Pakistan - Fourth Wapda Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15228 PROJECT COMPLETION REPORT PAKISTAN FOURIH WAPDA POWER PROJECT (LOAN 2499-PAK) DECEMBER 29, 1995 Energy and Project Finance Division Country Department I South Asia Region 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.  CURRENCY EQUIVALENTS Currency Unit = Pakistan Rupee (Rs) Appraisal Year 1984 = US$1.00 = Rs 13.48 Intervening Years 1990 = US$1.00 = Rs 21.45 Completion Year 1993 = US$1.00 = Rs 25.96 GOP AND WAPDA'S FISCAL YEAR (FY) July 1 - June 30 MEASURES AND EOUIVALENTS 1 kilometer (km) = 0.6214 miles (mi) 1 ton = 1,000 kilograms (kg) = 2,200 pounds (lbs) 1 kilovolt (kV) = 1,000 volts (V) 1 megawatt (MW) = 1,000 kilowatts (kW) 1 megavolt-ampere (MVA) = 1,000 kilovolt-amperes (kVA) 1 kilowatt hour (kWh) = 1,000 watt-hours (Wh) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh) 1 kilovar (kVAR) = 1,000 volt-ampere reactive (kVAR) 1 megavar (MVAR) = 1,000 kilovolt-ampere reactive (MVAR) ACRONYMS AND ABBREVIATIONS ADP - Annual Development Plan GOP - Government of Pakistan PCR - Project Completion Report PMU - Project Management Unit QPR - Quarterly Progress Report SAR - Staff Appraisal Report SBD - Standard Bidding Documents STG - Secondary Transmission and Grid USAID - United States Agency for International Development UNDP - United Nations Development Program WAPDA - Water and Power Development Authority  FOR OFFICLAL USE ONLY The World Bank Washington, D.C. 20433 U.SA Otice of ihe Dociaor-Genml Opamlions Evaluation December 29, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Pakistan Fourth WAPDA Power Project (Loan 2499-PAK) Attached is the Project Completion Report (PCR) on the Pakistan Fourth WAPDA Power project (Loan 2499-PAK, approved in FY85) prepared by the South Asia Regional Office, with Part II prepared by the Borrower. The closing date was extended twice until December 31, 1992 by which time the loan was fully disbursed. The project was cofinanced by the Asian Development Bank (ADB), Switzerland, the U.K. and CIDA. The objective of this eighth Bank operation in Pakistan's power sector was to improve sector efficiency by helping WAPDA (the state water and power utility): (i) reinforce its transmission and substation network; (ii) strengthen its investment planning capacity; and (iii) maintain sound finances. To this end, the project included the construction of about 3,800 km of transmission lines and 6,400 MVA of transformer capacity, studies (loss reduction, internal audit, and least-cost planning), and training of accounting staff. After an initial two-year delay in start-up due, inter alia, to insufficient local funding and revisions in bidding documents, the project was satisfactorily carried out-indeed with a 10 percent increase in the scope of its physical components and at a cost 28 percent lower than estimated at appraisal (a consequence of the rupee's devaluation). Despite implementation delays due to shortages in counterpart funding, difficulties in arranging cofinancing, land acquisition problems and slippages in bid preparation and evaluation schedules, the project was successful in achieving its main objectives: network reinforcement led to a decrease in system losses (from 25 percent in 1985 to 21 percent in 1991) and allowed for energy sales to grow by about 10 percent annually in 1985-93; and WAPDA's financial performance remained satisfactory overall, with the exception of a persistent Government arrears problem. The project's ex-post economic rate of return is estimated at 7 percent (slightly above the appraisal estimate of 6.2 percent), an indication that tariffs remain somewhat below marginal cost. The latter issue is being addressed under subsequently-approved Bank projects. Accordingly, and as in the PCR, the outcome of the project is rated as satisfactory, its institutional development impact as moderate and its sustainabillity as likely. Bank performance is rated as satisfactory as confirmed by the Borrower. Key lessons learned are: first, the importance of taking into account prior project implementation experience in setting a realistic implementation schedule; and, second, the need to agree with the borrower on a format for progress reports which makes them useful management tools. The PCR is of good quality: it is thorough in its analysis and provides most of the needed background data (with the exception of the standard annex on studies). The project will be audited together with subsequent loans made to Pakistan's power sector, as an input into a forthcoming OED study of the Bank's experience with private sector development in the electric powe or. Attachment |This document has a restricted distribution and may be used by recipients only In the performance of their s ofcial duties. Ks contents may not otherwise be disclosed without World Bank authorization.   FOR OFFCIAL USE ONLY PROJECT COMPLETION REPORT PAKISTAN FOURTH WAPDA POWER PROJECT (LOAN 2499-PAS) Table of Contents PREFACE ZVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . i PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . . . . . 1 1. Project Identity ... . . . . . . . . .... . 1 2. Background ... . . . . . . . . . . . . ... . 1 3. Project Objectives and Description . . . . . . . . . . . 2 4. Project Design and Organization . . . . . . . . . . . . . 3 S. Project Implementation . . . . . . . . . . . . . . . . . 3 Project Start-up and Implementation Schedule . . . . 3 Project Revision.... 4 Studies . . . . . . . . . . . . . . . . . . . . . . . 5 Project Costs.... 5 Closing Date Extensions . . . . . . . . . . . . . . . 5 Procurement.... 5 Disbursements.... 6 Environmental Aspects... . 6 Compliance with Loan Covenants . . . . . . . . . . . 6 6. Operational, Financial and Institutional Performance . . 6 Operational Performance . . . . . . . . . . . . . . . 6 Financial Performance . . . . . . . . . . . . . . . . 7 Institutional Performance . . . . . . . . . . . . . . 9 7. Sustainability and Economic Rate of Return . . . . . . . 10 8. Bank Performance ........... ........ 11 9. Borrower Performance .......... ........ 12 10. Performance of Consultants and Contractors . . . . . . . 13 11. Project Relationship ..13 12. Project Documentation . . . . . . . . . . . . . . . . . . 13 PART II - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . . . . . . 14 PART III - STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . . 17 Table 1 Related Bank Loans and Credits . . . . . . . . . . . 17 Table 2 Project Timetable . .......... ... 19 Table 3 Cumulative Estimated and Actual Disbursements . . . . 19 Table 4 Project Implementation . . . . . . . . . . . . . . . 20 Table 5 Project Costs and Financing . . . . . . . . . . . . . 22 A. Project Costs .22 B. Project Financing . . . . . . . . . . . . . . 22 Table 6 Project Results .. .23 A. Direct Benefits . . . . . . . . . . . . . . . 23 B. Economic Impact . . . . . . . . . . . . . . . 24 Table 7 Key Covenants and Status of Compliance . . . . . . . 25 Table 8 Use of Staff Resources . . . . . . . . . . . . . . . 26 A. Inputs .................. 26 B. Supervision Missions . . . . . . . . . . . . . 26 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 COMPLETION REPORT PAKISTAN FOURTH WAPDA POWER PROJZCT (LOAN 2499-PAR) PREFACE This is the Project Completion Report (PCR) for the Fourth WAPDA Power Project, for which Loan 2499-PAK in the amount of US$100 million was approved on March 7, 1985. The loan to the Water and Power Development Authority (WAPDA) was signed on April 17, 1985, and declared effective on July 12, 1985. The original loan Closing Date of December 31, 1990, was extended twice until December 31, 1992 by which time, the loan was fully disbursed and the project closed. The PCR was prepared by the Energy and Project Finance Division, Country Department I, South Asia Region, and by WAPDA. The former prepared the Preface, Evaluation Summary and Parts I and III of the PCR, while WAPDA prepared Part II, and provided most of the supporting data. Preparation of this PCR was started during the Bank's final supervision mission in December 1993. Preparation of Parts I and III of the PCR was based on, inter alia, information in the Staff Appraisal Report, the Loan and Guarantee Agreements, material on the project in Bank files and that provided by WAPDA. The preparation was also based on discussions with the officials of the Government of Pakistan and WAPDA during the PCR mission. The generous assistance provided by those officials to the PCR mission is gratefully acknowledged.   PROJECT COMPLETION REPORT PAKISTAN FOURTH WAPDA POWER PROJECT (LOAN 2499-PAK) EVALUATION SU3KARY Introduction 1. This was the fourth Bank Group operation with the Water and Power Development Authority (WAPDA), and the eighth in the country' s power sector. The loan, in the amount of US$100 million, for construction of transmission lines and substations, was approved ten months after loan negotiations. The delay was due to two issues: the introduction of a revised or updated financial covenant, and the introduction of long run marginal cost as an objective for tariffs. The first one was eventually agreed and the second one was deferred for the future (paras 2.5 and 2.6). Prolect Oblective. 2. The objectives were: (a) to improve the efficiency of power sector operation by reinforcement of a part of WAPDA's transmission and substation network; (b) to strengthen WAPDA institutionally, including its capacity to formulate and implement the capital investment program; and (c) to ensure financial viability of WAPDA (para 3.1). ImDlementation ElDerience 3. Project implementation took three years longer than originally envisaged for several reasons including: (a) a delayed start because WAPDA's staff responsible for implementation activities were engaged in residual work on an earlier project; (b) bidding documents, prepared in accordance with Bank guidelines applicable under the earlier project, had to be changed in accordance with the Bank's revised formats; and (c) budget allocations for the project, especially during the initial three years, were substanitally lower than the requirements of the project. Because of the start-up delays, no disbursement of loan proceeds took place during the first two years (paras 5.1 and 5.2). The physical components underwent some informal revisions during project implementation and, as completed, the project was somewhat larger (about 15%-20%) than that envisaged at appraisal (5.3). Total project costs, in 1993 rupees, are estimated to be about 20% higher than the appraisal estimate, and about 28% lower in US$ equivalent, and reflect in part the devaluation of the rupee from Rs 14.5/US$ in 1985 to about Rs 27/US$ in 1993 (paras 5.7 and 5.8). Results 4. The project was successful in meeting its objectives. It enabled WAPDA to transmit power and energy from generating plants to load centers with improved system efficiency. The facilities built under the project have functioned generally satisfactorily. They contributed to: (a) reduction in system losses, while the energy generated more than doubled during the project period (1985-1993); and (b) extension of service to nearly double the number of customers (para 6.3). WAPDA's financial performance during the same period was generally satisfactory, and its internally generated funds have contributed around 40% of its annual capital expenditure (para 6.5). The accounts receivable, however, are still on the high side, and this is partly due to the large amounts due from Government Departments and agencies, over which WAPDA has little control (6.10). The ex-post economic rate of return is estimated at 7% which is close to that projected at appraisal. Other non-quantifiable benefits included, inter alia, improvement in the quality of life and the standard of living through the use of electricity; development of the local manufacturing, supply and contracting industries; and an increase in industrial and commercial activities which generate increased employment opportunities (para 7.2).  11 Sustainability 5. The project, part of WAPDA's transmission system, has contributed to improved efficiency of power transmission, extension of service to customers, and reduction in system losses. The Government and WAPDA are committed to ensuring the financial viability of the utility, as manifested by adequate tariff increases, and the resulting satisfactory financial performance. In the institutional aspects, WAPDA is a well-managed, technically competent entity. It is therefore concluded that the project is fully sustainable (para 7.1). Findings and Lessons Learned 6. Implementation experience under this project was in many respects the same as under previous Bank operations, in that project activities were completed, and the loan disbursed, about three years later than the completion dates envisaged at appraisal. The factors accounting for these delays were also much the same--shortfalls in resources allocated for the project; delays in project start-up (design and procurement activities were intiated about eight months later than envisaged), and in procurement (substantial time was required for finalizing bidding documents, as well as for the evaluation of bids by WAPDA); and weaknesses in project management and reporting. Nevertheless, despite the delays, the project has made a significant contribution towards enhancing WAPDA's grid system capacity to transmit power efficiently, and serve the needs of a market that is growing rapidly, both in terms of the customer base as well as the geographical area covered by the system. As envisaged at appraisal, basic and detailed designs were prepared by WAPDA, and generally completed in a timely manner. The Bank loan was disbursed only for goods, while civil works and erection costs were borne by WAPDA. 7. Among the major lessons of this project for any future operations therefore is the need for more carefully evaluating project objectives and targets at the time of appraisal, to ensure that these are consistent with what can realistically be achieved within the envisaged timeframe. In particular, implementation schedules should allow adequate time for start up activities, including the time required for procurement activities to be completed. At the same time, WAPDA's administrative procedures should also be streamlined in order to minimize the time that technical staff assigned to the project have to devote to routine tasks. Finally, despite periodic attempts to address the issue, the utility of progress reports as a management tool remains limited. These reports should highlight project issues and identify corrective actions which have to be taken by management; consequently the format and contents of such reports should be critically reviewed during project preparation and appraisal, and agreement reached on a format that achieves the intended objectives. 8. Under subsequent operations, a number of actions have been taken by the Government and the Bank to address the critical issues identified during the implementation of the project, in particular those relating to the Borrower's participation and role during the preparation and implementation of projects, and shortfalls in budgetary allocation. Specifically, agreements have been reached on (a) the preparation and annual review of a Core Investment Program of priority projects, which would be protected from budgetary shortfalls; and (b) a National Procurement Reform Program, including the adoption of model bidding documents, based on the Bank's standard bidding documents for goods, works and consultants, which are designed to address some of the procurement issues that have repeatedly arisen during the implementation of Bank funded-projects.  PROJECT COMPLETION REPORT PAKISTAN FOURTH WAPDA POWER PROJECT (LOAN 2499-PAR) PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proiect Identity Project Name Fourth WAPDA Power Project Loan No 2499-PAK RVP Unit South Asia Region, Country Department I Country Pakistan Sector/Subsector Energy/Power 2. Background 2.1 Responsibility for public electricity supply in Pakistan is assigned to the Water and Power Development Authority (WAPDA), a semi-autonomous agency established in 1958. WAPDA operates throughout the country with the exception of Karachi area, which is served by the Karachi Electricity Supply Corporation (KESC). WAPDA is organized into two largely independent wings, one for power activities and the other for water activities. WAPDA, as used in this report, refers solely to the Power Wing which is responsible for planning, construction and operation of power generation, transmission and distribution facilities throughout the country with the exception of the area served by KESC (para 2.4). 2.2 In 1985, WAPDA's facilities included (a) installed generating capacity of just over 4,000 MW (63% hydro and mainly in the northern part of the country, and 37% thermal and mainly in the south); (b) about 19,000 km of transmission lines at various voltage levels including 850 km at 500 kV; (c) 457 grid substations with about 14,000 MVA of transformer capacity; and (d) a distribution network (some of which was about 50 years old) amounting to about 145,000 km, at 11 kV and 440/220 volts. The energy generated in FY85 was nearly 19,000 GWh of which about 73% was billed to approximately 4.5 million customers. The per capita energy consumption was only 155 kWh, which was lower than that in other countries in the region at a similar level of development. 2.3 Through the early 1970s, WAPDA investments--with international donor support--was channelled largely towards increasing generation facilities. Nevertheless, for most of the period including the present, the increase in installed generating capacity had been inadequate to meet the rapidly increasing power demand. This resulted in considerable load shedding, particularly during the dry season. Furthermore, the system losses through the late 1970s had been very high (around 35%). This is partly attributed to the old and overloaded distribution system, and to inadequate, ad hoc investments in sub-transmission and distribution systems. These systems transmitted power over long distances at rather low voltages, and had inadequate step-down substations to reduce the length of primary feeders. 2.4 Between 1955 and 1967, the Bank Group financed four KESC operations for the development of generating facilities. Thereafter, the Bank Group became involved in the Government of Pakistan's (GOP) program for strengthening power transmission and distribution networks. The first operation to WAPDA was in 1970, a second in 1976 and a third in 1979. A list of related Bank loans and credits to WAPDA are detailed in Table 1, Part III. Implementation of the third project (Cr. 968-PAK which in closed 1985) took about three years longer than envisaged. Reasons for the delay included non-conformity of tender documents with Bank guidelines; shortage of local finances; insufficient staffing of the unit responsible for project management; and difficulties with land acquisition. Overall, physical objectives were achieved (even though the reduction in system losses was short of the target) and considerable progress was made in institutional development. While WAPDA had met the requirements of the financial covenant, it did not generate adequate funds from its operation because of a deficiency in the formula for the covenant.  -2- 2.5 The fourth Bank Group operation with WAPDA forms the subject of this PCR. It was prepared in December 1983 by WAPDA's planning department, and covered a four-year time slice of WAPDA's development program for the secondary transmission grid network (para 3.2). The project was considered suitable for a variety of cofinancing arrangements. From the Bank's position several issues needed to be resolved, including (a) rectifying the deficiency in the formula for the financial covenant; (b) introduction of long run marginal cost (LRMC) as an objective for setting WAPDA tariffs; (c) recruiting senior staff in the accounting department; (d) upgrading the status of the Commercial Manager; (e) setting targets for reduction of system losses and accounts receivables; (f) reorganizing and upgrading the internal audit function; and (g) carrying out several studies. Negotiations took place on May 15 and 16, 1984, with agreement on all the issues except (a) and (b), but there was the expectation that the loan proposal would be submitted to the Board by June 30, 1984, provided agreement was reached on the two unresolved issues. 2.6 There was misunderstanding and confusion within GOP and WAPDA on the concept and application (including details) of LRMC. GOP was unwilling (a) to agree to a binding covenant whose meaning and impact were unclear; and (b) to commit itself to the revised formula for the covenant due to the perception that it would call for immediate steep tariff increases because of the large increase in investment. After much communication between GOP and the Bank, the revised covenant was agreed upon, but effective from 1988. Following a Side Letter from GOP confirming minimum capital expenditure for the next three years, and the updated financial projections indicating that the tariff (under the revised covenant) would be approximate to LRMC by 1990, the Bank agreed to defer the implementation of LRMC. Following this agreement, the loan was approved by the Bank in March 1985, signed in April 1985, and was declared effective three months later (Table 2, Part III). 3. Prolect Oblectives and Description 3.1 The objectives of the project were to: (a) assist WAPDA to implement its ongoing program to reinforce the transmission network and thereby lead to more efficient operation of the power sector; (b) continue with institution building efforts initiated under earlier lending operations by strengthening WAPDA's capacity to formulate and implement an investment program to improve energy efficiency; and (c) build WAPDA into an institution which could borrow commercially, rather than depend on loans from the Government which was already faced with budget deficits. 3.2 The project, as approved by the Board, covered a four year time-slice (FY86-FY89) of WAPDA's program for reinforcement and expansion of the secondary transmission network, and comprised: (a) construction of about 3,815 km of transmission lines (280 km at 220 kV, 2,458 km at 132 kV, and 1,077 km at 66 kV) (para 5.5); (b) construction of 139 new substations, and reinforcement and extension of a further 86 existing substations, resulting in a total installed capacity of about 6,400 MVA (para 5.5); (c) studies to: li) reduce transmission network losses; (ii) improve power plant efficiency; (iii) strengthen WAPDA's internal audit; and (iv) formulate a national least cost plan for the power sector (para 5.6); and (d) training of WAPDA's accounting personnel (para 5.6). 3.3 The total project cost, including interest during construction, was estimated at about Rs 8,900 million (US$614 million equivalent) of which Rs 3,421 million (about US$236 million) was the foreign exchange cost. Sources of project financing were: Bank loan of US$100 million; anticipated cofinancing and bilateral credits of about US$46 million equivalent; and the balance from WAPDA's internal sources and from GOP. The loan was expected to be completed by June 30, 1990, and was scheduled to close in December 1990.  4. Prolect Desian and Oraanization 4.1 As in previous Bank Group operations with WAPDA (Table 1, Part III), this investment was made mainly for the development of the transmission system. Specifically, the loan financed part of the equipment and materials required for the reinforcement and extension of the secondary transmission network during FY86-89. A Project Management Unit (PMU) comprising WAPDA staff, had already developed substantial experience in the design and construction of transmission lines and substations of up to 220 kV. Preparation of basic and detailed engineering work, specifications, bidding documents and bid evaluation reports was carried out by PMU. Excavation, concreting, foundation laying, etc., was done through contractors. Installation of equipment in substations, erection of towers, and stringing of conductors in transmission lines was carried out by WAPDA staff with assistance from contractors. Testing and commissioning of substations and transmission lines was carried out entirely by WAPDA staff. 5. Prolect ImDlementation 5.1 Project Start-up and Implementation Schedule. Following loan effectiveness in July 1985, project implementation experienced substantial delays, mainly during the start-up, resulting in the actual completion taking about three years longer than originally envisaged. The main reasons for the delays were: (a) WAPDA did not start project implementation activities until (i) the project was approved by the Executive Committee of the National Council in April 1985; and (ii) loan effectiveness in July 1985, whereas the project implementation schedule (which had been prepared about a year earlier) required these activities to start in October 1984; (b) PMU (which had also been responsible for the third project was hampered from working on the fourth project by the residual work on the third project which took longer than expected partly because of shortage of local funds (para 2.4); (c) bidding documents, which had been prepared on the same lines as those prepared with Bank approval under the third project were considered deficient and had to be modified substantially (after much communication between WAPDA and the Bank) in order to comply with Bank requirements; and (d) the perennial shortage of funding for the project through the budget. 5.2 The problem with bidding documents persisted for a considerable time, and well after the project start-up, until eventually WAPDA, with assistance from a Bank mission, prepared a standard bidding document. A shortage of materials and a GOP short-term ban on import of 11 kV switch gear contributed to further delays. Other causes of delays were land acquisition and right-of-way problems, security problems in some remote project areas and GOP insistence on the use of national shipping lines for shipment of goods and consequent Bank refusal to finance the freight element of the contract from the loan proceeds. Finally, project implementation was also delayed in the initial years due to the shortfall in budgetary allocations (relative to WAPDA's annual requirements for implementing the project). As indicated in Table 1 below, only in FY90-91 were the allocations close to what was required; by contrast, during FY87-89, the shortfall in allocations ranged between 25-40% of the funding requirements of the project. Table 1: Annual budQetarv reauests and allocations (Million Rs) WAPDA Allocation as % Year Requirement Allocation of Requirment FY87 1571 1175 75 FY88 1771 1018 57 FY89 1358 887 65 FY90 1300 129 95 FY91 1600 1543 96 FY92 1600 1340 84 FY93 2964 2318 78  -4- 5.3 Prolect Revision. The detailed project description which was agreed at appraisal provided only the number of substations which were to be constructed, extended, augmented and converted: their voltage and transformer capacity, and likewise, the length and the number of circuits of the transmission lines and their voltage (para 3.2). The specific substations and associated transmission lines to be funded under the project were not identified by name or location, nor were the target dates or the sequence of their construction, and the expected load growth for even a selected number of proposed facilities.1' 5.4 A Bank supervision mission carried out by a consultant in October 1986 found that there was confusion concerning the project composition. Similar confusion was found by the same mission on the third project (para 2.4) which was then in the final stages of its completion. After a detailed review of the program, the mission and WAPDA jointly prepared a list comprising 231 substations (with 4,718 MVA transformer capacity), and 3,300 km of transmission lines, as constituting the project21. In retrospect, this confusion related more to the list of items (substations, transmission lines, etc.) to be financed under the Bank loan rather than the scope of the project. In view of the project components actually implemented, the list compiled by the October 1986 mission represents the items/components financed under the Bank loan. 5.5 Table 4 of Part III provides details of the project components as listed in the Staff Appraisal Report (SAR), and the actual components implemented respectively. The number of substations installed was 422 (compared to the appraisal estimate of 225); installed transformer capacity was about 8475 MVA (compared to 7314 MVA at appraisal, or about 16% larger); while the length of transmission lines installed was 3675 kms (or about 4% less than the appraisal target of 3815 kms). This indicates that physical implementation was on a somewhat larger scale--around 10%--as compared to appraisal. Nevertheless, it is noted that substantial changes were made in project components. For exammple, only 91 new substations were constructed, compared to the appraisal estimate of 140; most of the activities actually carried out involved extensions and augmentation of existing substations (285 versus 886 envisaged at appraisal); and about 40% of the substations identified by the October 1986 mission were eventually replaced or substituted.3/ Similarly, while the length of transmission lines constructed was close to that appraised, around 1600 kms (more than two and a half times the appraisal target of 600 kms) carried double circuits. Several Quarterly Progress Reports (QPRs) were not available in the Bank filing system; and some of them were not available to the PCR mission during the country visit. The available QPRs are deficient in information necessary to monitor implementation progress, and to compare the actual and projected Large sub-transmission and distribution projects can rarely be designed or determined with precision at the time of their appraisal, and generally undergo some changes and/or substitutions of the original components (due to changes in the envisaged long-term load growth) during their implementation, without having to go through the process of a formal Bank approved revision. However, this makes it more difficult to evaluate the project at its completion, particularly in terms of the components of the project (as designed) which were actually implemented. According to the supervision mission report, WAPDA had agreed: (a) to ensure that any subsequent changes in the above list of substations and transmission lines would be recorded in the next Quarterly Progress Reports, with reasons for the changes. The mission had also pointed out that the reports were bulky with unnecessary detail but lacked the important information of comparing the progress achieved with the original or the revised estimate. To overcome this problem the mission had prepared an outline for progress reporting, which WAPDA had agreed to carry out in the future. 2/ It is not clear from the appraisal documents whether substations that were scheduled for more than one activity, e.g., extension and conversion, were counted separately under each activity.  -5- implementation progress. Furthermore, QPRs do not provide any explanation for changes in the project components. 5.6 Studies. The four studies required under the project--para 3.2 (c)-- were carried out. Consultants financed by USAID submitted a report identifying the sources of losses in the distribution networks, and outlining a detailed work program to reduce those losses. A national, least-cost plan for the expansion of the power sector was prepared by consultants funded by UNDP (along with WAPDA staff), with the Bank as Executing Agency. Consultants prepared a report identifying the potential for rehabilitation and retrofitting of the existing thermal capacity; this report formed the basis for the Bank financed Power Plant Efficiency Improvement Project (Ln. 2792-PAK: approved 1987; closed 1994). The study on internal audit led to reorganization of the department (para 6.14). WAPDA has a training program which includes training of accounting staff (para 6.16). 5.7 Proiect Costs. The appraisal estimate of the base cost of the project was Rs 6,993 million (US$482 million equivalent). With contingencies and interest during construction (IDC), the total project cost estimate was Rs 8,900 million (US$614 million equivalent), of which about 38% was foreign cost. A Bank supervision mission in 1992 reported that during project implementation, actual expenditures on the project were not maintained separately from WAPDA's overall expenditures on the transmission program. On the basis of the cost and expenditure information complied after project completion, the final cost of the revised project is determined to be Rs 10,684 million (US$441.9 million equivalenti'). Estimated and actual costs are shown in Table 5 of Part III. 5.8 These costs amount to an increase of 20% in rupees, while in foreign currency terms the project cost shows a substantial saving (about 28%). While the saving in foreign currency terms can be partly explained by the substantial devaluation of the rupee (from Rs 14.45/US$ in 1984), the appraisal year, to Rs 27.4/US$ in 1993, the year of completion, the relatively modest increase in local currency terms is more difficult to reconcile, particularly when account is taken of the fact that (a) the period of implementation was a time of relatively high inflation in the country; and (b) the final outcome of the project was larger than envisaged. A precise comparison between actual costs and the appraisal estimate cannot readily be made because of signfificant changes in project components; nevertheless, implementation over an 8-9 year period (compared to the appraisal estimate of five years) as well as the enhanced scope is expected to have resulted in a larger increase in project costs in local currency terms. On the basis of information provided to the Bank, and assuming that the final cost of the revised project is reasonably accurate, the only conclusion that can be drawn is that the original cost estimates were on the high side. 5.9 ClosinQ Date Extensions. The loan was scheduled to close on December 31, 1990. Because the start-up of project implementation had suffered significant delays, successive Bank supervision missions had reported that project completion would be delayed by well over a year. The missions also expressed concern about the shortage of local funding which was likely to cause further delays. Following a 70% increase in GOP allocations for the project, and a request from GOP and WAPDA, the Closing Date was extended first to December 31, 1991, and a second and final time to December 31, 1992 after completion of most of the project components. 5.10 Procurement. Individual contracts for equipment and material financed from the loan, and estimated to cost less than US$50,000 equivalent (but collectively not more than US$0.5 million), could be procured under limited international bidding procedures, while all contracts estimated to cost over US$0.25 million required prior Bank review of bidding documents and evaluation reports. As stated earlier (para 5.1), project implementation was considerably On project completion the annual expenditure in Rupees was converted to US$ at the prevailing average exchange rate for that year. Since most of the project components had been completed by December 31, 1992, no further extension was deemed necessary. The loan account was, however, kept open a few months beyond this date to effect payments for goods/services provided or performed by December 31, 1992.  - 6 - delayed because the bidding documents prepared by WAPDA did not conform with the Bank's revised formats for Standard Bidding Documents (SBDs), and preparation of SBDs took some time. Based on the available documentation, the average time taken from bid opening to the award of the contract (including Bank acceptance of the proposed award) is estimated at about 14 months, which is a rather long time. Complaints were also reported from some equipment manufacturers about WAPDA's bidding documents and the subsequent evaluation. 5.11 The equipment and materials financed under the project were split into 73 contract packages, and generally procured under international competitive bidding (ICB) procedures in accordance with Bank guidelines. Of the 73 contracts (total value: US$100 million equivalent) put out for ICB, 25 contracts (valued at about US$33 million or about 33% of the total) were awarded to local suppliers or manufacturers. By contrast, under the third project, Cr 968-PAK, local manufacturers were awarded contracts valued at about US$18 million--or about 25% out of a total value of US$72 million. One could conclude that the local industry was fairly competitive in the field of transmission towers and conductors, and where the size of the contract package was within its manufacturing and supply capability. The splitting of the equipment into a relatively large number of packages increased the workload on the PMU, and probably also made it more difficult to rationalize or standardize the equipment. It did, however, promote participation from the smaller, local manufacturer/supplier and thereby contributed to the development of local manufacturing industry. 5.12 Disbursements. Because of substantial project start-up delays, there was a large lag between the actual and the estimated disbursements. No disbursements took place during the first two years, i.e, through June 1987, compared to US$43 million estimated. Once the project was underway however, disbursements picked up momentum and by December 31, 1990, (the original Closing Date), 80% of the loan proceeds had been disbursed. Thereafter, the disbursement pace slowed down, and it took an additional two and a half years for the remainder of the amount to be fully disbursed, with the last disbursement taking place on May 28, 1993. 5.13 Environmental Aspects. The sites for new substations were generally selected in relatively less inhabited areas or in the more remote parts of the population centers. The routings for the transmission lines were also generally selected so as to minimize transgression into the populated areas or infringement on forest land. As a result, there were no environmental problems of significance, nor were there significant issues regarding relocation or resettlement of people affected by the project. WAPDA, with Bank support under the Power Sector Development Project (Ln. 3764-PAX, approved in June 1994) is in the process of establishing an Environmental Management Unit to develop, with initial assistance from foreign experts, in-house expertise in dealing with environmental issues particularly in view of the large investments planned. 5.14 Compliance with Loan Covenants. The key institutional and financial covenants introduced in the Loan Agreement and the extent to which they were complied with are listed in Table 7 of Part III. The Borrower complied with the main financial covenant--5.04 (a) which required an annual internal contribution of 40% towards an averaged capital expenditure. The Borrower also complied, but three years later, with the covenant 4.07 (a) which required a reduction in system losses to 21% or lower by June 1988. The reduction of accounts receivable fell short of the targets. 6. ODerational. Financial and Institutional Performance ODerational Performance 6.1 Pro-ect Results. Since their commissioning, the substations and transmission lines constructed under the project have functioned generally satisfactorily. The problems which arose were generally of a minor nature and were resolved without adversely affecting the transmission of power.5a The Line trippings did take place on several occasions. In order to minimize such trippings arising from pollution and fog accumulation on the discs, some discs were replaced with fog type insulators.  -7- availability of these facilities, excluding routine maintenance, has been around 100%. The facilities built under the project were designed to meet the growth in load for the next few years. A comparison between the actual load growth and that envisaged is not possible because the figures for the latter were not provided in the appraisal documents nor in the Quarterly Progress Reports when project revision was carried out and some of the components were replaced or substituted (para 5.3 and 5.4). 6.2 Some project substations, particularly those where the capacity was extended through the installation of one or more transformers, ended up with functionally similar equipment from different manufacturers (e.g., two or more transformers, each one not necessarily from the same manufacturer, and likewise for other equipment such as switch gear and relays). Although this situation caused difficulty with standardization of the equipment and created the need to carry a larger total inventory of spare parts, WAPDA staff adjusted satisfactorily in the operation and maintenance of technically similar equipment from different manufacturers. 6.3 Achievement of Project Obiectives. The project was successful in achieving its objectives. It enabled WAPDA to transmit power and energy from generating plants to the load centers with improved system efficiency. Between FY85 and FY93, WAPDA's overall operational performance was satisfactory. Its generation and sales of energy more than doubled, representing an average annual growth rate of about 10% compared to the GDP growth rate of 5.6% during the same period. Gross assets in operation and total fixed assets (in historical costs) nearly quadrupled, installed generating capacity nearly doubled, the length of its transmission lines and the number of grid stations increased by about 30%, and the transformer capacity nearly doubled. The number of electrified villages more than doubled, the number of connections nearly doubled, and per capita consumption increased by about 80%. More importantly, the industrial sector's consumption has more than doubled, reflecting sustained high growth in industrial output and investments; these developments also have secondary benefits such as increased employment and exports. The project, part of a continuing program of power system reinforcement and rehabilitation has helped to reduce total system losses from 25% in 1985 to around 21% since 1991. The losses are still on the high side, and the problem is being addressed under follow-on Bank operations (Table 1, Part III) as well as from operations financed by other donor agencies. WAPDA has installed a significant MVA capacity, and has also been promoting or inducing the industrial consumers to invest in capacitors and thereby raise the power factor, which would improve the system efficiency and reduce the overload on the system. 6.4 WAPDA's performance compared to the appraisal estimate has also been generally satisfactory. Annual generation and sales of energy during the most recent years exceeded the appraisal estimate by about 10%. The actual computed maximum (or peak) demand during the last three years has been lower than that projected, but the unmet demand (or load shedding) has also been lower. Table 6 Part III provides a comparison between the appraisal estimate and actuals based on key indicators. Financial Performance 6.5 WAPDA's financial affairs are governed by the WAPDA Act of 1958 which requires the utility to operate along commercial principles and to generate sufficient revenues from electricity sales to cover operating costs and achieve a reasonable return on investment. To ensure that adequate funds are available for the implementation of WAPDA's investment program, WAPDA has agreed under ongoing operations with the Bank on an Internal Cash Generation (ICG) covenant, which requires WAPDA to generate annually from internal sources at least 40% of its capital expenditures, averaged over the previous, current and ensuing year, taking into account changes in working capital. WAPDA is also required to consult with the Bank before incurring new debt should it be unable to maintain a debt service coverage of at least 1.5 times. WAPDA's tariffs are set to ensure that these two financial objectives are met. By and large, WAPDA has achieved these financial performance targets satisfactorily since FY85. 6.6 Past and Present Financial Performance. Table 6, Part III provides a comparison between appraisal estimates and actual performance for selected financial indicators during FY85-93, while Table 2 below provides a summary of  WAPDA's financial performance during FY89-94: Table 2: WAPDA'S FINANCIAL RESULTS, FY89-FY94 KEY FINANCIAL INDICATORS ] FY89 J FY90 FY91 FY92 FY93 J FY94 kWh Generated (Millions) 28898 31427 34345 380687 40791 42396 kWh Sold (Millions) 21982 24121 26584 29267 31272 32131 Average Revenue/kWh Sold (Rs) 0.944 1.057 1.165 1.268 1.262 1.408 Increase in Average Revenue (X) 13.9 12.0 10.2 8.8 0.0 11.6 Operating Revenues (Rs/kWh Sold) .98 1.09 1.19 1.29 1.28 1.42 Operating Expenses (Rs/kWh Sold) .59 .61 .70 .78 .80 .96 Net Operating Income (Rs/kWh Sold) .39 .48 .49 .51 .47 .46 Investment Program (Rs Million) 14815 16764 16030 24804 22310 25591 Internal Cash Generation CX) -3Yr. Ave. 41.2 40.7 47.3 50.0 44.5 27.8 Current Ratio 1.9 3.3 2.1 1.7 1.3 1.0 Rate of return on Ave. Net Fixed Assets Ct).. 18.7 20.8 19.0 19.2 18.6 20.8 Debt Service Coverage Ratio 1.8 1.8 1.5 1.6 1.4 0.9 Debt:Eguity Ratio 57:43 58:42 57:43 56:44 57:43 56:44 a/ un nistorical cost basis. 6.7 WAPDA's overall financial performance during the period was satisfactory. Average revenue has steadily increased from Rs 0.94 in FY89 to Rs 1.45 in FY94. WAPDA's self-financing performance has also been satisfactory with the ICG averaging about 43.8%, above the covenanted 40% level during the period. Operating revenues increased from Rs 0.98/kWh in FY89 to Rs 1.48/kWh in FY94 representing an average annual increase of 8.6%, while operating costs increased at an average annual rate of 7.8% during the same period (from Rs 0.59/kWh to Rs 0.86/kWh). The faster increase in operating revenues than the operating costs is due to a higher recovery of fuel costs through increases in the fuel adjustment surcharge rate beginning in FY90, and increased efficiency through gradual reduction of losses. Thus, net operating income as a percentage of operating revenues increased from 39% in FY89 to 42% in FY94. As a result, WAPDA earned a satisfactory rate of return on net fixed assets during the period (18% - 23%). WAPDA's assets are valued at historical book values, which is the normal practice of public corporations in Pakistan. With average inflation rates running at about 8 - 11% during the period, WAPDA has been achieving rates of return well above inflation. 6.8 Although WAPDA's current ratio was also satisfactory, exceeding 1.3 during the period, WAPDA's debt service coverage has been gradually declining from 1.8 times in FY89 to 1.4 during FY93 and projected in FY94. The decline is due to several factors, including increases in short-term borrowing to meet cash flow requirements resulting from a build-up of accounts receivable, inadequate sinking fund appropriations for WAPDA's first bond issue which was retired in FY93, and WAPDA's increased cost of debt. WAPDA's debt-equity ratio, however, has remained at satisfactory levels at about 55:45. In future, there is a need to monitor WAPDA's debt-servicing capacity in order to avoid expensive short-term borrowings, as well as its efforts towards receivables collection, as overall receivables have increased from 22% of total sales in FY92 to about 24% in FY93. Finally, WAPDA continues to pay hydroelectric profits to the provinces. 6.9 Domestic Borrowing. WAPDA's local debt has comprised mainly of bonds issued in the local financial markets. WAPDA raised Rs 16.9 billion in four successive bond issues between FY88-92. The first three issues were in the form of bearer certificates, which could be encashed before maturity. Therefore, WAPDA has set up a sinking fund to make provision for payments for such conversion of bonds and thus moderate the tariff increases required. Furthermore, beginning in FY93, the Federal Government no longer guaranteed the  - 9 - domestic borrowing of public corporations which could affect prospects for refinancing the bonds as they become due. Although the long-term objective of WAPDA is to borrow its local financing requirements on the basis of its own credit rating and trading profile, prudent financial management requires WAPDA to continue to maintain a sinking fund. 6.10 Accounts Receivable. The level of WAPDA's overall accounts receivable has been increasing over the past three years, from 22% of sales in FY92 to 24% in FY93. *As of June 30, 1993 total receivables amounted to Rs 10.7 billion of which Rs 2.3 billion (22%) have been outstanding for more than three years (see Table 3 below). Under the ongoing Rural Electrification Project (Ln. 3148/Cr. 2078-PAK, 1989), WAPDA agreed to carry out an aging analysis of its accounts receivable, and reflect on its balance sheet only receivables outstanding for less than three years and deemed collectible. However, while WAPDA is reviewing its accounts receivable of over three years to determine which ones are uncollectible, its balance sheet has yet to be adjusted. Table 3: WAPDA'S AGING OF RECEIVABLES AS OF FEBRUARY 1995 Up to 1-3 over 1 year years 3 years Total Rs Million 5,234 4,778 4,821 14,803 t of total 35.4 32.1 32.5 100 6.11 At the end of December 1993, overall receivables had increased to 29% of total sales, and excluding electricity duty, hydroelectric surcharge and income tax, which are items that WAPDA collects on behalf of the provincial and federal governments, the overall receivables amount to Rs 12.7 billion sales. The overall accounts receivable of WAPDA (excluding the duties) and surcharges represent about 3.5 months average sales. While receivables from private sector consumers, amounting to about Rs 8.6 billion, represent 2.7 months average sales, those from government departments and agencies, amounting to Rs 3.8 billion were equivalent of 5.1 months sales. Under the ongoing Bank loans, GOP agreed to ensure that all federal and provincial government departments and agencies would settle all bills for the supply of electricity within three months. WAPDA presented its case with respect to government receivables and arrears to the Cabinet in November 1993, which took several important decisions providing for: (a) recovery of arrears from provincial governments through budgetary releases; (b) deductions at source for all arrears for Salinity Control and Reclamation Projects, irrigation, tubewells of Punjab and Sindh; (c) withholding of payments due by WAPDA to the federal government, provincial departments and local bodies for adjustment against arrears; (d) disconnection of local bodies at the provincial level with arrears; (e) deduction at source by provincial governments of electricity arrears of local bodies from subsidies due to the local bodies, and (f) monthly reporting of status of arrears to the Economic Coordination Committee through the Ministry of Water and Power. These decisions are now being implemented by WAPDA. As a result, the government has agreed that about Rs 2.5 billion of receivables from Government departments and agencies would be adjusted against amounts payable by WAPDA to the government in FY94. And at the end of FY94, it is expected that the receivables from government will be within the covenanted level of three months' sales. Institutional Performance 6.12 Management. Professionals and Other Staff. WAPDA's managerial and professional staff is well qualified and competent. The professional staff have particular expertise in the technical areas, e.g., design of transmission (up to 220 kV) and distribution systems, operation and maintenance of generation plants, transmission lines and substations and other equipment. The institution, which in the past has been somewhat over-staffed at the lower levels (particularly in the distribution department which, it is estimated, accounts for over 70% of the total employees), has made some improvement over the years. This is manifested by the increase in the conventional efficiency ratio of number of consumers per employee (defined as total employees in the Power, Water and Finance Wings) which has increased from 42 in 1985 to 53 in 1993.  - 10 - 6.13 Financial and Accounting Aspects. Following the recommendations from a study by consultants in 1982, WAPDA adopted a decentralized accrual-based accounting system. It has about 400 accounting units distributed over the entire country. The department has difficulty in attracting trained accounting personnel in the distribution areas. This shortcoming, together with the manual system of maintaining accounts in those areas cause delays in the submission of information for management, and in the preparation of accounts. Under the Bank financed Rural Electrification Project,6 WAPDA availed the assistance of an Irish consulting firm to provide training to accounting staff, and to design and implement automation of accounting and financial management information system. 6.14 Internal Audit. As required under the Loan Agreement, WAPDA engaged a consortium of foreign consultants and seconded two of its staff (one a former WAPDA Chief Auditor and the other a Deputy Chief Auditor) to design a modern system of internal auditing (para 5.6). The consultants submitted a reorganization plan, the salient features of which were: (a) upgrading the position of Chief Auditor to that of General Manager; (b) establishing new Sections for System Control and Data Processing and for training coordination; (c) Special Audit; and (d) upgrading of Regional Audit Offices, and Policy Procedures. Following WAPDA management approval of the consultant's reorganization plan, the consultants carried out a review of audit procedures and developed manuals for the implementation and functioning of the internal audit. Most of the proposals and recommendations in the manuals have been approved by WAPDA management, and have been implemented. The Audit Division carries out a number of investigations on various relevant issues and problems, and its recommendations are generally implemented. 6.15 External Audit. The Auditor General of Pakistan (AGP) is responsible for auditing WAPDA's annual accounts. So far, the audited accounts have consistently taken a few months longer than the target (six months from year end) stipulated in the loan covenant because of delays in the flow of information and the lack of an effective internal audit system. The delays are expected to be gradually eliminated after the completion of the automation of the accounting system and with the reorganization which has taken place in the internal audit. The observations made by AGP on WAPDA's FY90 financial statements included deficiencies such as lack of reconciliation of material account balances, and lack of supporting detail to certify revenue accounts. 6.16 Training. WAPDA has a comprehensive training program, with 11 training establishments located in eight cities, to meet the needs of managerial, professional, technical and accounting staff. Between 1986 to 1992, the establishments have collectively provided training to approximately 76,000 staff, from officers in grades 17-20, supervisors in grades 11-16, and staff in grades 5-10. In addition, staff have received training overseas. 6.17 The PCR mission understood from managers and senior staff of the training department, that several of their establishments need to be better equipped, in terms of improved practical training facilities (tools, equipment and plant), libraries, laboratory equipment, and audio and visual equipment. It would also appear that staff training needs more attention and commitment from the management. In order to emphasize this aspect, it was felt by the training department managers that there was need to make completion of relevant training courses one of the requirements for promotion to a higher grade. 7. Sustainability and Economic Rate of Return 7.1 Sustainabilitv. The project formed a vital part of WAPDA's transmission system. It contributed to reduction in system losses, to an increase in the number of connections, and to improved efficiency in the transmission of a two-fold increase in power and energy from the generating plants to the load centers. GOP and WAPDA recognize the need for the utility to remain financially viable, and to make a reasonable contribution to its capital expenditure. These are manifested by GOP commitment to the cash generation covenant, and by the increases in WAPDA tariffs and fuel adjustment surcharges, which have been generally adequate and timely. The tariffs and fuel adjustment charges 6/ Ln. 3148/Cr. 2078-PAK, approved in 1989 with a closing date of December 1995.  - 11 - cbllectively are now moving towards long run marginal costs. Institutionally, WAPDA has also improved; it is generally a well-managed, technically competent utility. A significant activity where the performance has been less than satisfactory is the continuing high level of accounts receivable, contributed largely by the amounts owed to the utility by some of the Government departments and agencies, and where the utility has very little control. Overall, however, it is concluded that the project is fully sustainable. 7.2 Economic Rate of Return (ERR) . The SAR correctly determined that while the project was expected to play a vital role in ensuring optimal development and operation of WAPDA's system, its benefits could not be isolated from those of generation and distribution; therefore, the ERR on WAPDA's total program in generation, transmission and distribution for the period 1984-1990 was used as a proxy for the ERR for this project. The ex-post ERR, determined on the same lines, and using only WAPDA's average revenues from the sale of electricity as a proxy for the benefits of the project, is 7% (Table 6, Part III), about the same as the appraisal extimate (6.2%). 7.3 The above ERR does not take into account the following benefits, some of which are not readily quantifiable: improvement in the quality of life and the standard of living through the use of electricity; development of the local manufacturing, supply and contracting industry; and increase in industrial and commercial activities (para 5.11) and the employment opportunities which these, in turn, created. Alternatively, the ERR derived by using only WAPDA's existing tariff as a proxy for project benefits understates the economic value of electricity, which in Pakistan is deemed to be considerably higher. Given the shortage of electricity, many industrial and commercial consumers have installed their own standby generation facilities. The above ERR thus does not account for the consumers' surplus, based on the consumers' willingness to pay for electricity. 8. Bank Performance 8.1 Twelve supervision missions were undertaken with reasonable continuity in staff. Although frequency of the missions was adequate, mission staff had a large agenda which included supervision, preparation and appraisal of other projects. Discussions with WAPDA staff suggests that Bank supervision missions, pressed as they were with a number of activities related to other projects as well, did not have much time to visit project sites and to meet with WAPDA officials in the field, nor to provide the detailed assistance they might have needed. The supervision missions were effective, however, in resolving complex issues. For example, procurement issues emerged often and required substantial attention. In this regard, the Bank assisted WAPDA in the eventual preparation of standard bidding documents (SBD) which contributed to the reduction in the lag time between preparing bidding documents and procurement. In another effort to expedite WAPDA's procurement process, the Bank organized a Procurement Seminar in Lahore in February 1987, which was attended by power entities and others, including those from the energy sector. The Bank also intervened with GOP on behalf of WAPDA for reinstating the cut-backs in GOP funding for the project. 8.2 Finalizing the cofinancing arrangements which were incomplete at the time of loan signing, took an unduly long time. While Bank supervision missions pressed WAPDA to finalize the arrangements, the Bank was unable to play any role in inducing the prospective cofinanciers to expedite action. 8.3 WAPDA did not record in its final accounts expenditures on this project separately from the expenditures on the overall investment program for thermal generation. However, accounts were maintained separately for the project as part of the detailed accounts. For a utility the size of WAPDA (with about 400 accounting units) it is normal to expect that the final accounts would record expenditures on individual projects only in a consolidated manner. While this practice makes it difficult to monitor project expenditures on a periodic basis (in particular, for comparison with appraisal estimates), Bank missions had relatively free access to the detailed accounts, and were able to ensure that the loan proceeds and disbursements were adequately accounted for (para 5.7). 8.4 The studies required under the project certainly had merit (para 5.6) However, they did represent a burden to a Project Management Unit that was already fully extended by its ongoing investment program. The question,  - 12 - therefore, is whether the Borrower derives a reasonable benefit when saddled with several studies within the framework of one project, particularly when the Borrower's technical and institutional capability has already been extended by the large investment program. 8.5 The SAR description for this project did not specifically identify substations or the associated transmission lines by name and/or location which caused confusion in implementing the project (paras 5.3 and 5.4) . Therefore, the pro-ect needed to be revised during its implementation, and a Bank supervision mission was required in 1986 to define more clearly the number of substations and transmission lines which constituted the project. Large sub-transmission and distribution projects can rarely be designed with precision at the time of their appraisal; however, without a clear understanding of project components, it becomes very difficult to evaluate the project at its completion (paras 5.3 and 5.4). 8.6 At the time of project appraisal, it should have been reasonably clear that the third project was still some way to being completed (para 2.4) . As WAPDA staff (who were to be responsible for implementation of the fourth project) were also expected to be engaged with the residual work on the third project, there was a good probability that the start-up of the new project would take longer than indicated in the SAR implementation schedule. This fact contributed to the overall delay in project implementation. 8.7 The Bank identified most of the appropriate financial, institutional and physical implementation _issues, e.g., revision to the formula for the financial covenant, reduction in accounts receivable, reorganization -of the internal audit, improvement in the accounting and financial department, and reduction in system losses. Appropriate covenants covered these aspects. 8.8 Overall, despite the weaknesses discussed above, Bank performance during the preparation, appraisal and implementation phases of the project is considered satisfactory. 9. Borrower Performance 9.1 WAPDA's technical staff, having benefitted from the experience of earlier projects, are fully competent to handle the design and implementation of the substations and transmission lines up to 220 kV. Substantial delays in project implementation did take place, particularly in the start-up of project implementation, and in preparing bidding documents and bid evaluations, because the documents were prepared on the basis of the previous Bank formats, and had to be substantially modified in line with the Bank's new formats. During implementation also, delays were encountered in the evaluation of bids by WAPDA, in part due to the preoccupation of technical staff assigned to the PMU with routine administrative matters. 9.2 Problems which adversely affected implementation of the third project (Cr. 968-PAK) surfaced again under the subject project. These included (a) a shortage of GOP financing and (b) protracted negotiations for finalizing cofinancing agreements with the respective cofinanciers (para 2.4) . Bank supervision missions reported that WAPDA's project implementation progress was repeatedly falling behind the revised schedule, and highlighted the need for substantial increases in budgetary allocations in order to expedite the pace of implementation. 9.3 The Borrower's financial performance was satisfactory during the project period and met the key performance criteria stipulated in the Loan Agreement. In fact, a 40% contribution towards a large annual capital expenditure which resulted in nearly quadrupling the gross assets in operation in less than ten years is quite a good achievement. WAPDA's performance in bill collection, however, has fallen short of the target. Given the economic, social and political environment which prevailed during the project period, it is unlikely that WAPDA, on its own, could effect a substantial improvement on its accounts receivable through timely collection--particularly from certain government departments and agencies, including the defense establishment.  - 13 - 9.4 In most operational areas (such as energy generated and distributed, the number of customers, and the number of villages electrified), the utility has verformed creditably. The system losses have progressively decreased from 25* in 1985 to about 21% since 1991, and the manpower utilization ratio (an efficiency criterion) has improved, with the number of consumers per employee having increased from 42 in 1985 to 53 in 1993 (para 6.12). 9.5 The Ouarterly Progress Reports prepared by WAPDA were not used to best advantage, despite guidance provided by Bank missions. These reports are intended for use as a project management tool to identify critical issues and to recommend action required to be taken by management to address them. However, the quality of the progress reports did not improve despite Bank requests, and provided neither required information relevant to monitoring implementation progress, nor the basis for comparing actual progress to that originally planned (paras 5.4 and 5.5). 10. Performance of Consultants and Contractors 10.1 Overall performance by the Borrower is considered satisfactory. WAPDA' s design department acted as consultant/engineer responsible for the design and implementation of the project. At appraisal it was expected that most of the civil works would be carried out by contractors, whose performance would be monitored by the PMU. During implementation, however, contractors were employed for the civil works in the substations and the erection of transmission towers only; the installation of equipment in the substations and the stringing of the transmission lines, and the subsequent testing and commissioning were carried by WAPDA's own staff. This enhanced use of WAPDA's own staff is, in part, the result of the over-staffing of WAPDA, which generates pressures within the organization to enhance the use of in-house work crews. While WAPDA staff possess the capability to carry out these civil works, the pace of implementation could have been enhanced in case in-house crews had been supplemented by outside contractors. The performance of WAPDA's design department as well as those responsible for installation, testing and commissioning was satisfactorv. 10.2 Barring a few problems and some minor delays, overall the performance of the contractors and suppliers/manufacturers was also satisfactory. The splitting of the contracts in smaller sizes enhanced participation from local manufacturers and suppliers, thereby contributing to the development of local manufacturing industry (para 7.3). 11. Prolect Relationship 11.1 Bank staff maintained a good working relationship with GOP and WAPDA staff. Staff from the Resident Mission also made useful contributions to the relationship. 12. Project Documentation 12.1 The Loan Agreement as well as the SAR adequately reflected project objectives. The SAR, however, did not provide sufficient details (para 5.3) including lack of data on the envisaged load growth for even a few of the major substations. Furthermore, there were differences between the figures provided in the Loan Agreement and those in the SAR on the project completion date. Given the long interval between appraisal and presentation of the project to the Board (about 13 months), it would have been beneficial if the SAR were to have been updated. Because it was not, the implementation schedule was already out of date, and comparing actual accomplishments to original plans could only be estimated (paras 5.4 and 5.6). 12.2 Perhaps arising from the 1987 Bank reorganization and the subsequent relocation of the division, some of the important project documentation was not found in Bank files. Those QPRs which are available do not provide adequate information to compare the actual implementation progress of the project against the planned or revised expectations, nor do they provide explanation for the changes to project components or the sequence of their construction (para 5.5).  - 14 - PROJECT COMPLETION RSPORT PAKISTAN FOURTH WAPDA POWUR PROJECT (LOAN 2499-PAZ) PART IS - PROJECT REVEFROM H BOROWER' S PERSPECTIVEZ' The Dorrower's main comments are summarised below:- A) The Bank's portormance during evaluation and implementation of the project is discussed here. i) The bank approved the bidding documents in average a little over one month's time. In case of two contracts the bank took a year and in one case six(6) months in approval of the bidding document. ii) The evaluation reports of the tenders were ap- proved by the bank in an average time of 50 days. In few cases the approval took 3 months and in one case only it took 6 months. In view of above, the overall performance of the bank has been satisfacoty. iii) The annual allocations for the years 1987, 1988 and 1989 were inadequate which resulted in delayed procurement of the material, consequently the project completion was delayed. iv) The bank's missions have helped in quickly solving the procurement, disbursement and technical prob- lems in evaluation of the tenders. LESSONS LEARNED i) A mandatory SBD during the forthcoming 5th project will cut short the time spent on approval of the bidding document. ii) Bank should adopt the means to cut short the time spent on approval of the evaluation reports. iii) To avoid the delay, annual allocations for the years at the start of the project should be ade- quate. 3) ih, Wapd2a- performance during the evolution and implementa- tion of the project is discussed below:- i) Wapda's role as 'Engineer' has been satistactory as the evaluation of the tenders has been tried to be completed promptly. Part II-A is the Borrower's own evaluation and its content is not attributable to the Bank. A fax copy of a letter dated June 20, 1995 is in the project file.  - 15 - ii) There were delays in the complotion of ths project and the reasons of delay are discussed below: a) The Third Power Project which was originally envisaged to be completed by December, 1984 (subsequently revised to Decem- ber, 1985) could not be completed in time due to the reason that the local funds provided under ADP did not match with our full demand. b) In accordance with the original implementation schedule as envisaged in the World Bank's Appraisal Report dated:27-4- 84, the tender documents were to be issued from July, 1984. This was based on the expectations that the loan will be signed during April, 1984 but unfortunately the loan signing was delayed by one year with its effectiveness date as 17th July, 1985. This was due to the fact that certain conditions being levied by the World Bank with regards to Long Range Marginal Cost etc. were not acceptable to the Government of Pakistan. Consequently the schedule of the project was affected by one year. C) Tenders were floated in accordance with Wapda's prevailing terms and condit*ons which were in line with Wapda's previ- -ous world Bank tenders, floated under Third Power Project but World Bank Mission durinq its visit in early 1986 came up with Standard Bidding documents and advised Wapda that in future all the tender documents should be based on the format of Standard Bidding Documents and further informed that the controversial clause be changed on the pattern of World Bank Standard Bidding Documents. It was however, agreed that the tenders already floated will be processed as a special case. Subsequently lot of correspondance was exchanged and number of meetings were held with the World Bank to convince them about theoneed of retaining Wapda's existing clauses. Some of the clauses which became controversial are given below:- I. Government of Pakistan had issued an order that all shipments are to be effected through Pakistan National Shipping Corporation which was not agreed by the World Bank and it was insisted by them that in case of such restrictions, World Bank will not finance the freight element of the contract although the adjudication will still be carried out on the basis of CIF prices as per guide lines of World Bank. I1. Previously elements of taxes and duties on the compo- nents improted by the local manufacturers was reim- bursed by WAPDA. This practice was not agreed to by the World Bank and it was insisted by then that such like provisions should be deleted and the local suppliers should quote the prices inclusive of taxes and duties. d) The year-wise allocations of local currency has always been inadequate and lees than d*mand over the period of implemn- tation of the project. Especially for first three years i.e. 1986-87, 1987-88 & 1988-89 the allocations have been remark- ably les& i.e. ranging from 2S% to 43t less than the demand. Overall allocations for the year 1986-87 to 1992-93 have been on the average less by 22% than demanded.  - 16 - e) Trh delay in construction of grid stations has been due to .any reasons such as lengthy process of acquisition of land, non availability of suitable land, high land costs and Litigation etc. f) The delay in construction of transmission lines has been mainly due to right-of-way/litigation problems. g) The work has been done partly by Wapda staff/crew & partly by the contractors. Staff crew strength limitations has been one of the major causes of delay. The supervision of con- tractors work has been done by Wapda. LESSON LEAR.NED aa) Wapda should provide adequate local funds matching with the demand. bb) The delay in acquisition of land for grid stations, right-of-way of transmission lines and other litigation problems is un-predictable. ccY In View of Wapda's staff/crew limitations it has beon decided to give more work to contractors through I.C.B. This practice will help in avoiding the delay during 5th STG ProJect. dd) rt has been experienced that delivery period of equipment reckoned from Notification of Avard helps the supplier to start the spade work such as preparation of drawings etc. before formal contract. e) It has been experienced that payment to the supplier through direct disbursement is less time consuming as compared to time spent in establishment of Letter of Credit. ff) 4th STI Project has helpted development of local electrical industry. I$I) while the financial performance of Wapda has boon satisfactory and met the covenant under loan agreement. The accounts receivable remained in a much higher level than those required under the covenant. IV) On the whole the project has been operated satisfacto- rily as there is no major break down in the system. This has been proved during the Bank representativl's spot checking in the field. V) The relationship between the Bank and Wapda has been quite effective. V:.} The performance of co-financers has been generally satisfactory except that lot of time was lost in bring- ing down the high prices of bidders obtained in the components/items financed by U.K. Grant.  - 17 - PROJECT COMPL4TION RIPORT PAltISTAN FOURTH WAPDA POWER PROJECT (LOAN 2499-PAK) PART III - STATISTICAL INFOR MTION 1. Related Bank Loans and Credits Cr./Ln. No. I | Yr.of l and Title Purpose Apprv./Amt Status Cowments A. Precedina ODeration L . l Cr. 213-PAK WAPDA Upgrading capacity of 1970 Closed Completed with Power Project Transmission Network (12/31/78) delay of five (WAPDA I) USS 23.1 yrs. Ln. 1208-PAK Second Finance part of 500 kV Trans. 1976 Closed Successfully WAPDA Power Project System, connecting hydro in north (9/30/82) completed. with (WAPDA II) and thermal gen. in south USS 50.0 1 year delay. Cr. 968-PAK Third Finance 4-year tranche of program 1979 Closed Successfully WAPDA Power Project for dev. of secondary (12/31/85) completed but (WAPDA III) transmission USS 45.0 with 3 year delay. Ln. 2499-PAK Finance 4-year tranche of program 1985 Closed Subject of this Fourth WAPDA Power for development of secondary (12/31/92) PCR. Project (WAPDA IV) transmission. USS 100.0 Ln. 2556-PAK Fifth Assist WAPDA in reinforcement of 1985 Closed Co pleted but WAPDA Power Project EHV power transmission network (12/31/93) with a delay of (WAPDA V) reducing transmission losses USS 100.0 3 years: Guddu- Jamshoro section expected to be energized by 6/95. Ln. 2698-PAK Kot Addu Installation of 200 MW additional 1986 Closed PCR under Combined Cycle Power generating capacity at Kot Addu (6/30/93) preparation. Project (WAPDA VI) Power Station. USS 90.0 Ln. 2792-PAK Power Finance program for 1987 Closed Expected Plant Efficiency rehabilitation of 7 power plants (6/30/94) completion by Improvement Project and addition of combined cycle USS 70.0 June 1995. (WAPDA VII) generation at 2 power plants. . B. Followina ODerations s _ _ Ln. 3147-PAK Installation of 2 single circuit 1989 Ongoing Official Transmission 500 kV transmission lines between Closing date is Extension and Hub Power Complex and Jamshoro; US$162.0 12/95 but may Reinforcement Project installation of a third single be extended. (WAPDA VIII) circuit 500 kV line between Guddu and Multan and a second single- circuit 500 kV line between Multan and Lahore via Gatti: extension and reinforcement of existing 500 kV substations at Lahore. Gatti. Multan and Guddu.  - 18 - Yr. of Cr. /Ln. No. Purpose Apprv./Amt Status | Coauents and Title__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Ln. 3148/Cr. 2078-PAK Extending the supply of 1989 Ongoing Official Rural Electrification electricity to new villages and Closing Date is Project (WAPDA IX) settlements: connecting to the USS 160.0 12/95, but may grid settlements of electrified be extended. villages: expanding consumer connections: reinforcing and rehabilitating existing distribution network: extending electricity supply to tubewells: mapping of all villages and settlements: and installing load management schemes. II Ln. 3764-PAK Power Restructuring and privatization 1994 Ongoing Closing Date is Sector Development component to implement a 6/99. Project (WAPDA X) Strategic Plan including US$ 230.0 reorganization and corporatization of WAPDA: investment component to implement a timeslice (1995-1998) of WAPDA's investment program. I C. Related Loans _ l Ln. 2552-PAK Energy Finance GOP's program for policy 1985 Closed Successfully Sector Loan reform and inst. develo ment (12/31/88) completed. during Sixth Five Yr. Plan (FY83- USS 178.0 88). l Ln. 3107-PAK Second Finance GOP's program for policy 1989 & Closed ICR under Energy Sector Loan reform and inst. development 1991 (12/31/94) preparation. during Seventh Five Yr. Plan l ___________________ (FY89-93) USS 278.0 Ln. 3252-PAK Finance program for 1990 & Ongoing Being Corporate restr./privatization of SNGPL, 1991 implemented: Restructuring and and expansion of its transmission Closing Date is System Expansion and distribution network capacity USS 190.0 currently Project by about 50X. Under the project. 12/96. SNGPL constructed a pipeline between Multan and Kot-Addu for supplying natural gas to the ._____________________ .power station  - 19 - 2. Project TimeTable Activitv Date Plannea Actual Date Appraisal February 1984 Negotiations May 15 - 16. 1984 Board Approval June 8. 1984 March 7. 1985 Loan Signature April 17. 1985 Loan Effectiveness June 1985 July 12. 1985 Closing Date December 1990 Decemoer 31. 1992 Last Disbursement June 1991 May 28. 1993 3. Loan Disbursements Cumulative Estimated and Actual Disbursements (U.SS millIIion) Actual as Z FY Estimated Actual of estimated 1987 43 0.0 0 1988 82 7.4 9 1989 95 40.6 43 1990 100 72.2 72 1991 100 88.1 88 1992 100 93.5 94 1993 100 100.0 100  - 20 - Pro.1ect Implementation Transformers Installed Number Installed Total MVA No. Voltage CaDacity SAR Est. Actual SAR Est. Actual 1. 132/11KV 26 MVA 90 129 2340 3354 2. 132/11KV 15 MVA - 1 - 15 3. 132/11KV 13 MVA 126 129 1638 1677 4. 132/11KV 6.5 MVA - 1 - 6.5 5. 132/11KV 6.3 MVA 13 13 82 81.9 6. 132/6.6KV 16 MVA - 2 - 32 7. 66/11KV 13 MVA 39 41 507 533 8. 66/11KV 6.3 MVA 14 30 88 189 9. 66/11KV 7.5 MVA 7 4 53 30 10. 66/11KV 2.5 MVA - 4 - 10 11. 66/11KV 2 MVA - 4 8 12. 66/11KV 5 MVA 5 7 25 35 13. 66/11KV 15 MVA - 3 - 45 14. 220/132KV 160 MVA 14 12 2240 1920 15. 132/66KV 16 MVA - 1 _ 16 16. 132/66KV 37.5 MVA - 3 - 112.5 17. 132/66KV 40 MVA 7 9 280 360 18. 33/11KV 4 MVA 5 7 25 28 19. 33/11KV 2.5 MVA - 1 _ 2.5 20. 132/33KV 13 MVA - 1 13 21 66/33KV 6.3 MVA - 1 - 6.3 22. OTHERS 5 - 36 - 325 403 7314 8474.7  - 21 - B Grid Station Works Number of works No. Voltage Tvpe SAR Est. Actual 1. 220 New 7 2 2. 220 Conversion - 1 3. 220 Extension - 1 4. 220 Augmentation - 9 5. 132 New 94 70 6. 132 Conversion 9 29 7. 132 Extension 19 130 8. 132 Augmentation 26 66 9. 132 Remodelling - 3 10. 66 New 38 16 11. 66 Extension 20 41 12. 66 Augmentation 12 44 13. 66 Remodelling - 2 14. 33 New - 3 15. 33 Extension - 3 16. 33 Augmentation - 2 TOTAL 225 422 Note: The 422 works/activities were carried out on 331 grid stations. C. Transmission Lines Length in Kms No. Voltage SAR Est. Actual 1. 220 KV Single Circuit 120 - 2. 220 KV Double Circuit 160 473.37 Re-routing - 1.4 3. 132 KV Single Circuit 2073 925.389 Re-routing - 0.25 4. 132 KV Double Circuit 385 1197.066 Re-conductoring - 63.66 Re-routing - 4.6 Underground - 5.31 Second Circuits - 334 Other - 116.13 5. 66KV Single Circuit 1004 488.49 Re-routing - 4.4 6. 66KV Double Circuit 73 2.891 7. 33KV Single Circuit - 58.7 Total 3815 3675.656  - 22 - Proiect Costs and Financino A. Prec rot Appraisal Estimate Actual A. Land E Right of way 16.0 5.72 B. Equipment Substations 273.2 1.44.35 (77.7) Lines 107.4 85.79 (22.3) C. Civil Works Substations 57.9 27.63 Lines 4.4 included in erection charges D. Transport, Erection etc. 104.9 72.93 E. Engg. & Administrative } plus }28.2 105.47 F. Technical Assistance } G. Interest during construction 22.0 included in Engg. & Admn. charges. Total: 614.00 441.89 Note: Figures in parenthesis represent the amounts to be financed by the Bank. RB. Pro 1ect f inanci ng (U5S mi iIion)