Document of The World Bank Report No: ICR00001513 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-36820 IDA-H3810 TF-50589) ON AN INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT IN THE AMOUNT OF SDR 7.9 MILLION (US$10 MILLION EQUIVALENT) AND AN ADDITIONAL INTERNATIONAL DEVELOPMENT ASSOCIATION GRANT IN THE AMOUNT OF SDR 1.6 MILLION (US$2.5 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN AND AN INTERNATIONAL FINANCE CORPORATION FINANCING CONSISTING OF: AN “A” LOAN IN THE AMOUNT OF US$4.5 MILLION AND AN EQUITY SUBSCRIPTION OF UP TO US$3.5 MILLION TO THE PAMIR ENERGY COMPANY FOR THE PAMIR PRIVATE POWER PROJECT IN THE REPUBLIC OF TAJIKISTAN June 28, 2011 Sustainable Development Department Central Asia Country Unit Europe and Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
Report No: ICR00001513
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-36820 IDA-H3810 TF-50589)
ON AN
INTERNATIONAL DEVELOPMENT ASSOCIATION CREDIT
IN THE AMOUNT OF SDR 7.9 MILLION (US$10 MILLION EQUIVALENT)
AND AN ADDITIONAL INTERNATIONAL DEVELOPMENT ASSOCIATION GRANT
IN THE AMOUNT OF
SDR 1.6 MILLION (US$2.5 MILLION EQUIVALENT)
TO THE REPUBLIC OF TAJIKISTAN
AND AN INTERNATIONAL FINANCE CORPORATION FINANCING CONSISTING OF:
AN “A” LOAN
IN THE AMOUNT OF US$4.5 MILLION
AND AN EQUITY SUBSCRIPTION OF UP TO US$3.5 MILLION
TO THE
PAMIR ENERGY COMPANY
FOR THE
PAMIR PRIVATE POWER PROJECT
IN THE REPUBLIC OF TAJIKISTAN
June 28, 2011
Sustainable Development Department
Central Asia Country Unit
Europe and Central Asia Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective December 31, 2010)
Currency Unit = Somoni
1.00 = US$ 0.23
US$ 1.00 = 4.40 Somoni
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
AKDN Aga Khan Development Network
AKFED Aga Khan Fund for Economic Development
CapEx Capital Expenditures (Pamir Energy Company‟s own funds)
CAS Country Assistance Strategy
FM Financial Management
FMR Financial Management Report
GBAO Gorno Badakshan Autonomous Oblast
GoT Government of Tajikistan
HPP Hydro Power Plant
ICR Implementation Completion and Results Report
IDA International Development Association
IFC International Finance Corporation
IFI International Financial Institution
IFR Interim Financial Report
KfW Kreditanstalt für Wiederaufbau
LICUS Low Income Countries Under Stress
M&E Monitoring and Evaluation
O&M Operations and maintenance
PAD Project Appraisal Document
PEC Pamir Energy Company
PIU Project Implementation Unit
SECO State Secretariat for Economic Affairs (Switzerland)
WBG World Bank Group
Vice President: Philippe Le Houerou
Country Director: Motoo Konishi
Sector Manager: Ranjit J. Lamech
Project Team Leader: Imtiaz Hizkil
ICR Team Leader: Imtiaz Hizkil
TAJIKISTAN
Pamir Private 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 .............................................. 5 3. Assessment of Outcomes .......................................................................................... 10
4. Assessment of Risk to Development Outcome ......................................................... 13
5. Assessment of Bank and Borrower Performance ..................................................... 14
6. Lessons Learned ....................................................................................................... 16 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 16
Annex 1. Project Costs and Financing .......................................................................... 18 Annex 2. Outputs by Component ................................................................................. 20 Annex 3. Economic and Financial Analysis ................................................................. 23
Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 32 Annex 5. Beneficiary Survey Results ........................................................................... 34
Annex 6. Stakeholder Workshop Report and Results ................................................... 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 36 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 48 Annex 9. List of Supporting Documents ...................................................................... 49 MAP IBRD 31770 ........................................................................................................ 50
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A. Basic Information
Country: Tajikistan Project Name: Pamir Private Power
1. Project Context, Development Objectives and Design
1.1 Context at Appraisal
Tajikistan was the poorest country in the former Soviet Union, with an estimated income per capita
of about US$160, and the Gorno Badakshan Autonomous Regions (GBAO) was the poorest region
in Tajikistan. The Government had limited resources to provide basic public services for its
population, let alone carry out public investment to prevent the decay of the extensive infrastructure
inherited from the Soviet era. Tajikistan had an open economy with no effective borders with its
CIS neighbors. Merchandise exports (two thirds of which were aluminum and cotton) accounted
for 63 percent of GDP in 1999. Political and economic instability, geographic isolation and
corruption had deterred foreign investors. Foreign direct investment to Tajikistan was extremely
small -- US$10 million in 2000 and US$24 million in 2001. Tajikistan was one of the Low Income
Countries under Stress (LICUS) group of countries.
The Bank Group‟s 1998 Country Assistance Strategy (CAS) emphasized a strategy that supported
sustainable, employment-inducing investment, support for privatization with particular emphasis on
infrastructure and improving the quality of social and institutional capacity. It emphasized
assistance with repair of war damage, promoting privatization, assisting the most vulnerable and
developing/restructuring rural infrastructure. The Project addressed these CAS goals, particularly
those of privatizing infrastructure and developing rural infrastructure.
Tajikistan‟s energy resource endowment was predominantly hydro-electricity, with an estimated
hydroelectric potential of about 40,000 MW, of which just over 4,000 MW had been exploited. The
imbalance in energy resources created a deficit problem for Tajikistan, since hydropower potential
was reduced in winter when glacial melt was least and demand was highest. As a result, Tajikistan
imported electricity as well as fossil fuels in winter to meet energy needs. In 1999, energy imports
totaled US$103 million (electricity, natural gas and petroleum derivatives), while exports (primarily
electricity) amounted to just US$17.5 million. Tajikistan‟s power system was made up of three
separate power systems: the northern, the southern and the Gorno Badakshan Autonomous Oblast
(GBAO) electrical systems. The operational condition of the physical infrastructure had deteriorated
significantly during the 1990s, resulting in very high network losses and requiring during winter the
importation of even more energy to meet the demand. The Government maintained electricity
tariffs at very low levels, with tariffs at about 0.7 US cents/kWh on average, and this level was
insufficient to cover even the operating costs.
With assistance from the Asian Development Bank (ADB) the Government adopted a strategy for
the energy sector to expand and diversify Tajikistan‟s energy system to supply reliable, efficient and
affordable energy to more people, support poverty reduction, improve the standard of living and
bring economic development to rural areas. Its sector policies were designed to (i) facilitate the
development of a legal and regulatory framework for efficient operations; (ii) increase the level of
electricity tariffs to full cost recovery; (iii) encourage private sector participation in the generation
and supply of power (by enacting the Energy Law); and (iv) promote energy conservation.
Consistent with the overall sector policy framework, the Project was designed to cover the electricity
system in the GBAO region. The Project would: (a) develop indigenous hydro resources to meet
electricity demand, particularly in winter; (b) mobilize external resources, over 60 percent of them in
risk capital, to expand the generation capacity and to rehabilitate the transmission distribution
2
networks; (c) bring private sector expertise to operate and manage part of the Tajik power system;
and (d) agree on a 25-year tariff path, under a Concession Agreement.
As the electricity system of GBAO was virtually separate from the other systems in the country, over
70 percent of the energy in GBAO before the break-up of the Soviet Union was provided by diesel
generators run on imported diesel fuel. Little attempt was made to develop locally available and
relatively low cost hydropower. When Tajikistan became independent in 1991, diesel deliveries
virtually ceased, and with them, a reliable electricity supply. GBAO was plunged into crisis, and
became the poorest region of the poorest of all former Soviet Republics. Power capacity in the
region was composed of several micro-hydroelectric plants and eleven small and medium-scale
hydroelectric plants, two of which, Pamir I (14 MW) and Khorog (7.2 MW), accounted for 84
percent of installed capacity at that time. No functioning diesel capacity remained. The
transmission and distribution system of GBAO was in very poor shape, having been largely
destroyed in the civil war. Only 15 percent of the 435 km of 35 kV lines was still in service. Access
was nearly universal, and the power system continued to provide electricity; however, outages were
scheduled on a rotational basis, particularly during winter, and the power cuts had become more
frequent and prolonged. There was no power in most districts of GBAO in winter.
In 1994, with funding from the US Government, and in cooperation with the Government of
Tajikistan, the Aga Khan Development Network (AKDN) put into operation two of the planned four
turbines at the Pamir I station (which had been planned and partially built at the end of the Soviet
period), and Pamir I became operational with 14 MW out of its 28 MW designed output. Even with
half of the designed capacity of the Pamir I station on line, 43 percent of residents had no electricity
during the winter and 10 percent had no electricity at any time during the year, despite “enjoying” a
connection to the grid. Winter temperatures in the GBAO fell as low as minus 30 centigrade. In
many areas, schools and hospitals were forced to close in winter due to lack of heating. As a result,
people resorted to cutting down the few trees in the area to keep from freezing in winter. The
Department of Forestry estimated that from 1992-2002, 70 percent of the region‟s tree cover had
been lost to firewood collection. In some cases, people cut down fruit trees for firewood,
aggravating the food shortage in the spring. Indoor pollution was acute, the natural resource base
was being degraded and economic activity was stifled.
In early 1999, the AKDN and the local administration of GBAO requested the International Finance
Corporation (IFC) to review the feasibility of completing Pamir I, including an upstream regulating
structure to ensure adequate winter flow, as the optimal solution to the energy crisis. The Project
was developed jointly by IFC and the Aga Khan Fund for Economic Development (AKFED).
The Project was designed to reconcile the commercial objectives of private investors with the social
objectives of the Government in an innovative way and had several unique features. It offered a
viable model of how to provide infrastructure to the poorest communities. It combined private
partnership with the concept of Output Based Aid, whereby aid (the Swiss grant funds, through a
Trust Fund administered by IDA, TF-50589 of US$5 million) was provided to a privately owned and
operated infrastructure service provider upon delivery of an output (e.g. electricity services) to
targeted beneficiaries. It was also a successful example of IFC/IDA collaboration and was intended
to serve as a model for Tajikistan as well as other countries.
3
Although the development impact was expected to be high, the Project was also a high-risk
investment. It was intended to serve a community that was both extremely poor and heavily
dependent on electricity. The challenge of project design was to ensure affordability.
1.2 Original Project Development Objectives (PDO) and Key Indicators
The objective of the Project was, through private sector involvement, to improve the reliability and
enhance the quantity of supply of electricity in the Gorno Badakshan Autonomous Oblast (GBAO)
region in a financially, environmentally and socially sustainable way. Key indicators from the
Supplemental Letter were:
Increased electricity sales in GBAO region from 135,000 MWh/year to 190,000 MWh/year
in 2006 and 200,000 MWh/year in 2010;
Implementation of the Environmental Monitoring Management Plan (EMMP);
Maintenance of the maximum average tariffs in US cents/kWh as per the Concession
Agreement between the Government and PamirEnergy;
Payment of bills for electricity consumption by Budget Organizations to PamirEnergy, in
cash, within 30 days of billing; 1
PamirEnergy annual achievement of the following financial performance targets: debt
service coverage ratio of 1.2; collection rates of 90 percent in 2006 and 95 percent by 2010;
Reduced interruptions of supply, voltage and frequency fluctuations;
Technical losses in the transmission and distribution network reduced to 8 percent;
1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and
reasons/justification The PDO and Key indicators were not revised.
1.4 Main Beneficiaries
The benefits from the Project were expected to be primarily concentrated on consumers connected to
the main grid in GBAO, and the isolated grid taking power from the Vanj hydropower plant.
The main benefits were to be derived from improving the electricity supply, particularly in winter,
and subsequently enhancing the standard of living in one of the poorest regions in the world. The
Public-Private Partnership approach with Output Based Aid would provide a model for delivering
infrastructure services to poor consumers and enhance the country‟s opportunity to attract
investments. Environmental and health benefits were expected from reducing fuel wood related
emissions by increased use of clean hydropower for heating and cooking.
1.5 Original Components.
The Project would generate and supply electricity under a 25-year Concession awarded to a
private concessionaire, Pamir Energy Company (PEC). The Concession would involve taking
control of the assets of Barki Tajik in GBAO, which served around 250,000 people. The
Project comprised:
1 This indicator was in Para A2 of the PAD and in the Supplemental Letter, but was not in Annex 1 of the PAD.
4
(a) Completion of the Pamir I Hydropower Plant to its original design capacity of 28 MW
from the current 14 MW by installing units 3 and 4, along with an associated regulating
structure at Lake Yashilkul;
(b) Rehabilitation of other hydro plants - Units 1 and 2 of Pamir I, Khorog, Vanj and
Namangut;
(c) Rehabilitation and reinforcement of substations, transmission and distribution lines; and
(d) Technical Assistance to PEC for: Project Engineering and Implementation, Operations
and Management and Environmental and Social Impact monitoring and mitigation.
The Project was expected to cost US$24.4 million, including supply of equipment,
construction/installation, consulting services and contingencies. Interest during construction
amounted to US$2.0 million, for a total capital expenditure of US$26.4 million.
1.6 Revised Components
The Project components were not revised, except that following the catastrophic flooding in
February 2007, the description of the Project was revised to add “Emergency Assistance, provision
of goods, works and consultants‟ services for Pamir 1 Power plant restoration and financial
recovery”. Under the Additional IDA Grant to cover an unanticipated cost overrun due to the
catastrophic flooding of Pamir I, the focus was on the rehabilitation of plant infrastructure and
provision of parts and equipment to ensure the plant‟s long-term sustained operation and prevent
further accidents.
1.7 Other significant changes
In December 2006, the closing date was extended from December 31, 2006 to December 31, 2007,
along with a reallocation among disbursement categories. Although key construction and equipment
deliveries were completed satisfactorily in 2006, the extension of the closing date was needed to
enable installation and testing prior to contractor payment.
In December 2007, an amendment to the Development Credit Agreement extended the closing date
to December 31, 2008, to support the restoration of damage caused by catastrophic floods in
February 2007. It included reallocating surplus funds from the SDR/Dollar exchange rate and
revision of the project description to include “Emergency Assistance, provision of goods, works and
consultants‟ services for Pamir 1 Power plant restoration and financial recovery”, and provided for
audits by international independent auditors acceptable to the Association. The Project Agreement
was amended at the same time to add the word “international” before independent auditors and
revise the procurement methods.
Following Board approval of the Additional IDA Grant in July 2008, both the Development Credit
Agreement and the Project Agreement were amended in November 2008 to include the additional
IDA Grant of SDR 1.6 million (US$2.5 million equivalent). The project scope and development
objective remained unchanged. Project management was based on existing arrangements, but relied
on a newly formed Project Planning and Implementation Department with staff from the PIU of the
original project. Incremental costs related to restoration of PEC operating capacity after flood
damage were US$8.3 million, of which US$0.5 million had already been covered by surplus funds
from the original Pamir Private Power Project. The financing plan was revised to include: SDR 1.6
million (US$2.5 million equivalent) from the IDA Grant, US$4.4 million from insurance and
US$0.9 million from Pamir Energy‟s (PEC‟s) own funds. Disbursement arrangements were revised
5
to allow 100 percent financing for activities covered by the additional grant and to allow retroactive
financing of up to 56 percent of the IDA grant amount for eligible expenditures incurred after June 7,
2007. Additional methods of procurement were added. The Closing Date was extended to
December 31, 2010. The onlending terms to Pamir Energy were revised so that the repayment terms
were 15 years (2013-2027) instead of 10 years, and the interest rates were revised.
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design and Quality at Entry
Soundness of Background Analysis: There was extensive project preparation and design work
before approval of the project. In 1999, IFC commissioned a consultant study to review alternative
energy sources. This study confirmed that the proposed expansion of the Pamir hydroelectric plant
was the most economic and the most environmentally acceptable alternative to provide electricity in
the Project region. In late 1999, the consultant engineer conducted a detailed study of the Project
that included: (i) an assessment of the construction costs and schedule; (ii) a review of
environmental impacts; (iii) an assessment of the ability of consumers to pay appropriate electricity
tariffs; and (iv) a brief audit of the electric utility services in GBAO. Based on the study, it was clear
that the Project would need to include the upgrading of transmission and distribution, and the project
company would also have to take over the supply functions (metering, billing and collection) to
ensure a viable project. Consequently, AKFED and IFC decided to expand the project from a focus
on generation to a full utility project and submitted a proposal in January 2000 to the Government of
Tajikistan for the establishment of a private company to manage and expand the electricity supply
system in GBAO. IFC drew on Swiss and IFC trust funds amounting to almost US$1 million and
committed significant staff resources to structure the Project.
Assessment of Project Design: The project design was appropriate and innovative. IFC took the
lead in (a) identifying the most effective solution over the short to medium term; (b) evaluating the
ability of consumers in the region to pay for electricity; (c) developing a concession framework
around which a privately-driven investment could be built; and (d) involving IDA in the Project.
IDA‟s participation was crucial to the Project coming to fruition, as IDA‟s concessional financing
was critical for the project‟s viability, i.e., to enable reliable electricity supply with a levelized tariff
of about US 2.1 cents/kWh. IDA‟s involvement was designed to reconcile the commercial
objectives of the private sector and the social objectives of keeping the electricity tariffs as low as
possible. The Project would ensure that a significant private investment of US$26 million would
occur in a country and region that found it difficult to attract private investors. IDA and IFC joint
involvement was also critical in mobilizing financing from the Swiss Government to enable the
Government of Tajikistan to meet its social protection obligations towards the Project, since a
considerable proportion of the residential consumers would be unable to pay even the US 2.12
cents/kWh tariffs. By the time of IDA project preparation/appraisal, all of the major steps had been
completed: engineering studies, an Environmental and Social Impact Assessment study which
included extensive public consultations, evaluation of construction arrangements and project
management alternatives; legal representation assistance to the Government; preparation of a
2 The weighted average tariffs were very low, about 0.08 US cents in 2007. The tariff level of 2.1 US cents for the
entire country, except GBAO, served by Barki Tojik, has been realized only in the year 2010.
6
detailed Environmental Monitoring and Management Plan; and a design for a community outreach
program to promote the capacity of communities to manage their power resources for the support of
public services and for the benefit of community-based enterprises. All applicable World Bank
Group safeguards policies and guidelines were considered and addressed during the environmental
and social assessment of the Project. The initial project design was adjusted so as to be in
compliance with WBG safeguard policies and guidelines and appropriate environmental and social
impact mitigation measures were included.
Following extensive discussions between AKFED, IFC, IDA (whose involvement necessitated
observance of the World Bank Procurement Guidelines) and the Government, the approach to
project implementation during construction relied on the appointment of an experienced
international engineering and construction management firm to be appointed as the Owner‟s
Engineer to be responsible for detailed project design, selection of contractors, acquisition of
material and supervision of construction. Considerable attention was paid to procurement
packaging, as it was considered that the Project would not attract serious interest from international
contractors, given its remote location.
Adequacy of Government’s Commitment, Stakeholder Involvement and Participatory
Processes: The Government demonstrated its strong commitment to the Project and its objective
(see Section 5.2 (a)). Stakeholders (Government, AKFED, IFC) were closely involved in the design
and preparation of the Project as described above. An extensive participatory process was followed
during project design and preparation to ensure community support, with 17 public hearings
involving a broad cross section of the population.
Adequacy of Risk Assessment. The project team correctly described the Project as a high impact,
high risk project; all risks were covered including market risks, revenue risks, technical risks
implementation risks, operational risks, financing risks, economic risks, political risks, political
stability risks and legal framework risks in the two page risk table in the PAD. The market risk of
lower than expected demand, which was not expected to be an issue due to the severe shortages of
electricity, materialized during Project implementation and a Financial Restructuring Plan had to be
put in place to improve the financial performance of PEC.
2.2 Implementation
Work carried out prior to Pamir Energy‟s take-over of the Concession revealed that faulty metering
was a significant problem. In 2003, PEC with assistance from IDA, decided to undertake a
comprehensive Re-Metering Program over 18 months in order to reduce losses.
Activities of the original credit were implemented satisfactorily, and equipment deliveries under the
original project were completed in December 2006, but additional time was required for installation
and testing, so the Closing Date was extended to December 2007. The capacity of Pamir 1 HPP
was doubled to 28 MW, winter water flow for generation was enhanced through a regulating
structure at the upstream Lake Yashilkul, and other system assets were upgraded.
On February 5, 2007, catastrophic flooding severely damaged Pamir HPP-1 equipment and
infrastructure, forcing the plant‟s shutdown, causing a 67 percent energy loss of PEC‟s power
7
generation capacity in the main grid and affecting over 18,000 consumers at the peak of the winter
period. The flood affected the lower level of the power plant, housing the turbines, and the
transformer yard outside the power house. The electric and electromechanical equipment in the
hydropower plant were severely damaged. Electronic protection and control instrumentation and
equipment were also damaged. Low and medium voltage switchgears and components of plant
auxiliary services, eg., batteries, building services, communication channels, etc. required complete
replacement. Of the four turbine-generator units, unit #2 was completely destroyed. Units #1, #3
and #4 were damaged to varying degrees. The flooding was deemed to have been caused by an
airlock from a piece of ice from the sedimentation basin, which draws water from the River Gunt
through the penstocks to the plant turbines. The ice airlock clogged the penstock, and subsequently,
under the increasing water pressure, moved in and blew the head cover of unit #2, unleashing the
flood in the power house, within 1-2 minutes.
PEC with support from AKFED reacted swiftly to address the problem and its aftermath on multiple
fronts. The Government helped with emergency food and fuel supplies. World Bank and IFC teams
arrived on site to help design an emergency action plan whose implementation led to recovering 67
percent of the plant‟s capacity. Rehabilitation efforts under the Additional IDA Grant approved in
July 2008, focused on restoring the plant to its full capacity and sustainability, so that the original
Project Development Objective could be achieved, and on implementing measures to prevent further
occurrences of these problems and addressing longer term sustainability issues. At the time the
Additional IDA Grant was approved, key engineering studies had been completed, and three of the
four units at the plant had been permanently restored. Critical remaining activities included the
restoration of unit #2, supply of spare parts and auxiliary equipment for the turbine generator units
and finding a full solution to the issues of sedimentation and ice formation at the regulating basin of
the plant in order to minimize the possibility of future accidents.
In late 2006/early 2007, the debt burden on PEC increased drastically as a result of losses and
investment requirements which turned out to be much higher than estimated at appraisal. In order to
alleviate the debt burden on the company, stakeholders agreed on a Financial Restructuring Plan in
June 2008 that focused on continuing the operation of PEC on a commercial basis and addressing the
issues of higher than anticipated losses and investment requirements. AKFED‟s existing
subordinated debt and additional contribution were converted to equity, and IFC‟s existing senior
loan was converted to equity. The existing on-lent IDA loan repayment terms were revised to a
repayment term of 15 years (2013-2027) instead of 10 years. Some interest was written off and
some was deferred. Stakeholders also agreed on measures to reduce losses, optimize operating costs,
improve collections and enhance revenue within the full application of the authorization given in the
Concession Agreement. The Financial Restructuring Plan ensured cash flow to the company to
cover operating and capital expenses, enabling annual investments in critically needed network
improvements.
Close supervision and ownership by IFC and AKFED contributed to greater accountability of PEC‟s
management and timely implementation. Implementation of the Private-Public Partnership
mechanism resulted in greater transparency and better operational performance in the utility.
Cancellation. Several restoration activities were implemented by PEC using its own and other
funds, thus, leaving about US$ 1.2 million unutilized. Based on a request from the Government of
8
Tajikistan (the Borrower) SDR 768,000 (equivalent US$ 1.2 million) of the Grant was cancelled on
December 29, 2010. The remaining undisbursed balance at closing (SDR 362,359.82,
US$583,043.97 equivalent) of the original IDA Credit was canceled on May 5, 2011. The remaining
undisbursed balance of the IDA Grant (SDR 80,223.07) was cancelled on January 10, 2011.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design.
The Project included adequate development and outcome indicators to assess progress in meeting the
project development objective and monitor the achievement of intermediate results. End of project
targets were indicated for both outcome and intermediate/output indicators, but no baseline was
given for the output indicator “technical losses in the transmission and distribution network reduced
to 8 percent”.
M&E Implementation. PEC regularly collected data concerning the indicators, and the actual
figures were compared to the target values and were available to IDA and PEC‟s stakeholders (GoT,
AKFED (70 percent share) and IFC (30 percent share) in both the quarterly FMRs/IFRs and PEC‟s
monthly progress reports, and an annual report each December.
M&E Utilization. PEC and its stakeholders utilized the reports for decision making when planning
capital expenditures, measures to improve collections and reduce losses, and in the discussions and
agreement on the PEC Financial Restructuring Plan.
2.4 Safeguard and Fiduciary Compliance
Environment.
The Project was subject to the Bank‟s OP 4.01 on Environmental Assessment, Natural Habitats (OD
4.04), Involuntary Resettlement (OD 4.30) and Safety of Dams (OP/BP 4.37), Projects on
International Waterways (Op/BP/GP 7.50) (formal confirmation was issued by IDA that notification
of riparians was not required), Policy on Child and Forced Labor (IFC), Environmental Health and
Safety Guidelines for Electric Power Transmission and Distribution (IFC).
The Project was rated as a category B Project because it was a rehabilitation, upgrading and
expansion of an existing power generation, transmission and distribution system. All applicable
WBG safeguards policies and guidelines were considered and addressed during the environment and
social assessments of the Project. The initial project design was adjusted to be in compliance with
WBG safeguards policies and guidelines and appropriate environmental and social impact mitigation
measures were included and monitored throughout the Project. A comprehensive Environmental
Monitoring and Management Plan (EMMP) set out measures to ensure compliance with all the
applicable Safeguards Policies during the construction and operation phases of the Project and Pamir
Energy took all necessary measures to implement the EMMP in a timely manner. IDA fielded
several environmental safeguard missions to review PEC‟s compliance with the EMMP, including
two comprehensive safeguard reviews in September 2009 and September 2010, which concluded
that the EMPP continued to be implemented satisfactorily, with no major deviations observed during
the site visits.
Financial Management.
The financial management arrangements at PEC, including accounting and reporting, internal
control procedures, planning and budgeting, external audits, funds flow, organization and staffing
arrangements were acceptable to the Bank. During 2002-2007 the FM ratings were consistently rated
9
Highly Satisfactory. During this period both the entity and project audits were carried out by
auditors acceptable to the Bank, with timely submission of all the reports. However, due to changes
in the national legislation for audit services (effective on March 3, 2007), which required the
auditors to have local registration and local staff, PEC was unable to extend its contract with its
auditors and had to recruit new auditors, which caused delays in the receipt of the audit reports for
the year ending December 31, 2009. Subsequently, in 2009-2010 the FM ratings were downgraded
to Moderately Satisfactory and remained such at the project closing mainly due to delays with
submission of financial management and audit reports, which were received with a delay but were
acceptable to the Bank.
Procurement.
Procurement arrangements were considered satisfactory for the activities under the original Credit.
All the planned procurement activities were completed on time and within budget. Procurement
under the Project proved challenging, especially with International Competitive Bidding (ICB) and
Limited International Bidding (LIB) packages. Interest from potential suppliers/contractors in
project bids was weak, due to the remote location of Pamir HPP and transportation difficulties,
especially in winter. Despite efforts to enhance interest of potential bidders, only two bidders
participated in most of the tenders, and in one contract (supply of electrical and mechanical
components), no bidder purchased bidding documents. Bid submission deadlines had to be
frequently extended, and procurement often required re-bidding. Even for National Competitive
Bidding, there were instances where PEC had to extend the submission deadlines and sought
expressions of interest in neighboring countries. As per Bank recommendation, PEC even issued
bidding documents for such potential contractors free of charge in order to maximize competition.
A couple of procurements failed, either because the lowest evaluated responsive bid exceeded the
cost estimate or no firm submitted bids. Because of the urgent need to maximize the production
capability of the power plant during winter, the project team sought a waiver to sign a contract using
Direct Contracting, for purchase of cement, or instead of re-bidding, the contract was financed by
Aga Khan Development Network instead of from the IDA Credit. The Credit Agreement did not
originally provide for the Direct Contracting method of procurement, but it was added later when the
Credit Agreement was amended.
2.5 Post-completion Operation/Next Phase
Pamir Energy Company (PEC), a special purpose company for the Project, and operating the 25-year
Concession, was formed under the laws of the Republic of Tajikistan as a joint stock company,
owned 70 percent by AKFED and 30 percent by IFC. The Concession Agreement was signed on
May 24, 2002, by GoT and PEC and provides the policy, regulatory, technical, environmental,
financial and operational framework for the Project, both during the construction and operational
phases. Now that the construction phase has been completed, PEC will continue to manage all
Government-owned electricity assets in GBAO for the remaining 16 years of the Concession
Agreement. PEC, with the support of AKFED, has prepared a business plan for 2010-2015, based
on a new financial model developed by PEC based on its experience of the last several years. Today
Pamir I is a sustainable power plant. The investments made under the project are expected to have a
lifetime of at least 25-30 years. PEC carries out several activities annually at Pamir I to further
improve safety and reliability. Necessary budgets for plant maintenance are allocated annually.
Staff have been trained and participate in annual intensive capacity building programs. PEC has
10
indicated that the performance indicators of other projects to be implemented by PEC will be similar
to those under the IDA financed Project.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
The Project remains highly relevant to Tajikistan‟s National Development Strategy for 2006-2015,
whose key priorities include improving public administration, developing the private sector and
attracting investment, and developing human potential. The 2007 power sector strategy developed
by the Government of Tajikistan aims to ensure reliable electricity supply to meet the needs of the
population and productive sectors to sustain growth and contribute to poverty reduction. The target
is to become self-reliant by 2017 and gradually develop power exports and strengthen regional
cooperation to increase electricity export revenues and generate a new source of growth. It fits into
the “Production Block” on food security, agriculture, infrastructure, energy and industry of the
Bank‟s Poverty Reduction Strategy for 2010-2012. The Project continues to be relevant to the goal
of the Country Partnership Strategy for FY10-13, to improve the reliability of electricity and gas
services and increase energy support potential. The Project was designed to reconcile the
commercial objectives of the private sector and provide reliable power supply to the poorest
mountainous region and the social objectives of keeping the electricity tariffs as low as possible;
which continues to be relevant to both the Government strategy and the current CPS and Poverty
Reduction Strategy.
3.2 Achievement of Project Development Objectives
The Project Development Objective has been achieved. The Project generates and supplies
electricity in the GBAO region under a 25-year Concession awarded to a private concessionaire,
Pamir Energy Company (PEC). Before the Project daily power supply in GBAO was about 3 hours
per day, especially in winter. PEC now provides around 24 hours of power supply per day in winter
to customers of the main grid (over 70 percent of the total customers); this excludes some remote
areas, where the power supply varies from 8 to 16 hours per day. The supply position is better than
most areas in the rest of the country covered by Barki Tajik. The schools and hospitals can function
properly in winter with available power supply. Annual supply of electricity has increased from
135,000 MWh/year in 2002 before the Project to 174,000 MWh/year in 2009. In 2010 consumption
at 163,215 MWh was slightly lower than the end of project target due to lower demand. Instead of
rationing, which was the norm before the Project, there is now a surplus of energy, which allows
PEC to have a planned maintenance of units in capital repair at the same time, without affecting the
reliable supply of energy. Collection rates have improved from 40 percent before the Project to about
100 percent of sales for the year ending December 31, 2010. Unit 2 at Pamir I HPP was
commissioned in January 2011, and full plant capacity under the original project scope has been
restored. PEC now delivers uninterrupted power supply in its main grid, manages the water flow
from Lake Yashilkul, has resolved the issues with sedimentation and fragile ice, which led to the
catastrophic flooding in February 2007, has improved the reliability of the electro-mechanical parts
of the plant, and has improved the security of the plant (closed circuit television cameras). In 2010
anti-filtration measures were taken at Yashilkul regulating structure which made it possible to
conserve more than 20 million m3 of water at the lake, which provides PEC enough water to deliver
reliable energy to its customers, even if the winter lasted longer than usual. A dredging pump was
procured in 2010, which solved the issue with sediments at Pamir I sedimentation basin. Now PEC
does not have to stop the plant for one month every two years to remove the sediments, thus
11
substantially increasing availability of the units. Two ice blocking systems were built, which solved
the issue of fragile ice getting into the basin and damaging the turbines and bearings. The social
subsidy plan, financed by the government and the Swiss Grant, worked as envisaged through 2011,
protecting the end consumers from higher tariffs. The project is sustainable with transformative
benefits to the poorest region of Tajikistan and has set up a successful example of Public-Private
Partnership in a difficult environment. It displaces the environmentally unfriendly use of diesel and
fire wood for energy supply, as had been the practice in the past; has a well established mechanism
to target subsidy delivery to the most vulnerable population; has set up a culture of commercial
discipline among the consumers and obligation on part of the supplier to serve its consumers.
Although the operational situation of PEC has improved, its consumers would need continued
support with tariff subsidies and PEC would need softer onlending terms to continue its investment
program in the remote areas (financing currently under consideration by KfW (Germany) and SECO
(Switzerland) through the Government of Tajikistan.
3.3 Efficiency
Detailed economic and financial analysis of the project was carried out at the appraisal stage to
estimate the economic and financial efficiency and impact of the project. The economic costs and
benefits of the project were calculated excluding taxes and subsidies. The projection of financial
performance of PEC was done at the appraisal stage for 2002-2012.
Economic analysis: The main economic benefit of the project was the incremental electricity
supplied to consumers as a result of power system investments. Specifically, improvements to the
power system eliminated the significant winter and summer black-outs experienced by the customers.
The main economic costs were the capital investments and the incremental operation and
maintenance (O&M) costs.
The completion stage economic analysis of the project yielded an NPV of US$ 3.9 million and an
EIRR of 12.2%, compared to the appraisal stage NPV of US$ 17.6 million and an EIRR of 19%.
Reduction of economic return of the project is primarily due to a 19% investment cost over-run due
to the catastrophic accident and 2003-2010 electricity sales below the levels projected at appraisal.
Specifically, the total actual project costs were around US$ 31.4 million, compared to the appraisal
stage estimate of US$ 26.4. The actual electricity sales in 2003-2010 were 35-40% lower than
projected at appraisal (see Annex 3 for details). The overall economic return considering the other
non quantified benefits such as positive environmental impact, improved quality of life (homes,
schools and hospitals and businesses) would be significantly higher.
Financial analysis: The main financial benefit of the project is the incremental financial revenue
that accrues to PEC due to incremental supply of electricity and higher tariffs. The financial benefits
from incremental supply of electricity were estimated at the weighted average end-user tariffs. The
financial costs are the capital investment costs and the incremental O&M costs.
The completion stage financial appraisal of investments yielded an NPV of US$ (2.3) million and an
FIRR of 8.9%. The appraisal stage project company level financial analysis estimated the FIRR at
9.8% (see Annex 3 for details). The reason for financial under performance of PEC are the higher
actual investment costs, and downward revision of electricity demand. The global economic
12
recession has also contributed to lowering the anticipated demand growth with the slowdown of
economic activities.
Financial performance of PEC: The actual financial performance of the company in 2006-2009
was below the appraisal forecast, due to slower tariff increases than anticipated by the Concession
Agreement, lower-than-projected electricity sales that reduced the operating cash flow of the
company, almost two-fold depreciation of TJS/US$ exchange rate, and higher operating costs driven
by over 10% average annual inflation in 2006-2009.
The company‟s operating income and cash flow became positive in 2009 and has improved. The
company‟s ability to meet its short-term and long-term financial obligations improved. Specifically,
in 2009, the company‟s highly liquid assets at hand were more than 14% of the short-term liabilities,
improving from 5% in 2006.
3.4 Justification of Overall Outcome Rating
Rating: Satisfactory.
Based on Sections 3.1-3.3, the overall outcome is rated as Satisfactory. The Project was relevant to
the Government‟s National Development Strategy, the latest Poverty Reduction Strategy and the
latest Country Partnership Strategy. The Project successfully met its development objective, has set
up a replicable, successful example of a Public-Private Partnership, and was well justified based on
reasonable economic and financial performance even after the global recession impacts on the
economy.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
Reliable energy supply changed the economic life of the poorest region of Tajikistan. Before the
Project, shops and factories used to operate only in summer, as no energy was available in winter.
Today shops, producers and businesses work year round, and consumers are accustomed to have
energy available year round. According to studies in 2009, electricity supplied by hydropower is the
cheapest and cleanest option for lighting, cooking and heating in GBAO, compared to wood, coal,
diesel and other sources. Thus, improving the quantity and reliability of the energy supply in GBAO
had a positive impact on poverty reduction. Before the Project women spent a considerable amount
of time gathering wood for cooking and heating. Today they use electricity for cooking and heating
and have more time for other interests. Indoor air pollution was a major problem before the Project
due to the use of diesel fuel lamps for lighting, and wood for heating. The risk of illnesses due to
indoor air pollution, especially for children, was either removed completely or minimized
significantly. Having a reliable energy supply allowed Government and donors to equip schools
with computers and other technologies. Today every school in GBAO has at least one computer and
more children/youth are comfortable using the new technologies. Health facilities and hospitals can
operate without rationing of electricity, which was common in the 1990s. Some hospitals in the
region have received new electronic medical equipment from donors, which is used daily now that
reliable electricity is the norm.
(b) Institutional Change/Strengthening
The Project included a capacity building program that enabled PEC to improve its performance
throughout Project implementation. The plan included the extensive use of consultants to initially
13
manage project implementation and advise local management going forward, as well as annual
training programs. As part of the capacity building program the PEC General Director and two other
key staff had a technical exchange with Sweden to learn how hydropower plants exposed to similar
harsh winters coped with sedimentation and fragile ice and then implemented measures to resolve
these issues for Pamir I and Khorog HPPs. It was an enormous challenge for PEC to turn around a
historically loss making utility, operated and accepted as a free social good, in the poorest, most
isolated region of the poorest country of the Former Soviet Union, by raising tariffs, increasing
collections, and implementing construction projects at extremely high altitudes, while trying to
maintain budgets, build human resources and deliver financial results. PEC met this challenge by
identifying a qualified local manager who was able to deal with the local community and understand
the nuances of local politics, while at the same time recognizing what is possible and leading
organizational change. In the past the electricity in GBAO had always been subsidized and the
population viewed energy as a free gift, which led to high losses, theft and unwillingness to pay,
which resulted in limited power supply in Khorog and no power supply in the more remote areas.
PEC began by installing meters at the generation plants and further down at the transmission and
distribution network, including meters for end consumers. PEC established disconnection teams, a
Customer Service Center, and a new billing system to make bills accurate. PEC introduced a bonus
system for sales specialists, which increased collections as a percent of sales to more than 100
percent. As electricity supply became more reliable and bills became more accurate and
understandable, people changed their behavior and began to view electricity theft as a crime instead
of as a way to game the system. From the beginning, PEC made serious efforts to improve
community relations, by visiting the communities so that residents could talk directly with the
General Director; PEC worked with TV stations, radios, newspapers, distributed brochures and met
with community leaders to improve PEC‟s reputation and relations with the communities. The
lessons learned by PEC in Bank procurement procedures and developing procurement plans are
being applied by PEC in procurement financed by its own funds.
(c) Other Unintended Outcomes and Impacts (positive or negative) In 2006, when energy rationing was common in GBAO, it was inconceivable that PEC would export
electricity to Afghanistan, beginning in 2008. PEC now provides energy year round to over 1000
households in Afghanistan. As a result of the Project, PEC has become a benchmark company for
Central Asia and other countries and is providing consulting services to Afghanistan, Uganda and
Kyrgyzstan.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
Not Applicable
4. Assessment of Risk to Development Outcome
Moderate, given that the financial performance of PEC is below the targeted level. On the positive
side, the risk is offset by the Concession Agreement, which would continue to be in force for the
next 16 years; the 70 percent equity in PEC held by AKFED and 30 percent by IFC, who would
continue to work with PEC; and the significant improvements in increasing collections and reducing
losses. The economic and financial analysis indicates that the financial health of the company has
turned around to the positive, and with additional export opportunities to Afghanistan being realized,
some of the impact of less than anticipated demand would be partially offset. Moreover, SECO is
14
considering providing additional grant funds to provide targeted subsidies to the vulnerable sections
through 2014.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: Satisfactory
IDA‟s performance in ensuring quality at entry was satisfactory. Preparation and appraisal was done
jointly by IFC and IDA, with each organization providing specialist staff who made relevant
contributions to the decisions and report preparation of the two organizations, without duplicating
efforts. All applicable Bank group safeguards policies and guidelines were considered in the design
and addressed during the environment and social assessment of the Project. A socio-economic
survey conducted as part of the environment and social assessment of the Project estimated the
average annual income for the typical project area family and the willingness to pay for energy. The
initial project design was adjusted so as to be in compliance with World Bank Group safeguards
policies and guidelines, and appropriate environmental and social impact mitigation measures were
included. Seventeen public hearings engaging a wide range of the GBAO population including
townspeople, rural villagers, teachers and hospital workers were conducted in October 2000. The
legal framework governing the Project was substantial.3 The Concession Agreement was signed,
the owners‟ engineer had been appointed and was working, and procurement activities had already
begun prior to presentation to the Bank‟s Board of Executive Directors, and the project was
adequately prepared and ready for implementation. The only shortcoming during preparation was
that based on the information provided in the feasibility study, the IDA/IFC team assumed that most
of the consumers were metered with working meters, and that non-technical losses including illegal
connections and improper metering and billing appeared to be moderate (losses were estimated at 10
percent on the main grid and at 20 percent for the remote areas), which proved not to be the case
after Project implementation began, and it was learned that the existing meters were inoperable or
inaccurate. Actual losses reached 30 percent on the main grid and were even higher in the remote
areas.
(b) Quality of Supervision Rating: Satisfactory
IDA‟s performance during the implementation of the Project was satisfactory. Sufficient budget and
staff resources were allocated, and the project was adequately supervised, with a comprehensive
skills mix, and supervision was conducted jointly with IFC. Based on the supervision staff costs in
Annex 4, a complex project such as Pamir Private Power Project requires significantly more
resources than the average supervision coefficient. The Procurement and Financial Management
functions were provided by field based staff, which greatly facilitated Project implementation. The
3 The legal framework included: the Concession Agreement between PEC and GoT; a Subscription Agreement
between Pamir Invest S.A. and PEC, an Investment Agreement between IFC and PEC, A Shareholders Agreement
between IFC, AKFED, Pamir Invest and PEC, a Project Funds and Share Retention Agreement between IFC and
AKFED/Pamir Invest to provide financing for cost overruns; a Development Credit Agreement between IDA and
the Government, a Project Agreement between IDA and PEC, and a Subsidiary Loan Agreement between the
Government and PEC.
15
IDA team helped PEC develop a re-metering program to reduce losses. The IDA and IFC teams
responded promptly to the two major crises that arose, the deteriorating financial situation of PEC
during 2006-2008 by developing the Financial Restructuring Plan; and the unexpected catastrophic
flooding in February 2007, which severely damaged the Pamir I Hydropower Plant. The
Management comment on ISR No. 8, commented on the dedication of the IDA and IFC staff, who
worked under extreme conditions (18 hour trip on bad roads, 16 hour workdays, sub-freezing
temperatures at 10,000 feet altitude with no space heating, one meal a day, etc) in March 2007, to
help bring much of Pamir capacity back on-line following the catastrophic accident. IDA also
provided an Additional Grant to ensure that the restoration of Pamir I Hydropower Plant would be
permanent instead of a temporary fix and that the original Project Development Objective could be
achieved.
(c) Justification of Rating for Overall IDA Performance Rating: Satisfactory
Based on IDA‟s performance during the lending and supervision phases as discussed above, the
overall IDA Performance is rated as Satisfactory.
5.2 Borrower Performance
(a) Government Performance Rating: Satisfactory
Government participation in the planning and development of the Project was intensive. Ministers
and senior civil servants participated on a sustained basis in the Working Group charged with
negotiation of the Concession Agreement; the Cabinet and Presidential administration considered it
in detail before giving Government approval; and Parliament ratified critical sections of the
Concession Agreement. Government‟s contribution to this Public-Private Partnership Project
included: (a) contribution of existing electricity assets in GBAO (including all generation,
transmission and distribution facilities) to the Concession; (b) Government‟s request for IDA
financing of US$10 million equivalent, at a time when the IDA allocation for Tajikistan was
severely limited; (c) Government‟s agreement to use the interest rate spread (between the IDA Credit
to Government and the Government‟s on-lending to PEC) to meet part of the costs of social
protection; (d) Government‟s request for grant financing of about US$5 million from the Swiss
Government to enable the Government to meet the remaining costs of social protection; and (e)
Government provided rebates in various taxes to PEC.
During Project implementation, Government continued its support to the Project and to PEC. The
good progress and satisfactory achievement of the Project objective has been based on strong
political championship and alignment of vision and strategy among the key ministries (Ministry of
Finance, Ministry of Energy and Industry, Ministry of Economic Development and Trade), whose
keen interest and monthly reviews of implementation progress helped keep the project on track. As
part of the Financial Restructuring Plan, the Government agreed to defer interest payments until
2011.
(b) Implementing Agency or Agencies Performance
Rating: Satisfactory
PEC implemented the Project almost according to the original schedule, until the catastrophic
accident in February 2007. It provided intensive monitoring and oversight of the Project by
dedicated operational teams. It established a Health, Safety and Environment Unit at project
16
headquarters in Khorog to implement the Project‟s Environmental Management Plan. PEC‟s project
management team constantly monitored Project progress, addressed bottlenecks and provided
overall guidance to ensure that Project momentum was maintained. It initiated a metering program,
improved collections, established a customer service department, improved community relations in
the areas it serviced, and procured and installed the necessary equipment, both to rehabilitate the
plant and to protect it against future accidents. PEC also initiated social projects to help the
communities with other issues such as installation of a clean water pipeline and sponsorship of chess
classes in the schools. From 2008-2010 PEC financed US$3.78 million of Project costs from its
capital expenditure fund (compared to US$0.9 million planned when the Additional IDA Grant was
prepared). The only shortcomings were: delayed submission of the audit report for the year ending
December 31, 2009, and some delays in submission of revised IFRs – both the audit report and the
IFRs were eventually received;4 and the failure to procure all the equipment planned to be financed
by the additional IDA Grant before the Project Closing Date. Using its own funds and the Bank
procurement guidelines, PEC managed to complete all the activities envisaged under the IDA grant,
except for the remaining electrical equipment, resulting in cancellation of part of the grant. PEC has
informed IDA that it will finance the remaining electrical equipment, estimated at US$440,000 in
phases by 2012. PEC plans to announce the tender for electrical equipment shortly.
(c) Justification of Rating for Overall Borrower Performance
Rating: Satisfactory
Based on the ratings of Satisfactory under (a) and (b), the overall Borrower performance is rated
Satisfactory.
6. Lessons Learned
Given the difficult environment in which the Project operated, the goals set for the Project
and the limited resources available, high quality management is an important pre-requisite
for success.
Importance of good community relations, including personal visits to the communities and
listening to the consumers‟ concerns is critical for a successful public service entity.
A Public-Private Partnership can work, even in one of the poorest regions, by introducing
improved governance, provided there is adequate commitment of Government, the private
company, the Sponsor, and the IFIs.
A high risk project, with significant development impact is worth doing, but it will require
significantly more resources, commitment from all parties, and a good project design and a
motivated implementing agency.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies
PEC provided its Implementation Completion Report and all other information requested by IDA.
PEC proposed to rate the overall outcome as Highly Satisfactory and its own performance as
implementing agency as Highly Satisfactory. The ICR team maintained both ratings as Satisfactory,
given PEC‟s fragile financial situation, which could pose a moderate risk to the development
4 According to PEC, one of the reasons for the delay in audit reports was the treatment of the deferred interest rate
and the recent changes in IFRs regarding treatment of the Concession assets.
17
outcome. IDA recognizes the need for softer onlending terms from GoT to PEC (current onlending
rate is 6 percent), and the need for continued subsidies for the poorest segments of the population, in
order to ensure PEC‟s continued financial viaibility.
The Ministry of Energy and Industry confirmed its agreement with the positive assessment of the
Project by letter dated June 24, 2011 (Annex 7).
(b) Cofinanciers
AKFED provided comments in Annex 8.
No comments were received from IFC.
(c) Other partners and stakeholders
Not applicable
18
Annex 1. Project Costs and Financing
(a) Project Cost by Component (in USD Million equivalent)
The indicators should be analyzed through the years, based on household level, regional level, and
other levels such as export, employment and etc.
II. Outcomes (a) Achievement of Project Development Objectives
The objectives of the project were to improve the energy supply in GBAO region, suffering from the
deterioration of the whole network and small generating capacities. That covered the rehabilitation
of the Pamir I power plant (the biggest plant of Pamir Energy), increase of its capacity, resolve the
issue with water flow management, remove the issue with frazil ice and sediments, and deliver more
energy to the end consumers.
The objectives of the project were reached. Pamir I rehabilitation completed in 2010, with the
commission of the last unit of the plant in January 2011. Today, Pamir I can reach the full capacity
and Pamir Energy has up to 4MW of surplus of energy in peak hours in winter. In remaining 17-18
hours of winter days, PEC has surplus up to 10MW.
A dam was built at Yashilkul Lake which improved the energy supply from Pamir I and Khorog
power plants (cascades of plants). In 2010, anti-filtration measures were taken at Yashilkul dam
which allowed economizing more than 20 million m3 of water at the Lake. That means that in case
the winter would last more than usual, PEC would have enough water to deliver reliable the energy
to its consumers.
Dredging pump was procured in 2010, which solved the issue with sediments at Pamir I
sedimentation basin. PEC does not have to stop the plant once in 2 years for the whole month to
clean the sediments. The machine can clean it anytime, without suspension of the plant.
Two ice blocking systems were built which solved the issue with frazil ice getting into the basin and
further to turbine. This issue brought many problems to PEC, including the lower water flow from
the basin and damage to the turbines and bearings.
(b) Overarching Themes, Other Outcomes and Impacts
Reliable energy supply resulted in the change in the whole economic life of the region. Previously,
shops used to work only in summer time, and the small productions worked in summer as well, as no
energy was available. Today, all shops work all year rounds, people are more busy with the
commercial business all the year. Rationing would sound strange for the consumers in the main grid,
as they are used to have energy all year round, and they appreciate the efforts of Pamir Energy and
all partners.
The impact on environment was significant. In the end of 1990s, 70% of the forests and trees were
cut in GBAO. Due to the lack of energy in the region, people were using woods for heating and
cooking.
Today, with better energy provision to all regions (main grid receives uninterrupted supply all year
round), the forests are recovering.
The clean energy provided by Pamir Energy replaced the pollution resulted from burning woods and
coals (only few people afforded it and it was scarce).
41
(c) Poverty Impacts, Gender Aspects, and Social Development
According to the studies in 2007, hydro energy is the cheapest option for cooking and heating in
GBAO, compared to wood, coal, diesel and other sources. Thus, the energy had a positive impact on
the poverty reduction. People pay less for clean energy and can spend the difference on other house
holding needs.
Women spent more time with cooking and heating. Today, using electricity devices, they are able to
devote more time for family, for education of the children, for other works at house, or work for
public or commercial sector.
The in-house emission issue was resolved completely. People don‟t use diesel lamps for lighting, or
wood for heating. Risks of sicknesses from the in-house emission, especially for children/babies,
was either removed completely, or minimized significantly.
(d) Institutional Change/Strengthening (particularly with reference to impacts on longer-term
capacity and institutional development):
The energy provision made possible for Government and donors to provide schools with computers
and other technologies. Today, every school in GBAO had at least one computer and more children
and youth are comfortable using the technologies, including printers and scanners.
Health facilities and hospitals can fulfill their duties, not depending on rationing of electricity as they
used to be in the 1990s. Impact is significant. Some hospitals in regions received new medical
technology from donors and use them every day for medical check of the patients.
(e) Unintended Outcomes and Impacts (positive and negative):
Back in 2006, if you would tell people that PEC will export energy to Afghanistan in 2008, they
would not understand you, simply because the rationing was in GBAO itself. However, the project
allowed to have energy all year round, and it is already the third year that PEC is providing energy to
Afghanistan all year round, now for more than 1000 households.
The project financed by WB is one of the main components that today PEC is becoming a
benchmarking company for Central Asia and other countries. The experience of PEC now is
appreciated in other countries, and PEC is now providing some consulting services to Afghanistan,
Uganda, and Kyrgyzstan.
III. Rationale for Rating of Risk to Development Outcome Several factors have affected the satisfactory implementation and outcomes in the program
supported by WB.
Risks Rating at
that point Comment
Technical Expertise (e.g.
Experience of the
engineers and key
personnel)
Low The implementation of the project directly related to the experience of the
engineers and according measures were taken to improve that (e.g.
trainings outside and inside Tajikistan, consultants reports‟ analysis)
42
Risks Rating at
that point Comment
Implementation risk Low Pamir Energy went through different types of management and systems
restructured (rehabilitation, new high quality leadership, relation with
government, etc).
Sustainability of
investments
Moderate AKFED has supported the drafting of a comprehensive PEC business plan
for 2010 - 2014. PEC will not need additional investments after 2014 to
be sustainable.
Reputational Risk Low The project focuses not only on the improvement of electricity supply in
the Pamir region but also on the improvement of the energy supply in
neighbour Afghanistan. Moreover, with continuing PEC operational
improvements, the project is becoming a model for the rest of the country
and region.
Political Risk Moderate Changes in policy and legal framework may adversely affect the project.
Key elements of the framework is regulated in the Concession Agreement.
PEC‟s continuing high levels of service provision provide local political
support.
Political Stability Low AKFED‟s deep roots in the region limit this risk to a large extent;
proximity of boarder to Afghanistan: same ethnic group is living on both
sides, friendly relations. PEC‟s energy provision to Afghanistan also
creates goodwill between the two sides, and PEC will continue expanding
this program.
Support in financial
difficulties
Moderate WB and Government of Tajikistan provided high support in the
sustainability of the company, and the financial restructuring outcomes are
the strong evidence for that.
Capacity building
programs
Low It was required for improving quality have taken longer than earlier
anticipated
IV. Assessment of Bank and Borrower Performance Bank
(a) Quality at Entry
Bank performance is rated as satisfactory. The task team‟s consistent engagement and
responsiveness is acknowledged by Government of Tajikistan and Pamir Energy. The Bank has
maintained intensive dialogue with Government officials and Pamir Energy shareholders outside the
energy sector, including finance and planning, which has helped to address many managerial issues
within the context of the overall development and financing framework. At the operational level,
consistent engagement has enabled effective review of progress and discussion on areas needing
acceleration. Effective coordination has enabled better alignment between available technical
expertise and resources and with the needs of the project.
(b) Quality of Supervision
The quality of the supervision was satisfactory. That allowed to have efficient management,
planning, budgeting and implementation of the project components.
Borrower (a) Government Performance:
Borrower performance is rated as satisfactory at all levels. At the Government level, the good
progress and satisfactory achievement of objectives has been based on strong political championship,
alignment of vision and strategy among the key Ministries. The Ministers‟ (Ministry of Finance,
43
Ministry of Energy and Industry, Ministry of Economic Development and Trade) keen interest and
monthly reviews of implementation progress have helped keep the project on track.
(b) Implementing Agency or Agencies Performance:
Implementing Agency (IA) performance is rated as satisfactory. The good progress and satisfactory
achievement of objectives has been based on intensive monitoring and oversight by the dedicated
operational teams. IA project management team constantly monitored the progress, addressed the
bottlenecks, and provided overall guidance on the efficiency of the project components. The IA
intensive monitoring and analysis has ensured that the project momentum is maintained, especially
in timely implementation and delivery of inputs, and that decisions are based on information and
analysis. The planned capacity building program enabled the project team to further improve their
performance.
V. Lessons Learned
It will be good to draw Lessons under the following categories:
Important factors for the success of a project:
1. Management
Given the difficult environment in which the PamirEnergy project placed, the goals set for the
project, and the limited resources available, high quality management was always a pre-requisite for
success. The initial plan included the extensive use of consultants to initially manage the project
implementation and advise local management going forward. The existing General Director was
seen as a key player in the future of the company, and the sponsors planned on retaining him, while
supporting him and the senior management team with training and close board supervision.
Tragically, early in the project, the General Director died in a car accident, and it was not apparent
who could succeed him from the management team. The sponsors therefore attempted to utilize
foreign managers. Identifying a qualified candidate who was qualified, prepared to live and work in
Khorog, and capable of managing the utility and politics proved extremely difficult, and the
company had a total of 4 General Directors in the initial 4 years. Following the accident in 2007, on
the departure of the General Director at the time, AKFED identified a resident of GBAO, who has
served as the company‟s General Director since.
The challenges the PamirEnergy project faced are hard in themselves to describe. To turn around a
historically loss making utility, operated and accepted as a social good, in the poorest region of the
poorest country of the former Soviet Union, in an isolated region of an isolated country, raising
tariffs, increasing collections, and implementing construction projects at extremely high altitudes,
while trying to maintain budgets, build human resources and deliver financial results. More
attention should have been paid to the management of the company and to supporting development
of local staff. Change in human resources has been, and continues to be, a top challenge of the
company.
Identifying a qualified local manager has proven to be among the keys to the company‟s success in
recent years. The ability to deal with the local community, understand the nuances of local politics,
while at the same time recognizing what is possible and leading organizational change are all only
really possible with a native of the environment in which one works. It is the sponsors‟ full intention
to continue to develop local human resources in the management team, in order to accelerate
44
company change, spread the management burden, and ensure long term viability and growth for the
company.
2. Collections
The electricity in GBAO was always subsidized and people conceived energy as a gift. When Pamir
Energy was established and tariffs increased, people still kept the attitude from old years,
contributing to higher and higher debts and not willing to pay. Beside the issue of “willingness to
pay”, the issue was also with collectors who did not have motivation to make efforts to collect the
bills or finds thefts. All these led to high losses and thefts, resulting in limited power supply in
Khorog and no power supply in regions.
Pamir Energy started with installation of meters on generation capacities and further down to
transmission and distribution network, including meters for end consumers. Bills became more
correct and people started realizing that bills should be paid.
PEC established the disconnection teams, Customer Service Center and New Billing System to bring
transparency and improve the collection rate and remove the issue of “willingness-to-pay” among
consumers.
PEC introduced a bonus system for Khorog Sales specialists and that gave good results, making the
collection % as of sales more than 100%. PEC is introducing the bonus system in regions to make
the collection better and collect the outstanding debts from previous years. Trade days decreased
from 159 days in 2009 to 99 days in 2010.
Using billing system, PEC shows the history of the last 12 months bills on each monthly bill of the
consumers, so consumers see when and how much they have paid, reconcile the data with their
meters. This improved significantly the collection and the image of the company. Previously, theft
was normal and people were sharing with each other how to steal energy. Today, consumers see the
theft a very bad behavior and sometimes, people calling PEC on the hot line to inform that some
neighbor or person is stealing energy. Collection increased above 100% in 2010, and PEC is
intending to collect not only the whole sales in 2011, but also more outstanding debts from previous
years in 2011.
PEC learned that high quality service and incentive system for sales specialists can improve
everything – sales, collections, image, transparency, and reputation of the company.
3. Ice, Sediments and Water Flow
Ice, sediments and water management were always a big issue for Pamir I, Khorog and Namangut
HPPs. Sediments and ice resulted in deterioration of turbine parts, reduction of available capacity of
the plants (low generation), limited energy supply and rationing for the consumers, and high
expenses for Pamir Energy while cleaning the sedimentation basin once in 2 years (Pamir I) and
replacing and maintaining the units of all affected HPPs. Namangut HPP was stopped every years
for 3-4 months, while in the last 4 years, it was not suspended at all due to the measures taken by
PEC. However, substantial repair and maintenance is required.
PEC General Director and two other key staff visited Sweden to learn how to deal with fragile ice
having similar harsh winter as in Pamir region. PEC implemented several pilot projects and since
45
2009, the sediments and fragile ice issue is being resolved (in 2009, sediments and fragile ice issue
was minimized and in 2010, the issue was completely resolved for Pamir I and Khorog HPPs).
PEC took anti-filtration measures at Lake Yashilkul guaranteeing the stable water supply to Pamir I
and Khorog HPPs during the winter. In 2010, PEC economized around 20 million m3 of waters in
the lake due to the anti-filtration measures.
Intakes of Khorog HPP, Vanj HPP and Shujand HPP had issues with water flow and water
management. In Khorog, the issue was resolved with the several projects on the channel intake.
Shujand issue was partially resolved. In Vanj HPP, the intake is the most serious issue – there is
always a bulldozer in the intake to enhance the intake constantly.
PEC procured dredging pump which removes the sediments from Pamir I sedimentation basin,
without stoppage of the HPP for the whole month. PEC built two Ice blocking systems to prevent the
ice penetration into the basin and further to the turbines. Fragile ice contains sediments as well, so
the systems resolved partially also the sediments issue.
Better water flow management, measures against frazil ice and sediments improved the reliability of
two main power plants, resulting in more energy supply in the region. Today, PEC has surplus of
4MW in winter peak times, while some 4 years ago, PEC had deficit in even non-peak hours of
winter season.
4. Community Relations
Before, community had a stereotype that energy should be cheap or free. With higher tariffs, some
consumers did not want to pay for the energy they consumed (willingness-to-pay issue). Due to the
lack of meters and high thefts, group metering was introduced which actually worsened the relation
between the community and PEC. Issues with Government started as well. Theft accepted as a
normal, and many people were sharing with each other how to steal the energy easier. PEC
controllers/sales specialists were sometimes beaten by some aggressive consumers when they
required the payment of the bills.
PEC started from visiting the community. People wanted to talk directly with General Director, and
GD visited the community in person to hear them, to talk with them. There were bad words and
threats, but PEC listened to people, agreed on some issues and moved forward. For example, PEC
promised to improve the energy supply and install meters, while consumers will pay for their
outstanding bills and will not steal energy.
PEC started to work with TV stations, radios, newspapers, distribute brochures and meet with
community leaders to improve the PEC reputation and relation with the community. PEC launched
the re-metering program and today, more than 83% of the energy goes through new electronic
meters.
PEC launched Customer Service Center (first in Tajikistan) to respond immediately to consumers
requests. Complains to CSC reduced from 1500/year in 2008 to 150/year in 2010. More than 95% of
the requests to the center are coming with the issue of information or explanation of the bills or
tariffs, not overcharging as it used to be.
46
PEC launched hot-line to which consumers can call and ask about their issues. Today, many
consumers call to the hot-line and inform on some consumers that steal energy. People think that it is
really bad and shameful to steal energy.
PEC launched social projects to help the community with other issues. For example, the clean water
pipeline in Bogev village of Shugnan, or sponsorship of the chess classes in all Khorog schools, or
sponsoring sportsmen in the regional or international competitions.
Today, PEC has high reputation in the community and is one of the best employers in the region.
Individual approach is required to have efficient resolution for the issues raised among the
consumers, or between company and consumers.
Meters are highly important for the reputation, image and trust to the company among consumers.
Group metering brings dissatisfaction and makes the willingness-to-pay a serious issue.
Dissatisfaction results in the creativity of the consumers in the way they steal energy and share with
others.
Hotline is necessary to listen to consumers requests when they want to ask or share information
confidentially. Customer Service Center is essential when you work with majority of the members of
the community. People should know what they receive, how much they receive and what and how it
should be paid for. Image and reputation of the company, relation between company and consumers
is essential for having proper and prosper business.
Project Design:
Project design process brought a good experience for the company. Pamir Energy gained skills on
working together with WB specialists and prepare projects specification and procurement plans in
accordance with WB policies and rules.
As well, lessons learned how to deal more efficiently with Government agencies, and improve the
relation between all stakeholders.
Implementation:
During the implementation, the hotspots were identified and measures were taken to improve it.
Projects were implemented not only from the technical point of view, but also other aspects/impacts
of the projects were analyzed and were resolved. For example, while building the dam at the Lake
Yashilkul, the environmental issues, fish population and impacts on pasture area were taken into
consideration.
Monitoring:
Several WB missions were arranged to Pamir Energy. The process of reporting, improvement of the
reporting progress and compliance with the WB rules were beneficial for PEC. Constant monitoring
of the project created a benchmark for some reporting, project design and preparation,
implementation and monitoring improvement in the company. PEC made a huge step in efficiency
and cost-effective analysis of the projects.
Procurement:
It is a valuable knowledge in the creation, management and follow-up of the procurement plans,
compliance with rules and policies. The experience of tenders announcement, working with
47
international suppliers and partners, negotiation with WB on the procurement and “no-objection”
resulted in more efficient management of the projects. PEC uses the lessons learned in all
procurement stages in the company, such as CapEx projects.
Comments on IDA’s ICR
Pamir Energy considers that the ICR should rate Outcome and Implementing Agency Performance
as “Highly Satisfactory”.
Pamir Energy has gained a valuable knowledge from the World Bank team in creation, management
and follow up of the procurement plans, compliance with rules and policies, interacting with the
World Bank on procurement and „no-objection‟, resulting in more efficient management of projects.
The World Bank team has been always receptive and supportive indeed. It took timely and
professional manner by the World Bank to enable Pamir Energy to finalize the project within the
budget and in time. Despite the skepticism, GoT, WB and other stakeholders managed to mobilize
the required resources to put back into operation three out of four units at Pamir I after the
catastrophic flooding in February 2007 in the shortest possible time. The World Bank had also
supported the remetering program in Khorog (over 6,000 sets of the meters with the budget of
US$700,000) that enabled the company dramatically to reduce losses from as high as 60% down to
as less as 14% in Khorog. This project is seen as a key in turning around situation in Khorog.
Through the whole project, the World Bank provided technical advises on specification of the
equipment and identifying solutions for the challenges. The World Bank technical support in
resolving sediments and fragile ice issues at Pamir I were of the high asset. Pamir Energy looks
forward to continued cooperation with and support from the World Bank during the process of the
negotiation with the GoT in regards to IDA loan interest rate.
48
Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders
I. Comments from Aga Khan Fund for Economic Development (AKFED)
PamirEnergy has been a challenging, but highly rewarding project. The task of
turning a historically subsidized utility in an extremely poor environment, where
energy was perceived as a social good, into an operationally sound and profitable
company in several years was difficult, but the results have exceeded our expectations.
PamirEnergy now provides the best energy supply in the country, and unlike any
other area of Tajikistan, has excess energy even in winter, in spite of it being the
coldest region of the country. Losses are lower, and collections are higher than any
other area in the country, and the company continues to improve on both metrics.
Tariffs were raised gradually, and the company is now in a position to generate small
profits, while continuing to invest approximately $1 million in internally generated
funds into annual, ongoing capital expenditure, in order to ensure high operational
performance in the future, beyond the concession term. With new projects to sell into
Afghanistan being developed, the financial outlook for the company will only
improve. In sum, PEC took from the Government a subsidized, poorly operating and
collapsing utility in the poorest region of the country, and will return to the
Government the best performing, financially successful and completely sustainable
utility. Taking this into consideration, we believe the project cannot be considered
less than highly successful.
49
Annex 9. List of Supporting Documents
Project Appraisal Document for Tajikistan Pamir Private Power Project, dated May 31, 2002
(Report No. 24068-TJ).
Concession Agreement between Government of the Republic of Tajikistan and Pamir Energy
Company, dated May 24, 2002.
Aide memoires, Back-to-Office Reports, and Implementation Status Reports.
Project Progress Reports.
PEC‟s Implementation Completion Report, May 2011.
Legal Agreements related to the Project
Project Paper, Additional Financing, dated June 23, 2008.
Project Restructuring Paper, dated December 29, 2010.
Pamir Energy Operational Review, Monthly Report, December 2010.
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NEW 35 kV LINE
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PROJECT:
HYDRO POWER PLANTS
REHABILITATION OF 35KV LINE
NEW 35KV LINE*
REHABILITATION OF OTHER 35KV AND 10KV LINES
REGULATING STRUCTURE
EXISTING SUB STATION
SELECTED CITIES
AUTONOMOUS OBLAST CENTERS**
OBLAST CENTERS
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MAIN ROADS
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AUTONOMOUS OBLAST BOUNDARIES
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INTERNATIONAL BOUNDARIES
ELEVATIONS:(IN METERS)
* Pole-mounted with a narrow corridor requirement, constructed on the present right-of-way of the two existing 35 kV lines.** Area with no oblast-level administrative divisions, where rayons are under direct republic jurisdiction. *** An oblast is named only when its name differs from that of its administrative center.
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.
