Energy conservation demonstration project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Tunisia; Region: Middle East And North Africa; Sector: Other Industry;
                                          Major Sector: Industry; Project ID: P005701


    Tunisia: Energy Conservation Demonstration Project (Loan 2735- TUN)

The Implementation Completion Report on Tunisia: Energy Conservation Demonstration Project (Loan
2735-TUN, in the amount of US$4 million, approved in FY87), was prepared by the Middle East and North
Africa Regional Office. The Borrower's comments on the ICR are included. The loan, which was fully
disbursed, was closed on June 30, 1994, four years after the original closing date.

The broad objective of the project was to promote energy conservation. On an operational level, the
objectives were: (i) to help the Government's energy conservation agency (AME) establish an institutional
and policy framework to promote and monitor energy conservation activities; (ii) to strengthen local
capabilities in energy auditing and energy conservation follow-up; and (iii) to demonstrate energy
conservation possibilities by financing action programs in selected enterprises. To accomplish these
objectives the project had four components, one for institutional development (technical assistance and
training for AME); and three for demonstrating energy conservation possibilities in three energy intensive
sectors (industry, transport and hotels/commercial buildings).

The project's institutional and energy conservation demonstration objectives were at least partially met. A
training program for AME and for energy using industries was carried out, and the initial energy audit
program was carried out on about half the identified firms. Bank resources were not used for funding
conservation investments, partially because the Government had set up low cost funding programs on its
own. No information is available on what energy conservation activities this parallel program financed. The
high financial and procedural cost of using the AME program, coupled with the availability of other
subsidized credit, led to a rapid decline in demand for Bank-financed on-lending. Instead of canceling the
US$2.7 million in unutilized funds (two thirds of the US$4.0 million loan), the Region agreed to reallocate
these resources to an AME-sponsored "demonstration" program supplying electricity to isolated rural areas
using a photovoltaic (sunlight based) power generation system. Thus, there appears to have been a material
change in project design, scope and objectives which was not reported to the Board. There is no record of an
ex-ante economic analysis, and since there was no completion mission, the ICR, which was based on a desk
review of available Bank documents, was unable to evaluate economic and financial benefits.

The Operations Evaluation Department (OED) is unable to rate the outcome of this project or its
sustainability because of a dearth of information. The ICR rates the project outcome as satisfactory on the
basis of the expected success of the rural electrification component, even though the Region has not yet sent
a mission to monitor and evaluate the cost effectiveness and relevance of this component for future rural
electrification investments in Tunisia. OED concurs with the ICR rating of the institutional development as
moderate, since AME was strengthened in the process of implementing the loan, and Bank performance as
unsatisfactory for a number of reasons, including failing to resolve identified issues during project
preparation, using unrealistic project ratings until first closing date, ignoring problems with covenant
compliance, and failing to document project progress and implementation decisions in project files.

The major lessons of this project are: (i) the Bank should cancel loans when it finds that the Government
have lost interest in the project's objectives; and (ii) onlending through Apex institutions is a complex
undertaking. It is unlikely to work with a new institution created to resolve long-standing weaknesses in
existing Governmental institutions, without the extensive use of technical assistance such as twinning
arrangements.

The ICR is inadequate. It provides an excellent review of the Bank performance, but it fails to highlight the
fundamental revision of the project's design and scope. Furthermore, since there was no field completion
mission, the ICR was unable to provide any information on the economic or technical outcome of the
photovoltaic electricity production subproject. An audit is planned.