Haiti - Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3265 PROJECT PERFORMANCE AUDIT REPORT HAITI: FIRST POWER PROJECT (CREDIT 645-HA) December 30, 1980 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT HAITI: FIRST POWER PROJECT (CREDIT 645-HA) TABLE OF CONTENTS Page No. . Preface ................................................................. i Project Performance Audit Basic Data Sheet............................ ii Highlights ............................................................ iii PROJECT PERFORMANCE AUDIT MEMORANDUM I. Project Summary ................................ ..1......1 II. Supplementary Comments ................................. 4 Technical Problems ............................... ..... 4 Institutional Aspects ................................ 5 Revision of Tariff Structure ........................... 6 Least Cost Solution .................................. 7 III. Lessons To Be Learned .................................... 8 IV. Appendix - Comments from the Utility ..................... 10 Attachment: PROJECT COMPLETION REPORT 17 I. Introduction and Background .................. .......... 17 II. Project Description ............................. ...... 18 III. Project Implementation and Cost .......................... 19 IV. Operating Performance ................................... 22 V. Market and Financial Performance ......................... 23 VI. Institutional Performance ............................. 25 VII. Project Justification .................................... 26 VIII. Association Performance ........................... ...... 27 IX. Conclusions .............................................. 28 Annexes 1. Original and Actual Project Cost .............................. 30 . 2. Actual and Estimated Accumulated Credit Disbursements ......... 31 3. Allocation of Proceeds of Credit ............................. 32 4. Estimated and Actual Power Data ............................ 33 5. Estimated and Actual Performance Indicators ................... 34 6. Comparative Financial Statements ........................... 35 7. Assumptions for Ex-Post Least-Cost Analysis ................ 36 8. Cash-Flows for Ex-Post Least-Cost Analysis .................. 37 9. Internal Rate of Return ....................................... 3 10. Main Undertakings in Credit Documents ............... ........ 39 MAP This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT HAITI: FIRST POWER PROJECT (CREDIT 645-HA) PREFACE This report presents the results of a performance audit of the First Power Project in Haiti, for which Credit 645-HA of US$16 million was made on July 2, 1976. The credit became effective on November 28, 1976, and was closed on March 31, 1979. The report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), and a Project Completion Report (PCR) prepared by the Latin America and the Caribbean Regional Office. A project completion mission from IDA visited Haiti in November 1979, and the utility, with the help of its consultants, prepared its own completion report. The information obtained from these sources has been taken into account in writing the PCR. OED has reviewed the PCR, the Appraisal and the President-s Reports, and other documents in Bank files, and has discussed the project with Bank staff. No country visit was undertaken by OED staff for this project. The audit finds that the PCR covers adequately the project-s main features with the exception of three areas, i.e., technical problems related to the power station, institutional development and the revision of the tariff structure. The PPAM has, therefore, provided supplementary comments on these three areas. In addition, the PPAM includes some general remarks on the merits of two different types of diesel units and draws lessons from the project experience. Following normal OED procedures, a copy of the draft audit report was sent to the utility and the Government for comments. Those comments which were received have been taken into account in finalizing the report and have also been reproduced as an Appendix to the PPAM.  (ii) PROJECT PERFORMANCE AUDIT BASIC DATA SHEET HAITI: FIRST POWER PROJECT (Credit 645-HA) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 18.0 20.6 Overrun (%) 14% Credit Amount (US$ million) 16.0 Disbursed - 16.0 Cancelled - - Date for Completion of Physical Components 12/31/77 11/31/79 Proportion Completed by Appraisal Target Date % 100 n.a. Proportion of Time Overrun - 110 Incremental Financial Rate of Return (%) 16% 7% Financial Performance - Satisfactory Institutional Performance Satisfactory Cumulative Estimated and Actual Disbursement (US$ million) As of June 30 1977 1978 1979 (i) Appraisal Estimate 10.34 14.90 16.0 (Sept.1978) (ii) Actual 8.2 13.3 16.0 (ii) as % of (i) 79 89 100 OTHER PROJECT DATA Item- Original Actual or Plan Revisions Est. Actual First Mention in File - 9/27/73 Government's Application - - 8/14/75 Negotiations 3/76 - 5/76 Board Approval 6/17/76 - 6/17/76 Credit Agreement Date 7/02/76 - 7/02/76 Effectiveness Date 9/28/76 - 9/28/76 Closing Date 9/30/78 12/31/78 3/31/79 Borrower Republic of Haiti Executing Agency Electricite d'Haiti (EdH) Fiscal Year of Borrower October 1 to September 30 Follow-on Project Name Second Power Project Credit Number 895-HA Amount (US$ million 16.5 Credit Agreement Date 5/31/79 MISSION DATA* Item Month, No. of No. of Date of Year Weeks Persons Manweeks Report Preparation 6/75 1 2 2 7/75 Preparation II 8/75 0.5 2 1 9/75 Preappraisal 10/75 1 2 2 11/75 Appraisal 11/75 2 2 4 12/75 Total 4.5 9 Supervision I 7/76 1 1 1 7/76 Supervision II 9/76 1 1 1 9/76 Supervision III 11/76 1 1 1 12/76 Supervision IV 3/77 1 1 1 3/77 Supervision V 3/77 1 1 1 4/77 Supervision VI 4/77 1 1 1 4/77 Supervision VII 6/77 1 2 2 8/77 Supervision VIII 10/77 1 1 1 11/77 Supervision IX 2/78 2 3 6 3/78 Supervision X 12/78 1 1 1 1/79 Supervision XI 1/79 1 1 1 1/79 Supervision XII 3/79 0.5 1 0.5 3/79 Supervision XIII 3/79 1 1 1 4/79 Supervision XIV 6/79 1 1 1 6/79 Completion 6/79 1 1 1 10/79 15.5 20.5 COUNTRY EXCHANGE RATES Name of Currency: Gourde Year: Appraisal Year Average Exchange Rate: US$1 = 5 Gourdes Intervening Years Average US$1 = 5 Gourdes Completion Year Average US$1 = 5 Gourdes * Some of the supervision missions were either technical or financial supervisions of the project.  - iii - PROJECT PERFORMANCE AUDIT REPORT HAITI: FIRST POWER PROJECT (CREDIT 645-HA) HIGHLIGHTS Most of the project's envisaged objectives were achieved although its scope was modified after appraisal and it was implemented with delays and cost overruns (PPAM para. 3, PCR paras. 3.01-3.03). The project has made an important contribution towards increasing EdH's installed capacity and genera- tion. The tariff structure was revised and made socially less inequitable, thereby making electricity more accessible to the lower income population (PPAM paras. 7, 20, 21). The organization structure of EdH was rationalised, its operations have improved through recruitment and training of staff, and system losses have dropped from 33% in 1975 to 26% in 1978. The study on sector development and the identification of indigenous energy resources was carried out, and the project has contributed to the creation of new jobs (PPAM para. 7). On the other hand, the delays in implementation, compounded by a severe drought, led to load-shedding. This induced the Government, as an emergency measure on behalf of the utility, to order a total of 20 MW diesel generating capacity, and some industrial enterprises to order around 200 small generating sets (PPAM para. 4). The project-s two larger diesel units (7.6 MW) have had a number of problems, some of which caused extended forced outages (PPAM para. 12). It appears that most of the major problems have been remedied while others, perhaps of a less serious nature, still persist (PPAM para. 12). Thus, the deficiencies in power supply which continued during the project period and the emergency purchase of generating capacity which ensued (without a full economic justification at the time) meant that the objectives of providing the system with a reliable supply and the development of the sector according to economic criteria were not fully attained (PCR para. 1.03-1.04). Energy sales over the period 1975-1978 were lower than projected, mainly due to lower than expected demand from industrial consumers throughout this period and to power shortages in 1977. The financial performance of EdH over this period has been about the same as the appraisal expectation largely because of tariff increases and fuel surcharges. The recalculated incremen- tal financial rate of return on the project is 7.5% compared to the appraisal expectation of 16%. The following points may be of particular interest: - cost estimates, based solely on recent actual costs of similar equipment in another country, may be unrealistic (PPAM paras. 3, 27); - iv - - the utility's consultants should retain the responsibility for supervision of construction and commissioning of the plant even in turnkey contracts, and this responsibility should be spelled out well in advance (PPAM para. 24); and - a large increase in tariffs should preferably be supported by adequate advance publicity (PPAM para. 23). PROJECT PERFORMANCE AUDIT REPORT HAITI: FIRST POWER PROJECT (CREDIT 645-HA) I. PROJECT SUMMARY 1. Credit 645-HA of US$16 million was the first operation of the Bank Group in Haiti's power sector. The Beneficiary was Electricite d-Haiti (EdH), the state owned utility responsible for all public power generation, transmission and distribution in the country. The credit was intended to finance about 90% of the estimated total cost of a project whose main compo- nents were a 21 MW diesel generating station at Varreux, some transmission lines and substations, and extension and rehabilitation of the distribution network (PCR para. 2.02). The total cost of the project was estimated at US$18 million equivalent and it was expected to be fully completed by December 1977. 2. The project was part of EdH-s 1975-81 power development program and was trimmed due to constraints in the availability of finance from IDA and of local counterpart funds-V. It was intended to provide additional generating capacity in order to meet the envisaged growth in power demand from early 1977, to improve the quality and reliability of service, and to reduce system losses. The project was also intended as a vehicle: a) to improve the institutional aspects of EdH through changes in the organizational structure, recruitment of key staff and implementation of training programs (about US$150,000 from the credit had been allocated for part of the training pro- grams); b) to make electricity more accessible to the lower income population through a revision of the tariff structure; and c) to provide employment to people through power connections to labor-intensive industries. 3. The project was slightly modified (PCR para. 2.03) and implemented well behind schedule-2 due to several factors including delays in procure- ment-l/ and ineffective coordination within the Consortium responsible for 1/ In the event, EdH installed an additional Government-financed 20 MW of generating capacity in 1977. 2/ Individual project components had different delays, e.g., the two smaller diesel units (2.9 MW each) were commissioned in December 1977, about 14 months behind schedule; similarly the construction of the training centre was completed in October 1978 while installation of the equipment took several more months. 3/ Comments received from EdH seem to suggest that the time taken for pro- curement was not a factor in delaying the project (Appendix, para. 3). - 2 - the power generating station (PCR paras. 3.01-3.03). The two larger genera- ting units (7.6 MW each), commissioned nine months behind schedule, had some serious breakdowns which put the units out of action for extended periods. Some of the causes which led to breakdowns appear to have been overcome but other problems, probably of a less serious nature, were persisting as of May 1980 (paras. 11-12). The final cost of the project was about 14% higher than the appraisal estimate, largely because the eventual price of the lowest bidder for the power station, even after negotiations, was about 22% higher than the estimated cost, which itself was based by EdH's consultants on recent bids for similar equipment in a neighbouring country (para. 26 and PCR para. 3.05)1/. 4. The implementation delays, together with a serious drought in the country in 1976-77, led to power shortages and load shedding in March, April and May 1977. The delays and the drought also induced the Government to order, on behalf of EdH and without consultation with the Bank Group, a total of 20 MW diesel generating capacity operating on the more expensive diesel oil fuel2/. These units were commissioned within six months from the date they were ordered and have operated satisfactorily ever since. During the above period of power shortage, some industrial enterprises in the country ordered about 200 small generating units, costing nearly US$2 million, for their industrial use. IDA questioned EdH and the Government on the economic justifi- cation for the 20 MW capacity; in retrospect, this capacity has provided useful service during project implementation delays and also during the period when the larger project units were having serious technical problems (PCR paras. 6.04 and 6.05). 5. Total energy sales during the period 1975-78 were about 16% lower than projected mainly because demand from industrial consumers was lower than expected during this period and power shortages occurred in 1977. EdH-s financial performance over the whole period was generally satisfactory - and certainly a substantial improvement over its pre-1976 performance - largely due to tariff increases and fuel surcharges. The rate of return on net fixed assets in operation was about the same as that stipulated in the credit agreement and EdH-s net internal cash generation contributed about 25% towards its construction expenditure, compared to 24% estimated at the time of appraisal. 1/ The initial price of the lowest evaluated bidder was 70% higher than the estimated cost. Incidentally, both the lowest as well as the highest bidders for the EdH project were about 70% higher than the two respective bidders for the project in the neighbouring country. 2/ Five units comprising half of the above generating capacity were -high- speed type, while four units comprising the other half of the capacity were medium-speed type. The diesel units at the Varreux station were medium-speed- type and designed to operate on the less expensive Bunker C- fuel oil. 6. The accounts receivable improved from about 6 months billings in 1975 to about 2-1/2 months billings in 1979, largely because Government departments expedited payment of their electricity billsI/. The audited accounts were received by IDA about four months later than stipulated in the Credit Agreement while the revaluation of assets was carried out roughly on schedule. 7. The operations of EdH improved through recruitment and training of its staff. The system losses declined from 33% in 1975 to about 26% in 1978, which is about the level expected at appraisal, while the number of customers per employee increased, albeit marginally, from 65 in 1975 to 68 in 1978. The tariff structure was revised, thereby making electricity more accessible to the lower income population, and new connections were made to * some institutions of an industrial nature which, in turn, contributed to the creating of new jobs. 8. The recalculated incremental financial rate of return on the project is 7.5%, less than half the appraisal estimate of 16%, mainly due to delays in project implementation and to problems in the operation of the larger units (PCR para. 7.03). The PCR concludes that the project, as implemented, is still the least cost solution (PPAM para. 22, PCR para. 7.02). 9. The supervision effort of the Bank Group was substantial consider- ing that the project was neither particularly large nor complex. Advice from the Bank Group to EdH to carry out a rigorous test program on the 7.5 MW diesel units was ignored by EdH on the assumption that it would save on fuel costs by not undertaking full tests on the units (PCR para. 3.02)1/. On two occasions, the Government did not satisfy the credit covenant on consultation (paras. 4, 21 and PCR paras. 6.04, 6.05), perhaps because of political consid- erations in the country; it is unlikely that any other covenants would have been more effective in achieving the envisaged objectives. However, the supervision effort, together with all the other measures taken in connection with the project, contributed to several positive results, including improve- ments in the quality and reliability of EdH-s service, a reduction in system losses, an increase in the access of electricity to lower income groups, and improvements in operations and in financial performance. EdH is now a better managed entity. 1/ The situation on accounts receivable has deteriorated considerably in recent months. According to EdH the Government is aware of the situation and is taking necessary steps to settle the amounts owed by its depart- ments (Appendix, para. 4). 2/ EdH, however, states that it did not receive Bank group-s advice to carry out the rigorous test program, and that the fuel savings had nothing to do with not carrying out the test program. EdH also explains why the tests could not be carried out at the time (Appendix, para. 7). 10. The project did not have any significant adverse effects on the environment since the power station was located in the vicinity of an indus- trial park and, as suggested by IDA, adequate safeguards were taken to limit sulphur dioxide emission, noise level and thermal pollution from the plantl/ II. SUPPLEMENTARY COMMENTS Technical Problems 11. In addition to delays in construction (para. 3 and PCR paras. 3.01-3.03), the Varreux power station suffered several technical problems which curtailed the output and availability of the diesel units and probably also reduced their reliability. One of the significant technical problems arose probably from shortcomings in the cooling water system which includes two cooling towers, each tower being designed to supply cooling water to each pair of diesel units, one large and one small. 12. The larger (7.6 MW) units had several technical problems, including problems with the cooling water system, and failure of the lubricating oil system and the consequent failure of the crankshaft and bed plate of No. 3 unit.2/ The problems were of such magnitude and frequency that an IDA supervision mission report estimated that the total station output would not exceed 60% of the design output./ and furthermore, expressed doubts on the reliability of the plant even at this reduced output. A recent IDA supervision mission report, however is much more optimistic on the output of the plant and on its reliability. , even though problems, seemingly of a minor nature, do surface from time to time and adversely affect the availability of the plant. 13. The problems at the power station apparently arose due to short- comings in the design, erection and maintenance of the plant. The supplier of 1/ cf. Appendix, paras. 8, 10. 2/ EdH states that had it not taken No. 4 unit out of service after the breakdown of No. 3 unit, then that unit would have had a similar break- down (Appendix, para. 11). 3/ The appraisal report for Haiti's Second Power Project (Credit 895-HA) has made a somewhat similar observation. 4/ This optimism arises from a recent evaluation of the plant carried out by outside experts, and from necessary corrective action carried out by the contractors and EdH. According to an IDA supervision mission report of April 1980, the power station was "operating at 90% of capacity." - 5 - the diesel units paid to EdH the maximum penalty (i.e., 10% of the contract price) for problems with the plant. Additionally, the supplier sent a number of his experts to the power station and several remedial measures were taken by them with some apparent success. The supplier attributes most of the present problems at the station to poor plant maintenance on the part of EdH, while EdH attributes many of these problems mainly to the supplier (Appendix, para. 22). 14. Another problem at the Varreux power station, attributed to inade- quate design of the station's ventilation system, is the high temperature (450C or 1130F) of the environment inside the station even when the plant is at less than full load!'. An environment at such a high temperature is not conducive to efficient performance on the part of the staff. Institutional Aspects 15. Electricite d'Haiti (EdH) was established in 1971 as an autonomous Government agency responsible for all public power generation, transmission and distribution in the country. However, until 1974, largely because of the limitations in the administration and technical capability of EdH, the construction and operation of power generation and distribution facilities in some of the provinces was carried out by other Government agencies or by private entities. Furthermore, had EdH taken over the facilities at the time in these provinces, it would have aggravated its cash problems and increased its financial dependence on Banque National d'Haiti (Appendix, para. 6). 16. When the Bank Group became involved with Haiti's power sector, EdH was a relatively small utility governed by a 4-member Board of Directors. Three of these were Government Ministers and the fourth was the Chief Execu- tive, i.e., the General Manager of EdH. The General Manager had only one senior executive (the Administrative Manager) responsible for administration and finance, while the heads of technical departments as well as the heads of provincial offices reported directly to the General Manager and thereby bur- dened him with day-to-day operational problems. Furthermore, EdH lacked depth in managerial, technical and administrative skills. Its accounting and financial procedures, and its management reporting and control systems were deficient. Lastly, EdH did not have financial independence to plan and execute a rational power sector program. 1/ The ventilation problems are expected to be remedied during the expansion of the power station under the Second Power Project (Credit 895-HA). It should be noted that an IDA mission report dated July 14, 1975, stated that the ventilation of EdH-s existing (i.e.older diesel plant was inadequate and resulted in temperatures of over 60 C (1400F) when the plant was in operation. EdH states that the temperature conditions with- in the station have not yet improved, and the poor ventilation system is a hazard to the operating personnel and detrimental to the cooling of the alternators (Appendix, para. 9). -6- 17. During the discussions between the Bank Group, EdH and the Govern- ment, it was agreed that EdH-s organizational strucLure would be changed so that the General Manager would be assisted directly by two individuals, namely, the Administrative Manager and the Technical Manager. It was also agreed that new accounting and financial systems would be implemented (with the help of financial consultants) and that several training programs would be undertaken, including the training of engineers for system planning, the training of accountants for budgeting and financial planning, and the training of financial staff for the new accounting and financial procedures. Further- more, EdH was to appoint a Training Officer to be responsible for the training centre (to be established under the project) and the Government was to approve a new tariff structure (para. 20). 18. Except for the timely construction of the training centre, the agreed courses of action were carried out. The organizational structure of EdH was altered in December 1976 and, under the new structure, the General Manager is now assisted by three individuals: a Technical Manager, a Planning Manager and an Administrative Manager. Considerable progress has been made with financial and accounting systems and procedures. The revised tariff structure was implemented after an interim roll-back (para. 21). The com- ponent of the training program which involved sending staff to overseas countries for training was successfully implemented. The construction of the training centre and the installation of the equipment were substantially delayed due to vacillation on the location of the centre and probably also due to a change in the Training Officer. Furthermore, full use apparently has not been made of other opportunities presently available within the country for training lower level staff. 19. While some progress has been made within a relatively short time in the management of EdH, in staffing, and in the financial systems and technical operations, there is still room for improvement in all the above areas!Y. Furthermore, there is a need for adequate coordination in technical planning and in the standardization of investment. For instance, in most parts of the country the electricity supply system is based on American standards and practices. However, in two areas of the country the electricity supply system, introduced around 1978, is based on European practicesl/. Revision of Tariff Structure 20. Prior to the Bank Group-s involvement in Haiti-s power sector, EdH had a complex tariff structure (with nine different tariff categories) which 1/ These issues are addressed in the Second Power Project (Credit 895-HA). EdH has provided technical details of the system used in these two areas and suggests that conformity of this system with the American standards may be easily achieved with respect to system configuration. However, the choice of transformers and the protection remain typically Euro- pean (Appendix, para. 12). - 7 - overall did not reflect the cost of providing electricity. Furthermore, the tariff structure was such that it encouraged inefficient energy consumption on the part of large residential consumers, comprising mainly the higher income group, while it discouraged the use of electricity (and probably en- couraged illegal energy consumption) on the part of small consumers, compri- sing mainly the lower income group. For example, the average tariff of small residential consumers (i.e., consuming about 30 kWh/month) was over three times that of the large ones (i.e., consuming over 1,000 kWh/month). Hence, during the negotiations between IDA, EdH and the Government, it was agreed that the average tariff would be increased to reflect the long-term cost of supplying electricity and a simpler tariff structure would be introduced in October 1976. The tariff structure was to be socially more equitable and discourage wasteful use and theft of electrical energy. 21. The new tariff structure was put into effect in January 1977. In less than two months, however, the Government, without the necessary consult- ation with IDA, rolled the tariffs back, following an outcry and political pressure mainly from higher income groups whose average monthly bill had almost doubled under the new tariff structurel/. The tariff roll back contributed to the decline in EdH's financial performance in FY1977, the net operating income and the net internal cash generation being 25% and 20% lower than their respective appraisal estimates2/. Following renewed con- sultation between the Government and IDA, the new tariff structure, with minor modifications, was reintroduced in July 1977, well after load-shedding had ceased and also after the Government had given further publicity to the need for tariff revisions. Under the new tariff structure, the average tariff of a small consumer in 1980 is about 80% of the average tariff of a large residen- tial consumer. The number of connections to small consumers in the Port-au- Prince area is estimated to have increased by over 50% in two years, from under 14,000 in 1977 to over 22,000 in 1979. The country has a uniform tariff; small consumers in some parts of the country pay less than the cost of producing electricity in those parts of the country. Least Cost Solution 22. The analyses of the least-cost solution in the appraisal report con- sidered three basic alternatives for the development of generation capacity: medium-speed diesel units, gas turbines and gas turbines in combination with 1/ The revised tariff for large residential consumers in Haiti was still lower than that of similar consumers in some Latin American countries, e.g., Jamaica, Brazil and Nicaragua, because about 70% of EdH-s energy is presently generated by a hydro-electric station. 2/ The actual rate of return on net fixed assets in operation was about the same as the appraisal estimate because of a smaller asset base, which in turn, was due to project implementation delays. -8- conventional steam plant. The medium-speed diesel units were shown to be the least-cost solution. On the basis of discussions with Bank staff involved in the appraisal, low-speed diesel units were considered and rejected as a feasible alternative since their capital costs were expected to be signifi- cantly higher than those of medium-speed units while their operating and maintenance costs did not appear to be significantly different. The analy- sis in the PCR confirms the choice of medium-speed units as the least-cost solution (PCR para. 7.02). OED has found no evidence to disagree with this conclusion. However, in OED-s view, slow-speed units should be considered as as an alternative to medium-speed units in future Bank projects, for the following reasons. Slow speed diesel units have a higher capital costs but they generally have lower maintenance costs. Furthermore, though diffi- cult to quantify, they provide higher reliability and greater availability because they are inherently more robust and are therefore less susceptible to frequent failures arising from a low standard of plant maintenance - a crucial factor in countries with scarce technical and managerial resources, and where the fuel has (or could have in the future) a high level of impu- rities, i.e., vanadium and sodium!l. III. LESSONS TO BE LEARNED 23. The experience from this project suggests that customer resistance to tariff increases would be reduced where the Government and the utility carry out, well in advance, adequate publicity campaigns on the need to increase the tariffs. 24. Even when projects financed by the Bank Group involve major turnkey contracts, the utility-s consultants should retain the responsibility for supervision of construction and commissioning of plant and this responsi- bility should be spelled out well in advance, e.g., in the bidding documents. 25. PCR (para. 9.01 (a)) states that coordination is more likely to be inadequate within a consortium of suppliers when the leader has only a small material interest in the total venture. The audit agrees that the greater the financial interest of the leader in the total venture, the greater is the 1/ The relative advantages and disadvantages between "slow-speed" and "medium-speed" diesel engines have been discussed in OED's Project Performance Audit Report No. 2765 on the Tanzania Kidatu Hydroelectric Project (Loan 715-TA) and also in the report of a study, initiated by the Bank and carried out by Consultants in mid-1980, on a comparative operating experience between slow- and medium-speed diesel engines. Slow speed diesel units have been or are being installed in Bank-fin- anced projects in Sierra Leone (Loan 388-SR of August 1964, Loan 553-SR of August 1968 and Credit 734-SR of September 1977) and Liberia (Loan 1600-LBR of July 1978). - 9 - likelihood of the leaders concern in the success of the venture. Neverthe- less, the audit considers that, for effective coordination of the project, the technical and managerial ability of the leaders site staff are probably of greater importance than the financial interest in the venture. 26. The audit shares the views expressed in the PCR on the need for a training specialist from the Bank to be involved in the training component during project preparation as well as during its implementation. Furthermore, the delays in the construction of the training centre and in installing the equipment suggest that the Bank Group should not take for granted that the Borrower and the Beneficiary maintain the same level of capability and commit- ment for implementing the training program as was manifested initially. (PCR, paras. 6.02, 9.01(e)). 27. In preparing cost estimates based on similar equipment in neighbour- ing countries, the uncertainties in estimating the contractors perceived cost of doing business in the country of the project may be quite large and different from the opinion of consultants or the appraisal team. In the case of Haiti, this resulted on average in about 70% higher bid prices than the prices of corresponding bidders in the neighbouring country. 28. The fact that the Borrower did not satisfy, on two occasions, the credit covenant on consultation, by ordering additional generating capacity and by rolling back the tariff increases (paras. 4 and 21), should not be construed as meaning that this covenant was ineffective or irrelevant. It is unlikely that any other covenants would have been more effective in achieving the envisaged objectives.  - 10 - APPENDIX Page 1 of7 7 TRANSLATION OF COMMENTS FROM THE UTILITY (EdH's comments are based on page and para. references in the draft report.. Page references in the final report may be different although para. references are the same). ELECTRICITE D'H AITI Port-au-Prince, HAITI December 1, 1980 Mr. Shiv S. Kapur Director Operations Evaluation Department IBRD Washington, D.C. Dear Mr. Kapur: We read the Project Performance Audit Report on the First Power OED Notes: Project for Haiti (Credit 645-HA) with great interest and, while congratulating the World Bank on having instituted this evaluation system, the EDH Manage- ment would like to make a certain number of comments: 1. Highlights, p. iv , 2nd para, line 2: "...led to a reduction in production" should read ........... led to a reduction in generating capacity". 2. Highlights, p. iv, 3rd para: "Energy sales over the period 1975-1978 were lower than projected...." We would point out that the power cuts and the fall in demand that resulted occurred in 1977, rationing having been started in March; the period indicated does not correspond with the facts. 3. Project Summary, page 2, para 3: The bids for the power station were received in February 1976; negotia- tions were started with the Consortium in mid-April, after examination of the bids, and the letter of intent to order was sent to the Consortium early in May 1976. The two larger units (7.6 MW) were commissioned nine months behind schedule, i.e. in June 1978 instead of October 1977; for the smaller units the delay was 14 months, i.e. June 1978 instead of April 1977. 4. Page 3: The clause in Credit Agreement 645-HA relating to the Government's PPAM debt to EDH was complied with. The Government settled the full amount out- para.6 standing. Unfortunately, subsequent monthly bills have not been regularly paid, creating a new debt that amounted to $2,128,534.61 as of July 31, 1980. The Government has not remained indifferent to this situation and is taking the necessary steps to ensure payment of the sums due from ministries and public agencies. Already, in August last, Public Works paid its entire arrears of some $600,000 while Finance, for its part, has undertaken to settle as quickly as possible the amounts still due from the other ministries and agencies. IDA staff have just received Government's promise to honor the agreements. APPENDIX Page 2 of 7 5. Page 3, para. 5: OED Notes: ".....energy sales over the period 1975-78 being about 15% lower than projected". This should read: "1977-78". 6. Page 5: PPAM .It is true that if EDH had taken over responsibility for the para.15 provincial power stations as of 1971, this would have aggravated our cash problems and increased our dependence on BNRH. 7. Page 4, para. 9: These recommendations of the Bank do not appear to have reached us; fuel saving had nothing to do with the test program recommended by the Bank not being carried out. A report dated December 10, 1979 addressed to the Director General of EdH stated that the test program after the station was readied was not completed because the diesel sets were unable to operate nonstop owing to some problem; only Set 4 was able to run 72 hours without incident, according to the program set up and under supervision of the Con- sortium, EdH's consultants and EdH representatives, in November 1979. 8. Page 4, para. 10: The noise level specified at 100 m from the station was met, even with the doors open. 9. Page 5, para. 14: The conditions inside the station, on the other hand, have not been improved; the high temperature due to poor ventilation of the engine room is a hazard to our employees and does not help the cooling of the alternators. 10. Page 4, para.10: Environmental pollution, particularly of Cite Simone, has been considerably reduced; this problem will be fully eliminated once the repair of the incinerator is completed. 11. Page 4, para. 12: This first part of The major incident with Unit 3 caused danage to the crankshaft and the not the camshaft; the same problem would have arisen with Unit 4 if we had not comments taken it out of service after the breakdown of No. 3 in December 1978. relates to wording used in The percentage of the station?s capacity in April 1980 was of the transla- order of 90%; the units were in general available; the stoppages that tion. occurred were short and most often due to breaks in or leaks from fuel lines. 12. Page 7 . For medium-voltage distribution the European standards recommend delta connection and for low-voltage, star connection with neutral sent to - 12 _ APPENDIX Page 3 of 7 OED Notes: earth and distributed. The current level is 20 KY. Whereas in the two cases mentioned (Gonaives and Cap-Haitien) the MV neutral is taken out and grounded. To comply fully with American standards it is sufficient to distribute the PPAM neutral, which can be common to the LV and MV systems. Clearly, the pro- para.19 tection will also have to be adapted. We would note in passing that for the first FDA project the protection of the 12.47 and 4.16 KV lead-outs was according to the European philosophy, as was the design of the HV/HV and HV/MV substations. The lines installed in Gonaives and St. Marc were considered in part as transmission lines. Nevertheless, for future projects EdH has specified neutral distri- buted in MV (Saut Mathurine - Cayes). The fact remains that systematic use of three-phase transformers for distribution and protection by fuses on LV are typical European practices. 13. Page 9: PPAM The word "confiabilite" used in the French is a hispanicism and should para.22 be replaced by "fiabilite". Presumably Could we have the reDorts mentioned in para. 25 of page 9. Should footnote 1, they be restricted or confidential, please let us know. para.22 14. Project Completion Report, para. 1.04: ...the Varreux station was commissioned six months behind schedule"; this should preferably read "14 months after the scheduled date". June 1978 instead of April 1977. 15. Para. 3.01: The connection to the system of the Soudan and Delmas stations had no impact at all on the two-month delay in completing the SGEEM works; we would even say that these stations and the transmission facilities completed in 1978 are completely separate items. 16. Footnote (1) to para. 3.02: The accident during transportation referred to was the one in which the rotor of Alternator 3 was damaged. 17. Para. 3.02: These serious problems due to design errors were in fact subject to reservations by EdH at the time of provisional acceptance in May 1978, refer- ring specifically to the cooling and fuel distribution systems. 18. Para. 3.02: After the entry into service of the units, the first serious incident was that of December 1978 which entailed replacement of the crankshaft and bed plate of Unit 3; Unit 4 was shut down for inspection and the same process of deterioration was found to have begun at the level of its crankshaft. - 13 - APPENDIX Page 4 of 7 The problem with the two large units was due to a design fault in the auxiliary lubrication system for emergencies. The outside expert referred to by the Bank Group did not express any opinion regarding the problem with the large units and appeared unable to pinpoint the cause of the breakdown. Moreover, in his report on the breakdown of Unit IOT2, the expert was so vague that we still wonder whether he had formed any opinion at all. Furthermore, para. 3.02 attributes the damage suffered by Unit 2 to insufficient cleaning of the cooling system. Two failures occurred in this unit: the first, in March 1979, being seizing of a piston in the sleeve following metal melt in the piston head, and then, some months later (June 1979), damage to the crankshaft caused by a bearing burning out. No "internationally recognized" expert would state that a single piston over- heated and seized up as a result of cooling failure, without any other damage being caused to some part of a six-cylinder engine. 19. Para. 3.02 (end): The Consortium undertook to have the station operational after correcting design errors by October 1979, not May 1979. Moreover, the station was not back in operation until December 1979; there could have been no question of testing before October 1979, as the station was turned back over to the engine supplier for the corrective work on July 1. 20. Paras. 3.10 and 3.11: The role of the consultants was defined as Consulting Engineer acting for EDH's account (para. 1.4 of Consortium's Varreux contract). Moreover, whether or not their terms of reference were clearly defined, the supervision and coordination time for the project was billed. In our view, a very important point to be stressed to IDA is that, for specific cases of specialized work, engineering consultants should be required to demonstrate their competence or else to hire a specialist with the Bank's approval. 21. Para. 3.11(a): We cannot agree that the contractor for the tiansmission works performed satisfactorily. A lot could be said about the civil engineering work, the equipment supplied, the arrangement of the equipment in the sub- stations, cabling errors, submission of documents specified in the contract and parts, but the limitations of the contract forced us into final acceptance as a makeshift. 22. Para. 4.02 (iii): The engine supplier has never stopped passing his responsibilities off onto the EDH staff. The causes of the serious problems with the station were brought to the supplier's attention as soon as the motors were started up; - 14 - APPENDIX Page 5 of 7 OED Notes: whether it was a matter of the cooling system, fuel distribution or the emergency lubrication system, the supplier always ignored our alarm calls because we were not "experts." If the supplier had listened to us, there would have been far fewer problems. EDH wishes to draw the Bank's attention to the lack of competence or negligence of the engine supplier's technicians who designed the auxiliaries and those who "assembled" the Varreux units, and also to the irresponsibility of certain supervisors who went as far as to block off certain relays during testing in order to prevent the protection systems from functioning. The consultants did not provide the services of a diesel specialist for super- vising assembly or for the testing with a view to provisional acceptance of the diesel units. 23. Para. 4.02 (ii) and (iii): The tests made in July 1980 were intended to evaluate the present cooling system with a view to its possible replacement by air cooling; these tests were performed by the new consultants supported by another group of specialists with participation by the engine supplier. Tests were done in April 1980 under the supervision of the new consultants; the under-dimensioning of the cooling system was again clearly shown. IDA staff followed part of these tests. 24. Para. 5.01: The energy crisis and rationing in March, April and May led to a loss of sales. This situation was not foreseen at the time the projections were drawn up. The (seemingly abnormal) differences--3.7% in 1977 and 9.9% in 1978--are correct. PCR 25. Page 19: para.5.04 We think the fuel surcharge is intended. 26. Pages 20: P CR para.5.05 The Financing Plan for 1976-78 and actual financing for that period match as to totals but there are differences in the components, particularly the following items: Estimate Actual Borrowings $27,408,000 $19,319,000 Government contributions 2,800,000 9,384,000 As regards borrowings, $6,500,000 included as external financing for 1976-78 and incorporated into the estimated total of $27,408,000 was not - 15 - APPENDIX Page 6 of 7 OED Notes: disbursed. Government contributions, on the other hand, were higher than shown in the financing plan, mainly because of the Government's financing of nine generating units at the height of the energy crisis. 27. PageQ 24: The (a) Training in budget planning (budget, 2ash flow, etc.) accountants reference and engineers: six individuals here is not (b) Accounts staff: Staff of eleven clear. (c) Engineers (d) 33 technical staff. 28. Page 25: PCR The new consultants being already approved and financed by the Bank, para.9.02 there is a risk of duplication and conflict of authority in the event of the addition of a new engineer in Planning. We also feel that this would be contrary to the purpose of the training program, one of the aims of which is the gradual replacement of medium-term consultants. Technical assistance to EdH might become excessive. 29. Page 25: EdH, the Bank and the consultants have sought to find a suitable PCR engineer, who had to be available right when we needed him and acceptable para.9.02 to all the partners in the second project. We are presently in a de-facto situation; the second project has been under way for some time and coordina- tion is being handled by EdH and the new consultants. The chief of the planning section had been suggested for training planning engineers and technicians in project preparation. We think that this aim can be achieved at less cost by working with the next consultants. This planning ecti.n is ready to start work as soon as approval in principle is receil,ca from the Bank and the relevant parts of the Credit Agreement are amended. The personnel of the new consultants and a sufficient number of appropriately qualified Planning Department staff members are going to prepare the preliminary and actual plans for the renewal of the Port-au-Prince medium and low-voltage system. An important point to note is that we still need to take care that the time frame within which consultants are to provide their services must be clearly stated. - 16 - APPENDIX Page 7 of7 We congratulate the Bank on having set up Operations Evaluation as a separate department and we express our appreciation for its analysis, because the experience gained with the First Project will be of value to EdH throughout the execution of the entire program. Yours truly, s/Alix M. Cineas Secretary of State for Public Works, Transport and Communications Chairman of the Board of Electricite d'Haiti s - 17 - HAITI: FIRST POWER PROJECT Attachment (Credit 645-HA) PROJECT COMPLETION REPORT I. INTRODUCTION AND BACKGROUND Origin and Preparation 1.01 Following cancellation of a proposed UNDP financing related to an electrification project (lignite-fired thermal plant), IDA indicated to the Haitian Government, in May 1974, its willingness to consider financing of a future power project while acting as Executing Agency for a revised UNDP power sector study. In early 1975, EdH hired an international firm as its engineering consultants, under terms of reference approved by the Bank, for the preparation of a feasibility study. The consultants' findings highlighted the urgent need for thermal generating facilities in order to avoid possible severe power short- ages by the end of the 1977 dry season. On the basis of those findings, an appraisal mission recommended, in November 1975, to increase the amount of the proposed IDA credit from US$14 to US$16 million (with provisions for retroactive financing of up to $1.6 million), in order to finance 90% of the total cost of the project (including some local costs). 1.02 Due to the urgency of the situation, IDA authorized EdH to proceed with the bidding process for the major contract (Varreux diesel power station) except for signing of the contract which was to await the decision of IDA's Board. Some difficulties arose during the procurement process (3.05), but the contract for these units was eventually signed immediately after Board presenta- tion (June 17, 1976); the Credit was signed on July 2, 1976 and made effective on September 28, 1976. This PCR is based on a completion report prepared by EdH with the help of its consultants and on the findings of a completion mission to Haiti in September 1979. Project Objectives 1.03 IDA's objectives in making its first credit for electrical power development in Haiti were: (a) to provide the Port-au-Prince area with an adequate and reliable supply of electric power; (b) to promote rational sector development according to economic criteria; (c) to promote the institution of a more socially-oriented tariff structure permitting greater access to electricity to lower- income households; (d) to strengthen EdH's financial position; (e) to help EdH in setting up an adequate training program; (f) to improve EdH's organizational structure. - 18 - (g) to reduce losses in transmission and distribt.tion and to improve transmission capability and reliability of the existing hydroelectric system. 1.04 The tirst two objectives were not fully attained: due to numerous technical problems, the Varreux station was commissioned (with only provisional acceptance) 9 months behind schedule and its operation still could not be considered as fully satisfactory as of March 1980 (Chapter 3 and 4);1/ also, exceptional circumstances led the Haitian authorities to undertake investments which, at the time, were not fully justified economically (however, see 6.04 and 6.05); except for these investments, EdH's 1976-1978 development program, and its 1979-1983 program agreed with the Bank during the appraisal of the Second Power Project (Credit 895-HA, signed on May 31, 1979), are fully based on economic criteria. The other institutional objectives were substantially attained during the execution of the Project: a new tariff structure was implemented while tariff increases and other financial measures have put EdH on a sounder financial footing (Chapter 5); the training program is proceeding, although at a slower pace than envisioned (6,02); and EdH's organization was restructured and strengthened. II. PROJECT DESCRIPTION Original Project Description 2.01 Due mainly to constraints in the availability of both IDA and counterpart funds, the project considered during the IDA appraisal mission was limited to US$18 million, covering the minimum facilities needed by EdH through 1978 in 'the Port-au-Prince area; it represented only the first stage of a longer-term power development program (1976-1981) for Haiti. The second stage of this - revised - program is partly financed by the second IDA Credit - 895-HA (US$16.5 million, an EEC special action credit of US$6.0 million), signed in May 1979, and a CIDA (Canada) grant of $Can 17.0 million. 2.02 The first power project, as originally defined in the appraisal report, included the following items: (a) A medium-speed diesel engine power station at Varreux, with a capacity of 21 MW (2 x 2.86 MW and 2 x 7.61 MW); (b) Transmission and distribution works in the Port-au-Prince area, as follows: (i) 21 km of single-circuit 69-kV transmission line; (ii) 5.4 km of double-circuit 115-kV transmission line; (iii) Upgrading of 4 km of an existing 12.47-k' line to 69 kV; (iv) Extension of the existing Delmas substation and construction of four new 115/69/12.47-kV and 69/4.16-kV substations (at Canape Vert, Martissant, Carrefour-FeuilLes and Croix-des- Missions); (v) Extension and rehabilitation of existing distribution net- works; 1/ Smaller units were delayed by 14 months (Appendix, para 14). - 1? - (vi) Improvements to obtain higher reliability of the transmission system interconnecting the Peligre hydropower station with Port-au-Prince; (c) Construction and equipping of a training center; and (d) Engineering, supervision and training services. Changes to the Project 2.03 In general, the scope of the project remained as envisaged at #ppraisal; the changes, all relatively minor, include: (a) addition of 4 km of 69 kV-lines due to the impossibility of upgrading the Varreux-Delmas line from 12.5 kV to 69 kV; (b) some changes in substation equipment (transformers); (c) additional visual protection measures and equipment required for the transmission line in the airport area; (d) expansion of the training program for accounting and load dispatching; and (e) reduction in the scope of distribution network construction and rehabilitation. III. PROJECT IMPLEMENTA7ION AND COST Project Execution 3.01 The main transmission works were completed in February 1978, about two months behind schedule, mainly due to: (i) labor strikes at the supplier's factories; and (ii) the need to accomodate the network for the the emergency purchase of diesel units (6.04).l/ 3.02 The Varreux diesel power station was commissioned in June 1978 (with only provisional acceptance), about 9 months behind schedule, mainly due to: (i) delays in procurement (3.05); (ii) lack of coordination within the Consortium responsible for the construction; (iii) an accident during the transport of the equipment 2/; (iv) poor quality of local materials and work- manship used for the civil works; and (v) technical problems with the dieR1 machines. This delay, at a time when power was crucially needed due to the severe drought of 1977, contributed to the Government's hasty decision to purchase emergency diesel machines (6.04, 6.05). The June 1978 provisional acceptance was made with a list of outstanding problems among which the need for modifications of the cooling systemi! - which had been inadequately designed and of the fuel distribution system. After the units started operating regularly, two serious accidents occurred in February 1979: 1/ EdH states that the transmission facilities for emergency diesels had no impact on the two-month delay in the main transmission works (Appendix, para. 15). 2/ During the transport from the port to the power station, the rotor for No. 3 alternator was severely damaged after falling from the truck onto which it had been loaded totally unfastened. 3/ cf. Appendix para. 17. -20 - uto insfcien.t clean~ing of the cooln water system, a piston of one of the small units overheated and seized, causing heavy damage;- (b) the lube-oil system failed in the two large units, severely damaging the bearing of both engines and destroying the crank- shaft and bed plate of one of them. An outside expert hired by EdH attributed this 2pcident to deficient erection and in- sufficient supervision.-- Following a letter by IDA, and EdH's own representation to the Consortium, EdH held negotiations with the Consortium, from which it obtained an undertaking that the power station would be put in satisfactory operation by May 1979. The Consortium dispatched a large team to the project site which carried out remedial measures, including an increase in the cooling system capacity by installing larger pumps. When the station became operational in May 1979 - i.e., the beginning of the wet season - EdH did not follow IDA's advice to carry out a rigorous test program of at least one month under guidance of the supplier and supervision of an independent expert. Such a program would have admittedly represented an additional fuel cost but would have enabled EdH to possibly remove teething problems before the beginning of the next dry season in October 1979, when the station was expected to begin full operation (events since then are described in 4.01, 4.02).3/ 3.03 The construction of the training center, carried out by EdH on force account, was completed in October 1978, with a 9-month delay, caused mainly by: (i) the delays in the decision whether to erect it on the site of the new thermal power plant in the distant industrial area or-- as was finally decided-- on grounds available at the old diesel power plant in Port-au-Prince; and (ii) the retirement of EdH's training officer who had been involved with the appraisal of the project. 3.04 The accounting training program was completed substantially accord- ing to schedule. Procurement 3.05 Due to the urgent need for additional generating capacity in view of possible shortages by the end of the 1977 dry season, IDA allowed EdH to initiate the procurement process for the diesel power station before Board presentation. Bids for turn-key installation were opened in February 1976 but the lowest bid was about 70% higher than the Consultant's estimate, which was based on recent bids for similar equipment in Costa Rica. For unclear reasons, EdH then expressed its desire to negotiate with the second lowest evaluated bidder. IDA strongly objected, pointing out that EdH had not presented any sound technical justification which would disqualify the lowest evaluated bidder. EdH subsequently decided to negotiate with the latter (i.e. the Consortium), and was able to obtain a lower (firm) price which 1/ EdH doubts whether cooling water problems alone led to piston seizure (Appendix, para. 18). 2/ EdH states that the report from the expert was imprecise and did not provide any opinion on the cause of the accident (Appendix, para. 18). 3/ EdH states that the station was not back in operation till December 1979 and therefore it could not have carried out the tests before October 1979 (Appendix, para. 19). - 21 the Bank considered acceptable, although still about 22% above the original cost estimate prepared by the consultants. IDA's Board approved the Credit in June 1976 while leaving to EdH the option to retender; EdH chose not to use this option and signed a contract with the Consortium immediately after Board approval. 3.06 Procurement for the other project components was carried out without major problems consistent with the procedures agreed with IDA. Project Cost 3.07 A detailed breakdown of the original and actual cost of the project is shown in Annex 1 and is summarized below: Total Project Cost (US$10 3 Appraisal Actual Base cost (at end-1975 prices) 15,852 16,990 Physical contingencies 1,380 1,694 Price contingencies 800 1,936 Total cost 18,032 20,620 Cost overrun %: 14% 3.08 The 14% cost overrun can be attributed mainly to: (i) the impact of exchange rate fluctuations on the cost (in US dollars) of the Varreux power station; 1/ (ii) a higher-than-expected base cost and price escalation for the transmission component; and (iii) an increase in the scope of the transmission works partially offset by a reduction in the scope of the distribution works (2.0.3). Disbursement of the Credit 3.09 About 88% of the credit had been disbursed by September 30, 1978, the original closing date. In order to allow EdH to disburse the total amount of the Credit, IDA agreed to extend the Closing Date to March 31, 1979. A summary of the estimated and actual credit disbursements is shown in Annex 2, and a comparison of the original and final allocation of the credit proceeds is shown in Annex 3. Performance of Consultants and Contractors 3.10 IDA staff worked very closely with EdH'z engineering consultants during project execution and found their performance satisfactory but, in retrospect, it is possible that an earlier awareness of the problems that subsequently developed would have been attained if they had obtained a firmer mandate from EdH (in the face of Consortium opposition since the 1/ There was no price escalation since the contract for the power plant was awarded on a firm price basis. - 22 - work was executed on a turn-key basis) to conduct a closer and more rigorous supervision of the design and erection of the Varreux plant. 1/ They were retained as engineering consultants for IDA's Second Power Project. A foreign firm of accountants helped EdH reorganize its accounting system and develop a training program for EdH's financial staff; they performed satisfactorily; further consulting services are being provided for a study of EdH's administrative and accounting procedures under the Second Power Project. 3.11 The main contracts for physical components of the project were awarded on a turn-key basis: (a) the contractor for the transmission works performed adequately. 2/ (b) the performance of the Consortium of three foreign firms (including the leader) and one local firm which was in charge of the construc- tion of the Varreux diesel power station was deficient in two major aspects: (i) during the construction period, the Consortium leader which had the smallest material interest in the venture, did not supply or erect its own equipment in time and did not provide adequate contract coordination and supervision 3/; competent per- manent supervision staff was only sent to the site in May 1977 and, when major technical problems occurred, remedial action was not taken promptly enough; and (ii) the diesel generating units developed major technical problems, which prevented their normal operation during 1978 and part of 1979. IV. OPERATING PERFORMANCE 4.01 As mentioned in paragraph 3.02, the Varreux power station was ex- pected to enter full operation in October 1979 without having been rigorously tested by EdH, with the consequence that (i) remaining teething problems caused some shut-downs during a period when EdH depended heavily on the station; and (ii) EdH staff had not acquired sufficient experience in opera- tion and maintenance. The manufacturer stated that, except for some out- standing minor modifications, the units entered the guarantee period as of November 1979, which has to date neither been accepted nor rejected by EdH.The manufacturer has maintained an advisor in the power station until May 1980 and holds the view that breakdowns are due to a lack of pro-er maintenance on the part of EdH. 4.02 The situation as observed by IDA staff in March 1980 was the following: (i) only two machines - one large and one small working together on one of the two cooling towers - could be loaded to full capacity; 4/ 1/ EdH states that the consultants had billed EdH for supervision and coordination of project. EdH wishes to stress that "for specific cases of specialized work, engineering consultants should be required to demonstrate their competence or else hire a specialist." (Appendix para. 20) 2/ EdH, however, points cut several areas of the work where the contractor could have performed better (Appendixpara. 21). 3/ Resulting, in particular, in the transport accident mentioned in 3.02. 4/ Tests carried out by the new consultants in April 1980 show clearly that the capacity of the cooling system is inadequate (Appendix para. 23). - 23 - (ii) mne two other machines - working together on the other cooling tower - are not allowed by EdH to operate be- yond 90% of capacity because the lube-oil temperature appears to be too high at rated capacity. The cause for this has not yet been ascertained although part of the problem may be a metering error; and (iii) numerous small breakdowns occur, which are due in part to lack of proper operation and maintenance on the part of EdH. 1/ In summary, the Varreux diesels were as of March 1980 operating reasonably well, with the restriction of the above irritating but not serious consider- ations. The manufacturer's position is that the guarantee period ends in May and IDA suggested to EdH that a maintenance contract be signed - either with the supplier or with another internationally reputable diesel maint- enance organization - stipulating diagnostic as well as repair, to be completed before October 1980 when the next dry season begins. Also, IDA suggested again that a more rigorous test program be carried out before October 1980. V. MARKET AND FINANCIAL PERFORMANCE Forecast and Actual Market 5.01 A comparison of appraisal forecasts and actual sales figures by categories of consumers is included in Annex 4 and shows that growth has been highly erratic, with annual growth rates in total sales of 14.3% in 1975 (vs. 18.2% forecast), 23.3% in 1976 (vs 33.9% forecast), 3.8% in 1977 (vs. 30.3% forecast) and 31.9% in 1978 (vs. 9.9% forecast). Two main factors account for differences between consumer classes: (a) in part, the breakdown of actual sales is unreliable because, up to 1977, no clear distinction had been made between residential and the smaller industrial and commercial consumers; also, up to 1976, no reliable data were available for the provinces; (b) a sharp slowdown occurred in 1977 due to: (i) severe power curtailments during the dry season (estimated at some 10% of the year's requirements); (ii) the resulting installation of captive power plants by consumers; and (iii) the implementation of the new tariff structure and higher rates. 1/ EdH disputes IDA's view that the breakdowns are due partly to the lack of adequate plant operation and maintenance by its staff. EdH attributes these breakdowns mainly to the supplier and cites several reasons (Appendix para. 22). - 24 - 5.02 The detail of sales by categories of consumers shows that the forecasts for commercial and Government supplies has been reasonably correct, but that residential requirements appear to have been considerably under- estimated (taking into account the 1977 curtailments), while industry and public lighting demand was significantly overestimated. Only 6.7 MW of industrial installed capacity was connected in 1976 and 1977 instead of 11.3 MW as forecast, mainly due to delays in the completion of some indus- trial projects and the installation of captive plant by some prospective consumers (5.01); however, industrial sales still accounted for 49% of total sales in 1978; due to the poverty of the average residential consumer, residential sales per household are low. 5.03 Losses have historically been very high (43% in 1973) because of widespread electricity theft and poor network condition; however, their level declined to about 24% in 1976 and 1977 and 26% in 1978 (about the same as the targets agreed with IDA; see Annex 5), due to measures taken by EdH in accordance with its agreements with IDA (Annex 10). Financial Performance 5.04 In spite of lower-than-expected sales, EdH's revenues rose sub- stantially in line with the appraisal estimates (Annex 6), due to higher-than-anticipated increases in tariffs (including fuel surcharge): average revenue per kWh grew by 6% in 1976, 20.6% in 1977, and 6.5% in 1978 (vs. appraisal forecasts of 0%, 7.3%, and 4.3% respectively). As a result, EdH was able to obtain rates of return on its revalued fixed assets of 5.5% in 1977 and 7.3% in 1978, in compliance with the rate of return covenant 1/ (Annex 5). 5.05 A comparison between EdH's actual and estimated financing plan for the period 1976-1978, is shown below: SOURCES OF FUNDS Appr. Est. Actual US$10 % US$10 % Gross int. cash generation 14,105 36 12,098 32 Less: debt service (excl. IDC) (4,713) (12) (2,512) (7) Net int. cash generation 9,392 24 9,586 25 Borrowings 27,408 69 19,319 50 Government contributions 2,800 7 9,384 25 TOTAL SOURCES 39,600 100 33,289 100 USES OF FUNDS Appr. Est. Actual US$10 % US$10 % Investment expend. (incl. IDC) 36,545 92 37,217 97 Working capit. and other uses 3,055 8 1,072 3 TOTAL USES 39,600 100 38,289 100 1/ The covenant specified that, for 1977, the rate of return was to be calculated for the Port-au-Prince system only; on this basis, EdH's rate of return was 7.1%, i.e. above the 7% target specified for that year. - 25 - 5.06 Although total 1976-1978 construction expenditures were about as forecast, their annual breakdown was significantly different (Annex 6) due to the emergency purchase in 1977 of 20 MW diesel groups (6.04) for about US$4.3 million (fully financed by Government contributions); thus, anticipated future investments for 1978 (mainly for distribution) had to be postponed, and the actual level of expenditures and related borrowings for 1978 was substantially lower than forecast.1/EdH's self-financing ratio for the period reached 25% (48% in 1978), in sharp contrast to the pre-1976 situa- tion, when EdH had never been able to contribute internally to its expansion. 5.07 Overall, the financial agreements reached under Credit 645-HA, which included rate of return targets, settlement of public debts, implementation of a revised tariff structure, and consolidation of short-term debt (Annex 10) have all substantially been met between 1976 and 1978, and contributed to putting EdH on a significantly sounder and more independent financial footing in a relatively short time span. The same covenants have been repeated in the Second Power Credit Agreement (895-HA). VI. INSTITUTIONAL PERFORMANCE Organization and Management 6.01 EdH was established in 1971 as an autonomous government-owned agency in charge of public service electricity in Haiti. In spite of a strong govern- mental representation in its regulation and direction (the Board is composed of four Government Ministers), EdH's General Manager enjoys a reasonable degree of autonomy in the conduct of the company's daily operations. This institu- tional set-up was threatened, however, when the Government enacted in April 1977 a decree creating the INAEL 2/ and limiting significantly the attributions and autonomy of EdH; after consultation with IDA (under Sections 5.01 of the Credit Agreement and 3.01 of the Project Agreement), the Government subsequently decided to repeal the INAEL decree and to reestablish EdH in its former functions. Training 6.02 Prior to IDA's involvement in the power sector in 1975, EdH lacked depth in personnel at all levels. In order to help EdH upgrade the standards of its middle level staff, IDA included in Credit 645-HA about US$170,000 for the construction and equipping of a training center and technical assistance for training EdH's staff, in accordance with the recommendations made by a Bank Group training specialist who participated in the preparation of the project. A number of engineers were sent for training to France (EdF) and Germany and 20 technicians were trained in a local center while training in accounting and budgeting was offered by the firm of accountants (3.10). The delay in the implementation of the overall program (particularly for the construction of the training center), however, reveals that EdH's ability to carry out the the program was overestimated. While some degree of success was achieved with respect to the financial and technical training components, much remained to be done; and a further training program is included in the second Power Project. 1/ Cf. Appendix para. 26. 2/ Institut National de 1'Energie Electrique. - 26 - External Auditors 6.03 EdH's accounts have been audited yearly since FY76 by an international firm of auditors who have performed satisfactorily. Compliance with Main Covenants 6.04 Annex 10 lists the major covenants included in Credit 645-HA. During the implementation period of the Project (1976-1979), EdH and the Government have been in substantial compliance with all their undertakings with the exception of the investment limitation covenant (Section 4.02 of the Credit Agreement) 1/: the Government first failed to comply with this covenant when, in the midst of the severe drought of 1977 and the resulting drastic power curtailments, it hastily purchased (on behalf of EdH) 10 MW of emergency high-speed diesel capacity without seeking prior agreement from IDA (as was required under the above covenant); given the supply situation, and based on calculations made by Bank staff at the time, it is probable that some, but not all, of the 10 MW was justified. Three weeks later, the Government went ahead with the purchase of another 10 MW of medium-speed diesel capacity, although IDA had already advised it that it did not appear technically and economically justified. 6.05 In light of the exceptional gravity of the drought which had occasioned these purchases, IDA subsequently decided to satisfy itself with a commitment from the Government not to depart in the future from its obligations under the above covenant. In restrospect, the emergency diesels have proved fairly useful to meet demand in the face of the unsatisfactory operating performance of the Varreux plant (Chapter 4), although this obviously could not be expected at the time IDA advised against the purchase of the second set of emergency diesels. VII. PROJECT JUSTIFICATION Project Achievements 7.01 In addition to the institution-building objectives of the Project, which were, as was seen, substantially attained (1.04), a specific goal was to permit the connection of labor-intensive industries in the Port-au-Prince area, in order to provide needed employmeat opportunities for the high number of unemployed. This objective was also attained as 61 new non-residential connections were made through 1977, which created new jobs. 1/ Although in three cases, compliance was only achieved after appropriate corrective actions were taken at the Bank's insistence: first when tariffs were rolled back in March 1977 and then restored at their previous level several months later; second, on the occasion of the publication of the INAEL decree (6.01); and third, when Government arrears, which had started to accumulate again during 1977 and early 1978, were settled as a condition for negotiations of the second Power Credit. - 27 - Least-Cost Analysis 7.02 The appraisal report contains an economic comparison between alter- native short-term programs for the period 1977-1981 (adding up to 36 MW) based on: (i) medium-speed diesels (using Bunker C); (ii) gas turbines, and (iii) gas turbines associated with conventional steam plant, which showed that medium-speed diesels were the least-cost solution for discount rates up to 20%. A similar comparison was carried out ex-post, but considering a high-speed diesel alternative instead of the combination gas turbines/steam, 1/ based on January 1978 prices (Annex 7); this analysis shows that the medium-speed diesel alternative is still the least-cost solution for discount rates up to 17.4%. A sensitivity analysis shows that, for a discount rate of 12%, high- speed diesels would become more economic only with either a capital cost lower by 30%, or fuel prices lower by 26%, two unrealistic assumptions under the present conditions (Annex 8). 2/ Internal Rate of Return 7.03 The internal rate of return calculated for the Varreux plant in the appraisal report was 16%. An ex-post rate of return calculation based on prices and tariffs effective in January 1978 gives a figure of about 7% (Annex 9). This lower figure can be attributed mainly to the absence of pro- duction in FY 1979, due to technical problems (Chapter 5). It is consistent with the 7.5% rate of return calculated on the 1978-1983 program during the appraisal of the Second Power project (Credit 895-HA). VIII. ASSOCIATION PERFORMANCE 8.01 IDA has devoted an exceptionally large amount of staff time to the supervision of this project (14 supervision missions in three years), mainly due to the series of problems (technical, institutional, etc.) which have adversely affected its execution. This can be explained in large part by the fact that this was IDA's first involvement in a sector deficient in all respects at the time of appraisal and which had never benefited from any substantial external assistance, in one of the least developed countries of the Western Hemisphere. 8.02 The fact that most of the institution-building objectives of the project have been substantially achieved (1.04) is due mainly to this strong and continuous involvement of Bank Group staff during project implementation and to IDA's choosing a "gradualist" approach to help solve the sector's problems while taking a firm stand on fundamental issues (procurement, sector organization, tariff policy). 1/ Because a steam plant could not be constructed in time and, at the small unit size required (not exceeding 33 MW), would cost up to 2 times the cost of medium-speed diesels per kW. 2/ The Bank has contracted consultants to carry out a comparative performance study of medium versus low-speed diesels. - 28 - 8.03 In the face of the grave technical problems which affected the Varreux plant, IDA gave advice to EdH and intervened in support of its interests, within the limits permitted by IDA's role as a development agency (4.02). It should be emphasized that it would be clearly unfair to put the blame for the misfortunes of the Varreux plant on IDA's insistence to select the lowest-evaluated bidder at procurement since nothing at that time (particularly with respect to the manufacturers' past record) could permit one to anticipate the problems that subsequently developed. 'In retrospect, however, it appears that some of these problems might have been avoided by separate supply and erect contracts supervised continuously by experts of the Consultant (rather than a single turn-key contract), and in any event by EdH requesting the selection as leader of the Consortium of the firm with the greatest material interest in the venture (3.11(b). IX. CONCLUSIONS 9.01 From the difficult history of this project, a number of lessons can be learned: (a) coordination is more likely to be inadequate within a Consortium of suppliers when the leader has only a small material interest in the total venture; poor project coordination might also have been avoided by separate supply and erect contracts supervised continuously by experts of the consultants (rather than a single turn-key contract) (3.11, 8.03); (b) tighter supervision by EdH and/or their consultants of the activities of the Consortium during construction of the Varreux power station could have enabled an earlier awareness of the problems that later developed (3.10); (c) Covenants requiring consultation with IDA before changes are made in the organization of the sector or in EdH's management have led to a useful dialogue between the Government and IDA on these matters and have insured institutional stability and management continuity to the sector (6.01); (d) Long-term IDA assistance (rather than punctual operations) as well as continuous Bank staff involvement during project implementation are needed for the achievement of any institution-building objective in Haiti's power sector (8.02); The Bank Group, however, should not iorc for major improvements in one operation in institutions which, like EdF at the time of project appraisal, are very weak in all aspects, i.e. technically, financially and organizationally; (e) the involvement of a Bank training specialist at the project preparation and appraisal stages is crucial in countries with scarce skilled manpower, but must be complemented by adequate IDA follow-up during supervision (6.02). - 29 - 9.02 Those lessons have generally been taken into account for the appraisal of the Second Power Project (Credit 895-HA); in particular, IDA requested the hiring of an expatriate Planning Section Chief (who can also serve as project coordinator) 1/ and a training specialist from IDA participated actively in the preparation of the project. 1/ EdH apparently believes that the addition of an expatriate Planning Section Chief is not necessary in its organization since his functions (including project coordination) are carried out by its new consultants,and that these consultants could help in the training of EdH's staff in the planning department (Appendix paras. 28, 29). Latin America and the Caribbean Regional Office April 14, 1980 HAITI Credit 645-HA - Completion Report Electricitg argaiti (FdH) Original and Actual Project Cost (US$10 3 Base Cost Physical Contingencies Price Contingencies TOTAL LC FC Total LC FC Total LC FC Total LC FC Total Diesel power station - original 1830 8382 10212 146 670 816 - - - 1976 9052 11028 - actual 1726 8382 10108 - - - - 503 503 1726 8885 10611 Transmission - original 563 2917 3480 56 292 348 89 405 494 708 3614 4322 - actual 843 4671 5514 347 911 1258 180 1021 1201 1370 6603 7973 Distribution - original 207 990 1187 21 98 119 29 139 168 257 1217 1474 - actual - 423 423 50 189 239 - - - 50 612 662 C Consulting services - original - 930 930 - 93 93 - 132 132 - 1155 1155 - actual 84 818 902 - 119 119 - 232 232 84 1169 1253 Training - Uiginal 43 43 - 4 4 - 6 6 - 53 53 - actual - 43 43 - 78 78 - - - - 121 121 TOTAL PROJECT COST' - original 2600 13252 15852 223 1157 1380 118 682 800 2941 15091 18032 - actual 2653 14337 16990 397 1297 1694 180 1756 1936 3230 17390 20620 - overrun (%) - 6 6 1 1 2 - 6 6 1 13 14 October 1979 - 31 - ANNEX 2 HAITI Credit 645-HA - Completion Report Electricit6 d'Haiti (EdH) Actual and Estimated Accumulated Credit Disbursements (millions of US$ equivalent) IDA Fiscal Year Actual Acc. Appraisal Act. disbts. as a and Semester Disbursts Estimate % of appr. est. Dec. 31, 1976 4.8 5.84 82 June 30, 1977 8.2 10.34 79 Dec. 31, 1977 12.4 14.50 86 June 30, 1978 13.3 14.90 89 Dec. 31, 1978 15.55 16.00 97 June 30, 1979 16.0 16.00 100 Closing date - Original: September 30, 1978 Final : March 31, 1979 August 1979 -32 - ANNEX 3 HAITI Credit 645-HA - Completion Report ElectricitQ d'Haiti (EdH) Allocation of Proceeds of Credit (in US$ equivalent) Category Or:Lginal Final I Diesel power station 8,900,000 9,070,000 II Transmission and distribution systems, and other works 3,700,000 5,601,071 III Other equipment and materials 500,000 75,571 IV Consultants' services 1,000,000 1,253,358 V Unallocated 1,900,000 - 16,000,000 16,000,000 August 1979 HAITI Credit 645-HA - Completion Report Electricit6 d'Haiti (EdH) - Estimated and Actual Power data 1974/75 1975/76 1976/77 1977/78 Appr. Est. Act. Appr. Est. Act. Appr. Est. Act. Appr. Est. Act. Sales (GWh) Residential 31.0 31.9 31.9 42.1 32.9 40.4 33.9 55.5 Industrial 52.0 48.3 83.1 59.5 120.5 65.2 131.9 84.7 Commercial 9.9 9.9 11.4 11.6 13.1 12.2 15.1 16.8 Public lighting 6.7 6.1 8.8 7.1 11.4 6.7 14.8 7.7 Others 6.7 6.6 7.1 6.5 7.5 7.1 8.0 8.9 Total 106.3 102.8 142.3 126.8 185.4 131.6 203.7 173.6 Losses (GWh) 50.0 50.0 61.0 41.9 72.1 40.8 71.6 60.9 Net generation (GWh) 156.3 152.8 203.3 168.7 257.5 172.4 275.3 234.5 Maximum demand (MW) 31.0 32.4 36.5 35.3 44.2 37.2 52.0 n.a. Load factor (%) 58 54 64 55 67 53 60 n.a. Sales Growth data (% p.a.) Residential 3.0 6.0 3.0 32.0 3.0 -4.0 3.0 37.4 Industrial 30.0 21.7 60.0 23.2 45.0 9.6 9.5 29.9 Commercial 15.0 15.1 15.0 17.2 15.0 5.2 15.0 37.7 Public lighting 30.0 17.3 30.0 16.4 30.0 -5.6 10.0 14.9 Government and others 6.2 4.8 6.2 -1.5 6.2 9.2 6.2 25.4 Total 18.2 14.3 33.9 23.3 30.3 3.8 9.9 31.9 October 1979 - 34 - ANNEX 5 HAITI Credit 645-RA - Completion Report Eleftricit4 d'Haiti (EdH) Estimated and Actual Performance Indicators F-scal Year: 1975/76 1976/77 1977/78 App. Est. Act. App. Est. Act. App. Est. Act. Varket Penetration C'Wh sold - total 142.3 126.8 185.4 131.6 203.7 174.0 - industrial 83.2 59.5 120.0 65.2 134.0 - residential 31.9 42.1 32.9 LO.4 33.9 Number of customers (000) 3/ - total 33.5 45.2 3/ 37.5 50.0 3/ 47.0 55.5 - residential 27.3 39.1 30.0 47.5 33.0 47.7 rercent of households served - Port-au-Prince 27.3 ) n.a. 30.0 ) n.a. 33.0 ) n.a. - provinces 3.4 ) 3.5 ) 3.6 KWh sold/capita 28.0 25.0 35.9 25.5 38.8 33.1 ifficiency Indicators Number of employees 540 686 576 743 650 821 3/ -ustomers/employee 62 66 65 57 72 68 ORh sold/employee .26 .18 .32 .18 .32 .21 System losses (% net generation) 30 25 28 24 26 23 Financial Indicators 1/ate of return ( 5.0 4.6 7.0 5.5 7.0 7.3 3/ Self-financing ratio-/(%) 47 54 20 12 30 48 Operating ratio .75 .80 .69 .77 .66 .67 Debt service coverage (including outstanding overdraft) C.5 0.6 0.9 1.3 1.8 2.2 Receivables in days of sales - Government 360 ) 90 45 ) 78 45 ) 61 - other 45 ) 45 ) 45 Depreciation as % of average gross fixed assets 2.8 n.a. 2.9 3.4 3.0 2.3 'rained Personnel 2/ Number of technicians- trained 50 ) n.a. 50 ) n.a. 30 ) n.a. Number trained in accounting 7 ) 10 ) 12 1/ Net internal cash generation plus customer contributions expressed as a percentage of total construction expenditures. 2/ Includes specialized workers. 3/ Includes Provinces. Oetober 1979 - 35 - HAITI ANNEX 6 Credit 645-HA - Completion Report EdH - Comparative Financial Statements - 1976 - 1978 (US$103 1976 1977 1978 Fiscal year(ending September 30) Appr. Est. Act. Appr. Est. Act. Appr. Est. Act. Sales (GWh) 142.3 131.0 185.4 147.0 203.7 173.6 Average revenue per kWh (USt) 4.81 5.10 5.16 6.15 5.38 6.55 Operating revenues 6,845 6,682 9,499 9,039 10,928 11,378 Operating expenses: Fuel 948 1,171 1,900 2,289 1,680 2,176 Materials and supplies 811 679 875 839 940 923 Salaries 1,419 )2,137 1,589 )2,412 1,770 2,832 Miscellaneous 473 ) 3530 ) 1591 ) Depreciation l,9 1,352 I,8 l 23 I Total operat. expenses 5,044 5,339 6,580 6,980 7,212 7,582 Net operating income 1,801 1,342 2,919 2,059 3,716 3,796 Plus: depreciation 1,393 1,352 1,685 1,440 2,231 1,651 Gross internal cash generation 3,194 2,694 4,604 3,499 5,947 5,447 Leas: debt service (net of capital.interest) (2,391) (1,070) (1,222) (846) (1,100) (596) Net internal cash generation 803 1,624 3,382 2,653 4,847 4,851 Customer's contributions 110 81 120 288 130 89 Government contributions 300 - 1,500 5,746 1,000 3,638 Borrowings IBRD Credit (645-HA) and capital interest - - 12,990 10,791 4,818 3,838 German (KfW) loan - - 1,000 1,161 2,100 3,529 Future foreign loans - - - - 6,500 - Total borrowings - - 13,990 11,952 13,418 7,367 TCTAL SOURCES 1,213 1,705 18,992 20,639 19,395 15,945 USES OF FUNDS Construction expendit. (incl. capital. interest) First Power Project 1,300 )2,987 14,400 ) 23,415 2,332 )8,805 Other works 635 ) 82,936 ) 13,134 Capitalized interest - - 550 577 1 1 Total constr. expenditure 1,935 2,987 17,886 23,992 16,724 10,238 Working capital and other uses (722) (1,282) 1,106 (3,353) 2,671 5,707 TOTAL USES 1,213 1,705 18,992 20,639 19,395 15,945 Average net fixed assets in service 36,017 34,563 41,704 37,169 53,083 52,015 Rate of return (%) 1/ 5.0 4.6 7.0 5.5 7.0 7.3 1/ For EdH's whole system. October 1979 - 36 - ANNEX 7 HAITI Credit 645-HA - Completion Report Electricit6 d'Haiti (EdH) Assumptions for ex-post Least-Cost Analysis (in January 1978 prices) Gas turbines Medium-speed High-speed Diesels Diesel Capital cost (US$/kW) 235 1/ 508 2/ 280 3/ Fuel (USJ/kWh) 6.41 4/ 2.29 5/ 4.14 4/ Lubricating oil (USJ/kWh) 0 0.14 6/ 0.21 6/ Maintenance (USi/kWh) 0.45 0.40 0.50 Operation (US$/year) 22,200 34,900 34,900 Equipment life (years) 20 15 12 1/ For 7.5 MW units and utilization in hot climates. 2/ Represents actual cost for Varreux power plant. 3/ For 3 MW units. 4/ Diesel oil at USJ53.5/gallon (price to EdH in January 1978). 5/ Bunker C at US$14.16/bbl. (price to EdH in January 1978). 6/ At US$0.70/kg. (price to EdH in January 1978). October 1979 1AITI Grdit 645-HA - Completion Reoopr letrcié a%iti IvåH) Cash-Flows for ex-pov L...st-Coot Analys.s (U.103 Present Value Calendar Year 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 199U 1991 1992 1993 1994 1995 199b 1997 1998 1999 at 122 ine. rate Grss Cnration (GWh) - - 40.47 52.18 61.39 71.58 * 1. MED1UM-SPEED DIESELS (using Boker C) C.pital costs 2667 6934 2972 4953 762 - 2667 6934 2972 4953 762 -10770 1/ 15,380 Fuel - - 927 1195 1406 1639 9,067 Operatiog aod intenance epenses - - 253 31 366 421 2,349 Total 2667 6934 4152 6465 2534 2060-- 4727 8994 5032 7013 2822 2060 26,796 11. HIGH-SPELD DIESELS (ustng Dieel oil) Capital 1osts 1470 3022 1638 2730 420 - 1470 3822 1638 2730 420 -2380 1/ 9,266 Fuel - - 1675 2160 2542 296-- 16,391 Operating and maintenance xpense - - 322 405 471 543 __ 3,023 Total 1470 3822 3635 5295 3433 3 506---- 4976 7328 5144 6236 3926 3506 28,680 III. GAS TURBINES Capital c0ts 1234 3206 1374 2291 353 - 1234 3208 493 -4441 1/ 6,417 Fuel - - 2594 3345 3935 458- -> 25,381 Operating and aintenance ,xpenses - 2 5? 298 344 1,915 Total 1234 3208 4172 5893 4586 4932 6166 8140 5425 33,713 1/ Residual values. October 1979 HAITI Credit 645-HA - Completion Report __Electricit4 dlHatf (rdffl Varreux power plant. Internal rate of return (ex-post) (with January 1978 prices) Fiscal Year 1977 1978 1979 1980 1981 1982 1983-1996 Sales (GWh) 5/ - - 3 43 58 55 74 Generation (GWh) - - 4 54 72 69 93 Benefits (US$103) 1/ - - 195 2,795 3,770 3,575 4,810 Capital costs (US$10 ) 2/ 5,306 5,305 - - - - - Fuel (Us$103) 3/ - - 97 1,312 1,750 1,677 2,260 Operating and Maintenance expenses (US$103) 4/ - - 24 329 439 421 567 Benefits-Costs (US$103) (7,959) (7,959) 74 1,154 1,581 1,477 1,983 Rate of return: 7 % 1/ Based on an average revenue per kWh sold of USJ6.5 as of January 1978. 2/ Estimated cost of the Varreux plant and associated transmission and distribution facilities (in January 1978 prices). 3/ Estimated at US12.43 per kWh generated; based on price of Bunker C at US$14.16/bbl and lubricating oil at USJ70/kg (January 1978 prices). Future increases in real terms are assumed to be offset by fuel surcharge revenues. 4/ Estimated at USi0.60 per kWh generated. 5/ Assuming losses at 20% of generation. October 1979 zT - 39 - ANNEX IC Page I of 2 HAITI Credit 645-HA - Completion Report Electricite d'Haiti (EdH) Main Undertakings in Credit Documents Project Agreement 1. Section 3.01 (b): (i) EdH shall maintain a General Manager, Technical Manager and Administrative Manager with qualifications accept- able to the Bank; and (ii) EdH shall, not later than July 31, 1976, appoint system planning, financial planning, budgeting and training officers acceptable to the Bank. 2. Section 3.02: EdH shall take all measures to bring down electricity losses to agreed upon targets. 3. Section 3.05: EdH shall, every two years through 1983, review with the Bank power and energy demand forecasts for the Port-au-Prince area. 4. Section 4.02: EdH shall have its accounts audited annually by external auditors acceptable to the Bank. 5. Section 4.03: EdH shall obtain rates of return on a revalued net fixed assets of 5% in 1976, 7% in 1977, 1978 and 1979, 7.5% in 1980 and 8% in 1981 and thereafter. 6. Section 4.04: EdH shall revalue its fixed assets annually according to a methodology acceptable to the Bank. 7. Section 4.05: (i) EdH shall not incur new long-term debt (more than 1 year) unless its maximum future debt service coverage ratio is at least 1.5; and (ii) EdH shall not incur short-term debt if its total outstanding short-term debt should exceed 1/6 of its cash operating expenses for the last 12 months. Development Credit Agreement 8. Section 3.01: the Government shall take all actions, including provision of funds, necessary to allow EdH to perform its obligations under the Project Agreement. 9. Section 3.01 (b): on-lending terms for the proposed credit shall be acceptable to the Bank. - 40 - ANNEX 10 Page 2 of 2 10. Section 4.01: the Government shall formulate, in coordination with EdH, a sector investment program on the basis of the recommendations of the UNDP study, not later than September 30, 1977. 11. Section 4.01 and 4.02: the Government shall not undertake, or permit EdH to undertake, investments in the power sector in excess of: (i) US$1.5 million during project execution; and (ii) US$2.0 million after project completion. 12. Section 4.03: the Government shall take all steps necessary to allow EdH to reach the rates of return specified in Section 4.03 of the Project Agreement. 13. Section 4.04: the Government shall amend EdH's Basic Law not later than December 31, 1976 to include satisfactory changes in its organ- izational structure. 14. Section 4.05: the Government shall ensure that public sector electricity bills are settled and paid on time, to the satisfaction of the Bank. 15. Section 5.01: any change in EdH's Basic Law so as to affect materially and adversely the carrying out of the Project, shall be an event of default. Supplementary Letters 16. By S.L. No. 1, the Government and EdH commit themselves: (i) to implement new tariffs in the Port-au-Prince area by October 1, 1976; (ii) to implement new tariffs nationally by October 1, 1977; and (iii) to seek the Bank's concurrence before implementing any change in tariffs through 1983. 17. By S.L. No. 2, EdH commits itself to undertake a (defined) training program. 18. By S.L. No. 3, the Government commits itself to provide (specified) counterpart funds for the Project through 1978. 19. S.L. No. 4 defines the targets for EdH's losses referred to in Section 3.02 of the Project Agreement. August 1979 긱