Power sector rehabilitation and distribution project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Dominican Republic; Region: Latin America And Caribbean; Sector: Hydro; Major
                                        Sector: Electric Power & Other Energy; ProjectID: P007004


Dominican Republic: Power Sector Rehabilitation and Distribution Project (Loan 2949-DO)
The Implementation Completion Report (ICR) on the Dominican Republic Power Sector Rehabilitation and
Distribution project (Loan 2949-DO, approved in FY88) was prepared by the Latin America and the Caribbean
Regional Office, with Appendix B contributed by the Borrower. The loan was closed on June 30, 1995, the original
closing date. It was fully disbursed.

This was the first Bank power project in the Dominican Republic. The project's objective was to improve the
reliability
of the electricity service provided by the stateowned Corporaci¢n Dominicana de Electricidad (CDE) to an acceptable
level by: (i) improving CDE's operational efficiency, and (ii) restoring its financial solvency. The project had four
components: (i) to expand and to improve the transmission networks; (ii) to rehabilitate the distribution system in the
capital; (iii) to rehabilitate thermal plants; and (iv) to provide consultant services to improve CDE's operations.

Execution of the physical components was subject to changes and delays which, however, did not require any loan
closing extension. The delays were due, in part, to the lack of counterpart funds. As a result, although the loan was
fully disbursed by 1995, three transmission stations were scheduled to be completed only in 1997, thus postponing the
full benefits of the project.

On the institutional front, the project objectives were not met. Poor reliability remained a major problem with 15
percent of demand unmet in 1994, mostly because of the high outage rate of thermal electric generating units. CDE
was unable to meet the covenants. Electricity losses increased from 33 percent in 1986 to 40 percent in 1994, away
from the 19 percent target. Revenue collection deteriorated and operating costs were not reduced as expected. CDE's
financial position remained very weak despite an average tariff increase of 121 percent from 1988 to 1993. The
Government did not live up to its commitments in the contract-plan with CDE which provided for the kind of "arms-
length" regulation needed to improve sector performance.

The technical assistance provided to CDE has not brought durable improvements, because of its lack of autonomy and
accountability which translated into weak management and low technical level of staff. After years of trying to
improve CDE, the Bank promoted a different approach, based on private sector involvement. The Government's
decision in 1993 to privatize the sector saw a beginning of execution, but the main enabling legislation has remained
blocked in the parliament until today.

The Operations Evaluation Department (OED) concurs with the ICR in rating the project's outcome as highly
unsatisfactory, its sustainability as unlikely, and the institutional development impact as negligible. OED rates the
Bank performance as unsatisfactory compared to satisfactory in the ICR. The loan was fully disbursed even though
key covenants and objectives were not being met; clearly, as the ICR recognizes, the Bank overestimated the
Government's commitment to policy improvements from the start of project preparation onwards.

The main lessons are: (i) ownership of a program of changes by the government is a crucial element of success in the
institutional area; (ii) contract-plans between stateowned utilities and the government carry no legal force for ensuring
the autonomy that they need to improve performance; and (iii) counterpart funds need to be made available in a timely
manner for the physical components to be completed according to a meaningful schedule.

The ICR is satisfactory; it provides good data and analysis, and it covers all areas well. No audit is planned.