Tunisia - Fourth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 13172 PROJECT COMPLETION REPORT TUNISIA FOURTH POWER PROJECT (LOAN 2455-TUN) JUNE 17, 1994 Industry and Energy Operations Division Maghreb Department Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not othervise be disclosed without World Bank authorization.  CURRENCY Currency Unit - Tunisian Dinar (TD) Tunisian Millimes (1,000) - TD 1.000 US $ 1.01 (1993) - TD 1.000 US $ 1.00 (1993) - TD 0.990 US $ 1.49 (1984) - TD 1.000 US $ 1.00 (1984) - TD 0.670 MEASURES 1 kilowatt (kW) - 1,000 watts 1 Megawatt (MW) - 1,000 kilowatts 1 Megavolt-ampere - 1,000 kilovolt-amperes 1 kilowatt-hour - 1,000 watt-hours 1 Gigawatt-hour - 1 million kilowatt-hours 1 kilovolt - 1,000 volts 1 kcal. (kilo-calorie) - 3.97 BTU (British Thermal Unit) A~BBREVIATONS ICB - International Competitive Bidding HV - High Voltage level (225, 150 and 90 kilovolts) LCB - Local Competitive Bidding LRMC - Long Run Marginal Cost LV - Low Voltage level (380, 220 and 110 volts) MV - Medium Voltage level (30, 15 and 10 kilovolts) STEG - Societe Tunisienne de l'Electricite et du Gaz Fiscal Year January 1 to December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 17, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Subject: Project Completion Report on Tunisia Fourth Power Project (Loan 2455-TUN) Attached is the "Project Completion Report on Tunisia - Fourth Power Project (Loan-2455-TUN)", prepared by the Middle East and North Africa Region. Part II is provided by the Borrower. The project's main objectives were: (i) to improve operational efficiency by reducing system losses in the urban network; (ii) extend electricity service in rural and urban areas; (iii) bring energy prices (electricity, gas and petroleum) in line with economic costs; and (iv) enhance the staff capability of the power utility (STEG) through a comprehensive training program. Project scope was substantially reduced and implementation delayed when the Government of Tunisia reduced STEG's overall investment program in line with an austerity program instituted the year following Board approval. However, due to substantial cost savings, the original targets eventually came close to being met. The training program was not carried out because the Government decided STEG should not borrow from international institutions to send staff for training abroad. During the period of project implementation, the Government failed to implement its commitment to allow electricity tariffs and petroleum prices to increase to economic levels. Subsequent to project implementation, prices were increased. Sector policy objectives were therefore achieved, but with substantial delays. Accordingly, the outcome of the project is rated as satisfactory, its sustainability as likely and its institutional impact as negligible. The Project Completion Report is thorough and informative, but the economic analysis, which follows that in the SAR, has a number of methodological errors. No audit is planned at this time. Robert Picciotto by H. Eberhard K6pp Attachment 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 TUNISIA PROJECT COMPLETION REPORT FOURTH POWER PROJECT - LOAN 2455-TUN TABLE OF CONTENTS Page No. PREFACE . . . . . . . . . EVALUATION SUMMARY . . . . . . . . . . . . . . PART I. MAIN FINDINGS AND LESSONS .... . . . . . . . . . . . . . .. 1 1. Project Identity . . . . . . . . . . . . . . . . . . . . . . . .1 2. Background .1....... .. .. .. .. .. .. ... .. . . Bank lending to STEG .1.... . . . .. . . . . . . .. . . . Access to electricity services .1... . . . . . . . . . . . . Organization ....... . .. .. . .. .. .. . .. .. . 2 3. Project Objectives and Description . . . . . . . . . . . . . . . 2 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Description ............ .... .... ..... . 2 4. Project Preparation, Appraisal and Effectiveness . . . . . . . . 2 5. Project Implementation . . . . . . . . . . . . . . . . . . . . . 3 Economic framework ............ ..... .... . 3 Changes in project scope . . . . . . . . . . . . . . . . . . . 4 Changes in project cost and financing . . . . . . . . . . . . . 4 Actual project cost . . . . . . . . . . . . . . . . . . . . . . 4 Facilities constructed under the project . . . . . . . . . . . 5 6. Project Implementation Schedule . . . . . . . . . . . . . . . . . 5 7. Disbursements .... . . . . . . . . . . . . . . . . . . . . . . 6 8. Procurement .... . . . . . . . . . . . . . . . . . . . . . . . 6 9. Operating Performance .... . . . . . . . . . . . . . . . . . . 6 10. Training Program .... . . . . . . . . . . . . . . . . . . . . 7 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.  TABLE OF CONTENTS (Cont'd.) 11. Financial Performance ................... . 7 Financial framework. . . . . . . . . . . . . . . . . . . . . . . 7 STEG finances. . . . . . . . . . . . . . . . . . . . . . . . . . 7 Auditing.. .................. 8 Performance Contract .................... 8 12. Economic Evaluation .9 13. Compliance with Loan Conditions .9 14. Performance of STEG, the Government and the Bank . . . . . . . . . 9 15. Project Sustainability. . . . . . . . . . . . . . . . . . . . . . .10 16. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 17. Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . 11 PART II. COMMENTS OF THE EXECUTING AGENCY. . . . . . . . . . . . . . . . . 12 PART III. STATISTICAL TABLES 14 Table 1: Related Bank loans 14 Table 2: Project Timetable 15 Table 3: Project Costs 16 Table 4: Project Implementation 17 Table 5: Cumulative Loan Disbursements 18 Table 6: Major Performance Indicators 19 Table 7: Main Financial Indicators 20 Table 8: Assumptions for Economic Evaluation 21 Table 9: Economic Rate of Return 22 Table 10: Status of Covenants 23 Table 11: Use of Bank Resources 28 Table 12: Bank Field Missions 29  PROJECT COMPLETION REPORT TUNISIA SOCIETE TUNISIENE DE L'ELECTRICITE ET DU GAZ - STEG FOURTH POWER PROJECT - LOAN 2455 - TUN PREFACE This fourth Power Project (Loan 2455-TUN) was approved on June 27, 1984. The Borrower was Societe Tunisiene de l'Electricite et du Gaz (STEG), the public sector corporation which is solely responsible for electricity generation, transmission and distribution as well as for gas transmission and commercialization. The Guarantor of the loan was the Government of Tunisia. The loan supported STEG's distribution and rural electrification programs, which included the installation of equipment and execution of works necessary to expand and upgrade STEG's urban and rural networks. In addition, it continued to support the efforts started in previous loans in rationalizing energy prices. The original scope of the project was modified with the agreement of the Bank. The volume of works completed under the project was larger than anticipated, while the unit costs were lower than expected. The actual total cost remained in line with the original estimate. The loan was closed on December 31, 1990, two years later than originally scheduled. US$ 21.5 million of the original loan amount of US$ 38.7 million were disbursed, the balance was cancelled on August 1986 because of the Government decision to scaled-down public expenditures during 1985 and 1986. The Industry and Energy Operations Division, Country Department I, of the Middle East and North Africa Regional Office prepared Parts I and III of this PCR as well as the Preface and the Evaluation Summary. A draft of this report (Parts I and III) was sent to the Borrower, and its comments were incorporated as Part II of the PCR. The preparation of Parts I and III is based on: (i) project reports prepared by STEG; (ii) loan documents, supervision reports and correspondence between the Bank and the Borrower; and (iii) interviews and discussions with Bank and Borrower staff.   - ii - PROJECT COMPLETION REPORT TUNISIA SOCIETE TUNISIENE DE L'ELECTRICITE ET DU GAZ - STEG FOURTH POWER PROJECT - LOAN 2455 - TUN EVALUATION SUMMARY Background 1. In 1982, about 55% of Tunisia's population lived in urban areas and their access to electricity service was about 94%. However, only 60% of the country's total population had access to electricity, mainly due to the low level of rural electrification. Access of rural areas to electricity was only 37% for rural agglomerations and 16% for the dispersed rural population. Part of the National Economic and Social Development Plan for 1982-86 was to expand electricity services to the population in urban and rural agglomerations and to encourage the establishment of agro-industries and small-scale industries in rural areas in order to improve their living conditions and stem the tide of migration from rural to urban areas. To assist the Government in addressing the aforementioned needs, the Bank loan supported STEG's 1985-1987 time-slice distribution and rural electrification programs by financing the foreign cost of its investments in rural and urban distribution. Obi ectives 2. The objectives of the Fourth Power Project were to: (i) assist STEG in extending electricity service to new urban and rural consumers at least cost; (ii) reduce system losses in the urban networks and improve system operational efficiency; (iii) enhance STEG's staff capacity through a comprehensive training program; and (iv) align both, electricity tariff levels with LRMC costs, and petroleum prices with those at the international market. To achieve these objectives, the project provided three components: (a) Rural Electrification to assist in the electrification of rural areas through the connection of about 35,000 new domestic consumers, the addition of 1500 water pumping stations and the connection of 50 small industrial/commercial customers; (b) Rehabilitation of STEG's urban networks to revamp distribution systems in some 60 cities and to improve the quality of service to about 130,000 of its existing customers; and (c) Technical Assistance to fund the purchase of modern maintenance equipment and tools and to support STEG's staff training program. On electricity and petroleum prices, the Guarantee and Loan agreements included adequate contractual clauses reflecting the Government's commitments. ,Implementation ExRerience and Results 3. Because of the Government's need to curtail public expenditures during 1985 and 1986, both the scope of the project and its cost estimate were revised and reduced in agreement with the Bank. Actual expenditures under the  - iii - revised project amounted to US$ 56.4 million, slightly higher than the revised cost estimate of US$ 54.9 million (at the time of appraisal the original cost was estimated at US$ 83 million), however the project unit costs were lower than anticipated. As a result, the amount of works completed under the project was substantially larger than the revised physical targets. The reduced project unit costs and the larger amount of facilities constructed under the project were derived mainly from the beneficial impact of the international competitive bidding (ICB) process undertaken by STEG and from the selective (economic optimization) process utilized in the selection of the villages which benefited from the program. The Goverrunent instructed STEG to cancel the proposed training program (consisting mainly of specialized training activities abroad) agreed under the project because of its opposition to fund overseas staff training with multi-lateral funding while STEG's training center at Khledia was operational. 4. Implementation of one of the main project objectives, which was to address critical energy pricing policies and to gradually eliminate subsidies by both increasing periodically domestic selling prices of petroleum products and adjusting electricity tariffs, was postponed by the Government during the period of project execution. Prevailing electricity rates were not sufficient to cover the full financial costs of STEG's power activities. As a result, STEG's revenues were below expectation and the covenants with the Bank on agreed rate of return as well as on debt-service coverage were not met during the period 1985-1989, despite the efforts made by STEG's management to revamp operational efficiency and reduce operational expenses. This situation was reverted starting 1990, when the GOT implemented periodic tariff adjustments and STEG financial performance has improved since then (para. 6). 5. The time required to modify the project and legal documents due to the reduction of the project scope, the non-compliance by STEG with a financial covenant (rate-of-return) under the previous loan (Third Power project), and some procurement problems during project implementation (public bid-opening) affected the timely implementation of the project. The loan became effective 16 months after signing date and the project implementation was two years behind schedule. In August 1986, the Borrower requested cancellation of US$ 17 million due to the project scope down-scaling and an additional US$ 177,600 was further cancelled due to misprocurement. The loan was closed on December 31, 1990, and only US$ 21.5 million of the original loan amount of US$ 38.7 million were disbursed, the last disbursement occurring on January 31, 1991. Project Sustainability 6. STEG has become a well organized institution and it has sound project implementation capabilities in the areas of power generation, transmission and distribution. Its planning and construction methodologies are based on accepted standards and practices and the technical and economic viability of its projects are in line with least cost principles. Concerning the optimization of its urban and rural distribution operations (loss reduction and load management), STEG now routinely revamps and reinforces its distribution networks, since the benefits derived from the project (substantial reduction of distribution losses and enhanced efficiency) have  - iv - conclusively proven to be cost-effective. Furthermore, despite the lack of adequate tariff increases during 1985-1989 and the initial delays incurred in project implementation, the physical targets accomplished by STEG under the project were remarkable. STEG's financial performance since 1990 has been quite satisfactory. In fact, its actual financial performance indicators are above the levels of those agreed and covenanted under the existing Gas Development project- loan 3418-TUN, as the GOT's record in maintaining electricity prices in line with LRMC during the last years has been satisfactory. Lessons Learned 7. The lessons to be learned from the problems encountered during the implementation of the project are the following: (i) the Bank should not rush to approve new operations until compliance with commitments under previous loans are not fully respected. In this particular case, the non-compliance by the Government/ STEG with financial covenants (tariffs, rate of return) under the Third Power project (at the time under implementation), delayed loan effectiveness. This date was postponed by 13 months, which adversely affected the timely implementation and completion of the project; (ii) the Bank should be more forceful on enforcing the Government commitments in critical areas such as timely increases of tariffs. In this respect, the Bank could have used the appropriate remedies provided in the legal agreements with the Government and STEG; (iii) the original project design should have provided for a separation of the electricity and gas accounts in order to separately monitor the financial aspects of STEG's in its power and gas operations. This probably would have helped to focus attention much earlier on the financial problems of the electricity side; and (iv) as part of the appraisal process and before establishing and agreeing on institutional objectives (in particular pricing policies), the Bank should make a comprehensive risk analysis and assessment of the Government's commitments to the project and its conditionalities.   PROJECT COMPLETION REPORT TUNISIA SOCIETE TUNISIENE DE L'ELECTRICITE ET DU GAZ - STEG FOURTH POWER PROJECT - LOAN 2455 - TUN PART I: MAIN FINDINGS AND LESSONS 1. Prolect Identity Name Fourth Power Project Loan Number 2455 - TUN Borrower : STEG Amount US$ 38.7 Disbursed US$ 21.5 Cancelled US$ 17.2 Date of Approval: June 27, 1984 RVP Unit : MNlIE Country : Tunisia Sector : Electric Power 2. Background 2.01 Bank lending to STEG. Since 1971, the Bank has supported the Government's efforts to expand domestic energy production and exploit energy resources efficiently through a series of loans to STEG totalling US$ 174.2 million (Table 1). Four loans were made to help expand the power sub-sector. These loans financed thermal generation, transmission and distribution systems' expansion, and a rural electrification program: (i) the First Power project in 1972 for US$ 12 million (loan 815-TUN); (ii) the Second Power project in 1976 for US$ 14.5 million (loan 1355-TUN); (iii) the Third Power project in 1981 for US$ 41.5 million, of which US$ 5.4 were cancelled (loan 2003-TUN); and (iv) the Fourth Power project. In the gas sub-sector, two Bank loans supported the construction of two main gas pipelines: (a) El Borma - Gabes in 1971 for US$ 7.5 million (loan 724-TUN); and (b) Gas Development (Gabes - M'saken) in 1991 for US$ 60 million (loan 3418-TUN). 2.02 Access to electricity services. At the end of 1982, about 55% of Tunisia's population lived in urban areas and their access to public electricity services was about 94%. However, only 60% of the country's total population had access to electricity, because the low level of rural electrification. Access of rural areas to electricity was only 37% for rural agglomerations and 16% of the dispersed rural populations. Despite this relatively low level of electrification, STEG, since its incorporation in 1962 has rapidly expanded its services through- out the country and during the period 1962-1982, its installed generating capacity had expanded six-fold from 116 MW to 900 MW, electricity generation increased ten- fold, from 288 GWh to 3,125 GWh. At the same time STEG's customer base nearly quadrupled, from 200,000 to 758,000. This impressive expansion was not free of drawbacks, since the quality of power supply was poor and the level of system losses was high.  2.03 By 1985, the country's level of electrification was further increased because of the Government's main policy objective to curb rural migration to urban centers and to improve employment opportunities and standard of living, all in the rural areas. As a result, the level of overall electrification in 1985 reached 65 %, while access of urban population to electricity services reached 98 % and 50 Z in rural areas. Simultaneously, STEG continued to implement its program aimed at revamping distribution network operating efficiency, while successfully reducing system losses from 18% to 14%. 2.04 Organization. STEG is a public enterprise incorporated in 1962, which undertook the operation of seven private utilities upon their nationalization and integrated them into a consolidated national power system. STEG is responsible for the production, transmission and distribution of electricity through-out the country. It is also responsible for the collection, transport and commercialization of gas. The above tasks are being accomplished through the implementation of comprehensive and systematic managerial, planning and operating practices. 3. Project Obiectives and Description 3.01 Objectives. The project was a continuation of Bank assistance under the Third Power Project (loan 2003-TUN). It aimed at: (i) expanding STEG's electricity services to urban and rural populations at least cost during the period 1985-1987; (ii) reducing system losses in the urban networks; (iii) improving planning and operating efficiency of the national integrated system; and (iv) enhancing STEG's staff capability through a comprehensive training program. In addition, the project continued to support the efforts started in previous loans in rationalizing energy prices which included the alignment of both, electricity tariff levels with LRMC costs, and domestic petroleum prices with international prices. 3.02 Description. The project consisted originally of three main components: (i) the Rural Electrification which would affect 15 Governorates by extending electricity services to rural areas by connecting about 35,000 new domestic consumers, about 1500 water pumping schemes and about 50 small industrial/ commercial customers, through the supply, installation and construction of about 1,400 km. of medium voltage (MV) distribution lines, 1,600 km. of low voltage (LV) lines and distribution transformers with an aggregate capacity of 25 MVA.; (ii) the Urban Distribution Network Rehabilitation, which included the rehabilitation of STEG's urban network in some 60 cities benefiting about 130,000 existing customers, through the supply, installation and construction of about 1,100 km. of medium voltage (MV) distribution lines, 1,000 km. of low voltage (LV) lines and 400 distribution transformers with an aggregate capacity of 40 MVA.; and (iii) Technical Assistance, which included the purchase of modern maintenance equipment and tools, as well as a comprehensive training program for STEG's staff. 4. Proiect Preparation. ARRraisal and Effectiveness 4.01 Given the pressing and urgent needs to rehabilitate STEG's distribution facilities and to expand its services to rural areas, the project preparation started in early 1983 (Table 2) following the same methodology of the Third  -3- Power project for assessing rural electrification demand and determining the system expansion requirements. STEG's 1985-1987 investment program for distribution and rural electrification was determined based on optimization studies regarding medium (MV) and low (LV) voltage network requirements and on the data collected through the survey of about 2,000 villages. As a result, a program address to extend electricity services to about 650 villages and to rehabilitate the distribution systems in 60 cities, was formulated and endorsed by the Bank. Appropriate arrangements were made by STEG by which its district offices would carry- out the engineering work and by which both STEG and local contractors would install and construct the facilities defined within the system expansion and rehabilitation program. 4.02 The project was appraised during June 1983 and negotiations were held in March 1984. In view of the issues which emerged during the implementation of the previous loan (Third Power project) and of those raised during the preparation/ appraisal of the project, agreement was reached during negotiations on the following main subjects: (a) Tariff increases and other financial measures: the Government/ STEG will undertake appropriate actions to earn an annual rate of return of not less than 5% in 1985 and 1986, 7% in 1987, and 8% thereafter. Furthermore, commitment was undertaken by STEG to maintain a debt coverage ratio of at least 1.5; (b) Petroleum prices: the Government will raise domestic petroleum prices so to attain international price levels by 12/31/86; (c) Audit Reports: STEG will timely (not later than 6 months after the end of each fiscal year) submit such reports; and (d) Rural Electrification program: STEG will submit its annual program and financial plan for Bank review. 4.03 The loan was signed on August 28, 1984. Despite the absence of conditions for loan effectiveness, the loan was declared effective on October 31, 1985 or 16 months after its approval (and four postponements of the date of effectiveness) because of the lack of compliance with financial covenants (tariffs, rate of return) under the Third Power project, which at that time was under implementation. 5. Project Implementation 5.01 Economic framework. During the mid-1980's, the slowdown of the Tunisian economy resulted in an austerity program designed to curb public investment in the electric power sector as well as other sectors. This program was implemented mostly during 1985 and 1986. The austerity measures adversely affected the implementation of STEG's original investment program, as the program was trimmed and accordingly adjusted to reflect the Government's budget cuts. This led to the reduction of the scope of the Fourth Power project and to delays in project implementation.  - 4 - 5.02 Changes in project scope. As a result of the reductions imposed by the Government upon STEG's overall investment program, the original scope of the project was revised accordingly. The modified project scope was endorsed by the Bank on August 8, 1986 and the loan agreement was accordingly amended. The revised project included the following components: (i) the Rural Electrification which would extend electricity services to rural areas by connecting about 28,400 new domestic consumers, about 1100 water pumping stations and about 50 small industrial/ commercial customers, through the supply, installation and construction of about 680 km. of medium voltage (MV) distribution lines, 1,440 km. of low voltage (LV) lines and about 650 distribution transformers; and (ii) the Urban Distribution Network Rehabilitation, which would rehabilitate STEG's urban network in some 60 cities through the supply, installation and construction of about 540 km. of medium voltage (MV) distribution lines, about 400 km. of low voltage (LV) lines and 260 distribution transformers. 5.03 Changes in project cost and financing. In line with the reductions of the public investments in 1985 and 1986, STEG's total investment program for these years was reduced from US$ 360 million to US$ 320 million (about 11%). As important power generating/ transmission schemes were under construction, STEG decided to apply these reductions mostly on the investments for distribution expansion/ rehabilitation. Its distribution investment budget was reduced by more than 50%, from US$ 114 million to US$ 48 million for the period 1985-1987. Furthermore, the 16 Governorates participants in the project's rural electrification component, which were to fund about 60% of the program costs with their own resources, had as well their budgets trimmed. The original investment required to implement the project of US$ 83 million equivalent was downsized to US$ 54.9 million. The financing arrangements were accordingly modified and the Borrower, because of the lower amount of foreign exchange needed to finance the project, requested in August, 1986 the cancellation of US$17 million of the proceeds of the Bank loan. 5.04 Actual project cost. The original project cost at appraisal was estimated at US$ 83 million, while the revised estimate (August 1986) amounted to US$ 54.9 million. The actual expenditures for completing the project were US$ 56.4 million (Table 3). The above costs are not comparable because they reflect different scope (quantities) of works. Although the actual cost of the facilities commissioned under the project is slightly higher than the revised cost estimate (about 3% higher), the amount of works completed was considerably larger than the amount of works included in the revised scope of the project. This was the result of the efficient implementation of the project by STEG through: (i) the international competitive bidding (ICB) process undertaken by STEG, which resulted in lower prices for the equipment .and materials purchased for the different components; and (ii) the detailed analytical methodology used in the selection (economic optimization) of the villages, pumping schemes and industrial loads which benefited from the rural electrification program as well as the technical/ economic considerations used in the implementation of the distribution network rehabilitation plan. As a  -5- result, most of the project components' unit prices were lower than anticipated. The actual average unit cost for constructing the urban and rural distribution lines was 16,550 US$/ km. as compared to the original estimate of 22,450 US$/ km., while the actual average unit cost for consumer connection was US$ 542 as compared to the original estimate of US$ 830. 5.05 Facilities constructed under the project. Under the Urban Distribution Network Rehabilitation component, the construction of the MV and LV distribution lines as well as the installation of the distribution transformers were completed virtually in accordance with the revised implementation schedule. The targets achieved under this component substantially exceeded the expectations made under the revised scope of the project. The facilities commissioned were: (i) 782 km of MV distribution lines instead of the 540 km. expected under the revised scope; (ii) 569 km. of LV distribution lines instead of 400 km. anticipated under the revised scope; and (iii) 350 distribution transformers instead of the 260. Furthermore, since the completion of this component, overall STEG system losses have declined from 15.1% of gross generation in 1985 to about 13.3 X in 1989. It is estimated that the annual savings achieved through the reduction of system losses amounts to about 70 GWh./year or about US$ 3.5 million, not taking account the benefits derived from the improved quality of service which was provided as well. 5.06 Under the Rural Electrification component, the facilities were also commissioned in accordance to the revised timetable. About 49,880 new residential consumers were provided with electricity services in rural areas instead of the 28,400 proposed under the revised scope. About 1,400 pumping schemes were connected to STEG's rural distribution grid instead of 1,100 projected under the revised scope. The facilities commissioned were: (i) 932 km of MV distribution lines instead of the 680 km. expected under the revised scope; (ii) 1,436 km. of LV distribution lines instead of 1,440 km. anticipated under the revised scope; and (iii) 330 distribution transformers instead of the 650. Furthermore, the rural distribution facilities commissioned under this component will permit the connection of an additional 7,300 new consumers, when these consumers decide to obtain service by paying the corresponding connection charges. 6. Project Implementation Schedule 6.01 The project was completed during October 1990, about 22 months later than the original date of December 1988 and about 10 months later than the revised date of December 1989 (Table 4). Because of the time required to modify the project and legal documents due to the reduction of the scope of the project and the non-compliance by the Government and STEG with financial covenants (tariffs, rate-of-return) under the previous loan - the Third Power project (which at that time was under implementation) - the loan became effective only on October 31, 1986 (16 months after signing). Once the above problems were fully solved, execution of the project went quite smoothly. Actual construction and commissioning period of the different works was about 5 years (from late 1985 through late 1990), similar to the period expected at appraisal. Because of the above delays, the original closing date of December 31, 1988 had to be postponed twice: the first to December 31, 1989 as a result  of the amendments incorporated to the legal agreements because the changes in project scope; and the second to December 31, 1990 to allow STEG to complete the works and permit full payments to its suppliers. 7. Disbursements 7.01 The original disbursement schedule anticipated to fully disburse the proceeds of the loan by December 31, 1988. Due to the delays incurred in the early stages and to the down-scaling of the Project as detailed in the above paragraphs, the Bank disbursed only a total of US$21.5 million of the original loan amount of US$ 38.7 million by the closing date of December 31, 1990. In August 1986, the Borrower requested cancellation of US$ 17 million due to the reduction of the project scope, and an additional US$ 177,600 was further cancelled due to misprocurement. The loan was closed on December 31, 1990, the last disbursement occurring January 31, 1991 (Table 5). 8. Procurement 8.01 During project implementation, the new Government of Tunisia implemented some transitional measures which temporarily affected some of the administrative procedures applicable to the state- owned enterprises, including STEG. The most important issue which arose during project implementation, was a major violation to the Bank guidelines regarding bid opening procedures, by which the new Government's procedures insisted that bids be opened without presence of bidders or their representatives (non- public meetings), in contrast to public bid-opening sessions which the Bank requires. As a result, the Bank cancelled on June 10, 1988 US $ 177,600 from the loan proceeds for the above reason as the procedure followed by STEG in this particular bid was considered misprocurement. Other procurement problems, which were in general minor deviations from Bank guidelines, were resolved over time through a constructive dialogue between the Bank and STEG. 9. Operating Performance 9.01 The power facilities commissioned under the project are operating satisfactorily and they have contributed to further deliver STEG's electricity services to its consumers, to reduce the level of power system losses and outages, and to increase the quality of the power supply. As illustrated in Table 6, actual electricity sales during the period 1985-1989 increased at an average annual rate of 7 Z, from 3,084 GWh. in 1985 to 3,987 GWh. in 1989. This average annual rate is about 30 X lower than originally anticipated, when sales were expected to increase at an average annual rate of about 10 Z, from 3,250 GWh. in 1985 to 4,740 GWh. in 1989. This was mainly due to the austerity program implemented by the Government, which resulted in an overall slowdown of the Tunisian economy. Despite the reduction of STEG's investment program, the shortfall on sales, combined with the lack of tariff increases, had a negative impact on STEG's finances, as its revenues during the above period were lower than the ones expected at appraisal, and therefore, contributed to its poor financial performance. 9.02 In general STEG's performance has been satisfactory on the operational and administrative aspects which were under its direct control as illustrated  in the following performance indicators: 465 MWh. sold/employee in 1989 vs. 394 in 1985, and 150 customers/employee in 1989 vs. 129 in 1985. Furthermore, the unit cost of power supply to consumers (including generation, transmission and distribution), decreased from 62.1 mills US$/ kWh. in 1985 to 52.7 mills US$/ kWh. in 1989 (in constant prices of 1985), while the specific fuel consumption decreased from 3,090 kcal./ kWh. in 1985 to 2,730 kcal./ kWh. in 1989 and the system utilization factor increased from 61.3 % in 1985 to 66.4 X in 1989. 10. Staff Training Program 10.1 STEG did not carry- out its staff training program as agreed with the Bank under the project and the corresponding funds provided under the loan were virtually not utilized. This was due to the Government's perception that STEG should not borrow from international institutions with the purpose of sending its staff for training abroad. The Government insisted on this policy, particularly after a training facility at Khledia was made available (which in fact does not provide the advanced and sophisticated training available in institutions overseas). The only training which took place during the period, was the one associated to the supply of large/ complex equipment (generators, turbines, boilers). STEG staff was sent to the factories under bilateral funding. In relation to the cancellation of the training program, the Bank should have been more persuasive with local authorities on the subject and should have convinced them that the training required by STEG's staff was not available locally. 11. Financial Performance 11.1 Financial Framework. The project was designed partly to address important sectoral issues regarding energy pricing policies. In this context, the Government agreed with the Bank to gradually eliminate subsidies by both increasing periodically domestic selling prices of petroleum products so to attain international market levels by 1987 and to adjust electricity tariffs to permit STEG to earn adequate returns on its investments and operations. Nevertheless, the regulatory structure of the sub- sector and STEG's financial performance have depended to a large extent on the Government policy rather than on STEG's management decisions and actions. During implementation of the project, the Government unwillingness to adjust electricity tariffs was particularly evident. As a result, the performance of STEG in the financial area was less than satisfactory despite efforts made by its management to revamp operational efficiency and reduce expenses. In summary, both low levels of electricity tariffs and the devaluation of the dinar, which affected STEG's ability to service its obligations in foreign currency, have had a detrimental impact on its financial operations. 11.2 STEG Finances. Tables 6 and 7 illustrate some details of STEG's actual financial results for the period 1985-1988 and of those anticipated at appraisal time. Aggregate electricity sales for the above period were 13,632 GWh., or 11 X lower than the level of sales expected at appraisal of 15,250 GWh. STEG's actual operating revenues and expenses were lower than the ones estimated at appraisal. Actual revenues were 7.6 X lower in 1985, 25.7 X in 1986, 30.8% in 1987 and 30.9% in 1988; while expenses were 0.5 X lower in  1985, 17 X in 1986, 15.3 % in 1987 and 16.2 % in 1988. Furthermore, actual average revenues per kWh. sold decreased from 63 mills US$/kWh. in 1985 to 56 US$/kWh. in 1988 as compared with the anticipated increase from 69 mills US$/kWh. in 1985 to 83 mills US$/kWh. in 1988. In fact, during the above period, STEG's electricity tariffs were adjusted only once, in 1987 by a nominal 5.4% increase. 11.3 As a result of the above, expected STEG's rates of return on revalued fixed assets amounting to 5 % in 1985 and 1986, 7 X in 1987 and 8 Z thereafter were only 3.4 Z in 1985, 3.6 % in 1986, 3.5 Z in 1987 and 3.4 Z in 1988. Furthermore, STEG's debt-service coverage ratio expected to be at least 1.5 during the above period amounted only to 1.3 in 1985, 1.2 in 1986, 1.1 in 1987 and 1.1 in 1988. STEG's less than satisfactory performance was not always due to higher fuel costs; in fact during the overall period of project implementation, average fuel costs for electricity generation actually declined from 43 mills US$/kWh in 1985 to 37 mills US$/kWh in 1989 (this was mainly due to the replacement of the fuel base used for power generation, where fuel oil was replaced by cheaper gas imported from Algeria). The main reasons for STEG inadequate financial results were low electricity rates which were not sufficient to cover the full financial costs of the power activities and to a lesser extent, the devaluation of the local currency which adversely affected STEG's capacity to timely comply with the payments of its foreign exchange debt. 11.4 As a result of the poor financial performance of STEG's electricity operations, its losses were partially financed by the substantial surpluses generated by its gas operations. The gas operations net income was consistently positive, its return on assets reached 20 X in 1990 and its self- financing was above 100 X (670 X in 1990). This was mainly due to: low levels of investements, increases in natural gas and LPG sales and prices, and free gas associated with crude production at El Borma oil field. The gas operations net income during the period 1986-90 was TD 90 million (about US$ 130 million), which may be considered as the amount of subsidy to the electricity operations. 11.5 Auditing. During the period of project implementation, STEG retained independent external auditors in accordance with the provisions included in the loan agreement. While the Bank found STEG's selection of the auditors appropriate and the quality of their reports satisfactory, there were considerable delays (6 months to 1 year) in issuing the audit reports through 1987. Thereafter, STEG was able to reduce these delays and during the last years, audit reports have been issued before June 30, of each year. 11.6 Performance Contract. The operational and financial targets to be attained by STEG during the implementation of the project were formalized with the Government through an Action Plan, which was duly covenanted in the guarantee and loan agreements signed with the Bank. As mentioned in previous paragraphs, the financial objectives set under the above Plan were not met by the Government. However, the operational goals (except for the volumes of power generated and electricity sold which were beyond the control of both the Government and STEG) were substantially met.  -9- 12. Economic Evaluation 12.1 The SAR calculated an economic rate of return for the rural electrification component of the project. The economic re- evaluation carried- out under this PCR was made virtually on the same basis. The main aspects which differentiate the actual data (number of consumers, incremental electricity sales, investment costs) and assumptions (cost of supply, fuel savings) from those utilized at appraisal time are discussed and summarized below and in Table 8. 12.2 The implementation of the rural electrification component made possible the connection of about 49,880 residential consumers and of about 1400 pumping schemes. In addition, the facilities constructed under the project provide for the connection of an additional 7,300 consumers which are expected to be gradually integrated into STEG's system by 1993. These potential consumers were not included in the economic evaluation. The appraisal estimates included the connection of about 35,000 residential consumers and about 1,500 pumping schemes. A number of other assumptions made at appraisal, such as investment costs, fuel savings, tariffs and cost of electricity supply among others, were different from actual values. These changes are included in Table 8, which details the main assumptions utilized during appraisal and those which are the result of implementing the program (actual data). 12.3 The internal economic rate of return of the net benefits achieved through the implementation of the rural electrification component is estimated at 13.2 Z, compared with 12.7 X, which was estimated at appraisal. Details of the calculation of the economic rate of return are included in Table 9. 13. Compliance with Loan Conditions 13.1 STEG did not fully comply with a number of main project covenants, in particular with those concerning specific targets for financial performance (rate of return, debt coverage), but also with covenants relating to the timely submission of documents related to the implementation of the Project. Table 10 includes the details on the status of compliance with major project covenants. 14. Performance of STEG. the Government and the Bank 14.1 STEG is a well- established public utility which has implemented adequate managerial, planning and operational procedures. Its professional staff, in particular at the middle and high levels, is well educated and with substantial experience on matters related to the power sector. STEG, within its autonomy, implemented the physical components of the project quite efficiently and in accordance to high technical standards. The project was completed in a period of five years (end of 1985 through 1990) and the amount of facilities commissioned under the project exceeded the amounts expected at the time of appraisal (at lower unit costs). The failure of STEG to meet the financial covenants and to carry- out its staff training program agreed with the Bank under the contractual agreements, was beyond its control. STEG did not comply from time to time with some covenants which were well within its *  - 10 - control. These included the timely submission of progress reports, financial forecasts, performance indicators. 14.2 The Government performance under the project, in particular regarding its commitments with the Bank on energy pricing policies which were: to gradually eliminate subsidies by both increasing periodically domestic selling prices of petroleum products so to attain international market levels by 1987 and to adjust electricity tariffs to permit STEG to earn adequate returns on its investments and operations, was quite disappointing. The lack of action on the part of the Government to adjust electricity tariffs had a detrimental impact on STEG's financial operations. The Government delayed rate adjustments in several occasions (tariffs were adjusted only once in 1987) and it established the practice of financing power operation losses through the substantial surpluses generated by STEG's gas operations . 14.3 The Bank's preparation of the project and its monitoring (engineering and construction aspects of the Project) was satisfactory. The resources allocated for these purposes were adequate as 140 staff- weeks were utilized during the entire project cycle (Table 11) and 10 field missions were carried- out during this period (Table 12). Nevertheless, during the stages of project design and preparation, the Bank should have been more forceful with respect to: (i) the failure by the Government to timely increase tariffs. Given the seriousness of this issue, the Bank should have used the remedies provided in the legal agreements with the Government and STEG; and (ii) STEG's practice of producing consolidated financial statements for its electricity and gas operations, which frequently led to conceal the real financial position of its electricity operations. The Bank should have urged the utility (as a pre- condition of project appraisal or loan approval) to separate its electricity operations' accounting/ financial systems from those of its gas operations. This would have helped to focus attention much earlier on the financial problems of the electricity side. Under the ongoing Gas Development project (loan 3418-TUN), STEG agreed with the Bank to establish separate accounting systems for its two operations. An assessment will be made by the Bank by mid 1993, when the 1992 financial statements and audit report are submitted. Furthermore, compliance with financial covenants (rate of return, debt coverage) which were pending under the Third Power Project should have been made condition for further processing the Fourth Project (condition for project appraisal or loan approval). 15. Project Sustainability 15.1 STEG has become a well organized institution and it has sound project implementation capabilities in the areas of power generation, transmission and distribution. Its planning and construction methodologies are based on accepted standards and practices and the technical and economic viability of its projects are in line with least cost principles. Concerning the optimization of its urban and rural distribution operations (loss reduction and load management), STEG now routinely revamps and reinforces its distribution networks, since the benefits derived from the project (substantial reduction of distribution losses and enhanced efficiency) have conclusively proven to be cost-effective. Furthermore, despite the lack of adequate tariff increases during 1985-1989 and the initial delays incurred in  - 11 - project implementation, the physical targets accomplished by STEG under the project were remarkable. STEG's financial performance since 1990 has been quite satisfactory. In fact, its actual financial performance indicators are above the levels of those agreed and covenanted under the existing Gas Development project- loan 3418-TUN, as the GOT's record in maintaining electricity prices in line with LRMC during the last years has been satisfactory. 16. Conclusions 16.1 The Bank financed project met its objectives of providing electricity services to the less favored population in the rural areas and of revamping the efficiency of STEG's power distribution operations at least cost. The volume of facilities commissioned under the project were larger than anticipated. Furthermore, the project unit costs were lower than expected at appraisal. However, the commitment of the Government regarding energy prices, in particular electricity, and of supporting STEG's training program was disappointing. The financial performance of STEG was less than satisfactory, however its ability to implement the project despite delays and financial set- backs, was quite adequate. In summary, the project has been successfully in meeting its social and economic objectives as well as in completing the facilities constructed. Regarding the institutional objectives, the project failed to meet expectations as STEG finances were inadequate and the training program, part of the project, was not implemented. 17. Lessons Learned 17.1 There are some specific lessons to be learned from the particular problems encountered during the implementation of the project: (i) the Bank should not rush to approve new operations until compliance with commitments under other existing loans are not fully respected. In this particular case, the non-compliance by the Government/ STEG with financial covenants (tariff increases, rate of return) under the Third Power project (at the time under implementation), delayed loan effectiveness. This date was postponed by 13 months, which adversely affected the timely implementation and completion of the project; (ii) the Bank should be more forceful on enforcing the Government commitments in critical areas such as timely increase of tariffs. In this respect, the Bank should have used the remedies provided in the legal agreements with the Government and STEG; and (iii) the original project design should have provided for a separation of the electricity and gas accounts in order to separately monitor the financial aspects of STEG's in its power and gas operations. This probably would have helped to focus attention much earlier on the financial problems of the electricity side. 17.2 There is one lesson, similar to one encountered during the implementation of the Third Power project (detailed in the corresponding PCR dated June 30, 1987), to which not enough importance was given during the preparation of the present project. As part of the appraisal process and before establishing and agreeing on institutional objectives (in particular pricing policies), the Bank should make a comprehensive risk analysis and assessment of the Government's commitments to the project and its conditionalities.  - 12 - PROJECT COMPLETION REPORT TUNISIA SOCIETE TUNISIENE DE L'ELECTRICITE ET DU GAZ - STEG FOURTH POWER PROJECT - LOAN 2455 - TUN PART II: COMMENTS OF THE EXECUTING AGENCY 1. General 1.1 The Government of Tunisia did not submit its comments on its role and on the execution of the project. STEG's management shares the views of the Bank regarding the social and economic benefits, the power system efficiency improvements and the reduced cost/ larger targets, all achieved through the implementation of the project. Some specific comments made by STEG's directorates of Finances and Purchases/ Supply are detailed below. 2. Comments of STEG's directorate of Finances 2.1 Currency of Contracts: STEG's projections for withdrawals of the proceeds of the Bank loan were imprecise because the arbitrary selection of the currency of payment to suppliers (tunisian dinar, US dollar or the currency of the country of origin of the supplier), specially when the conversion rate between the currency of the supplier's invoice and the currency of debit to the loan account was not timely communicated by the Bank. 2.2 Delays in payments to supplier: During project execution STEG verified that payments made by the Bank to STEG's suppliers as well as reimbursements for advanced expenses made by STEG under the project were quite delayed. As a result, suppliers indicated their preference to be paid by STEG and not by the Bank. STEG suggests that the Bank should streamline some disbursement procedures by: - the Bank should timely supply to the borrower all details of payment/ withdrawals transactions (date, amounts, name of intermediary commercial bank); - the Bank should instruct the intermediary commercial bank to timely inform the borrower the date and value of the payments; and - Payments by the Bank should be made strictly in accordance to the contractual dates included in legal instruments between the borrower and supplier. 2.3 Confirmation of Letters of Credit: STEG indicates that the confirmations of the letters of credit were made based on provisional amounts and in general in currencies other than the ones of the contracts between the borrower and suppliers. This practice originated delays for concluding most of the transaction in the measure that the provisional values in general were different from the final values due to the variation of currency exchange rates. STEG suggests that the Bank confirms the letters of credit in the currency of the contract.  - 13 - 3. Comments of STEG's directorate of Purchases/ Supplv 3.1 The comments submitted by the above directorate are related to procurement matters, mostly on aspects where STEG diverged from the guidance/instructions provided by Bank staff (STEG's interpretation) who supervised the project: - Bank staff requested STEG to reject suppliers' proposals which did not include a bid bond; - Bank staff requested STEG to pay suppliers exclusively through letters of credit; - Bank staff declined to accept inclusion of charges related to port handling and storage (equivalent to 2% CIF price) in evaluation of proposals; - Bank staff requested STEG to let suppliers freely choose ocean freighters while tunisian legislation requires usage of local freighters; - Bank staff declined to accept STEG's proposal to reevaluate suppliers proposals before contract awards in cases where large exchange rate variations occurred between bid opening date and contract award date. (Note of the author: regarding the above subjects, Bank guidelines for procurement make the following provisions: (i) bid bond and payments through letters of credit are recommended by the Bank, but they are not mandatory; (ii) charges for port handling and storage may be included in bid evaluation provided they are specifically and fairly quantified. The bidder should be informed of this through the bidding documents; (iii) ocean freight restrictions are not permitted; and (iv) the borrower has the choice to select date of currency conversion for evaluation of proposals: either a date not earlier than 30 days prior to bid opening date or the date of decision to award the contract, all before expiration of the period of bid validity. This should be specified in the bidding documents).  - 14 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Part III: Statistical Tables Table I Related Bank Loans Amt. US$ No Mill. Year Name/Description Status 724 7.5 1971 Financing of El Borma - Gabes Disbursed gas pipeline. 815 12.0 1972 Financing of two 20-MW combustion turbine, transmission and distribu- tion system expansion and consulting services for future plant and insti- tutional development. Disbursed 1355 14.5 1977 Financing of seven 21-MW combustion turbines. Disbursed 2003 41.5 1981 Power III. Financing of first three years of STEG's 1982-86 investment program. Disbursed 2455 38.7 1984 Power IV. Financing Of STEG's 1985- Disbursed 1987 investment program for distribu- tion and rural electrification pro- grams. 3418 60.0 1991 Gas Development Project Undisbursed Financing of M'Saken - Gabes gas pipeline. Source: Staff Appraisal and Supervision Reports  - 15 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Proiect Loan 2455-TUN Table 2 Project Timetable Project Phase Original Plan -: - a: Identification 1982 1982 Preparation :01-06/83 -01-063 :Apprai1al 06/83 :06 83:: Negotiations 03/84 0/4 -: Board Approval - 06/84 0:/84 Loan:Signature- 08/84 .;08 84 Loan Effectiveness- 09/84 -l85i C 0.l 0 6/ 8: : : Cornp1 tioh J6/8810/9 . - . - -- .- i . - .......................... :.- -: ...... :--- .,......... . . . . , - - . .-.::.--.:: ..i . ...:: - L,'.'Os "g 12/88 '12/9 Source: World Bank Management Information System  - 16 - PROJECT COMPLETTON REPOR Tunisia: Fourth Power Project Loan 2455-TUN Table 3 Proiect Costs (USS million) Appraisal Estimates Revised Costs Actual Costs Local Foreign Total Local Foreign Total Local Foreign Total Items Cot Costs C= Costs Costs Cs Costs Cm A. Rural Elec. 12.8 8.4 21.2 13.0 6.2 19.2 16.8 7.9 24.7 B. Urban Rehab. 14.4 9.5 23.9 11.6 5.6 17.2 153 7.0 223 C. Other Equip. 3.1 11.1 14.2 2.2 6.0 8.2 2.6 6.7 93 303 29.0 593 26.8 17.8 44.6 34.7 21.6 56.3 Physical Contin. 5.4 3.6 9.0 3.6 2.0 5.6 - - - Price Contin. 8.6 6.0 14.6 2.8 1.8 4.6 - - - 443 38.6 82.9 33.2 21.6 54.8 34.7 21.6 563 Front-end Fee - 0.1 0.1 - 0.1 0.1 - 0.1 0.1 TOTAL 443 38.7 83.0 33.2 21.7 54.9 34.7 21.7 56.4  - 17 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Proiect Loan 2455-TUN Table 4 Proiect Implementation I~~~~~~Pcm~ -.a , L4~ .~~~~~~~~~~~~~~~~~~~~~~. ............. w 1< ~~~~~~W. So~urce: Staff Appraisa equip ment a'n'd tosCmpeinb Gmpi y Setembe 1987 u14-19 Erection. of onracmp 198ed19 Source: Staff Appraisal and Supervision Reports  - 18 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Prolect Loan 2455-TUN Table 5 Cumulative Loan Disbursements (USS million) Fiscal Origin l R-se .. C. ual Year .P.l.an.: Pl.. Ori i Ia . - . - ;t.. . . . .. . P 0.60 NA NA NA 1987 60 7 NA 0.226 2.9 ..... iLIIIiI.....L.....2.A..... 0. |0-00-ttjl08tjif-lj18. 60 NA 2.09 | 11.2 l t:Xiggg98-t-0-t-j-1 1.60 11 N 1 11.62 11 36.8 ! |0-t:0- 1089 00|| A ll NA ll 19.18 || 60. 7 [TEiii3- tiiiiII-||INA NA 20.63 65.3 | NA ll NA ll ~~~21.52 ii68.1 NOTE: Last disbursement was made on January 31, 1991 Source: World Bank Loan Disbursement Reports  - 19 - PROJECT COMPLETTON REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 6 Major Performance Tndicators 1985 1286L _198 -288 1989 Generation (GWh.) 3,571 3,750 4,016 4,278 4,485 Sales (GWb.) 3,084 3,262 3,544 3,742 3,987 Installed Capacity (MW.) 1,329 1,329 1,329 1,329 1,329 Demand (MW.) a/ 665 670 710 768 771 Losses (%) 15.1 13.8 12.8 13.1 13.3 System Factor (%) b/ 61.3 63.9 64.6 63.6 66.4 Specific Consumption (kcal/kWh) 3,090 2,800 2.780 2,710 2,730 Customers ('000) 1,012 1,085 1,145 1,207 1,282 Employees 7,833 7,858 7,959 8,189 8,575 Energy sold (MWh)/ Employee 394 415 445 457 465 Customer/Employee 129 138 144 147 150 NOTES: a/ Non- coincidental demand Net Generation b/ System factor = Demand x 8,760  - 20 - Tunisia: Fourth Power Project Loan 2455-U Table Actual Main Financial Indicators (D.T. Thousand) 1985 1986 1987 1988 Operating Revenues 193,430 203,174 231,715 268,365 Operating Expenses 186,060 202,356 249,981 278,974 Net Profit/ Loss 11,798 6,688 -12,538 -10,609 Rate of Return 3.4 3.6 3.5 3.4 Debt Coverage Ratio 13 1.2 1.1 1.1 Debt/Equity Ratio 1.4 2.1 0.9 1.0 Days Receivables 70 68 52 44 Average Revenue/ kWh. (mills DT) 48.3 48.7 50.3 50.7 Average Supply cost/ kWh. (mills DT) 47.2 48.8 56.9 58.0 Exchange Rate (DT per USS) 0.76 0.84 0.78 0.90 Inflation (%) 5.8 7.6 7.2 8.9 Original Main Financial Indicators Operating Revenues 209,386 273,480 335,036 388,593 Operating Expenses 187,085 243,794 295,370 332,879 Net Profit/ Loss 5,004 6,373 11,202 19,060 Rate of Return (%) 5 5 7 8 Debt Coverage Ratio 1.8 1.6 1.7 1.8 Debt/Equity Ratio 59 58 57 53 Days Receivables 90 90 85 85 Average Revenue/ kWh. (mills DT) 52.2 61.6 69.6 74.5  - 21 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Proiect Loan 2455-TUN Table8 Economic Analysis: ARn,raisal Assumptions and Actual Data 1. The SAR calculated an economic rate of return for the rural electrification component of the project. The economic re- evaluation carried- out under this PCR was made virtually on the same basis. The main aspects which differentiate the actual data (number of consumers, incremental electricity sales, investment costs) and assumptions (cost of supply, fuel savings) from those utilized at appraisal time are included below. 2. The implementation of the rural electrification component made possible the connection of about 49,880 residential consumers and of about 1400 pumping schemes. Furthermore, the facilities constructed under the project provide for the connection of an additional 7,300 consumers. The appraisal estimates included the connection of about 35,000 residential consumers and about 1,500 pumping schemes. A number of other assumptions made at appraisal, such as costs, fuel and other savings, tariffs and cost of electricity supply among others, are different from actual values. A comparison of the main assumptions utilized during appraisal and actual data is included below- A&praisal Acual Year of Reference 1984 1991 Domestic Consumers 35,000 49,880 Pumping Schemes 1,500 1,400 Residential Consumption (kWh./year) 175 400 Pumping Consumption (kWh./year) 5,000 4,000 Connection Charge Residential (USS) 370 200 Connection Charge Pumping (USS) 582 1,260 Average Tariff (mill USS/kWh.) 68 61 Average Supply Cost (mill USS/kWh.) 67 62 Capital Costs (USS million) 29.6 19.8 O & M Costs ( % of Capital) 2 2 3. Fuel savings were calculated based on the alternative energy (kerosene for lighting and diesel oil for engines) displaced after the connection of the rural consumers to the power grid (lst. year: 14,150 domestic + 448 pumps; 2nd. year: 9,550 domestic + 317 pumps; and 3rd. year: 29,180 domestic + 635 pumps). Furthermore, the amount of energy displaced was assumed to be equivalent to 351,000 kcaL/year (130 kwh./year) for each domestic consumer, and 10,800,000 kcal./year (4,000 kwh./year) for each pumping scheme. This energy was valued at 20 USS per barrel of oil (0.0342 US$/kwh.). 4. Other costumers' savings related to avoided capital replacement and maintenance costs derived from their connection to the power grid were calculated as follows: (i) for 40 % of the domestic consumers, an amount equivalent to 100 US$/year was assumed for costs associated to the operation of television sets and radios (battery purchase, charging and replacement) which they would have incurred otherwise; and (ii) for the pumping schemes, an amount equivalent to USS 2,000 was assumed as the capital cost of a 10 H.P. diesel engine (with a useful life of 10 years) associated to the operation of the water pump and 100 USS/year as the corresponding maintenance costs associated to its operation.  PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Table 9 Economic AnaLysis; Rate of Return YEARS CAPITAL AND OTHER COSTS GROSS BENEFITS NET --------- --------------------------------------------- --------------------------------------------------------- BENEFITS CAPITAL OPER. & COST OF TOTAL SALES CONNECTION FUEL OTHER TOTAL --------- COSTS MAINTEN. POWER COSTS REVENUES CHARGES SAVINGS SAVINGS BENEFITS 1 1976.00 0.00 0.00 1976.00 0.00 0.00 -1976.00 2 9182.60 177.84 804.14 10164.58 453.83 3394.48 124.20 1550.30 5522.80 -4641.78 3 9025.40 316.16 1235.70 10577.26 853.92 2309.42 272.93 2511.00 5947.27 -4629.99 4 5702.00 395.20 2495.68 8592.88 1750.14 6036.10 413.29 4190.60 12390.13 3797.25 5 395.20 2495.68 2890.8 1750.14 0.00 413.29 2135.20 4298.63 1407.75 6 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 7 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 8 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 9 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 10 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 11 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 12 395.20 2495.68 2890.U8 1750.14 0.00 413.29 3455.70 5619.13 2728.25 13 395.20 2495.68 2890.88 1750.14 0.00 413.29 3055.70 5219.13 2328.25 14 395.20 2495.68 2890.88 1750.14 0.00 413.29 4190.60 6354.03 3463.15 15 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 16 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 17 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 17 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 19 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 20 through 30 395.20 2495.68 2890.88 1750.14 0.00 413.29 2135.20 4298.63 1407.75 Internal Rate of Return: 13.2  - 23 - lPROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 10 Status of Covenants in the Loan Agreement Section Covenant Description Compliance Status 3.01 and Sched 2 Commitment to the objectives of the project COMPLIANCE. 3.02 Use of all goods and services exclusively for COMPLIANCE. the project and insurance of imported goods. 3.03 (a) Prompt submission to the Bank of PARTIAL COMPLIANCE. specifications, reports contract documents, Some documents received work, procurement schedules, etc. late. 3.03 (b) Maintenance of adequate records and COMPLIANCE. procedures to monitor Project's progress. 3.03 (b) Allowance of Bank access to facilities and COMPLLANCE. construction site for examination. 3.03 (b) Submission of quarterly progress reports PARTIAL COMPLLANCE. including all such information the Bank shall No quarter progress reports l________________ reasonably request. submitted after June 30, 1987. 3.03 (c) Reporting of Borrower on project PARTIAL COMPLIANCE. performance six months after completion. Draft report submitted but Bank requested revisions. Fimal report not received. 3.04 Provisions relating to land acquisition. COMPLIANCE. 3.05 Borrower to furnish Bank, no later than 11.30 PARTIAL COMPLIANCE. of each year, the list of villages for No staff training program. electrification during the following calendar year with financing plan and outline of a training program.  - 24 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 10 Status of Covenants in the Loan Agreement (continued) Section Covenant Description Status 4.01-4.04 General management and operations practice. COMPLIANCE. 4.05 (a) Borrower monitoring of operations on the basis COMPLIANCE. of a system acceptable to the Bank. 4.05 (b) Borrower to furnish Bank, by 3/31 of each year a NON-COMPLIANCE. report showing results of operations in terms of indicators acceptable to the Bank. 5.01 Borrower maintenance of records in accordance PARTLkL with appropriate accounting practices. COMPLLANCE. Incomplete separation of acounts for gas and l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ electricity. 5.02 (a) Auditing of accounts, each fiscal year, by COMPLIANCE. i______________ independent auditors acceptable to the Bank. 5.02 (b) Submission of audit reports to the Bank six PARTIAL months after the end of each year. COMPLLANCE. Late submission. 5.03 General provisions concerning liens on assets. COMPLLANCE. 5.04 Borrower to take action, including adjustment of NON-COMPLIANCE. electricity rates to generate revenues from power operations sufficient to earn an annual rate of return on the net value of the Borrower's fixed assets in the service of power operations of (1) not less than 5% annually in FYs 1985 and 1986; (ii) not less than 7% annually in FY 87 and (iii) not less than 8% in the following fiscal years.  - 25 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 10 Status or Covenants in the Loan Agreement (continued) Section Covenant Description Status 5.04 Minimum rate of return not to be less than NOT APPLICABLE. 6% annually for any fiscai year if the average price of fuel products purchased by the Borrower during any fiscal year shall have increased by at least 20%. 5.04 (C) Submission by 10/31 of each year, of a PARTIAL forecast of operating revenues, operating COMPLIANCE. Budgets expenses and rate of return for the current submitted but no rate of fiscal year and the next fiscal year. return estimate according to the Bank definition. 5.05 Borrower shall not incur any debt unless a NON-COMPLIANCE. reasonable forecast of the Borrower's projected net revenues for each fiscal year of the term of the debt to be incurred shall be at least 1.5 times the projected debt service requirement, in such year, on all debt of the Borrower. 5.06 Receivables for power operations shall not COMPIANCE. exceed the equivalent of the Borrower's average 90-day sales of electricity. 5.07 Preparation by the Borrower, of a financial COMPLIANCE. action plan acceptable to the Bank. 5.07 Borrower review of the plan, by 6/30/86, or COMPLLANCE. some later date agreed with the Bank, with Contract program sets the Guarantor and the Bank. out objectives and projections.  - 26 - PROJECT COMPLETION REPORT Tunisia: Fourth Power ProJect Loan 2455-TUN Table 10 Status of Covenants in the Loan A2reement (continued) [Section |_Covenant Description | Status 5.08 Borrower to take all action to increase its NON-COMPLIANCE electricity rates to fully reflect all prices in fuel products purchased by the Borrower, no later than two months after price increases.  - 27 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Plect Loan 24SS TUN Ta,ble 10 Status of Covenants In the La urne (continued) Section Covenant Description Status 3.02 Take all actions necessary to comply with NON-COMPLIANCE section 5.04 (c) of the loan agreement (tariff increases to comply with rate of return covenant). 3.03 Progressively increase domestic consumer PART1AL prices of petroleum prices so as to at least be COMPLIANCE. equal, by December 31, 1986, to international Increases were prices. implemented late. 3.05 Take all actions necessary to comply with NON-COMPLIANCE section 5.07 of the loan agreement (STEG' s financial action plan).  - 28 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 11 Use of Bank Resources Allocation of Staff Time by Stage of Project Cycle (In Staffweeks) Fis~aJ Thoug 198 . - - S;6 1984 1986 - 11.6 11.6 198871. 2 1989 ZS351 1990 - 44 4.1 199i2 - -- T-QW _5 4. 24.2 fl'  - 29 - PROJECT COMPLETION REPORT Tunisia: Fourth Power Project Loan 2455-TUN Table 12 Major Project Missions _ Mission | No. of | Days in _ Project Dates j Persons Field j Staffng |_Rafing IDENT [NS INS TNS INS NS | APPR | 5/83 |NS |NS |NS INS SPVN1 9/84 3 113 | EGR,EC,FA JNS SPVN 2 | 3/85 12 [10 EGR,EC,FA 2 SPVN 3 9/85 1 6 FA |3 SPVN 4 2/86 2 13 EGR,EC,FA 2 SPVN 5 2/87 3 8 EGR,EC,FA 1 SPVN 6 2/88 [3 112 [EGR,FA,LEG INS SPVN 7 11/88 | 1 | 4 _ EGR NS SPVN 8 11/89 |_5 12 [EGR,EC,FA J NS SPVN 9 |03/90 1 NS |EGR | _NS CODES: APP =Appraisal; EC= Economist; EGR=Engineer; FA=Financial Analyst; IDEN= Identification; LEG= Lawyer; NS= Not Specified.