Document of The World Bank FOR OFFICIAL USE ONLY Report No: 82347-LA RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF GREATER MEKONG SUBREGION POWER TRADE PROJECT IDA GRANT No. H300-LA (BOARD APPROVAL DATE: JUNE 5, 2007) TO THE LAO PEOPLE’S DEMOCRATIC REPUBLIC November 14, 2013 East Asia and Pacific 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. ABBREVIATIONS AND ACRONYMS DA Designated Account EA Environmental Assessment EdL Electricité du Laos EMP Environmental Management Plan FA Financing Agreement FM Financial Management FMM Financial Management Manual GMS Greater Mekong Subregion GMSPT Greater Mekong Subregion Power Trade GOL Government of Lao People’s Democratic Republic GWh Gigawatt Hour IDA International Development Association IEE Initial Environmental Examination IFR Interim Financial Report kV Kilo Volts LDC Load Dispatching Centre MW Megawatt ORAF Operational Risk Assessment Framework PDO Project Development Objective PIC Project Implementation Consultant PMU Project Management Unit RAP Resettlement Action Plan SCADA Supervisory Control and Data Acquisition SDR Special Drawing Rights SST Site Supervision Team TL Transmission Line Regional Vice President: Axel van Trotsenburg Country Director: Ulrich Zachau Sector Manager: Julia M. Fraser Task Team Leader: Veasna Bun ii LAO PEOPLE'S DEMOCRATIC REPUBLIC GREATER MEKONG SUBREGION POWER TRADE PROJECT CONTENTS Page A. SUMMARY ............................................................................................................... 1 B. PROJECT STATUS ................................................................................................. 1 C. PROPOSED CHANGES .......................................................................................... 2 D. APPRAISAL SUMMARY ....................................................................................... 4 ANNEX 1: RESULTS FRAMEWORK AND MONITORING .................................... 7 iii Restructuring Status: Draft Restructuring Type: Level Two Last modified on date : 1. Basic Information Project ID & Name P105331: LA - GMS Power Trade Project Country Lao People's Democratic Republic Task Team Leader Veasna Bun Sector Manager/Director Julia M. Fraser Country Director Ulrich Zachau Original Board Approval Date 06/05/2007 Original Closing Date: 12/31/2013 Current Closing Date 12/31/2013 Proposed Closing Date [if applicable] 02/28/2015 EA Category B-Partial Assessment Revised EA Category B-Partial Assessment-Partial Assessment EA Completion Date 07/16/2006 Revised EA Completion Date 06/01/2013 2. Revised Financing Plan (US$m) Source Original Revised BORR 3.80 3.80 IDAT 15.00 10.20 Total 18.80 14.00 3. Borrower Organization Department Location Ministry of Finance Accounting Lao People's Democratic Republic 4. Implementing Agency Organization Department Location Electricite du Laos Lao People's Democratic Republic 5. Disbursement Estimates (US$m) Actual amount disbursed as of 06/12/2013 7.66 Fiscal Year Annual Cumulative 2014 1.79 9.48 2015 0.72 10.20 Total 10.20 iv 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please N select from the checklist below and update ISDS accordingly before submitting the package. Safeguard Policy Last Rating Proposed Environmental Assessment (OP 4.01) X X Natural Habitats (OP 4.04) X X Forestry (OP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP 4.11) X X Indigenous Peoples (OP 4.10) Involuntary Resettlement (OP 4.12) X X Safety of Dams (OP 4.37) Projects in International Waterways (OP 7.50) Projects in Disputed Areas (OP 7.60) X X 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes To enhance power trade within the Sub-Regional with a view to bringing reliable electricity to selected provinces in Lao PDR, and creating the conditions for eventual interconnections of Lao PDR with other countries of the region. 7b. Revised Project Development Objectives/Outcomes [if applicable] NA v GREATER MEKONG SUBREGION POWER TRADE PROJECT RESTRUCTURING PAPER A. SUMMARY The proposed changes to the Project (IDA Grant No. H-300-LA, P105331) include: (i) modifications to the description of Project components to reflect the cancellation of certain activities and the addition of others; (ii) reallocation of funds; (iii) partial cancellation of Grant funds; (iv) extension of the Grant closing date; (v) revisions to the Results Framework; and (vi) deletion of certain financial covenants. Following the October 2011 withdrawal of Cambodia from the regional Greater Mekong Region (GMS) Power Trade Project, activities related to the establishment of a transmission line linking Cambodia and Laos were canceled. The proposed modifications will ensure the achievement of the second project development objective (PDO) “creating the conditions for eventual interconnections of Lao PDR with other countries in the region”. The changes also reflect the availability of alternative funding to cover costs for the construction of a load dispatching center and related management and communication systems, and for technical assistance (TA) to assess collector substation approaches as alternatives to dedicated transmission lines. B. PROJECT STATUS Overall progress towards the achievement of the first PDO “to bring reliable electricity to selected provinces in the Lao PDR” is largely on track with the successful completion of the transmission line from Xeset Substation to Saravan in September 2011. This has resulted in an increase in power demand met from 40GWh at appraisal to 59.8GWh or 92% of the end-of-project target of 65GWh. The feasibility study for the Houay Lamphan Gnai hydropower project and the review of Electricité du Laos (EdL) tariff structure have also been completed as planned. However, the project has been rated Moderately Unsatisfactory as achievement of the second PDO “to support the creation of the conditions for eventual interconnections of Lao PDR with other countries in the region” is currently at risk due to Cambodia’s withdrawal from the regional GMS Project which resulted in the cancellation of activities to establish a cross-border transmission line from the South of Lao PDR to Cambodia. Nonetheless, key activities reinforcing the establishment of conditions for the eventual interconnection of Lao PDR with neighboring countries have been progressing as planned, including the construction of the building for the Load Dispatching Center (LDC), and installation of the Supervisory Control and Data Acquisition (SCADA) system, both financed through alternative means. The Project is in compliance with audit requirements. 1 C. PROPOSED CHANGES Results/indicators A new PDO level indicator is proposed: “Increased capacity of Saphaothong and Ban Na substations” to evaluate a proposed new Component L-1-b for upgrading and expanding the Saphaothong and Ban Na substations. It is also proposed that the PDO level indicator “Increased capacity of EdL to optimize its system operation and power trade, through the use of load dispatch center” be dropped as the Load Dispatching Centre (LDC) has been financed through alternative sources. The intermediate result on the LDC will be modified to incorporate only the TA financed under the project. It is proposed that the intermediate result for the development of a cross-border transmission line linking Lao PDR (Ban Hat) and Cambodia (Stung Treng) be dropped including related indicators to reflect cancellation of this activity. A new intermediate result indicator is added for the installation of circuit breakers and transformers at these two substations. The intermediate result indicator for the Xeset-Saravan transmission line is revised to indicate the percentage of works completed and a second indicator is added to capture the core sector indicator "length of transmission line built". All changes are shown in Annex 1. Components Changes to the Project Description under Schedule 1 of the Financing Agreement are proposed as follows: (a) Component L-1 “Cross border transmission system from Ban Hat Substation to Lao Border”: The cancellation of the component is proposed in view of Cambodia’s withdrawal from the regional Power Trade project. No funds were spent under this component during project implementation. (b) New Component L-1-b “Expansion of Saphaothong and Ban Na Substations”: Following cancellation of the above component, this component is proposed consisting of: (a) the expansion of an existing substation building to accommodate the expansion of the substation, (b) replacement of inadequately sized bus bars to align with current utility substation standards, (c) installation of an additional 115/22kV power transformer to provide secure, reliable supplies to the southern region of Lao PDR and neighboring countries, and (d) associated additional outgoing 22kV circuits to increase additional power evacuation capacity to new load centers. Minor civil works will be undertaken for the installation of the electrical equipment, within the compound of the existing substation. The proposed expansion of Saphaothong substation in Attapeu province will facilitate the collection of power from the generation power plants in the area and dispatch it to the Ban Na substation in Champasak province for further power dispatch for export to Thailand and Cambodia and will at the same time increase capacity for supplying local national demand, contributing to the achievement of project objectives. 2 (c) Component L-3 “Activities to facilitate implementation of L1 and L2”: Activities under this component have been completed, except for the TA for the design and supervision of the Ban Hat Substation under Component L.1, now cancelled. Activities for this component will now include design and supervision for the proposed new Component L-1-b: Expansion of Saphaothong and Ban Na substations. (d) Component L-4 “Load Dispatching Centre (LDC)”: As the LDC was financed outside the project, this component will be reduced to cover only consultancy services related to defining the scope and technical specifications of the LDC and the Supervisory Control and Data Acquisition (SCADA) system. (e) Component L-6 “Technical Assistance for Collector Substation System”: This component will be canceled as the Government of Lao PDR (GOL) completed this activity in 2010 fully under alternative funding. Project Costs The partial cancellation of SDR 3.2 million (US$4.80 million) is proposed following IDA guidelines for regional projects that allow for only one-third of the balance released from the original budget to be reallocated to activities if a single country is involved in the investment. Following the full cancellation of Components L-1 and L-6 and the reduction in scope of L-4, the revised project cost is SDR 6.7 million (US$10.20 million equivalent). The cost of Component L-2 saw significant price escalation between appraisal in 2006 and actual contract signing in 2008. Project Costs (US$m.) Components/Activities Current Proposed L-1: Transmission System: Ban Hat substation to Lao PDR 2,362,000 0.00 Border L-1-b (new): Expansion Saphaothong and Ban Na substations 0.00 2,272,000 L-2: Xeset-1 substation to Saravan 3,728,000 4,566,437 L-3.1 Consulting Services: Project Design and Management 250,000 593,618 L-3.2 Mitigation of Social and Environmental Impact 0.00 0.00 L-3.3 Vehicles, Computer and Office Equipment 250,000 184,714 L-4: National/ Regional Load Dispatch Centers 6,060,000 646,546 L-5: Houay Lamphan Gnai Hydropower Project 1,700,000 1,646,765 L-6: Technical Assistance for Collector Substation System 400,000 0.00 L-7: Technical Assistance for Updating Tariff Review Study 250,000 289,920 Total 15,000,000 10,200,000 Closing Date The closing date of IDA Grant No. H-300-LA will be extended for 14 months from December 31, 2013 until February 28, 2015. The extension is necessary to ensure adequate time for the completion of procurement and works for the proposed upgrading and expansion of Saphaothong and Ban Na substations. EdL has in place an action plan to ensure completion of the Project by the newly proposed date. 3 The design and supervision contract for the expansion of Saphaothong and Ban Na substations has been extended, the bidding documents have been issued, and the feasibility study has been completed. The bid evaluation for the substations expansion supply and installation contract was concluded this past August. Contract signing is expected by this October, while physical works are planned to start in December 2013. This will be the first extension of the Project. The PDO remains achievable. Financial Covenants The three covenants on the financial performance of EdL include: (i) achieving a debt service coverage ratio of 1.3; (ii) ensuring a self-financing ratio of at least 15%; and (iii) maintaining a long-term debt to equity ratio of 1.5. Subsequent to the project being appraised, it became clear that following EdL’s institutional restructuring in December 2010, the resulting spinning off of EdL Generation Company (the business-oriented arm of EdL), and EdL’s large spending program, the covenants are not fully achievable within the life of this project. Furthermore, the project has no activities directly leading to achievement of these covenants. Therefore, these three covenants will be dropped. The Bank is assisting GOL and EdL to address the financial sustainability of EdL through IDA Grant H-5380-LA “Rural Electrification Project Phase II” and a Second Financial Action Plan 2013-2017. D. APPRAISAL SUMMARY Economic and Financial Analysis. The economic assessment for this restructuring reviewed the incremental benefits to Lao PDR as a result of the US$ 2 million IDA funding. The proceeds of the IDA funding will be applied toward enhancing the capacity of the existing Ban Na and Saphaothong substations, which will allow increased electricity export to Thailand and Cambodia. The project net present value is estimated to be US$5.6 million at the economic cost of capital of 10 percent. The economic rate of return to the project is 34 percent, which exceeds the criteria for a positive economic return. The sensitivity analysis confirmed the robustness of the project. Technical Aspects. One of the initial objectives under the Greater Mekong Subregion Power Trade (GMSPT) project was to establish a high voltage connection for the export of power from Laos to Cambodia. When cancelation of Cambodia’s component of the GMSPT project resulted in the cancellation of the Lao side connection, construction of the originally appraised line became unjustifiable. EdL identified a subproject that could absorb part of the allocated funds and was aligned with the PDO. The proposed subproject involves the strengthening of the export link from the Attapeu region to Ban Na substation, which is effectively the crossroads of the evacuation route. EdL has already extended the current design and supervision contract to establish bankable design documents and prepare the bidding documents. The technical feasibility study included the study of various scenarios for the system operation concerning outages and fault levels. The study recommended a feeder bay to be built at Ban Na substation to connect the currently idle second circuit. At Saphaothong substation, a similar feeder circuit will be required with additional works, involving the changing of the bus bars and an additional second 115/22kV, 20MVA transformer with the associated 22kV outgoing 4 feeders. Advance procurement has been agreed for this proposed expansion at Saphaothong and Ban Na substations in order to accelerate implementation. The appraisal mission confirmed the proposed expansion of Saphaothong and Ban Na substations is feasible. Social Safeguards. Implementation of social safeguards under the original project has been satisfactory. The newly proposed expansion of transmission capacity of existing substations (Ban Na and Saphaothong) under the restructuring will support minor civil works only within the existing premises of the substations which have been under operation. No new land acquisition, physical relocation, asset loss, or any other possible impact beyond the boundaries of existing substations is anticipated. The field-based social-environmental officer will continue to monitor all social aspects of the project. Environmental Safeguards. The proposed expansion of transmission capacity of existing substations (Ban Na and Saphaothong) will be carried out within the existing substations already under operation. The expansion activities will involve minor civil works (such as office building, cable trenches, transformer foundations, and excavation works). There are likely to be some concerns relating to inconveniences or nuisances (e.g., dust, noise, construction waste) to surrounding areas during construction. However, these potential impacts on the environment are deemed to be minor, site-specific, and reversible in nature, and for which mitigation measures can be readily designed. Given the nature and small scale of the proposed civil works under the expansion project, a formal environmental assessment report is not considered necessary. For the purpose of enhancing environmentally-friendly measures and mitigating any adverse impacts caused by the construction activities, the existing Environmental Management Plan (EMP) of Xeset-Saravan 115kV transmission line is updated according to the nature of the new investment including requirements on monitoring, supervision and reporting. Although environmental impact is envisaged to be minimal, a field-based social- environmental officer will continue to supervise EMP implementation through the new closing date. The officer will be supported by the Social and Environment Division at EdL, which has good experience in social and environmental management of IDA- financed projects. Disclosure. The revised EMP was disclosed locally on June 12, 2013 on EdL’s website and on June 14, 2013 in The Vientiane Times (local newspaper). It was disclosed in the Bank’s Info Shop on June 19, 2013, and it will be included in the bidding documents. A revised Integrated Safeguards Datasheet was also prepared and disclosed in the Bank’s Info Shop on July 24, 2013. Implementation Arrangements. To date, all components except those to be dropped or those involved in the restructuring have been completed. The Project Management Unit (PMU), established at EdL from the start of the project, will continue to coordinate implementation until all proposed activities have been completed; the management structure in place throughout implementation will continue to oversee the PMU as well as the Site Supervision Teams (SST) at each project site (Saphaothong and Ban Na). The SSTs in charge of day-to-day supervision will each be staffed by a site manager, two engineers/inspectors, and a social-environmental officer. A project supervision consultant 5 will review and confirm detail design, supervise and assist in the final acceptance tests and commissioning, and will provide on-the-job training. Financial Management Assessment. The PMU at EdL will continue to assure the financial management of the project. Based on the financial management (FM) review, the current financial management arrangements are deemed to be acceptable. The Financial Management Manual needs to be updated with the new project organizational chart and clearly defining the terms of reference for each project team member. The overall financial management risk is considered moderate. Procurement. The project management team at EdL’s headquarters will continue to have responsibility for procurement under the project. Two procurement packages will be required for the proposed extension: (i) Package 1: the supply and installation contract for Saphaothong and Ban Na substations, with a project execution time of 12 months. The bidding process has now advanced toward bid award stage. Contract execution will follow approval of this project restructuring. (ii) Package 2: Supervision consultant contract. The ongoing contract has been extended. 6 ANNEX 1: Revised Results Framework and Monitoring Project Development Objective (PDO): To enhance power trade within the Sub-Region with a view to bringing reliable electricity to selected provinces in Lao PDR, and creating the conditions for eventual interconnections of Lao PDR with other countries of the region. Revised Project Development Objective: No changes. Responsibility Data Source/ Cumulative Target Values** Target Frequency for Data Methodology Core PDO Level Results Unit of Collection Status Baseline Indicators* Measure YR 1 YR 2 YR 3 YR4 YR5 YR6 YR7 Increase in demand met in C GWh 0 0 55 61 65 - - 65 Semi-annual Project Reports EdL Saravan area of Lao PDR. Increased capacity of EdL to LDC will optimize its system operation become D Text None 0 0 0 0 0 - - Semi-annual Project Reports EdL and power trade, through the operational use of load dispatch center. in 2013 Increased capacity of N MVA 80 N/A N/A N/A N/A N/A 80 160 160 Semi-annual Project Reports EdL Saphaothong and Ban Na substations INTERMEDIATE RESULTS Intermediate Result (One): Cross-border 115 kV Transmission Line is developed, linking Lao PDR (Ban Hat) and Cambodia (Stung Treng). Component 1 Revised Intermediate Result (One): “Power system to facilitate the export to neighboring countries is reviewed and upgraded” Rationale: Revised to reflect cancelation of original activity and new proposed activity for expansion of two existing substations in the Lao PDR (Ban Na and Saphaothong) Interconnection transmission line constructed to specifications within time and TL D % 0 0 25 100 N/A N/A - - Semi-annual Project Reports Edl budget (% of poles/towers Constructed erected and km of lines mounted) Two circuit breakers at 2 CB & TT Saphaothong and Ban Na N Number 0 N/A N/A N/A N/A N/A 0 2 are Semi-annual Project report PIC/EdL substations and transmission installed transformer are installed Intermediate Result (Two): Xeset 1 to Saravan segment of the proposed 115 kV Transmission Link is constructed. Component 2 Revised Intermediate Result (Two): No revision of intermediate Result #2, but splitting the original indicator for monitoring and reporting of CSIs. The only original indicator under this intermediate result #2 was “(Xeset-Saravan link) Transmission line constructed to specifications within time and budget: % of poles/towers erected and km of lines mounted”. It’s proposed to split into two indicators (i) Xeset- Saravan Transmission line constructed to specifications within time and budget, and (ii) 115kV Transmission lines constructed under the project. Xeset-Saravan Transmission line constructed to Percent TL R None 0 25 100 100 100 100 100 Semi-annual Project Reports EdL specifications within time and age (%) Constructed budget. 115 kV Transmission lines N Km None 0 0 24.3 24.3 24.3 - - 24 Semi-annual Project Reports EdL constructed under the project Intermediate Result (Three): Development (feasibility, design, building, commissioning) of a modern LDC for Lao PDR to facilitate regional power trade. Component 4 Revised Intermediate Result (Three): “Development (feasibility, design) of a modern LDC for power exchange is facilitated” Rationale: Revised to reflect reduced scope of financing for the establishment of the Load Dispatching Center. Load dispatch Center in EdL D Text None 0 0 0 0 0 - - Semi-annual Project Reports PIC/EdL constructed and Operational Quantitative indicators for capacity development: C Number 5 10 15 20 25 30 - - 30 Semi-annual Project Reports PIC/EdL Number of qualified staff hired Quantitative indicators for operation /performance: (i) LDC will voltage and frequency become control; (ii) system protection D 0 0 0 0 0 0 - - Semi-annual Project reports PIC/EdL and reliability; (iii) technical operational information on exchange in 2013 volume and dispatch activity Scoping and Design of LDC Scopin Desig S&D 1 completed g n comp compl 1 N Number None None N/A N/A Semi-annual Project report EdL compl compl leted eted completed eted eted Note: D=Dropped; C=Continue; N= New; R=Revised 8