Document of The World Bank Report No: ICR00002901 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-91120) ON A GRANT IN THE AMOUNT OF US$57 MILLION) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR A KABUL, AYBAK, MAZAR-E-SHARIF POWER PROJECT September 28, 2013 Sustainable Development Department Afghanistan South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective September 28, 2013) Currency Unit = Afghani Af 1,000 = US$18.03 US$ 1.00 = 55.460Afghani US$ 1.00 = 0.6525 Special Drawing Rights AFGHAN FISCAL YEAR March 21 – March 20 (until December 2011) March 21 – December 20 (in 2012) December 21 – December 20 (from December 2012) ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AEIC Afghanistan Energy Information Center APSDP Afghanistan Power System Development Project ARTF Afghanistan Reconstruction Trust Fund DABM Da Afghanistan Breshna Moassesa DABS Da Afghanistan Breshna Sherkat DO Development Objective EIRP Emergency Infrastructure Rehabilitation Project EPRP Emergency Power Rehabilitation Project ESSF Environmental and Social Safeguards Framework ESS Environmental and Social Safeguards GoA Government of Afghanistan GWh Gigawatt hour IANDS Interim Afghanistan National Development Strategy ICR Implementation Completion Report IDA International Development Association ISDS Integrated Safeguards Data Sheet ISN Interim Strategy Note KAMPP Kabul, Aybak, Mazar-e-Sharif Power Project KfW Kreditanstalt für Wiederaufbau kV Kilovolt LC Letter of Credit LV Low Voltage MACA Mine Action Center for Afghanistan MEW Ministry of Energy and Water MOF Ministry of Finance MoU Memorandum of Understanding MV Medium Voltage MVA Megavolt Amperes NEPS North East Power System NTS Northern Transmission System PCB Polychlorinated Biphenyl PDO Project Development Objective PMF Project Management Firm PISU Project Implementation Support Unit QALP Quality Assessment of the Lending Program SDU Special Disbursement Unit TA Technical Annex USAID United States Agency for International Development Vice President: Philippe Le Houerou Country Director: Robert J. Saum Sector Manager: Julia Bucknall Project Team Leader: Richard Spencer ICR Team Leader: Richard Spencer AFGHANISTAN Kabul Aybak and Mazar-e-Sharif Power Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 3 3. Assessment of Outcomes ............................................................................................ 9 4. Assessment of Risk to Development Outcome......................................................... 13 5. Assessment of Bank and Borrower Performance ..................................................... 13 6. Lessons Learned ....................................................................................................... 15 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 16 Annex 1. Project Costs and Financing .......................................................................... 18 Annex 2. Outputs by Component ................................................................................. 19 Annex 3. Economic and Financial Analysis ................................................................. 20 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 24 Annex 5. Beneficiary Survey Results ........................................................................... 26 Annex 6. Stakeholder Workshop Report and Results................................................... 26 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 27 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 44 Annex 9. List of Supporting Documents ...................................................................... 45 Map: Project Area ........................................................................................................ 47 A. Basic Information ARTF - Kabul- Country: Afghanistan Project Name: Aybak/Mazar-e-Sharif Power Project Project ID: P106654 L/C/TF Number(s): TF-91120 ICR Date: 09/28/2013 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Grantee: AFGHANISTAN Original Total USD 57.00M Disbursed Amount: USD 49.90M Commitment: Revised Amount: USD 57.00M Environmental Category: B Implementing Agencies: Ministry of Energy and Water Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/22/2007 Effectiveness: 11/20/2007 09/19/2011 Appraisal: Restructuring(s): 06/14/2012 Approval: 10/04/2007 Mid-term Review: Closing: 12/31/2009 03/31/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Unsatisfactory Risk to Development Outcome: High Bank Performance: Unsatisfactory Grantee Performance: Unsatisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Unsatisfactory Government: Unsatisfactory Moderately Implementing Moderately Quality of Supervision: Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Overall Borrower Unsatisfactory Unsatisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Unsatisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 8 Power 92 Transmission and Distribution of Electricity 100 Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction 33 33 Infrastructure services for private sector development 67 67 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Praful Patel Country Director: Robert J. Saum Alastair J. McKechnie Sector Manager: Julia Bucknall Salman Zaheer Project Team Leader: Richard Jeremy Spencer Sunil Kumar Khosla ICR Team Leader: Richard Jeremy Spencer ICR Primary Author: Gilles Marie Veuillot F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the project is to help provide reliable and quality power to the consumers in the target areas of the cities of Kabul, Aybak, and Mazar-e-Sharif. Revised Project Development Objectives (as approved by original approving authority) NA ii (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Increase in power supply to project areas in Kabul. Value 427 GWh (in Afghan SY 482 GWh (in quantitative or 1,219 GWh 1386) Afghan SY 1389) Qualitative) Date achieved 06/18/2008 03/30/2010 03/31/2010 Comments (incl. % 253% of the baseline target achieved by originally expected completion date. achievement) Indicator 2 : Providing grid power supply access to the people of Aybak (% of population). 25% of Aybak population 25% of Aybak 25% of the Value connected to local grid population population now quantitative or fuelled by diesel connected to connected to the Qualitative) generators. substation. substation. Date achieved 06/18/2008 06/30/2010 03/31/2013 Comments All customers previously connected to local (incl. % grid who received power from diesel generator now receive power from achievement) substation. Indicator 3 : Increase in power supply to customers in Mazar-e-Sharif. Value 92.24 GWh (in Afghan quantitative or 113 GWh 197 GWh SY 1386) Qualitative) Date achieved 06/18/2008 03/31/2011 03/31/2010 Comments Grid-supplied electricity by 2010 was already 197 GWh in Mazar-e-Sharif; (incl. % 174% of the target had been reached. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Strengthen the low voltage (LV) distribution network in parts of Kabul supplied Indicator 1 : by Junction 2 as measured by number of transformers installed and commissioned. Value (quantitative None. Works completed. Works completed. or Qualitative) Date achieved 06/18/2008 06/30/2010 05/31/2011 Comments 100% achieved with 11 months delay. Installed and commissioned 135 (incl. % transformers. achievement) iii Strengthen the low voltage (LV) distribution network in parts of Mazar-e-Sharif Indicator 2 : City, and measured by the number of 20/0.4 kV transformers installed and commissioned. Value (quantitative None. Works completed. Works completed. or Qualitative) Date achieved 06/18/2008 06/30/2010 05/31/2011 Comments 100% achieved with 11 months delay. Installed and commissioned 62 (incl. % transformers; delivered 161 for future installation by DABS. achievement) Construct a 220/20kV substation and associated 20kV lines at Aybak to provide Indicator 3 : quality, reliable and clean grid power to the residents of Aybak town (indicator being completion of Aybak substation). Value 220/20kV Aybak 220/20kV Aybak (quantitative No substation. substation substation or Qualitative) completed. completed. Date achieved 06/18/2008 06/30/2010 12/08/2012 Comments (incl. % 100% achieved with 18 months delay. achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/19/2008 Satisfactory Satisfactory 11.61 2 12/02/2008 Satisfactory Satisfactory 11.61 3 05/23/2009 Satisfactory Satisfactory 18.60 4 11/13/2009 Satisfactory Satisfactory 27.88 5 05/27/2010 Satisfactory Satisfactory 26.11 6 12/11/2010 Satisfactory Moderately Satisfactory 33.67 7 06/27/2011 Moderately Satisfactory Unsatisfactory 36.71 8 01/01/2012 Moderately Satisfactory Unsatisfactory 38.37 9 06/20/2012 Satisfactory Moderately Satisfactory 45.47 10 12/30/2012 Moderately Satisfactory Moderately Satisfactory 47.97 11 03/25/2013 Unsatisfactory Unsatisfactory 48.47 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 09/19/2011 MS U 38.30 Extension of closing date iv ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 06/14/2012 MS U 45.47 Extension of closing date I. Disbursement Profile v 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal With the establishment of the Islamic Republic of Afghanistan and presidential elections in 2004, Afghanistan emerged from two decades of instability. Parliamentary elections followed in 2005 and a new Government was established in 2006. Significant progress was noted in a number of sectors over this period and strong economic growth was recorded. The Bank’s Interim Strategy Note (ISN) of 2006 recognized that security remained extremely volatile and that the country was confronted to daunting governance and capacity challenges – all of which called for continued, massive support to secure Afghanistan’s stabilization and recovery. The long lasting conflict had a severe impact on the power sector, both directly from dilapidated generation, transmission and distribution infrastructure and indirectly from serious management issues at Da Afghanistan Breshna Moassesa (DABM) including lack of appropriate governance structure; overstaffing and under-qualification of staff; poor customer management; billing and collection; and below cost-recovery tariffs. 1 As a result, access to power was estimated at 6%, one of the lowest rates in the world – with only 234,000 people connected to the public grid, of whom 30% were in Kabul with other provinces having even less access, and rural areas being virtually un-served. The World Bank provided limited support to the sector in 2002 under a multi-sectoral grant, the Emergency Infrastructure Rehabilitation Project (EIRP). In 2004, drawing on a series of studies2, the Bank approved a more comprehensive US$105 million Emergency Power Rehabilitation Project (EPRP, IDA Credit 3933) which provided financing for rehabilitation of the 100MW Naghlu hydropower plant and transmission line to Kabul, and extensive rehabilitation of the Kabul distribution system. In 2005, the Bank also started processing a second Emergency Power Rehabilitation Project (EPRP II). It was to support one of the government’s identified priorities for the sector: completing the North East Power System interconnector for the transmission of low-cost power from Uzbekistan to Kabul and points along the route. Delays in implementation led to a “Highly Unsatisfactory” rating for EPRP, and EPRP II was subsequently dropped. In 2006, EPRP underwent a major restructuring in which support to rehabilitation of distribution networks in Kabul was significantly reduced and funds were reallocated for the rehabilitation the NEPS Interconnector. 1 Until September 2009, the entity responsible for power supply, Da Afghanistan Breshna Moassesa (DABM), was a department of the Ministry of Energy and Water (MEW). With World Bank and other donor support, DABM was converted into Da Afghanistan Breshna Sherkat (DABS), focused on developing into a fully commercial power utility outside the MEW while remaining under state ownership. In this ICR, for clarity we refer to DABS as the national electric utility, the reader should note however that pre-September 2009 the term DABS refers to its predecessor, DABM. 2 Including a review of short term critical investment options; a road map, outlining measures needed in the midterm and an electricity sector policy setting forth strategic sector reform issues. 1 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The PDO, as stated in the Grant Agreement, reads: “The objective of the Project is to help provide reliable and quality power to the consumers in the target areas of the cities of Kabul, Aybak, and Mazar-e-Sharif.” The following indicators were retained:  PDO: no high level Project outcome indicator provided.  Outcome 1 – Increase the power supply in project areas in Kabul: total grid electricity supplied to Kabul increased to 482 GWh by March 2010.  Intermediate Result indicator 1: strengthen the low voltage (LV) distribution network in parts of the capital city of Kabul supplied by Junction Station 2, as measured by the number of transformers installed and commissioned.  Outcome 2 – Providing grid power supply access to the people of Aybak: twenty five percent of population of Aybak with access to grid-based power.  Intermediate Result indicator 2: construct a 220/20 kilovolt (kV) substation and associated 20 kV line to Aybak to provide quality, reliable and clean power to the people of Aybak town with the indicator being the completion of the Aybak substation.  Outcome 3 -Increase in power supply to customers in Mazar–e-Sharif : total grid electricity supplied to Mazar–e-Sharif increased to 113 GWh by March 20113;  Intermediate Result indicator 3: strengthen the low voltage (LV) distribution network in parts of the Mazar-e-Sharif City, as measured by the number of 20/0.4 kV transformers installed and commissioned. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Neither the PDO nor outcome indicators were modified. 1.4 Main Beneficiaries The underlying rationale for supporting the power sector was that improving access to power would bring both a relief to households and contribute to private sector development, and eventually to economic growth. After early donor support focused on restoring generation and transmission, improving distribution emerged as a priority to ensure that the new supply of power could reach consumers. The Project was primarily aimed at the people of Kabul, Aybak and Mazar-e-Sharif. 1.5 Original Components The Project consisted of the following four components: (i) Part 1 - Distribution System Rehabilitation for Kabul: through the rehabilitation and extension of the distribution system to connect medium voltage (MV) trunk lines and cables to customers in Kabul; and reorganizing 3 This is after the expected Closing Date at the time of Project approval. 2 the existing distribution system to optimize loading to reduce losses and provide satisfactory power supply voltage to customers in Kabul. (ii) Part 2 - Establishment of a 220 kilovolt (kV) Substation at Aybak and Interconnection with Distribution System: through the establishment of a new 220/20kV, 16 Megavolt Amperes (MVA) substation at Aybak and 20kV interconnection with the existing Aybak distribution system. (iii) Part 3 - Power System Rehabilitation for Mazar-e-Sharif: through the rehabilitation of the distribution system in Mazar-e-Sharif by upgrading the existing MV distribution network from 6kV to 20kV; connecting the distribution network to the 220/20kV substation; rehabilitating and replacing the low voltage distribution network; and upgrading the Mazar-e-Sharif substation capacity to meet the requirements of the distribution network. (iv) Part 4 - Institutional Capacity Building: through the provision of capacity building and implementation support to MEW and DABM including for: (a) operation and maintenance of the distribution systems; (b) implementation of infrastructure metering and accounting of energy supplied in Kabul, Aybak and Mazar-e-Sharif, (c) establishment, operation and hand-over to DABM of customer care centers; (d) communication of Project plans to consumers; (e) Project management support; and (f) other capacity building needs identified during implementation. 1.6 Revised Components No revision of Project activities was recorded. 1.7 Other significant changes The Closing date for the Project was extended three times: (i) by 21 months (to September 30, 2011) in November 2009 4 ; (ii) by 9 months (to June 30, 2012) in September 2011; and (iii) by 9 months (to March 31, 2013) in June 2012. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Choice of activities: Analytical work had identified the need to increase electricity access and quality of supply on the NEPS, focusing on urban centers to support growth and to avoid possible conflict with underserved populations. Donor support had been identified for projects in a number of cities along the route of the NEPS interconnector. More funding was needed in some of them to complete connection to the grid, in particular in Aybak, whose power supply relied exclusively on a diesel plant at the time, and Mazar-e- Sharif, the largest urban center supplied by the NEPS after Kabul. Further financing was also needed in Kabul, which, in addition to the new power from the NEPS interconnector, 4 A three year implementation period was expected but only two years agreed at project approval, pending extension of the parent Afghanistan Reconstruction Trust Fund. 3 was to benefit from an additional 100 MW of thermal generation financed by USAID. Preparation documents indicate that the decision to support the rehabilitation and expansion of distribution networks in Kabul, Aybak and Mazar-e-Sharif was made on the basis of extensive discussions with GoA and donors, to match ongoing investments in each of those cities. Analysis underlined the importance of moving the sector towards financial sustainability, including through a move to cost recovery tariffs. In keeping with the notion that structural reform was a long run agenda and that a first step should be to corporatize and improve commercial practices of the utility, it was decided to provide support complementary to the commercialization of DABM, including through the provision of metering equipment and development of customer care centers. Selection of physical investments was thus based on a sound analysis and a good understanding of government priorities. Capacity building: the Project design focused almost exclusively on the rehabilitation of infrastructure. Capacity building was only addressed through limited support to project implementation under Component 4 and by suggesting that supply and installation contracts should include a provision for operations and maintenance. The lack of capacity had, however, been recognized to be a challenge in 2006 and had been a contributory cause to the initial failure of EPRP. Balancing the support to infrastructure rehabilitation with support to capacity building seems to have been overlooked. Implementation arrangements were adopted wholesale from EPRP, following its restructuring in late 2006. Procurement strategy relied, again, on a small number of design, supply and install contracts, for speed and to minimize implementation complexity. Disbursements followed existing practices, with a high degree of centralization in the Treasury Department of the Ministry of Finance (MoF). The Memorandum of Understanding (MoU) signed between MEW and MoF in 2006 to address coordination problems under EPRP was amended to make it applicable to the Project. The duties of the external Project Management Firm (PMF) to assist in day-to- day implementation, contract management and supervision were extended to cover the Project. There appears to have been some attempt to define the respective roles of MEW and DABM, although coordination between them was not discussed. With the restructuring of EPRP so recently completed, implementation design benefited from the experience it had provided, while also offering some economies of scale. Risks and mitigation measures: risks were identified covering substance and process, with two, deterioration of security or reversal in political process and weak implementation capacity rated high and substantial respectively. Several other risks were rated moderate or low. Project design was adjusted to take into account the main risks by: building enough time and flexibility into the Project to address security risks; and by following infrastructure designs standardized by previous studies, using experienced consultants and establishing counterpart core teams for subcomponents. In the light of experience with EPRP and other Bank-financed projects in Afghanistan, the risk assessment may have been over-optimistic, especially with respect to the implementation period. Quality assessment: no QER was carried out for KAMPP. A Quality Assessment of the Lending Program review of the Project was carried out in April 2010. Project appraisal is not documented. 4 2.2 Implementation Three main supply and installation contracts were planned under KAMPP, namely for: (i) the rehabilitation of the Kabul distribution network; (ii) the rehabilitation of the Mazar-e- Sharif distribution network; and (iii) the construction of a new 220/20 kV substation at Aybak and augmentation of 220/20 kV substation at Mazar-e-Sharif. All three were concluded within six months from Project effectiveness. The main factors affecting project implementation, of varying degrees of predictability, have been reported as follows.  Overall country context: Afghanistan remained a difficult environment in which to operate and the following are reported to have affected the Project: o Security: security concerns have affected implementation throughout including, for example, the need for demining in Aybak, persistently volatile security in Aybak and Mazar-e-Sharif, and attacks upon Indian nationals in 2008 in Kabul which resulted in Indian contractors recalling employees. There has been a marked deterioration in security in the project areas, especially in Aybak between 2008 and 2013, rendering it impractical to conduct site visits. o Resistance to change and vested interest: in a country where rebuilding an operating administration remains a challenge, implementing some activities at the local level sometimes proved difficult, for example implementation by local branches of DABM. Similarly, resistance to change was reported due to opposing local interest as well as interference by individuals and other government departments which are reported to have included demands for financial compensation to allow work to continue.5 o Transportation and climate: poor roads and careless handling resulted in damage to some equipment. Winter conditions in Afghanistan make construction possible only during part of the year and harsher than normal conditions are reported over the life of the Project, resulting in delays in works.  Institutional: Despite adapting project design to take into account the experience with EPRP, institutional factors still affected project implementation, including: o Poor government coordination: including: (i) lengthy approval of LCs; (ii) lengthy approval of customs clearance which resulted in delays in bringing equipment on site and sometimes in the destruction of goods; (iii) budgeting issue and availability of funds including a haitus in funding at the start of each fiscal year; (iv) difficulties in securing and retaining rights of way; (v) poor coordination with municipalities on their plans and insufficient consultation with local stakeholders and (vi) poor coordination between DABS and MEW after DABS became autonomous from MEW. This became particularly acute as contractors reached the key milestones of completion, commissioning and handover. The contractor was bound to MEW, but MEW was informally 5 Although no formal complaint is reported in this respect. 5 bound to accept assets only with DABS’s agreement which was often not forthcoming. o Weak implementation capacity: underlying a number of those problems is the overarching capacity deficit in post-conflict Afghanistan. Country systems for disbursements and auditing are centralized in MoF to make up for the lack of sufficient qualified personnel, but this creates bottlenecks and limited incentives to develop capacity within MEW. The use of a PMF could not eliminate all the challenges. Under the PMF each problem was solved on an ad-hoc basis which did not resolve the underlying problems. The performance of the PMF deteriorated significantly from about 2010, and its contract was allowed to lapse which led to a six-month hiatus during which project progress was negligible, until a new PMF was hired.  Technical issues: KAMPP has been confronted with technical problems, affecting the quality of goods and installation: o Goods: problems are reported with respect to the quality or appropriateness of goods. In particular availability, quality, and installation of poles used in distribution networks hampered the progress of work by all contractors. While this was addressed through increased supervision by the authorities, shortages of poles meeting appropriate standards were also later reported. Transformers supplied under the Kabul distribution rehabilitation component experienced early failures which were initially attributed to overloading but which later were found to be the result of defective manufacture. The meters procured under the fourth component were found to be unfit for purpose, due both to their dimensions and to their high level of sophistication. o Contractors: quality issues are also reported with some contractors including the civil works to construct a sub-station in Aybak. Although technical specifications had to be met for recruitment, there is general agreement that the overall Afghan environment remains unattractive for most qualified bidders, resulting in less qualified contractors and suppliers bidding. Examples are reported of contractors without adequate experience or showing poor procurement planning. Low technical capacity by MEW and DABS may also have contributed to this situation. o Design change and time overruns: A change to the scope of work under the Mazar-e-Sharif distribution component is reported when the authorities asked that the MV and LV system be installed underground, thus significantly increasing costs while also requiring a change to the materials used. Funds under the Project were not sufficient to cover this change and GoA had in part to commit to provide the additional goods needed from separate sources, and DABS was assigned to do the work which was also a source of delay. o Operations and maintenance: starting in 2012, supervision documents report issues in connection with the operation and maintenance of rehabilitated infrastructure, caused in part by the protracted handover from MEW to DABS, raising serious concerns over the sustainability of those assets, in particular the distribution system installed in Kabul. 6 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Choice of indicators: no high level outcome indicator was stated for the Project. One outcome indicator was defined for each of the three components covering infrastructure rehabilitation, but not for the institutional capacity building component. The outcome indicators appear to have three shortcomings. First, they were not stated clearly or consistently across the three components although they each had the same broad objective of providing or increasing grid power supply; for Kabul and Mazar-e-Sharif they were stated in terms of an increase in the quantity of electricity supplied, while for Aybak in terms of the proportion of Aybak’s population with access to grid-based electricity. Second, the indicator measured an increase in the aggregate supply of electricity while the PDO was to provide reliable and quality power. The causal link between an increase in the amount of power and the quality and reliability of that power is by no means straightforward. Better distribution is not the only factor affecting quality and reliability. Third, other activities in the sector were being financed from other sources in Kabul and Mazar-e-Sharif. While acknowledged, they were not taken into consideration, thus raising attribution issues. Quality of baseline and monitoring data appears to be questionable; the data source is unknown and may have underestimated the start-of-project baseline. It may also have conflated generation, which has been systematically captured since 2006, with consumption which has not, thus ignoring losses. For example the end of project indicator for Kabul was the supply of 482 GWh by March 2010, yet according to published data in Afghanistan Energy Information Center (AEIC), generation in Kabul was 649 GWh in 2007. In Aybak, the goal was to reach 25% of the population with grid power as opposed to diesel. In 2007, DABS records indicate that there were 4,646 residential customers in Aybak, equivalent to about 23-46,000 people. Yet the population of Aybak city, according to the Central Statistics Office, was just 26,400 in 2010 implying that the substantial majority of households in Aybak were connected. In any event, all those connected to the Aybak distribution system, whether within the city proper or in the surrounding area, would benefit from the change once the substation was complete, thus making any headcount of population or connections irrelevant. Use of monitoring data is documented throughout the project lifetime, although sometimes infrequently, especially in 2010 and 2011 when there was no resident TTL. The first data for the Kabul and Mazar-e-Sharif components were provided by the end of 2009 and were used to monitor project progress, although a little inconsistently. The Aybak indicator was not useful for monitoring progress in the substation, although completion of civil works, electrical installation and energization were used as proxies. 2.4 Safeguard and Fiduciary Compliance Safeguards The Project was rated Category B and not expected to raise significant environmental concerns. No Integrated Safeguards Data Sheet (ISDS) was prepared. The Environmental and Social Safeguards Framework (ESSF) prepared for EPRP was used without change. The ESSF was based on the following principles: (i) recognition that detailed designs of activities may not be known at appraisal; and (ii) requirement that all proposed 7 components be screened to ensure that environmental and social risks can be adequately addressed. Two potential safeguards issues were identified: presence of polychlorinated biphenyls (PCBs) in transformer oil and land acquisition for the substation in Aybak. While the ESSF provided for arrangements for land acquisition, it was agreed that PCB testing would be conducted and appropriate handling procedures subsequently prepared if necessary. Efforts to strengthen capacity were pursued during the early implementation stage through the PMF. Streamlined Environmental and Social Safeguards (ESS) to be used by contractors were also prepared. A safeguards focal point was selected and regular monitoring is reported with the support of PMF. Significant training was also provided to improve the government’s and contractors’ capacity to implement safeguards, with materials translated in local languages. During the implementation stage, safeguards issues arose as follows:  Mine clearance, which was handled by Mine Action Center for Afghanistan (MACA) as per the ESSF;  Rights of way, which was handled in compliance with the provisions of the ESSF and the ESS, including consultation with local community along the proposed routes at preparation and implementation stages. A complaint handling committee was also established at each Project site. No land acquisition was necessary under the project;  PCB testing: testing took place but did not reveal the presence of PCBs. Safeguards supervision is regularly documented through 2009, but less information was made available from 2010 through 2013 and supervision aide memoires did not include a specific section on safeguards. This may have been because few safeguard issues were at stake under the Project by this stage but changes in TTL with an interim period in 2010, and departure of the PMF in 2011, which was only replaced in 2012, may also have affected safeguards supervision. Financial Management Some financial management concerns were reported, including lack of internal control mechanisms and late submission of the external audit for SY1391 (2011-2012). Auditing procedures are handled at the central level through the Control and Audit Office and so the delay was not considered a Project-specific shortcoming. There was some delay in responding to the auditor’s recommendations following the SY1391 audit, but these were resolved before final project closing. The Project was consistently rated in the satisfactory range. Procurement Very few contracts were to be procured under KAMPP and they all were awarded promptly after effectiveness. The project did not experience procurement problems although institutional and capacity constraints affected contract management such as in connection with LCs and customs clearance. 8 2.5 Post-completion Operation/Next Phase The sub-station in Aybak was energized and in operation before Project close but some civil works and commissioning were not completed. Concerns also exist over the sustainability of the infrastructure rehabilitated under the two other components, due to a mixture of poor operation and poor quality of the equipment installed. Contractual remedies including liquidated damages, cashing of performance bonds and extended warranty periods are being employed to ensure both the completion of the Aybak substation and the correction of faults in the Kabul and Mazar-e-Sharif distribution systems. These are complex tasks and the PMF whose contract is now funded under a separate project (Afghanistan Power System Development Project, TF 093513, APSDP) has been tasked to assist the Government on this front. A new power project is under preparation, expected for delivery in FY15 that would aim at developing DABS’s capacity for planning, operation and maintenance of electricity distribution infrastructure. It is part of a longer term plan to shift investment activities to DABS and seeks to address the need to mitigate the risk of dilapidation of infrastructure. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Afghanistan remains in the bottom 10 percent globally in electricity consumption per capita (~ 100 kWh per year) and only 25-30 percent of its population is connected to the grid, giving it one of the lowest rates of electrification in the world. The Afghanistan National Development Strategy (ANDS) notes that “Energy is [Afghanistan’s] top economic development priority, and [its] economy’s hope,” singling out electricity as “the motor that powers [Afghanistan’s] growth.” The National Energy Supply Program (NESP), a national priority program developed in the context of setting out a strategy of support for Afghanistan post the 2014 transition, further demonstrates the priority both country and donors place on support for the power sector. The Bank’s FY12-14 Interim Strategy Note also recognizes the need to continue to address the energy needs of businesses and people, and to support cross-border trading of energy. In light of the rapidly evolving demand for power in Kabul, and the importance of Mazar-e-Sharif as a commercial and industrial center, and Aybak as a provincial city, the choice was sound. Hence the objective was and remains relevant. Project design was simple and informed by experience with EPRP, in particular taking account of country conditions. Implementation started well and demonstrates the solid design, but the Project soon became bogged down as a result of deteriorating security, weak coordination in government, poor contractor performance, including of the PMF and limited oversight by MEW and the Bank. This suggests weaknesses in the implementation support plan, and coincided with both the absence of a dedicated TTL in country and relatively low budget spent on supervision. 3.2 Achievement of Project Development Objectives Assessing the achievement of the PDO is difficult for several reasons. First, no high level outcome indicator was defined. Second, uncertainties about the quality of the baseline and, to a lesser extent, the end-of-project data for Kabul and the relevance of the 9 indicator for Aybak cloud evaluation. In Mazar-e-Sharif, accounting for 40 percent of project cost, it can be said with reasonable certainty that the component indicator was achieved. In Kabul, accounting for a further 36 percent of cost, the increase in power supply between from 649 GWh in 2007 to 1,219 GWh in 2010 is a larger absolute increase than can have been envisaged when the indicator of 482 GWh for March 2010 was set during preparation. Hence it might also be argued that the Kabul objective for quantity of power was reached. Third, additional quantities of power do not necessarily demonstrate better quality or reliability. There is some limited evidence to suggest that better quality electricity is now being more reliably supplied. Evidence drawn from bidding documents and reports at the time suggest that in 2007 power was rationed in Kabul with households receiving 4 hours’ supply every other day. With the completion of the NEPS interconnector, most of Kabul now receives power 24 hours a day6. Attribution is an issue as many donors contributed to the completion of the NEPS interconnector, but the Project may claim some credit, since the rehabilitation of the LV distribution system was needed to complete the “last mile” to consumers. Another proxy for improved quality is the peak load that can be served per household, since it implies that there will be fewer voltage excursions while also making power available at the time needed by the consumer. Empirical evidence from 2006 to 2011 shows a steady increase in both the number of households served and the peak load served in Kabul after 2008 when the NEPS interconnector was completed, as shown in Figure 1. This suggests a likely improvement in the quality of supply because brownouts and other quality problems are normally symptoms of overloading, which has been significantly reduced. Figure 1: Peak Load and Households Served in Kabul 400,000 1.60 Number of Households and Peak Load 350,000 1.40 Peak Load per Household (kW) 300,000 1.20 250,000 1.00 (kW) 200,000 0.80 150,000 0.60 100,000 0.40 50,000 0.20 - 0.00 2006 2007 2008 2009 2010 2011 Residential Customers (Left axis) Peak Load (Left axis) kW Per Household (Right Axis) 6 Some areas of greater Kabul have yet to be connected to the grid. 10 In Mazar-e-Sharif, there is some limited evidence that suggests that the upgrading of the MV distribution system from 6kV to 20kV has improved the quality of power delivered to consumers, as shown in Figure 2. The evidence is limited to a survey of five houses at evening peak and is thus not statistically robust. Figure 2: Delivered Voltage to Households in Mazar Served at 6kV and 20kV Proper 220 V Line D eli ve re d V ol ta The Aybak indicator must be disregarded, but the qualitative change from diesel to grid supply has been achieved with the energization of the substation, and with this an approximately 15-fold increase in the amount of power available for distribution. Again, quantity is not a direct indicator of quality but it the same arguments adduced for Kabul and Mazar will apply in principle. Hence there is some evidence that the PDO has been achieved, but it is circumstantial and uncertain. 3.3 Efficiency For economic evaluation purposes, the project is divided into three subprojects: the Kabul distribution rehabilitation; the Aybak substation; and the Mazar substation extension and network rehabilitation. Between them, the three subprojects accounted for 95 percent of project costs. For evaluation of the Project, only the Aybak and Mazar subprojects are considered. The project financing for the Kabul subproject was for two contracts, for LV systems and meters, with a total value of $22.9 million, or about 30 percent of total costs, with the balance financed by EPRP. To avoid risk of double counting benefits, the results from the Kabul subproject have been excluded from the evaluation of the Project, which means the efficiency assessment is based on about 56 percent of total project financing. Table 1 gives details of the economic benefits from each of the three subprojects and further details of the analysis of the two considered in the Project are in 11 Annex 3. The analysis for the Kabul transmission, substation rehabilitation project is included in the ICR for EPRP.7 Table 1: Economic Costs and Benefits of KAMPP Subprojects Sub-Project Cost Estimated NPV IRR (million $) ( million $) (%) Kabul Transmission, Substation and 74.14 405.63 118 Distribution Rehabilitation8 Aybak Substation 8.11 6.71 25% Mazar-e-Sharif Substation and 23.66 13.12 0.15% Distribution Rehabilitation Based on this analysis, the Aybak subproject was economically efficient, but the Mazar- e-Sharif subpoject was not. Combining the net present value of these two subprojects gives a negative net present value for the project. [Some element of economic efficiency will have been lost as a result of the delays in completion of the subprojects by about 39 months]. 3.4 Justification of Overall Outcome Rating Rating: Unsatisfactory The project was relevant and well designed. While the outcome indicator for one of the three subprojects has been met, it is hard to tell whether they have been for the other two, and in any case are of questionable value in demonstrating the achievement of the objective. There is circumstantial evidence sufficient to show that the quality and reliability of supply has been improved in Kabul but not in either Mazar-e-Sharif or Aybak. Efficiency was poor for the two subprojects entirely financed by the project. There are thus major shortcomings in the achievement of the objective and in its efficiency. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development No specific poverty or social impact study has been carried out. Per capita electricity consumption and economic growth are 90% correlated suggesting access to electricity is not only critical for improving livelihoods but also allow the private sector to grow, implying the project would eventually have a poverty reduction impact. (b) Institutional Change/Strengthening The project did support some institutional change to support the transition of operation of the power sector by MEW to DABS, but it was limited in extent. The project may have heightened awareness of the need for improved capacity in both MEW and DABS. 7 Report No. ICR435 8 Included for reference only 12 (c) Other Unintended Outcomes and Impacts (positive or negative) None. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable as this is a core ICR. 4. Assessment of Risk to Development Outcome Rating: High Development outcomes have been limited, and they are at risk from three factors. First, poor quality of some of the goods and installation work may curtail its useful life. Second, overloading and misuse, the result of poor training, weak technical capacity and inadequate operational and maintenance may result in damage to the assets created. Third, country factors such as insecurity, political instability and weak governance also represent risks that could directly affect the achievements of the Project. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Unsatisfactory Activities chosen for financing by the Project were in line with available analysis and country priorities. They were discussed with GoA and underwent a systematic internal review process. The QALP assessment carried out in 2010 rated design to be satisfactory, taking into account the simple design and choice of implementing arrangements. There was no QER and appraisal was not formally documented. The Project documents seem to suggest that it was a spin off from the larger and more well-established EPRP, aimed at filling gaps it had not been able to finance following its restructuring. Judging from the budget expenditure during preparation (Annex 4) the Project seems to have been prepared on a shoestring. It is possible that supervision and restructuring of EPRP may have served many of the purposes of project preparation, but without documentation this cannot be assessed. The division of the LV and the MV contracts for the Kabul distribution rehabilitation across two projects was a significant failing and provides the strongest evidence that the project was never thought of as a discrete entity separate from EPRP. The risk presented by weak capacity and institutional rivalry between MEW and DABS, were not mitigated, and if any capacity was built it was at MEW which is not the body which will be responsible for future investment or operations and maintenance. The balance of support between infrastructure rehabilitation and capacity building, in particular contract management and supervision, should have been debated as should the means by which operations and maintenance were to be carried out. Monitoring and 13 evaluation design seems to have been weak with no arrangement for collection of data put in place. (b) Quality of Supervision Rating: Moderately Unsatisfactory Supervision is well documented throughout the life of the Project. There is a sense of disconnect between the realities of KAMPP and the willingness to address its specific problems. Quality, contract management and government coordination problems continued to arise and as soon as one was solved, another seemed to appear, necessiting several extensions. Despite this, and the questions on the Project’s sustainability, satisfactory ratings for achievement of the PDO extended through 2012. Both the 2010 and 2011 requests for an extension of the Closing Date displayed confidence that the PDO remained achievable. This appears to show a want of candor in supervision. There seems to have been insufficient attention to rigorous monitoring of project progress, and may have been caused by a mixture of: security issues that made visits difficult; overreliance on the PMF, the quality of whose work started to deteriorate in about 2010 and the interruption of whose mandate further increased delay and left quality issues unaddressed; and a global handling of all three power projects in the portfolio in which the Project represented just a fraction of the many issues that affected all of them. Some of the values for indicators were not completed or updated over several supervision periods and using one of the many restructurings to review the results framework and update it was a missed opportunity. The closing of the Project left a number of technical issues unresolved, in particular defects at the Aybak substation and the Kabul distribution network. Legal remedies including liquidated damages, performance bonds and extended warranty periods may be available to address faults and MEW is applying these as each contract is closed, with the support of the PMF, the services of which continue, financed by another project. Bank supervision showed a number of significant shortcomings that could have been avoided and which, if addressed, may have been able to compensate for some of the weaknesses in design. (c) Justification of Rating for Overall Bank Performance Rating: Unsatisfactory As one dimension of Bank performance is rated Unsatisfactory and one Moderately Unsatisfactory, overall rating is Unsatisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Unsatisfactory Continuing coordination issues among Government stakeholders, first experienced with EPRP, between ministries and with DABS, from central level to local level, from fiduciary to technical issues, was one of the main impediments to implementation. To a 14 large extent, this is a result of Afghanistan’s post-conflict situation and an illustration that rebuilding an operative, capable public administration remains one of the country’s greatest challenges. The decision to rely on country systems for disbursement and financial management, while justified in terms of capacity building, may also have contributed to the problems encountered. It should be underlined that this rating is not geared towards one institution in particular, as the various authorities involved in the Project, in particular MEW and MoF are said to have always shown, when solicited, responsiveness and willingness to sort problems out. Seeking speedy, coordinated action from various public stakeholders required an almost day-to-day involvement from those involved in Project implementation. The project took twice as long as originally planned, and as such was a major shortcoming warranting an Unsatisfactory rating. (b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory The lack of capacity at MEW significantly impacted the Project and timely implementation continued to be an issue throughout. Weak contract management was probably the single most important constraint, and the inability to address technical issues in contracts, especially relating to equipment quality, for example poles and distribution transformers, caused serious delays. Some positive aspects were reported over the life of the Project, in the fields of financial management and procurement coordination between MEW and DABS remains problematic. Several of these shortcomings are significant and indicate a Moderately Unsatisfactory rating. (c) Justification of Rating for Overall Borrower Performance Rating: Unsatisfactory As one dimension of Borrower performance is rated Unsatisfactory and one Moderately Unsatisfactory, overall rating is Unsatisfactory. 6. Lessons Learned Based on this evaluation, five lessons present themselves:  Even when conceived as a follow up to an existing operation, any new project must be properly assessed as such It is hard to avoid the impression that the project was seen as a means of adding funds to EPRP for rehabilitation investments, based on needs identified, feasibility and implementation arrangements prepared earlier. Yet a rigorous appraisal of the project on its own merits might have revealed its design shortcomings. By this association, the lessons from EPRP, set out in the ICR also apply to the Project.9  Capacity is often the main issue – and is as important as the infrastructure itself As is common for infrastructure projects in post-conflict environments, priority was given to physical rehabilitation. While this may have been justified in terms of country and donor dialogue, it was also recognized at the time that this effort was 9 Ibid. 15 somewhat marginal given the immense needs of the country. Infrastructure has been rehabilitated but at risk of falling into the build-neglect-rebuild cycle due to lack of capacity for operation and maintenance. The proposal to provide for an obligation of operation and maintenance of the infrastructure rehabilitated under the contracts did not prove effective because contractors demobilized and enforcement of legal remedies to complete works or correct defects now needs to be sought.  Power projects call for a precise definition of indicators, in particular when the sector is also supported by other donors Indicators chosen for two of the three rehabilitation components under KAMPP related to the quantity of power supplied and proved of little use to measure the quality and reliability goal of the project. Data adequacy was also a problem, and an early restructuring might have been an effective way to allow the approach to monitoring to be rethought. In countries with a history of conflict and poor capacity, consideration should be given to relative or incremental indicators, for example the number of households connected and metered, and the PDO framed around these simpler and more easily measured metrics.  On site supervision is necessary It is unclear the extent to which infrequent supervision may have contributed to the quality issues encountered but more site visits could at least have allowed for a swifter, more informed reaction by the Bank. Security conditions in Afghanistan make field visits difficult and sometimes impossible to arrange. Some flexibility in design is essential, including the early identification of alternative activities to finance. Similarly, the inability to travel on site should be considered at inception, including by exploring alternative options through modern technology. In the end, though, there is no substitute for seeing for oneself.  Corporatization and commercialization of utilities is a multifaceted reform and has significant institutional implications Poor coordination between MEW and DABS is a serious challenge to the smooth development and operation of the sector. It is, therefore, important that those issues be considered together at project design, especially if it is known that further sector development is planned during the project’s lifetime. At the time the Project was prepared, the corporatization of DABS had not yet been completed and thus MEW continued to own both the project and the assets created by the project as well as have authority over DABS. Many of the coordination problems encountered towards the end of the Project could have been avoided had responsibilities for project implementation been considered sooner. 7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors (a) Grantee/Implementing agencies MEW noted that the main challenge it faced during project implementation was the evolution of its roles and those of DABS. In the early part of the project DABM was a department within MEW. Upon corporatization, DABS became autonomous and hence MEW’s authority was reduced but its implementation responsibilities were not. MEW recognizes that its capacity is an area in need of continuous improvement, and was disappointed to note that its performance had been rated Unsatisfactory, though it agrees 16 with the reasons given for this rating. MEW also considers that the project was impacted by the lack of an in-country TTL from 2010 to 2011. Country specific factors are also noted as affecting the ability to implement the project satisfactorily, most notably the post-conflict situation, the physical situation and the geographical location. It also points to the weaknesses of contractors affecting the timeliness of implementation. (b) Cofinanciers/Donors Not applicable. (c) Other partners and stakeholders Consultations were carried out with ADB, KfW and USAID as part of the preparation of this ICR. All donors confirmed the challenges of operating in the Afghan environment – on the same issues that KAMPP was confronted with: volatile security; coordination among institutions (including MEW and DABS); weak planning, implementation and project management capacity (the use of PIUs offering only a limited solution); and quality of contractors. ADB, which has the largest power portfolio, confirmed facing significant delays as a result. Overall, there is recognition that power remains an issue of primary importance for the development of the country – with efforts needed on generation, transmission and distribution. While Kabul is now relatively well served compared with the rest of the country, in part thanks to the combined efforts over the past decade (including the project), there is also a sense that continued efforts will be required in the Kabul subproject, in particular for distribution. The three following challenge emerge as priorities:  Training: need to focus on capacity building in operation, maintenance and supervision – with more efforts needed on design (availability of translated materials, training with clear deliverables; proper monitoring and follow-up);  Institutional reform: need for clarification of mandates, in particular between MEW and DABS – as a normal evolution should be for the power utility to be in charge of managing infrastructure investments and operation (which, in turn, may mean channeling external assistance through DABS); and  Coordination among donors: whereas dialogue and exchange of information are said to have been good, more coordination is needed. This applies in particular to the planning of assistance (ensure coherence of interventions) and institutional arrangements (use of DABS, role of MEW and of other institutions, e.g. the Environmental Agency). The preparation of the new Power Sector Master Plan is considered by all as a positive step for improved coordination. 17 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Distribution System 17.00 20.66 122 Rehabilitation for Kabul Establishment of a 220kV 6.00 9.86 164 Substation at Aybak Power System Rehabilitation for 25.00 23.60 94 Mazar-e-Sharif Institutional Capacity Building 4.00 2.83 71 Total Baseline Cost 52.00 56.95 110 Physical and Price Contingencies 6.50 0.00 0 Total Project Costs 58.50 56.95 97.4 Total Financing Required 58.50 56.95 97.4 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions)10 Afghanistan Reconstruction Trust 57.00 56.95 100 Fund IDA (from existing Cr. 3933) Joint 1.50 0.00 0 10 As of September 28, 2013 18 Annex 2. Outputs by Component 1) Outputs based on Outcome Indicators Outcome Indicator(s) Achievements by close of Project Outcome 1 – Increase the power supply Total grid electricity supplied to Kabul Target met by 253%, with 1,219 GWh in project areas in Kabul. increased to 482 GWh by March 2010. attained by 2010. Outcome 2 – Providing grid power Twenty five percent of population of Target met - substation completed; all supply access to the people of Aybak. Aybak with access to grid-based power consumers on Aybak distribution system now connected to the NEPS interconnector Outcome 3 - Increase in power supply Total grid electricity supplied to Target met by 174%, with 197 GWh to customers in Mazar–e-Sharif. Mazar–e–Sharif increased to 113 attained in 2010. GWh. 2) Outputs per Project component Component Achievements by the Close of the Project Part 1: Distribution System The work has been substantially completed – with completion and operational Rehabilitation for Kabul acceptance certificates issued in 2012. Since then, however, a series of transformer and other equipment failures have occurred. Those issues are being addressed by corrective actions by MEW or DABS and through legal remedies/actions against the contractor. Part 2 : Establishment of a 220 The Aybak substation is reported to have been commissioned and energized by the kilovolt (kV) Substation at contractor without involvement of MEW and there have been several equipment Aybak and Interconnection with failures. In addition, several essential civil works including retaining walls, drainage Distribution System and internal access roads have not been completed which put at risk the stability of the substation. Those issues will need to be addressed by corrective actions by MEW or DABS and through legal remedies/actions against the contractor. Part 3 - Power System The Mazar substation work was substantially completed in 2011 and is in operation. Rehabilitation for Mazar-e-Sharif Major problems were later reported and MEW has directed that the commissioning be redone. Distribution networks have also been rehabilitated; however, additional materials (made necessary by a design change) still need to be handed over by MEW to DABS. In addition, cracks appeared on some poles and 519 of them may need to be replaced – which, again, is a warranty issue to be dealt with by the contractor. Part 4 - Institutional Capacity All the single phase and three phase meters have been shipped and received by the Building contractors. Also, meter reading devices, computer base stations and testing equipment have all been handed over to DABS in Kabul and Mazar-e-Sharif. Necessary training has been conducted in Kabul and Mazar-e-Sharif for the DABS staff. 19 Annex 3. Economic and Financial Analysis For economic evaluation purposes, the project is divided into three subprojects: the Kabul distribution rehabilitation; the Aybak substation; and the Mazar substation extension and network rehabilitation. Between them, the three subprojects accounted for 95 percent of project costs. For evaluation of the Project, only the Aybak and Mazar subprojects are considered. The financing for the Kabul subproject was for two contracts, for LV systems and meters, with a total value of $22.9 million, or about 30 percent of total costs, with the balance financed by EPRP. To avoid the risk of double counting benefits, the results from the Kabul subproject have been excluded from the evaluation of the Project, which means the efficiency assessment is based on about 56 percent of total project financing. Table 3.1 gives details of the economic benefits from each of the three subprojects and further details of the analysis of the two considered in the Project are in Annex 3. The analysis for the Kabul transmission, substation rehabilitation project is included in the ICR for EPRP.11 Table 3.1: Economic Costs and Benefits of KAMPP Subprojects Sub-Project Cost Estimated NPV IRR (million $) ( million $) (%) Kabul Transmission, Substation and 74.14 405.63 118 Distribution Rehabilitation Aybak Substation 8.11 6.71 25% Mazar-e-Sharif Substation and 23.66 13.12 0.15% Distribution Rehabilitation * The Aybak and Mazar-e-Sharif substation work was contracted together so it is not possible to precisely match actual disbursements with Aybak or Mazar-e-Sharif substation specific line item costs. Aybak Substation The benefits of Aybak Substation sub-project are estimated based on the avoided costs of the next-least-cost alternative to achieve the subproject objective. The objective of the subproject was to provide grid-connected power to the residents of Aybak. Before the project, Aybak received power from a local distribution system connected to a 1,100 kVA diesel generator that connected the generator to approximately 3,500 households. Thus the counterfactual is simple – to continue to run the existing diesel generator. The following assumptions are relied upon to conduct an economic benefit analysis. (a) The existing diesel generator has a heat rate of 14,000 Btu/kWh, an efficiency of 24%, which amounts to diesel fuel consumption of 375 liters per MWh; (b) The cost of diesel is 60 Afs per liter ($1.09 at the current exchange rate of 55 Afs/USD). This is the current cost and is assumed to hold constant in real terms; (c) The resulting fuel cost of generation is 40 cents per kWh. The capacity factor of the plant is 80%. It is high because the average capacity per household is just 250 Watts, so the load factor (average/peak) is quite high. 11 Ibid 20 (d) The cost of grid power is 6 cents per kWh. This is the cost of the imported power from Uzbekistan delivered by the substation. Although this does not include the full cost of delivering the power, it is approximately the weighted average residential tariff, so it is the price of electricity if not the full cost. Based on these assumptions, the results of the economic benefit of the project is computed to have a net present value $6.7 million at a discount rate of 12%, and an internal rate of return of 25%. More details are presented in Table 3.2. Table 3.2: Economic Benefits of Aybak Substation Item Without Project With Project Cost of Project ($) 8,146,428 Available Capacity (MW) 0.88 12.8 Households Connected 3,500 3,500 Household Peak Load Served (KW) 0.25 3.66 Price of Power (Cents/kWh) 40 6 Annual Generation (MWh) 6,167 6,167 Annual Cost of Generation ($) 2,466,816 370,033 Net Present Value, $ (@12%) 6,710,226 IRR 25% This is the most conservative analysis possible. This analysis is simple as it compares the cost of the project to the avoided cost of the least-cost alternative which was continuing to run the existing diesel generator. The project however not only replaced the need for this 100 kVA (about 0.88 MW) of diesel generation; it provided a substation and transformer with a capacity of 12.8 MW, which can deliver nearly 15 times the power of the diesel. Given the existing distribution system, this allowed the average peak capacity per household to increase from 0.25 kW to 3.66 kW, which is more than twice the average capacity per customer in Kabul of 1.5 kW. There was no formal benefit analysis done at appraisal. Mazar-e-Sharif Substation and Distribution Rehabilitation12 The primary quantifiable impact of the project was increasing the capacity of the Mazar substation from 32 MVA (26.6 MW) to 82 MVA (65.6 MW), an increase of over 250%. This allowed DABS to increase the number of customers by nearly 50% from 2008 to 2010 and still nearly double the peak capacity available to each customer from 0.56 kW 12 The total cost for the sub-project was $23.7 million. Since the Mazar sub-project included one complete contract (MEW/S-502) plus only components of two others (MEW/S-503 and MEW/S-508) that also included the substation in Aybak and meters for Kabul, it is not possible to precisely match actual disbursements with Mazar’s specific line item costs. However, for MEW/S-503, the Mazar portion of the contract value is taken to be effectively the same as the actual project cost. For MEW/S-508, the actual disbursed amount ($2.8 million) is pro-rated by the share of the meters that were supplied to Mazar (10,000 of 50,000, or 20%). 21 to 0.98 kW over the same period. The impact of the project on DABS customers in Mazar-e-Sharif can be seen in Table 3.3 Table 3.3: DABS Customers in Mazar-e-Sharif Change Type 2008 2010 Number Percentage Residential 45,531 66,779 21,248 47% Commercial 3,131 4,901 1,770 57% Total 48,662 71,680 23,018 47% Given the significant unmet demand, this should have allowed a corresponding increase in consumption. However, because the project didn’t rehabilitate the low voltage (LV) distribution system, install any meters, or connect any additional customers, the actual project benefits were far more modest. The benefits of the project are estimated based on the avoided costs of the next least cost alternative to achieve the project’s objective. The objective of the project was to improve the quality and reliability of grid-connected power in Mazar-e-Sharif. Before the project, the substation was insufficient to meet local demand and the distribution system was unreliable. 13 Mazar-e-Sharif substation received power from a 110 kV line from Uzbekistan and had two 16 MVA transformers. The project with enabled an increase in consumption that the expanded substation and partially-rehabilitated distribution system allowed. From 2008, before the project started, to 2010, when the project was substantially complete, consumption in Mazar increased from 177 GWh to 197 GWh, an 11% increase over two years. Crediting the project with this benefit, and assuming that it continued each year over a 20 year payback period, the estimate of the project’s economic benefit, in this case the negative NPV are not marginal as summarized in Table 3.4. 13 As stated in the MEW/S-502 contract, the condition of the Mazar distribution system was described as follows: The reliability of the electricity supply is at a very low level due to load shedding as well as due to the frequent failures of the distribution network. The existing distribution system is also constrained by inadequate capacity of the network components such as power lines, cables, transformers etc. This has caused excessive voltage drops in most parts of the network causing severe difficulties to the consumers. It has also prevented new customers from being added to the network who are waiting for supply connection over a long period of time. The present condition of the network also poses a serious safety hazard to the general public, as well as to the operational (DABM) staff due to exposed or unprotected live network components, inadequate clearances etc. 22 Table 3.4: Summary of Benefits of Mazar Substation and Distribution Sub-Project Without Project With Project Cost of Project ($) 23,664,328 Available Capacity (MW) 25.6 65.6 Households Connected 45,531 66,779 Household Peak Load Served (KW) 0.56 0.98 Price of Power (Cents/KWh) 6 6 Annual Consumption (MWh) 177,258 197,283 Theoretical Capacity (MWh) 177,258 454,224 Annual Cost of Generation ($) 106,534,480 11,836,980 Net Present Value, $ (@12%) (13,115,886) IRR 0.15% The reasons for the negative NPV and marginally positive IRR can be attributed to the following: (a) The distribution system rehabilitation represented over 85% ($20.5 million) of the subproject cost, but since much of the LV work was left unfinished, the project failed to deliver the benefits of the increased substation capacity to customers. (b) Meter installation and actual customer connection were not part of the project scope. Therefore, the benefits of additional customers and increased access to electricity remain largely unrealized by the project. (c) The project includes the cost of meters, although no meters were actually installed as part of the project. The meters were delivered, but they did not fit in the meter boxes supplied. For the relatively minor marginal cost of properly completing the LV system, installing meters, and making customer connections, this project could have offered the people of Mazar-e-Sharif a much more significant benefit for the investment. 23 Annex 4. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending/Grant Preparation Nagaraju Duthaluri Lead Procurement Specialist ECSO2 Minerva S. Espinosa-Apurada Program Assistant SASDO Deepal Fernando Senior Procurement Specialist ECSO2 Abdul Wali Ibrahimi Operations Officer SASDU Asila Warkdak Jamal Consultant SASDE Sunil Kumar Khosla Lead Energy Specialist ECSEG Asha Narayan Sr Financial Management Specia SARFM Kenneth O. Okpara Sr Financial Management Specia SARFM Asta Olesen Senior Social Development Spec SASDS Mohammad Arif Rasuli Senior Environmental Specialis SASDI Supervision/ICR Toufiq Ahmed Procurement Specialist SARPS Mohammad Anis Energy Specialist SASDE Abdul Mohammad Durani Social Development Specialist SASDS Nagaraju Duthaluri Lead Procurement Specialist ECSO2 Minerva S. Espinosa-Apurada Program Assistant SASDO Deepal Fernando Senior Procurement Specialist ECSO2 Julia M. Fraser Sector Manager EASTS Mariam Haidary Program Assistant SASHD Ahmad Rafi Hotofat Team Assistant SASDO Abdul Wali Ibrahimi Operations Officer SASDU Asila Wardak Jamal Consultant SASDI Sunil Kumar Khosla Lead Energy Specialist ECSEG Arun Kumar Kolsur Senior Procurement Specialist SARPS Asha Narayan Sr Financial Management Specia SARFM Mohammad Yasin Noori Social Development Specialist SASDS Wahida Obaidy Team Assistant SASDO Kenneth O. Okpara Sr Financial Management Specia SARFM Asta Olesen Senior Social Development Spec SASDS Abdul Hameed Quraishi Operations Officer SASDE Mohammad Arif Rasuli Senior Environmental Specialis SASDI Mohammed Edreess Sahak Program Assistant LCC3C Richard Spencer Country Sector Coordinator SASDE Gilles Veuillot Consultant SASDE Ameet Morjaria Energy Economist - YP SASDE 24 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY08 9.40 37.51 Total: 9.40 37.51 Supervision/ICR FY08 21.34 49.63 FY09 19.53 64.14 FY10 16.92 55.65 FY11 33.35 50.50 FY12 27.48 66.70 FY13 19.38 118.48 FY1414 2.55 24.60 Total: 140.55 429.70 14 To August 31, 2013 25 Annex 5. Beneficiary Survey Results No beneficiary survey was carried out. Annex 6. Stakeholder Workshop Report and Results No stakeholder workshop was carried out. 26 Annex 7. Summary of Grantee's ICR and/or Comments on Draft ICR The Borrower’s ICR is reproduced in full here. I. Introduction This report was prepared by the Ministry of Energy and Water of the Islamic Republic of Afghanistan (MEW), the implementing agency for the Kabul Aybak Mazar-e-Sharif Power Project (KAMPP). The KAMPP was composed of the following contracts: Status of KAMPP Physical Components Contract No. Description Contractor Kabul Distribution Rehabilitation Project MEW 300/3 Angelique Phase I Mazar-e-Sharif Distribution Rehabiliation JV MEW/S-502 Works ATSL/AEPC MEW/S-503 Mazar-e-Sharif and Aybak Substations IRCON Procurement of Single and Three Phase MEW/S-508 Angelique Electronic Energy Meters The KAMPP development credit agreement was signed on December 23, 2007. It was originally a two-year project with a closing date of December 31, 2009, although this date was required by the scheduled expiry of the ARTF grant, and the project was actually envisioned to last at least three-years. As it was, the project was extended just prior to its expiry three times by a total of 39 months. In November 2009, it was extended 21 months to September 30, 2011; in September 2011, it was extended nine months to June 30, 2012; and in June 2012, it was extended by a final nine months to March 31, 2013. With the four-month grace period for project close out, it would have ended July 31, 2013, but the grace period itself was extended by two months, so the revised closing date is September 30, 2013. The KAMPP was funded from an Afghanistan Reconstruction Trust Fund (ARTF) grant. The ARTF grant (TF091120-AF) was for $57 million. Since the project is not closed as of the writing of this report, the final disbursement amount is not yet known. However, it is expected that final disbursements will essentially equal the total allocated funding. II. Objectives of the Project The World Bank’s project development objective (PDO) stated in the grant agreement for KAMPP was the following: “The objective of the Project is to help the Recipient provide reliable and quality power to consumers in the cities of Kabul, Aybak, and Mazar-e- Sharif.” There was no formal performance indicator stated for measuring the achievement of this objective. However, in addition to the PDO, the project had a number of intermediate outcomes, indicators, and intermediate result indicators that are summarized in the following table: 27 KAMPP Objective, Outcomes, and Indicators Outcome Indicator Intermediate Result Indicator PDO: To help provide reliable and None Provided quality power to the consumers in the target areas of the cities of Kabul, Aybak, and Mazar-e-Sharif. Intermediate Outcome 1: Increase in power supply to Total grid electricity supplied Strengthen the low voltage (LV) project areas in Kabul to Kabul increased to 482 distribution network in parts of the GWh by the end of SY 1388 capital city of Kabul supplied by (March 2010) Junction Station 2, as measured by number of transformers installed and commissioned. Intermediate Outcome 2: Providing grid power supply 25% of population of Aybak Construct a 220/20 kV substation access to the people of Aybak with access to grid-based and associated 20 kV line to Aybak power to provide quality, reliable, and clean power to the people of Aybak town (indicator being the completion of the Aybak substation). Intermediate Outcome 3: Increase in power supply to Total grid electricity supplied Strengthen the low voltage (LV) customers in Mazar-e-Sharif to Mazar-e-Sharif increased distribution network in parts of to 113 GWh by the end of SY Mazar-e-Sharif City, and measured 1389 (March 2011) by the number of 20/0.4 kV transformers installed and commissioned. The following were the components of the project: 1. Distribution System Rehabilitation for Kabul: Rehabilitation and extension of the distribution system to connect medium voltage (MV) trunk lines and cables to customers in Kabul; and reorganizing the existing distribution system to optimize loading to reduce losses and provide satisfactory power supply voltage to customers in Kabul. 2. Establishment of a 220 kilovolt (kV) Substation at Aybak and Interconnection with Distribution System: Establishment of a new 220/20kV, 16 Megavolts Amperes (MVA) substation at Aybak and 20kV interconnection with the existing Aybak distribution system, currently fed through diesel generated power to switch to the grid based supply. 3. Power System Rehabilitation for Mazar-e-Sharif: Rehabilitation of the distribution system in Mazar-e-Sharif by upgrading the existing MV distribution network from 6kV to 20kV; connecting the distribution network to the 220/20kV substation; rehabilitating and/or replacing the 28 low voltage distribution network; and augmenting transmission facilities to meet the requirements of the distribution network. 4. Institutional Capacity Building: Provision of capacity building and implementation support to MEW and DABM including for: (a) operation and maintenance of the distribution systems; (b) implementation of infrastructure metering and accounting of energy supplied in Kabul, Aybak and Mazar- e- Sharif, (c) establishment, operation and hand-over to DABM of customer care center(s); (d) communication of Project plans to consumers; (e) Project management support; and (f) other capacity building needs identified during implementation. Note, however, that the institutional capacity building of Part 4 was effectively never implemented. There were also no performance objectives associated with this component. III. Assessment of Outcome Achievement of the Objectives KAMPP technically achieved its objectives, although the objectives were generally ill- defined and measured with poor indicators. The PDO was simply to “help” provide reliable power in the target areas of the target cities, which of course any project could hardly fail to do. The Intermediate Outcomes were a bit more meaningful:  Intermediate Outcome 1: Increase in power supply to project areas in Kabul  Intermediate Outcome 2: Providing grid power supply access to the people of Aybak  Intermediate Outcome 3: Increase in power supply to customers in Mazar-e-Sharif KAMPP did technically achieve the performance indicators of the Intermediate Outcomes. The indicator for Outcome 1 (Kabul) was for grid electricity supply to increase to 482 GWh by the end of SY 1388 (March 2010). However, in fact Kabul grid consumption was already 649 GWh in 2007, before the project even started. There was a significant increase in electricity consumption in Kabul after the project started, with consumption reaching 978 GWh by the end of 2009, although this was well before the project work in Kabul was actually completed, so the achievement of the indicator was entirely unrelated to the project. (In fact, the improvements realized in Kabul were almost entirely attributable to projects under EPRP, since the Kabul component of KAMPP was limited to rehabilitating the distribution system connected to a single junction station.) The indicator for Outcome 2 (Aybak) was for 25% of the population of Aybak to have access to grid-based power. While again, the project technically achieved this indicator, it is in fact an indicator that is unknowable and unaffected by the project. Calculating the percentage of the population connected to the grid requires three data points: (1) the 29 number of customers, (2) the average household size, and (3) the total population. Unfortunately, none of this information is accurate or even consistent. According to DABS, there were 7,492 residential customers in Aybak in 2010. With average household size conservatively estimated at 6 – 10 people, this corresponds with 45,000 – 75,000 people. However, according to the Central Statistics Office (CSO), the population of Aybak City, the urban center connected to the grid, was just 26,400 in 2010. Since the total population of Aybak (including the rural areas of the district) was about 100,000, the only way that the 25% number makes any sense is if it refers to the urban population as share of the total population of Aybak Province. In fact, if this is the case, the indicator was technically achieved before the project began, and since the project did not include any expansion of the distribution network, the project could not affect the indicator in any event. The indicator for Outcome 3 (Mazar) was that total grid electricity supplied to Mazar-e- Sharif should increase to 113 GWh by the end of SY 1389 (March 2011). This indicator was valid and legitimately achieved by the project. Reliable data for 2011 isn’t available, but by the end of 2010, consumption in Mazar had increased to 197 GWh, 174% of the goal, and this can reasonably be attributed to the KAMPP project, specifically the expansion of the Mazar Substation. Also, while there were significant problems with the distribution system portion of the work in Mazar, upgrading parts of the system from 6 kV to 20 kV did at least anecdotally improve the quality of the delivered power. The improvement in delivered voltage is seen in the following graph: Mazar Peak Load Power Quality Improvement 250 Proper 220 V Line Voltage 200 Delivered Voltage (V) 150 100 50 0 Before A er (Previous 6 kV Network) (New 20 kV Network) Source: SMEC. Average voltage from five houses at evening peak load in March and May of 2010. The outcomes, indicators, and achievements are summarized in the following table: 30 KAMPP Achievement of Performance Indicators Intermediate Outcome Indicator Result Indicator Achievements Assessment PDO: To help provide None reliable and quality Provided power to the consumers in the target areas of the cities of Kabul, Aybak, and Mazar-e- Sharif. Intermediate  Strengthen the low  Consumption was Outcome 1: Total grid voltage (LV) 978 GWh in Increase in power electricity distribution network 2009, 202% of supply to project supplied to in parts of the the baseline. areas in Kabul Kabul capital city of Kabul  Consumption was Significantly increased supplied by Junction 1,219 GWh in Exceeded Goal to 482 Station 2, as 2010, 253% of (Not attributable GWh by measured by the baseline. to project) the end of number of  Installed and SY 1388 transformers commissioned (March installed and 135 transformers. 2010) commissioned. Intermediate  Construct a 220/20  Aybak substation Outcome 2: 25% of kV substation and completed. Providing grid power population associated 20 kV  All customers supply access to the of Aybak line to Aybak to previously Achieved Goal people of Aybak with access provide quality, connected to local (Not due to to grid- reliable, and clean grid who received project, and based power to the people power from diesel indicator power of Aybak town generator now irrelevant) (indicator being the receive power completion of the from substation. Aybak substation). Intermediate  Strengthen the low  Grid-supplied Outcome 3: Total grid voltage (LV) electricity was Increase in power electricity distribution network already 197 GWh supply to customers supplied to in parts of Mazar-e- in Mazar in 2010, in Mazar-e-Sharif Mazar-e- Sharif City, and 174% of the goal. Sharif measured by the  Installed and increased number of 20/0.4 commissioned 62 to 113 kV transformers transformers; Exceeded Goal GWh by installed and delivered 161 for the end of commissioned. future installation SY 1389 by DABS. (March  Significantly 2011) improved power quality. 31 Implementation Status of the Physical Components The status of the works of the component contracts is summarized in the following table: Status of KAMPP Physical Components Contract No. Description Contractor Consultant* Status Kabul Distribution Rehabilitation Project MEW 300/3 Angelique GFA Completed 1 Phase I Mazar-e-Sharif Distribution Rehabiliation JV MEW/S-502 GFA Completed 2 Works ATSL/AEPC MEW/S-503 Mazar-e-Sharif and Aybak Substations IRCON GFA Completed 3 Procurement of Single and Three Phase MEW/S-508 Angelique GFA Completed 4 Electronic Energy Meters *SMEC was original PMF for all contracts. GFA assumed the PMF role on indicated projects in January 2012 under contract MEW 257b-SSS implemented under the Afghanistan Power System Development Project (APSDP). (1) Assets in service and operational acceptance issued September 30, 2011, but a significant number (4,345) corrective action reports still outstanding, primarily concerning meter boxes. (2) Assets in service and operational acceptance issued July 31, 2012. However, 795 defective 9-meters are being replaced. (3) Assets in service and completion certificate issued December 8, 2012. Operational acceptance not issued since substations were commissioned without a witness from client or PMF. (4) Equipment delivered. Completion certificate issued June 20, 2011. There were, however, significant delays in the implementation of all project components, including delays in executing the contracts and performing the work. For executing contracts, the average period between MEW receiving bids to signing a contract was 125 days. The fastest turn around was 90 days and the worst was 190 days. The average period between contract signing and contract effectiveness was 95 days. These delays were caused by the multiple steps required to make the contract effective, including securing bank guarantees, navigating the internal processes between MEW and MoF, making the advance payment, issuing the letter of credit (LC), and finally getting the special commitment (SC) letter from the World Bank. However, these delays were significantly shorter than those previously experienced under EPRP. The times required to sign and make effective each contract are illustrated below: 32 KAMPP Contract Signing and Effec veness MEW 300/3 MEW/S‐502 MEW/S‐503 MEW/S‐508 0 50 100 150 200 250 300 Days Bid Received to Contract Signing Contract Signing to Effec veness All of the KAMPP contracts experienced enormous implementation delays. The most on-time project (in absolute terms), the meter supply contract, still took 320 days longer than expected, which was actually the worst delay in relative terms (178% of the original schedule). The worst-delayed project was the Mazar-e-Sharif distribution rehabilitation, which took 850 days (155%) longer than originally planned. The reasons for the delays included revisions of scope, delays in equipment, complications in installation, security and logistics issues, and generally poor performance of the contractor. With all of this, the average time of actual completion was over 2.5 times (153%) the original contractual time for completion. The original and actual completion times for each of the KAMPP contracts are illustrated below: KAMPP Implementa on Delays MEW 300/3 MEW/S‐502 MEW/S‐503 MEW/S‐508 ‐ 200 400 600 800 1,000 1,200 1,400 1,600 Days Original Time for Comple on Addi onal Time Required All of the relevant contractual and performance dates are seen in the following table: 33 Original and Actual Completion Dates of KAMPP Physical Components Original Actual Total Time for Contractual Actual Completion Elapsed Contract Contract Completion Completion Completion Time Percentage Time Contract No. Description Bids Received Signed Effective* (Days) Date Date** (Days) Delayed (Days) Kabul Distribution MEW 300/3 Rehabilitation Project Phase I Dec 24, 2007 Mar 23, 2008 Jun 9, 2008 500 Oct 22, 2009 Sep 30, 2011 1,208 142% 1,376 Mazar-e-Sharif MEW/S-502 Distribution Rehabiliation Works Feb 7, 2008 Jun 12, 2008 Sep 30, 2008 550 Apr 3, 2010 Jul 31, 2012 1,400 155% 1,636 Mazar-e-Sharif and Aybak MEW/S-503 Substations Jun 21, 2008 Dec 28, 2008 Mar 17, 2009 540 Sep 8, 2010 Dec 8, 2012 1,362 152% 1,631 Procurement of Single and MEW/S-508 Three Phase Electronic Energy Meters Jul 11, 2009 Oct 15, 2009 Feb 5, 2010 180 Aug 4, 2010 Jun 20, 2011 500 178% 709 *Contract is effective upon issuance of special commitment (SC) letter from World Bank. **Date of operational acceptance for MEW 300/3 and MEW/S-502. Date of completion certificate for MEW/S-503, which was never formally commissioned, and MEW/S-508, which was just a supply contract. Economic Viability Unlike the EPRP, which provided significant economic benefit, the KAMPP provided relatively little economic benefit to the people of Afghanistan. The KAMPP was broadly divided into two sub-projects, the Aybak Substation and the Mazar-e-Sharif Substation and Distribution Rehabilitation. The Aybak project, which built a new substation and replaced expensive diesel-generated power with cheap, reliable imported power, provided a significant economic benefit to the people of Aybak. Unfortunately, the Mazar-e-Sharif project, which did the beneficial work of expanding the Mazar Substation, but expended 85% of its costs on an ill-planned and executed distribution system rehabilitation, provided a net-negative economic benefit. The costs and economic benefits of the KAMPP sub-projects are summarized in the following table: Summary of KAMPP Economic Benefits Sub-Project Cost 1 Estimated NPV2 IRR Aybak Substation 8,114,428 6,710,226 25% Mazar-e-Sharif Substation and Distribution Rehabilitation 23,664,328 (13,115,886) 0.15% Total 3 = 31,778,756 (6,405,660) (1) Based on sub-project cost elements. Cost does not include all KAMPP costs, including non-subproject costs and taxes. (2) Based on 12% discount rate and assumptions outlined in Sub-Project Completion Report. (3) Costs and benefits for Kabul were incorporated in Kabul Transmission, Substation, and Distribution sub- project, which is considered part of the EPRP since the majority of the costs expended (and nearly all of the benefits realized) were from the EPRP-funded portions of the work. The following two subsections provide a brief summary of the economic assessment of the sub-projects. A complete summary can be found in the relevant sub-project completion reports (SCRs) prepared for MEW by the PMF. Aybak Substation The benefits of the Aybak Substation project are estimated based on the avoided costs of the next least-cost alternative to achieve the project’s objective. The objective of the project was to provide affordable grid-connected power to the residents of Aybak. Prior to the project, Aybak received power from a local distribution system connected to a diesel generator. The generator was a 1,100 kVA Caterpillar generator previously 34 supplied by the World Bank, and the distribution system was a USAID-funded project that connected the generator to approximately 3,500 households. The assumptions for the economic analysis of the project are summarized below:  The diesel generator has a heat rate of 14,000 Btu/kWh, an efficiency of 24%. The diesel consumption is approximately 375 liters per MWh.  Cost of diesel is 60 Afs per liter ($1.09 at the current exchange rate of 55 Afs/USD). This is the current cost and is assumed to hold constant in real terms.  The resulting fuel cost of generation is 40 cents per kWh.  The capacity factor of the plant is 80%. It is high because the average capacity per household is just 250 Watts, so the load factor (average/peak) is quite high.  The cost of grid power is 6 cents per kWh. This is the cost of the imported power from Uzbekistan delivered by the substation. Although this does not include the full cost of delivering the power, it is approximately the weighted average residential tariff, so it is the price of electricity if not the full cost. Based on these assumptions, the results of the economic benefit of the project are seen in the following table: Summary of Economic Benefit of Aybak Substation Sub-Project Units Without Project With Project Cost of Project 8,146,428 Available Capacity MW 0.88 12.8 Households Connected 3,500 3,500 Household Peak Load Served KW 0.25 3.66 Price of Power Cents/KWh 40 6 Annual Generation* MWh 6,167 6,167 Annual Cost of Generation 2,466,816 370,022 Net Present Value (@12%) = 6,710,226 IRR = 25% *Generation is constrained to the diesel generation displaced by project. However, the project's transfomrer can deliver 15 times as much power as the diesel generators. If that amount of power was replaced by diesels, the annual fuel cost would be $17.9 million. Mazar-e-Sharif Substation and Distribution Rehabilitation The benefits of the project are estimated based on the avoided costs of the next least-cost alternative to achieve the project’s objective. The objective of the project was to improve and expand access to grid-connected power in Mazar-e-Sharif. Prior to the project, the substation was insufficient to meet local demand and the distribution system was unreliable. 35 The primary benefit of the project was increasing the capacity of the Mazar substation from 32 MVA (26.6 MW) to 82 MVA (65.6 MW), an increase of over 250%. This allowed the number of DABS customers to increase by nearly 50% from 2008 to 2010 and still nearly double the peak capacity available to each customer from 0.56 kW to 0.98 kW over the same period. Quantifying the project benefits is difficult, but it is at least reasonable to credit the project with enabling the actual increase in consumption that the expanded substation and partially-rehabilitated distribution system allowed. From 2008, before the project started, to 2010, when the project was substantially complete, consumption in Mazar increased from 177,000 MWh to 197,000 MWh, an 11% increase over two years. Crediting the project with this benefit, and assuming that it continued each year over a 20 year payback period, the estimate of the project’s economic benefit is seen in the following table: Summary of Economic Benefit of Mazar Substation and Distribution Sub-Project Units Without Project With Project Cost of Project 23,664,328 Available Capacity MW 25.6 65.6 Households Connected 45,531 66,779 Household Peak Load Served KW 0.56 0.98 Price of Power Cents/KWh 6 6 Annual Consumption* MWh 177,258 197,283 Theoretical Consumption** 177,258 454,224 Annual Cost of Generation 10,635,480 11,836,980 Net Present Value (@12%) = (13,115,886) IRR = 0.15% *Actual consumption data comparing 2008 and 2010. Data from DABS and AEIC. **Based on substation capacity and empirical capacity factor of 79% prior to project. As implemented, the economic benefit (net present value) of this sub-project is negative, and it has an IRR of just 0.15%. The reasons for this are as follows:  The distribution system rehabilitation represented over 85% ($20.5 million) of the sub-project’s cost, but since much of the LV work was left unfinished, the project failed to deliver the benefits of the increased substation capacity to the customers.  Meter installation and actual customer connection were not part of the project scope. Therefore, the benefits of additional customers and increased access to electricity remain largely unrealized by the project.  The project includes the cost of meters, although no meters were actually installed as part of the project. The meters were delivered, but they did not fit in the meter boxes made by the PCU unit of DABS. For the relatively minor marginal cost of properly completing the LV system, installing meters, and making customer connections, this project could have offered the people of Mazar a much more significant benefit for the investment. 36 Environmental and Social Aspects Environmental The KAMPP did not have any appreciable negative environmental impact. The Aybak Substation had a minor localized environmental impact. The size of the project-affected area was approximately 5 hectares (200 x 250 meters), which includes the area for the substation and additional space for a 110 kV switchyard and future expansion. This was sloping land on a hillside that had to be graded and terraced to be used for the substation. The major environmental impacts at the site were the following:  Local vegetation destroyed  Soil erosion at site  Changed local drainage patterns A water well was drilled onsite, but since it failed to reach water, there was no water contamination or effect on the local water table. However, since the Aybak Substation allowed inefficient diesel generation to be replaced by imported Uzbek power (generated primarily by natural gas), it actually had a net environmental benefit. The avoided diesel consumption from the 1,100 kVA generator that supplied the local grid was about 2.2 million liters per year. In addition, the improved access and reliability of electricity from the substation allowed for a significant reduction in the use of personal generators. The other components of the project had no appreciable environmental impact. The Mazar substation expansion was on land already used by the existing substation, so the total footprint was not expanded. The distribution system rehabilitations in Kabul and Mazar only rehabilitated existing lines. In fact, to the extent that the rehabilitated lines reduced line losses and allowed for the more efficient transmission of electricity, they effectively reduced the system’s environmental impact. Also, since as noted in the original contract, the existing lines were dangerous and likely to kill someone, the rehabilitation work mitigated that potentially significant impact. Social Impact There were no land acquisition or resettlement plans prepared by the KAMPP contractors. However, all work was done on lands already used by DABS (the national utility). The new Aybak Substation was constructed on an unused slope of land provided by DABS, the Mazar substation expansion was on land already dedicated to the existing substation, and the distribution system rehabilitations in Kabul and Mazar was work on existing lines using existing rights of way (ROW). Technical Assistance There was no technical assistance funded under KAMPP. 37 Project Sustainability While the KAMPP provided some benefits to the people of Afghanistan, there are serious questions about the sustainability of the projects implemented under KAMPP. Key issues affecting sustainability include the following:  Some of the equipment installed was of poor quality. There were particular issues with the concrete poles and distribution transformers installed in Kabul and Mazar-e-Sharif. There is an open question, which is still under investigation, regarding whether the poles installed under MEW 300/3 (as well as MEW 300/2, which was part of EPRP) are too thin to meet the contract specification. A large number of the transformers installed failed, and while this was initially blamed by the contractor on overloading, inspections by the PMF confirmed that there were in fact significant defects in the manufacture and installation of the transformers.  The installation work of the contractors was not consistently acceptable, especially for the distribution work in Kabul and Mazar-e-Sharif. For example, the PMF issued the contractor for the Kabul distribution project (contract MEW 300/3) 4,345 corrective action reports (CARs) to address defects in their work, but they never responded.  The operation and maintenance training during the projects was often inadequate. While O&M training was generally included in the contractor’s scope of work, there was no standard of quality or competence specified. As a result, training hours were delivered, but not necessarily to the appropriate local staff or in an effective manner (e.g., in a language understood by the participant).  The installation contracts included provision of spare parts and equipment, but the lists were incomplete and the quantities often inadequate. This, coupled with the lack of comprehensive O&M training, will mean that the assets installed or rehabilitated under the project will fall into disrepair much faster than necessary. Some of these issues may be resolved during the warranty period, but it must be acknowledged that the systems installed, particularly the distribution systems, were not implemented with a focus on quality, longevity, or sustainability. IV. Performance Assessment Bank Performance MEW is satisfied with the World Bank’s performance. The KAMPP effectively started in 2008, well after early failures implementing EPRP in 2004 – 2006 prompted significant process improvements in late 2006. Therefore, the KAMPP benefitted directly from the following two key administrative improvements made under EPRP:  The memorandum of understanding (MOU) between MEW and the Ministry of Finance (MoF) that detailed a streamlined process for procurement and 38 payment. This created the procedures that allowed the project to be successfully implemented.  The establishment of an outside consultant to serve as the project management firm (PMF). MEW’s internal project implementation unit lacked the capacity to successfully implement such a large and complex project. The PMF provided the necessary technical and project management expertise required to successfully implement the project. One shortcoming in the Bank’s performance was that the task team leaders (TTL) were not able to directly supervise the work in Aybak and Mazar. Although this was primarily due to legitimate security concerns, it did contribute to the delays and poor implementation of the projects in those cities. A second area of concern was that the KAMPP lacked any capacity building or institutional development components. Since KAMPP was effectively implemented as a supplementary project to EPRP, it relied completely on the technical assistance components of EPRP (and later APSDP). However, given that EPRP’s capacity building deficiencies were already noted at the time KAMPP was developed, KAMPP represents a missed opportunity to improve the capacity building that could have supported the implementation and sustainability of both the EPRP and KAMPP. Borrower Performance As the implementing agency, MEW is satisfied with our performance and that of the Government of the Islamic Republic of Afghanistan in implementing the KAMPP. In reviewing and evaluating our own performance implementing KAMPP, MEW recognizes that it needs to continue to improve in the following two areas:  Facilitating coordination among the various Afghan institutional stakeholders, including MEW, MoF, and DABS.  Project management and technical expertise. As with EPRP, the challenge during the project implementation was that the roles of MEW and DABS evolved significantly. Until September 2009, Da Afghanistan Breshna Mossesa (DABM) was essentially a department within MEW, but after this, DABM became the commercialized state utility Da Afghanistan Breshna Sherkat (DABS)—a transition that was supported by the World Bank as part of the EPRP. Prior to the transition, MEW was the asset owner and DABM was the operator, so the coordination could generally be managed by directive. After the transition, DABS became both the asset owner and operator, which made MEW’s role as implementing agency significantly more complicated. While MEW’s responsibilities as implementing agency didn’t change, our authority and autonomy to unilaterally fulfill our role was diminished. Since most of the KAMPP projects started before this transition, the projects were based on implementation plans that were incompatible with the new institutional organizational structure. MEW’s project management and technical capacity are also in need of continuous improvement. MEW has many dedicated and capable staff working very hard to improve 39 the energy infrastructure of Afghanistan. However, in order for the energy infrastructure investments of the World Bank and other donors to provide a sustainable benefit to the people of Afghanistan, the staffs of MEW and DABS need significantly more capacity building to improve technical expertise and overall project management ability. V. Key Lessons Learned There were a significant number of lessons learned during the KAMPP. The following subsections outline the project-specific lessons learned during the Aybak Substation construction and the Mazar-e-Sharif Substation expansion and rehabilitation of the distribution system. The third subsection highlights some recommended areas of improvement in the general contracting procedures, along with some suggestions on how the identified problems might be mitigated. Aybak Substation Key lessons learned from the Aybak Substation sub-project include the following:  There was no land acquisition or resettlement plan prepared by the contractor. The project site was land that DABM (the national utility at the time, which has since become DABS) designated for the substation.  The site design was inadequate. The design firm failed to visit the actual site and produce a site-specific design. Most notably, the design excluded the line-in line-out (LILO) required to connect the substation with the existing transmission line, an access road to the site, and proper drainage. The LILO and additional civil works had to be included in Contract Amendment 3 for an additional $1.9 million.  The site provided was on a steep grade. However, the design and scope of work were based on a level-graded site, and they were never changed based on the actual site conditions. Therefore, significant changes were required in the civil design, including two 4-meter retaining walls and additional drainage, that were done informally by the contractor without the review and approval of the client or the project management firm (PMF).  There is no water available at the site. The contract specified that a well should be drilled, but there was no site assessment done to confirm that water would be available. A well was drilled to over 600 meters, the practical drilling limit in Afghanistan, but no water was available. Therefore the site has to be served by water trucks, which is not a sustainable solution for the ongoing operation of the site.  In general, the front-end engineering required for proper project planning and implementation was not performed.  The factory acceptance test (FAT) procedures were never prepared or submitted for approval, and there was no provision in the budget for the PMF to supervise the tests. As a result, there were issues with the delivered equipment that could have been avoided.  The security situation in the project area was poor, and the site was threatened and attacked several times. Many of the contractor’s staff were Indian nationals, and unfortunately the staff and project were targeted. Fortunately, 40 no one was killed as a result of the attacks, but the security situation did cause operational issues and delays.  The contract specified that the contractor must provide training to the local staff. Unfortunately, there was no requirement that the training be suitable, sufficient, or even in the local language. As a result, the training provided was completely useless, which significantly affects the sustainability of the project.  The Afghan Ministry of Finance (MoF) would not extend the letter of credit (LC) beyond the original contract completion date, despite the fact that due to delays works were still ongoing. Since the client (MEW) is contractually required to maintain a valid LC while works are still ongoing, this meant that the client was in breach of contract. The PMF was able to resolve this issue by preparing a contract amendment that created and extended the contractually meaningless “contract closing date”, which then allowed the MoF to extend the LC. Mazar-e-Sharif Substation and Distribution Rehabilitation Key lessons learned from the Mazar-e-Sharif sub-project include the following:  The original project scope only included rehabilitation of limited parts of Mazar’s distribution network. However, when the project started, local DABS officials and various political figures demanded that the works be shifted and expanded to cover their various constituencies. This resulted in an ineffective patchwork of rehabilitation that ultimately achieved very little over a wide area. Major distribution projects either need to be well-defined and strictly implemented or cover an entire geographically or politically-defined area.  The poor implementation of the LV works and the exclusion of customer connections from the project scope—the “last kilometer” and “last meter” problems—meant that the benefits of expanding the substation went largely unrealized by the residents of Mazar.  For the distribution system, there was extremely limited front-end engineering and design, and a general lack of project management experience by all parties. As a result, the program of works in the contract was not sufficiently detailed, yet it was accepted by the client, project management firm, and the World Bank.  The project management firm had a project office on site in Mazar. Unfortunately, the staff failed to maintain their independence from the contractor and DABS, which resulted in overly-optimistic progress reports. This was enabled by poor oversight by the PM main office in Kabul.  Despite the distribution lines being handed over by DABS, there were still right of way issues during the project that caused delays.  Since the contract was awarded with only a preliminary system design, there were significant delays caused by final design preparation, review, and approval. 41  There were significant manufacturing defects in the 9-meter poles.  The contract said that contactor was required to provide a warehouse for materials and spare parts, but since the contract only defined an area and not the specifications of the warehouse, the contractor decided to call their outside laydown yard a “warehouse.” As a result, equipment was damaged in storage.  The contractor failed to hand over to the client proper procedures and documents for operation and maintenance. O&M training of local staff was also limited, while will limit the sustainability of the project.  There were major changes to the scope of work throughout the project, but these were implemented with change orders and proposals rather than done properly with contract amendments. As a result, the impact on the budget, period of performance, and overall project implementation were never formally assessed or approved. General Contractual Issues The following table highlights some general contracting issues that arose during implementation of KAMPP. These are presented with some recommendations for possible means to mitigate these issues in the future. Issue Possible Mitigation Contractors front-end load major Supply-Install Change terms of payment to have some contracts leaving very little incentive to material/equipment payments due only after compete installation at site installation. Rear-end load payment conditions. Prepare separate contracts for material and equipment supply with LCB installation contracts. O&M training carried out by contractors was Training should be a separate component under not successful Capacity Building, include needs assessment and carried out by professionals. While the Project Manager is required to Introduce a Special Condition requiring respond to contractor submissions within 14 Contractor response within a deadline. days there is no time period for contractors’ responses. Sanctions for Contractor non-performance Should include the ability to withhold payment clauses are limited in the GCC. Only notice of of invoices during any period of default notice. default followed by move to terminate is available. Contractors can ignore instructions to renew GCC/SCC should allow withholding payment Advance Payment or Performance Guarantees. if BG’s not renewed. Adequate sanctions not available in GCC. Effective date is Advance Payment. Delay in Make effectiveness when LC is effective (i.e. LC has caused contract delays and claims. SC) Poor contract management by contractors. Contract management processes should be Claims for extensions of Time for Completion systematised and available on the WB website. not properly documented causing loss of productive time for all parties in negotiating claims. Bid evaluation reports were required to be More stringent selection criteria. More time to completed in 21 days. As a result not enough investigate and verify past performance claims. time and effort was given to investigation and verification of contractors past performance and 42 Issue Possible Mitigation submitted documentation. Generally documentation had to be taken at face value to meet the BER timetable. Result being selection of poorly performing contractors. (Lowest price, minimum technically acceptable selection) Advertised bids have not attracted a large field Targeted advertising of bids in neighbouring of good quality bidders. Partly due to the countries. Road show to attract potential “Afghanistan Factor” where some bidders do bidders. Meet with commercial attaches of not want to enter the Afghan market. Embassies. GCC Clause 40 requires that the Employer and The contractor can delay agreement thereby Contractor agree on the extension of Time for affecting the Employers ability to apply Completion. liquidated damages. Contract management processes and procedures Contract management processes should be have differed due to changes in interpretation by systematised and available on the WB website. different stakeholders Sanctions available for the Employer for poor Consider withholding payment or part until performance or non-performance by the performance is satisfactory. contractor are limited or non-existent. Contractors front-end load supply & Install Rear-end load payment terms. Have LD’s contracts so that there is little (or no) incentive calculated on the total value of works that to perform the installation portion on time or cannot be put into commercial service. with acceptable quality of work. Liquidated damages, being applied to the value of uncompleted work, have little impact. 43 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders There were no cofinanciers to this project except ARTF which is Administered by IDA. 44 Annex 9. List of Supporting Documents Sector background – development strategies - Afghanistan National Development Framework, April 2002 - Bank Transitional Support Strategy, February 2003 - Power Sector Reform Roadmap, August 2003 - Power Sector Policy, August 2003 - Power Sector Master Plan, October 2003 - “Securing Afghanistan’s future” and technical annex on power, January 2004 - Bank’s Interim Strategy Note FY07-08, April 2006 - Interim Afghanistan National Development Strategy, 2006 - Afghanistan National Development Strategy 2008-2013 - DABS customer database, June 2011 - Bank Interim Strategy Note, March 2012 - Bank’s strategy for improving the performance of the power portfolio, September 2012 - Power Sector Master Plan – draft March 2013 Preparation stage - Project Concept Note (PCN), comments and minutes of review meeting of EPRPII - Project Concept Note (PCN), comments and minutes of review meeting - Trust Fund proposal (comments and minutes to decision meeting) - TF Grant Agreement (comments and clearances) Implementation stage Supervision - Implementation & Statues Reports (ISRs) – Sequences 1 to 11 - Supervision Missions Aide Memoires and Management Letters: - Implementation Review, April 30-May 07, 2008; - Implementation Review, November 11-17, 2008; - Implementation Review, May 17-24, 2009; - Midterm Review, December 14-24, 2009; - Implementation Review, August 2- 9, 2010; - Implementation Review, December 2011; - Implementation Review, May 31, 2012; - Implementation Review, March 2013. Restructurings - 2009: restructuring paper, comments, clearances and notification - 2011: restructuring paper, comments, clearances and notification - 2012: restructuring paper, comments, clearances and notification 45 Others - Quality Assessment of Lending Program Report, April 2010 - Memorandum of Understanding between MOF and MEW, November 2006 (and subsequent amendments) - ARTF Proposal, Afghanistan Power System Development Project, September, 2008 - ARTF Proposal, Afghanistan Power System Development Project II, January 2011 46 60°E 65°E 70°E 75°E U Z B E K I STA N TA J I K I STAN TAJ IK IS TA N Surkhan AFGHANISTAN TUR KM E N I S TA N Jawzjan Hayratan Hayratan 220kV Naibadad Kunduz Badakhshan Mazar-e-Sharıf ¯ ¯ Khulm Takhar h Project Site s Balkh u Aybak Project Site K Pul-e-Khumari Baghlan Faryab Samangan Dowshi u Saripul jsh ir d an n 35°N H iP Nuristan Charikhar 35°N Badghis Kapisa P a Bamyan r o Parwan Laghman Kunar p a e m i s u s R a n g Chimtala ¯ KABUL Kabul Project Site Wardak Kabul PAK IS TAN Nangarhar INDIA Herat Ghor Logar Khyber Pass Day Kundi Paktia ISLAMIC Ghazni Kowst REPUBLIC OF IRAN Uruzgan AFGHANISTAN Farah Paktika KABUL AYBAK MAZAR-E-SHARIF Zabul POWER PROJECT (KAMPP) Dasht-I Margo General Project Area PROJECT LOCATION Hilmand Nimroz Kandahar SUBSTATIONS 0 50 100 150 Kilometers NORTHERN TRANSMISSION LINE (NTL)* 220kV 30°N 0 50 100 Miles 30°N NATIONAL CAPITAL OCTOBER 2013 IBRD 40291 This map was produced by the Map Design Unit of The World Bank. PROVINCE BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank INTERNATIONAL BOUNDARIES GSDPM Group, any judgment on the legal status of any territory, or any 60°E PA KI S TA N 65°E Map Design Unit endorsement or acceptance of such boundaries. 70°E *NTL financed by other donors and under World Bank Emergency Power Rehabilitation Project (EPR).