ICRR 11095 Report Number : ICRR11095 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 08/10/2001 PROJ ID : P000953 Appraisal Actual Project Name : Nat'l Electrification Project Costs 165.43 183.62 US$M ) (US$M) Country : Ghana Loan/ US$M ) 80.00 Loan /Credit (US$M) 80.00 Sector (s): Board: EMT - Power Cofinancing 56.74 76.70 (100%) US$M ) (US$M) L/C Number : C2467 Board Approval 93 FY ) (FY) Partners involved : DANIDA, AFD, Netherlands Closing Date 09/30/1998 03/31/2000 Prepared by : Reviewed by : Group Manager : Group : Robert C. Varley Roy Gilbert Alain A. Barbu OEDST 2. Project Objectives and Components a. Objectives The objectives as stated in the SAR were to : 1. Enable the Government to provide electricity from the national grid to small urban centers, district capitals and rural areas through a systematic electrification program (through Electricity Company of Ghana or ECG, and Volta River Authority or VRA) 2. Improve service reliability in the ECG's existing network . 3. Improve ECG's operational efficiency by assisting it to reform and strengthen its commercial operations . (VRA distributes power in Northern Ghana and also generates and sells power to ECG and bulk consumers . ECG is a distributor in the Southern part of the country .) b. Components Project costs of $183.62 million comprised: 1. National Electrification Component - ECG (53%) 2. National Electrification Component - VRA (39%) 3. Distribution Reinforcement - ECG (1.3%) 4. ECG Management (6.7%.) Construction and associated consulting services were intended to connect about 434 communities (located in all 10 regions of the country) to the main grid, and included 119,000 consumers. The national electrification component included lines; household connections; construction of service centers; supply of vehicles, tools and equipment; and engineering consultancy . Distribution reinforcement financed a timeslice of 3 years of distribution works, planned by the Fifth Power Project, to expand substations, establish links between substations and reduce losses . This component used the institutional administrative and technical capacity established within ECG by the earlier project . The ECG management component was to support commercialization through involvement of the private sector . Costs included (a) training; (b) a performance based management-contract with a qualified utility and /or utility consulting company; and (c) creation of a Consumer Services Department (CSD.) c. Comments on Project Cost, Financing and Dates Cost overuns were primarily owing to increased costs for sub -stations, sub-transmission distribution equipment and the ECG management component which was 137% over the appraisal estimate. Unexpected increases in construction and a deteriorating financial position of the utilities, delayed project completion by 18 months. 3. Achievement of Relevant Objectives: The achievement of physical components was satisfactory while that of institutional components was only marginally satisfactory. The project was successful in providing electricity to the small urban centers, district capitals and rural areas. The improvements to ECG's operational efficiency were marginal as the performance targets for the management contract were not met. Moderate improvements in customer service started to reverse after the management contractor left. The transfer of knowledge and experience from engineering consultants, working on the national electrification and distribution reinforcement, had a more beneficial impact on capacity than the specific training components. By component: 1. National Electrification Component - 99% of the targeted communities were reached although the number of customers connected fell short by 25%. Part of the shortfall was due to ethnic conflict in 20 of the 48 towns that were electrified. 2. Distribution Reinforcement - the planned works were carried and some of the distribution construction work was carried out using local installation contractors .. 3. ECG Management - despite some progress this component was rated marginally satisfactory as (a) system losses were not significantly reduced; (b) the productivity gains were worth less than the cost of the loan used to finance the contract; (c) the CSD was not effective in maintaining or improving commercial performance in the period after the management contract . Pilot programs for prepayment metering were more successful and staff training in finance, audit system planning and utility management was partly completed . Although a study was completed, the pilot program to promote productive use of electricity was not implemented . The average ERR of 4 sampled sub-projects at completion was 18.6% compared to 11% at appraisal. There were delays in project implementation and substantial cost increase for these projects, but these were outweighed by the increased benefits of higher electricity consumption . Financial performance was disappointing; although there were several tariff increases during the project, the nominal increases in local currency were delayed and insufficient to compensate for the adverse impacts of devaluation and inflation . VRA's financial problems were beyond their control and arose from non-adjustment of tariffs and the failure of ECG to make complete and timely payment for power purchases. 4. Significant Outcomes/Impacts: 1. Significant improvements in reliability and efficiency in the distribution system were achieved . 2. Innovative technology using shieldwires was applied to power lines to 14 communities. This low cost (50% compared to conventional) technology may be part of the ongoing sector reform program . 5. Significant Shortcomings (including non-compliance with safeguard policies): 1. The management contractor had limited control over aspects of ECG's operation which prevented him affecting important variables influencing the achievement of contractual targets . 2. ECG continued to experience managerial weaknesses in customer services, especially difficulties in bill collection and the high level of system losses . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Negligible Modest The ICR does cite the value of the on-the-job training and knowledge transfers from the engineering consultancies for the first two components. Sustainability : Uncertain * Unlikely "Uncertain" is not a valid OED rating for this category. Sustainability is more unlikely than likely given current information on sector's long-term financial viability Bank Performance : Satisfactory Satisfactory Borrower Perf .: Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1. The long-term financial viability of the sector depends on successful implementation of sector reforms in the areas of tariff regulation, privatization of distribution and a policy to cope with the challenge of rising costs as the program expands to areas of lower density . 2. The Bank's overoptimistic approach limited the possibilities for exercising its enormous leverage, deriving from the size of the overall program and its relationship with the Government . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: Satisfactory. In general the ICR provides a more than adequate basis for evaluation .