ICRR 10571 Report Number : ICRR10571 ICR Review Operations Evaluation Department 1. Project Data : Date Posted : 04/13/2000 PROJ ID : P044392 OEDID: OEDID : Appraisal Actual Project Name : Emergency District US$M ) Project Costs (US$M) 40.0 44.5 Heating Reconstruction Country : Bosnia-Herzegovina Loan/ US$M ) Loan /Credit (US$M) 20.0 20.0 Sector, Major Sect .: Other Power & US$M) Cofinancing (US$M ) 20.0 21.4 Energy Conversion , Electric Power & Other Energy L/C Number : FY ) Board Approval (FY) 96 Partners involved : Netherlands, Finland, Closing Date 03/31/1998 03/31/1999 EU, Denmark Prepared by : Reviewed by : Group Manager : Group : Alain A. Barbu George T. K. Pitman Gregory K. Ingram OEDST 2. Project Objectives and Components a. Objectives (a) restore district heating (DH) in Sarajevo to its pre-war level (b) help Bosnia and Herzegovina (BiH) reduce its reliance on imported gas by enabling Toplane -Sarajevo (TS), the Sarajevo DH utility, to switch from gas to fuel oil (c) strengthen TS's institutional capacity; and (d) initiate network improvements b. Components (a) in Sarajevo (99% of the project cost): (i) technical assistance, training and studies (tariff and planning); and (ii) investments in DH reconstruction, including for internal (apartment) installations; (b) in Banja-Luka: technical assistance for project preparation (engineering and assessment ) to Toplana-Banja Luka (TBL). Project Implementation was split in two phases : (i) a fast track repair phase to prepare for the 1996-97 winter season; and (ii) a reconstruction phase (1998-99) to focus on fuller reconstruction and institution -building c. Comments on Project Cost, Financing and Dates Project completion was delayed by about a year due to delays in co -financing (Dutch and EU funds) and cumbersome disbursement procedures for the project start -up advances (PSAs) put in place by the Bank. Total cost of US$ 44.5 million was 11% above appraisal estimates, largely due to the necessarily preliminary nature of the latter, in light of the immediate post-war conditions. 3. Achievement of Relevant Objectives : Physical objectives were largely met, with 45,000 apartments connected in Sarajevo by the time of project closing, close to the pre-war level of 48,300 (some severely damaged buildings did not warrant reconnection ). The project's ERR was recalculated at 19%, slightly lower than the appraisal estimate of 22.9%, due to higher gas prices. Institutional objectives were only partially achieved . Cost recovery fell short of the covenanted target in 1998 (60% vs 75%) due to difficulties in collecting from the refugee population and to remaining weaknesses in TS's billing and collection systems. On the other hand, the studies did help TS plan future system expansion and prepare the ground for the 1999 tariff increase of 17% --which will significantly improve TS's finances . The Banja-Luka component (US$0.5 million) was dropped as a result of misprocurement and subsequent fraudulent withdrawal of credit funds . 4. Significant Outcomes /Impacts : Physical targets were essentially achieved, with high economic returns, thanks to flexible approach to project design and implementation. 5. Significant Shortcomings (including non -compliance with safeguard policies ): Delays in cofinancing impacted project execution . And actual revenue collection and cost recovery fell short of expectations -- although recent (1999) tariff increase should improve TS's finances . Some credit funds out of the US$0.5 million TBL component were misappropriated, in part due to the beneficiary (TBL)'s poor internal control systems and to internal communications problems within the Bank (according to an IAD review). 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Considering the predominancce of physical objectives in this emergency operation Institutional Dev .: Partial Modest equivalent ratings Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : (a) emergency operations require flexibility in project design, intensive Bank supervision (ideally partially field-based), and strong internal coordination within the Bank (particularly on disbursement matters ) (b) when an emergency operation requires that a project goes ahead without a firm financing plan, procurement packaging should insure that Bank -financed components will not be affected by delays in cofinancing . (c) a strong project implementation unit (PIU) within the beneficiary is required for emergency projects (d) PSAs are cumbersome to administer and alternative advance mechanisms (e.g. extended PPFs) may be more appropriate 8. Audit Recommended? Yes No Why? A cluster audit of four BiH energy projects could be carried out upon completion of the Second Power Reconstruction Project in June 2000, to assess the effectiveness of the Bank's overall sector assistance strategy 9. Comments on Quality of ICR : The ICR is of good quality overall .