (salaried or otherwise) relative to comparable controls (target 10% increase) - was
revised at restructuring to percent of OJT graduates with an offer of a paid job (target 30 percent) and was
exceeded at 41 percent\. These outcomes resulted in a substantial rating\.
Rating
Substantial
OVERALL EFF TBL
OBJ_TBL
OVERALL EFFICACY
Rationale
The outcomes above show that objectives were met\. There was a modest increase in participant incomes\.
Employment opportunities were provided\. Increasing employability of targeted youth was substantially
achieved through the instituted workfare programs\. There was no beneficiary survey conducted after July 31,
2019 but feedback was generated at the ICR workshop held in November 2019\. The project achieved the
PDO outcome indicators Overall efficacy was rated substantial\.
Overall Efficacy Rating
Substantial
5\. Efficiency
Economic and Financial Efficiency: At appraisal, no cost benefit analysis was carried out because of a lack of
baseline data and in country capacity for data collection and analysis (PAD, paragraph 58)\. No Economic Rate
of Return (ERR) was established because (i) the project was not seeking to maximize private returns; (ii) the
cost of capital was small because costs were a combination of IDA credit and a grant; and (iii) the project
emphasized non-quantifiable social benefits\.
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At closing, the project conducted a cost benefit analysis using two scenarios - a conservative scenario and a
moderate one\. The moderate scenario served as the baseline for the best estimates for all possible benefits of
the projects while the conservative scenario provided the absolute minimum benefit that the project would
generate\. Annex 4 provided additional details to the cost-benefit analysis\. Under both scenarios, a cost-benefit
ratio was determined over a 10 year time frame to indicate if benefits were larger than the costs\. Data was taken
from project data and the 2017 and 2018 impact evaluations, all funded under the project\. The cost of capital
was not specified\. Benefits from the public works program were assumed to be equal to the cost of materials for
road maintenance and footpaths under both scenarios\. The same value for benefits from the YJC and the OJT
stipends were used for both scenarios\.
Under the moderate scenario, the following assumptions were used to arrive at the value of the 4 additional
benefits: (i) actual BLST training stipends; (ii) actual PET training stipends; (iii) post YJC employment used a
24\.1 percent employment rate on minimum wage over the 10 year employment period\. and (iv) post SDES
employment used a 15 percent employment rate on minimum wage over the same period\. Under the moderate
scenario, the benefit cost ratio at closing was at 2\.90\. This meant that every US$1 spent on the project,
generated US$2\.90 in benefits\. This ratio was due to the comprehensiveness of the project, its long-term
training, support to job searches and matching trainees with jobs, and subsidizing work experience\.
Under the conservative scenario, the following assumptions were used to arrive at the value of the 4 additional
benefits: (i) no BLST benefits; (ii) no PET training benefits; (iii) post YJC benefits used a 12 percent employment
rate on minimum wage with 60 percent on full time employment (240 days a year) and 40 percent on part time
employment (120 days a year); and (iv) post SDES employment used a 12\.5 percent employment rate
on minimum wage with 60 percent on full time employment and 40 percent on part time employment\. As a
result, the benefit cost ratio under the conservative scenario at closing was at 1\.41\.
Administrative and Operational Efficiency: The Bank team obtained a small grant financing to initially fund
this project that was implemented over a 30-month period\. Before this grant was closed, the IDA credit was
approved\. The initial grant was closed on time, the IDA credit was extended by 30 months, and the AF was
extended by 9 months for a total of 39 months\. The project was implemented over nine years\. Substantial risks
such as lack of capacity identified at appraisal were mitigated by community participation in decision making;
civil society and private sector consultation; grievance redress mechanisms, technical assistance to strengthen
financial management and procurement, independent audit, and regular guidance during implementation (PAD,
paragraph 55)\. Restructuring and supervision adequately mitigated these risks\. Increased participatory
processes were among the mitigating measures used to address implementation delays\. Evidence was derived
on the number of youth who came to participate in the programs and were eventually screened as
eligible\.Government commitment was evident in the disbursement of US$3\.9 million after originally committing
US$1\.6 million\. By closing, the project disbursed all of the grant and 95 percent of the IDA credit\.
The project operated in a complex sector\. Several entrenched providers and major stakeholders in the sector
had limited coordination\. There was no sector leader on the side of the government\. At the start of the project,
the implementing agency had limited capacity, leading to a series of delays in establishing the office and
securing full staffing complement, which escalated overhead costs \. Additional staff were needed for effective
operations and project extensions\. On balance, while noting the initial delays, higher costs, and project
extensions, the benefit-cost ratios that have been achieved lead to an efficiency rating of substantial\.
Efficiency Rating
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Substantial
a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal
and the re-estimated value at evaluation:
Rate Available? Point value (%) *Coverage/Scope (%)
0
Appraisal 0
ï¨ Not Applicable
0
ICR Estimate 0
ï¨ Not Applicable
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome
The project's relevance of objectives was high, Efficacy of objectives 1 and 2, overall efficacy, and
efficiency were all rated substantial, thus resulting in an overall outcome rating of Satisfactory\.
a\. Outcome Rating
Satisfactory
7\. Risk to Development Outcome
The following pose risk to development outcome:
ï Financial risk: Competing budgetary priorities usually result in inadequate budget
resources for social programs such as this project\. There was a lack of evidence with regard to the
financial flows and continued viability of the project outcome\. Adequate data to support the impact of
engaging the otherwise unemployed or underemployed labor force for their participation in productive
economic activities would mitigate this risk\. A follow-on project would mitigate this risk as well (ICR, p\.
12 of 64)\.
ï Economic risk\. At the time of implementation, available jobs were already affected by the economic
downturn in the National Capital District\. The outcome of the project is vulnerable to deteriorating
economic conditions\. With the raging pandemic brought by Covid 19, economic uncertainty in
sustaining the results from this project remain high\.
ï Social risk\. The rate of drop out was considered to be at par for the kind of assistance provided
under this project\. Assistance in developing capacity may not be sustained over time and requires
strengthened psycho-social support through cognitive behavioral interventions One evidence of
negative social impact was the expressed opinion of trainee beneficiaries that even after achieving
employability and earning income, they remained among the poorest in the city\. There was also the
drop-out rate noted in the outcomes above (see Section 4, Efficacy above)\.
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ï Institutional support risk\. Mainstreaming the program would require strong partnering ties with
other service delivery institutions through a referral service scheme, for example\. Continuing to
explore partnerships and networks with other providers and other types of prospective
employers would be useful\. Legislative frameworks to allow for educational services and predictability
in funding safety net programs would enhance the sustainability of workfare programs such as the
one generated by the project\. Leadership by the National Youth Development could help mitigate this
risk\. They could also focus on nurturing partnerships and foster networks with other service providers\.
ï Government ownership/commitment risk\. The government's commitment to the results from this
project could be provided by continuous budgetary support to the workfare programs\.
Another evidence of government ownership would be expanding the project to other areas of the
country\.
ï Other stakeholder ownership risk (for example, from private sector/civil society) The impact of the
project could be broadcasted to a broad audience of prospective employers or other entities in the
government who benefited from those trained under this project\. This effort could mitigate the risk that
these entities continue to participate and welcome the target youth segment into the productive labor
force\.
8\. Assessment of Bank Performance
a\. Quality-at-Entry
The project was strategically relevant to the government's poverty reduction programs aimed at its urban
youth's employability and the negative economic consequence of unengaged young population
According to the ICR, government-funded youth programs, by other development partners, and other
non-state actors proved ineffective, ran for too short a period, or too fragmented to make a long term
impact\. Education and vocational training programs did not meet the needs of out-of-school or out-of-
work youth\. This was the first project in the social sector that the Bank was financing in 19 years\. The
implementing entity had no prior experience in implementing a Bank social sector project\. Key line
ministries of the Treasury and Planning had new staff who were also not familiar with Bank procedures\. A
grant financed project preparation to address these issues at preparation\. A Quality Enhancement
Review was undertaken at entry to ensure that potential risks were identified and provided mitigating
measures\.
Lessons learned from other workfare programs to augment low incomes and labor market insertion
schemes that helped empower disadvantaged youths informed project design\. These included: (i) the
need for clear objectives, tasks and simple implementation arrangements; (ii) building on existing
services to facilitate project implementation; (iii) transparency and leveraging partnerships to delivery
results by drawing on implementation capacity of the private sector and civil society organizations
(CSOs); (iv) using demand driven skills development, market oriented job training to better integrate
youth into the labor markets; and (v) bundling services such as skills training, life skills, on the job
learning, and job search assistance (PAD, paragraph 37)\. In addition, the project benefited from the
lessons of IEG's review of ICRs that focused on urban operations in Africa, Latin America and the
Caribbean, and South Asia regions\.
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Project design was complex\. New concepts such as a multi-sectoral approach and engaging the private
sector to partner in offering workfare benefits to the target youth were introduced\. Design focused on
securing strong political commitment from the government and development partners, maintaining close
supervision and technical assistance during start up, and a robust M&E to disclose project results\.
In summary, the design factored in the low capacity of the implementing agency and the first time that the
country was borrowing for a social sector project in 19 years\. There were sufficient mitigating factors
identified that were carried out at supervision (see below)\. Quality at entry was rated satisfactory\.
Quality-at-Entry Rating
Satisfactory
b\. Quality of supervision
The Bank team supervised the project adequately as evidenced by more than 15 missions over the 9-year
implementation period\. Technical missions accompanied some of the supervisory missions to deliver
training to the Project Management Unit (PMU)\. The focus on achieving the PDOs was evident in the 2
restructurings informed by the implementation progress and the 2014 MTR\. Initial delays were addressed
successfully\. For example, the project hired local and international staff, and built a team-based approach
to project management when there was an initial difficulty finding qualified and experienced staff\. The
project found suitable office space for young people to contact staff and provide safe and productive
working environments\. When a contracted training provider declared bankruptcy, the PMU implemented
the activities instead\.
Implementation problem areas were candidly discussed and addressed by additional funds and at
restructuring\. Operations continued, additional time provided, design refined, and implementation adjusted
to achieve a higher level of performance\. Risks identified at preparation were adequately mitigated during
implementation\. Project beneficiaries were selected using transparent and inclusive processes\. A
grievance mechanism was instituted and effectively utilized, reporting 100 percent resolution after 20 days,
exceeding the 90 percent target\. Focus on the project's development impact was evident in the partnering
with BSP and securing their commitments to achieve financial literacy and electronic banking\. Transition
arrangements for the follow-on project were included in the last restructuring\. These included relocating the
project office from privately rented facilities to NCDC's new City Hall annex\. Non-essential personnel
contracts of the PMU were not renewed\.
In summary, despite the venture into a new sector, the implementation strategy and the Bank team's
support adequately mitigated identified risks, hence supervision was rated satisfactory\.
Quality of Supervision Rating
Satisfactory
Overall Bank Performance Rating
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Satisfactory
9\. M&E Design, Implementation, & Utilization
a\. M&E Design
The theory of change was sound\. The objectives were clear\. The two activities, YJC and SDES would
generate trained and employable youth\. They would be matched to jobs\. They gain income from labor\.
Experience made the trainees become employable\. The PMU would maintain a Monitoring and Information
System (MIS) database linked to the Youth ID issued to each trainee\. The theory of change was reflected
in the 4 key outcome indicators in the results framework\. These indicators were revised during
restructuring\. Eleven new intermediate outcome indicators were introduced at restructuring\. All key
outcome indicators supported the project outcomes\. The 11 Intermediate outcome indicators captured the
contribution of the components and outputs to achieving the PDOs\. The indicators were
specific, measurable, time bound although the outcomes were nearer to outputs in nature\. Baseline would
be established during implementation\. Targets were well identified except for the employability outcomes\.
The employability of the trainees, reflected in whether they remained employed three months after the OJT,
could also have been reflected by whether they gained continuous employment or if unemployment was
reduced in the target cohort, although the PDO was expressed with a more limited outcome\. The PMU was
designated to implement the M&E design\. A communication campaign would be carried out throughout
implementation to disseminate project results\.
b\. M&E Implementation
A Project Steering Committee (PSC) consisting of key government, private sector, and civil society
stakeholders would oversee project implementation\. The PSC would provide guidance on policy
measures, review progress, work programs, and budgets, and facilitate high level coordination among
key stakeholders\. The project would be implemented by the National Capital District Commission
(NCDC)'s Project Management Unit (PMU)\. The PMU implemented the M&E\.
The project baseline was carried out as part of 2015 impact evaluation\. Impact evaluation was conducted
as part of the continuous monitoring through surveys of participants, controls, employers, and
communities\. These surveys were administered at regular intervals\. The conduct of the surveys was
challenging to implement because of the fragile context (security, transient nature of youth trainees, etc\.)
but nevertheless yielded important information for the project (ICR, page 26)\. The 2015 AF introduced
two new outcome indicators to be monitored: (i) direct beneficiaries, and (ii) percentage of grievances
addressed by the project, with the latter an indicator of citizen engagement, albeit with a negative
connotation\.
Data was regularly collected from participants and other stakeholders\. PMU reporting improved over
time, actively discussing results, shortcomings, and corrective measures such as tracking female
participants or drop-out rates\. Implementation difficulties with surveys were experienced when the team
leader of the consulting firm passed away unexpectedly and was not replaced\. After that contract was
terminated in 2017, enumerators and specialized researchers implemented the surveys\. The surveys
informed project implementation and was also used by the government and other donors for their own
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analyses\. One shortcoming was in capturing the success factors in OJY implementation in relation to
engaging employers\.
c\. M&E Utilization
The project utilized the M&E outputs to inform project implementation\. The surveys informed the
adjustment of project activities and worked toward achieving the PDOs\. Progress reports informed the
NDC, Departments of Treasury, Planning, and others who were members of the Project Steering
Committee, such as the National Youth and Development Agency\. The scope if the data collected was
reported in the ICR as having exceeded those required under M&E design\. Data collected was used for
cross sectional analysis and time comparisons\. Occasional delays in data input and analysis affected
some of the data's usefulness (ICR, page 27)\. A final project impact evaluation was delivered in 2018,
which considered all baseline analysis and surveys to reach overall impacts\. The results were posted
online\. Relevant data were used to prepare the government's version of the completion report as well as
the ICR\. Other donors and development partner reported used of the data for youth sector reports\.
M&E Quality Rating
Substantial
10\. Other Issues
a\. Safeguards
Environmental and Social Safeguards: The project was assigned an environmental assessment category
of "B," requiring a partial environmental assessment (PAD, paragraph 68)\. The project triggered OP/BP
4\.01, Environmental Assessment, and OP/BP 4\.10 Indigenous Peoples\. An Environmental and Social
Management Framework (ESMF) was prepared, approved, and disclosed\. Environmental Management
Plans (EMPs) were included in civil works contracts to assure that small scale and low intensity adverse
impacts were effectively managed\. A social assessment was completed in April 2010 outlining positive
impacts from an increase in social capital of PNG's youth and a strengthened engagement between the
government and civil society (PAD, paragraph 63)\. That same social assessment provided background
information on the Motu-Koita peoples and assessed their support for the project\. The project area, the
National Capital District (NCD) was urban but the Motu and Koita peoples were acknowledged to be the
customary owners of the area\. To comply with OP/BP 4\.10, and reduce the risk of social conflict between
ethnic groups in the project area, project's design did not include a separate Indigenous Peoples plan but
adopted the following measures: (i) consultations to enjoin community support at preparation; (ii)
consultation framework during implementation; (iii) targeted awareness raising campaigns to ensure
culturally appropriate benefits; (iv) mitigating measures for culturally appropriate grievance redress
mechanisms; and (v) disclosing key project documents in the local languages\.
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b\. Fiduciary Compliance
Financial Management: According to the ICR, financial management was satisfactory overall\. Timeliness
and accuracy of financial reporting improved over time\. All financial compliance issues were addressed\.
Financial audit statements up to December 31, 2018 were submitted and accepted, on time or one to two
months overdue\. The first year's audit was late by 9 months\. All financial audit opinions were unqualified\.
Findings and recommendations in the audit management letter were actioned and addressed\. There were
no findings or recommendations in management letters from 2014 to 2018\. The final audited financial
statements and management letter for the year ended December 31, 2019 would be due by June 30,
2020\. All Interim Unaudited Financial Reports have been submitted and accepted\. Timeliness of reporting
improved in the second half of the project\. The final IFR was due on February 15, 2020\.
Procurement: Initial procurement delays were due to need to recruit and train sufficiently experienced
staff\. Contract works incurred were higher than designed due to escalating costs of materials and elapsed
time since feasibility studies were completed\. Early on, insufficient market response delayed the award and
implementation of management support services to supervise labor intensive workfare services\. This
shortcoming was addressed at restructuring by allowing communities to identify suitable subprojects, form
groups to supervise YJC activities and strengthen community participation\. All 46 targeted contracts were
completed, 41 were commercial and 5 were community contracts\. Appreciation of the value of PNG
currency during the project also negatively impacted the estimated costs of goods and services\.
c\. Unintended impacts (Positive or Negative)
---
d\. Other
---
11\. Ratings
Reason for
Ratings ICR IEG
Disagreements/Comment
Outcome Satisfactory Satisfactory
Bank Performance Satisfactory Satisfactory
Quality of M&E Substantial Substantial
Quality of ICR --- Substantial
12\. Lessons
The ICR offered the following four lessons from the operations that other task teams may find useful
to consider for future similar projects:
ï Unemployed or underemployed youth, when given a second chance, could become
productive participants in economic activities\. In this project, the training and curated
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employability of trained youth led to considerable demand\. Its success was attributed to an
urban target region with a sufficient number of large businesses and hence more
employment options for OJT programs\. The YJC activities may be less sensitive to an urban
setting and could be replicable in non-urban settings\. However, project expansion would be
dependent on available staff to deliver the project arrangements used in this project\. The
lesson from this project was that giving underprivileged youth a second chance allowed them
to actively participate in the economic activity of their communities\.
ï Basic life skills and job readiness skills are significant foundations in structuring the
Theory of Change to make young people compete in the job market\. An Active Labor
Market Program like the one under the project was comprehensive and covered training,
wage subsidies, and work placements\. This strategy matched the unemployed school
dropouts to jobs and employers after receiving training\. The trainees secured on-going
employment when they demonstrated workplace skills that employers valued more than
technical skills\. Employers valued the investments in the BLS and PET because these
prepared the youth to join the work force with the expected attitude\. The lesson from this
operation was that equipping the target youth with basic life skills and job readiness are
valued by employers for job security\.
ï A strong mentoring and coaching program, combined with soft and practical life skills
facilitate a change in attitudes among at-risk youth\. In this project, the skills and
coaching of the trainers and community facilitators influenced a change in understanding of
at-risk youth on work responsibilities, diversity in the work place, gender equity, improving
health and nutrition\. However, the data showed that the time was too short to achieve a turn
around for young people with complex needs and contexts\. The lesson from this operation
was that psycho-social support therapies were important to consider in supporting out-of-
work youth to foster their labor force participation\.
ï At-risk youth need more time and a variety of paths to employment and employability\.
In this project, employers expressed the need to go beyond the basic life skills and practical
employability training and confidence boosting\. They noted the need to create a more varied
cadre of employable youth with higher level skills\. This could be achieved by extending the
time supporting trainees and introducing trade apprenticeships or technical vocational
educational training (TVET)\. The lesson from this operation was that there are numerous
ways to achieve employability of at-risk youth so that they could improve their condition and
contribute to a wider economic activity\.
13\. Assessment Recommended?
No
14\. Comments on Quality of ICR
The ICR was concise and consistent with the guidelines\. It was results oriented, providing evidence from the
various surveys that formed part of the project's impact evaluation to support claims regarding the achievement
of objectives\. The report was candid and provided the factors that led to project inefficiencies\. Evidence was
provided from credible sources such as project funded impact evaluations and surveys\. The annexes provided
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robust evidence to support the achievements reported\. The quality of analysis provided a concise summary of
the results of the project\. Lessons were based on evidence and corresponded to the reported findings\. The
report emphasized results and highlighted how the activities informed the outcomes and project impacts\. The
report was internally consistent and the results were mutually reinforcing\.
a\. Quality of ICR Rating
Substantial
Page 19 of 19 | REVIEW |
P049770 | Document of
The World Bank
Report No: ICR0000910
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(Loan No 45710, 33960, GEF Grant No\. 20169)
ON A
IBRD LOAN IN THE AMOUNT OF US$ 80\.00 MILLION
AND A
IDA CREDIT IN THE AMOUNT OF SDR 37\.20 MILLION
(US$ 50\.00 MILLION EQUIVALENT)
AND A
GLOBAL ENVIRONMENTAL FACILITY GRANT
IN THE AMOUNT OF US$ 5\.00 MILLION
TO
THE REPUBLIC OF INDIA
FOR A
SECOND RENEWABLE ENERGY PROJECT
September 30, 2008
Sustainable Development Department
India Department
South Asia Region
i
CURRENCY EQUIVALENTS
(Exchange Rate Effective March 31, 2008)
Currency Unit = INR
INR 1\.00 = US$ 0\.025
US$ 1\.00 = INR 39\.97
FISCAL YEAR
April 1 March 31
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
BEE Bureau of Energy Efficiency
CAS Country Assistance Strategy
CER Certified Emission Reduction
CUF Capacity Utilization Factor
DNES Department of Non-Conventional Energy Sources
DO Development Objectives
DPR Detailed Project Report
DSM Demand Side Management
EE Energy Efficiency
EEC Energy Efficiency and Conservation
EIB European Investment Bank
EIRR Economic Internal Rate of Return
ESCO Energy Service Company
FIRR Financial Internal Rate of Return
FM Financial Management
GEF Global Environment Facility
GEO Global Environment Objectives
GHG Greenhouse Gas
GoI Government of India
IBRD International Bank for Reconstruction and Development
ICR Implementation Completion Report
IDA International Development Association
IREDA Indian Renewable Energy Development Agency Limited
IPP Independent Power Producer
KfW Kreditanstalt fur Wiederaufbau
LoC Line of Credit
MNES Ministry of Non- Conventional Energy Sources
MNRE Ministry of New and Renewable Energy
MoU Memorandum of Understanding
M&E Monitoring & Evaluation
M&V Measurement & Verification
MPSEB Madhya Pradesh State Electricity Board
MU Million Units
NEAP National Environmental Action Plan
NGO Non Governmental Organization
NPA Non Performing Asset
ii
O&M Operations & Maintenance
OTS One Time Settlement
PAD Project Appraisal Document
PCN Project Concept Note
PDO Project Development Objective
PFC Power Finance Corporation
PMR Progress Management Report
PPA Power Purchase Agreement
PTC Power Trading Corporation
PwC PricewaterhouseCoopers
QPR Quarterly Progress Report
RE Renewable Energy
RFP Request For Proposal
RoR Run of River
SARFAESI Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interests
SEB State Electricity Board
SERC State Electricity Regulatory Commission
SHP Small Hydropower
SME Small and Medium Enterprise
TA Technical Assistance
TAP Technical Assistance Plan
TF Trust Fund
WB World Bank
USAID U\. S\. Agency for International Development
WHR Waste Heat Recovery
Vice President: Isabel Guerrero
Country Director (Acting): Rachid Benmessaoud
Sector Manager: Salman Zaheer
Project Team Leader: Mikul Bhatia
ICR Team Leader: Jeremy Levin
iii
INDIA
Second Renewable Energy Project
CONTENTS
Data Sheet
A\. Basic Information
B\. Key Dates
C\. Ratings Summary
D\. Sector and Theme Codes
E\. Bank Staff
F\. Results Framework Analysis
G\. Ratings of Project Performance in ISRs
H\. Restructuring
I\. Disbursement Graph
1\. Project Context, Development Objectives and Design
2\. Key Factors Affecting Implementation and Outcomes
3\. Assessment of Outcomes
4\. Assessment of Risk to Development Outcome
5\. Assessment of Bank and Borrower Performance
6\. Lessons Learned
7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
Annex 1\. Project Costs and Financing
Annex 2\. Outputs by Component
Annex 3\. Economic and Financial Analysis
Annex 4\. Bank Lending and Implementation Support/Supervision Processes
Annex 5\. Beneficiary Survey Result
Annex 6\. Stakeholder Workshop Report and Results
Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR
Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders
Annex 9\. List of Supporting Documents
Annex 10\. Institutional Development of IREDA
Annex 11\. Sample Energy Efficiency and Renewable Energy Investments
Annex 12\. Map
iv
A\. Basic Information
Country: India Project Name: Second Renewable Energy
Project ID: P049770,P055906 L/C/TF Number(s): IBRD-45710,IDA-33960,
ICR Date: 09/30/2008 ICR Type: Core ICR
GOVERNMENT OF
Lending Instrument: SIL,SIL Borrower:
INDIA AND IREDA
Original Total
USD 130\.0M,USD 5\.0M Disbursed Amount: USD 107\.4M,USD 5\.0M
Commitment:
Environmental Category: B,C Focal Area: C
Implementing Agencies:
Indian Renewable Energy Development Agency
Cofinanciers and Other External Partners:
B\. Key Dates
Second Renewable Energy - P049770
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 01/17/1997 Effectiveness: 01/31/2001 01/31/2001
Appraisal: 07/14/1997 Restructuring(s):
Approval: 06/27/2000 Mid-term Review: 07/14/2003
Closing: 03/31/2006 03/31/2008
ENERGY EFFICIENCY - P055906
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 01/17/1997 Effectiveness: 11/11/2000 01/31/2001
Appraisal: 07/14/1997 Restructuring(s):
Approval: 06/27/2000 Mid-term Review: 07/14/2003
Closing: 03/31/2006 03/31/2008
C\. Ratings Summary
C\.1 Performance Rating by ICR
Outcomes Satisfactory
GEO Outcomes Satisfactory
Risk to Development Outcome Low or Negligible
Risk to GEO Outcome Low or Negligible
v
Bank Performance Satisfactory
Borrower Performance Moderately Satisfactory
C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry Satisfactory Government: Moderately Satisfactory
Quality of Supervision: Satisfactory Implementing
Agency/Agencies: Satisfactory
Overall Bank Performance Satisfactory Overall Borrower
Performance Moderately Satisfactory
C\.3 Quality at Entry and Implementation Performance Indicators
Second Renewable Energy - P049770
Implementation QAG Assessments (if
Performance Indicators any) Rating:
Potential Problem Project at
any time (Yes/No): No Quality at Entry (QEA) None
Problem Project at any time Quality of Supervision
(Yes/No): Yes (QSA) None
DO rating before
Closing/Inactive status Satisfactory
ENERGY EFFICIENCY - P055906
Implementation QAG Assessments (if
Performance Indicators any) Rating:
Potential Problem Project at
any time (Yes/No): No Quality at Entry (QEA) None
Problem Project at any time Quality of Supervision
(Yes/No): Yes (QSA) None
GEO rating before
Closing/Inactive Status Satisfactory
D\. Sector and Theme Codes
Second Renewable Energy - P049770
Original Actual
Sector Code (as % of total Bank financing)
Central government administration 4 4
Power 96 96
vi
Theme Code (Primary/Secondary)
Climate change Primary Primary
Other financial and private sector development Primary Primary
Rural services and infrastructure Primary Secondary
Water resource management Secondary Secondary
ENERGY EFFICIENCY - P055906
Original Actual
Sector Code (as % of total Bank financing)
Renewable energy 100 100
Theme Code (Primary/Secondary)
Climate change Primary Primary
Infrastructure services for private sector development Primary Primary
Other financial and private sector development Primary Primary
Pollution management and environmental health Primary Primary
Regulation and competition policy Secondary Secondary
E\. Bank Staff
Second Renewable Energy - P049770
Positions At ICR At Approval
Vice President: Isabel M\. Guerrero Mieko Nishimizu
Country Director: Rachid Benmessaoud Edwin R\. Lim
Sector Manager: Salman Zaheer Alastair J\. McKechnie
Project Team Leader: Mikul Bhatia Magdalena V\. Manzo
ICR Team Leader: Jeremy Levin
ICR Primary Author: Chandrasekar Govindarajalu
ENERGY EFFICIENCY - P055906
Positions At ICR At Approval
Vice President: Isabel M\. Guerrero Mieko Nishimizu
Country Director: Rachid Benmessaoud Edwin R\. Lim
Sector Manager: Salman Zaheer Alastair J\. McKechnie
Project Team Leader: Mikul Bhatia Magdalena V\. Manzo
ICR Team Leader: Jeremy Levin
ICR Primary Author: Chandrasekar Govindarajalu
vii
F\. Results Framework Analysis
Project Development Objectives (from Project Appraisal Document)
The main project development objectives were to:
a) augment power supply through environmentally sustainable small hydro investments;
b) mobilize private sector investments in renewable energy projects; and
c) promote energy efficiency and demand side management (DSM) investments\.
Revised Project Development Objectives (as approved by original approving authority)
The project development objectives were not revised\.
Global Environment Objectives (from Project Appraisal Document)
The GEF-supported global environmental objective was to enhance and sustain improved end-use
energy efficiencies with consequent reduction in carbon emissions\.
Revised Global Environment Objectives (as approved by original approving authority
The project global environmental objectives were not revised\.
(a) PDO Indicator(s)
Original Target Formally Actual Value
Indicator Baseline Value Values (from Achieved at
approval Revised Target Completion or
documents) Values Target Years
Indicator 1 : Increase in small hydro installed capacity under the project and sectorwide
IREDA project:
IREDA project: 200 153 MW (TargetIREDA project: 95\.65
Value reduced in MW (commissioned
(quantitative or IREDA project: 0 MW MW proportion to as of closing March
Qualitative) Sectorwide: 1206 MW Sectorwide: Not 31 2008, out of 158\.25
defined reduction in
loan/credit MW total)
amount) Sectorwide: 2180 MW
Date achieved 01/31/2001 01/31/2001 11/29/2006 03/31/2008
Comments The total capacity funded under the project when all schemes are commissioned will be
(incl\. % 158\.25 MW\. (103%)\. It is expected that commissioning of all plants would be completed
achievement) by March 2009\.
Increased availability and utilization of energy efficient products and equipment and of
Indicator 2 : ESCO services - measured as investme nt under Bank project and as equivalent generation
capacity in MW
Investments : USD
Value Investments : USD 0 million 20 million Investments : USD
(quantitative or Equiv\. Generation Capacity : Equiv\. Generation 16\.93 million
Qualitative) 0 MW Capacity : Not Equiv\. Generation
Defined Capacity : 48 MW
Date achieved 01/31/2001 01/31/2001 03/31/2008
Comments Investments : 85%
(incl\. % Equiv\. Generation Capacity : Not Applicable
viii
achievement)
(b) GEO Indicator(s)
Original Target Formally Actual Value
Indicator Baseline Value Values (from Achieved at
approval Revised Target Completion or
documents) Values Target Years
Indicator 1 : Number of ESCOs operating in the country
4-8 ESCOs in 2002 per "An
Value International Survey of the There are more than
(quantitative or Energy Service Company No target specified 25 ESCOs currently
Qualitative) (ESCO) Industry", Edward
L\. Vine, Lawrence Berke ley operating in India\.
National Laborator
Date achieved 01/31/2002 01/31/2002 03/31/2008
Comments
(incl\. % The project provided technical assistance support for 8 ESCO sub-projects and a loan for
achievement) one\.
Indicator 2 : Avoidance of carbon emissions through energy effiociency investments under the project
Carbon emission
reductions from
Value Carbon Emissions avoided: 0 No target was IREDA EE projects
(quantitative or are estimated to
Qualitative) MTCO2 specified\. exceed 9\.43 million
tonnes (lifetime
emission reductions)\.
Date achieved 01/31/2001 01/31/2001 03/31/2008
Comments
(incl\. % The presented figures are for IREDA's complete EE loan portfolio, including projects under
achievement) implementation for which emi ssion reduction figures have been estimated\.
(c) Intermediate Outcome Indicator(s)
Original Target Formally Actual Value
Indicator Baseline Value Values (from Achieved at
approval Revised Target Completion or
documents) Values Target Years
Mobilization of Private Capital and management Resources into the Renewable Power
Indicator 1 : Sector, measured as Promoter's Contrib ution to sub-projects, and number of promoters
supported\.
Promotor's Promotor's
Value Promotor's Contribution : Contribution : No Contribution: USD
(quantitative or USD 0 million target specified 117 million
Qualitative) Number of Promoters
Supported : 0 Number of Number of Promoters
Promoters Supported Supported: 33
ix
: No target specified
Date achieved 01/31/2001 01/31/2001 03/31/2008
Comments This achievement measures promotor's contribution to renewable energy investments
(incl\. % supported under the project, and not the broader sector investments, which also increased
achievement) significantly during the project period\.
Indicator 2 : IREDA is able to build up a sound and sustainable energy efficiency portfolio
IREDA has funded 17
energy effiency
Value investments during the
(quantitative or No Energy Efficiency No targets were project - of which 12
Qualitative) projects in IREDA portfolio specified recieved
reimbursement under
the Bank line o f
credit\.
Date achieved 01/31/2001 01/31/2001 03/31/2008
Comments
(incl\. % Not Applicable
achievement)
x
G\. Ratings of Project Performance in ISRs
-
Actual Disbursements
No\. Date ISR (USD millions)
Archived DO GEO IP
Project 1 Project 2
1 12/28/2000 S S S 0\.00 0\.00
2 06/26/2001 S S S 3\.00 0\.00
3 12/21/2001 S S S 4\.87 0\.00
4 06/20/2002 S S S 8\.54 0\.50
5 12/19/2002 S S S 12\.63 0\.83
6 06/24/2003 S S S 17\.50 1\.23
7 09/19/2003 S S S 18\.36 1\.23
8 03/30/2004 S S U 23\.17 1\.43
9 10/05/2004 S S U 45\.74 1\.61
10 05/19/2005 S S U 53\.33 2\.01
11 06/24/2005 S S S 53\.33 2\.01
12 12/07/2005 S S 64\.80 2\.54
13 06/25/2006 S S S 71\.77 2\.75
14 12/22/2006 S S S 81\.02 3\.14
15 06/19/2007 S S S 89\.71 3\.48
16 12/18/2007 S S S 95\.88 4\.20
17 12/20/2007 S S S 95\.88 4\.20
18 06/16/2008 S S S 107\.37 4\.85
H\. Restructuring (if any)
Not Applicable
xi
I\. Disbursement Profile
P049770
P055906
xii
1\. Project Context, Development and Global Environment Objectives and Design:
1\.1 Context at Appraisal (brief summary of country and sector background, rationale for
Bank assistance):
1\.1\.1 Country Background By the second half of the 1990s, India's reforms in the areas of investment,
trade, and finance, initiated in response to the 1991 crisis, had helped stimulate the economy\. During the
period 1994- 1997, the country experienced high average rates of economic growth of 7 percent\. The 1997
Country Assistance Strategy (CAS) document proposed Bank group assistance in reducing infrastructure
bottlenecks and promoting private sector participation across sectors\. The India Compact also called for the
Bank to assist the Government to implement priorities identified in its National Environmental Action Plan
(NEAP 1993), including development of the Alternative Energy Plan\.
1\.1\.2 Sector Background At the time of project design, India's power industry was characterized by
inadequate and inefficient power supply with peak capacity and energy supply shortages exceeding 20
percent and 10 percent, respectively\. On the demand-side, inefficient pricing and a variety of market and
non-market barriers contributed to the overall inefficient use of electricity and thermal energy, exacerbating
the energy shortage and leaving a large unfulfilled market for financing investments in projects that could
cost-effectively reduce energy costs in industrial units\.
The Government of India's (GOI) response to the continuing power sector shortages was to provide
additional support to states who were undertaking power sector reforms and to encourage entry of private
sector investments in the sector\. These reforms included unbundling of previously integrated State
Electricity Boards (SEBs) and the establishment of independent regulatory agencies who worked at creating
appropriate enabling environments to encourage private sector investment in power generation\. The
accelerated development of the country's renewable energy resources and of energy efficiency programs
was a priority thrust area under India's NEAP, as the government was aware of the benefits of increased
levels of environmentally sustainable energy investments\.
At the national level, the government had a long record of support to Renewable Energy, including the
establishment of a Department of Non-Conventional Energy Sources (DNES) and the establishment of the
Indian Renewable Energy Development Agency Limited (IREDA) in 1987, under the administrative
purview of the DNES\. IREDA was given the dual mandate of promoting renewable energy technologies
and of providing financial support to investments in the sector\. The DNES was later elevated to the status
of a ministry, the Ministry of New and Renewable Energy (MNRE), earlier called the Ministry of Non
conventional Energy Sources (MNES), which has administered one of the largest renewable energy
programs amongst developing countries\. As part of its efforts to promote renewable energy, the Ministry
issued guidance on appropriate power purchase tariffs which could be adopted by the states which
recognized the positive externalities from renewable energy\.
At the state level, each state adopted its own policies, but central government guidance was a key factor in
establishing a supportive enabling environment for private sector development of renewables\. Several
Southern states adopted various policies in the early to mid 1990s to attract private sector development of
small hydro and other small-scale renewable energy power facilities, including wheeling, banking, and third
party sales arrangements\. In contrast, the regulations in the Northern states were not as supportive of
renewables, and the level of private sector SHP development remained low despite relatively high resource
potential figures\. Most of the small hydro projects in the Northern areas were primarily undertaken by
public sector entities\.
At the time of project appraisal, GOI support for energy efficiency was focused on provision of support for
energy audits and information dissemination programs in the industrial sector by public sector institutions
including the National Productivity Council, the Petroleum Conservation Research Association, the
Industrial Development Bank of India (IDBI) and the Energy Management Center (EMC)\. These efforts
13
lacked a unified approach to overcome market barriers to energy efficiency, especially on financing
identified efficiency investments\. The passage of the energy conservation act and the creation of the Bureau
of Energy Efficiency (BEE) in 2001 was a major step forward by the Government in advancing its energy
efficiency strategy and signified the beginning of a comprehensive approach to address this important topic\.
The Government's emphasis on clean energy development including both efficiency and renewables has
increased since the time of appraisal\. This is evidenced by the findings of the Planning Commission's
Integrated Energy Policy Report (2006) and the renewable energy and energy efficiency missions presented
as part of the National Climate Change Action Plan (2008)\.
Rationale for Bank Involvement The first line of credit to IREDA under the India: Renewable
Resources Development Project (CPL-35440; COFN-03220; TF-20339; TF-28633) successfully facilitated
early private sector interest in renewable energy development\. A second line of credit to IREDA was
considered appropriate for broadening the impact of the program and supporting the development of SHP in
other areas of high potential throughout the country\.
Additionally, a line of credit for energy efficiency was considered to be an appropriate complement to the
renewable energy program given the unmet financing needs of industrial and commercial end-users who
paid relatively high power prices but under-invested in energy efficiency\. While the technical and
economic potential for improving energy efficiency and thereby reducing carbon emissions in India was
sizeable, several market barriers prevented realization of these savings\. At the time of project appraisal, it
was felt that IREDA could take a leadership role in implementing activities to overcome energy efficiency
market barriers\.
a\. Original Project Development Objectives (PDO) and Key Indicators [as approved]:
Project Development Objectives Key Performance Indicators
Augment power supply through Increase in SHP installed capacity under the project and
environmentally sustainable SHP sector wide
investments
Mobilize private sector investments in Private sector promoter's contributions to renewable
renewable energy power projects energy sub-projects and number of sub-projects supported
Promote energy efficiency and demand- Increased availability and utilization of energy efficient
side management (DSM) investments products and equipment and of ESCO services measured
as investments under the Bank project and as equivalent
generation capacity
IREDA builds up a sound and sustainable energy
efficiency portfolio
b\. Original Global Environmental Objectives (GEO) and Key Indicators [as approved]:
Project Development Objectives Key Performance Indicators
Enhance and sustain improved end-use Energy efficiency service providers are able to gain
energy efficiencies with consequent market entry measured as number of ESCOs operating
reduction in carbon emissions in the country
Avoidance of carbon emissions resulting from energy
efficiency investments under the project
14
c\. Revised PDO (as approved by original approving authority) and Key Indicators, and
reasons/justification:
The Project Development Objectives were not revised\.
d\. Revised GEO (as approved by original approving authority) and Key Indicators, and
reasons/justification:
The Global Objectives were not revised\.
e\. Main Beneficiaries:
Beneficiaries of Small Hydropower Component Private SHP developers were the direct beneficiaries
of the Bank project in terms of funding for investments and building institutional capacities\. The project
paved the way for emergence of a new breed of entrepreneurs engaged in generation of power from SHP
facilities\. Many such developers in the southern states, who were introduced to the business through the
first LoC to IREDA, expanded operations into some of the Northern states, notably Himachal Pradesh\. State
power distribution utilities which purchased electricity from small-hydropower plants and electricity
consumers at large were the indirect beneficiaries of the Bank project\. With augmentation of generation
capacity (nearly 96 MW for 34 commissioned projects) and increased availability of power (estimated at
402 million units per annum valued at over US$50 million annually at prevailing diesel-based generation
costs - for 32 of these projects), the economy as a whole benefitted, especially in view of the prevailing
acute power shortages\. By mobilizing private sector capital and management expertise into the power sector
the project helped diversify energy sources and moderately reduce heavy reliance of the power sector on
fossil fuels\.
Beneficiaries of Energy Efficiency and DSM Component: The main project beneficiaries were the
industries, commercial establishments, communities and other electricity consumers who realized energy
cost savings and productivity gains as a result of energy efficiency and DSM investments\. The state
distribution companies and the economy as a whole were the indirect beneficiaries of the reduced peak
demand resulting from the implementation of the EE projects\.
Beneficiaries of Technical Assistance: The project supported numerous training and capacity building
activities for energy efficiency stakeholders including central and state government officials, commercial
banks, EE consultants, businesses, universities and research institutions and non-governmental organization
(NGO) groups\. The awareness building activities carried out under the project also impacted end-users and
helped in raising energy efficiency awareness to a broad section of the population\. Institutional
strengthening initiatives directly benefited IREDA which had no previous experience with lending for
energy efficiency but is now well placed to continue providing finance for these types of investments\.
f\. Original Components (as approved):
Part A: The Small Hydro component built upon IREDA's experience with the first Renewable Resources
Development Project\. It was designed to finance 200 MW of small hydro capacity developed by the private
sector\. The target was revised to 153 MW after cancellation of US$26 million of IBRD proceeds which
were unlikely to be utilized by the time of project closure\.1 The project was designed to support a range of
eligible small hydro project types including (i) Canal-based and dam toe schemes; (ii) Run-of-river
schemes; (iii) Rehabilitation and/or upgrading of old plants; (iv) Use of tail ends of cooling water systems
of thermal power plants; and, (v) Stand alone micro-hydro sub-projects of up to 100kW each\. Over 80
1Partial cancellation of funding was undertaken twice during project implementation US$ 18 million in June 2005,
and US$ 8 million in November 2006\. The closing date of the project was extended by one year on each occasion\.
15
percent of the sub-projects were expected to be categories (i) and (ii) projects, ranging in sizes from 1 MW
to 25 MW\. It was recognized during project preparation that some of these categories represented greater
risks and would be less economically attractive to developers, but the experience gained would be an
important input in mapping out future strategies for promotion of decentralized generation of power\.
Part B: The Energy Efficiency/DSM component was designed to provide financing for energy efficiency
as a new line of lending business that would complement IREDA's renewable energy financing activities\.
The component would cover a wide array of approaches including: (i) design, development and
implementation of integrated energy management services operated by ESCOs and end-users on a
performance guarantee basis; (ii) end user purchase and installation of energy efficiency and/or load
management devices and systems; (iii) production of energy efficient equipment; and, (iv) end-user
participation in SEB and other utility-sponsored DSM programs\.
Part C: The Technical Assistance component was designed to support IREDA's efforts in the new area of
energy efficiency by financing: (i) pre-investment activities to develop a sustainable pipeline of energy
efficiency investments, preparation of standard bidding documents for procuring ESCO services,
operational and business development modules and information dissemination; (ii) establishing in-house
capacity within IREDA to appraise, supervise and promote energy efficiency services and schemes; (iii)
assisting participating states in promoting end-use efficiency including development of appropriate policy
incentives; and, (iv) training of public and private sector energy and industry officials and staff on energy
conservation and DSM\.
g\. Revised Components:
The components were not revised\.
h\. Other significant changes (in design, scope and scale, implementation arrangements and
schedule, and funding allocations):
There were no significant changes in project design during implementation\. However, the scale of the
project was reduced following cancellation of a part of the IBRD loan\. The project closing date was
extended by two years\.
b) Key Factors Affecting Implementation and Outcomes
a\. Project Preparation, Design, and Quality at Entry
Soundness of Background Analysis This project was prepared as a follow-up to the India: Renewable
Resources Development Project which was instrumental in initiating private sector investments in
renewable energy development and in strengthening IREDA's capacity\. The second renewable energy
project was specifically focused on providing continued support to the nascent private sector market for
small scale power generation, particularly in the Northern states, and to build capacity within IREDA to
finance energy efficiency projects\.
The prevailing situation where industrial and commercial end-users paid high electricity prices but were
unaware or unconvinced of the potential savings through investments in energy efficiency was correctly
diagnosed at appraisal\. Accordingly, a key project component was to catalyze an energy efficiency services
industry in India by addressing market development barriers and helping develop entrepreneurial initiatives
including support for the formation of Energy Service Companies (ESCOs)\. Background analysis also
correctly identified the need for overcoming market barriers by strengthening institutional capacities,
creating awareness and conducting appropriate studies to support pilot interventions in the area of energy
16
efficiency\. Accordingly, these activities were supported through a Global Environment Facility (GEF)
grant\.
Assessment of Project Design The project design incorporated lessons from the implementation
experience of the first Bank project with IREDA, such as development of a sufficient sub-project pipeline
upfront and better estimation of civil works and interconnection costs\. The project also incorporated lessons
from the Bank's EE DSM experience as part of the power sector reform loans which identified the need to
develop capacity in an Indian financial institution to appraise and finance energy efficiency investments\.
The design of all the three components was found to be adequate\. First, the small hydro component allowed
IREDA an opportunity to enhance private sector project development capacities, develop new small-hydro
project models and diversify its geographical outreach by reaching to the Northern and Eastern states\.
Second, the decision to include energy efficiency as a component was appropriate as many of the market
barriers to energy efficiency are similar to those for renewable energy\. The flexibility adopted for types of
energy efficiency interventions eligible for support proved to be a crucial factor in allowing for
implementation of approaches that worked in the Indian context\. Third, the TA design was appropriate for
enabling greater awareness about energy efficiency in the Indian industry, examining/testing different
approaches for financing efficiency investments, and in creating and strengthening capacities in the market
at large and in IREDA to finance efficiency investments\. The TA design was revised at mid-term review to
focus on near term market opportunities and reduced its emphasis on certain policy aspects, given the
creation of the Bureau of Energy Efficiency (BEE) who assumed the lead role in Indian Energy Efficiency
Policy work\.
Adequacy of Client Commitment at Entry At the time of appraisal, IREDA had already built a large
pipeline of sanctioned loans to be financed under the project\. IREDA had also started building an energy
efficiency pipeline in anticipation of a 1998 start date\. This early start in project preparation allowed
IREDA extra time in building a portfolio of loans in the new field of energy efficiency\.
Assessment of Risks The assessment of risks at the time of appraisal was moderately satisfactory\. While
the risk from changes in government policy incentives for renewables was seen as low at appraisal, its
actual impact during several years of project implementation was substantial with the lapse of the MNES
tariff and the passage of the Electricity Act of 2003\. Additionally, the risks emanating from multi-year
variations in hydrology were not envisaged at appraisal, though such risks had a significant financial impact
on loans for the sub-projects in Andhra Pradesh\. The assessment of risk was appropriate regarding the
nascent stage of ESCO based energy efficiency models and in the case where the demand for energy-
efficiency investments did not materialize (or did not translate into bankable projects)\. Indeed, the project
was seen as mechanism which could adequately assess and address the risks inherent in implementing such
approaches\.
b\. Implementation (including any project changes/restructuring, mid-term review, Project
at Risk status, and actions taken, as applicable):
Initial Delays: The project was initially prepared in 1997-98 but the Board presentation was delayed due to
prevailing international sanctions against India\. The project was finally approved by the Board in June 2000
and became effective in January 2001\. In the interim period, some of the identified sub-projects were
funded through IREDA resources and the ongoing first World Bank line of credit\. However, disbursements
under this second project were slow until the first line closed in December 2001\. The slow initial off-take
combined with factors mentioned below affected implementation and eventually led to cancellation of part
of the proceeds\.
17
Impact of Change in Policy and Regulatory Environment: The lapse of prevailing government
guidelines1 for renewable power purchase tariffs created significant challenges for SHP developers\. Under
the Electricity Act 2003 which was adopted several years after project effectiveness, the mandate for
Renewable Energy tariff policies was given to state electricity regulatory commissions (SERCs)\. However,
in the absence of clear central policy guidelines and inadequate tools to determine the economic cost of
renewable energy vis-à-vis conventional power, most states could not swiftly issue new policies, leading to
significant regulatory uncertainty for new project developers who were unable to get approval for proposed
power purchase agreements (PPAs) for their potential plants\. Several states took this opportunity to
terminate and renegotiate existing PPAs to lower levels\. This situation represented significant risk for SHP
developers and lending institutions such as IREDA\. Investment decisions and requests for disbursement
against previously approved loans were frequently delayed until the regulatory uncertainty was removed\.
This problem was slowly resolved on a state-by-state basis over the course of the following three years\.
Project development and consequent disbursement by IREDA against the WB LoC increased once future
revenue streams, as determined by state-specific regulatory PPA policies, became more secure\.
Competition from Commercial Banks Development of a Wider Market: During implementation IREDA
faced increasing competition from commercial banks which were now more interested in financing small
hydro and energy efficiency projects\. At the time of project appraisal, commercial bank interest,
experience, and comfort in these types of investments was quite low, but the demonstrated financial
viability of the IREDA investments changed this perception\. The credibility of IREDA's expertise in
appraising potential projects became increasingly recognized by the financial sector over the course of the
project, and several project developers who had initially applied for IREDA loans were able to obtain
financing from other commercial sources with loan applications made stronger by the fact that IREDA
sanctioning approval had been obtained\. A total of thirty five sanctioned small hydro and energy efficiency
projects representing loans of more than US$ 136 million were dropped from the IREDA sanctioned
portfolio during implementation\. Most of these projects obtained financing from other sources and have
since been commissioned\. This is evident from a sample analysis undertaken as part of the final evaluation
of the project, which revealed that 15 out of 19 of these projects were commissioned, with one additional
SHP project currently under construction\. Additionally, several loans were prepaid by project sponsors
who were able to obtain lower cost financing than could be provided by IREDA\.
While this clearly signaled the "success" of the project in achieving overall goals of lowering barriers for
private sector development of EE and RE and in mainstreaming financing for such projects in local
commercial banks, it negatively impacted the disbursement of IDA/IBRD funds under the LoC, ultimately
leading to partial cancellation of US$ 26 million of the IBRD proceeds which were not likely to be used by
the time of project close\. IREDA increasingly lost market share of a growing total market for RE and EE to
other competing financial institutions who were able to offer more flexible products and services from local
branch offices and who were not bound by many of IREDA's procedural processes\. These processes were
criticized by some developers as too cumbersome and bureaucratic\. This experience tested IREDA as an
institution, and proved ultimately useful by forcing IREDA to take several steps to improve the
attractiveness of its loan offerings, such as revising loan terms and conditions, implementing several actions
to streamline its business procedures and reducing documentation requirements\.
Institutional and Governance Challenges: For a significant part of the project duration (about two and a
half years) the position of Managing Director (MD) of IREDA was vacant\. This affected the overall
governance arrangements at IREDA, hampering institutional responsiveness in an increasingly competitive
market\. However, in June 2007 the MD post was elevated to that of Chairman and Managing Director
(CMD) and the acting MD was formally appointed to this post\. Soon after, the vacant post of Director
(Technical) was also filled, and three Independent Directors were appointed to the IREDA board which was
1The MNES guidelines were issued in 1994 and recommended a set rate of Rs\. 2\.25 per unit with a provision for
escalation of 5% per annum for 10 years\.
18
a positive step in increasing IREDA operational independence from the Ministry of New and Renewable
Resources, which continues to be the principle shareholder of IREDA\. With these changes IREDA
governance structure is much improved and oriented in a more commercial fashion\.
Impact of Natural Causes: Natural causes also had a negative impact on the project\. Six hydro sub
projects were implemented in AP, a state which faced drought conditions for three years from 2001-02 to
2003-04\. Consequently, these projects experienced a severe decrease in available discharge levels, leading
to severely reduced opportunities to generate power, earn revenue and service debt\. Not surprisingly, all of
these projects were soon classified as non-performing assets (NPAs)\. In 2001-02, IREDA funded interest
requirements and added the interest funded to the principal outstanding for these projects and revised their
loan repayment schedules\. The drought conditions persisted through 2002-03 and 2003-04\. As a result of all
of these events, IREDA came up with a restructuring package for these projects in 2005/6, and now all of
the project sponsors are now servicing their loans in a timely manner\. This temporal concentration of NPAs
is a not unexpected outcome for a non-banking financial institution which is insufficiently diversified across
sectors and geographic locations\. While increased IREDA lending in other states and for other types of
projects such as wind and energy efficiency will help mitigate future portfolio risk, IREDA will always
carry higher levels of exposure to natural disasters due to the composition of its lending portfolio which
supports its mission\.
Implementation of the GEF TA Program (TAP): The GEF Technical Assistance Program (TAP) was
closely monitored and modified to respond to changing conditions, most notably the formation of the BEE
and the reduced prospects for utility-led DSM\. With the establishment of the BEE, initial TAP work was
undertaken to support BEE policy activities such as technical support for issuance of new codes and
standards\. As the BEE become more established, this policy support was no longer identified as a priority,
and TAP activities were refocused on other EE market and pipeline development tasks, including an
increased focus on increasing financial sector capacity to lend for EE\. The GEF TAP also provided support
to IREDA for a package of strategic assignments in the areas of new business development for IREDA,
resource mobilization and organizational restructuring to enable better response to increasing competition in
the Indian market for clean energy financing\.
c\. Monitoring and Evaluation (M&E) Design, Implementation and Utilization:
M&E Design The M&E plan for the project comprised of targets that were linked to achievements of
different project outputs\. This included a capacity addition target of 200MW of small hydro sub-projects
(revised to 153 MW); commissioning energy efficiency sub-projects that had measurable energy and
capacity savings; and developing a sustainable energy efficiency portfolio and institutional capacity through
the TAP\. This plan focused on monitoring and regular reporting of the progress in achieving the PDOs and
project outputs through quarterly progress reports (QPRs) from IREDA, annual reports, energy audits, and
direct feedback from relevant stakeholders\.
During the mid-term review and in subsequent missions the M&E design was further strengthened to
include additional key indicators, as targets were not specified for some of the key project objectives\.
Measurable indicators for the TA component were designed and an accompanying implementation plan
with expected outputs and timeframes was agreed on\. In addition, it was agreed to strengthen and
streamline the information provided in the QPRs by adding an analysis of the critical areas of concern and a
detailed implementation plan to address these\. IREDA built and strengthened its overall M&E systems
during the course of the project\.
M&E Implementation: Targets for some of the project outcomes were not clearly defined at the beginning
of the project\. This was addressed by laying out action plans with timeframes\. Corrective actions were
taken when needed to revise action plans and timeframes for delivery\.
19
M&E Utilization: QPR formats were revised during implementation to improve their effectiveness and
identify the need for corrective action\. M&E information from QPRs was used to provide feedback to
IREDA on issues pertaining to project implementation, sectoral performance, contribution of the projects to
the installed capacity of hydro projects, development of capacity in the energy efficiency sector, and to
review outcomes of the project\. This information helped IREDA/GoI and the Bank team maintain focus on
key outstanding issues and their timely resolution, which enabled successful achievement of project
development objectives\.
d\. Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as
applicable):
Environmental Safeguards: The primary focus of safeguard compliance for the small hydropower
(SHP) sub-projects was managing adverse impacts on the water environment and sensitive areas such as
forests\. The potential negative impacts on air quality was the key issue to be addressed for the energy
efficiency projects\. Another common theme during implementation of subprojects in both types of projects
related to ensuring sufficient worker and site safety\. IREDA sub-projects were fully compliant with
environmental safeguards and it is noted that IREDA proactively improved its internal systems to ensure
compliance\.
A separate environmental audit of the small hydro projects was undertaken during implementation and key
recommendations of the audit were adopted by IREDA through the development of a more streamlined
project appraisal process\. Though this system could not be used on any of the sub-projects under the
operation as they were developed before the audit was completed, the system will be a very useful tool for
IREDA in the future especially as larger hydropower projects are pursued as part of the new business
strategy\. Pre-disbursement (post-sanction) inspections were used to encourage the project developers to
improve on-site environmental management\. In several small hydro locations, good practices on
environmental management were noted indicating sensitized project developers\. Some of the observed
developer practices included tree plantations within the project sites, innovative arrangements for debris
disposal, and changing design of intake weir to have better control on minimum downstream flow
requirement\. Common shortcomings included limited attention to workers' safety during implementation
and delays in obtaining regulatory clearances, especially from pollution control boards\.
Social Development aspects: Overall, the approach of SHP developers in encouraging effective
community involvement has been positive\. Provision of employment opportunities for local people, tree
planting, provision of education, and support for recreational activities have been undertaken by several
SHP developers as part of their business practices\. Proactive efforts to enter into active partnerships with
local communities fully respecting their needs is noted as a positive attribute of several of the SHP
developers\. Land acquisition for SHP involving common lands has been a bottleneck issue, particularly in
states like Himachal Pradesh, and has been highlighted as an area requiring policy level attention\.
Financial Management: FM arrangements from a fiduciary perspective under the project were
implemented in a satisfactory manner\. The project management report (PMR) formats designed at the
appraisal stage were found to be cumbersome during implementation and were therefore refined in the
second year\. Thereafter, these were submitted on a regular basis, albeit a little delayed in a few instances\.
Entity audits were regular and did not contain any major accountability issues\. Project audits for the IDA
credit, GEF grant and IBRD loan were also submitted in time\. Consolidated reporting for the three funding
sources (IBRD, IDA, GEF) was done for the financial statements from 2006-07 onwards\.
Procurement: Procurement undertaken by IREDA and its borrowers under the project was largely
satisfactory\. Procurement of TA services and goods under GEF funding was also satisfactory, although
several activities experienced long procurement-related delays\. There was considerable delay in awarding
the contract for the installation of an improved FM system and loan accounting system for IREDA\. This
20
was due to several reasons cited in the aide memoires, and at the end of the project this activity still remains
incomplete\.
e\. Post-completion Operation/Next Phase (including transition arrangement to post-
completion operation of investments financed by present operation, Operation & Maintenance
arrangements, sustaining reforms and institutional capacity, and next phase/follow-up
operation, if applicable)
Sustainability of sub-projects funded under the project: Of the 44 SHP sub-projects funded under
the World Bank LoC, 34 have already been commissioned and the remaining 11 are expected to be
commissioned by March 2009\. Of the 12 energy efficiency sub-projects supported, 11 have been
commissioned and the remaining one sub-project is expected to be commissioned by December 2008\.
Despite the cost and time escalations in several cases, and lower capacity utilization factors due to vagaries
of hydrology in hydro sub-projects, it is seen that financial rates of return based on actual cost and
generation data is higher than the cost of capital\. The private developers have an adequate incentive to
ensure appropriate operations and maintenance of these sub-projects\. As a result, no significant post-
completion operational issues are anticipated\.
Institutional and Financial Sustainability of IREDA: IREDA has matured as a financial institution
during the course of implementation of the two Bank projects, having financed over 200 projects in
renewable energy and energy efficiency\. IREDA is the lead "green energy" financial institution in the
country and has won both regional and international recognition\. IREDA's institutional capabilities have
been enhanced significantly during this period in resource mobilization, disbursement and maintaining
portfolio quality (as further detailed in Annex 10)\.
As a result of the strategic change consultancy studies, IREDA has a clear business development strategy
which has been approved by the IREDA Board which, if successfully implemented, will allow IREDA to
continue its leadership role in promotion and development of the RE and EE sectors\. In additional to
expanding lending in familiar areas such as small hydro and wind, IREDA will also pursue financing
opportunities for medium sized renewable energy projects, supply-side efficiency, niche end-use energy
efficiency projects (such as waste heat recovery), biomass gasification for thermal applications in industries,
and solar photo voltaic projects\.
As recommended in the strategic change studies, IREDA is also engaging with other financial institutions
for consortium financing of larger projects\. Increased outreach to other specialized financial institutions
such as Power Finance Corporation (PFC) has helped forge new partnerships\. While IREDA was not
successful in sourcing additional low cost funds from the domestic market, new resources are being
mobilized from international sources, including Asian Development Bank (ADB), European Investment
Bank (EIB), KfW and others\. As a result, the institutional gains over the course of the Bank-financed
project are expected to sustain and expand going forward\.
Next Phase / Follow-up Operation:
Rising global and local environmental concerns together with recent rapidly escalating fossil fuel prices
have led to increased support for energy efficiency and renewable energy development and consequent
increased demand for financing of these investments\. The Government of India has also made a clear and
strong commitment to support scaling-up of renewable energy and energy efficiency, most recently as part
of the special missions under the National Climate Change Action Plan (2008)\. In this context, the enabling
policy and implementation environment for clean energy is likely to become increasingly stronger, further
supporting IREDA's future prospects for lending\.
As a market leader in renewable energy financing, IREDA has built a unique capacity in this growing
market that sets it apart from other financial institutions now entering the field\. IREDA has also built up its
capacity in energy efficiency financing and is also developing in-house carbon financing knowledge and
21
skills\. IREDA has recently signed partnership agreements with larger institutions such as the Power
Trading Corporation (PTC), Power Finance Corporation (PFC) and the Infrastructure Development Finance
Company (IDFC) to structure and co-finance projects, which represents further evidence of the value these
institutions place on IREDA's capacity and experience\.
IREDA had previously focused on financing smaller sized projects (1-10 MW) but is now focusing its
attention on larger projects as well, as was suggested by the outputs of the WB-supported strategic change
TA provided under this project\. Among the recent new flagship projects is the loan for the 100 MW Tata
Power Wind Project, co-financed by IREDA and the private sector operations arm of the ADB\.
There is a need for further financial support to IREDA at this critical juncture as it forges new partnerships
and pursues larger projects, which could be an opportunity for a new engagement between the World Bank
and IREDA\. While the Indian market for commercial finance of clean energy investments has experienced
rapid expansion, there remain several areas which are not being served by the commercial finance market\.
These areas including geographic zones such as in the Northeast where the level of private sector
investment in RE and EE is low, new business models that have the potential to become commercial, and
more complex project and financial structures\. The ICR team recommends that the Bank engage with
IREDA and the Government to discuss and develop possible options for a new operation aligned to the new
IREDA business strategy and changing investment climate for clean energy\. This recommendation is
consistent with recent CAS discussions on the sustainable growth pillar, whereby the Bank has stated that it
will assist the GOI to access additional funding for measures that further reduce GHG emissions\.
c) Assessment of Outcomes
a\. Relevance of Objectives, Design and Implementation (to current country and global
priorities, and Bank assistance strategy):
The project objectives and design are considered to be highly relevant to the current national priorities and
the Bank assistance strategy\. The Government of India has placed a strong emphasis on clean energy
development and climate change as evident from the passage of the Energy Conservation act of 2001 and
the recently announced "National Action Plan on Climate Change\."
The objectives of the project are fully consistent with Bank's 2004 CAS that supports partnerships for
Global Environment and promotes private sector led growth by provision of infrastructure\. The project also
supports Millennium Development Goal 7: Ensuring Environmental Sustainability\.
b\. Achievement of Project Development Objectives and Global Environmental Objectives
(including brief discussion of causal linkages between outputs and outcomes, with details on
outputs in Annex 4):
PDO-(a): Augment power supply through environmentally sustainable small hydro investments
The project was successful in augmenting power supply through environmentally sustainable small hydro
investments and mobilizing private sector investments in renewable energy power projects\. The World
Bank has supported 45 sub projects with an installed capacity of 158\.25 MW through the second line of
credit\. Of these, 34 sub projects have been commissioned with installed capacity of 95\.65 MW and 11 sub
projects with installed capacity of 62\.60 MW are expected to be commissioned by March 2009\.
During the project a number of regulatory developments at the central and state levels occurred that now
provide a good enabling environment for the development of SHP\. Nineteen states have specific policies for
SHP, 10 states have notified feed-in tariff orders for SHP, and MNRE has announced a new capital subsidy
scheme to further support SHP\. The total SHP capacity in the country exceeds 2100 MW as of March, 2008
and the target for capacity addition of SHP for the Eleventh plan is 1400 MW\.
22
Out of the total capacity of 536\.7 MW installed during the Tenth plan, this project directly supported 95\.65
MW\. Sub-projects that dropped out of the project but were completed with financing from other sources
contributed another 38 MW\. Hence, the project supported about 25 percent of the planned SHP additions
during this period\.
PDO-(b): Mobilize private sector investments in renewable energy power projects
Emergence of a Strong Segment of Private Sector SHP Developers: The project provided lending to 23 SHP
entrepreneurs at a time when funding from other sources was not readily available\. The successful
implementation of these projects has led to some of these entrepreneurs leveraging their initial success to
then set up multiple projects in the same location\. It has also instilled confidence by certain developers
previously only focused on local prospects to implement projects in new states, as was demonstrated when
entrepreneurs from Andhra Pradesh successfully set up SHP plants in Northern states\. In some cases large
SHP players have also used the second LoC to develop expertise in project implementation and plant
management\.
Increased Development of SHP sub-projects by Private Sector: Initially, all most SHP projects were in the
public sector in India\. IREDA was a pioneer in fostering private sector based hydro development and, at
present almost all such projects are developed by private sector developers\.
Increased Financing of SHP sub-projects by Commercial Banks: The sub-projects funded under Bank line
of credit took loans from IREDA at commercial terms or higher, and did not crowd out financing from the
commercial market\. In fact, the success of World Bank-IREDA funded schemes aroused greater interest
from commercial banks, leading to the gradual emergence of a more competitive market for funding SHP
schemes\. As noted earlier, some of the project developers originally assisted by IREDA took up additional
schemes with funding from other commercial sources\. IREDA, however, is still widely recognized for its
strength in appraising SHP sub-projects and a number of the commercial banks do not have the required
expertise\. Therefore, larger financial institutions have started partnering with IREDA through consortium
financing to utilize IREDA's expertise in evaluation of projects which combines well with their larger loan
limits and lower costs of funds\. This has allowed IREDA to finance medium and large scale hydro projects\.
PDO-(c): Promote energy efficiency and demand-side management (DSM) investments
Energy Efficiency Investments under the Project: The project was also successful in promoting energy
efficiency and demand-side management (DSM) investments which further augmented power supply\.
Seventeen energy efficiency projects included in the portfolio at the time of project close are in various
stages of implementation, financed by the project and IREDAs own resources representing over 90 MW in
additional capacity / avoided peak demand\. These projects have been financed by over US$ 36 million
directly disbursed for EE investment at the time of project close\. The total amount of investment for
IREDA's energy efficiency loan portfolio, including sponsor's equity contributions and other cofinancing,
will exceed $74 million1 once final commissioning is complete\. Twelve of these projects have been
commissioned by project close, and the estimated savings projected for these projects is 249 million kWh
equivalent per year\.
Commercial Bank lending in Energy Efficiency: Based on IREDA's experience in energy efficiency
financing, several local banks have also launched loan programs for energy efficiency\. Five banks,
namely State Bank of India, Canara Bank, Union Bank, Bank of Baroda and the Bank of India,
have launched new lending schemes for energy efficiency\.
1A fixed exchange rate of Rs\.44\.83 per US $ was used to calculate US $ contributions made by borrower/project sponsors across
the project timeline\.
23
Enhanced Policy Environment and Institutional Support for Energy Efficiency The Energy Conservation
Act, 2001 was a critical milestone for energy efficiency in India\. The Bureau of Energy Efficiency (BEE)
was established as a statutory body under the Ministry of Power to plan, implement and monitor the various
programs under the Act, including standards and labeling programs, certification and accreditation for
energy managers/auditors, energy efficiency policy research, awareness and development and
implementation of energy efficient building codes, among other activities\.
Increased availability and utilization of energy efficiency interventions: Successful lending for EE sub-
projects by IREDA demonstrated the financial viability of such investments, leading to increased
acceptance and financing by both the concerned industries and by the commercial banking sector\. For
example, waste heat recovery systems were few in India prior to the implementation of the investments
under the project\. However, this option is now widely accepted as viable throughout the industry\. Annex
11 presents a good example of how financially sick enterprises units can be revived with effective
deployment of energy efficiency measures\. Many activities supported under the GEF TAP provided support
for the increased use of EE in numerous sectors through market awareness and demonstration activities
GEO: Enhance and sustain improved end-use energy efficiencies with consequent reduction in
carbon emissions
The activities supported under the GEF TAP were able to successfully provide institutional development
support to IREDA to create and expand the new line of business of energy efficiency lending, increase
broader awareness and capacity for EE, and increase market development for increased energy efficiency
investments, by both IREDA and the commercial banking sector\.
While the initial project included a specific focus on ESCO development, this mechanism has not achieved
widespread success in the Indian context\. ESCOs in India face a number constraints including inability to
prepare bankable projects, limited legal and contractual capabilities, poor contract enforcing environment,
poor balance sheets and limited experience and expertise in structuring projects with adequate payment
structures\. Nevertheless, the ESCO activities under this project have provided valuable initial experience,
and will support future BEE programs in this area\.
The total estimated energy and CO2 savings which will be achieved assuming successful commissioning of
the projects under implementation is 6\.70 million tons of CO2 reduction\.
c\. Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e\.g\., unit rate
norms, least cost, and comparisons; and Financial Rate of Return):
SHP Sub-projects
Financial Analysis: At appraisal, the FIRRs of 14 sub-projects in the project pipeline were calculated to be
in the range of 22\.0 to 40\.1 percent\. On project completion, FIRRs for 24 of the sub-projects funded under
Bank line of credit (for which actual generation data could be obtained) were found to range between 15
and 51 percent\. The FIRRs for the same sub-projects at the time of loan sanction were calculated to be in
the range of 15 to 56 percent\. Project unit costs for eighty percent of the projects ranged from US$ 960/kW
to US$ 1526/kW but there were projects with costs as low as US$607/kW and as high as $1857/kW as well\.
The wide variation in unit project costs is on account of the locations and types of SHP projects
implemented and to a small extent on exchange rate discrepancies\.
Economic Analysis: At appraisal, the EIRRs of 14 sub-projects in the project pipeline were calculated to
be in the range of 20\.5 to 51\.3 percent\. On project completion, EIRRs for 23 of the sub-projects funded
under Bank line of credit (for which actual generation data could be obtained) were found to range between
27 - 224 percent in all cases higher than the hurdle rate\. The EIRRs for the same sub-projects at the time of
loan sanction were calculated to be in the range of 21 to 47 percent\.
24
EE Sub-projects
Financial Analysis: At appraisal, the FIRRs of 16 sub-projects in the indicative pipeline were calculated to
be in the range of 26 to 158 percent\. On project completion, FIRRs for 5 of the sub-projects funded under
Bank line of credit (for which actual generation data could be obtained) were found to range between 11
and 91 percent\. The FIRRs for the same sub-projects at the time of loan sanction were calculated to be in
the range of 26 to 51 percent\.
Economic Analysis: The Economic rates of returns (EIRRs) were calculated for a sample of projects and
found to range between 53 and 238 percent\. Although a one on one comparison with appraisal estimates
was not possible due to the rapidly changing portfolio, this compares well with the appraisal estimates of a
range of 26-155 percent for a different sample of projects\.
d\. Justification of Overall Outcome and GEO Outcome Rating (combining relevance,
achievement of PDOs/GEO, and efficiency):
The project was and remains highly relevant to GoI priorities, and was successful in achievement of the
development objectives\. The project has had a positive impact in increasing private sector financing of
renewable and energy efficiency projects\.
Rating: Satisfactory
e\. Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered
or to amplify discussion above):
Emergence of a wider market for financing RE and EE projects IREDA's pioneering role in
financing private sector renewable energy and energy efficiency projects has been instrumental in
stimulating the interest of other commercial financial institutions to enter this sector\. Numerous
commercial banks are now active in financing renewable energy and energy efficiency projects through
existing financial products, and five have launched new specific schemes to finance energy efficiency
investments in SMEs\.
IREDA's internal procedures in issuing new loan products are often less flexible than those utilized by the
domestic financial market participants, although IREDA has been able to increase the variety and
competitiveness of its loan products and has streamlined its procedures\. However, as a publicly owned
nonbanking financial institution, it will be extremely challenging for IREDA to match the offerings and
flexibility of the commercial financial markets\. IREDA must therefore focus on areas where it has
comparative advantages\.
Poverty Impacts, Gender Aspects, and Social Development
Employment: Almost all of the hydro sub projects employ workers from neighboring villages\. Because
these sub projects are located in remote areas where fewer avenues for regular employment exist, they offer
the local people one an attractive employment opportunity\. These projects can offer unskilled labor wages
of up to Rs\. 3,000 per month, Rs\. 4,000 per month in case of semi-skilled and up to Rs\. 5,000 per month for
highly skilled workers\. The SHP portfolio provided direct employment to approximately 700 people\.
Tree Plantations: Most SHP projects located in the hills require some cutting of trees during construction\.
Although the SHP developers pay compensation to the Forest Department, many also plant additional
saplings as part of project construction\. Afforestation not only improves the aesthetics of the project site, it
also reduces the frequency of land slides\. Once developer has planted more than 3500 trees over the past 3
years and has plans to add another 1000 by the end of 2008\.
25
Education: Provision of support for education as a local contribution to the community is quite common for
SHP developers\. This can include support to local village schools through infrastructure provision, supplies
for poor children (books and uniforms), or other contributions such as direct contributions or sponsorship of
events\.
Roads: Since most of the SHP sites are located in remote areas, there was a need to construct roads to
transport materials and equipment to the project sites\. This has benefitted the local communities by
increasing accessibility\. Forty four sub projects contributed to the development of almost 90 km of roads
and bridges, further improved accessibility to neighboring villages\. This has had a positive developmental
impact, as some of these villages, especially in the hilly areas of Himachal Pradesh, were completely
inaccessible before\.
Institutional Change/Strengthening (particularly with reference to impacts on longer-term
capacity and institutional development):
The World Bank loans have assisted IREDA in establishing itself as a leading Indian institution providing
financing for renewable energy and energy efficiency projects\. In particular the Technical Assistance Plan
has enabled IREDA to strengthen its capacity in knowledge management and improved IT systems, energy
efficiency knowledge, procurement and safeguards, and evolution of a corporate strategic vision through the
strategic change consultancy\. A credit risk rating system was also designed and implemented under the
TAP to allow for improved risk based evaluation of proposed projects\.
IREDA now has a much stronger governance framework with post of Managing Director elevated to
Chairman and Managing Director, appointment of Director (Technical) and three Independent Directors,
and the strengthening of audit committee\.
Most of the recommendations of the strategic change consultancy are being implemented by IREDA\. These
include increased business focus on consortium financing, medium hydropower projects, waste-heat
recovery projects\. While IREDA was not able to source low cost funds from the domestic market, new
sources of financing have been identified from bilateral and multilateral sources\. As a result of these
initiatives as well as addressing some of the key gaps in its operations, IREDA has been able to improve its
overall financial and operational performance\. Its disbursements have shown about 35 percent growth for
the last two years and Non-Performing Assets have been reducing, leading to better profitability\.
Other Unintended Outcomes and Impacts (positive and negative):
Local Area Benefits of SHP Sub-projects: Almost all of these sub projects are located in remote areas
and have a positive impact on the local economy through net cash inflow into the region whereby the local
population gets more livelihood opportunities and the local businesses are called onto deliver more services
for construction, and logistical support and material for regular O&M\.
f\. Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for
Core ICR, required for ILI):
Not Applicable\.
d) Assessment of Risk to Development and GEO Outcome
Rating for Risk to Development Outcome: Low
26
Rating for Risk to GEO Outcome: Low
The overall risk to the development outcome and the global environment outcome is rated low on the basis
that the project sub-projects components have been successfully commissioned\.
e) Assessment of Bank and Borrower Performance (relating to design,
implementation and outcome issues)
a\. Bank Performance
Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase):
Rating: Satisfactory
The project was, and remains strategically relevant to Government priorities including reduction of
infrastructure bottlenecks and the development of renewable energy and energy efficiency in the country\.
Quality at entry was satisfactory and the implementation arrangements building on lessons learned from the
Renewable Resources Development Project were appropriate and consistent with the Bank's fiduciary role\.
There were minor shortcomings associated with the approval of the second project while the first was still
effective, which led to low initial disbursement under the second line\.
Quality of Supervision (including of fiduciary and safeguards policies):
Rating: Satisfactory
The Bank team played an active and effective role in the supervision of this project during the course of
implementation, and proactively provided support to address implementation problems as they arose,
including disbursements concerns, changes in IREDA management structure, and support for IREDA
Strategy & Action Plan study which helped define IREDA's future role, financing strategy and improved
organization structure /business processes\. At least eleven supervision missions were undertaken by the
Bank\. Corrective actions were taken when needed to ensure achievement of the PDOs, including partial
cancellation of the IBRD loan, realignment of the GEF technical assistance component to meet changing
needs and refining project monitoring indicators\. A number of field visits were undertaken to ensure
compliance with safeguards, and to verify physical progress and achievements\. The Bank's input to the
Strategy and Action Plan was highly valued by IREDA, and has led to institutional improvement and robust
prospects for continued IREDA lending to RE and EE beyond the project close date\.
Justification of Rating for Overall Bank Performance:
Rating: Satisfactory
For the above cited reasons, the overall rating of the Bank performance is rated Satisfactory
b\. Borrower Performance
Government Performance:
Rating: Moderately Satisfactory
The performance of the government counterpart Ministry of New and Renewable Energy (MNRE) was
moderately satisfactory\. The power sector in India underwent dramatic change during the project
implementation period with the passage of the Electricity Act and the establishment of SERCs\. Prior to the
passage of the Act, the Ministry had issued recommended guidance on state-level power purchase prices for
grid-connected renewable energy, guidance which expired in 2004\. No additional central guidance was
given to the individual SERCs who were reexamining their policies on grid connected renewables\. As a
27
result, developers were subject to significant new regulatory risks as new PPAs were not approved and
several states began reexamined existing PPAs\. This negatively impacted the project as developers who
had sanctioned or signed loans from IREDA delayed their project construction schedules until their PPAs
were approved\. Numerous projects were delayed or dropped due to this change in the enabling
environment\. The project was also affected by the two plus year delay in filling the vacant position of
Managing Director of IREDA which negatively affected the decision making capacity and strategic vision
for the organization\.
On the positive side, the Bureau of Energy Efficiency (BEE) was established by Ministry of Power after the
project had been effective, and while it was not a formally a project counterpart in project design, it did
provide effective coordination and collaboration with relevant EE activities supported by the GEF TAP\.
During the last two years of implementation, the MNRE provided significantly improved levels of support
to IREDA and to the World Bank project\. The governance arrangements at IREDA have been strengthened
under the direction on MNRE, the strategy and action plan for IREDA has been accepted by the ministry
and IREDA has been extended support on various steps towards implementing its plan\.
Implementing Agency or Agencies Performance:
Rating: Satisfactory
IREDA consistently demonstrated a strong commitment to fulfilling the project development objectives and
provided adequate internal staff and resources to ensure implementation success despite the difficult
enabling environment changes which were outside of its direct control\. It complied with all Bank loan
covenants and discharged its fiduciary duties in a satisfactory manner\. The quality of supervision support
by IREDA technical officers was high, and their intensive efforts in following up with the individual
promoters was a key factor for ultimate project success\. IREDA was able to alter its policies and lending
norms to adapt to changing market conditions, although this was done at a pace that could not match the
changes in the local financial markets, and several sanctioned projects ultimately were taken up by local FIs
which could offer more competitive projects\. IREDA has adopted many of the recommendations from the
Strategic Change Consultancy, which has improved its prospects for the future\. The major shortcoming of
IREDA during project implementation was the slow pace of reimbursement processing and the slow pace of
procurement per WB guidelines for activities funded by the GEF TAP, although this showed some
improvement by the time of project close\.
Justification of Rating for Overall Borrower Performance:
Rating: Moderately Satisfactory
Per the World Bank ICR Ratings guidelines, the overall borrower performance is rated as moderately
satisfactory\.
f) Lessons Learned (both project-specific and of wide general application)
Overall Lessons: Need for Transition Strategy of Supported Institutions if Project Goal includes increased
commercial finance
Lesson 1: Transition Strategy Upfront consideration must be given to a transition strategy for World Bank
projects supporting RE/EE lending thorough a specialized financial institution to address the future
commercial bank competition that will inevitably arise from successful project implementation\. Future
challenges often include both direct financial challenges as the commercial market is often able to provide
lower cost funding at more flexible terms, capacity challenges including how to retain public sector staff
once the private sector enters the market, and institutional challenges, as new directions are needed once
original objectives have been met\.
28
Lesson 2: Technical assistance to commercial financial institutions is an important element of building
institutional capacity to mainstream knowledge regarding clean energy market development: In order
to adequately scale up lending for renewable energy and energy efficiency, the local banking sector must be
an active participant\. TA support can increase knowledge of the technical, policy and regulatory aspects of
this market to allow improved understanding of sector risks when providing debt financing for such
projects\. Therefore, awareness and capacity building of commercial financial institutions for clean energy
market development projects should be incorporated into initial project designs, even when primary lending
activity is channeled through a single intermediary\.
Lessons on Renewable Energy (SHP) Development:
Lesson 3: A predictable policy and regulatory environment is a critical precondition for private sector led
RE development: Having a supportive policy environment, including transparent, predictable feed-in
tariffs and policy decision making, is critical for private sector led development of small-medium
hydropower projects\. Other favorable policies which could further support the development of the RE
sector if adopted include facilitation of developer access to land, and adoption of transparent and timely
technical and environmental clearance processes by local regulators\.
Lesson 4: Economic Valuation of Renewable Energy vis-à-vis Conventional Energy can provide
significant policy and regulatory insights\. Establishment of a suitable policy and regulatory
environment for renewable energy can be hampered due to the lack of adequate tools and skills in assessing
the full economic value of renewable energy power provided to the grid\. In addition to the direct power
benefits, renewable energy can also produce other benefits such as local and global environmental benefits,
improvements in energy security, fuel risk mitigation through diversification, technology development, and
modularity that need to be fully understood in the Indian context\. Projects which provide financing for RE
projects would be well served by providing complementary analytic support to regulators to strengthen
policy making and the resulting enabling environments\.
Lesson 5: Development of adequate power evacuation infrastructure is essential\. One of the most
crucial issues and/or potential barriers in the scaling up development of large and small hydro plants is the
interconnection between the plant and the nearest grid point to maximize the power usage\. Providing grid
extension up to the SHP plants based on an integrated basin development approach is one solution which
should be considered when encouraging hydropower development\.
Lesson 6: Inherent risks in SHP sub-projects need suitable mitigation measures SHP sub-projects
can be extremely vulnerable to unforeseen variations in hydrology, especially in the first few years of
commissioning\. Adequate risk coverage/insurance products could be built in the business model to mitigate
such risks for both the developers and lenders\.
Lesson 7: SHP entrepreneurs are eager to expand in scale as well as geographically and can do so if
given sufficient support Significant entrepreneurial capacity for SHP sub-projects has been
developed during the two World Bank renewable energy projects in India\. The twenty three SHP
developers supported under the second project have gradually increased both their number of plants in
operation and the average size of their newly constructed plants\. This increased private sector capacity has
produced many indirect benefits, and can be further harnessed for future efforts in the country\. Demand
remains strong only for grid-connected run-of-river and dam-toe business models and there is limited
private sector in other models\.
Lesson 8: Scaling-up manufacturing and turnkey EPC contracting capacity is crucial This was noted as
a bottleneck for small hydro development in India and developers have started importing equipment as the
delivery time offered by Indian manufacturers is excessive\. In India in the hydro sector, there are very few
integrated EPC contractors\. Contracts are usually split between civil construction and plant and machinery
installation, which makes negotiation of EPC contracts relatively complex\. Therefore there is a need to
29
address functional, technical and price related aspects across contracts\. Otherwise, developers may face the
risk of time and cost overruns and lower profitability\.
Lesson 9: Developing Capable Institutions is a time-intensive process and once developed they should be
leveraged to achieve greater impact Bank support to IREDA in course of this and the previous project
has helped develop IREDA into one of the strongest renewable energy development institution in the
country and in the region\. The Bank's support in strengthening fiduciary and safeguard functions,
governance arrangements and strategic vision for the institution, especially towards the later half of this
project, have further strengthened IREDA\. The GoI can now leverage the institutional capacities and sector
development vision offered by IREDA to further the renewable energy development and climate change
mitigation objectives in the country\.
Lessons on Energy Efficiency and Demand Side Management:
Lesson 10: Financial Intermediation projects which fund EE should allow for development of different
business models Different energy efficiency business models should be tried out to allow maximum
flexibility in achieving desired outcomes given the constant shifts in market conditions\. In India, end-user
implemented approaches have been more successful when compared to ESCO and DSM type projects\. The
flexibility in project design enabled numerous types of EE eligible products to be financed under the LoC,
which also let IREDA focus its efforts on more promising market segments, such as waste heat recovery
and cogeneration, while shifting time and internal resources from sectors where business was less likely to
materialize\.
Lesson 11: Smaller EE projects face different market barriers and may be best reached through
alternative instruments: Large companies with access to information, technical consultants and
finance find it less difficult to implement EE projects either with IREDA financing or through other sources
when compared to the SME sector\. SMEs face several additional market constraints and barriers\. The lack
of local branch offices of IREDA made communication with smaller SME units difficult under the project,
and relationships were often complicated by the presence of existing SME lending relationships with local
banks\. Future efforts designed to finance EE at SMEs should work through local financing institutions
which may be better placed to expand EE lending to this sector\.
g) Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/implementing agencies:
Evaluation of the project by IREDA (as reflected in the completion report prepared by them) is consistent
with that of the Bank\. The ICR prepared by IREDA is included in Annex-7\. Comments were also received
from IREDA on minor edits in the draft ICR\. These comments have been appropriately incorporated in the
final ICR\.
(b) Cofinanciers:
(c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society):
30
ANNEXES
Annex 1\. Project Costs and Financing
(a) Project Cost by Component (in USD Million equivalent)
Component Category Appraisal Actual/Latest Percent
Estimate for Estimate (for of
Cost, including 206 MW1) Appraisal
Contingencies (US$ M)2
(US$ M)
a\. Small Hydro Investments: Physical
Run-of-River (100MW) 155 106 68\.39
Canal falls/Dam-toes (65MW) 75 63\.3 84\.40
Thermal cooling water tail-ends 33 2\.7 8\.18
(20MW); plant upgrading &
rehabilitation (10MW); stand-alone
microhydros (5MW)
Sub-Total 263 210\.14 79\.90
b\. Energy-Efficiency (EE) Physical 30 42\.23 140\.77
Investments: by industrial,
commercial, utilities, ESCOs,
equipment vendors3
c\. Technical Assistance
Pre-investment activities: EE Implementa- 2 2 100
investment pipeline; business tion support
development & procurement models
Strengthening of IREDA's in-house Capacity & 3 1 33
capacity in project appraisal, institution
monitoring and promotion of EE building
Policy development for private sector Policy 1 1 100
investments in ESCOs and DSM support
Program outreach and training Capacity 1 1 100
building
Sub-Total 7 54 97\.00
Total Project Cost 300 257\.37 85\.79
1Actual costs for 95\.65 MW SHP already commissioned, and latest estimates for 62\.60 MW under implementation; also includes
costs of estimated capacity of EE sub-projects supported by the LoC of 47\.41 MW\.
2A fixed exchange rate of Rs\.44\.83 per US $ has been used to calculate US $ contributions made by borrower/project sponsors
across the project timeline\. World Bank contributions, however, are based on actual US$ disbursements made throughout the
project, in real terms\.
3Estimate for EE is higher than originally projected because the EE portfolio included more projects than originally envisaged, and
commercial banks took up some projects for which initial disbursements were made\.
4During the period of implementation of this project, other donors financed a large number of activities (in particular USAID),
reducing the identified requirements\. Notable is the USAID's Energy Conservation and Commercialization Project that provided
US$ 25 million in assistance during 2000-08\.
31
(b) Financing
Appraisal Actual/Latest Percent of
Estimate Estimate Appraisal
Source of Funds (US$ M) (US$ M) 1
Borrower 165 145 88
International Bank for Reconstruction
and Development (IBRD) 80 54 68
International Development Association
(IDA) for small hydro investments 30 36\.44 121
International Development Association
(IDA) for EE investments 20 16\.93 85
International Development Association
(IDA) Total 50 53\.37 107
Global Environment Fund (GEF) 5 5\.00 100
Total 300 257\.37 85\.79
1 A fixed exchange rate of Rs\.44\.83 per US $ has been used to calculate US $ contributions made by borrower across the project
timeline\. World Bank contributions, however, are based on actual US$ disbursements made throughout the project life cycle in real
terms\.
32
Annex 2\. Outputs by Component
The project objectives were satisfactorily achieved, although the project required two one-year extensions
and a partial cancellation of IBRD funds\. While the outputs under the different project components were
fully satisfactory, the implementation of the project was affected by extraneous factors which resulted in the
cancellation of part of the proceeds\. The allocations for small hydropower sub-projects and energy
efficiency sub-projects were notional in the project design as where the allocations for the different SHP
business models
Table 2\.1: Component-wise Loan / Grant Utilization
Component Estimated Actual Remarks
Utilization Utilization
(US$ M) (US$ M)1
Component A Small Hydropower 263 210\.14 Although the LoC was
Investments open to different types of
(i) Canal-based and dam-toe schemes 75 63\.3 small hydropower
(ii) Run-of-river schemes 155 106 investments, the market
(iii) Rehabilitation schemes 2\.7 demand was run-of-river
(iv) Sub-projects using tail-end of thermal 33 canal and dam-toe sub-
power plant cooling water systems projects\.
(v) Stand-alone micro hydropower
schemes
Component 2 Energy-Efficiency 30 42\.23 This is higher than
Investments planned as co-financing
by commercial banks
was larger than
expected\.
Component 3 Technical Assistance 7 5 During the period of
implementation of this
project, other donors
financed a large number
of activities (notably
USAID's ECO project
that financed US$ 25
million during 2000-
2008, reducing the
identified requirements2\.
Total 300 257\.37
Component A: Small Hydro Investments: This component was aimed at supporting various types of
small hydro schemes, including: (i) canal-based and dam-toe schemes; (ii) run-of-river schemes; (iii)
rehabilitation or upgrading of old plants; (iv) sub-projects using tail-ends of cooling water systems of
thermal power plants; and (v) stand-alone micro hydro sub-projects of up to 100kW each\. It was expected
that over 80 percent of the sub-projects would fall into categories (i) and (ii)\. The project was successful in
1 A fixed exchange rate of Rs\.44\.83 per US $ has been used to calculate US $ contributions made by borrower across the project
timeline\. World Bank contributions, however, are based on actual US$ disbursements made throughout the project life cycle in real
terms
2 http://www\.usaid\.gov/in/our_work/activities/Enrg_Env/eco\.htm; Personal Communications, Mr\. Srinivasan
Padmanaban, Advisor, USAID
33
achieving the commissioning of 95\.65 MW of projects with 50\.55 MW of canal-based and dam-toe sub-
projects and 42\.90 MW of run-of-river sub-projects as well as one 2\.2 MW project that utilized cooling
system of thermal power plants\. No micro-hydro sub-projects and rehabilitation sub-projects were financed
due to lack of proposals from entrepreneurs for such projects\. Experience from other Bank operations (Sri
Lanka Energy Services Delivery Project) indicates that stand-alone micro-hydro projects in particular
require significant subsidy support to become viable\. Details of sub-projects of each type and their
performance are provided in Table 2\.2:
Table 2\.2: Type-wise Distribution of Small Hydro Sub-Projects
Loans Loans Sub-Projects Sub-Projects
Sanctioned Availed Executed Commissioned
Number of Schemes
(i) Canal-based schemes 24 22 21 18
Dam-toe schemes 2 2 2 2
(ii) Run-of-river schemes 29 20 20 13
(iii) Rehabilitation schemes 0 0 0 0
(iv) Sub-projects using tail-end of thermal 1 1 1 1
power plant cooling water systems
(v) Stand-alone micro hydropower schemes 0 0 0 0
Total number of schemes 56 45 44 34
Capacity
Total capacity (MW) 240\.25 158\.45 158\.25 95\.65
*Source: Appraisal note of sub-projects prepared by IREDA and actual data collected from developers\.
Forty-five sub-projects were supported out of which 34 sub-projects have been commissioned with a total
installed capacity of 95\.65 MW\.
Contribution of Small Hydropower Development during the Tenth Plan: The project made a significant
contribution to the Tenth Plan target of 550MW capacity addition of SHP development\. Out of the total
capacity of 536\.7 MW installed during the Tenth Plan, the Bank's LoC directly supported about 96 MW of
commissioned projects\. Projects which dropped out of the Bank's LoC but were still completed during this
period contributed another 38 MW of SHP capacity\. Hence, the Bank's LoC directly and indirectly
supported approximately 25 percent of the capacity addition in the SHP sector during this period\.
While costs of certain sub-projects were higher than specified at appraisal, the economic rate of return
(EIRR) ranged between 27 percent and 224 percent\. The unit project costs showed a wide variation\. Eighty
percent of the projects ranged from US$ 960/kW to US$ 1526/kW but there were projects with costs as low
as US$607/kW and as high as $1857/kW as well\. The wide variation in unit project costs is on account of
the locations and varying types of SHP projects implemented and to a small extent on exchange rate
discrepancies\.
The final evaluation report on the Second Renewable Energy LoC, conducted by PwC on behalf of the
borrower, shows that the performance of the projects is uneven and on average below the appraisal
estimates\. Projects were supposed to generate 426\.2 MUs annually at an aggregate CUF of 54\.4 percent\.
However, based on available generation figures for 32 sub-projects, 402\.38 MUs are projected to be
actually generated every year in FY08 and beyond\. Table 2\.3 highlights the current generation status:
34
Table 2\.3 Actual vs\. Projected Generation for 32 SHP Sub-Projects
Actual vs\. Project generation Average CUF (%) Total Generation (MUs)
Projected for all sub-projects 54\.4 426\.2
Actual across all sub-projects 46\.3 402\.38
Projected (RoR sub-projects only) 58\.8 195\.4
Actual (RoR sub-projects only) 41\.4 142\.75
Projected (canal sub-projects only) 54\.2 159\.4
Actual (canal sub-projects only) 46\.9 164\.18
Projected (dam-toe sub-projects only) 45\.1 71\.5
Actual (dam-toe sub-projects only) 95\.45
*Source: PWC: Appraisal notes of sub-projects prepared by IREDA and actual data collected from developers\.
Component B: Energy-Efficiency Investments: Seventeen EE projects included in IREDA's energy
efficiency portfolio at the time of project closure are in various stages of implementation\. These are
financed by the Bank's LoC and IREDA's own resources, representing over US$ 36 million disbursed for
EE investment at the time of project closure\. The total amount of investment for IREDA's entire EE loan
portfolio, including sponsor's equity contributions, is over US$ 74 million\. These projects represent 90 MW
of new capacity/avoided peak demand\.
The share of the Bank's disbursement directly financed under the second LoC is US$16\.93 through 12 sub-
projects\. All but one sub-project financed directly by the Bank have been commissioned\. The last project,
Shri Venkateswara Sponge and Power is under implementation, and initial disbursements were made under
the second LoC\.
The twelve EEC projects directly financed under the second LoC will save approximately 249 million kWh
of energy per year\.
The total estimated CO2 savings which will be achieved, assuming successful commissioning of the projects
under implementation, is 9\.43 million tons1 over the life of the investments\.
IREDA consultants prepared an analysis of the cost over-run of the EEC projects which indicates that the
cost over-runs were within 10 percent\.
Component C: Technical Assistance: The GEF-financed TA supported numerous activities to
promote EE and DSM investments\. Initially, the TAP focused on: (i) capacity and institution building
support at IREDA; (ii) implementation support for EE lending activities; (iii) policy support; and (iv)
market awareness\. The program of activities was closely monitored during implementation, and was
revised numerous times to better match activities with needs\.
These four main areas were divided into 12 discreet tasks supported by the TAP, and included the following
specific activities:
1 Advisory Services for ESCO Mechanism: This activity included: (i) analytical work on the Indian
experience with the ESCO mechanism in the public sector, to support BEE-ESCO programs: and (ii) pilot
handholding to support the design and procurement of ESCO-delivered efficiency services in eight hospitals
and government buildings\. As of project close date of March 31, 2008, all baseline audit work was
completed and Request for Proposal (RFP) documents were issued, but none of the ESCO contracts have
been successfully awarded\.
1This is based on the assumption of a project lifetime of 20 years\.
35
2 Project Monitoring and Verification: IREDA was provided support in the development of: (i)
monitoring and verification (M&V) protocols for efficiency projects; (ii) preparation of a project
monitoring and evaluation (M&E) manual; (iii) concurrent auditing and monitoring of IREDA- financed
projects; and (iv) post commissioning and evaluation of EE projects\.
3 Policy Support Initiative: Analytical work was undertaken to support: (i) BEE's development of EE
codes and standards for certain equipment; (ii) Preparation of a directory of consultants and energy auditors;
and (iii) production of investors' manuals for EE\.
4 Knowledge Management Plan: The activity focused on improving IREDA's institutional capacity
and portfolio management capability by providing assistance for upgrading hardware and software, to
strengthen IREDA's internal operational performance in EE and RE lending\.
5 Energy Efficiency Capacity Building Initiative: This activity included training and capacity
building of IREDA and various stakeholders (industry, government and the financial sector) on EE\.
Training programs were also conducted on environmental and social impact assessment issues\.
Support was also provided for the strategic change consultancy under this activity\. The strategic change
consultancy influenced the current business plan of IREDA and included three main pieces: (i) the
"Strategy and Action Plan;" (ii) the "Resource Mobilization Plan" and (iii) "Reviewing Systems and
Procedures of IREDA for its Lending Operations and Developing a Suitable Action Plan for Organizational
Restructuring\." The final piece on reviewing systems and procedures was not completed by project close,
and remaining work on this piece was supported by IREDA's internal resources
6 Project Development Sub-Projects: This activity provided an additional grant incentive for select new
lending products\.
7 Procurement Advisory Services: This task provided specialist services to IREDA to support
procurement of goods, works and consultancy services in a timely manner as per the World Bank
guidelines\.
8 Performance Evaluation of the World Bank LoC: Independent evaluations were undertaken for both
the mid-term and final review of the project\.
9 Project Partnership Program: This activity provided funding for IREDA's business development
associates to generate new projects and to maintain EE information centers\. It also provided ground-level
support for the ESCO's activities included in activity 1\.
10 Market Awareness and Outreach: This activity included numerous tasks designed to increase
awareness of EE and to increase demand for EE lending\. Numerous unique marketing products were
created, and disseminated through media outreach and targeted marketing through conferences and business
meetings\.
11 Creative Market Development Initiative: SME cluster-based activities were undertaken in the
textile, hotel, cement and paper sectors to increase lending for EE\. Eleven projects were implemented,
although only one ultimately took a loan from IREDA\.
12 Support to Commercial Banks: This activity supported analytical work to increase Indian bank
lending for EE, market support for bank sub-projects for EE for SMES, and a small grant program to
partially cover energy audit costs undertaken through SBI Project Uptech for EE\.
36
Table 2\.4: Outputs of Technical Assistance Component
Name of the TA Activity Indicator Output
1\. Advisory services for ESCO Number ESCO projects supported 8
Number implemented nil
2\. Project monitoring and Number of projects 4
verification monitored/evaluated
3\. Policy support initiative Number of policy/knowledge 5
products produced
4\. Knowledge management plan Number of systems improved 23
5\. Energy efficiency capacity Number of persons trained 3690 (external) +
building initiative (including IREDA) 200 (IREDA)
= 3890
6\. Project development scheme Loan amounts supported by grant Rs\. 3914 lakhs
scheme
7\. Procurement advisory services Number of procurement tasks 12 (SHP & EEC projects)
supported by consultants' work & 9 (IT projects)
8\. Performance evaluation No indicator -
9\. Project partnership program No indicator -
10\. Market awareness and Number of unique marketing Adv\. 15 types
outreach initiative products produced (i\.e\. Posters 10 types
advertisements\., posters, films, Films 12 (U/P)
brochures, etc) Brochures 5
Number distributed (total)
Number of persons reached Ads/posters 25,000
(estimation) Adv/brochures NA
11\. Creative market development Number of audits supported 24
initiative Number of projects implemented 12
Total value of investment and
annual energy savings from Rs\.746\.6 lakhs (estimated)
implemented projects Rs\. 650\.88 lakhs
12\. Support to commercial banks Number of energy audits supported 45 projects
by SBI scheme
Number of SME projects Nil
implemented from focused cluster
marketing
37
Annex 3\. Economic and Financial Analysis (including assumptions in the analysis)
I\. Small Hydropower Schemes
Financial Analysis
At appraisal, the FIRRs of 14 sub-projects in the project pipeline were calculated to be in the range of 22\.0
percent to 40\.1 percent\. On project completion, FIRRs for 24 of the sub-projects funded under the Bank's
LoC (for which actual generation data could be obtained) were found to range between 15 percent and 51
percent\. The FIRRs for the same sub-projects at the time of loan sanction were calculated to be in the range
of 15 percent to 56 percent\. Scheme-wise details of FIRRs are provided in Table 3\.1\.
Table 3\.1: Comparison of FIRRs of Sub-Projects at Sanction and Completion
Project Project Name Project Capacity Projected FIRR based Cost Change in
Code Type (MW) FIRR at on Actual Escalation Capacity
Sanction Generation Utilization
Factor
1308 Punjab Hydro Power Ltd\. Canal 1\.3 43% 51% 0\.0% -36\.6
1310 Punjab Hydro Power Ltd\. Canal 1\.5 48% 47% 3\.4% -22\.87
1309 Punjab Hydro Power Ltd\. Canal 1\.4 43% 38% 5\.6% -6\.2
1318 Balaji Energy Pvt\. Ltd\. Dam Toe 10 36\.37% 38% 5\.8% -19
1642 Kotla Hydro Power Ltd\. Canal 1 29\.62% 35% - -21\.2
1641 Kotla Hydro Power Ltd\. Canal 1 39% 34% 0\.2% -21\.1
1504 NCL Energy Ltd\. Dam Toe 8 29% 33% -6\.0% -10\.5
1643 Kotla Hydro Power Ltd\. Canal 1\.75 34% 32% 16\.6% -17\.5
1145 Cheveron Hydel Pvt\. Ltd\. RoR 1 39% 31% 10\.1% 3\.97
1349 Kallam Spinning Mills Ltd\. Canal 0\.8 23% 30% 12\.8% -20\.01
1660 Dhauladhar Hydro Systems RoR 0\.15 15% 29% 9\.0% -14\.1
1316 KKK Hydro Power Pvt\. Ltd\. RoR 3 27\.6% 29% 13\.5% 3\.3
1400 Ascent Hydro Projects Ltd\. Canal 2\.2 46% 28% 7\.0% 4\.97
1560 KM Power Pvt\. Ltd\. Canal 3\.3 34% 27% -8\.2% 0\.9
1515 Bhorukha Power Corporation Ltd\. Canal 1 28% 25% 0\.0% -15\.1
1424 Hateswari Om Power Enterprises RoR 1 21% 24% 0\.0% 8\.9
1363 Astha Projects (India) Pvt\. Ltd\. RoR 5 26% 24% 0\.0% 22\.8
1379 KM Power Pvt\. Ltd\. Canal 3\.3 48% 22% 5\.6% -1\.72
1380 KM Power Pvt\. Ltd\. Canal 4 45% 22% 0\.0% 7\.95
1054 Kalson Power Tech (P) Ltd\. Canal 3 18% 18% 21\.5% -0\.8
1317 Maruti PowerGen Pvt\. Ltd\. Canal 3 41% 17% 0\.0% 21\.84
1493 Dharamshala Hydro Power Ltd\. RoR 4\.5 56% 16% -6\.5% 53\.8
1030 Hanuman Ganga Mini Hydel RoR 3 30% 15% 29\.3% 42\.1
912 Nippon Power Ltd\. RoR 3 37% 15% 61\.1% 37\.56
Key Assumptions / Data:
(a) Actual project data on costs (including escalations) have been obtained from IREDA\. For all
projects, project construction period has been taken as 1-3 years\. The debt-equity ratio has been
assumed to be 70:30\.
(b) Sale price used in the calculation is as per the appraisal note\. However the sale price may have
changed over the years\. For instance, for Himachal Pradesh, the PPA price earlier was Rs\. 2\.5 per
kWh, which has been revised to Rs\. 2\.87 per kWh\.
38
(c) It is assumed that O&M cost of any plant is approximately 2\.5 percent of the total project cost for
year-1 and further escalated by 5 percent annually for all projects\. Actual O&M costs were not
available for each of the sub-projects\.
(d) Subsidy figures used in the FIRR calculation have been provided by IREDA\. The subsidy amount
is entirely accounted for in the cash flow of the first year itself\.
Reasons for Deviation from PAD Estimates
The financial analysis of the portfolio indicates that for majority of the projects, the actual FIRRs are below
the estimates prepared at the feasibility stage\. The difference between FIRRs at appraisal, detailed project
reports (DPRs) and project completion is on account of the following reasons:
Pipeline of sub-projects was changed during the period between appraisal (July 1997) and approval
(June 2007) owing to a delay in the Bank's approval on account of international sanctions against
India at that time\. Therefore, this is not strictly a one-on-one comparison\.
The prevailing government policy at the time of appraisal provided a 10 percent annual increase in
tariffs for generation from RE schemes, and high FIRRs were therefore only to be expected\. With
the introduction of the new Electricity Act, 2003 and lapse of the earlier government policy, the
mandate for determination of tariffs for RE projects was given to state electricity regulators (SERs)\.
As a result, there were significant changes in tariff determination approaches across states, which
impacted several sub-projects funded under the Bank's LoC\.
Implementation of the sub-projects also faced cost and time overruns due to factors such as natural
calamities, inflation in commodity prices, unforeseen civil works, delay in statutory clearances, and
poor performance of contractors (see Text Box-3\.2)\.
The capacity utilization factor (CUF) of the projects have also varied due to decreased flows, silting
and low grid availability (see Text Box-3\.1)\.
However, revised estimates of FIRR are greater than cost of capital in all cases, and therefore all these SHP
sub-projects are financially sustainable\.
Text Box- 3\.1
Factors affecting Capacity Utilization of SHP Schemes
Variations in Rainfall and Inconsistent Hydrology: SHP sub-projects are affected by variations
in flow of water caused by changes in rainfall patterns\. For example, the Lodhama hydro project
in West Bengal experienced 20 percent lower discharge in the lean season\.
Silting of Rivers: In addition to a large amount of silting inherent to the Himalayan rivers,
generation from some SHP sub-projects is also affected by silting from upstream mining and
construction activities\. For example, the Maujhi-I scheme has been affected by silting from slate
mining on slopes above the power plant site\.
Breakdown of Transmission Infrastructure and Grid Failures: Another key factor affecting
the capacity utilization has been the failure of the electricity system in project areas causing plants
to stop operations\. For example, the Hanuman Ganga scheme lost a substantial amount of
generation due to persistent grid failures\. As against a projected CUF of 78\.7 percent, the scheme
achieved only 63\.2 percent in 2006-07 and 57\.5 percent in 2007-08\. Similarly, transmission
breakdown in case of the Lodhama Hydro Electric Station affected generation\.
39
Text Box-3\.2
Factors leading to Time and Cost Overrun of SHP Schemes
Of the 33 sub-projects commissioned under the project (for which actual data was available), 15 have
a cost escalation of 5 percent or less\. The other 17 sub-projects have escalation in the range of 15
percent of the original cost estimates\. In general, cost escalation of about 15 percent is seen as
acceptable for SHP sub-projects keeping in view high implementation risks, long construction period
and increase in cost of raw materials\. About two-thirds of all projects were implemented within six
months of projected commissioning\. Broadly the reasons for time and cost escalations in case of SHP
sub-projects are as follows:
Delay in Statutory Clearances: Delay in obtaining the required environmental, land and other
statutory clearances result in implementation delays for projects such as Neora SHP and
Birsignhpur SHP scheme\.
Impact of Natural Calamities: Natural calamities such as floods and landslides have also
impacted project implementation, causing time overruns\. For example, the Bonal Mini SHP was
delayed by almost 44 months largely because of recurring floods in the area\. Similarly, power
house construction in case of Jiwa SHP was affected by cloud bursts\.
Delay in Implementation of Evacuation System: In some projects located far from the grid,
implementation was impacted due to delays in the construction of the transmission system\.
Unforseen Civil Work: In some projects, unexpected additional civil work needs delayed project
implementation\. For example, rock structures and the presence of hard rock caused delay in the
Balaji energy SHP project\.
Price Inflation for Raw Materials like Cement and Steel: Projects also faced increase in costs
due to increase in prices of raw materials such as cement and steel\.
Non-performance of Contractors: Developers also cited poor performance of contractors as a
reason for cost and time overrun of projects\.
In some cases, cost escalations are on account of changed specifications of the scheme, leading to
increased generation capacity\.
Economic Analysis
At appraisal, the EIRRs of 14 sub-projects in the project pipeline were calculated to be in the range of 20\.5
percent to 51\.3 percent\. On project completion, EIRRs for 23 of the sub-projects funded under the Bank's
LoC (for which actual generation data could be obtained) were found to range between 27 percent and 224
percent, in all cases higher than the hurdle rate\. The EIRRs for the same sub-projects at the time of loan
sanction were calculated to be in the range of 21 percent to 47 percent\. Scheme-wise details of EIRRs are
provided in Table 3\.2\.
Table 3\.2: Comparison of EIRRs of Sub-Projects at Sanction and Completion
Project Project Name Project Capacity Projected EIRR EIRR Based on
Code Type (MW) at Sanction Actual Generation
1318 Balaji Energy Pvt\. Ltd\. Dam-Toe 10 36% 224%
1504 NCL Energy Ltd\. Dam-Toe 8 24% 104%
1400 Ascent Hydro Projects Ltd\. Canal 2\.2 32% 98%
1145 Cheveron Hydel Pvt\. Ltd\. RoR 1 26% 97%
1316 KKK Hydro Power Pvt\. Ltd\. RoR 3 28% 84%
1424 Hateswari Om Power Enterprises RoR 1 29% 81%
40
1349 Kallam Spinning Mills Ltd\. Canal 0\.8 25% 79%
1309 Punjab Hydro Power Ltd\. Canal 1\.4 31% 79%
1363 Astha Projects (India) Pvt\. Ltd\. RoR 5 28% 78%
1308 Punjab Hydro Power Ltd\. Canal 1\.3 33% 77%
1310 Punjab Hydro Power Ltd\. Canal 1\.5 35% 76%
1660 Dhauladhar Hydro Systems RoR 0\.15 25% 75%
1642 Kotla Hydro Power Ltd\. Canal 1 25% 73%
1641 Kotla Hydro Power Ltd\. Canal 1 29% 65%
1643 Kotla Hydro Power Ltd\. Canal 1\.75 28% 63%
1379 KM Power Pvt\. Ltd\. Canal 3\.3 29% 62%
1380 KM Power Pvt\. Ltd\. Canal 4 27% 60%
1560 KM Power Pvt\. Ltd\. Canal 3\.3 32% 59%
1493 Dharamshala Hydro Power Ltd\. RoR 4\.5 47% 53%
1317 Maruti PowerGen Pvt\. Ltd\. Canal 3 27% 44%
1030 Hanuman Ganga Mini Hydel RoR 3 27% 39%
912 Nippon Power Ltd\. RoR 3 24% 37%
1515 Bhorukha Power Corporation Ltd\. Canal 1 28% 27%
Key Assumptions
In addition to the relevant assumptions already mentioned in the financial analysis, the following
assumptions have been used for economic analysis of SHP schemes:
(a) Cost of diesel-based generation has been estimated at Rs\.10 per kWh\. This is also consistent with
the revised maximum unscheduled interchange (UI) rate of Rs\. 10\.00 per kWh provided by the
Central Electricity Regulatory Commission (CERC)\. The prevailing capacity and energy deficit
scenario in India is likely to continue in the medium term and therefore the cost of diesel-based
generation is a suitable measure of economic benefit of the project\.
(b) Economic costs of sub-projects were derived by adjusting the financial costs for taxes by applying
the standard conversion factor of 0\.9\.
Reasons for Deviation from PAD Estimates
As mentioned in the financial analysis section, the sub-projects at completion are different from
sub-projects in the pipeline at appraisal\.
Several of the sub-projects have been affected by cost and time overruns, including the impact of
commodity inflation\.
However, the most significant reason for increase in economic return from almost all sub-projects
despite cost and time overruns and lower than expected capacity utilization in several cases, is the
increase in cost of diesel-based generation\. At appraisal, the cost of diesel-based generation was
estimated at Rs\.3\.38 per kWh, whereas at completion this has been estimated at Rs\. 10 per kWh
(global petroleum prices have increased even further since this analysis)\.
II\. ENERGY EFFICIENCY
Financial Analysis
At appraisal, the FIRRs of 16 sub-projects in the indicative pipeline were calculated to be in the range of 26
percent to 158 percent\. On project completion, FIRRs for five of the sub-projects funded under the Bank's
LoC (for which actual generation data could be obtained) were found to range between 11 percent and 91
percent\. The FIRRs for the same sub-projects at the time of loan sanction were calculated to be in the range
of 26 percent to 51 percent\.
41
Actual FIRRs could be calculated and compared with appraisal estimates only for a sample of sub-projects
(five in number) owing to difficulties in obtaining data\. Table 3\.3 illustrates the comparison of FIRRs for
these 5 sub-projects\. For calculating the actual FIRR, the following assumptions were used:
(a) Actual project cost (including cost escalations) have been used in the FIRR calculation\.
(b) It is assumed that increase in O&M cost of any plant which has implemented EEC project
involving installation of EE equipment is almost negligible\.
Table 3\.3: Comparison of FIRRs for Sub-Projects at Sanction and Completion
Project Name Projected Projected FIRR at Cost escalation
FIRR at Completion (%) (Rs\. million)
Sanction (%)
GMR Technologies & Technologies Ltd\. 45 91 10
NCL Industries Ltd\. 51 46 32
Mahendra Sponge & Power (P) Ltd\. 46 22 20
Arunachalam Sugar Mills Ltd\. 26 12 25
Anand Tissues Ltd\. 39 11 0
The FIRR in case of GMR is very high as the actual energy savings are 3\.62 million kWh/annum against
the projected 2\.46 million kWh/annum\. However, FIRR in case of Anand Tissues Ltd\. is negative because
the actual energy savings are just 0\.65 million kWh/annum against the projected value of 2\.197 million
kWh/annum, although there is some uncertainty related to this figure which was not independently verified\.
Economic Analysis
The EIRRs were calculated for a sample of projects and found to range between 53 percent and 238 percent\.
Table 3\.4 illustrates the calculation of actual EIRR\. Although a one-on-one comparison with appraisal
estimates was not possible due to the rapidly changing portfolio, this compares well with the appraisal
estimates of a range of 26 percent to155 percent for a different sample of projects\.
Table 3\.4: Comparison of EIRRs for Sub-Projects at Sanction and Completion
Project Name Projected EIRR Actual EIRR
GMR Technologies & Technologies Ltd\. NA 283%
NCL Industries Ltd\. NA 238%
Mahendra Sponge & Power (P) Ltd\. NA 154%
Anand Tissues Ltd\. NA 102%
Arunachalam Sugar Mills Ltd\. NA 53%
Key assumptions:
h) Cost of diesel-based generation has been estimated at Rs\.10 per kWh\.
i) Taxes were taken at 11 percent which includes MAT, VAT etc\.
j) Economic costs of sub-projects were derived by adjusting the financial costs for taxes by
applying the standard conversion factor of 0\.9\.
k) In case of coal saving, heat rate of 2,500 Kcal/ kWh was assumed
42
Annex 4\. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Specialization Unit Responsibility/ Specialty
Lending (from Task Team in PAD Data Sheet)
M\. Manzo Team Leader SASEG
V\. Ziff Program Assistant SASEG
I\. Sevilla
A\. Ceyhan Power Engineer SASEG
K\. Hattori SASEG
S\. Padmanabhan Sr\. Energy Efficiency ASTAE
Specialist
Y\. Ziv Environmental Engineer ASTEN
A\.Dani Social development ASTEN
W\. Smith Economist Consultant
Names Specialization Unit Responsibility/ Specialty
Supervision (from Task Team Members in all archived ISRs)
M\. Manzo Task Leader & Senior SASDE
Operations Officer
Supriya Sen Task Leader & Senior SASDE
Financial Analyst
Andrea Ryan Rizvi Task Leader SASDE
P\. Dhingra Task Leader & Sr\. Power SASDE
Engineer
Mikul Bhatia Task Leader & Energy SASDE
Specialist
A\. Cabraal Sr\. Energy Specialist SASDE
Judith Plummer Sr\. Financial Specialist SASDE
R\. Taylor Lead Energy Specialist SASDE
E\. Groom Sr\. Regulatory Specialist
Jeremy Levin Sr\. Technical Specialist SASDI
Priya Barua Research Analyst SASDE
Priya Chopra Program Assistant SASDE
Neelima Kapur Program Assistant SASDE
43
Chandrasekhar Sr\. Energy Specialist MNSSD
Govindarajalu
S\. Ahmed Sr\. Legal Counsel
R\. Narula Financial Management SARFM
Specialist
M\. Gopalakrishnan Financial Management SARFM
Specialist
Manoj Jain Sr\. Financial Management SARFM
Specialist
N\. Verma Financial Specialist SARFM
Financial Institutions
S\. Krishnan Procurement Engineer SARPS
S\.K\. Bahl Sr\. Procurement Specialist SARPS
A\. Tait Consultant
S\. Sankaravadivelu Procurement Specialist SARPS
S\. Srivastava Environmental Specialist SASDI
Gaurav Joshi Environment Specialist SASDI
W\. Warren Social Development SASDI
Specialist
S\. Thangaraj Social Development SASDI
Specialist
S\. Narayanan Sr\. Social Development SASDI
Specialist
R\. Lopez Rivera Hydropower Engineer
(b) Staff Time and Cost (from SAP)
(The system pulls data available for all fields)
Staff Time and Cost (Bank Budget Only)
Stage of Project Cycle No\. of Staff Weeks US$ Thousands
(including travel and consultant costs)
Lending
FY1998 50,913\.66
FY 1999 21,848\.98
FY 2000 9\.65 17,044\.59
FY 2001 - -
FY 2002 - -
FY 2003 - -
44
FY 2004 - -
TOTAL: 9\.65 89,907\.23
Supervision/ICR
FY2005 40\.77 116,128\.59
FY2006 43\.15 93,357\.92
FY 2007 27\.06 28,778\.18
FY 2008 30\.98 34,477\.86
FY 2009 (Till 16\.8\.08) 5\.61 11,160\.35
TOTAL 147\.57 293,902\.90
45
Annex 5\. Beneficiary Survey Results (if any)
Not Applicable
46
Annex 6\. Stakeholder Workshop Report and Results (if any)
Not Applicable
47
Annex 7\. Borrower's ICR
In the year 2000, IREDA has received this Line of Credit for the implementation of "India: Second
Renewable Energy Project" of World Bank (WB) targeted to promote Small Hydro and Energy
Efficiency / Conservation investments in the country\. The detailed objectives of the project as
conceived are detailed below:
1\. Increase power supply through development of environmentally sustainable small hydro
schemes\.
2\. Promote Energy Efficiency and demand-side management (SDM) investments\.
3\. Remove market barriers to delivery of Energy Efficiency services and products\.
o Strengthening IREDA's capacity to appraise and supervise energy efficiency
investment projects through the provision of consultancy services and training\.
o Improving the marketing of the energy efficiency and DSM investments under the
project through the provision of consultancy services to prepare business development
modules, model bid documents and informative packages\.
o Promoting private sector participation in the end-use efficiency including development
of appropriate policy incentives through the provision of consultancy services to
various state energy development entities, and training for public and private sector on
energy conservation and DSM\.
The Line of Credit included an IDA component US$ 50 Million, IBRD Component of US$ 80\.00
Million and GEF component of US$ 5\.00 Million whereas IREDA has to bring counterpart funding of
US$ 2\.00 Million, only for GEF\. The IDA and IBRD components are poised for project funding while
the GEF and IREDA's Counterpart are assigned to support the Technical Assistance / Capacity
Building objectives to remove market barriers to delivery of Energy Efficiency Services and products\.
The loan agreement was executed on 11th August 2000 and made effective from 31st January 2001\.
The closing date of LoC was fixed for 31st March `2006\.
During the course of implementation a number of policy issues etc\., beyond the control of IREDA and
the sub-project promoters, had come up, affecting timely implementation/ progress of the project\.
Therefore, the matter was taken up by IREDA with the WB through GoI which was considered and
accordingly, on 24\.06\.2005 World Bank approved extension of the closing date of the LoC up to
31\.03\.2007 with a reduction of US$ 18 million from IBRD allocations\. Subsequently, a second
extension in closing date up to 31\.03\.2008 was also considered by WB on 20\.11\.2006 with an
additional reduction of US$ 8 million in the IBRD component in the trail\.
Implementation of Small Hydro Projects
48
World Bank through the second LoC has supported 45 SHP sub projects; out of which 12 projects are
under IBRD and 33 under IDA Line of Credit\. 35 sub projects have been commissioned with installed
capacity of 100\.15 MW by July, 2008\. The remaining 9 projects aggregating to 57\.90 MW are expected
to be commissioned by March, 2009\. The total installed capacity of all projects when commissioned,
will be 158\.25 MW\. 1 project of 0\.4 MW capacity stands abandoned\.
Implementation of Energy Efficiency Projects
World Bank through the second LoC has financially supported 12 sub projects in EEC sector\. Out of this
11 have been commissioned and one is expected to be commissioned in December, 2008\. Majority of the
projects are for installation of energy conservation equipment except two projects which are for setting
up of captive power plant\.
The industrial plants in sponge Iron, cement, steel and sugar sectors were able to purchase and
demonstrate new technologies with excellent energy efficiency norms\. The success stories developed
under WB LoC has paved the way for advanced energy efficient technologies in many of the Indian
industrial plants e\.g\. the cement plants, the energy efficiency norms are comparable to the best energy
efficient plants in the world\. Further, some of the steel plants and sugar plants are already undergoing
process of modernization and adopting more energy efficient practices\. BEE's recent study of the pulp
and paper sectors has indicated that these sectors have also responded positively and implemented
technology upgradation plans\. Use of fluidised bed boiler, variable frequency drives, energy efficient
pumps, fans, compressors and cooling towers are widely employed in Indian industries\. Interactions with
industry experts indicate that over the years, there has been a significant reduction in investment costs of
these equipment given their increased demand and scale of manufacturing\.
Implementation of Technical Assistance Activities
Overall 12 TAP activities were implemented\. Several activities have been designed and completed
under the Line of credit to overcome various market barriers in implementation of Energy Conservation
Act, 2001\.
The funded projects were aimed to showcase techno-economic viability of EE investments by IREDA to
other financial institutions and Commercial banks through developing their capacity to design bankable
EEC project packages and also build the capacity of associated stakeholders\.
Technical Assistance support was provided in standardization of project appraisal formats; developing
pre and post project monitoring and verification protocols for sugar, cement and steel sectors and
marketing of EE loan schemes\. Capacity building programs for commercial banks and ESCO companies
were undertaken to enhance technical and financial capacity for developing EE loan schemes and
marketing techniques\.
The activities like preparation of investor manual, EE information manual and development of codes and
standards for performance evaluation of industrial equipment aimed at identifying the potential areas in
energy intensive sectors that need to be targeted for energy efficiency\. They also contributed in
developing the strategic plan for implementation of Energy Conservation Act, 2001\.
49
Technical Assistance was also provided to ESCO's in developing projects in Government buildings,
hospital buildings, and industrial clusters\. Some of the activities undertaken under TAP focussed on
development of consultant directory, database on EE product equipment, list of ESCO companies and
EE equipment manufacturers\.
IREDA also utilised the knowledge gained under TAP activities to develop their portfolio in EEC
financing\. IREDA has financed 11 projects in industries like cement, pulp and paper, sugar, steel in this
LoC\. Additionally, IREDA has also financed one project in hotel industry outside the LoC, base work
for which was undertaken in TAP\.
EEC projects financed under LoC with reduced interest rates encouraged the industrial sector like
cement, pulp and paper, textile and Hotels to improve their existing technology and profitability with
achievement in reduction in overall specific energy consumption and emissions\.
4\.1\.1 Bottlenecks for Small Hydro Development
Hydro power projects are location specific, varying significantly in costs and feasibility depending upon
topography, hydrology, geology and accessibility related factors\. The cost of SHP projects (per MW)
ranged from around Rs\. 40 million to Rs\. 100 million\. The main reasons for this are that the investment
costs of hydro can vary significantly due to terrain and access difficulties as most of these projects are
located in remote hilly areas\. Besides the transmission of power to load centres, away from the source,
necessitates investment in construction of transmission networks on difficult terrain\.
In India in the hydro sector, there are very few integrated EPC contractors\. Contracts are mostly split
between civil construction and plant and machinery installation, which makes negotiation of EPC
contracts relatively complex\. Therefore there is a need to address functional, technical and price related
aspects across contracts; else developers may face the risk of time and cost overruns and lower
profitability\.
SHP developers have highlighted lack of adequate land and freedom to develop the land and the
infrastructure as a key bottleneck\. In hilly states, delays in obtaining land/forest clearances have
substantially delayed project implementation\. This is a major problem being faced by a number of SHP
developers as once local residents know that a SHP plant is coming up in an area, they either refuse to
sell the land or ask for exorbitant prices\.
One of the most crucial issues/ barriers in the scaling up of hydro plant (large and small) is
interconnection between the plant and the nearest grid point to maximize the power usage from these
sources\. In a number of cases it has been seen that SHP plants are situated in locations far away from the
transmission network\. Therefore providing grid extension up to the SHP plants introduces an additional
financial burden either on the licensee or the developer and in cases where funds for development of this
infrastructure are limited; it severely hampers the process of hydro development in the region and state\.
Hydro is a relatively expensive renewable energy technology due to its high upfront costs from detailed
engineering requirements, remote locations, synergising civil and electromechanical works and also the
high risks of Force Majeure events which sometimes further drive up the costs making these projects all
the more unattractive for private developers\.
50
Differing policies across states lead to concentration of projects in States which have the most investor
friendly policies\. At the same time different States have different policies for the awarding projects,
variations in feed in tariffs and capital costs allowed which again promote non uniform hydro power
development and consequent excess capacity in some States and supply constraint in others\.
Lack of adequate financing also discourages developers especially the first generation entrepreneurs in
the development of Small Hydro Projects\. Financial Institutions, such as public/ private banks are still by
and large unconvinced of the success of Small Hydro Projects\.
Financial institutions are unlikely to finance small first time developers who cannot put up enough
collateral\.
With an approximate cost of about Rs\. 50 million a Megawatt, developing a 5 MW plant would entail an
expenditure of anywhere between Rs\. 200 - 250 million of which a minimum equity an entrepreneur
would have to put up would be Rs\. 50 million\. Most banks request developers to either furnish
guarantees or provide adequate collateral as a financial institution which very few developers are able to
comply\.
Despite detailed S&I, project development in the Himalayan Region is prone to geological surprises
during construction\. This can at times cause delay and add to the estimated project cost\. It is necessary to
ensure that commercial agreements, such as the Project Implementation Agreement, signed with the
State Government recognize such surprises and provide for consequent extension of Commercial
Operation Date in case such surprises emerge during the construction period\.
Technical- Economic Clearances (TEC) on an average adds between one to two years to the
development time of the project\.
4\.1\.2 Barriers to EE in India
The projects financed under this World Bank Line of credit targeted to address the three primary
stakeholders in EE and ESCO business, namely the end-use industry, energy auditors, and the banks and
financial institutions\. Banks and state-level financial institutions usually finance the SMEs and municipal
corporations\. While awareness about EE opportunities is gradually increasing among SMEs, municipal
corporations and commercial building from last five years, there has been no concrete effort to expand
EE project financing\. The issues on EE from the perspective of each of the stakeholders are discussed in
brief in the following section:
Large companies with access to information, technical consultants and finance have found it less
difficulty in implementing the EE projects as compared to the SME sector, who have not undertaken
energy efficiency initiatives on account of several issues and constraints\. These include:
o Lack of data on energy consumption, including measurement and verification (M&V)
available with SMEs;
o Lack of trust on technical capabilities of external energy auditors (we know our plants
better attitude);
o Lack of either guarantee from the consultants for minimum savings or absence of
demonstration of savings in other similar types of plants in vicinity;
51
o Non-availability of turnkey solutions from concept to commissioning from one single
source;
o Non-availability of simple financing schemes for implementing EE projects on normal
terms, preferably from the same bank from which it has availed working capital
requirement;
o Last but not least, the burden of upfront transaction cost of carrying out energy audits\.
Impact of World Bank 2nd Line of Credit
Small Hydro Power
Most of the Small Hydro developers are either first generation entrepreneurs in energy sector or small and
medium enterprises\. However the impact their investment and work has had on society especially the local
communities and the local environment is noteworthy\.
One of the biggest impacts and learning's from the second LoC has been the understanding of the key role
this programme has played in making clean energy sources like small hydro commercially attractive and
viable\.
The second LoC provided an opportunity for developers and entrepreneurs interested in setting
up SHPs to come forward, plan and execute these projects with funding from IREDA when no
other financial institution was ready to provide funding to these projects\.
The second LoC provided access to funds for first time entrepreneurs\. As they successfully
executed projects, other FIs gained confidence and gave them the funds to scale up and invest
further\.
19 states namely, Andhra Pradesh, Assam, Bihar, Haryana, Himachal Pradesh, Jammu & Kashmir,
Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Mizoram, Orissa, Punjab, Rajasthan, Tamil
Nadu, Uttarakhand, Uttar Pradesh and West Bengal have announced policy for setting up commercial SHP
projects through private sector participation\. The facilities available in the states include wheeling of power
produced, banking, buy-back of power, facility for third party sale etc\.
The conducive policy in many states particularly due to Renewable Energy Purchase Obligation (RPO) and
successful project implementation of projects from 2nd LoC from World Bank, have generated many
projects\. There are now ample number of Small Hydro projects in pipeline in IREDA which also includes
one project of 100 MW capacity which will require consortium financing\.
Energy Efficiency & Conservation
Most of the EEC sub projects developers went for installation of energy efficiency equipment in the
existing plants and as such these measures do not have any direct impact on the local community\.
Under the Energy Conservation Act, 2001, 9 energy intensive industrial sectors are defined as Designated
Consumers i\.e\. thermal power stations, fertilizer, cement, iron and steel, chlor-alkali, aluminium, railways,
textile and pulp & paper\. Specific energy consumption (SEC) norms for each designated consumer were
emphasized to be adhered after five years\. It is observed that there is a wide band of energy efficiencies in
52
different units, some units would be able to comply and some will be unable to achieve the target of SEC\.
Issue of Energy Savings Certificates to those Designated Consumers who exceed their target SEC reduction
may be a mechanism whereby certified excess saving may be traded amongst companies to meet their
standards compliance requirement, or banked for the next cycle of energy savings requirements\.
The progress of energy efficiency has not achieved the required pace in India due to barriers of:
Lack of awareness
Higher upfront cost of energy-efficient technologies
Lack of access to innovative financial instruments and
Asymmetry in sharing of costs and benefits from the technology
Success of most of the projects funded under LoC has proved that the financing EEC sub projects is a viable
option and not a risky proposition\. Financing of EEC sub projects was a new experience for IREDA at the
start of this LoC but now IREDA is strongly placed to finance similar projects\. Foreclosure of the loans by
some of the projects funded under this LoC has shown that the implementation of EEC projects is even
more profitable than what they had expected during proposal stage\.
On supply side energy efficiency has a lot of potential in optimisation of performance of power plants\. To
promote energy efficiency / conservation in energy consumption and to promote optimum performance of
the power plants with a view to improve environment and climate protection by involving agencies that has
responsibilities of outputs and activities as per their field of expertise\.
Energy Efficiency in buildings offers an enormous potential for reducing energy consumption\. Whether in
existing housing stock or in newly constructed units, energy efficiency constitutes a savings potential that is
still far from being fully utilised\.
Conclusion
2nd line of credit wherein 45 small hydro projects were funded has enabled IREDA to take up financing of
small and medium hydro projects with a better prospective of barriers in development and to factor in risks
and its mitigation associated with development of SHP\.
Further, this has also helped IREDA build up relationship with SHP entrepreneurs and who are now taking
up small and medium Hydro projects in various states enabling IREDA to increase its outreach to various
states and promoters\.
Similarly for Energy Efficiency projects inclusion of enhanced energy efficiency as one of the eight
National Missions recently announced by the Government have brought the sector on forefront\. A number
of schemes and programmes have been initiated and it anticipated that these would result in a saving of
10000 MW by the end of 11th Five Year Plan in 2012\.
The World Bank Line of credit for energy efficiency and particularly capacity building of various
stakeholders through TAP activities have resulted the importance of enhanced energy efficiency\.
During the period of Line of Credit, IREDA had a very active interaction with all the stakeholders
including other commercial banks and Bureau of Energy Efficiency\. Power plants efficiency
improvement, Energy Efficiency in industry and end use, development of programmatic CDM and
Energy Efficiency in public and private buildings are the focus areas emerging in the near future\.
53
Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders
Not Applicable
54
Annex 9\. List of Supporting Documents
1\. Project Concept Note
2\. Project Appraisal Document, April 1998
3\. Financing Energy Efficiency: Lessons From Brazil, China, India and Beyond\. Robert
Taylor, Chandrasekar Govindarajalu, Jeremy Levin, Anke Meyer and William Ward,
World Bank, 2008
4\. Mid-Term Review Report (Econoler), July 2003
5\. Final Evaluation Report-" Status Report on India- Second Renewable Energy Project",
PricewaterhouseCoopers, India, March 2008
6\. Aide Memoires for Implementation Support Missions from May 2000
7\. Implementation Completion Report (ICR) for India: Renewable Resources
Development Project, Project ID: P010410, June 2002
8\. Implementation Status Reports (ISR) from December 2000
9\. Country Assistance Strategy (CAS) for India, December 1997
10\. India Energy Efficiency Project\. SMPR report, Global Environmental Facility, 2003
11\. National Action Plan on Climate Change, Government of India, June 2008
12\. BEE Action Plan, 2008
13\. Energy Conservation and Commercialization (ECO)
http://www\.usaid\.gov/in/our_work/activities/Enrg_Env/eco\.htm
14\. Personal Communications, Srinivasan Padmanabhan, Advisor, USAID
55
Annex 10\. Institutional Development of IREDA
During the course of two World Bank engagements with IREDA, several initiatives have been taken to
strengthen the institutional capacity of the organization and establish it as the premier renewable energy
financing agency in India as well as in the South Asia region\. Some of the key initiatives taken over the last
few of years, and the improved corporate performance achieved as a result are discussed below\.
Improved Corporate Governance Arrangements
IREDA has taken a number of initiatives to strengthen corporate governance\. After more than two and a
half years of vacancy, the position of MD has been filled, and elevated to Chairman and MD\. This has
enhanced the autonomy in decision making and allowed the organization greater flexibility as a financial
institution in responding to the market\. Vacant positions on the IREDA Board have been filled and three
independent Directors have been appointed to the Board in 2008\. The independent directors are
distinguished people, including the former Chairman of the Central Ground Water Board (Ministry of
Water Resources), a distinguished professor from the Indian Institute of Technology (IITK) / Indian
Institute of Management (IIMB) who is also the founder director of the Indian Institute of Information
Technology (IIIT), and the former Member (Finance) of the Department of Telecom\.
IREDA has placed a strong emphasis on greater transparency and accountability and has put measures in
place to achieve this\. It has appointed an audit committee to review internal systems, financial performance
and management, and risk management policy\. An external consultant has been hired to review systems and
procedures of IREDA's lending operations and to develop a suitable action plan for organizational
restructuring through the strategic change consultancy exercise under the Bank's LoC\.
Improved Corporate Financial Performance
IREDA's financial performance, which had deteriorated significantly during 2003-05 due to the change in
enabling environment, compounded by natural events (droughts in Andhra Pradesh see Text Box 10\.1)
and the company's inability to swiftly respond to changing interest rate regime in the country), has been
improving consistently over the last three years\.
Loans Portfolio: IREDA's loan portfolio has been
greatly expanding over the last several years\.
Disbursements in FY07 increased by more than 36 Text Box 10\.1: Impact of Andhra Pradesh
percent over FY06 to about Rs\. 410 crore\. This Drought on Small Hydro Power projects
increased by a further 34 percent in FY08\. Increase in Andhra Pradesh faced drought like
disbursements is partially attributable to initiatives taken conditions for three years from 2001-04\. As
following the strategic change consultancy exercise\. a result, small hydro sub-projects faced
These initiatives include funding of medium hydropower decrease in water flow and were unable to
plants (larger than 25 MW), consortium funding with generate adequate revenues to service their
commercial banks, and increased financing for wind debt\. Of the 25 sub-projects that were
sector projects\. impacted, 6 were funded under the second
Profitability: IREDA's profitability improved from renewable energy project\. IREDA
Rs\.46 million in FY02 to Rs\. 470 million in FY08\. One developed a loan restructuring package to
of the key factors that have affected its profitability in assist promoters\. The main features of the
the recent years is the provisioning for poor asset package included extension of repayment
quality\. period, interest waiver till start of principle
repayment and a reduction in interest to 10%
Asset Quality: A fall in recovery rate and a high level of subject payment of premium\. All the affected
NPAs (an increase of 7 percent over the previous year) sub-projects are performing satisfactorily
was observed in IREDA's loan portfolio in 2006\. after restructuring\.
Twenty-five of IREDA's SHP projects in Andhra
56
Pradesh were affected by drought for a consecutive three-year period, which resulted in a high accumulated
funded interest liability, making it difficult for developers to make full and timely payments on a sustained
basis\. In addition, a change in accounting standards, which required NPAs to be recognized with a lag of 90
days instead of the previous 180 days also contributed to higher NPAs\. To address this concern IREDA
initiated actions for recovery from NPAs through various instruments including: (i) one-time settlement
(OTS); (ii) Reschedulment; and (iii) SARFAESI Act, which resulted in recovery of written-off loans of
Rs\.14 crore and Rs\.12 crore each in FY06 and FY07 respectively, thus enhancing IREDA's revenues and
profitability\. As of FY08, IREDA's net NPAs stood at 11\.25%\.1
Support from GOI in raising more capital: IREDA's ability to fund a larger RE project is limited by
the size of its net worth\. GOI has increased the authorized share capital of the company from Rs\.400 crore
to Rs\.1000 crore to allow IREDA to raise more equity from government sources as well as from the market\.
MNRE has advised IREDA to explore opportunities for broad basing its equity base\.
Strategic Outlook of IREDA
The World Bank project assisted IREDA in undertaking a set of three strategic consultancy studies which
aimed at developing a strategic vision and addressing some of the key challenges faced by it\. The three
studies were:
1\. Strategy and Action Plan for Adapting to the Changing Business Environment
2\. Resource Mobilization Plan
3\. Reviewing Systems and Procedures of IREDA for its Lending Operations and Developing a
Suitable Action Plan for Organizational Restructuring
The key recommendations of the first two studies (the third study is currently in progress) as well as the
steps being taken towards implementing them is provided in Table 10\.1:
1This is based on provisional numbers for FY07-08, subject to approval by IREDA's Board of Directors\.
57
Table 10\.1: Key Recommendations and Actions Taken from First Two Strategic Change Consultancy
Studies
Ser Strategic Consultancy Actions Taken by IREDA
Recommendations
1 Financing of medium and IREDA is discussing the funding of a large hydropower
large hydropower projects project under co-financing arrangement with IL&FS\.
(above 25 MW) under IREDA is funding a Rs\.3,620 million wind power project for
consortium financing Tata Power
arrangements\. IREDA is planning to explore the funding of more wind
Financing other Large power IPP projects with some developers
Renewable Energy projects IREDA is planning to finance co-generation projects with
under consortium financing sugar cooperatives under a consortium financing approach
arrangements with other
banks and financial
institutions\.
2 Form a consortium with IREDA has signed a MoU with PTC India Ltd\. and PTC India
banks and financial Financial Services\. Together the three entities would provide
institutions for project full financial and commercial solutions to RE developers
financing to increase market including financing, investment and power off-take\.
reach and market share\. IREDA has signed an MoU with the Power Finance
Corporation (PFC) to facilitate consortium financing of RE
and EE projects (especially medium and large hydropower
projects)
IREDA is co-operating with Tata Power on 85\.4 MW wind
project along with private sector operations arm of the ADB\.
IREDA has signed partnership agreement with IDFC to
explore joint implementation of RE programs\.
3 Arrange funding from IREDA is availing funding from the European Investment
bilateral and multilateral Bank (EIB) of Euro 150 million for overall RE investments\.
sources for reduced cost of IREDA is tying-up KfW funding for Euro 50 million for all
funds RE with a specific emphasis on IPP wind energy projects\.
IREDA is arranging an additional Euro 19 million from KfW
towards exploring projects that would help in removal of
barriers to bio-mass based generation\.
IREDA is in early discussions with ADB for US$ 150 million
funding for solar thermal and solar photo-voltaic projects\.
4 Streamline delivery Study on reviewing systems and procedures, and
processes for customer organizational restructuring is currently underway\.
retention\. For example, easier Credit Risk Rating System developed by CARE for rating
appraisal process for repeat IREDA customers and offering risk-based terms of lending has
customers cutting down on been implemented\. A credit risk rating cell has also been
avoidable steps and offering established\.
competitive and flexible
lending terms\.
Regular feedback and
interaction\.
58
Annex 11
Sample Energy-Efficiency and Renewable Energy Investments1
A few sample projects are highlighted below to provide a flavor of the investments that were undertaken
under this operation\. The samples include: (i) one EE project in waste-heat recovery (WHR), which is
likely to become a key niche business area for IREDA moving forward; (ii) one innovative canal-based
hydro project that was built utilizing the head available within the water circulating system at a thermal
power plant; and (iii) one run-of-river (ROR) sub-project that showcases exemplary social and
environmentally sensitive development\.
Mahendra Sponge & Power (Pvt) Ltd\. Energy-Efficiency Project
Mahendra Sponge & Power (P) Ltd\. (MSPPL) was incorporated as a private limited company on July 23,
2002 to manufacture sponge iron, steel and power\. The company has a capacity to manufacture 200 TPD
with two kilns of 100 TPD each\. The first kiln was commissioned on November 26, 2003, while the second
kiln was commissioned on October 23, 2004\. MSPPL declared profits during the first year of operation\.
The company proposed to set up a 8 MW WHR-based power plant, from the waste heat released from the
two kilns, to meet the entire power requirement of its sponge iron plant and the power requirements of its
group units (within the same complex) that manufacture MS ingots and TOR Steel\. MSPPL approached
IREDA to part finance a Rs\. 275 million proposed investment in a power plant based on waste heat from
sponge iron kilns and an additional atmospheric fluidized bed combustion (AFBC) boiler\. A DPR was
submitted with an application for a loan of Rs\. 192\.5 million\. The loan was subsequently approved by
IREDA and was shared equally between IREDA and the Second Renewable Energy Project funding that is,
Rs\. 96\.25 million each\. The project implementation was smooth except for a delay of four months due to
the late shipment of the AFBC boiler from the supplier, Citar Vessels\. Though originally planned to be
commissioned in October, 2006 it could only be commissioned in February, 2007\. There was a cost overrun
of Rs\. 20 million due to additional expenses on civil and erection works but all the additional expenses were
provided from the internal accruals of the company\.
Figures 1 & 2: Waste Heat Recovery Boiler and Kiln
1These Case studies were prepared based on the site visits and final evaluation report prepared by consultants
PricewaterhouseCoopers, India
59
MSPPL completed the installation of the power plant in February 2007 and started commercial production
in March 2007\. The plant is also recording the data with regard to the auxiliary power consumption which is
around 14-15 percent of the generated power\. The major portion of the power produced is used for captive
generation for the sponge iron plant and the two induction furnaces of 8 T capacity each\. For the rest of the
power, MSPPL has signed a PPA with the Chhattisgarh State Electricity Board, which is to the tune of 3
MW (average PLF 80 percent)\.
This project has set the benchmarks and standards for pursuing WHR boiler-based power plants for other
sponge iron units\. MSPPL was the first plant in an industry cluster in Siltara, Raipur which installed
captive power plant using waste heat from the sponge iron kilns\. The success of MSPPL in running this
plant has influenced four additional sponge iron plants to install captive power plants\. As such, MSPPL has
become the trendsetter in that area and more WHR power plants are expected in the remaining 18-19
sponge iron plants in the cluster\.
Birsinghpur - Small Hydro Project
The Birsinghpur project is located in the Umaria District, about 180 km northeast of Jabalpur in the eastern
part of Madhya Pradesh\. The project is located within the premises of Sanjay Gandhi Thermal Power
Station (SGTPS) which is owned and operated by the Madhya Pradesh Power Generating Company Ltd\.
(MPPGCL), formerly Madhya Pradesh State Electricity Board (MPSEB)\. SGTPS is located on the Johilla
River and has four operating units of 210 MW each\. SGTPS operates on the lake cooling system in which,
the water is conveyed in a canal to the circulating water pump house\. The water is then circulated through
the cooling condensers of the steam generating units by the circulating water pumps\. After cooling the
steam in the condensers, the water is discharged to the seal pit\. The water then flows back to the reservoir
by gravity through the return canal\. About 30,000 cubic metres per hour (m3/hr) of water is required for
cooling the condensers\. Three pumps, each having a discharge capacity of 10,000m3/hr at 25 metres head
are employed to draw water from the lake\.
Figures 3& 4: Seal Pit and Bypass Gate of the Plant
The difference in elevation between the water level in the seal pit and the water level in the return canal
provides the head for the Birsinghpur mini-hydro project\. The quantity of water discharged from the seal pit
provides the flow\. The available head and flow for the project activity are relatively constant, with the head
being about 8\.7 M and the available flow for each unit of about 8\.3 cubic meters/sec for a total flow of
about 33 m3/sec\. The feed-in tariff for the project was set at Rs\. 2\.25 per unit as per the MNRE policy that
was applicable when the project was commissioned\. A 30-year PPA was signed with MPSEB, however,
sale to third parties was also allowed under the PPA and at present 100 percent of generation from the mini-
hydro project is sold to Indore and Ratlam-based third parties at a mutually decided rate (between Rs\. 3\.85
and Rs\. 4 per unit)\. As the thermal plant is operational year round, except for disruptions due to R&M or
technical problems, the hydro project is also operational throughout the year\. As a result, the project has
60
achieved a CUF of 95 percent, which is higher than the projected CUF in the DPR of 86\.6 percent\. While
this hydro project was innovative, it has high replication potential at other thermal power plants across the
country\.
Dehar - Small Hydro Project
The Dehar SHP is a 5 MW plant at Bithal village of the Sihunte Tehsil in Chamba District of Himachal
Pradesh\. Although the project was executed on time there was an escalation in civil cost as some structures
had to be rebuilt due to landslides\. As a result, the projected cost (as per the loan agreement) of Rs\. 248\.5
million escalated to Rs 256\.10 million\. The project was primarily funded by IREDA but a loan of Rs\. 19
million was also taken from another financial institution (UCO Bank)\.
The developers of this project have implemented a number of exemplary social and environmental
initiatives as part of the project\. Some of these initiatives are outlined below\.
Livelihood Opportunities: To enhance community relations and provide livelihood for people living in the
surrounding villages, the project developers have decided to provide a job to at least one person from each
household in Bithal village\. This has had a very positive impact on the image of the project and local
villagers speak highly of the work undertaken by the project developers\.
The project has also taken up the initiative of providing 10 kg of rice per month to 100 households below
the poverty line located in the surrounding area\. These households were selected based on consultations
with the local panchayat\.
The project also provides livelihood opportunities for others from Himachal Pradesh\. Barring one
supervisor (a diploma holder) from Andhra Pradesh, all personnel working at the plant were from Himachal
Pradesh, including districts that are far away from the project site\.
Connectivity and Community Development: The project
developer had constructed a three-kilometre long dirt road for
the project that now provides very good connectivity for the
Bithal village to the nearest road head at Tikri\. The project
developer has also constructed a small temple near the project
site for the villagers and a small Dharamshala (with four rooms
and associated infrastructure) at the Chumali Mata Mandir, the
local deity's shrine\. In addition, the developer has also
constructed a playground for the local school\.
Minimizing environmental impact and construction costs:
The project developer has constructed a ropeway of Figure 5 Road built with temple in background
approximately 0\.5 km which was used for transportation of all
construction material to the channel and fore bay tank to reduce the number of trees that needed to be felled
during construction\. In addition, the project undertook afforestation on 6\.0 hectares of degraded land at
Jaiaru N-DPF-I as compensation for the trees that were cut during construction and also paid Rs\. 0\.2\.million
for soil conservation as mandated by law\.
61
Maintenance of the Irrigation and Public Health Department (IPH) water and irrigation supply weir:
The project developer undertook the maintenance of an IPH's (Irrigation and Public Health Department)
weir located adjacent to the site (weir is located below the projects fore bay tank)\. This weir invariably gets
damaged during the rains every year and the project has an understanding with the IPH and the local people
that the repair work for the weir is the responsibility of the project\. Annually, the project developer spends
up to Rs 0\.3 million on repair work\. The weir services a kul (a water channel) which is almost 7 km long
and is the longest in Asia\.
In addition to the above initiatives this small hydro project was also the first hydel project in India to sell
CERs\. The project sold 23,000 CERs during the first 17 months of project implementation to KfW\.
62 | REVIEW |
P078058 |  ICRR 13983
Report Number : ICRR13983
IEG ICR Review
Independent Evaluation Group
1\. Project Data: Date Posted : 06/12/2014
Country : Kenya
Project ID : P078058 Appraisal Actual
Project Name : Arid Lands Resource US$M ):
Project Costs (US$M): 144\.9 152\.0
Management Project
Phase Two
L/C Number : C3795 Loan/ US$M):
Loan /Credit (US$M): 120\.0 118\.39
Sector Board : Agriculture and Rural Cofinancing (US$M):
US$M ): 11\.56 5\.68
Development
Cofinanciers : European Union Board Approval Date : 06/19/2003
Closing Date : 06/30/2009 12/31/2010
Sector (s): General agriculture fishing and forestry sector (40%); Animal production (30%); Other social
services (30%)
Theme (s): Natural disaster management (40% - P); Other environment and natural resources
management (20% - S); Other rural development (20% - S); Participation and civic
engagement (20% - S)
Prepared by : Reviewed by : ICR Review Group :
Coordinator :
John Redwood Robert Mark Lacey Christopher David IEGPS1
Nelson
2\. Project Objectives and Components:
a\. Objectives:
According to the 2003 Development Credit Agreement (Schedule, 2, pg\. 20) and the Project Appraisal Document
(PAD, pg\. 2), âthe objective of the Project is to enhance food security and reduce livelihood vulnerability in drought
prone and marginalized communities in the Project Area \.â? The âProject Areaâ? was defined in the PAD (pg\.2) as â21
ASAL [Arid and Semi-Arid Land] districts\."
On August 3, 2006, a level 1 restructuring was approved by the Board \. This involved additional financing (AF) in the
amount of US$60 million and an expansion of the project âs development objectives\. The amended Development
Credit Agreement adopted the following revised statement of objectives : "to reduce livelihood vulnerability, enhance
food security, and improve access to basic services in 28 drought prone and semi-arid districts in Kenya\." The
changes were the addition of the objective "to improve access to basic services, " and an increase in the number of
ASALs covered by the project from 21 to 28\.
The key associated outcome targets (ICR, pg\. 3) were:
Decreasing proportion of people assessed as needing free food aid in each arid and semi -arid district affected
by severity of drought\.
Reducing the time lapse between reported drought stress and response \.
Improved nutritional status of children below 5 years of age affected by severity of drought over time \.
Increased number of people with access to basic services (water, human, and animal health services and
education)\.
Increased peopleâs participation in the project districts in local and national development as demonstrated by the
reflection of arid lands concerns in the economic recovery strategy and other relevant national policies \.
This Review is based on the statement objectives in the amended 2006 Development Credit Agreement\.
b\.Were the project objectives/key associated outcome targets revised during implementation?
Yes
If yes, did the Board approve the revised objectives /key associated outcome targets?
Yes
Date of Board Approval: 08/03/2006
c\. Components:
1\. Natural Resources and Drought Management -- appraisal cost (including AF: US$99\.7 million; actual cost:
US$115\.99 million, or 116 percent\.
A\. Natural Resources Management
B\. Drought Preparedness and Management
2\. Community-Driven Development -- appraisal cost (including AF): US$28\.6 million; actual cost: US$24\.2 million,
or 87 percent\.
A\. Support to CDD Implementation
B\. Community Capacity Building
C\. Capacity Building for Backstopping Services
3\. Support to Local Development -- appraisal cost (including AF: US$16\.6 million; actual cost: US$11\.81 million, or
70 percent\.
A\. Policy, Advocacy and Research
B\. Local Services Development
C\. Piloting Financial Services
d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:
Project Cost: Total actual cost was US$152\.0 million, 5 percent higher than the appraisal (with AF) estimate\.
Financing: The original IDA credit of US$60 million equivalent (SDR43\.6 million) was increased by another US$ 60
million (SDR40\.35 million equivalent) of Additional Financing (AF) in August 2006 to "help finance the costs
associated with: (a) scaling up both geographically and substantively the successful drought management and long
term livelihood activities of the Arid Lands project in 28 districts; (b) reimbursing eligible and audited non -food
expenditures associated with the severe drought which has affected the arid and semi -arid districts of Kenya over the
last year; and (c) scaling up the drought contingency fund which is operating under the current credit and has been
depleted due to the extended nature of the drought, " according to the proposed AF paper of July 10, 2006 (para\. 2,
pg\. 2)\. US$ 118\.39 million of the US$ 120 million, or 99 percent, of the approved IDA financing, had been disbursed
by project closure\.
While the PAD, the project documents do not refer to cofinancing in their respective project cost and financing tables,
the ICR identifies the European Union (EU) as a cofinancier of the project \. This financing was from the EU's Drought
Management Initiative Trust Fund for a total of â¬8,5 million (US$11\.56 million equivalent), which became effective on
September 29, 2007 and closed on December 31, 2010 when the IDA credit closed\. The ICR states that US$ 5\.9
million of EU drought financing could not be transferred to Kenya once IDA suspended disbursements in July 2010
(see Sections 8, 9 and 11b below) and was later canceled because the EU had been using the project's Drought
Contingency Fund for disbursement (para\. 111, pg\. 38)\.
Borrower Contribution: Both actual Borrower contributions, in the form of budget allocations, and local community
contributions, in the form of cash, materials and labor, reportedly exceeded appraisal estimates, the former by 42
percent (US$ 28\.35 million as opposed to US$ 19\.85 million) and the latter by 18 percent (US$ 5\.96 versus US$ 5\.05
million)\.
Dates: The project closing date was extended from June 30, 2009 for one year at the time the AF was approved, and
was later extended for a further six months to December 31, 2010 to permit implementation of activities under the AF
and facilitate transition to an expected follow -on project\.
3\. Relevance of Objectives & Design:
a\. Relevance of Objectives:
High
The projectâs objectives are relevant to the Bank's Country Partnership Strategy for the Fiscal Years 2010-2013, one
of the key aims of which is to address resource constraints and environmental challenges, "including adaptation to
climate change, in all projects and activities " (CPS, para\. 44, pg\. 19) as part of its efforts to contribute to more
inclusive growth\. In this context, more specifically, the CPS affirms that "natural resources are critical to the
livelihoods of the 65 percent of Kenyans who live in rural areas \.But Kenya's natural resource base is under stress \.
Population pressure, deforestation, coastal modification, ongoing ecosystem degradation, unsustainable resource
use and corruption threaten vulnerable habitats and biodiversity and continue to contribute to landlessness, poverty,
social conflict and food insecurity \." (CPS, para\. 40, pg\. 16)\.The CPS also observes that Kenya is "vulnerable to
climate change, due in particular to its reliance on rainfall both for agricultural growth and energy production, " noting
further that "extremes of drought and flooding are becoming increasingly common \." Finally, it affirms that "to help
Kenya to adapt to the destructive impacts of climate change, the Bank Group will strengthen its support for
government efforts to manage the environment, adapt economic and social structures that better accommodate
changing environmental circumstances, and diversify electricity generation away from hydroelectricity to offer green
sources such as geothermal " (CPS, para\. 87, pg\. 37)\. Provision of âaccess to basic services â? was also highly relevant
to the 2010-2013 CPS, in that improving the availability of higher quality services such as water, human and animal
health facilities, and education are major strategic goals of the Bank Group âs strategy in Kenya as well as that of the
Kenyan Authorities, both at national and local levels \. This is especially the case when the beneficiaries are members
of rural communities subjected to the vicissitudes of climate change, such as in the drought -afflicted areas of the
country\. The project's objectives were also relevant to the Bank's Country Assistance Strategy at the time the project
was appraised and remained so during the course of implementation, as drought conditions not only persisted but
became more serious, leading to the need for substantial additional assistance \.
b\. Relevance of Design:
Modest
According to the PAD (pp\. 2-3), the development objectives were to be achieved by supporting "three complementary
channels of intervention, which together address the complex channels of vulnerability, and enable communities in
the project area to move beyond survival and subsistence to sustainable development : (i) strengthening and
institutionalizing natural resources and drought management, which will improve the management of natural capital,
reduce the impacts of natural shocks and diminish acute vulnerability by reinforcing preparedness and mitigation
activities, and by improving the effectiveness of response interventions; (ii) empowering communities so that they
can successfully identify, implement and sustain their development priorities through Community -Driven
Development [CDD]; and (iii) fostering a conducive enabling environment for development in the arid lands through
policy support, advocacy and improvement in the delivery of essential services, complementing existing sector
programs\."
While it is certainly plausible that, over time, these interventions would contribute towards the objectives of enhanced
food security and reduced livelihood vulnerability, the causal chain between the project activities and the expected
results within the timeframe of the project is weak \. Even if it is assumed that âstrengthening and institutionalizing
natural resources and drought management [through] vision and strategy,â¦\.improved natural resource tenure and
control,â¦information and awareness creation, â¦\.institutional strengthening,â¦\.and conflict managementâ? (PAD, pp\. 6-7)
could be achieved within the proposed six year time frame, enhanced food security is not measured only, or even
primarily, by reductions in food aid needs or the time needed for food aid to become available \. It depends also on
factors such as increased agricultural production, import capacity and adequacy of stocks, stability of supply and
access (measured by prices and the effects of food policies ), purchasing power, reliable transport and storage
facilities, and food safety, hygiene and diet quality \. There is little in design to address these \. The causal chain
between some of the outcome targets â for example, âincreasing annual trend in the percentage of communities with
food consumption above national food poverty line at historically driest month (pastoralists) and before harvest
(farmers)â? (PAD, pg\. 3) -- and project activities is also unclear \.
More convincing is the link between drought preparedness and management and reduced livelihood vulnerability \.
This relies principally upon an Early Warning System developed under the preceding project and described by the
PAD (pg\. 8) as âoperating successfully in the ten arid districts \.â? Livelihood vulnerability was also to be mitigated
through Community-Driven Development (CDD) of improved social infrastructure and service development, safety
net mechanisms, and income generating activities supported by sub -projects\. There is a logical connection between
these activities and the objective of enhanced access to basic services \.
4\. Achievement of Objectives (Efficacy):
The project development objectives were "to reduce livelihood vulnerability, enhance food security, and improve
access to basic services in 28 drought prone and semi-arid districts in Kenya\.â?
Objective 1: Enhance food security in 28 drought prone and marginalized communities in the Project Area \.
Modest \.
Outputs
District Steering Groups (DSGs) were created in each of the 28 project districts to coordinate food security and
drought management work at that level and help to increase efficiency of the pertinent government agencies in
the field\.
Some 107 agriculture-related emergency activities were undertaken in order to improve food security and
expand production\.
Outcomes
Achievement of this objective was assessed with reference to the third key performance indicator : improved
nutritional status of children under 5 years of age affected by severity of drought over time, using Mid -upper Arm
Circumference (MUAC) measures\. For this purpose a two period (2005 and 2009) panel was used involving
MUAC measurements of 602,000 children in ten districts\. Stochastic dominance analysis across the distribution
of MUAC scores revealed improvements in nutritional status over time, and the impact evaluation concluded that
the project "effectively functioned as a nutritional safety net for children of less than 5 years of age" (para\. 72,
pg\. 22)\. However, attribution of the improvement to project -supported activities is not clearly established \.
Moreover, enhanced food security is not measured only, or even primarily, by the nutritional status of children
under five (which may improve because of temporary circumstances independent of sustained food security ),
nor is it determined only by reductions in food aid needs or the time needed for food aid to become available \. It
is determined by (i) food availability including domestic production, import capacity and adequacy of stocks as
well as food aid; (ii) stability of supply and access, measured, inter alia, by prices and the effects of food policies;
(iii) economic and physical access (incomes, purchasing power, extent and reliability of transport and storage
networks); and (iv) food safety, hygiene and diet quality \. Little evidence is provided in the ICR concerning these
dimensions\.
Objective 2: Reduce livelihood vulnerability in 28 drought prone and marginalized communities in the Project
Area \. Modest \.
Area\.
Outputs
717 natural resource management (NRM) and environmental awareness training sessions were conducted at
district and community levels and included all 28 district field offices and development partners \. A minimum of
600 communities received training\.
NRM plans were prepared for all 28 districts and were used for identification, prioritization and implementation of
NRM micro-projects\.
The vision and strategies emerging from these plans provided the framework for the design of the Arid and
Semi-Arid Lands (ASAL) Development Policy and the District and National Environmental Action Plans \.
Community level NRM plans constituted the major part of the 614 community development plans for the
Community Driven Development (CDD) component\.
The project supported 1,341 drought preparedness micro-projects\. In total (according to the Borrowerâs ICR),
2,934 drought preparedness investments were made to improve water availability and access for human and
livestock use\.
2,069 water activities were undertaken in 25 of the 28 districts\. These activities aimed to reduce distances to
water points and provide a constant supply of water to humans and livestock during droughts \.
Environmental screening tools were developed for micro -projects and inter-community projects\.
The Early Warning System (EWS) that had been developed under the preceding project was enhanced (in terms
of the data collected and analytical processes ), and expanded from 11 to 28 districts\.
Early warning information was provided to all stakeholders to ensure timely response to drought stress \. A total of
2,965 activities were undertaken, including production of 2,336 ESW bulletins, as well as rapid food security
assessments and community feedback meetings in all 28 districts\.
Conflict flash points were identified and District Peace Committees established in all 28 districts; 214 conflict
management meetings and 219 conflict resolution events were held \.
Outcomes
Drought-related vulnerability was measured by changes in beneficiary households' needs for free food aid, and
in the time required for food assistance to arrive when still needed \.
With regard to the former, a Long Rains Needs Assessment, carried out by the Kenya Food Security Group,
indicated a reduction in the proportion of people needing food aid in the ASAL districts from 51% in 2000/2001 to
28% in 2008/2009\. However, this result is undermined by three factors : there are some differences in
geographic coverage in the base years and final years, drought severity is not normalized, and it is not possible
to determine attribution\.
The ICR reports (pg\. 20) that, to address these issues, two further analyses were undertaken \. First, an Impact
Evaluation carried out in 2009 by the International Livestock Research Institute (ILRI) analyzed data from 10
randomly selected project districts and from one reference district not benefiting from the project for the period
from 2004/2005 to 2008/2009\. The 2004/2005 baseline data were taken from a statistical survey performed for
the project by Kenyaâs Central Bureau of Statistics in 21 ASAL districts covering 4,000 randomly selected
households\. The Impact Evaluation found that there was âa decrease in food aid needs in most districts
compared with the reference district â? (ICR, page 21)\. However, the statistical extent of the decrease is not
indicated, nor are there any details about the reference district (for example, how or why it was chosen )\. In order
to establish attribution, cumulative project expenditures in the districts were correlated with the percentage of
people needing food aid\. The negative correlation was found to be statistically significant in the arid districts
covered (which benefited from all three project components ), but not statistically significant in the semi -arid
districts which benefited only from Component 1 (Natural Resources and Drought Management )\. Of the 28
ASAL districts, 11 were arid and 17 semi-arid (ICR, pg\. 4 and pg\. 30)\.
Second, an analysis over the period 2005-2009 was carried out by the ICR team using sub -district (division)
level data from the project-supported household early warning system (EWS), satellite-based rainfall estimates,
and information from project-supported micro-project investments\. The analysis covered 51 treatment and 46
control divisions, approximately equally divided between arid (52) and semi-arid (45)\. The results indicate a
19\.7% difference between treatment and control divisions in terms of the percentage change in the proportion of
people assessed as needing food aid \. This result was statistically significant at 5%\. However, the absolute fall in
the share of the population needing food aid in the treatment divisions was only 1\.7% on average (from 31\.9% to
30\.2%)\. For the ASALs as a whole (arid and semi-arid), the average fall (weighted by population) was 4% (from
27\.2% to 23\.2%)\.
Overall, there is evidence indicating a small decrease in the food -aid needs of the population benefiting from the
project in the arid districts (11 of the 28 covered) which were targeted by all three components \. Also in the arid
districts, there is a statistically significant correlation between this decrease and cumulative project expenditures
indicating a reasonable degree of attribution \. In the semi-arid districts, attribution is less clear \.
With regard to speed of response, the ILRI impact evaluation indicated that users of the EWS monthly bulletins,
produced and disseminated in the project area and at national level on a monthly basis, reduced their average
response time to drought-related emergencies from 7\.6 weeks in the year 2000 to 3\.5 weeks in 2009\. âThe
analysis is based on a survey by ILRI of [District Steering Group] members in 10 study districts to find mean
response times for users and non -users\. The [District Steering Group] comprises all relevant actors
(international organizations, line Ministries, NGOs, community -based organizations and donors, with the [Project
Coordination Unit] acting as secretariat) that influence or are directly involved with emergencies at district level â?
(ICR, pg\. 22)\. The ICR goes on to say that 78% of all relevant organizations used the bulletins in 2009, up from
32% in 2000\. It is unclear where the 2000 baseline data come from\. There is also no comparison with control
groups which did not use the monthly bulletins \.
The ICR reports that at three stakeholder workshops organized by ILRI, a high percentage of participants stated
that response times had improved \. The ICR team observes that, although the project had closed at the end of
2010, âthe EWS system of data collection and preparation of the regular monthly bulletins was still taking place
and playing a critically useful role in supporting the response by the [Kenya Food Security Steering Group ] and
partners to the severe drought in 2010/11â? (ICR, pg\. 34)\.
Conflict resolution, especially concerning the use of scarce resources, is an important dimension of reducing
livelihood vulnerability to drought \. There were no indicators of the outcomes of the project âs extensive conflict
resolution activities\. However, the ICR team received âconsistently positive feedback from donors, beneficiaries
and other stakeholders on the effectiveness of [the projectâs] conflict resolution effortsâ? (ICR, pp\. 27-28)\. The
ICR acknowledges that a reduction in tension and violence in the arid and semi -arid lands cannot be inferred
from this since there are, as yet, insufficient long -term data to support such an assessment \.
Objective 3: to improve access to basic services in 28 drought prone and semi -arid districts in Kenya \. Substantial \.
Outputs
More than 2000 water activities -- including drilling and rehabilitation of boreholes, purchase of pumps, provision
of fuel supplies, support to rapid response teams to ensure continuous functioning of boreholes, and water
trucking, among other actions â were undertaken in all but three project districts \.
A total of 223 health and nutrition emergency responses were realized, including rapid responses to disease
outbreaks (malaria, cholera, diarrhea, measles and aflatoxicosis, among others )\.
About 3,000 micro-projects, benefiting a total of some 1\.9 million people (55% of whom were women) were
implemented in 614 communities\. These are additional to the drought -preparedness micro-projects but may
include some of the 2,000 water activities, referred to above \. The most common projects included water,
agriculture, education, health and sanitation \. Livestock, access roads, and other income -generating activities,
were also supported\.
Outcomes
The ILRI Impact Evaluation compared changes in access to basic services between 2004 and 2009 in
beneficiary and control locations \. The former experienced statistically significant improvements in access to
quality water sources, primary, secondary and adult education, and to veterinary medicines \. The percentage of
households consulting medical professionals, using bed nets, and seeking veterinary extension services also
increased, and negative health -related outcomes, including prevalence of child diarrhea and livestock mortality,
decreased\. Animal mortality declined by a quarter and deaths from diseases by nearly half \.
Although differences between beneficiary and control areas were not statistically significant, this is probably
because other development partners were supporting similar improvements in the control areas \. In project
areas, there was a considerable amount of service -related investments supported by the project and
consequently a clear improvement in access in project areas \.
The Impact Evaluation found that between 2003 and 2009 mean household time to water sources fell from 85
minutes to 42\.6 minutes in the rural Northeastern province as a whole, while the national average did not change
significantly, but there is no analysis at the level of ASAL districts or comparison between beneficiary and control
areas\. The ICR team calculated that mean distances to bore holes, shallow wells, and pans and dams
decreased by between 0\.8 and 3 kilometers across the project area \. âAlthough it was not possible to determine
attribution, [the project] did make a significant number of water investments between 2004 and 2008â? (ICR, page
23)\.
5\. Efficiency:
While the PAD did not provide an ex -ante economic analysis for the entire project, it did assess several of its
activities (irrigation, rain-fed agriculture, petty trade, livestock trade and apiculture ), concluding that they were all
financially viable\. The ICR, however, estimates -- and details in a specific Annex -- the net economic benefits
resulting from two sets of project activities : (i) micro-project investments that led to increases in income as a result of
new or increased sales of livestock and livestock products, milk, crops and fish; and (ii) project-invested resources in
the water and livestock sectors (e\.g\., livestock restocking, veterinary services and improved access by animals to
water sources) that resulted in gains in livestock wealth, arguing that "as a consequence of the fact that livelihoods in
the project areas depend on livestock -- both as a source of milk that is a valuable nutrient and an important source
of income, and, in addition, as an instrument that aids in mitigating income shocks -- the (counter-factual) gains in
livestock wealth are most closely related to the project's development objective " (ICR, Annex 3, para\. 2, pg\. 61)
To arrive at an ERR for all micro-projects, the returns based on analysis of a reportedly representative sample were
weighted in proportion to overall project expenditures, resulting in an estimated overall ERR on micro -project
investments of 37 percent\. The ICR does not indicate what percentage of total project expenditures went into
micro-project investments, however \. To evaluate gains in livestock wealth, the ICR made use of historical weather
station rainfall estimates in Garissa, observing that it made the "conservative assumption that, absent project
interventions, livestock in Garissa would have fallen by 18 percent in 2005 and 2008\." On the further assumption
that Garissa was "broadly representative of other project districts on metrics related to changes in precipitation and
livestock," the ICR assumes that there was a 10 percent counterfactual increase in livestock due to project
investments, on the basis of which the gains from project investments in the water and livestock sectors were
estimated to have an ERR of 28\.2 percent\. On the basis of these two partial ERR figures, the ICR estimates the
project's overall ERR to be 31\.1 percent on the additional assumption that 20 percent of the project funds were
misused\. However, it also carries out a sensitivity analysis to take into account the possible impact of the alleged
misuse of project funds, with the resulting ERR estimates varying from 15\.6 percent if half of all project resources had
been misused to 40\.4 percent if none were misused, concluding in the main text that "under the range of
assumptions about the extent of the possible diversion of funds from 0 percent to 50 percent the project was
economically viable and the costs incurred were justified " (ICR, para\. 78, pg\. 25)\.
In addition to the above, the ICR attempted to assess project cost -effectiveness relative to normal Kenyan
Government activities for similar activities, but was unable to "capture comparative data\." It affirms, however, that
the ICR team "does not anticipate that there would be major differences because line agencies were so heavily
engaged through the DSGs [District Steering Groups] and METs [Mobile Extension Teams] that standards probably
did not differ greatly\." It was similarly unable to judge the cost -effectiveness of the EWS vis -a-vis those in other
countries "because each is quite different in terms of needs, coverage, technological features, and other factors "
(ICR, paras\. 79-80, pp\. 25-26)\.
There were significant fiduciary issues involving the misuse of at least US$ 3\.8 million of IDA Credit resources (see
Sections 8, 9 and 11 below)\. The outcome of the forensic audit of these issues remained uncertain at the time of ICR
finalization, and the extent of the problem was unknown \. In view of this, and of the limitations with respect to the ERR
calculations and data availability (ICR para\. 82, pg\. 26), efficiency is rated Negligible \.
ERR )/Financial Rate of Return (FRR)
a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the
re-
re -estimated value at evaluation :
Rate Available? Point Value Coverage/Scope*
Appraisal Yes 31\.1% 26%
ICR estimate No
* Refers to percent of total project cost for which ERR/FRR was calculated\.
6\. Outcome:
Relevance of project objectives is rated high, while that of relevance of design is rated modest \. The efficacy of two
out of three development objectives -- reduced livelihood vulnerability and increased food security -- is rated modest,
while that of the third -- enhance basic services ââ is rated substantial\. Efficiency is rated negligible in view of the
alleged misuse of IDA resources \. Overall outcome is assessed as Moderately Unsatisfactory \.
a\. Outcome Rating : Moderately Unsatisfactory
7\. Rationale for Risk to Development Outcome Rating:
Three main risks to development outcome were identified and assessed : (i) satisfactory continuation of the Early
Warning System(EWS), institutional arrangements and inter -agency coordination; (ii) the sustainability of reduced
vulnerability in the ASALs; and (iii) sustainability of empowerment and other social development gains \. In addition,
the alleged misuse of IDA funds points to a financial risk \.
Risks to a satisfactory continuation of the EWS and related arrangements \.
The severe drought of 2011-2012 demonstrated both the importance and the effectiveness of the institutions
and arrangements put in place or strengthened under the project \. These continued once project financing had
ceased, albeit at a lower level of funding \. They performed satisfactorily for the resident population, although the
ICR (page 33) reports that they were insufficient to cope with the influx of refugees from neighboring Somalia \.
Staff were largely retained, despite several months with no salary payments \. IDA and other donors remain
engaged in arid and semi-arid areas\.
However, the Government is still in the process of mainstreaming some critical institutional features (for
example, the Drought Contingency Fund may require modification to accommodate the new national
constitution\. Some issues raised by the forensic audit require resolution and may affect sustainability \.
Overall, this category of risks is rated moderate\.
Risks to the reduction in livelihoods vulnerability \.
The notable achievements in reduced vulnerability to droughts in the ASALs are tenuous and will need
continued, scaled-up investment support to ensure their sustainability \. A number of the community-driven
micro-projects also require immediate attention to define responsibilities and funding for operations and
maintenance\. Some activities will be constrained, or even threatened, by the lack of micro -finance services in
the ASALs\. Continued deterioration brought about by climate change may increase possibilities of conflict over
resource use\. These risks are, however, mitigated by continuing commitments and active involvement from
external partners, including the IDA -administered GEF Kenya Adaptation to Climate Change Project, approved
in June 2010\.
Overall, this category of risks is assessed as moderate\.
Risks to the sustainability of empowerment and other social development gains
Local women now play a much more proactive role in meetings in part because they have benefitted directly
from income-generating micro-projects, while the ICR (page 35) observes that "communities that have
developed the confidence and skills to seek out service providers rather than wait to be attended, if at all, will not
lose these capacities\."
However, progress in empowerment and related social gains was notably stronger in the arid districts that had
benefited from all three project components, and "sustaining and building on achievements to date will require
not only scaled up implementation of ALRMP II's participatory investment activities, but -- equally important -- a
strong voice at the national policy -making level on behalf of the ASALs, supported by a sound knowledge base
drawn from real-time work and informed by active local participation, increasingly robust data and good
analytical capacity" (ICR, page 35)\.
A need remains for several project -related organizations to be institutionalized and /or scaled-up, such as the
District Peace Committees, which play a positive role in conflict resolution \. One such key agency, the National
Drought Management Agency, was formally established after the project closed even though the associated
National Drought Contingency Fund had not yet been set up at the time the ICR was finalized \.
Overall, this category of risks is assessed as moderate\.
Financial risk \.
The alleged misuse of IDA funds, an issue which had still not been fully and satisfactorily resolved at project
closure, indicates the presence of financial risk \. Internal financial controls clearly need strengthening \. Further
externally-supported operations will provide opportunities to address this issue \.
Overall this risk is considered moderate\.
a\. Risk to Development Outcome Rating : Moderate
8\. Assessment of Bank Performance:
a\. Quality at entry:
Positive aspects of quality at entry included linking natural resource management and conflict resolution,
multi-sectoral and interagency coordination on drought management at various levels, and the use of
community-based early warning systems (EWS)\. In addition, the objectives had high strategic relevance, a good
effort was made to incorporate the lessons of past experience in the country and the Region, and the range of
skills in the Bank and FAO preparation team was appropriate \. However, there were also significant shortcomings,
as reflected in the subsequent need to adjust some of the initial Key Performance Indicators in the M&E
Framework, the missed opportunity to draw on the extensive experience with Community -Driven Development
projects outside of Africa, and insufficient attention to the design of internal financial controls which may have
subsequently contributed to the misuse of project funds in a number of project districts \.
at -Entry Rating :
Quality -at- Moderately Unsatisfactory
b\. Quality of supervision:
The positive dimensions of the quality of supervision included a team with a strong skill range, an appropriate
mix of headquarters and country -based staff, and considerable continuity \. There were regular, twice-yearly
supervision missions\. Supervision reports were candid and informative \. Safeguards and fiduciary post -reviews
took place on schedule and were followed up \. However, supervision could have given greater attention to
national policy aspects and responded more adequately to the increased supervision requirements resulting from
the significant expansion of project activity and geographic scope that occurred with approval of the AF in
mid-2006\.
There were major shortcomings in Bank performance with regard to the use and management of the project's
financial resources\. A complaint had been lodged in early 2007 regarding the lack of proper accountability of
project funds, and an internal review conducted \. As the ICR (pg\. 37) acknowledges, these weaknesses should
have been detected earlier by Supervision, particularly with respect to internal control systems and record
keeping, and they should have been acted upon in a more timely and systematic manner \.
The effectiveness of corrective measures recommended by the internal review cannot be determined because of
âloss of recordsâ? during INTâs subsequent forensic audit (ICR, pg\. 17)\. âAt the time of the 2007 report, INT
reviewed the response of the [Government of Kenya] and determined that further action by INT was not then
required\. The issue was reopened in early 2009 in response to an in-depth review of several projects in Kenya by
the Bankâs Financial Management team and to a renewed external report of irregularities â? (ICR, pg\. 18)\. INT
began investigations and made a âverbal reportâ? to Bank Management in June, 2010, âindicating that a high share
of expenditures incurred in financial years 2007 and 2008 in seven districts reviewed by INT were questionable
and suspected fraudulent â? (ICR, page 18)\. On the basis of this, Management suspended project disbursements
âinformallyâ? in July, 2010\. INTâs findings were, however, not disclosed to the Government until April, 2011 (ten
months after INTâs verbal report to Management), with further annexed details in June, 2011\. The report was
published on INTâs website in July, 2011\. The share of questionable expenditures in INT âs written report was
considerably lower than that contained in the earlier verbal report to Management \. The Governmentâs Internal
Audit Department (IAD) questioned both INTâs methodology and conclusions \. Nevertheless, in November 2011,
the Government agreed to repay IDA US$ 3\.8 million equivalent\. The disagreements between INT and IAD were
still unresolved when the ICR was completed \.
INT's delay in completing and processing the forensic audit, and the lack of a clear resolution by closure of the
extent to which project funds had been misused during 2007-2009, reduced the project's beneficial impact by a
notable extent\. The suspension of disbursements took place at a time when drought conditions in the project area
were worsening\. Project outcomes (see Section 4 above) could have been more favorable had this suspension
not occurred\. It resulted in the reduction of total IDA financing for project -related expenditures by US$5\.7 million\.
It also adversely affected parallel funding from other sources, including US$ 5\.9 million equivalent from the
European Union (EU), which was using the project-established Drought Contingency Fund, as well as a US$ 5\.5
million IDA-managed GEF grant, which would have relied on project institutions for its implementation, but
effectiveness of which was delayed as a consequence \. The informal suspension precluded the use of the project
as "a vehicle for quick conveyance of additional financing to the affected area during the peak of the drought, "
according to the ICR (para\. 111, pg\. 38)\.
According to the ICR (pg\. 37), "Because the suspension was informal, it was not processed through the Legal
Department as per OP/BP 13\.40, although the Board received a verbal briefing of the suspension the day after it
was put into effect (in an informal briefing on Kenya that had previously been scheduled )\." The ICR states further
(para\. 113, pg\. 39) that: "OP 13\.40 was not observed when Bank management informally suspended \.
Compliance with OP 13\.40 would have required review and clearance by the Legal Department that a case for
suspension was justified under the terms of the Credit Agreement; formal notification to the Board; formal
consultation and notice to any affected Cofinanciers (in this case, the EU); and formal notification to the Borrower
with opportunity to respond\. Because INT in July 2010 had provided a verbal rather than a written preview of its
findings, management was unable to provide the Legal Department with a documented basis for formal
suspension\. But because management also felt that the INT findings were alarming and that it could not fail to act
on them, however preliminary, it decided to implement an informal suspension, pending the availability of
documentation to provide the basis for a formal suspension \. In addition, to ensure that OP 13\.40 was observed in
spirit to the greatest extent possible, the Board was verbally notified of the informal suspension one day after it
was decided; and the [Government of Kenya] and affected Cofinanciers were verbally informed of INT âs findings
and the management decision to suspend the project within a few weeks of the informal suspension \. The lack of
a documentary basis for the decisions taken impeded the ability of management, the [Government] and the
Cofinanciers to discuss the issues raised or indeed to respond to any of the INT findings, putting a serious strain
on all project-related discussions, decisions and activities \."
Quality of Supervision Rating : Unsatisfactory
Overall Bank Performance Rating : Unsatisfactory
9\. Assessment of Borrower Performance:
a\. Government Performance:
Positive aspects of Government performance included a commitment to project objectives and activities and
the adequate and timely provision of counterpart funds \. Inter-ministerial coordination at the district level worked
well, and the Government attempted to keep project staff in place and to continue its activities, particularly those
related to drought management, even after the suspension of IDA disbursements \. However, Governmentâs
financial control mechanisms should clearly have been stronger, particularly at district and community levels \.
Government Performance Rating Moderately Unsatisfactory
b\. Implementing Agency Performance:
The main implementing agency was the Project Coordination Unit (PCU)\. In 2003, the PCU moved from the
Ministry of Provincial Administration to the Ministry of State for Special Programs, both in the Office of the
President\. In 2008, it moved again, to a newly created Ministry of State for Development of Northern Kenya and
Other Arid Lands, coordinated by the Prime Minister \.
Positive aspects of PCU performance include a high level of commitment and core staff continuity and its ability
to hire and retain excellent personnel at the district level, together with its record of responding rapidly to
problems once they became known \.
Nevertheless, material control weaknesses in both the Unit itself and at the district and community levels
constitute major shortcomings in the performance of the PCU and those responsible for implementation on the
ground\. Financial management reviews found "instances whereby project funds were not properly accounted for,
or the payments were otherwise not properly supported in terms of internal financial controls and accountability
with regard to the use of project funds â? (ICR, pg\. 17)\. These findings were not identified or acted upon in a timely
manner\.
The sizeable expansion of project area at the start of ALRMP II, and again at the time of the Additional Financing,
should have been occasions for the PCU to rethink some organizational issues in order to oversee effectively the
much scaled up set of responsibilities \. More frequent technical field visits would have provided more reliable
feedback on the many dispersed activities supported by the project \. Reinforcing the staff responsible for
monitoring and evaluation could also have produced more timely management information \. While the PCU was
committed to empowering communities, the need for greater clarity in decision -making responsibilities and
accountabilities at community and district level could have been detected earlier \. Both the Project Paper and a
letter from the Government dated June, 2006, set out specific disclosure requirements \. Despite this, not all the
stipulated documents were disclosed, for example, District Annual Progress Reports, District Annual Work Plans,
and Printed Estimate at Headquarters Level \.
Implementing Agency Performance Rating : Unsatisfactory
Overall Borrower Performance Rating : Unsatisfactory
10\. M&E Design, Implementation, & Utilization:
a\. M&E Design:
According to the ICR, "despite the avowed intent to strengthen M&E, " the PAD's treatment of this subject was
"somewhat diffuse\.[referring] to a baseline to be initiated before credit effectiveness, a program of ongoing and
periodic evaluations (including mid-term and final termination evaluations ), and a system of routine records and
periodic monitoring reports at community, district and project levels \." However, detailed arrangements, including
"clear responsibilities and procedures for M&E, " were put off until after approval, which led the ICR to conclude that
there was "inadequate consideration of the project's M&E needs during preparation \." It also noted that some of the
original Key Performance Indicators (KPIs) "complemented by an unwieldy set of 25 intermediate outcome/output
indicators" later needed to be revised and that baseline data were not included in the log frame "although in many
cases the team could have done so based on its knowledge of the first phase project \." Few indicators, moreover, had
quantitative targets\. (ICR, para\. 40, pg\. 11) M&E design, in short, was weak\.
The Project Coordination Unit had overall responsibility for M&E coordination \.
b\. M&E Implementation:
M&E implementation experience was also mixed \. Despite the existence of numerous good instruments and much
pertinent information (see the next section for details ), the ICR observes that "the absence of a clear analytical
structure to guide data collection, entry and analysis means, however, that much of the information on hand may be
difficult to recompile/compare in a statistically robust manner [and]\.also made it difficult for the project to respond
quickly and with comprehensive information to public criticisms when they arose " (para\. 41, pg\. 11)\. On the positive
side, supervision reports indicate the task team's preoccupation to strengthen M&E, including through revisions to
the KPIs that were processed in parallel to the AF in 2006\. In addition, a statistical baseline survey was undertaken
by the Central Bureau of Statistics on behalf of the project in 21 of the 28 ASAL districts in 2004/05 surveying 4,000
randomly selected households, and a final impact evaluation was later commissioned to the International Livestock
Research Institute (ILRI), involving a resurvey of another 4000 households using a similar questionnaire in
June-August 2009\.
c\. M&E Utilization:
The project had a "very elaborate" Early Warning System (EWS) database involving information collected from
some 10,000 household questionnaires applied on a monthly basis, the results of which were processed, made
available by Internet and distributed to the districts \. This information is reportedly "widely used" by the Kenya Food
Security Steering Group\. The project also has participatory needs assessments and plans for all 28 beneficiary
districts, assessments of potential conflict "flashpoints" for all of the districts, annual progress reports for each district,
and environmental audits which were conducted annually \. The 2004/05 and 2009 surveys and the associated
impact evaluation, among other results, made it possible to determine project impacts on the nutritional status on "the
worst off children\." In addition, qualitative information was collected through focal group discussions in 21 of 24
"treatment" communities, which the impact evaluation used to prepare a "social network analysis of changes in
empowerment and ability to access services \." (ICR, para\. 44, pg\. 12)\.
M&E Quality Rating : Modest
11\. Other Issues
a\. Safeguards:
The project was classified as Category âBâ? for Environmental Assessment purposes \. As well as Environmental
Assessment (OP 4\.01), the Natural Habitats (OP 4\.04), Pest Management (OP 4\.09), and Indigenous Peoples (OP
4\.10) were triggered (PAD, p\. 27)\. No social safeguard policies were triggered \. Up-front environmental assessment
work was judged adequate by the Regional Safeguards Advisor \. Environmental audits carried out during
implementation from 2005-08 and 2010 were found to be "technically sound and thorough, " both by Kenya's National
Environmental Management Authority, which routinely reviewed their findings, and the ICR team, which reviewed two
of these audits ex-post\. Bank environmental specialists systematically participated in supervision missions and aide
memoires addressed environmental issues and follow -up requirements\. No significant issues were reported,
although the ICR does not specifically discuss experience in relation to each of the triggered safeguard polices
mentioned above, nor does it contain an explicit statement that the policies were complied with \.
b\. Fiduciary Compliance:
Financial management \. As indicated in Sections 8b and 9b above, fiduciary compliance was problematic and
showed evident weaknesses in internal financial controls \. According to the ICR (para\. 56, pg\. 17), in addition to the
existence of material internal control weaknesses in the Project Coordination Unit (PCU) and at the district and
community levels, financial management reviews found "instances whereby project funds were not properly
accounted for, or the payments were otherwise not properly supported \.These weaknesses were not detected
before 2007, when a complaint was lodged and an internal review undertaken \." As a result, "adjustments" in internal
controls were introduced, but their effectiveness is "not known due to the loss of records during the forensic audit and
the absence of a transaction -level audit subsequent to the introduction of changes \." In 2009, INT initiated a review of
possible fraud and corruption based on outside reports of irregularities dating back to May 2007 and which
suggested that a significant share of project expenditures in seven districts in 2007 and 2008 were "questionable\." A
verbal report to IDA Management in June, 2010, led the latter to suspend disbursements informally as of July 2010\.
INT's preliminary report, which was published in July 2011, was subsequently disputed by Kenya's Internal Audit
Department that questioned INT's methodology and findings regarding the extent of the misuse of project funds \. A
Board discussion was held in October 2011, and the Kenyan Government agreed to repay the equivalent of US$ 3\.8
million a month later, even though the dispute over INT methodology and findings of the forensic audit had still not
been resolved at the time the ICR was finalized \. INT later indicated that it wanted to conduct an expanded audit of
expenditures in all 28 project districts, and draft Terms of Reference were developed \. However, according to the
project team, this audit has not yet taken place \.
Procurement was supervised twice a year \. Each mission covered a few districts on an alternating basis due to the
widespread nature of the 28 project districts\. Post procurement reviews were conducted once a year for the districts
covered during supervision missions \. Although there was an expectation of a gradual improvement in governance
following introduction of the multiparty system in 2002, the pace of procurement reforms initiated in 1998 was
sluggish and the rating of project procurement risk in supervision reports remained high throughout implementation \.
c\. Unintended Impacts (positive or negative):
The ICR (paras\. 98-99, pp\. 31-32) identifies two pertinent unintended positive impacts : (i) Kenya's successful
project-related Early Warning System experience has contributed to the development of similar systems in other
countries, including Ethiopia, South Sudan, Syria and Uganda; and (ii) both this and the first phase projects have
generated considerable knowledge about the impact of accelerating drought conditions on pastoralists and small
farmers in arid and semi-arid areas, including with respect to "their coping strategies, resilience, willingness, and
capacity to adapt to climate change \."
d\. Other:
The project demonstrated positive impacts in terms of gender mainstreaming and inclusion, and empowerment \.
The Borrower's ICR and stakeholder consultations indicated that the project had a substantial positive impact on
gender mainstreaming and inclusion \. The ICR observed that "increased access to water, education and health
care is credited with having benefited girls and women disproportionately, as they are traditionally
disadvantaged in access to these services and bear the burden of providing water for the family \." It also noted
that over 40 percent of Community Development Committee (CDC) members in most districts were women and
women accounted for more than half of all CDD trainees (para\. 90, pg\. 28)\.
With respect to empowerment , the ICR also observed positive results based on the "social network analysis"
undertaken as part of the final impact evaluation, concluding that the project played "an important linking
function" between communities and service providers, especially in the arid districts \. The impact evaluation
showed a threefold increase in the extent to which the project acted as an intermediary between parties who
would not otherwise have been linked (ICR, para\. 93, pg\. 29), and anincrease of 54 percent in the extent to
which communities proactively sought services from providers \.
12\.
12\. Ratings : ICR IEG Review Reason for
Disagreement /Comments
Outcome : Moderately Moderately Relevance of project objectives is
Satisfactory Unsatisfactory rated high, while that of relevance of
design is rated modest\. The efficacy of
two out of three development
objectives -- reduced livelihood
vulnerability and increased food
security -- is rated modest, while that of
the third -- enhance basic services ââ is
rated substantial\. Efficiency is rated
negligible in view of the alleged misuse
of IDA resources\.
Risk to Development Moderate Moderate
Outcome :
Bank Performance : Moderately Unsatisfactory The weaknesses in project financial
Unsatisfactory management arrangements that were
identified in 2007, 2008, and 2009
should have been detected earlier by
Supervision\. INT's delay in completing
and processing the forensic audit, and
the lack of a clear resolution by closure
of the extent to which project funds had
been misused during 2007-2009,
reduced the project's beneficial impact
by a notable extent\. Together with the
fact that "OP 13\.40 was not observed
when Bank management informally
suspended" (ICR, page 37), these
constitute major shortcomings in Bank
performance\.
Borrower Performance : Moderately Unsatisfactory Material control weaknesses in both the
Satisfactory PCU itself and at the district and
community levels constitute major
shortcomings in the performance of the
Implementing Agency and those
responsible for implementation on the
ground\. There were instances where
project funds were not properly
accounted for, or the payments were
otherwise not properly supported in
terms of internal financial controls and
accountability with regard to the use of
project funds\.
Quality of ICR : Satisfactory
NOTES:
NOTES
- When insufficient information is provided by the Bank
for IEG to arrive at a clear rating, IEG will downgrade
the relevant ratings as warranted beginning July 1,
2006\.
- The "Reason for Disagreement/Comments" column
could cross-reference other sections of the ICR
Review, as appropriate\.
13\. Lessons:
The ICR presented a number of valuable lessons, including those related to climate change, natural resource
management and Community-Driven Development projects more generally \. Among the most important of these
lessons are the following:
Adaptation to longer-term climate change can be pursued jointly with management of short -term
climate-related emergencies, such as severe and persisting droughts, but requires explicit attention \.
Conflict resolution can be integrated into natural resource management interventions in fragile areas
experiencing climate change stress, as occurred in the present project \.
Putting in place flexible institutional arrangements that development partners can use to channel support
quickly, before climate emergencies occur, can help to improve coordination and efficiency \.
Community Driven Development operations need strong social accountability arrangements to minimize
corruption risks and strengthen local governance, as was the case in this project given its strong emphasis on
beneficiary participation and empowerment at the local level \.
To these IEG adds the following lesson concerning financial management :
Adequate financial control systems, established at the design stage, are essential, especially in a
governance-challenged environment, for early detection of possible fiduciary issues \. Once issues have been
detected, it is important that the subsequent investigation conform to all the formalities of consultation and
notification, and that a special effort be made to achieve timely resolution of differences in perception between
the Bank's investigatory team and the Borrower's own auditing body \.
14\. Assessment Recommended? Yes No
15\. Comments on Quality of ICR:
Although the ICR is lengthy (45 main text pages), it is well-written, analytical, and candid \. The ICRâs annex analyzing
the links between output/intermediate outcome and outcome indicators is comprehensive \. The lessons are numerous
and valuable, especially given the rising concern regarding effective adaptation to the social, economic and
environmental impacts likely associated with climate variability and change \.
The ICR contains a detailed treatment of the INT investigation of the alleged misuse of funds, and its analysis
reflects the state of knowledge at the time of the ICR âs completion\. Nevertheless, and given the nature of the
fiduciary issues in a governance -challenged environment and the need for full information from a Bank accountability
point of view, it would have been useful to have known the full extent of the problem and the measures taken to
address it\.
For the most part, the ICR provides solid empirical evidence in support of its assessment of project achievements,
with the exception of the rather limited set of indicators used to assess enhanced food security \. While the economic
analysis of micro-projects is thoughtful, it would have been useful if the proportion of total project costs covered by
the analysis had been clearly indicated \. Also, some data availability problems could not be overcome \.
a\.Quality of ICR Rating : Satisfactory | REVIEW |