Page 1 CEO Endorsement Template-Aug 29, 2007.doc Submission Date: September 26 t h , 2007 Re-submission Date: PART I: PROJECT INFORMATION GEFSEC P ROJECT ID: 2611 GEF AGENCY P ROJECT ID: P095038 C OUNTRY ( IES ): Mexico P ROJECT T ITLE : Integrated Energy Services Project GEF A GENCY ( IES ): World Bank O THER E XECUTING PARTNER ( S ): Ministry of Energy (SENER) GEF F OCAL A REA ( S ): Climate Change GEF-4 S TRATEGIC PROGRAM (S) : OP#6 N AME OF PARENT PROGRAM / UMBRELLA PROJECT : A. P ROJECT FRAMEWORK (Expand table as necessary) Project Objective : The global environmental objective of the project is to achieve reduction of greenhouse gas emissions through the use of renewable energy in rural areas for the provision of electricity GEF Financing* Co- financing* Project Components Invest ment , TA , or STA** Expected Outcomes Expected Outputs (US$) Million % (US$) Million % Total (US$) Million 1. Strengthening of strategy, policy and regulatory frameworks TA SENER develops strategy, policy, regulatory measures, guidelines and manuals to strengthen the market for rural electrification and promote the introduction of renewable energy · Creation of new policy frames and/or regulations on tariff schemes · Successful transfer of ownership to beneficiaries · Issuance of technical specifications, standards and guidelines/manuals 1.35 32.9 2.75 67.1 4.1 2. Investment in Rural Electrification Sub-Projects Invest ment · Installation of RET based electricity systems · Increased private sector participation · Sustainable electricity services provided to 50,000 rural households · Costs per connection lowered in at least 20% · ERs: 5 Million tons of CO 2 eq · More than 15 service companies operating · Increased private equity invested in rural projects 5.765 8.4 62.65 91.6 68.415 3. Capacity Building to State, Municipal and Community Stakeholders TA · Design bidding documents · Impact evaluation assessments implemented · Monitoring system · Project implementation committees –Federal and State levels- operational · 250 new extension 5.135 41.2 7.325 58.8 12.46 REQUEST FOR CEO ENDORSEMENT/APPROVAL P ROJECT T YPE : (choose project type) THE GEF T RUST F UND Expected Calendar Milestones Dates Work Program (for FSP) March, 2006 GEF Agency Approval October 2007 Implementation Start January 2008 Mid-term Review (if planned) June, 2010 Implementation Completion June, 2013 42457 Page 2 CEO Endorsement Template-Aug 29, 2007.doc established · Scheme for technology certification and service provider pre- q ualification established agents trained · Introduction of well calibrated set of incentives result in s uccessful biddings and the provision of a sustainable service · High quality monitoring system operating · Analysis of evaluated impacts integrated into follow up strategies · High quality service delivered 4. Technical Assistance to Increase RET Services for Communal and Income- generating Uses TA · Stakeholders trained · 2,500 new social and productive activities operating 1.25 20.8 4.75 79.2 6 5 Project management 1.5 20 6.015 80 7.515 Total Project Costs 15 83.49 98.49 * List the $ by project components. The percentage is the share of GEF and Co-financing respectively to the total amount for the component. ** TA = Technical Assistance; STA = Scientific & technical analysis. B. F INANCING P LAN S UMMARY F OR T HE P ROJECT ($) Project Preparation* Project Agency Fee Total at CEO Endorsement For the record: Total at PIF GEF 350,000 15,000,000 1,535,000 16,885,000 16,885,000 Co-financing 1,025,000 83,490,000 84,515,000 84,515,000 Total 1,375,000 98,490,000 1,535,000 101,400,000 101,400,000 * Please include the previously approved PDFs and PPG, if any. Indicate the amount already approved as footnote here and if the GEF funding is from GEF-3. Provide the status of implementation and use of fund for the project preparation grant in Annex D. C. S OURCES OF CONFIRMED C O - FINANCING , including co-financing for project preparation for both the PDFs and PPG. (expand the table line items as necessary) Name of co-financier (source) Classification Type Amount ($) % * PHRD- preparation (1) PHRD Grant 660,000 0.78 Global Village Energy Partnership (GVEP) Preparation (1) UK Based Organization Grant 365,000 0.43 Government of Mexico Project Government Contribution Fiscal Resources 60,000,000 70.99 World Bank Implementing Agency Loan 15,000,000 17.74 Private Sector Private Sector Investments. In kind contributions 8,490,000 10.04 84,515,000 100 Total Co-financing · Percentage of each co- financier’s contribution at CEO endorsement to total co-financing. · Note (1) PHRD and GVEP amounts entered in previous table are approved amounts; actual disbursed amounts are US 348,000 for the GVEP and US$ 257,712 for the PHRD. Page 3 CEO Endorsement Template-Aug 29, 2007.doc The Government of Mexico has confirmed its approval, in the minutes of negotiations, of the Project Appraisal Document, including the financing plan, counterpart contributions and legal documents. The IBRD co-financing of $15 million was confirmed during negotiations. Additional co-financing during implementation will be for multiple transactions and will come from enterprises and/or beneficiaries. The private sector contribution will come from the targeted beneficiaries including households, municipalities (e.g., co-financing as initial deposits on the cost of the individual systems), and private developers (especially for the case of micro-hydro initiatives). For a limited number of cases, especially in communities with high levels of poverty, in kind contributions will be counted towards a minimum share of the cost of the equipment. In a first step, beneficiaries will be chosen based on specific eligibility criteria (as described in the Project Document and Operational Manual. Afterward, beneficiaries will be randomly chosen to conform with the requirements of the impact evaluation methodology proposed for this project (i.e., experimental designs assign randomly localities or households into treatment and control groups). D. GEF R ESOURCES R EQUESTED BY F OCAL A REA ( S ), A GENCY ( IES ) OR C OUNTRY ( IES ) Not applicable. E. P ROJECT MANAGEMENT B UDGET / COST Cost Items Total Estimated person weeks GEF ($) Other sources ($) Project total ($) Local consultants* 5,720 1,335,000 5,355,000 6,680,000 International consultants* - - - - Office facilities, equipment, vehicles and communications** 15,000 60,000 85,000 Travel** 150,000 600,000 750,000 Total 1,500,000 6,015,000 7,515,000 * Provide detailed information regarding the consultants in Annex C. ** Provide detailed information and justification for these line items Local consultants included above are those hired for functions related to the management of the project including: (i) strategic planning and coordination, (ii) technical support, (iii) procurement activities, and (iv) financial management. Less than 20% of the cost of office facilities, equipment, etc. will be financed by the GEF. The GEF contribution will finance incremental costs not financed by the Government of Mexico (partially through the IBRD loan) of (i) use of offices by project management teams when the offices are not located in government building (both at the Federal and State levels), (ii) basic office furniture (e.g., desks, chairs, small filing cabinets, etc.) necessary to accommodate project personnel; (iii) communication equipment including telephone, fax machine and internet access (mobile phones to be shared by team members while traveling or on the field), (iv) computing equipment required for data analysis and (v) the use of vehicles during field trips. Page 4 CEO Endorsement Template-Aug 29, 2007.doc The management activities for this project will require travel from Mexico City (members of the Federal implementation team) to the targeted States and from the targeted States to municipalities and communities (about 5-10 trips per team per year). Also, members of the State implementation teams will need to travel to Mexico City to meet with SENER and other Federal representatives and to Municipalities and distant localities. GEF financing accounts for approximately 20% of total budgeted travel costs. The annual amount allocated for trips (US$30,000) will pay the trips the Federal and State level project implementation teams (a total of four teams). This signifies US$7,500 per team per year. The average cost of a one week trip to any of the targeted States (Oaxaca, Guerrero, Veracruz) is US$1,350 (including air fair, hotel and per diem). F . C ONSULTANTS WORKING FOR TECHNICAL ASSISTANCE COMPONENTS : Component Estimated person weeks GEF($) Other sources ($) Project total ($) Local consultants* 8,403 5,260,000 9,415,000 14,675,000 International consultants* 2,623 2,600,000 2,400,000 5,000,000 Total 14,420 7,860,000 11,815,000 19,675,000 * Provide detailed information regarding the consultants in Annex C. The numbers provided in the previous table are best estimates as real persons-weeks can only be known after the bidding processes are completed. All bidding processes will be launched under ICB as established in the Bank’s procurement guidelines. Also, it is expected that some of the consultancies will be awarded to firms. The previous table considers only technical assistance components, including those not co-financed by GEF. 1 G. DESCRIBE THE BUDGETED M & E PLAN : The results framework and arrangements for monitoring are described in Annex 3 of the Project Document. A Project Monitoring Committee (PMC) will be established at the Federal level to coordinate monitoring and evaluation activities. The PMC will be presided by the Ministry of Energy (SENER) through the Federal project implementation team and integrated by representatives of CRE (Energy Regulatory Commission), SEMARNAT (Ministry of Environment), SEDESOL (Secretariat of Social Development), CDI (Indigenous People Development Commission), and CFE (Federal Electricity Commission). At the Federal level, the PMC will monitor project targets and performance and review the results of Impact Evaluation Assessments. At the State level, mainly with the support of CFE, CDI and SEMARNAT’s regional offices, the PMC will monitor the efficiency and performance of projects based on pre-specified targets and quality indicators as established in the results framework and arrangements for monitoring (Annex 3 of the Project Document). 1 Sub-components 2.6, 3.1, 4.2 and 4.3 as established in table 5.1 Annex 5 of the Project Document are not included as they are not considered technical assistance, none of this sub-components have co-financing from GEF). Page 5 CEO Endorsement Template-Aug 29, 2007.doc Component GEF($) O ther sources ($) P roject total ($) Monitoring Activities 750,000 1,500,000 2,250,000 Impact Evaluation 500,000 750,000 1,250,000 Total 575,000 2,250,000 3,500,000 Page 6 CEO Endorsement Template-Aug 29, 2007.doc PART II: PROJECT JUSTIFICATION (See Project Document for Project Justification) A. DESCRIBE THE PROJECT RATIONALE AND THE EXPECTED MEASURABLE GLOBAL ENVIRONMENTAL BENEFITS : B. D ESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL PRIORITIES / PLANS : C. D ESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND STRATEGIC PROGRAMS : D. O UTLINE THE C OORDINATION WITH OTHER RELATED INITIATIVES : E. D ESCRIBE THE INCREMENTAL REASONING OF THE PROJECT : F. I NDICATE RISKS , INCLUDING CLIMATE CHANGE RISKS , THAT MIGHT PREVENT THE PROJECT OBJECTIVE ( S ) FROM BEING ACHIEVED AND OUTLINE RISK MANAGEMENT MEASURES : G. EXPLAIN HOW COST - EFFECTIVENESS IS REFLECTED IN THE PROJECT DESIGN : Page 7 CEO Endorsement Template-Aug 29, 2007.doc PART III: INSTITUTIONAL COORDINATION AND SUPPORT (See Project Document (Annex 6) for Institutional Coordination and Support) A. P ROJECT I MPLEMENTATION A RRANGEMENT : PART IV: EXPLAIN THE ALIGNMENT OF PROJECT DESIGN WITH THE ORIGINAL PIF : The project’s conceptual framework, general design, scope and objectives are consistent with the original proposal submitted for PDF B and the Council Work Program approval. No major changes have been made to the project since Work Program inclusion. PART V: AGENCY(IES) CERTIFICATION This request has been prepared in accordance with GEF policies and procedures and meets the GEF criteria for CEO Endorsement. Steve Gorman GEF Executive Coordinato The World Bank r Jocelyne Albert Project Contact Person Date: October 25, 2007 Tel. and Email: (202) 473 3458 Jalbert@worldbank.org Page 8 CEO Endorsement Template-Aug 29, 2007.doc A NNEX A: P ROJECT R ESULTS F RAMEWORK Note: This is a combined World Bank – GEF Project and the results framework presented below concerns the whole Project. The Project Development Objective, outcomes and indicators refer to the overall Project, however specific outcomes and indicators on the GEF components are presented below and indicated by an asterisk (*). PDO Project Outcome Indicators Use of Project Outcome Information 1) Increase access to Efficient and Sustainable Integrated Energy Services in Rural Areas Develop a sustainable market for the provision of least-cost integrated energy solutions Number of new electricity connections Costs per new electricity connection Number of private companies operating as ESCOs Amount of private equity invested in rural projects Number of extension agents trained Number of new social/productive activities and micro-businesses developed kWh of electricity consumed by productive uses, social activities (subsistence, health, education centers) and micro-businesses in targeted areas (* reported separately for projects using renewable energy) YR1 YR2 Measure effectiveness of Project in installing and sustaining new electricity connections YR3 Mid-term review of service delivery model performance and subsidy provision. YR5 Assess overall effectiveness (target in terms of new connections) YR3 Mid-term review of service delivery model performance and degree of competition in bidding processes YR5 Assess overall effectiveness 2) Global Environmental Objective (*) Reduction of greenhouse gas emissions through provision of electricity using renewable energy) (*) Number of new electricity connections using renewable energy (*) Carbon emissions reductions (tCO2e) YR1 YR2 Measure effectiveness of Project in leveraging public and private financing for rural electrification projects YR1-YR5 Measure ERs YR5 Assess overall effectiveness Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Outcome 1 PPMT and SPICs demonstrate capacity to manage the program and promote the market Outcome 1 PPMT and SPICs follow closely a pre- agreed annual program of activities (1a), or PPMT and SPICs operating with trained technical staff and adequate budget(1b) EOY1 EOY2 Assess capacity of PPMT and SPICs to manage and promote the program YR3 Midterm review of capacity building / technical assistance Outcome 2 SENER develops strategy, policy, regulatory measures, guidelines and manuals to Outcome 2 Issuance of strategic measures, regulations, guidelines, manuals (2a) YR3 Mid-term Project Review YR5 Project Completion Report Page 9 CEO Endorsement Template-Aug 29, 2007.doc strengthen the market for rural e lectrification and promote the introduction of renewable energy (*) O utcome 3 Municipalities co-finance the program O utcome 3 Percentage of sub-projects with co- financing from municipalities Y R1 to YR5: Annual review of co- financing from municipalities Outcome 4 Electricity service companies invest and/or service in rural areas/sub-projects Outcome 4 Total investments by public and private entities (3a) Number of companies servicing rural areas or specific sub-projects (3b) Private sector participation (KWs, ownership) (3c) YR3 Mid- term review of program’s sustainability, service delivery model performance and subsidy provision. YR3 Midterm review of number of new connections YR4 Measure effectiveness of refinancing mechanism Outcome 5 Rural families/individuals go through (graduate) training to develop economic/productive activities Rural families/individuals embark in new productive economic activities that require use of electricity (*) Outcome 5 Number of families/individuals trained in specific productive/economic activities (4a) Number of productive/economic activities being developed (4b) YR2 YR3 Review of program development YR3 Mid-term Review Project Design YR4 Measure effectiveness of re- financing mechanism Outcome 6 Monitoring and Evaluation Systems established Outcome 6 M&E plan agreed (5a) M&E unit in PPMT and SPICs staffed (5b) Page 10 C E O E n d o r s e m e n t T e m p l a t e - A u g 2 9 , 2 0 0 7 . d o c A r r a n g e m e n t s f o r M o n i t o r i n g T a r g e t e d V a l u e s D a t a C o l l e c t i o n a n d R e p o r t i n g P r o j e c t O u t c o m e I n d i c a t o r s B a s e l i n e Y R 1 Y R 2 Y R 3 Y R 4 Y R 5 F r e q u e n c y a n d R e p o r t s D a t a C o l l e c t i o n I n s t r u m e n t s R e s p o n s i b i l i t y f o r D a t a C o l l e c t i o n N u m b e r o f H o u s e h o l d s e l e c t r i f i e d 0 ( 1 ) 2 , 6 7 0 7 , 2 3 9 1 2 , 6 3 8 1 3 , 7 6 5 1 3 , 6 8 8 A n n u a l N u m b e r o f H H e l e c t r i f i e d w i t h R E T 0 ( 2 ) 1 , 9 6 5 6 , 5 3 9 1 1 , 9 3 8 1 3 , . 6 5 1 2 , 9 8 8 C o s t s p e r N e w C o n n e c t i o n ( U S D / H H ) 2 4 0 0 1 , 2 0 0 - 1 0 8 0 - 9 6 0 k W N e w R e n e w a b l e E n e r g y 0 2 6 7 7 2 3 1 , 2 6 3 1 , 3 7 6 1 , 3 6 8 E m i s s i o n s R e d u c t i o n s ( t h o u s a n d t o n e s C O 2 e ) 0 - - 6 2 5 - 6 2 5 Y R 3 / Y R 5 I n c r e m e n t a l i n c r e a s e i n M W h / y e a r o f e l e c t r i c i t y c o n s u m e d f o r p r o d u c t i v e u s e s i n t a r g e t e d c o m m u n i t i e s ( M W h / y e a r ) 0 1 9 0 3 5 0 5 , 2 4 0 5 , 4 5 0 5 , 6 5 0 I n c o m e g e n e r a t i o n t o p r o j e c t b e n e f i c i a r i e s d u e t o i n c r e a s e d p r o d u c t i v e / e c o n o m i c u s e s o f e l e c t r . 0 t o 2 U S D / d a y ( 3 ) > 3 ( 4 ) > 3 > 3 > 3 > 3 N u m b e r o f n e w s o c i a l / p r o d u c t i v e a c t i v i t i e s a n d m i c r o - b u s i n e s s e s d e v e l o p e d 0 5 0 2 5 0 5 0 0 7 5 0 1 0 0 0 Y R 3 / Y 5 N u m b e r o f p r i v a t e c o m p a n i e s o p e r a t i n g a s s e r v i c e c o m p a n i e s 0 5 - 1 0 5 - 1 0 1 0 - 1 5 1 0 - 1 5 > 1 5 A m o u n t o f p r i v a t e e q u i t y i n v e s t e d i n r u r a l p r o j e c t s ( % t o t a l i n v e s t m e n t ) 0 1 0 % 1 0 % 1 0 % 1 0 % > 1 0 % Y R 3 / Y R 5 N u m b e r o f e x t e n s i o n a g e n t s t r a i n e d 0 5 0 1 4 0 2 5 0 2 5 0 2 5 0 Y R 3 / Y R 5 F i e l d S u r v e y s P r o g r e s s a n d C o m p l e t i o n R e p o r t s F e d e r a l a n d S t a t e I m p l e m e n t a t i o n U n i t s ( P P M T & S P I C s ) A d v i s o r y a n d M o n i t o r i n g C o m m i t t e e s ( S E C s , T S M G ) s u p e r v i s i n g I n t e r m e d i a t e O u t c o m e s B a s e l i n e Y R 1 Y R 2 Y R 3 Y R 4 Y R 5 F r e q u e n c y a n d R e p o r t s D a t a C o l l e c t i o n I n s t r u m e n t s R e s p o n s i b i l i t y f o r D a t a C o l l e c t i o n P P M T / S P I C s / P A C / P M C / T S M G o p e r a t i o n a l N o n e A l l A n n u a l A n n u a l P r o j e c t R e p o r t P P M T I n t e r m e d i a t e O u t c o m e s ( C o n t ’ d ) B a s e l i n e Y R 1 Y R 2 Y R 3 Y R 4 Y R 5 F r e q u e n c y a n d R e p o r t s D a t a C o l l e c t i o n I n s t r u m e n t s R e s p o n s i b i l i t y f o r D a t a C o l l e c t i o n Page 11 C E O E n d o r s e m e n t T e m p l a t e - A u g 2 9 , 2 0 0 7 . d o c D e s i g n o f B i d d i n g D o c u m e n t s N o n e C o m p l e t e E O Y A n n u a l P P M T I s s u a n c e o f t e c h n i c a l g u i d e l i n e s N o n e C o m p l e t e E O Y A n n u a l P P M T D e s i g n p r o c e d u r e f o r t e c h n o l o g y a n d s e r v i c e p r o v i d e r p r e - q u a l i f i c a t i o n / c e r t i f i c a t i o n N o n e C o m p l e t e E O Y A n n u a l P P M T B a s e l i n e I m p a c t E v a l u a t i o n A s s e s s m e n t N o n e C o m p l e t e E O Y A n n u a l P P M T M e d i u m T e r m I m p a c t E v a l u a t i o n A s s e s s m e n t N o n e C o m p l e t e E O Y A n n u a l A n n u a l P r o j e c t R e p o r t P P M T S u c c e s s f u l o w n e r s h i p t r a n s f e r o f S H S t o H o u s e h o l d s N o n e A t l e a s t 5 0 % o f S H S i n s t a l l e d i n Y R 1 A n n u a l S e r v i c e C o m p a n i e s R e p o r t V e r i f i c a t i o n R e p o r t b y T S M G S P I C s / T S M G ( 1 ) I t i s e s t i m a t e d t h a t o f t h e 7 0 0 , 0 0 0 h o u s e h o l d s w i t h n o e l e c t r i c i t y i n t h e t a r g e t e d S t a t e s , a t o t a l o f 3 4 3 , 0 0 0 ( 4 9 % ) w i l l n o t b e r e a c h e d b y t h e g r i d w i t h i n a t l e a s t t h e n e x t 5 - 1 0 y e a r s . T h e s e h o u s e h o l d s a r e l o c a t e d i n c o m m u n i t i e s s e t t l e d m o r e t h a n 1 0 k m a w a y f r o m t h e e l e c t r i c i t y n e t w o r k . ( 2 ) T h e t o t a l n u m b e r o f h o u s e h o l d s c o n s i d e r e d i n t h e b a s e l i n e ( 3 4 3 , 0 0 0 ) h a v e n o e l e c t r i c i t y a n d n o n e o f t h e m w i l l b e e l e c t r i f i e d b y a g r i d e x t e n s i o n w i t h i n a t l e a s t t h e n e x t 5 y e a r s . I n a r e c e n t s t u d y b y t h e I n s t i t u t e o f E l e c t r i c a l R e s e a r c h ( I I E - M e x i c o ) , i t w a s e s t a b l i s h e d t h a t t h e l e a s t c o s t e l e c t r i f i c a t i o n o p t i o n f o r t h e m a j o r i t y o f t h e s e c o m m u n i t i e s i s b a s e d o n s o l a r o r w i n d h o m e s y s t e m s a n d o n l y a s m a l l p e r c e n t a g e c o u l d b e b a s e d o n n o n - r e n e w a b l e s o u r c e s o f e n e r g y ( e . g . , d i e s e l g e n e r a t o r s ) . ( 3 ) E n c u e n t a N a c i o n a l d e I n g r e s o s y G a s t o s d e l o s H o g a r e s , I n s t i t u t o N a c i o n a l d e E s t a d i s t i c a , G e o g r a f i a e I n f o r m a t i c a ( I N E G I ) , 2 0 0 6 ( 4 ) T h e G E F M X R e n e w a b l e E n e r g y f o r A g r i c u l t u r e P r o j e c t i s t h e f i r s t e x p e r i e n c e i n M e x i c o w i t h e v i d e n c e o n h o w t h e d e v e l o p m e n t o f p r o d u c t i v e u s e s o f r e n e w a b l e e n e r g y i m p a c t t h e i n c o m e o f b e n e f i c i a r i e s ( f a r m e r s ) . T h e I C R o f t h i s p r o j e c t r e p o r t s t h e a v e r a g e i n c r e a s e i n i n c o m e m o r e t h a n d o u b l e d ( r i s i n g b y 1 3 9 % ) . Page 12 CEO Endorsement Template-Aug 29, 2007.doc A NNEX B: R ESPONSES TO P ROJECT R EVIEWS (from GEF Secretariat and GEF Agencies, and Responses to Comments from Council at work program inclusion and the Convention Secretariat and STAP at PIF) RESPONSES TO GEF SEC USA Results Framework and Monitoring Clearly, there is a great need to provide electricity to those currently without such services. However, we found the results measurement framework disappointing. 1) The indicators themselves seem solid enough, but there are virtually no baseline data, and many of the target values are either blank or questionable. For example, the targeted dollar costs per household new connections are meaningless -- merely listed as "least" for each year. Response The baseline data has been added. The data is based on official sources and consultant work carried out with preparation resources (see table on arrangements for monitoring in Annex 3 of the Project Document). 2) While some indicators have annual target values (e.g. number of households electrified, a number of household electrified with renewable energy, and KW of new renewable energies), we don't know whether these are solid target values. Response The proposed target values have been formally specified by the Ministry of Energy (SENER) for this particular program. The proposed number of households to be electrified with renewable energy is based on a formal study carried out in 2005-2006 by the Institute of Electrical Research (IIE-Mexico) for the project, which was financed with preparation resources. Cost Effectiveness Economic Analysis Re: cost-effectiveness, the economic analysis shows a 21% IRR over a 15 year period for solar home systems and a 16% return for wind home systems. 3) The financial analysis shows that subsidies of about 90% of capital costs will be required to make the model financially viable. We have doubts about whether such a huge subsidy of capital costs would in the end be most cost-effective way to bring electricity to these residents and reduce CO2 emissions from what they would otherwise be in Mexico. Response Results of the Economic and Financial Analysis Based on the economic analysis, the solar homes systems (SHS) component of the project shows high economic returns. Under relatively conservative assumptions, the economic rate of return Page 13 CEO Endorsement Template-Aug 29, 2007.doc (ERR) for the total SHS component is about 40 percent, with an economic net present value of about 805 million pesos, reflecting a significant improvement in the quality of lighting and battery services using PV systems in households. The economic returns of the SHS component are robust, and risks are considered minor. Such high benefits are consistent with those estimated in other countries for similar projects (e.g., 30 percent ERR as estimated by the Implementation Completion Reports for a similar project component in India, and 43 percent for the SHS component of the Sri Lanka Energy Services Delivery Project, while a similar analysis for the Bolivia Decentralized Infrastructure for Rural Transformation project yielded about 30 percent). These benefits reflect the high willingness to pay and considerable net consumer surplus from improved levels of lighting service. The complete economic and financial analysis is detailed in Annex 9 of the Project Document. Cost Effectiveness and Level of Subsidization The proposed Project is designed to provide renewable electricity services at lower costs compared to current alternative practices. The Project is of 5 years duration and is focused on the poorest communities of Mexico. The major barrier to wider use of PV in Mexico is not the high upfront cost to users but the present lack of confidence by government decision makers and planners on the role of solar and wind as economic options for rural electrification. Another barrier is the lack of experience and capacity of the government to implement a program with renewable energy servicing remote communities. GEF co-financing of the investment cost will allow a demonstration of renewable energy technologies to meet rural energy needs, and in the process provide the federal, state, and local Governments confidence in the program. Project sustainability is assured because the Government has the capability, through existing social funds such as Ramo33 , to shoulder the full subsidy requirements for as long as necessary. Furthermore, the project is designed to promote the development of a market with increased private sector participation, increased micro-financing and increased use of remittance resources. 4) We are also mindful of the lesson of some previous off grid renewable energy projects - renewable energy uses close to the grid were eventually connected and the GEF's renewable energy investment fell into disuse. Have you done any analysis to compare the cost of connecting new users to a nearby grid rather than promoting new renewable energy off-grid to unconnected users through solar and wind energy? Response According to studies undertaken as part of project preparation, it is estimated that of the 700,000 households with no electricity in the targeted States, a total of 343,000 (49%) will not be reached by the grid within at least the next 5-10 years. These households are located in communities settled more than 10 km away from the electricity network. In a recent study by the Institute of Electrical Research (IIE-Mexico), it was established that the least cost electrification option for Page 14 CEO Endorsement Template-Aug 29, 2007.doc the majority of these communities is based on solar or wind home systems and only a very small percentage could be based on non-renewable sources of energy (e.g., diesel generators). The project will guide and streamline national rural electrification efforts, complementing other programs already advancing from the grid extension front. The Ministry of Energy (SENER) has signed cooperation agreements with the government institutions in charge of rural electrification through grid extensions (CDI and SEDESOL) to ensure that the proposed programs do not electrify communities which can be reached by the grid within a period of 5-10 years or communities that are located more than 10 km away from the grid. This has also been specified in the eligibility criteria for project’s selection (see Annex 4) and clearly established in the project’s operational manual. GERMANY 1) Given the incremental cost nature of GEF funding, the share of project management costs is high: GEF ‘s contribution to management amounts to 20% of GEF funding. With a 15% share of overall project costs, GEF covers almost one third of project management. This ratio is not acceptable. Response This has been modified. The GEF contribution to project management is 10% of the total amount of the grant. 2) Co-financing commitments seem rather weak and should be improved Response The project will be co-financed by Federal, State and Municipal resources. In the period 2008- 2012, resources provided by the Federal government (one third) will mainly come from the IBRD loan, the GEF grant. Following the demonstration of the rural electrification model through the pilot project, the Federal contribution is expected to be substituted with resources from other active programs targeting rural electrification (e.g., the Micro-regions Program, being led by SEDESOL, the PIBAI Program being led by CDI). The remaining two thirds of the government support will be supplied by the States and Municipalities (through Ramo 33 , which represents a predictable and reliable financial source for subsidies after the end of the project). For more details on project sustainability, please s ee Section 4 on “Sustainability and Replicability”, of the Project Document (pages 16-17). 3) The Phasing out of GEF support is not yet convincing Response As noted above, the value of the GEF support is to demonstrate the model of rural electrification using renewable energy technologies and its financial sustainability will be assured by Page 15 CEO Endorsement Template-Aug 29, 2007.doc Government contributions. The discussion of the phase out of GEF support has been revised in the Project Document (see Annex 15). 4) Financial analysis should expand on sustainability of subsidy dependency and arrangements for maintenance after five years Response Please see Section 4 on “Sustainability and Replicability” of the body of the Project Document and discussed in Annex 15 of the incremental cost analysis for an in-depth discussion of this issue.. Briefly, with regards to the arrangements of maintenance after five years, Annex 4 can be summarized as follows: While a degree of flexibility and adaptability over time is to be expected, the proposed project will seek to create synergies between “external” and “internal” service providers using two different types of service delivery models: (A) Those applying to home systems such as PV and wind, where the technology is simpler and the training terms for local personnel may be correspondingly shorter; (B) Those that apply to systems where a mini-grid is needed, such as mini-hydros, biomass, diesel hybrids and diesel based, where the technology tends to be more complex, a community organization must perform the commercial functions and training terms will be longer. Participation by external service providers will be secured through medium-term build, operate, train and transfer service contracts with output based subsidies (BOTT models). Key features of these contracts include their overall length, timing of payments to successful bidders, devolution of contributions to communities in the form of reduced O&M charges and provisions for eventual system ownership by communities and individual users. Awarded on a least subsidy basis, these contracts will cover equipment procurement and installation, operation and maintenance for a specified number of years, training of local individuals or organizations in operation, maintenance and commercial activities and transfer of the rural systems to local organizations or households after training is completed. ¾ Participation by internal service providers will be secured through any or a combination of several approaches: outreach, responsiveness to new bidders, training, among others. Under Mexican law a private operator may not sell electricity directly to the public and thus local organizations will have to fulfill this role (see Annex I for a description of legal and regulatory frameworks). Additionally, since local NGOs may be willing and able to associate themselves with equipment and service providers to participate in service contract bids, the Project will try to make them aware of these and other opportunities for participation. 2 Last, in all instances systems will be transferred to local organizations or individual users at the end of service contract terms. The institutional structure of the IESRM Project will continue to provide advice, training and assistance in these matters as well. 2 There is evidence in Mexico of the creation of strategic partnerships that involved the complementary work of NGOs and private equipment suppliers for the development of off-grid systems (see Annex I). Page 16 CEO Endorsement Template-Aug 29, 2007.doc 5) Very low trust in PV technology by both government and beneficiaries needs to be addressed. Response The task team agrees and has discussed it in detail in the process of project preparation and consultations. The implementation of the information campaign and the success of first sub- projects developed will be important to build confidence in solar PV solutions, though many Mexican experts and officials recognize that solar PV is the most appropriate technology for remote communities. Sub-component 3.4 is devoted to the design and implementation of a communications strategy including an information campaign. Continuous public consultations will also be implemented to ensure that communities understand (a) the type of service/technology and the implications of the activities associated with O&M and (b) the electrification choices available (possible connection to the grid within 5-10 years, or the off-grid service now). The project will adopt eligibility criteria (as described in Annex 4 of the Project Document and as established in the Operational Manual), that includes the degree of acceptability by the beneficiaries (i.e. off-grid renewable based solutions will only be provided to households/communities that demand and accept the off-grid service). SWITZERLAND Main Concerns Operation and maintenance cost of RE systems: A key challenge for renewable energy systems in remote rural locations around the world is the high cost of operation and maintenance in relation to the typically low consumption and income of the majority of rural households. The remoteness of the locations –with often difficult and time-consuming access– requires decentralized support services. At the same time, only limited technical capacities are usually available in rural areas. This is due to the generally limited economic activities and labour migration. We consider the delivery models proposed for the project, which are based on medium-term Build, Operate, Train, and Transfer (BOTT) service contracts with output based subsidies, to be suitable to address these challenges. To lower transaction cost and thus further increase the chances that the selected private service suppliers will actually be able to sustain their operations, it may be advisable to bundle a larger number of smaller communities for the bidding process. Response The project includes the bundling of smaller communities for the bidding process; medium term service contracts will be bid for specified areas of the targeted States (see Project Document, Annex 4). The selected service suppliers should be encouraged to cooperate with each other (e.g., in the form of an association). This would allow them to yield synergies and for example save costs on procurement and delivery of spare parts, trainings, logistics, etc. Page 17 CEO Endorsement Template-Aug 29, 2007.doc Response Agreed, and efforts to achieve this will be made. (2) Productive use of electricity: The promotion of productive uses of electricity is crucial not only in view of rural development and poverty alleviation, but also in view of improving the sustainability of the renewable energy systems so that more revenues are generated to cover operation and maintenance costs of the systems. This aspect is addressed with component 4 of the project, under which technical assistance will be provided to increase productive uses of electricity. In order to further strengthen this project component cooperation with other donor or government initiatives in the field of rural development may be sought. This would allow the capitalization of existing structures with regard to micro-financing, business planning, community development, etc. Experience with similar initiatives has also shown that potential productive uses of electricity should be taken into account at an early stage of planning of renewable energy systems to ensure technical compatibility and functionality. Response The team agrees with this and has discussed it with the Government. Specifically,, the Ministry of Energy (SENER) is seeking additional resources – and knowledge transfer – from the Global Village Energy Partnership to support component 4 of the project. Conclusions and Recommendations We recommend that the project is approved by the GEF. The project is very well conceived and adopts strategic choices, which are fully consistent with GEF priorities. The targets of the project with regard to RE based rural electrification are ambitious, but we consider them achievable. The main challenge of the project will be the establishment of sustainable support services for RE systems in rural areas, taking into account the relatively high operation and maintenance costs of the systems and the widespread poverty in rural communities. While the related risks are addressed in the project design, further measures may be required, as described above, to ensure sufficient involvement and commitment of support service suppliers. We further recommend that the project proponents cooperate as much as possible with other rural development initiatives for the promotion of productive uses of electricity and the related business development activities. Response Annex 4 describes the expected involvement and commitment of service providers to ensure project’s sustainability (in particular, the implementation of output based subsidies is aimed at ensuring a continuous involvement and at strengthening service provider commitments). The Ministry of Energy (SENER) has signed a cooperation agreement with the Ministry of Social Development (SEDESOL) that includes the support of SEDESOL on the promotion and development of productive uses of electricity and business development activities. Also, Annex 4 Page 18 CEO Endorsement Template-Aug 29, 2007.doc describes the mechanism to promote the participation of various public and private stakeholders in the development of productive and entrepreneurial activities. It is possible that other cooperation agencies (such as GVEP) support this component as well. GEF SECRETARIAT CONCEPT AGREEMENT REVIEW (December 29, 2005) Page 13. Expected at CEO Endorsement: Baseline values established. Other elements must correspond to requirements of the M&E Policy, including arrangements for monitoring and independent mid term and final evaluation. Response Baseline data has been established (see Annex 3 of the Project Document, table on arrangements for monitoring). As explained in Annex 6 of the Project Document, project implementation arrangements include the structuring of monitoring committees at the Federal and State levels. The project will conduct formal impact evaluation assessments in year 1, 3 and 5 of the 5 year implementation period. Page 14. A precondition for CEO Endorsement will be the requirement for an IBRD loan. Response The GOM has negotiated the $15m IBRD loan and is now awaiting GEF SEC clearance to move forward with the project. Page 14. If GOM co-financing is still part of co-financing, commitment letters will be required in line with official GEF co-financing policy. Response The Government of Mexico has confirmed its approval, in the minutes of negotiations, of the Project Appraisal Document, including the financing plan, counterpart contributions and legal documents. The IBRD co-financing of US$15 million of the project was confirmed during the negotiations. In addition, co-financing during implementation will be for multiple transactions and will come from either enterprises or beneficiaries. STAP Review The STAP review and associated responses are provided in Annex 16 of the Project Document. Page 19 C E O E n d o r s e m e n t T e m p l a t e - A u g 2 9 , 2 0 0 7 . d o c A N N E X C : C O N S U L T A N T S T O B E H I R E D F O R T H E P R O J E C T S u b - c o m p o n e n t P o s i t i o n T i t l e s $ / p e r s o n w e e k E s t i m a t e d p e r s o n w e e k s T a s k s t o b e p e r f o r m e d F O R P R O J E C T M A N A G E M E N T L O C A L 5 . 1 P r o j e c t M a n a g e r / C o o r d i n a t o r S E N E R 2 0 0 0 2 6 0 G e n e r a l m a n a g e m e n t , c o o r d i n a t i o n a n d s t r a t e g i c p l a n n i n g S e n i o r P r o c u r e m e n t S p e c i a l i s t S E N E R 1 2 0 0 2 6 0 S u p e r v i s e b i d d i n g p r o c e s s e s ( a m i n i m u m o f 1 5 d i f f e r e n t b i d d i n g s l a u n c h e d p e r y e a r p e r S t a t e ) J u n i o r P r o c u r e m e n t S p e c i a l i s t S E N E R 5 0 0 2 6 0 A s s i s t S e n i o r P r o c u r e m e n t S p e c i a l i s t S e n i o r F i n a n c i a l S p e c i a l i s t S E N E R 1 3 0 0 2 6 0 S u p e r v i s e f i n a n c i a l m a n a g e m e n t o p e r a t i o n s o f t h e p r o g r a m J u n i o r F i n a n c i a l S p e c i a l i s t S E N E R 5 0 0 2 6 0 A s s i s t S e n i o r F i n a n c i a l S p e c i a l i s t S e n i o r R u r a l E l e c t r i f i c a t i o n S p e c i a l i s t S E N E R 1 2 0 0 2 6 0 S u p e r v i s e p i p e l i n e d e v e l o p m e n t i n a l l t a r g e t e d S t a t e s J u n i o r T e c h n i c a l A s s i s t a n t S E N E R 5 0 0 2 6 0 A s s i s t t h e t e a m I n t e r - i n s t i t u t i o n a l C o o r d i n a t o r S E N E R 4 0 0 2 6 0 C o o r d i n a t e i n t e r - i n s t i t u t i o n a l w o r k , f o l l o w u p w i t h a g r e e m e n t s 5 . 2 P r o j e c t M a n a g e r / C o o r d i n a t o r S t a t e L e v e l 1 3 6 0 7 8 0 M a n a g e m e n t , c o o r d i n a t i o n o f t h e p r o g r a m a t t h e l e v e l o f t h e S t a t e P r o c u r e m e n t S p e c i a l i s t S t a t e L e v e l 1 0 0 0 7 8 0 C o o r d i n a t e b i d d i n g p r o c e s s e s F i n a n c i a l S p e c i a l i s t S t a t e L e v e l 1 0 0 0 7 8 0 C o o r d i n a t e F M a t t h e S t a t e l e v e l 5 . 3 A d m i n i s t r a t o r D e s i g n a t e d A c c o u n t N A F I N 2 0 0 0 2 6 0 A d m i n i s t r a t e D e s i g n a t e d A c c o u n t S e n i o r L e g a l S p e c i a l i s t N A F I N 2 0 0 0 2 6 0 S u p e r v i s e l e g a l a s p e c t s a s s o c i a t e d w i t h t h e p r o g r a m ( c o n t r a c t a w a r d i n g , e t c ) P r o c u r e m e n t S p e c i a l i s t N A F I N 1 5 0 0 2 6 0 S u p e r v i s e c o n s i s t e n c y w i t h p r o c u r e m e n t r u l e s o v e r a l l p r o g r a m F M S p e c i a l i s t N A F I N 1 5 0 0 2 6 0 M a n a g e f i n a n c i a l f l o w s / l i a i s o n w i t h t h e S t a t e s T e c h n i c a l A s s i s t a n t N A F I N 1 0 0 0 2 6 0 A s s i s t t h e t e a m I N T E R N A T I O N A L N o n e F O R T E C H N I C A L A S S I S T A N C E L O C A L 1 . 1 E x p e r t C o n s u l t a n t s ( 2 S e n i o r E n e r g y E c o n o m i s t s , 1 L e g a l S p e c i a l i s t ) 2 0 0 0 2 5 R e v i e w S t a t u s o f O f f G r i d E l e c t r i c i t y T a r i f f a n d S u b s i d y S c h e m e s 1 . 1 . 2 E x p e r t C o n s u l t a n t s ( 2 S e n i o r E n e r g y E c o n o m i s t s , 1 S e n i o r L e g a l S p e c i a l i s t ) 2 2 0 0 3 6 4 D r a f t P o l i c y , L a w s ( a m e n d m e n t s t o L a w s ) , R e g u l a t i o n s , p r o m o t e i n t e r - i n s t i t u t i o n a l d i a l o g u e , s u b m i t p r o p o s a l a n d f o l l o w u p o n a p p r o v a l p r o c e s s 1 . 2 E x p e r t C o n s u l t a n t s ( 2 S e n i o r E n e r g y E c o n o m i s t s , 1 L e g a l S p e c i a l i s t ) 2 0 0 0 2 5 R e v i e w s t a t u s o f o w n e r s h i p r i g h t s a n d s c h e m e s ( p r e v i o u s p r a c t i c e ) 1 . 2 . 1 E x p e r t C o n s u l t a n t s ( 2 S e n i o r E n e r g y E c o n o m i s t s , 1 S e n i o r L e g a l S p e c i a l i s t ) 2 2 0 0 3 6 4 D r a f t P o l i c y , L a w s ( a m e n d m e n t s t o L a w s ) , R e g u l a t i o n s , p r o m o t e i n t e r - i n s t i t u t i o n a l d i a l o g u e , e t c 1 . 5 E x p e r t C o n s u l t a n t s ( 4 S e n i o r R u r a l E n e r g y E c o n o m i s t s , 2 S e n i o r E n g i n e e r s , 4 T e c h n i c a l A s s i s t a n t s ) . 2 0 0 0 7 5 0 D e v e l o p t e c h n i c a l s p e c i f i c a t i o n s , m a n u a l s , a n d s t a n d a r d s f o r R E T s ( i n c l u d i n g t h e i n t e r n a l p r o m o t i o n / a p p r o v a l o f s t a n d a r d s , m a n u a l d i s s e m i n a t i o n a n d t r a i n i n g a c t i v i t i e s a s r e q u i r e d ) 1 . 6 E x p e r t C o n s u l t a n t s ( 1 S e n i o r s o c i a l s p e c i a l i s t , 1 s o c i a l s p e c i a l i s t p e r S t a t e ) 1 8 0 0 2 7 8 D e v e l o p m e t h o d o l o g i c a l g u i d e l i n e s a n d t o o l s f o r s o c i a l c o n s u l t a t i o n , i n c l u d i n g t r a i n i n g a c t i v i t i e s a s s o c i a t e d t o t h e i r i m p l e m e n t a t i o n Page 20 C E O E n d o r s e m e n t T e m p l a t e - A u g 2 9 , 2 0 0 7 . d o c 2 . 7 E x p e r t C o n s u l t a n t s ( 1 5 s o c i a l s p e c i a l i s t s p e r S t a t e ) 7 5 0 1 , 5 0 0 C o n d u c t s o c i a l c o n s u l t a t i o n a c t i v i t i e s a t t h e c o m m u n i t y l e v e l i n 3 - 5 d i f f e r e n t S t a t e s , f o r 5 y e a r s 2 . 8 E x p e r t c o n s u l t a n t s i n c o n f l i c t r e s o l u t i o n a n d i n d i g e n o u s p e o p l e s ( 1 s e n i o r s o c i a l s p e c i a l i s t a n d 1 s o c i a l s p e c i a l i s t p e r S t a t e ) 1 8 0 0 2 7 8 P e r f o r m c o n f l i c t r e s o l u t i o n a c t i v i t i e s 3 . 2 E x p e r t C o n s u l t a n t F i r m ( p o s s i b l y m o r e t h a n 2 ) 5 0 0 0 3 2 0 E a c h f i r m n e e d s a w h o l e t e a m t o p e r f o r m m e a s u r e m e n t a c t i v i t i e s f o r m i c r o - h y d r o s i t e s , w i n d a n d s o l a r ( i n 3 - 5 S t a t e s ) ; a n d t o p e r f o r m m o d e l i n g i a s n e c e s s a r y . T h e c o s t o f t h e c o n s u l t a n c y m u s t i n c l u d e f i e l d e x p e n s e s a n d u s e o f e q u i p m e n t 3 . 3 E x p e r t c o n s u l t a n t s i n d i f f e r e n t t o p i c s ( a t l e a s t 4 s e n i o r s p e c i a l i s t s i n t h r e e S t a t e s a s n e e d e d d u r i n g t h e 5 y e a r p e r i o d o f i m p l e m e n t a t i o n ) 3 , 0 0 0 6 6 7 C a p a c i t y b u i l d i n g t o F e d e r a l , S t a t e a n d M u n i c i p a l s t a k e h o l d e r s o n a ) p r o c u r e m e n t , b ) F M , c ) t e c h n i c a l i s s u e s , d ) s o c i a l a n d e n v i r o n m e n t a l p o l i c i e s . T h e c o s t o f t h e c o n s u l t a n c y m u s t i n c l u d e f i e l d e x p e n s e s a n d u s e o f e q u i p m e n t / m a t e r i a l . 3 . 4 E x p e r t C o n s u l t a n t F i r m ( p o s s i b l y 2 ) 3 , 0 0 0 3 3 4 D e s i g n c o m m u n i c a t i o n s t r a t e g y a n d i n f o r m a t i o n c a m p a i g n ; i m p l e m e n t t h e m d u r i n g t h e 5 y e a r p e r i o d o f p r o j e c t i m p l e m e n t a t i o n T h e c o s t o f t h e c o n s u l t a n c y m u s t i n c l u d e f i e l d e x p e n s e s , u s e o f e q u i p m e n t a n d m a t e r i a l . 3 . 7 E x p e r t C o n s u l t a n t s ( 5 t e c h n i c a l s p e c i a l i s t s p e r S t a t e ) 1 0 0 0 1 , 5 0 0 P e r m a n e n t t r a i n i n g t o c o m m u n i t y a n d c o m m u n i t y e x t e n s i o n a g e n t s ( f o c u s e d t e c h n i c a l a n d e c o n o m i c s u s t a i n a b i l i t y o f s u b - p r o j e c t s ) 3 . 9 E x p e r t C o n s u l t a n t s ( 6 t e c h n i c a l s p e c i a l i s t s p e r S t a t e , w o r k i n g t h r o u g h t h e 5 p e r i o d o f i m p l e m e n t a t i o n ) 1 , 5 0 0 1 , 5 0 0 M o n i t o r i n g A c t i v i t i e s ( t e c h n i c a l , s o c i a l , e n v i r o n m e n t a l ) . T h e c o s t o f t h e c o n s u l t a n c y m u s t i n c l u d e f i e l d e x p e n s e s , u s e o f e q u i p m e n t a n d m a t e r i a l . 3 . 1 0 E x p e r t c o n s u l t a n t F i r m ( p o s s i b l y 2 ) 2 , 0 0 0 5 0 0 D e s i g n s c h e m e a n d i m p l e m e n t p r o c e s s f o r t e c h n o l o g y c e r t i f i c a t i o n a n d E S C O s p r e - q u a l i f i c a t i o n , c o n d u c t s o c i a l a n d e n v i r o n m e n t a l o v e r s i g h t a c t i v i t i e s i n e a c h o f t h e S t a t e s I N T E R N A T I O N A L 1 . 3 E x p e r t C o n s u l t a n t F i r m ( 2 L e a d S o c i a l S p e c i a l i s t s a n d 2 L e a d I n d i g e n o u s P e o p l e s S p e c i a l i s t s ) 3 , 0 0 0 5 0 D e s i g n c o n f l i c t r e s o l u t i o n m e c h a n i s m 1 . 4 E x p e r t C o n s u l t a n t F i r m ( 3 s e n i o r e c o n o m i s t s , 3 s e n i o r r u r a l e l e c t r i f i c a t i o n e x p e r t s ) 3 , 0 0 0 8 3 R e v i e w i n c e n t i v e s t o p r o m o t e R E T s a n d E S C O s p a r t i c i p a t i o n , c a l i b r a t e t h e b i d d i n g c o n d i t i o n s ( f o r d i f f e r e n t t e c h n o l o g i e s ) - e s p e c i a l l y t h o s e a s s o c i a t e d w i t h o u t p u t b a s e d s u b s i d i e s - f o l l o w u p a n d a d j u s t a s n e c e s s a r y a s p r o j e c t p r o g r e s s e s ( s u r v e y s a t t h e c o m m u n i t y l e v e l w i l l b e n e c e s s a r y ) 3 . 5 S e n i o r e n g i n e e r s o r r u r a l e l e c t r i f i c a t i o n s p e c i a l i s t s ( 2 8 - 3 0 w e e k s p e r s u b - p r o j e c t f o r a b o u t 1 8 s u b p r o j e c t s o r a b o u t 3 0 c o n s u l t a n t s , 2 p e r s u b - p r o j e c t ) 2 , 5 0 0 5 0 0 P r e - f e a s i b i l i t y , f e a s i b i l i t y , e n g i n e e r i n g o f s e l e c t e d s u b - p r o j e c t s 3 . 6 3 s e n i o r p r o c u r e m e n t s p e c i a l i s t s , 3 s e n i o r t e c h n i c a l s p e c i a l i s t s , 1 s e n i o r e c o n o m i s t , 1 s e n i o r s o c i a l s p e c i a l i s t 2 , 5 0 0 2 4 0 D e s i g n m o d e l b i d d i n g p a c k a g e s ( p e r t y p e o f t e c h n o l o g y ) 3 . 8 E x p e r t C o n s u l t a n t F i r m 2 , 5 0 0 5 0 0 C o n d u c t i m p a c t e v a l u a t i o n a c t i v i t i e s ( s u r v e y s a n d a n a l y s i s ) ; t h i s w i l l b e c o n d u c t e d i n y e a r s 1 , 3 a n d 5 ) 4 . 1 N G O s ( t w o N G O s p e r S t a t e w i t h a b o u t 5 s p e c i a l i s t s i n s o c i a l a n d p r o d u c t i v e a c t i v i t i e s ) 1 , 2 0 0 1 , 2 5 0 P r o v i d e c a p a c i t y b u i l d i n g o n s o c i a l a n d p r o d u c t i v e a c t i v i t i e s / m i c r o - b u s i n e s s e s t o c o m m u n i t y s t a k e h o l d e r s a n d c o m m u n i t y e n t r e p r e n e u r s Page 21 C E O E n d o r s e m e n t T e m p l a t e - A u g 2 9 , 2 0 0 7 . d o c N o t e : S u b - c o m p o n e n t s 2 . 6 , 3 . 1 , 4 . 2 a n d 4 . 3 ( a s g i v e n i n T a b l e 5 . 1 o f t h e P r o j e c t D o c u m e n t ) a r e n o t c o n s i d e r e d T A c o m p o n e n t s ( n o n e o f t h e s e w o u l d b e c o - f i n a n c e d b y t h e G E F ) . Page 22 CEO Endorsement Template-Aug 29, 2007.doc A NNEX D: STATUS OF IMPLEMENTATION OF PROJECT PREPARATION ACTIVITIES AND THE USE OF FUNDS A. EXPLAIN IF THE PPG OBJECTIVE HAS BEEN ACHIEVED THROUGH THE PPG ACTIVITIES UNDERTAKEN . The overall objective associated with the use of the granted PDF Block B resources was to conduct activities necessary for project preparation and design. Eight activities were identified and targeted for the preparation of the project, seven of which were targeted for co-financing with the PDFB grant. The funds were recipient executed. All the proposed activities were completed, however, not all of them were financed with the PDF-B given the availability of co-financing resources from other sources and the programming of such different activities. At the end, only 70% of the approved amount was disbursed. The uncommitted resources are being returned to the GEF Trust Fund. The description of such activities and information on how the PDF-B grant was used is provided below. Activity 1. Preparatory work to engage State and Municipal representatives early in the process (US$ 50,000) Results This activity was successfully accomplished. The Ministry of Energy (General Office for Technology Development and Environment of the Under-Secretary for Energy Policy, SENER) through the National Financial Agent (NAFIN) hired a number of consultants to support the following specific activities conducted in the period June 2005-August 2006 3 : Seminar in Tequesquitengo City, Morelos . The aim was to provide technical information about RETs in off-grid or distributed applications, review the state-of-the-art on solar panels technology, discuss case studies and lessons learned with the implementation of rural electrification initiatives implemented in Mexico in the past, and to review the role of NGOs and their potential participation during project implementation (e.g. to support public consultations, or as strategic par tners with service delivery companies). Compliance with national and Bank’s social and environmental safeguard policies was also discussed. Participants included representatives from key Federal agencies (CDI, FIRCO, CFE, SENER, SEDESOL and WB team). At the State level, various government and non-government organizations attended the event, including COPLADE (State level SEDESOL offices), the private sector, diverse NGOs and the academia. Several international companies (ESCOs) attended the event. Capacity Building Activities at the State and Municipal Levels . SENER hired a number of consultants including NGO representatives with experience in rural development projects to organize capacity building sessions on the use of RETs for off-grid applications and to launch a 3 Some of these activities were co-financed with other preparation resources and executed through other organizations (e.g. GVEP through the World Bank, and USAID). Page 23 CEO Endorsement Template-Aug 29, 2007.doc preliminary information campaign for the project. The activities were organized at the State and Municipal levels in three of the targeted States with the participation of community leaders and indigenous people. During the session a technical team operated a small scale PV panel to show the participants a practical example (e.g., for water pumping). The consultants also used didactic material to –among other- demonstrate the cost effectiveness of the solar alternative considering the capacity and willingness to pay of the beneficiaries. In addition, these activities allowed SENER not only to inform Municipalities and Communities on the nature and scope of the Integrated Energy Services Program, but to obtain feedback from the participants on previous experiences, concerns and expectations. Several field visits to the States by SENER, CDI and SEDESOL representatives helped identify political avenues and processes to align Federal, State and Municipal budgetary / fiscal resources for the co-financing of the program. Indeed, SENER managed to secure co-financing commitment letters from each of the Governors of the targeted States. Also, the field visits helped SENER understand better the nature of social contracts for co-financing signed between SEDESOL/CDI and State/Municipal entities. SENER also conducted several meetings at the State level, with the participation of Municipal representatives, to present the project and discuss its various components. Most importantly, all the previous activities allowed SENER –and the Bank- to assess the level and type of capacity building activities required to launch a rural electrification initiative with a scope of service provision for 50,000 households. This activity was originally estimated in US$50,000 with no co-financing from other sources. However, the total cost associated with the implementation of the activity was higher than the amount approved originally. At the end, for this activity the PDFB grant disbursed about US$85,000 which were spent in: (a) preparation of visual and didactic material to support the capacity building activities and information campaign for States and Municipal stakeholders in the three targeted States (Guerrero, Oaxaca, and Veracruz), (b) three consultants in charge of the coordination and implementation of the capacity building sessions conducted in the State of Oaxaca (activities were held in three different towns Ixtayutla, Zezontepec, Ixhuatan). The other activities described including the capacity building and consultation activities conducted in the States of Guerrero and Veracruz were co-financed with additional preparation resources (PHRD, GVEP) and government funds. Activity 2. Analyze the role of relevant institutions in the design, implementation and co- financing of the project and create an institutional platform for the management and coordination of the project (US$50,000) Results This activity was also successfully accomplished. The Ministry of Energy (General Office for Technology Development and Environment of the Under-Secretary for Energy Policy, SENER) Page 24 CEO Endorsement Template-Aug 29, 2007.doc through the National Financial Agent (NAFIN) hired consultants to support this activity, including the following 4 : Seminar in Jalapa City, Veracruz. The purpose was to discuss diverse institutional models for the implementation of a rural electrification program and to identify capacity building needs at the State and Municipal levels. The results of this work provided the basis for the institutional and implementation arrangements of the project described in both, the Project Document and the Operational manual. Participants included representatives from key Federal agencies (CDI, FIRCO, CFE, SENER, SEDESOL and WB team). At the State level, various government and non-government organizations attended the event, including COPLADE (State level SEDESOL offices), the private sector, diverse NGOs and the academia. Assessments: Two assessments were financed to analyze the role of key institutions and design and institutional platform for the project: a) Institutional Structure for the Development of Rural Electrification Projects in Mexico (by Bristish Consultant Company ITC) and b) by Benjamin Santamaria (local consultant). Several field visits to the States by SENER representatives and hired consultants helped the structuring of the final institutional platform of the project and the agreement on the roles of several participant institutions (as already described in the Project Document). The previous activities demonstrated the relatively low capacity of State entities to conduct fiduciary operations including financial management and procurement operations. SENER also recognized that centralizing such operations at the Federal level could also be challenging. SENER decided to hire a consultant to build the capacity of internal units at SENER on fiduciary operations with the intention also of exploring the possibility to allow SENER the execution of IBRD and GEF grants. The results of this consultancy were crucial to the final definition of the roles of SENER, NAFIN and the States as well as to the design of the institutional platform for the project. PDFB disbursement for this activity amounted US$ 15,282 and was used for the consultancy described in the previous paragraph. The uncommitted amount (US$ 4,718) will be returned to the GEF Trust Fund by the Recipient. The other activities described were co-financed with additional preparation resources (GVEP, USAID) and government funds. Activity 3. Contribute to the design of a financing facility for efficient use and matching of available mix of resources to support the development of a market for the provision of integrated energy solutions (i.e. based on renewable energy and developed to provide communities with electricity for non-agricultural productive activities and social services) (US$75,000). 4 Some of these activities were co-finance with other preparation resources and executed through other organizations (e.g. GVEP through the World Bank, and USAID). Page 25 CEO Endorsement Template-Aug 29, 2007.doc Results This activity was also successfully accomplished. The Ministry of Energy (General Office for Technology Development and Environment of the Under-Secretary for Energy Policy, SENER) through the National Financial Agent (NAFIN) hired two consultants to design a financial management structure and/or facility that could fit the needs of the program given its scope (e.g., different government levels, a number of different States, numerous bidding processes, hundreds of communities, etc.), the type of service provision and other key aspects (e.g., annual fiscal and budgetary cycles associated with the co-financing, political issues and other). The financial management structure designed is described in detailed in the Operations Manual and summarized in the Project Document. The facility will be administered by the National Financial Agent NAFIN as established by Treasury (SHCP). This activity was fully financed by the PDFB. The final cost of the activity amounted US$ 71,261. The uncommitted amount (US$ 3,739) will be returned to the GEF Trust Fund by the Recipient. Activity 4. General review of legal and regulatory framework (US$50,000) Results This activity was also successfully accomplished. The Ministry of Energy (General Office for Technology Development and Environment of the Under-Secretary for Energy Policy, SENER) through the World Bank (with GVEP resources) hired a consultant to review legal and regulatory frameworks to identify early in the process the needed instruments and the impact of specific mechanisms and norms on the development of proposed service delivery models and technological choices. This assessment was meant to be a first overview of legal and regulatory frameworks; however the consultancy resulted in a comprehensive analysis of the topic. For this reason, PDFB resources allocated to this activity were not used. The uncommitted amount (US$ 25,000) will be returned to the GEF Trust Fund by the Recipient. Activity 5 Assessment of Economic and Technical Feasibility of Service Delivery Models and Technological Options (US$75,000) Results This activity was also successfully accomplished. The Ministry of Energy (General Office for Technology Development and Environment of the Under-Secretary for Energy Policy, SENER) through the World Bank (with GVEP resources) and NAFIN, conducted a number of activities as described below. Three different studies were developed: i) Analysis of least cost alternatives for rural electrification initiatives in the Southern States of Mexico : conducted by the Institute of Electrical Research Mexico as part of a more general study to analyze case studies. In this study, different electricity supply options including grid Page 26 CEO Endorsement Template-Aug 29, 2007.doc extensions, solar photovoltaics, small hydroelectric systems and wind generators were compared –in terms of energy levelized cost-to determine the least cost alternative in the various localities of the Southern States of Mexico. Geographical information tools were used to incorporate key field parameters and variables into the analysis. ii) Assessment of decentralized RET based technology options : also conducted by the Institute of Electrical Research Mexico. This study goes deeper in the analysis of least cost solutions and focuses on 45 communities located in the targeted States. iii) Service Delivery Models for the Integrated Energy Services Project : the study was developed by individual consultant Eduardo Villagran. It was developed in three phases which included field work, extensive consultation with key government and non government entities participating in the project, and most importantly a survey with local and international energy service companies already operating in Mexico to calibrate the consistency between the service delivery model proposed and the needs, expectations and limitations of local and international ESCOs. The results of these studies were presented in workshops organized by the Ministry of Energy (SENER) with the participation of many government and non government entities. Also, both the IIE- Mexico and Eduardo Villagran have maintained close contact with State representatives (and the units assigned to the implementation of the project) building their capacity to prepare a robust portfolio of sub-projects and to understand the nature of the service delivery models and bidding processes. The PDFB resources allocated to this activity were not used. The activities described above were fully financed with other resources including GVEP and PHRD. The uncommitted amount (US$ 75,000) will be returned to the GEF Trust Fund by the Recipient. Activity 6. Identification of pilot projects for the development of sustainable models of rural electrification that link RETs with productive activities and social services (US$ 95,000) This is an on-going activity that for the purposes established in the PDFB proposal has been largely completed. The Ministry of Energy (SENER) together with State level units has already developed a portfolio of sub-projects for electrification in the first phase of the project (1-2 first years). Several activities have helped SENER develop this portfolio: Seminar in Cuernavaca City . The objectives of this workshop included: i) review different official data bases on electrification coverage in the targeted States, ii) identify the criteria for the selection of both communities and sub-projects during project preparation, iii) discuss impact evaluation methodologies, iv) define data needs necessary to develop a pipeline of sub-projects. This workshop was extremely successful as it brought together key representatives from the targeted States, who worked together and made decisions jointly on key aspects of project design. Public consultation activities and capacity building needs were also discussed at length during the workshop. Participants included representatives from key Federal agencies (CDI, FIRCO, CFE, SENER, SEDESOL and WB team). At the State level, various government and non-government organizations attended the event, including COPLADE (State level SEDESOL offices), the private sector, diverse NGOs and the academia. The participation of SEDESOL and CDI representatives was essential as eventually this institutions joined forces with SENER and are playing key roles in project implementation not Page 27 CEO Endorsement Template-Aug 29, 2007.doc only coordinating rural electrification activities and avoiding overlaps, but also providing field support through their networks of social and technical specialists. The three day workshop organized in Cuernavaca also ensured that the feedback from the State representatives and other local institutions is well integrated into project design. Several field visits . SENER hired two consultants to help coordinate the development of a data base and portfolio of sub-projects with technical and economic information for each of the targeted States. These two consultants together with SENER representatives and other professionals (hired by USAID) conducted several field visits to the States, not only to gather data, but also to train and build the capacity of State and Municipal focal points. Pilot Project in Cacahuatepec - Guerrero . In particular, with a preparation grant from USAID and private sector contributions, SENER has implemented a pilot project to electrify a community in Guerrero with SHS. With this pilot, the team has gain experience, especially with regards to the logistics associated with bringing and installing PVs in remote communities and with regards to the process of social consultation and community participation. This initiative has been key to the design of the project and the identification of potential sub-projects to be launched during the first phase of the Integrated Energy Services Project. Although SENER has accomplished the objective of identifying pilot projects and has structured a data base of potential sub-projects, it has not advanced in the design of the bidding documents (including the bidding conditions) necessary to award the mid term service contracts. Indeed, the change in government administration the period September 2006 – March 2007 affected the government’s capacity to launch and supervise a new consultant activity. The new administration at SENER has decided that this important activity will be conducted as a first step during project implementation. The PDFB resources allocated to this activity were only partially used (US$ 37,402). The uncommitted amount (US$ 32,598) will be returned to the GEF Trust Fund by the Recipient. Activity 7. Analyze case studies and lessons learned (US$ 75,000) With GVEP resources, SENER has hired a number of consultants including the Institute of Electrical Research (IIE-Mexico) to analyze case studies (and specially those that link renewable energy with productive uses and/or social services) and assess both lessons learned and elements of success associated with previous rural electrification programs. The studies evaluated the mix of resources, institutional and service provision issues including public-private partnerships and other key institutional, legal, regulatory and economic aspects. As proposed, no PDFB resources were allocated to this activity. The amount of co-financing resources were however higher than originally estimated. Activity 8. Project Management (US$ 30,000) Page 28 CEO Endorsement Template-Aug 29, 2007.doc The Ministry of Energy (General Office for Technology Development and Environment of the Under- Secretary for Energy Policy, SENER) through the National Financial Agent (NAFIN) hired three consultants to support project management activities including fiduciary operations. This activity was fully financed by the PDFB. The final cost of the activity amounted US$ 30,778. B. DESCRIBE IF ANY FINDINGS THAT MIGHT AFFECT THE PROJECT DESIGN OR ANY CONCERNS ON PROJECT IMPLEMENTATION . The findings derived from the activities and assessments described above were crucial for the final design of the project and the structuring of a pipeline of sub-projects. The various workshops and field visits have considerably improved the capacity of Federal and State level technical units to implement the proposed Integrated Energy Services Program. There are no concerns on project implementation other than those described as risks in Part II E. C. PROVIDE DETAILED FUNDING AMOUNT OF THE PPG ACTIVITIES AND THEIR IMPLEMTATION STATUS IN THE TABLE BELOW : GEF Amount ($) Project Preparation Activities Approved Implementatio n Status Amount Approved Amount Spent To- date Amount Committed Uncommitted Amount* Co- financing ($) 1. Preparatory Work to Engage State and Municipal representatives early in the process Completed 50,000 84,867 0 -34,867 86,086 2. Analyze the role of relevant institutions in the design, implementation and co-financing of the project and create an institutional platform for the management and coordination of the project. Completed 25,000 15,282 0 9,718 156,881 3. Design of a financing facility for efficient use and matching of available mix of resources. Completed 75,000 71,261 0 3,739 0 4. General review of legal and regulatory framework Canceled 25,000 0 0 25,000 13,760 5. Assessment of Economic and Technical Feasibility of Service Delivery Models and Technological Options Canceled 75,000 0 0 75,000 252,678 6. Identification of projects for the electrification of the first set of projects Partially Completed 70,000 37,402 0 32,598 104,650 7. Analyze case studies and lessons learned Completed 0 0 0 0 106,126 8. Project Management Completed 30,000 30,778 0 -778 0 Page 29 CEO Endorsement Template-Aug 29, 2007.doc 350,000 239,590 0 110,410 720,181 * Uncommitted amount should be returned to the GEF Trust Fund. Please indicate expected date of refund transaction to Trustee. wb163176 C:\DOCUME~1\wb163176\LOCALS~1\Temp\notesC6AA26\MX Integrated Energy Services Project CEO Endorsement Oct 25 Final.doc 10/26/2007 10:06:00 AM